THE EARLY BIRD PAYS FEWER TAXES - What Every Taxpayer Should Do Before the New Year


SOUTHFIELD, MICHIGAN---November 15, 2004--- Although tax returns aren’t due for several months, there’s no time like the present to start thinking about saving tax dollars. Taxpayers can trim taxes in several areas, and if executed wisely, the average taxpayer can stand to save hundreds or even thousands of dollars.

“Getting organized before the end of the year can help save a substantial amount of money at tax time,” said John Mach, tax director at Plante & Moran. “The trick is planning ahead and getting everything you can out the door before the New Year.”

The following are several strategies to consider that can help you hang on to your hard-earned cash this tax year:

Defer income – Certain types of investments allow payment deferral, such as series EE savings bonds, certain U.S. treasury bills and six-month bank certificates of deposit. If a year-end bonus is on the horizon, consider asking for your bonus in January. If you are self-employed, you might want to delay billing until the New Year. But it may not pay to defer the income if you will be in a lower tax bracket next year.

Accelerate expenses – Try to pay your deductible bills, buy business supplies and advance funding of your charitable contributions before the end of the year. If you don’t have cash to donate, the end of the year is a great time to clean out your closet, basement and garage. Some home mortgage interest and tax payments (such as state income taxes and property taxes) can also be accelerated and paid before year-end. Medical expenses that exceed 7.5 percent of your adjusted gross income can and should be paid for in December. If you expect your medical expenses to be under the threshold this year, consider delaying payment of medical expenses until 2005 in order to increase the chance that you’ll have a tax benefit next year.

Apply all credits – There are a number of available tax credits that can apply to you and your family. For example, if you file jointly and have an annual income of less than $110,000, each dependent child under the age of 17 nets you a $1,000 credit. Education tax credits are also available, for example the Hope Scholarship and Lifetime Learning credit can help offset tuition expenses.

Year-End Tax Tips – Add One

Avoid alternative minimum taxes – While some taxpayers may attempt to “cheat the system,” the government has found a way to keep deductions down to a minimum. Accelerating deductions can set off alternative minimum taxes (AMT). If a taxpayer’s miscellaneous itemized deductions are too high, if he/she has a large state income tax or if he/she exercised incentive stock options, the larger AMT may be due instead of normal income taxes.

Bonus depreciation – According to the American Jobs Creation Act of 2004, bonus depreciation is set to expire on December 31, 2004, so businesses need to make purchases before the end of the year to qualify for depreciation deductions.

“Don’t put off your taxes until after the New Year. Getting a jump start can save you money while also help to alleviate the stress associated with tax time,” Mach said.

For more information about AMT, and accelerated and deferred income practices, visit www.irs.gov or www.plantemoran.com. Remember, the early bird always gets the worm.

For additional information, please contact: Teresa McAlpine Plante & Moran Communications 248-603-5344 Teresa.McAlpine@plantemoran.com