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Peacock Tales

Volume 17, Number 4 · October 2007

Year-End Tax Planning

Here are a few tips you might consider before year's end to reduce your taxes for 2007.

  • If you are thinking of making energy saving improvements to your home, such as putting in extra insulation or installing energy saving widows, consider doing so before year end in order to qualify for a tax credit that may not be available after 2007.

  • If you are thinking of buying a hybrid vehicle eligible for a tax credit, purchase it before year-end after confirming that the particular model still qualifies for the credit.

  • Self-employed individuals should consider setting up a self-employed retirement plan.

  • You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $12,000 in 2007 to an unlim- ited number of individuals but you can't carry over unused exclusions from one year to the next.

  • This year, the kiddie tax rules apply to kids under age 18; next year they will also ensnare most children age 18 and most full time students age 19 through 23. If your child holds appreciated stock, and isn't in kiddie tax territory this year but will be in 2008, consider having him or her sell the stock this year. In many cases this will result in a 5% tax on the gain, instead of 15% if the sale is postponed till next year.

  • If you're thinking of donating a used auto to charity, you may want to inquire whether the charity plans to sell the car or use it in its charitable activities; the latter may yield a bigger deduction for you.

  • If you are contemplating marriage or divorce consider how marriage penalties could affect you.

  • If you are age 70 or older, and own IRAs (or Roth IRAs), and are thinking of making a charitable gift before year-end, arrange for the gift to be made directly by the IRA trustee. Such a transfer can achieve important tax savings but it won't be available after 2007 under current law.

  • Consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc., to bunch into 2007 miscellaneous itemized deductions subject to the 2%-of-AGI floor.

These are just some of the year-end steps that can be taken to save taxes. Now is the time to consult your accountant or tax preparer for additional ones.