It’s not too late to plan for your 1999 individual income taxes. Between now and December 31 you can take steps to change your 1999 tax picture significantly. Some ideas:
- If you are debating whether to donate stock or cash to a qualified charity, you may want to keep the cash and give up the stock. A benefit of donating appreciated securities over cash is that if you held the stock for more than one year you can deduct the full value of the stock. This avoids the capital gains tax imposed if you sold the stock and it provides for a full charitable deduction.
- A simple way to increase your mortgage interest deduction is to pay your January 2000 mortgage payment in December 1999. This allows for a current benefit rather than postponing it until 2001 (when your 2000 return is due).
- If you purchased your residence in 1999, a review of your settlement sheet may reveal some additional tax deductions. Frequently, real estate taxes you paid at closing will not appear on your year- end statement from your mortgage company, Form 1098, but they are still legitimate deductions. These payments are itemized on the settlement sheet and are prorated from the closing date. Also watch for mortgage interest paid from the first day of the month to the closing date.
- Be cautious of lumping IRA minimum distributions in one year. If you turned 70 in 1999, you have until April 1 of 2000 to take your first required distribution. The Internal Revenue Service allows you to postpone income into the subsequent year. However, postponing this income may be detrimental. If you postpone your first distribution you will be required to take two distributions in 2000. This may push you into a higher tax bracket in 2000. Planning before December 31 can allow you to time the receipt of income to produce the most favorable tax result.
- Do a pro-forma tax return to determine whether you have withheld enough tax. Generally, the under-withholding penalty can be avoided provided at least 90 percent of the current year’s tax or 100 percent of last year’s tax has been paid.
- Don’t forget to look at your estate/gift tax picture before year end. You can take advantage of the $10,000 per donee per year gift tax exclusion ($20,000 if spouses join in the gift) to reduce the size of your taxable estate. Gifts of appreciating property may offer even greater savings.
- Pay deductible expenses by December 31 and defer receipt of income until after the New Year to reduce this year’s tax. If you mail your check by December 31, you can deduct the expense payment in 1999.
If your 1999 tax projection is not as favorable as you had anticipated, it is not too late to change it. With adequate planning and often with minor effort your tax liability can be reduced significantly.
– Leslie Heffernen