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Dec. 15, 2001 - The
holiday season is near and you may have turkey on the brain. But now is also
time to starting thinking about your taxes.
“You only
have this month left to take a look at your situation and make some decisions as
far as your tax planning goes,” says Millian Toms. “There still may be time to
make some adjustments that you will benefit from on your 2001 return.”
Get organized
The first step is a biggy – you need to gather together everything you would
need to do your tax return. “That can be a big job,” Millian says, “but then
you’ll also be ahead when tax times comes around.”
Some of the documents
you’ll need to get started include:
- Pay
stubs
-
Interest and Dividend Income statements
-
Medical expenses
-
Contributions to charities (cash and goods)
- House
payments (this will remind you to get you mortgage interest statement)
-
License tabs (these are a personal deduction too because the tax is based on
the value of the property, which is always deductible).
- Safety
deposit box fees
- Fees
for last year’s tax preparation
-
Tuition
-
Employee business expenses
- Gains
and losses on stock sales
-
Business income to date and/or projected to year end
Do the math
Once you’ve got all
your documentation together, you need to estimate what your tax liability is
going to be with the new tax law as it is right now. And don’t forget to project
your income and expenses out through the end of the year.
This
should give you a good idea of whether you’ll owe any additional taxes or not.
“If you
think you are going to owe taxes, and want to reduce those taxes, you can shift
your income from one year to the next,” Millian says.
How do
you do that? Well, Millian has a few suggestions.
Reduce
tax liability
If you think you are going to be in a higher tax bracket, you can prepay
some of your expenses this year to increase your deductions. Expenses that would
qualify as a deduction that would reduce your tax liability include dental,
medical and even charitable contributions.
“Let’s
say you make an annual contribution of $500 to you favorite charity,” Millian
says. “You can double up and pay next year’s contribution this year.”
Next, try
to defer income where you can. This is hard to do if you work for someone else,
but if you’re self-employed, you can bill your clients after the end of the
year.
The
new tax law
With all the money the government is spending on in the wake of the World
Trade Center, there is talk about whether Congress will repeal the new tax
relief law. That is a possibility, Millian says, but no one knows for sure.
“If you are concerned that
they will take away the tax cuts, you might want to take all your tax breaks
now,” she says.
Yes, this
is a change in your whole tax strategy, but you need to think about these things
to make a decision that you’re comfortable with. If you’re unsure, consult with
a tax preparer, she suggests.
“In the
end, any decisions you make have to be based on good financial planning,”
Millian says.
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