Tax-planning time on tap


December 11, 1991|By Andrew Leckey | Andrew Leckey,Tribune Media

Yes, your Christmas shopping list is important. But it's also time to do year-end tax planning. If you handle it properly, you'll have more money on hand next year to handle all those bills from gift-giving.

First, figure your 1991 and 1992 taxable income and adjusted gross income.

"Get a snapshot of your 1991 tax situation by doing a quick-and-dirty projection of your salary and withholding for the year," advised Robert Greisman, tax partner with Grant Thornton. "Refer to last year's tax return to make sure no items or categories are missing in your projection."

It's important that you've paid enough withholding or estimated taxes. To avoid penalties, you should pay either 100 percent of last year's taxes or 90 percent of this year's. Make sure records are in order.

"The most common problem we have with taxpayers is that they lose documentation, making it necessary to spend time tracking down basic information," said Garry L. Moody, tax partner with Ernst & Young. "If you're going to use a tax preparer, the better organized you are, the better the preparer will be able to do what you're paying him to do."

Select strategy for deferring income or deferring deductions. If your tax bracket goes down next year, defer income until next year and accelerate deductions.

"You can, if necessary for your particular situation, prepay any state income tax liability, and some counties will also let you prepay your real estate taxes before the end of the year," said Steven Weinstein, tax partner with Arthur Andersen & Co.

If you're in an alternative minimum tax situation (designed to set limits on tax avoidance by higher-income individuals), you may need to accelerate income and defer deductions. The AMT rate is now 24 percent, up from 21 percent last year.

Determine your marginal tax bracket, which could be higher than 15, 28 or 31 percent because of the new tax ruling on the phaseout of personal exemptions. For 1991, exemptions are $2,150 each. They're reduced by 2 percent of each $2,500 that your adjusted gross income exceeds $150,000 for a joint filing, $100,000 for a single filer and $125,000 for a head of household.

In 1991, itemized deductions are reduced by 3 percent of adjusted gross income in excess of $100,000. This can add almost 1 percent to your marginal tax bracket.

Review investments. If you have capital gains, you can deduct dollar-for-dollar of ordinary income up to $3,000 of net capital losses. If the net gain is long term, it's taxed at the lower of 28 percent or your regular rate. A net gain is taxed at your regular rate. A net capital gain is the excess of net long-term gain for the year over the net short-term capital loss.

Maximize retirement benefits. If you don't have a retirement plan, open one by year-end. For the self-employed, Keogh plans must be set up by Dec. 31. Individuals with adjusted gross income of less than $40,000 annually may establish and fund an individual retirement account, even if already participating in an employer retirement plan.

You can get a deduction if you give away appreciated property. This is tax-deductible for regular tax, but not for those under the alternative minimum tax.

Think about gift-giving. For estate planning purposes, individuals can give $10,000 annually free of gift tax, married couples $20,000 annually.

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