Some End of Year Tax Tips

A few moves now may save you big on April 15. Here are some tips.
1. Contribute the Maximum to Retirement Accounts – This can reduce your Adjusted Goss Income (AGI).
401(k) -- $14,000 for 2005 and $15,000 for 2006.
IRA -- You have until April 15, 2006 to make IRA contributions for 2005.
If you did not participate in a company-sponsored retirement plan or if your income falls below $50,000 in 2005 for single filers and $70,000 for married couples, your $4,000 contribution is fully deductible
If you did participate in your company's plan, but your spouse isn't a participant in a company-sponsored plan, and your combined adjusted gross income is $150,000 or below, your spouse can contribute a fully deductible $4,000 to an IRA.
2. Defer (or accelerate) Income to the Year That Will Minimize the Tax Owed.
If next year is likely to put you in a lower tax bracket, then defer income to next year if possible. Otherwise, accelerate income to this year. Defer when in doubt.
If you have a large amount of cash to invest and want to shift some of your income to 2005, consider investing in a short-term CD or a Treasury bill that matures in 2006.
3. Sell Loser Stocks to Offset Gains
You can apply a maximum of $3,000 in net capital losses against ordinary income
Beware of "wash sale" rule. You can't just sell a stock and then buy it right back. You must wait 31 days to buy back the same stock or fund. However, you can buy a similar stock in the same industry.
4. Take Last Minute Deductions
If your itemized deductions are close to your standard, then paying some of next year's expenses in December might give you enough expenses to put you over the line. For example, you can make your annual charitable donation now instead of early next year.
If you itemize deductions on your return and you have bought some expensive items during the year (e.g. house, boat, car), you can choose to deduct the sum of your sales tax instead of your state income tax for 2005.
You can deduct medical expenses only if they exceed 7.5% of your AGI. If you think you're close to the 7.5% requirement but not quite there, you may consider having an elective or necessary procedure before year-end.
5. Consider Possible Tax Advantages From Gifting Opportunities to Children
If you have appreciated assets (e.g., stock) and a child in a lower tax bracket than you, consider the tax advantages of a gift so the tax will be paid at the child’s lower bracket.
6. Use Tax Software to Figure out Tax
If your tax situation is complicated, get help from tax software.
TaxAct (http://www.taxact.com/) offers its standard version for free.
TurboTax (http://www.turbotax.com/) has an online tax estimator calculator.