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December
17, 2002
Psssssssst.
Yes, I’m talking to you. How would you like to give yourself a holiday present
right now that would make you that much happier in April?
Such as keeping your own money, legally, rather
than sharing with everyone’s favorite third partner, the Internal Revenue
Service?
“Next year, rates are set to go down,” says
Millian Toms, our local CPA, who put a little dubious emphasis on the word
“set.” “I doubt the Republicans will raise taxes,” she added, referring to
mid-year elections that gave the GOP control of both the Senate and the House.
For this reason, you may want to defer income
to next year and accelerate deductions to this year.
“The IRS is doing more auditing this time. The
chances are greater cheaters will get caught, but they’re still pretty small,”
Millian says. “They don’t have the money to hire new investigators, but they
plan to audit more returns this year.”
A myth Millian dispelled is that the IRS always
goes after the little guy because he/she can’t put up a good defense, which is
costly. “They’re going to audit the higher income people first. Think about it.
One little mistake there results in more tax to them and it’s not at all unusual
for the wealthy to give half their income to charity.”
Millian doesn’t necessarily recommend those of
us who work for a living to try shoveling half our income to charity. However,
here’s a list of things you can do before December runs out to
help your tax situation in April:
- Charitable giving. “Almost everyone gives
something. Think about how much you really give and double up two years of
giving. Also don’t forget miscellaneous cash donations that you may not have
receipts for. The IRS isn’t going to come after you for $50.”
- If you’re employed, ask your boss to give
you your bonus in January rather than December.
- Accelerate deductions. “If you have
expensive dental work to get done, get it started now and make sure it’s paid
for now.”
- Pay your health insurance early.
“Particularly for the self-employed, that’s another big one. There is no such
thing as inexpensive health insurance.”
- Pay for your security deposit box twice –
for this coming year and the year after that.
- Make an early mortgage payment, but Millian
warns this can be a little tricky, depending on the company you’re working
with. “Some won’t make the adjustment on your 1099, which means you’ll have to
do it by hand.”
- If you have a credit card, skip the stereo
system for a month (it’ll be cheaper in January anyway) and make a car payment
(if you use your car for business). “If it’s on a credit card it’s as good as
a cash payment.
- Get all your prescriptions refilled.
- Pay your fourth quarter state estimate by
Dec. 31 instead of waiting until Jan. 15, 2003.
- Review your investments. If you have losses
(losses don’t really exist until you sell) AND the investment is not expected
to improve, sell in January. Remember, you can only deduct losses against
gains or up to $3,000 over gains but you can carry them forward to future
years.
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