Year-end Personal Tax Planning

As we enter the gift-giving season, here's a present you can give yourself: a lower tax bill. Following are some tax-cutting ideas.

• Check your tax payments. To begin, estimate your 2001 taxes. Then fine-tune your withholding and estimated tax payments. Your goal is to pay the IRS enough to avoid a penalty, without making Uncle Sam an interest-free loan.

• If it looks like you're headed for an overpayment, consider skipping your fourth quarter estimate, or ask your employer to withhold less from your remaining paychecks. If an underpayment seems likely, increase your withholding, or consider making a catch-up estimate.

• Review your income and deductions. Tax rates are scheduled to drop again next year. So consider pulling deductions into 2001 and postponing income until 2002. But consider the opposite strategy if you expect to be in a higher tax bracket next year, or if you're subject to the alternative minimum tax this year.

• Take full advantage of employee benefits. Flexible spending accounts and 401(k) plans at work are excellent tax shelters. Consider participating in these or other tax-advantaged benefits your employer offers.

• Review your portfolio. If you own stocks, bonds, or mutual funds that have declined in value, consider selling them for a loss and replacing them with similar securities. This is called a "swap." But be careful not to swap for an "identical" security within 30 days, or your loss will be disallowed under the "wash sale" rules.

• A limited amount of net capital losses may be used to offset other income, including salary, interest, and dividend income. If you want to take even larger losses, consider selling some of your profitable holdings. You may use these gains to offset your investment losses. And since gains aren't subject to the wash-sale rules, you may immediately repurchase your winning positions.

Contact our office to discuss these and other year-end planning strategies before it's too late to do anything to cut your 2001 taxes.

Related Information:
        Consulting Services
        Selecting a Tax Advisor
        Services Available
        Tax Cutting Ideas - December, 2000
        Tax Planning Basics
        Tax Services

© Copyright 2002 Raymond S. Kulzick. All rights reserved. 020105.

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