by Catherine A. Walsh, CPA, MBT

Schedule your Year End Tax & Financial Review, which includes: Portfolio review 401k recommendations Investment recommendations Retirement goals Year End Tax Recommendations Plus, get a FREE Year End Tax Planning Guidebook (for a limited time only).

It’s that time of year again, and if you’re like most people, you haven’t given a second thought to your tax situation since April 15th. Thankfully, there are many steps you can still take before year-end to reduce the tax bite come next April 15th.

Withholding and Estimated Taxes

• Did you have a large balance refund or balance due on April 15th? If you are likely to be in the same spot next April, you may want to adjust your tax withholding (if you are employed) or your quarterly estimated tax payments.
• If you are not subject to the Alternate Minimum Tax, paying your state income taxes before year end will reduce your federal income tax liability.
• Making the appropriate withholding and or estimated tax payments throughout the year will help you to avoid underpayment penalties.

Employment

• Do you receive a bonus every year? It may be advantageous to arrange with your employer to receive the bonus next year.
• Did you maximize contributions to your employer-sponsored retirement plan? If not, consider doing so.
• Self-employed individuals should consider setting up retirement plans.

Business

• Business owners should consider making expenditures before year end that qualify for the $125,000 business property expensing option.
• If you have a cash basis business, consider deferring income until January if you can afford to do so.
• If you have a cash-basis business, consider paying January bills in December. Making credit card expenditures before year-end will accelerate these deductions further.
• If you have a cash-basis business, consider purchasing office supplies before year-end if you will need them in the near future anyway. This will maximize your deductions for this year.

Investments

• Consider selling investment losers before year-end to offset any gains that you realized earlier in the year.
• When selling investment winners pay close attention to the holding period. If it is less than one year, consider waiting to sell until you can make the greater-than- one year period in order to qualify for the lower long term capital gain tax rate.
• When selling stocks, the general rule is first-in-first-out. However, you may notify your broker in writing at the time of the sale which specific shares you would like to sell and your gain or loss will be based on those specific shares. This strategy helps you control the amount of your gain or loss.
• Consider gifting appreciated stock to your children in order to have them sell the shares at a lower capital gains tax rate, remember however, that the kiddie tax rules have changed twice since 2005. In 2007, the law effects children younger than 18. Starting in 2008, the kiddie tax will be expanded to include dependents younger than 19 and dependent full-time students younger than 24. So if your children are ages 18 through 23, acting before year end may be to your benefit.

Speak with your tax professional to help you to determine which of these strategies would work for your specific situation.