LOISELLE, GOODWIN & HINDS
CERTIFIED PUBLIC ACCOUNTANTS

Year-End Tax Planning

Extraordinary developments shape year-end planning this year. The terrorist attacks of September 11 took a terrible financial as well as emotional and personal toll, and battered the markets and the economy. However, there have been some positive developments on the tax front. The 2001 Tax Act resulted in lower tax rates for 2001, and will mean even lower rates in 2002 and in the years to come. The 2001 Tax Act also created a number of new or more generous tax credits, and other expanded tax breaks that will go into effect in 2002.

These unusual circumstances place extra emphasis on standard year-end planning techniques, and create some new ones as well. You may be in a position to benefit from some of the following moves:

• Postpone income until 2002 and accelerate deductions into 2001 to lower your 2001 tax bill. Postponing income is an even better proposition this year because tax rates will be lower next year. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changes financial circumstances. There are other benefits to be realized when you postpone income and accelerate deductions: you may be able to claim larger deductions, credits, and other tax breaks for 2001 that are phased out over varying levels of adjusted gross income (AGI). These include Roth IRA contributions, conversion of regular IRAs to Roth IRAs, child credits, higher education tax credits, and deductions for student loan interest.
  
  
• In some cases, however, it may pay to actually accelerate income into 2001. For example, this may be the case where the taxpayer’s marginal tax rate is much lower this year than it will be next year.
  
  
• Time capital losses and capital gains to make the best use of the special rules for these items. This year, careful year-end tax-selling decisions will be particularly important for the many people who have paper or actual losses from their stock market investments.
  
  
• Put off some types of expenses until next year to take advantage of new or more generous tax credits, exclusions, and other expanded tax breaks that will go into effect in 2002. For example, if you defer paying higher-education expenses, you may qualify for a new above-the-line deduction, and if you put off payouts from qualified state tuition programs, you may be able to turn taxable income into tax-free income.
  
  
• Make gifts to family members to take advantage of the $10,000 gift tax exclusion ($20,000 for gifts made by married couples) that applies for each donee for 2001. (You get no carryover of any unused exclusion – it’s a "use it or lose it" benefit.)
  
  
• Bunch deductible expenses such as medical expenses, charitable contributions, and investment expenses into one year to maximize your itemized deductions.

There are many factors that could influence your year-end planning, including a change in jobs, an anticipated reduction or increase in income, 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.

Be 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 call contact us so we may schedule the start of your tax planning and leave time for you to take the necessary steps to put the plan in place before the end of the year.

(11/30/01)

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Last modified: June 06, 2003