YEAR-END TAX PLANNING

The standard plan for most taxpayers is to defer income until next year and accelerate deductions into this year. This time tested formula may back fire if it is applied without considering the alternate minimum tax. Alternate Minimum Tax (AMT) was designed to make sure that 155 high income families would pay some tax. However, unless Congress acts to change the law 35 million, mostly middle class taxpayers, will pay an extra $120 billion of AMT a year. If you are married and earn $75,000, have exemptions, Claim the standard deduction, pay state or local taxes, have a home equity loan, have medical expenses, or have employee business expenses, then the AMT is targeting you. Call our office to discuss how to avoid being subject to this tax.

Wait until next year to upgrade your home with new windows, furnace, central air, water heaters, or insullation. Improvements made during 2006 and 2007 to your personal residence will qualify for a new $500 tax credit. Improvements made in 2005 do not.

This is the last year for the $4,000 deduction for education. This is the last year for the deduction for teachers' classroom expenses. Unless Congress acts, 2005 will be the last year these deductions will be available.

Interest income from certificates of deposit have two rules that you can use to plan how much interest income you will have in a tax year. Certificates that have a maturity of a year or more will report income based on the number of days in the tax year. Certificates that have a maturity of less than a year report all of the interest in the year the certificate matures. If you want the interest in the current year, use a certificate with a maturity of a year or more. If you wish to defer the income to 2006, use a certificate with a maturity of less than a year.

Donations of autos to charity will probably be limited to the amount the charity receives from it's sale, not the blue book value.

Donations of stock to charity allow you to deduct the market value of the stock rather than you cost. This can give you a larger deduction than you would normally expect.