LOISELLE, GOODWIN & HINDS
CERTIFIED PUBLIC ACCOUNTANTS

Year-End Tax Planning

Now is the best time of year to do tax planning, because we can now combine general tax planning with year-end tax planning. A keen eye and a sharp pencil are especially needed this year because many new-for-1998 tax breaks require careful consideration and planning to produce the best tax results.

Here are some money-saving ideas you may want to put into action before the end of 1998:

• Postpone income until 1999 and accelerate deductions into 1998 to lower your 1998 tax bill. Postponing tax generally is one of the main goals of year-end tax planning. This year it's particularly relevant because many new deductions, credits, and other tax breaks that are first effective in 1998 are phased out over varying levels of adjusted gross income (AGI). For example, those whose adjusted gross income is in the $100,000 range who want to convert regular IRAs to the new Roth IRAs need to be especially careful that their AGI doesn't go over $100,000 in 1998. Only those with AGIs of $100,000 or less are permitted to make the conversion. Income that results from 1998 conversions of regular IRAs to Roth IRAs can be spread over four years. Contributions to Roth IRAs are made with after-tax dollars, but after a five-year period that begins with the year for which you make a contribution to any Roth IRA, certain withdrawals are tax-free. So to start this five-year period, it's important that you make a Roth IRA contribution this year (if you're able to under the rules), even if the contribution is small.
  
  
• Other new-for-'98 tax breaks that have AGI-based phase-outs include education tax credits, the child tax credit, the student loan interest deduction, and contributions to education IRAs. AGI phase-outs also continue to apply to determine whether and to what extent an IRA contribution is deductible by a person who is covered by a qualified plan. However the rules are liberalized for 1998 to allow higher levels of income before deductions are lost. Also, plan participation by a spouse won't cause a nonparticipant to lose deductions in many cases.
  
  
• Make gifts to family members to take advantage of the $10,000 gift tax exclusion that applies for each donee each year. (You get no carryover of any unused exclusion - it's a "use it or lose it" benefit.)
  
  
• Bunch expenses into one year to maximize your itemized deductions.
  
  
• Time capital losses and capital gains to make the best use of the special rules for these items. This tried and true strategy is made more complicated this year by the new (mostly very favorable) tax rules that now apply to capital gains.
  
  
• There are many non-tax factors that could influence your year-end tax planning. These factors include a significant raise or bonus, a change in jobs, changes in the amount of your business expenses or itemized deductions, adoption or birth of a child, a death in the family, or a change in your marital status.

By doing year-end tax planning now, we can take maximum advantage of new tax rules, as well as the differences in your own particular situation in the two years.

These are just a few of the possibilities. Please contact us so that we may schedule a time to do general and year-end tax planning together and still leave enough time for you to structure transactions to take place before the end of the year.

(10/01/98)

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Last modified: July 09, 1999