Interested in saving taxes? Now’s the time to act.
Reviewing your business or personal situation before year-end
can help lower your 2003 tax bill. Here are some strategies to
consider.
Interested in saving taxes? Now’s the time to act.
Reviewing your business or personal situation before year-end can help lower your 2003 tax bill. Here are some strategies to consider.
– Keep an eye on your tax bracket.
Moving upward from bracket to bracket costs you at least 2 percent higher tax on the additional income. Knowing when to take or delay earnings such as bonuses or commissions allows you to control your tax bracket.
If you’re a business owner, think about adjusting your salary between years.
– Boost contributions to your 401(k) or other retirement plan. The benefits are two-fold: current taxable income is reduced, and you enjoy tax deferral on the plan growth.
– Delay sales to qualify for long-term rates.
The tax rate for most long-term capital gain assets sold on or after May 6, 2003, has been reduced to 15 percent (to 5 percent for those in the lower two tax brackets).
Short-term gains are still taxed at ordinary income rates, which can be as high as 35 percent.
Bob Bianchi is a certified public accountant and partner with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
Consider holding assets long enough (more than 12 months) to qualify for the lower rates.
– Elect the installment method. If delaying an asset sale is not an option, you still might be able to defer the income and related tax. For sales of certain property, you can choose installment reporting.
– Regulate your investment income. Delay interest income until 2004 by purchasing a short-term Treasury bill or CD that matures after year-end.
– Move certain assets into retirement plans.
Though the new tax law created a 15 percent rate for certain dividends, payments from REITs generally do not qualify. Shifting REITs from your taxable account to a retirement account may reduce your current tax.
The same holds true for bonds or other investments that produce interest income.
– More tax-saving strategies to implement before year-end include transferring assets to children, making charitable contributions, bunching itemized deductions, and taking advantage of increased business asset expensing amounts.
