Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

November 7, 2002

"Year-End Tax Saving Strategies"

With less than 2 months to go before the end of the year, there are still several steps you can take now that will reduce your 2002 tax bill, according to an analysis by the Research Institute of America.

1. Bring as many deductions into 2002 as possible so that you can itemize. You get to itemize if your deductions are for more than 2 percent of your adjusted gross income in one year. So, for example, prepay business magazine subscriptions, union or professional dues, tuition for job-related courses, charitable contributions and medical bills that won’t be reimbursed. One little trick is to charge these expenses on your credit card because you get to deduct it in the year you charge it, not when you pay it, which could be in 2003.

2. Prepay your quarterly estimated state income tax that would be due in January in December, so you get to deduct it for 2002.

3. Postpone income into 2003, if you have the chance to do so. For example, if you are going to get a raise or bonus, have it paid next year so you can delay the tax bill.

4. Increase your federal and state income tax withholding now, if you underpaid taxes earlier in the year, so you can avoid penalties on underestimated quarterly taxes.

5. If you have a vacation home that you rent out occasionally, don’t rent it out for the rest of the year, if you’ve already rented it for 14 days. If you rent out a home for 14 days or less, all rental income is tax-free; over 15 days, and you have to declare all income and allocate expenses between personal and rental use, which is very complicated to do.

6. Set up a retirement plan by the end of the year if you are self-employed or small business owner. You can set up an SEP (Simplified Employee Pension) plan or Keogh plan by December 31, and then deduct any contributions you make, which can be thousands of dollars.

7. If you are trying to give away assets to avoid estate taxes, make sure you give your children, or others, the full $11,000 by the end of the year.

The 2001 Tax Act is still being phased in slowly, so you will get some new benefits in 2003, but not that many. Tax rates stay the same at 10 percent, 15 percent, 27 percent, 30 percent, 35 percent and 38.6 percent next year, and will drop by one percentage point in 2004. However, tax brackets are adjusted upward slightly for inflation, so the higher brackets kick in a bit higher than in 2002. The standard deduction also rises by $100 to $7,950 in 2003.

With the Republicans now controlling Congress and the White House, expect another new tax bill in 2003 that will change much of this and create more new tax breaks.

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