Seven Year-End Tax Planning Ideas There’s still time to do something about decreasing this year’s tax bill! Consider these tax-saving ideas before 2007 comes to a close: 1. Maximize your deductions. If you were able to itemize deductions for 2006, review last year’s Schedule A with an eye to maximizing those deductions before the end of 2007. Seek out new deductions, if possible. Look into prepaying some deductible expenses for 2008 in late 2007. You might want to make both your 2007 and 2008 charitable contributions before the end of the year. You also may be able to prepay 2008 real estate or state income taxes in 2007. 2. Postpone some income. If you plan to sell property before year’s end, ask your advisers about using an installment sale that defers some taxable income into the future. The capital gains tax rate is scheduled to drop to zero percent in 2008, 2009 and 2010 for taxpayers in the 15% and 10% tax brackets, which could make it more appealing to sell appreciated securities after 2007. Married couples filing jointly will be in the 15% bracket for 2008 until taxable income reaches $65,100; for singles the 15% bracket will end at $32,550. 3. Give stock to kids in college. If you give highly appreciated stock to a child or grandchild in college, the child can sell the stock before the end of 2007 and generally owe capital gains tax at only a 5% rate (vs. 15% for a parent). Starting in 2008, however, the “kiddie” tax will apply to most full-time college students under age 24 and all children under age 19 – causing investment income over $1,800 to be taxed at the parents’ tax rates. 4. Review your portfolio. Consider selling securities that have gone down in value and use your capital losses to offset any capital gains from the sale of profitable investments. Excess losses can be deducted against ordinary income (up to $3,000), and deducted in future years. Wait at least 30 days before buying back loss stock or your deduction will be postponed. 5. Fully fund your retirement plan. Contribute the maximum that’s deductible – certainly any amount that is matched by your employer. The 2007 limit on 401(k) plans is $15,500 plus another $5,000 for employees over age 50. The IRA maximum is $4,000 and workers age 50 and above may make additional “catch- up” contributions of $1,000. 6. Watch AMT. If it appears you will be subject to alternative minimum tax you may want to defer some deductible expenses until next year and accelerate income into 2007, when it will be taxed at rates of 26% or 28%. Consult with your advisers. 7. Maximize deductions for charitable gifts. See the following article, and remember that gifts can also be planned that provide lifetime income, to you or others, that may be higher than what you are currently receiving from investments or savings. What’s more, you will be entitled to a significant charitable deduction – and the satisfaction of providing for future generations. Best Assets for Charitable Giving at Year’s End It’s difficult to increase itemized deductions, with one exception: the deduction available for qualified charitable contributions. Here are some ideas for augmenting your charitable deductions and increasing your support – by carefully choosing the assets you contribute. 1. Stocks, bonds or mutual funds that have increased in value significantly – and that you have owned more than one year. You can deduct the present market value of these items, not just your original cost, and avoid capital gains taxes 100%. 2. IRA funds, if you are over age 70½. Through the end of 2007, eligible donors can instruct IRA custodians to issue gift checks to qualified organizations (up to $100,000), and any amount we receive will be free of income taxes and future state or federal “death taxes.” If you have not yet taken your 2007 required minimum distribution, your 2007 taxable income will go down, as well. 3. Surplus life insurance. Many people own policies purchased at a time when they had young families or other financial responsibilities. Gifts of policies that are no longer needed for their original purpose will generate charitable deductions, and any future premiums you pay will also be tax deductible. 4. Stock in your business. Closely held stock often can be transferred with excellent tax results. These gifts require careful planning, however, and coordination with our office. 5. Other investment assets that have grown in value. Real estate, artwork, collectibles and other investment assets that you have owned more than one year can be attractive for charitable giving but also require special planning. Please contact our office for details. 6. Cash. Most Americans simply write checks to support their favorite organizations, and cash gifts are both highly deductible (up to 50% of the donor’s adjusted gross income) and easy to transact. Checks that are mailed and postmarked before January 1, 2008, will be deductible on your 2007 tax return. Plan Ahead for Zero Capital Gains Taxes Starting in 2008, the long-term capital gains tax rate for taxpayers in the 10% and 15% tax brackets drops from 5% to zero. The zero tax rate is scheduled to end after 2010, unless Congress changes the law. Who benefits? For 2008, the 15% bracket will apply to taxable income up to $32,550 for single taxpayers. Married couples filing jointly will be entitled to the 15% rate if 2008 taxable income does not exceed $65,100. Taxpayers with incomes below those levels will find it appealing to sell profitable investments in 2008 through 2010. But what if your tax bracket is higher than 15%? Many adult children regularly provide financial assistance to parents who are in a 10% or 15% tax bracket. Most simply write checks, but a better alternative for those with investment portfolios might be to give mom or dad highly appreciated securities. The parent can sell the stocks in 2008 through 2010, without owing any tax, and the children can use their cash for investment purposes. Here's an idea that can provide for a relative and our future, as well. Fred's mother lives in a retirement community and her taxable income is about $28,000 a year (15% tax bracket). Fred would like to assist his mother and our programs, as well. Fred gives his mother $10,000 in appreciated securities that she then contributes to us in 2008 for a gift annuity. His mother receives a lifetime income, avoids capital gains taxes 100% and receives a charitable deduction, as well.