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Show Ways to reduce 1 990 income tax may consider accelerating payment of state income tax, your January 1991 mortgage payment, and charitable chari-table contributions. In addition, you may accelerate payment of unreimbursed unreim-bursed medical expenses and miscellaneous deductions if you anticipate an-ticipate those expenses to exceed 7.5 percent and 2 percent of adjusted ad-justed gross income (AGI), respectively. respec-tively. Self-employed taxpayers who use the cash method of accounting accoun-ting may accelerate payment of business obligations and consider accelerating purchases of depreciable property (large year-end year-end purchases have certain limitations). and accelerate deductions this year. Another reason for deferring income in-come and accelerating deductions relates to the "time value" of money. Deferring income and accelerating deductions allows the taxpayer use of the tax dollars for an additional year. A dollar today is worth more than a dollar next year, since today's dollars can be invested in-vested to generate more wealth. At the same time, if federal income in-come tax rates or your personal tax bracket increase in a subsequent year, you should accelerate income and defer deductions to a later year, when they may be more valuable. You may want to accelerate income and defer deductions if your spouse plans to begin working, which may increase your tax bracket in 1991. Deferring deductions also allows the taxpayer to deduct expenditures that would not otherwise be allowed if the taxpayer expects a deduction to fall short of its tax benefit If you purchased your first home in the later part of this year, and your itemized deductions fall short of your standard deduction, you may want to defer December's mortgage payment until January 1991. This will allow you to take advantage of the home mortgage interest deduction deduc-tion in 1991. By DAVID B. BYBEE, CPA Is there anything I can do prior to ;the end of the year to reduce my 1990 income tax? t Many taxpayers do not understand the tax saving oppor-: oppor-: turn ties that may be obtained by ( proper tax planning. Proper tax ; planning should begin long before i the tax deadline. However, there are still tax saving opportunities ; available in the 1990 tax year. Those opportunities involve, but ; are not limited to, deferral or accel- eration of income and deductions. Because most individuals use the cash method of accounting, they ; have some flexibility in timing the recognition of income and ex- penses. Generally, you should defer in-j in-j come and accelerate deductions when federal income tax rates or your personal tax brackets remain : the same or decrease in a subse-l subse-l quent year. By deferring income, you postpone a portion of your ear- nings into 1991. Accelerating ex- penses means drawing some of 1991 's deductible expenses into the - current year. If you plan to retire next year, which may drop you into , a lower tax bracket, you may , choose to defer income until next j year when your rates will be lower Also, if you are purchasing your first home in December and your itemized deductions fall short of your standard deduction, you may want to defer closing on the home until January 1991 in order to take advantage of real estate taxes, points paid to secure the mortgage and mortgage interest deductions. The following are several ways you may defer income: ask your employer to defer a year-end bonus or commissions; self-employed taxpayers who use the cash method of accounting may delay customer billings so that income normally received late in the current year is received early in the next year, contribute con-tribute to a 401 (k) plan (up to $7,979 in 1990); self-employed taxpayers can open a Keogh (before Jan. 1, 1991) and contribute up to 20 percent of income or $30,000 (whichever is less); and you may be able to deduct up to $2,000 to an IRA if single and up to $4,000 if married. Both Keogh and IRA contributions con-tributions can be made after the close of the current tax year but before April 15,1991. A good way to determine what deductions you may want to consider con-sider accelerating or deferring is to review your prior year's tax return and identify deductions taken. You |
