The 2008 Tax season is upon us. In early January we shall be mailing out our tax organizers. With the remaining months in the year, now is a good time to check up on your estimates and consider what stategies should be implemented to minimize your 2007 tax bill. 

Please call us if you would like to have a tax projection prepared. If you have had significant changes in your income or expense, now is also the time to review your estimated tax requirements.

Year-End Tax Planning

Accelerating Income

1. For clients over 59½ who are covered by an employer’s retirement plan or an IRA, consider taking additional distributions in 2007.

2. Clients planning asset sales in the near future to raise cash should consider selling their most appreciated assets before the end of 2007.

3. For clients involved in a lawsuit or any kind of litigation seeking damages, consider settling by the end of the year, if possible.

4. For clients that have sold assets on the installment basis, consider accelerating payments from the buyer, if possible, or negotiating with a third party to purchase the installment obligation. Another way to accelerate income from an installment note is to use the note as collateral on a loan.

5. Self-employed individuals should try to collect as many accounts receivable as possible before the end of the year. Alternatively, where services will be provided next year, try to get customers to prepay for the goods or services. Consider offering incentives for early payment.

6. If it makes good business sense, have clients with incentive stock options exercise those options before the end of 2007.

7. Where a client receives restricted stock from an employer, consider making a Code Sec. 83(b) election to recognize the income before the interest in the stock vests. Remember that the election must be made within 30 days of receiving the restricted stock to be effective.

Deferring Income

1. If possible, employees should arrange for their employers to defer any bonus payments until early 2007.

2. Employees should max out their 401(k) contributions.

3. Self-employed individuals should delay year-end billings so payments do not come until the following year.

4. If a client is in financial difficulty and working with creditors on discharging obligations, try to postpone finalizing any debt cancellation that will result in cancellation-of-debt income until next year.

Accelerating Deductions

1. Consider accelerating any large purchases into 2007 to take advantage of the state sales tax deduction which ends in 2007. For a taxpayer in a state that has an income tax, this strategy only works where the total sales tax will be more than the taxpayer’s state income tax.

2. If the taxpayer is considering donating a vehicle to a charity, find a charity that will use the car and not sell it so that the taxpayer can take a fair market value deduction and not be limited to the gross proceeds from the sale of the vehicle. 

3.  Prepay deductible expenses in 2007 instead of deferring payment until 2008. Consider using credit cards to make purchases or contributions so that the cash outlay may be postponed until 2007.

5. Prepay state and local taxes that are anticipated to be due for the 2007 tax year. Note that the prepayment must be reasonable. Also, state income taxes are not deductible for the alternative minimum tax, so if you are subject to the AMT than this is not recommended.

6. Pay any contested deductible taxes in 2007.

7. Where possible, establish a Keogh retirement plan before the end of the year. While post-year-end contributions may be deductible in 2007, the plan must be in place before year’s end for the client to get the deduction. 

8. Consider an IRA contribution. The contribution is deductible at any time up to the tax return deadline.

9. Because medical and dental expenses are deductible only to the extent they exceed 7.5 percent of the taxpayer’s adjusted gross income, where possible, a client should bunch these expenses into one year to get a deduction. Thus, clients should schedule any elective dental or medical work this year and pay for such services before the end of 2007.

10. Consider selling investment assets on which losses have accumulated. Up to $3,000 of capital loss is available in the current year.

Deferring Deductions

1. If the client has receivables outstanding and there is a question as to whether they will ever be collectible, consider leaving the door open as to whether collection is possible by not exhausting all remedies to collect on the receivable. Thus, a bad debt deduction will be deferred into a future period.

2. Postpone paying deductible business expenses until 2007.

3. Postpone selling investments that will generate capital losses.