April 15 may be the most memorable tax date of the year.
However, if you want to save on next year
’s taxes, the California Society of CPAs (www.calcpa.org)
recommends that you start planning in December. Here are 10 tasks
to consider before the year’s end to minimize your 2003 tax bill.
And remember, the last day of this year is on Wednesday.
April 15 may be the most memorable tax date of the year. However, if you want to save on next year’s taxes, the California Society of CPAs (www.calcpa.org) recommends that you start planning in December. Here are 10 tasks to consider before the year’s end to minimize your 2003 tax bill. And remember, the last day of this year is on Wednesday.
• Balance gains and losses Tally up your investment winners and losers for 2003. Then, determine whether it makes sense to take tax losses by selling your unattractive stocks. If your losses exceed your gains, you can deduct up to $3,000 in capital losses ($1,500 for married couples filing separately) against your other income, reducing the amount on which you must pay taxes. Losses in excess of $3,000 can be rolled over into subsequent years.
• Maximize miscellaneous itemized deductions Items such as tax preparation fees, job-hunting expenses, certain unreimbursed employee business expenses, and some investment costs are deductible as miscellaneous itemized expenses. To qualify, they must exceed 2 percent of your adjusted gross income (AGI). For example, if your AGI is $50,000 and you’ve already incurred the minimum of $1,000 in miscellaneous deductions, you’ve met the 2 percent floor and should check into accelerating additional miscellaneous deductions into 2003.
• Defer income If you’re self-employed or have sideline income, consider deferring income into 2004 by delaying billing. Employees don’t have a choice of when they get paid, but if you’re in line for a year-end bonus, you might ask your employer to hold off until January.
• Save on mortgage payments If you itemize deductions, consider paying your January 2004 mortgage payment by December 31, 2003 to deduct the interest this year. Be sure your check arrives at the bank or other financial institution by year-end to have the payment reflected on Form 1098.
• Contribute the maximum to your retirement accounts If you haven’t contributed the maximum to your tax-deferred 401(k) retirement savings account, some employers allow you to catch up for the current year. For 2003, you can contribute a maximum of $12,000 ($14,000 if you’re over 50 years of age by the end of the tax year). Since your contributions are made with pre-tax dollars, your current taxable income is lowered.
You may be able to open a traditional IRA and deduct the full $3,000 ($3,500 if you are age 50 or older by the end of the tax year) maximum IRA contribution if you are not age 70 or older during the tax year and if you have earned income of at least that amount. If you are married and file jointly, you may each contribute up to $3,000 ($3,500 if age 50 or older) to an IRA as long as your combined earned income covers the contributions. If you actively participate in an employer-sponsored plan for 2003, you still may be able to deduct the full $3,000 ($3,500 if age 50 or older) if you are a single filer and your modified adjusted gross income (AGI) is $40,000 or less ($60,000 or less for couples filing jointly).
• Update flexible spending accounts Many companies offer flexible spending accounts that enable you to set aside pretax dollars for qualified healthcare costs. If you have a healthcare flexible spending account, be aware that you forfeit any money left unspent in your account at the end of the year. As long as you expend money on eligible healthcare items by December 31, you can be reimbursed from your account after year-end.
• Organize your tax records Organizing your tax records and paperwork early gives you time to request copies of any missing documents and makes it less likely that you will miss valuable deductions when you file your 2003 tax return. If you are unsure of the documents you need to complete and support your tax return, consult a CPA.
Bill Spaniel is the Public Relations Manager for the California Society of CPAs
