Use last week of the year to reduce '99 tax bite


Donations, mortgages, Keoghs, stocks offer way

December 26, 1999|By Amanda J. Crawford

AS THE END of the year rapidly approaches, taxpayers need to be concerned about more than where they will toast in 2000. While you may not file your taxes until April, the final days of the year offer a last chance to make moves that will help to save money on taxes. What can taxpayers do this week to save on taxes?

Jonathan Pond, C.P.A.

Author of "Your Money Matters"

The main thing to do is to make all your charitable donations, including any usable but unneeded clothing and furniture. When you make those donations, be sure to make a detailed list of what you donate so you can support a generous deduction, including the label and condition of items. For monetary donations, if you write out the check or use your credit card you can deduct it for 1999 even if the check doesn't cash or you don't pay off the credit-card charge until next year.

If you have any self-employment income and you want to set up a Keogh retirement plan, you have to set it up by Dec. 31, even though you can wait until the next year to make a contribution. It will allow you to deduct almost 20 percent of your self-employment income, which you in essence contribute to the retirement plan. (If you miss the deadline, you still have to April 17 to set up a SEP, Simplified Employee Pension plan, though you can't deduct as great of a percent with a SEP plan as you can with a Keogh plan).

If you feel you are going to owe taxes, you can make a 13th mortgage payment and deduct the interest of 13 mortgage payments. If you are making state quarterly estimated income tax payments, you can make the one due Jan. 15, 2000, this year and deduct it this year.

Steven Stadd, C.F.P.

Stadd Financial Services,


For estate tax planning and perhaps income tax shifting purposes, gift up to $10,000 each ($20,000 if your spouse agrees to split the gift) to any number of individuals before Dec. 31. This could reduce your taxable estate and/or reduce income taxes. For those considering early retirement and those IRA owners who simply want to avoid the 10 percent premature penalty tax for withdrawing prior to age 59 1/2, consider taking advantage of the little-known tax provision, stated in section 72(t) of the Internal Revenue Code. You can avoid the penalty by withdrawing substantially equal payments over at least five years or until you reach age 59 1/2, whatever period is longer. (Calculate the amount of the withdraws using one of the three methods authorized by the IRS.)

George Paniculam, C.F.P.

Financial Planning and Management Center, Ellicott City

People not participating in a retirement plan can do a tax-deductible IRA and deduct up to $2,000. The deadline for that is April 15. They can also get $2,000 for their spouse. If they are participating in some kind of retirement plan but their adjusted gross income is less than $31,000 and they are single, they can get a deduction of $2,000. With income above $41,000, they can't do a tax-deductible IRA. (Between those incomes, the amount of the deduction is adjusted.) Married people with an adjusted gross income of $51,000 or less can get a deduction up to $4,000. That is phased out at income of $61,000.

Those who have self-employed taxable income can deduct 100 percent of their income up to $6,000, regardless of their total income, if they invest it in a traditional IRA. Ultimately, they can invest 15 percent of their self-employed income into a Simplified Employee Pension. The maximum on that is $24,000 that is tax deductible. If they are working for an employer, they can invest 15 percent of their income up to $10,000 into a 401(k) plan or a 403(b) plan. At a special request, a lot of employers will take money out of their last paychecks so they can get the deduction.

Kevin Condon, C.F.P.

Baltimore-Washington Financial Advisors, Ellicott City

The easiest way to avoid taxes on capital gains is to use capital losses to offset them. What you can do in your portfolio is you can match up gains and losses so that the gains don't have to be so heavily taxed. If you make regular contributions to a church, what you can also do is transfer securities to the church for your contributions for the entire year. The church can sell the stocks and they don't pay capital gains. The church will get the full amount of the money and you don't have to worry about paying the taxes on it.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.