Ten Year-End Tax Tips to Save You Money

Ten Year-End Tax Tips to Save You Money

Here are 10 tips which can help you can save money on your 1997 income tax returns from Richard Davis, assistant professor of accounting at Susquehanna University in Selinsgrove, PA.

Davis knows a great deal on saving money on taxes. Prior to accepting his position at Susquehanna, Davis was employed by the Internal Revenue Service as the assistant branch chief, Office of Assistant Chief Counsel in the National Office in Washington, D.C., for two different terms (1976-82, 1984-1992). In his IRS position, Davis handled the most difficult and complex cases and legal problems confronting the branch. He also volunteers with the IRS's Voluntary Income Tax Assistance (VITA) program.

According to Davis, the general rule to follow for year-end tax savings is to "defer income and accelerate your expenses." He warns though that "if you wait until the last month of the year, you've really lost some of the best tax planning opportunities. The most effective tax planning should be done on an ongoing basis, providing you with your best savings options."

Nonetheless, there are still numerous ways you can save money at the end of the year:

1. Review your retirement plan and "max out" your plan. Contribute more to such items as IRAs, etc. Small business owners should also review their retirement contributions.

2. Sell off your depreciated stocks. You can offset up to $3,000 in capital losses in ordinary income.

3. In the season of giving, Davis also says its a great time to make charitable contributions, especially appreciated property. If you contribute appreciated property -- such as stock which has gone up in value -- you receive a deduction for a fair market value. Additionally, the capital gain from that appreciated property never gets taxed.

4. Employers can get a 100 percent deduction on holiday parties they throw for their employees, but don't invite customers and clients. Christmas parties which also include customers and clients are only 50 percent deductible.

5. Employees should defer their Christmas bonuses until next year. Once again, Davis says you're trying to defer income and accelerate your expenses.

6. Pay your state and/or property taxes early. You can estimate your state taxes before January 1 and could see significant savings if you do this.

7. Itemize your significant medical expenses to see if you qualify for a special medical deduction, which you receive if your medical expenses equal seven-and-a-half percent of your adjusted gross income. Davis says you should try and bunch your expenses into a year where you could qualify. In other words, pre-pay some expenses if you see them coming in the next year, or defer payment on some expenses if you believe you could qualify in the following year.

8. Watch out for the marriage penalty. Davis advises against getting married at the end of the year if the annual incomes of both the husband and wife are about equal. You could end up paying a considerably higher tax if you get married before January and this condition exists. At the same time, if one member of the couple is the significant breadwinner and the other one takes care of the home and doesn't have a substantial income, then a marriage before January could mean a substantial tax benefit.

9. Business owners should elect to declare new business property as an expense, particularly depreciable property. Davis says the best example of this is buying a computer or new computer system. He recommends making that purchase before December 31 to receive the deduction this year, as opposed to next.

10. If you are managing a large estate, Davis advises giving gifts to family members. You can give up to $10,000 per person, per year with no gift tax.

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Editors & Reporters: You can reach Davis 717-372-4460 (office) or at 717-374-1802 (home). Please contact Steve Infanti of Dick Jones Communications at 814-867-1963 if you need assistance. DJC helps Susquehanna University with its public affairs work.