Make tax moves now

December 11, 1990|By Sylvia Porter

There's little you can do after the end of the year to adjust your taxes. The door locks shut Dec. 31. This means you have only a few days left to estimate your 1990 tax bill and to determine whether there are any moves you can make now to save in April.

Begin with basic tax estimates and determinations:

* Make a rough estimate of your income and deductions for this year and for 1991.

* Based on the taxable income estimates, determine your tax bracket for both years.

* Decide if you should accelerate income into 1990 -- or if you should delay such income and the tax.

"As a general rule, you're better off delaying the tax and having full use of the money for a year," advises tax attorney Eli J. Warach, editor of the popular 1991 Maxwell Macmillan Tax Handbook.

* One place to start searching for tax deductions, says Warach, is in your file of state and local tax bills. Some state and local tax payments are fully deductible by taxpayers who itemize their deductions.

The essence of the year-end strategy recommended for state and local tax bills is to prepay as many as possible.

Deductible property taxes include both state and local taxes on personal as well as real property. If your state has a personal property tax (and many states do), you may want to move up a purchase you were going to make anyway. As for the real property tax deduction, it's not just the taxes on your home. State and local taxes on your real property are deductible.

You can deduct on your 1990 return all state and local income and property tax payments made during the entire year of 1990. In the case of income taxes, that's the sum of (1) what you paid last spring when you filed your 1989 state and local income tax returns and (2) the state and local income taxes withheld from your paycheck during 1990 and (3) state and local estimated tax payments made in 1990.

What is your year-end move? Prepay these income and property tax bills in December 1990.

Year-end medical expenses may help nail down a deduction. Unreimbursed medical expenses are deductible only to the extent they exceed 7.5 percent of your adjusted gross income. The net effect is that you can claim a medical deduction only if you have a large amount of medical expenses not covered by health insurance.

Total all the unreimbursed medical and dental expenses you've incurred so far in 1990 and compare the figure to 7.5 percent of an estimate of your adjusted gross income. If the expenses are over, at or near the 7.5 percent mark, it makes sense to accelerate into 1990 what otherwise would be 1991 medical and dental expenses.

* Pay personal debt by the end of the year. The deduction for personal interest is just about a thing of the past. Starting in 1991, no deduction is allowed for interest on personal debt (for example, car loans, education loans and late payments on credit card balances). You can, however, deduct on this year's return 10 percent of this kind of interest paid in 1990.

One way you can get the most from this year's personal interest deduction is to make sure you clearly identify all your personal debt. What is personal interest? Here are some examples: credit card finance charges, auto loans, finance charges, mortgage on third home, educational loans, interest on tax deficiencies, prepayment penalties, installment plan interest.

Your year-end strategy is to pay off these loans before the deduction disappears entirely. Where's the money to come from? A home equity loan is a possibility. Paying off your personal debt with home equity loan proceeds can increase your deduction for years to come at no added out-of-pocket cash outlay to you.

NEXT: Getting the most from itemized deductions

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