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A Little Tax Planning Now Can Pay Off in April

Take action before year-end to lower your tax bill

(ARA) - This time of year it's not the taxman we're waiting for, but rather a rotund guy dressed in red and bearing gifts. Before you get swept up in holiday festivities, you might want to turn your attention to a little end-of-year tax planning that can reduce your taxable income. Think of it as a holiday gift to yourself that you will open next April 15.

"We know income taxes aren't a priority this time of year," says Suzanne Hunstad, a spokesperson for IHateFinancialPlanning.com. In fact, a poll of the Web site's users revealed that 51 percent of respondents never think about taxes until April. The site tailors its financial tools and topics for procrastinators and others who resist making progress with their personal finances.

"If we can get the word to taxpayers that they may be able to reduce the amount they will owe Uncle Sam next spring by acting now, it may motivate them to do a few smart things before the year ends," Hunstad adds.

What You Can Do At Work

One potential tax shelter is a retirement savings plan. Pre-tax dollars are deposited in a 401(k) or 403(b) account at work. That reduces your current taxable income while helping you build a nest egg for retirement. Individual Retirement Accounts (IRAs) can accomplish the same goal, but the annual contribution limits are much less.

Many employers offer flexible spending accounts which allow you to have money deducted from your paycheck for dependent care costs and medical expenses not covered by insurance (i.e., chiropractic care, prescription co-pays, crutches). It's a great way to reduce your taxable income, but plan carefully, because unused dollars must be forfeited at the end of each year. If your employee benefits enrollment has already occurred, you'll have to wait until next year to take advantage of this one.

For teachers, saving school supply receipts will come in handy at income tax time. Educators can deduct up to $250 of their inevitable classroom purchases on their Form 1040. No itemizing required. "It's not a huge amount, but every little bit helps, especially on a teacher's salary," Hunstad says.

Some Simple Deductive Reasoning

The government designates a standard deduction, adjusted each year for inflation, designed for taxpayers who don't care to itemize their deductible expenses or may not have enough to qualify otherwise. The standard deduction for individuals for the tax year is $4,700, and for married, filing jointly it's $7,850. Check out these itemized deductions to see if you exceed the standard amount.

State income taxes

Personal property taxes

Home mortgage interest

Business expenses

Qualified medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI).

What's more, you may be eligible for deductions you never knew existed, but be aware that most of these only count if, when added together, they equal 2 percent or more of your AGI. They include:

Interest on college loans

License tags for your car

Out-of-pocket expenses relating to charitable activities, including the standard mileage deduction

Appreciation on property donated to charity

Accounting fees for tax preparation

Losses from casualty or theft

Commissions and closing costs on the sale of property

Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment outplacement agencies

Education expenses to the extent required by law or your employer, or needed to maintain or improve your skills

Dues for labor unions

Protective clothing required at work

Subscriptions to professional journals

Worthless stock or securities (this may be a common deduction)

Pay Now, Save Later

It may be worth your while to try to pay some anticipated expenses for next year yet this year to increase your deductions:

Make your January mortgage payment in December, so the payment will be included on this year's 1098

Give a year-end gift to your favorite charity

Prepay state and local taxes so you can deduct next year's taxes on this year's return

Buy Low, Sell High

If you have investments, it's wise to examine their tax status before year-end. Depending on the type of earnings your investments generate, if any, they may be subject to income taxes. Interest, dividends and short-term capital gains (profits on assets held for less than a year) are currently taxed as ordinary income. Long-term capital gains are currently taxed at a somewhat lower rate, depending on the length of ownership and your tax bracket. If you're in a situation where you have realized capital gains, you may want to offset your tax bill by selling enough of your losing stocks to eliminate the tax you owe. A financial professional can help you with this decision.

Apply a few of these strategies and shape up your income tax situation long before your tax forms arrive early next year. IHateFinancialPlanning.com doesn't offer tax or legal advice, so you may want to seek the advice of a tax professional or certified public accountant to see which of these ideas may work in your particular situation. For more information go to www.IHateFinancialPlanning.com.

Courtesy of ARA Content



EDITOR'S NOTE: IHateFinancialPlanning.com is a Web site that has helped nearly 3 million people who have an aversion to planning make sense of their personal finances through fun, friendly, easy-to-understand content and financial planning tools. The Web site is affiliated with ING's U.S. operations.

ING's U.S. operations (www.ing-usa.com) offer a comprehensive array of products and services, including life insurance; fixed and variable annuities; retirement plans; employee benefits; and mutual funds, through a variety of distribution channels, including a large network of independent financial professionals in the industry. ING U.S. Financial Services is part of Amsterdam-based ING Groep N.V., one of the largest integrated financial services organizations in the world.

Securities available through PrimeVest Financial Services, Inc., Member NASD/SIPC and a member of ING. Carmichael Lynch Spong is not affiliated with PrimeVest Financial Services, INC. and is not a member of ING.

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