Bever Dye LC Attorneys at Law
WICHITA, KANSAS
Year-End Tax Saving Moves

It is not too late to make some tax saving moves for 1998. Here are some suggestions you may want to consider:

  • Postpone income until 1999 and accelerate deductions into 1998 to lower your 1998 tax bill. Postponing tax generally is one of the main goals of year-end tax planning. This year it is particularly relevant because many new deductions, credits, and other tax breaks that are first effective in 1998 are phased out over varying levels of adjusted gross income (AGI).
  • As discussed above, the Roth IRA conversion is not allowed for taxpayers with an AGI over $100,000. Other new 1998 tax breaks that have AGI-based phaseouts include education tax credits, the child tax credit, the student loan interest deduction, and contributions to education IRAs. AGI phaseouts also continue to apply to determine whether and to what extent an IRA contribution is deductible by a person who is covered by a qualified plan. However. the rules are liberalized for 1998 to allow higher levels of income before deductions are lost. Also, plan participation by a spouse will not cause a nonparticipant to lose deductions in many cases.
  • Make gifts to family members to take advantage of the $10,000 gift tax exclusion that applies for each donee each year.
  • Apply bunching strategy to "miscellaneous" itemized deductions, medical expenses and other itemized deductions to increase deductible amounts. For example, extend subscriptions to professional journals, pay union or professional dues, enroll in (and pay tuition for) job-related courses, etc., to bunch into 1998 miscellaneous itemized deductions subject to 2% floor.

  • Time capital losses and capital gains to make the best use of the special rules for these items. This strategy is made more complicated this year by the new, but favorable, tax rules that now apply to capital gains.

  • Arrange with employer to defer bonus until 1999.

  • Increase basis in partnership or S corporation to make possible 1998 loss deduction.

  • Exchange matured E bonds for HH bonds to avoid realizing accrued interest.

  • Use credit card to prepay expenses.

  • Pay contested taxes to deduct them this year while continuing to contest them next year.

  • Buy equipment by December 31 to get up to six months' worth of depreciation deductions in 1998.

  • Make expenditures qualifying for $18,500 business property expensing option.

  • Settle insurance or damage claim if this will maximize casualty loss deduction.

  • Set up a retirement plan.

  • Consider deferring debt cancellation event until 1999.

  • Decide whether to elect to deduct investment interest against capital gains.

  • Avoid personal holding company tax by making dividend payments.

  • Take steps to avoid or minimize income tax on Social Security benefits.

  • Step up level of participation in business activity to meet material participation standard under passive loss rules.

  • Dispose of passive activity to free up suspended losses.

  • Increase, or minimize, use of vacation home to have it treated as personal residence or passive activity, whichever yields best tax results.

The foregoing article has been prepared by Bever Dye, LC, as a service to our clients for informational purposes only and does not constitute legal advice. It is designed to provide general information concerning recent developments and topics of interest in the areas of tax and estate planning law. Do not take action in reliance on items contained in this article without obtaining the advice of an attorney.