Make time for tax planning now

By Staff
July 11, 2004
Take the time to do some tax planning now instead of waiting until the end of the year when your choices may be more limited. Consider these tax-saving ideas if you want to keep more of what you make this year.
Cut your adjusted gross income. Your adjusted gross income (AGI) determines your eligibility for over-20 tax benefits, such as tax credits, itemized deductions and exemptions. These benefits begin to phase out once your AGI reaches certain levels. If you suspect your 2004 AGI will be close to a particular phase-out limit, here are some steps you might take to reduce it.
Contribute the maximum allowed to your retirement plan at work.
If you are selfemployed, contribute to a SIMPLE, SEP, or Keogh plan.
Make a deductible IRA contribution for your nonworking spouse.
Consider selling some losers in your investment portfolio to offset capital gains. Up to $3,000 of capital losses in excess of gains can be used to offset salary and other income.
Swap real estate in a tax-deferred exchange instead of selling it.
Give income-producing assets (stocks, mutual funds, etc.) to a family member in a lower tax bracket than your own.
Choose wise investments. In some cases, tax-exempt interest could trigger tax on your social security benefits, or it could trigger the alternative minimum tax. If you're caught in this trap, consider switching to other investments, such as growth stocks that don't pay dividends.
Keep good records. Tax law requires you to keep records that support income and deductions claimed on your income tax return. A good record keeping system also helps you make tax-cutting choices throughout the year.
Stay informed. Congress is considering various tax proposals this year.
David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.