FEDERAL INCOME TAX

TOP 10 YEAR END TAX MOVES FOR INDIVIDUALS

 

Earl Secore from Secore and Niedzialek, P.C. joined us on our show to tell us what we can do to legally reduce the amount of taxes we pay at the federal level. Below is a summary of his tips. You can listen to the entire interview from our show by clicking here. Listen to the tax tips.

 

1. Sell losing stocks and mutual funds not held in a retirement account.   Capital losses can be offset against capital gains dollar for dollar. If these losses exceed gains, you can offset $3,000 against ordinary income.

 

2. Make cash or noncash charitable contributions. Donating appreciated securities held for more than a year allows you to deduct the full fair market value without recognizing the gain.

 

3. Maximize your contribution to a 401(k) plan.   If you are not in a retirement plan, you should consider contributing to an Individual Retirement Account (IRA).   If you or your spouse are covered by a retirement plan, you may still contribute to an IRA based on certain income limitations.

 

401(k) limits for 2005 = $14,000

Catch up for over age 50 = $4,000

 

IRA limits for 2005 = $4000

Catch up for over age 50 = $500

 

4. If you are in the market for a new car or boat, purchase it before December 31, 2005 and deduct the sales tax on this purchase in addition to the sales tax table amount if the total sales tax will be greater than the state income tax you have paid.

 

5. Make tax free gifts. You can give up to $11,000 to anyone without incurring a gift tax liability. Together, a couple can give one person $22,000.

 

6. Prepay your January mortgage payment in December for the additional interest deduction.

 

7. Prepay the balance due on your state income taxes unless you are subject to the alternative minimum tax.

 

8. Bunch medical deductions. Medical expenses exceeding 7.5% of adjusted gross income are deductible for federal income tax purposes.   All medical expenses which are not reimbursed are deductible for Arizona income tax purposes.

 

9. Make Arizona charitable tax credit donations and receive a dollar for dollar tax credit, as well as a federal contribution tax deduction.

 

The maximum allowed tax credits for 2005 are as follows:

Contributions To:	Married Filing Joint	Single or Head of Household
Private school tuition organization	$ 825	$ 500
Public or charter schools for extracurricular activities	$ 300	$ 200
Charitable organizations that help the working poor	$ 300	$ 200

In order to quality for the credit for the working poor, your 2005 contributions must exceed those of your base year by at least the amount of the credit.

 

10. Spend your flexible spending account funds in 2005.   You have until March 15, 2006 to file a reimbursement claim for out-of-pocket health and child care contributions. You will however, have to spend the money by December 31, 2005 . A new Treasury Department rule gives companies the option to extend the deadline for incurring medical and child care expenses for 2005 until March 15, 2006 .   Please check with your payroll administrator to see if your plan has this option.

To listen to an audio version of these tips, click here.