Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Get ready for taxes before the year ends

- by Alan Duvall 

Published in Dayton Daily News December 11, 2005  

Not much time left until the end of the year, but opportunities still exist for some 2005 tax planning maneuvers.

Most attention is traditionally spent on accelerating deductions into the current year.  Hastily assembled bags of clothes and goods delivered to local Goodwill stores are always good for extra charitable contributions.

Paying real estate and income taxes before December 31 also accelerate deductions.  No cash to pre-pay?  Consider using ever-available credit cards.

Employees may even consider adjusting December payroll withholdings to catch up on underpaid taxes and reduce penalties.  Remember - payroll tables are merely guidelines for withholding amounts – not concrete barriers eliminating flexibility.

Consult the Alternative Minimum Tax (AMT) oracle before engaging such strategies.  AMT wipes out deduction tax benefits forcing taxpayers to engage in bunching modes to minimize repercussions.

Taxpayers over 50 years of age are permitted deductible catch-up contributions to retirement and IRA accounts.  Amounts vary according to type of pension but can range from $500 for an IRA or up to $4,000 for a 401(k) plan.

Investors are now presented with a complicated array of options.  Gains from sales of stocks held over 12 months are federally taxed at a favorable maximum rate of 15% (even if you are in the clenches of the AMT monster).  Stocks held less than 12 months are taxed at normal rates.

Losses from stock sales offset gains.  Excess losses are deductible up to a maximum $3,000 per year.  Non-deducted losses carry forward for deduction in future years subject to the same annual limits. 

Investors should examine the year’s cumulative activity.  If net gains are booked to date, consider selling loser stocks to reduce taxes and avoid future year capital loss limits.  However, if the gains to date are long-term – 15% rates are great - reflect why such low rate income needs to be sheltered by ordinary rate losses. 

Current year stock losses in excess of $3,000 become deductible upon creation of additional stock income, preferably of the short-term ordinary income variety.

Tax planning should be a year-round endeavor, but even procrastinators can engage in last minute scrambling techniques to take the sting out of April 15 tax bills.

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.