Year-end tips could prove profitable

The Nassau County Chapter of the New York State Society of Certified Public Accountants recommends these year-end tax tips for consumers:

Be energy conscious. If planning to build an energy-efficient home in the next two years, you can receive up to $2,000 in tax credits. To qualify, add energy-saving windows, doors, special insulation materials, and the like. If you already own your home, you can collect up to $500 in tax credits if the upgrade happens within the next two years.

Review income and deductions. The most fundamental year-end tax move is to adjust the timing of income and deductions. If your income is high, putting off receiving more income at the end of the year can save taxes. For example, if you are close to the line on itemized deductions, accelerating payment of deductible expenses such as job hunting costs or professional dues might save taxes.

Postpone income. If you are one of the lucky ones in line for a bonus, see if your employer will hold off writing the check until January. If you own a cash-basis business, you can time receipt of income by waiting until close to the end of the year to send your December billings. You cannot defer taxes simply by not putting the check in the bank.

Fund your retirement. Contribute to a deductible Individual Retirement Account (IRA) if you qualify. You have until April 15 to open an IRA and make a deductible contribution for the prior year. If you have a 401(k) plan at work, make as large a contribution as is allowed.

Pay deductible expenses before Dec. 31. Paying your state income tax estimate before the end of the year accelerates your Federal deduction. You also can pay property taxes early, make an extra mortgage payment (the interest portion is deductible), pay your tax preparer for your year-end planning meetings, or opt to have dental work or elective surgery.

Do a tax projection. The only way to know if you are subject to the Alternative Minimum Tax (AMT), an IRS system created to ensure that individuals pay at least some minimum amount of tax, is to do an actual tax projection that will compute your regular income tax and the AMT amount. You then will know if you should accelerate deductions or defer them.

Contribute to charity. You can make cash contributions or charge them on your credit card and take a current deduction. If you give appreciated property to charity, in many cases you will get to deduct the full market value.

Consider gifts to children. For those taxpayers fortunate enough to be able to make gifts to children (or other relatives), do it well before Dec. 31 so that the check clears. Gifts up to $11,000 per person need not be reported.

Offset capital gains. Review your investment portfolio to determine whether you should sell some losers before year-end in order to offset capital gains you already have realized. Capital losses are first netted with capital gains and then are deductible against ordinary income (limited to $3,000 a year).

Married or not. If marriage is contemplated, think about the tax effects of getting married in December as opposed to January. You are considered married for the entire year even if you get married on Dec. 31. Your new spouse's income, or lack thereof, should be taken into account when doing any tax projections because the net effect can be significant. Many of the calculations in any income tax return are driven by the taxpayer's marital status.

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