Your wealth
End-of-the-year tax tips

It may be December, but there’s still time to lessen your tax burden for 2003. Take simple steps to defer income from 2003 to next year and incur more tax-deductible expenses before Dec. 31, 2003.

Ensure any bonuses or monetary holiday gifts from your employer arrive in January rather than December. If you’re self-employed, put off collection of outstanding debts and commissions until January.

Go out this month and buy office supplies for 2004. Stock up on paper for printers, copiers, and faxes; stamps; toner or printer cartridges; and anything you routinely use in bulk. If you can’t pay for the supplies until January, charge them to your credit card. For tax purposes, the IRS recognizes the date you made the charge, not the date you paid the credit-card bill.

Do similarly with gifts to charity, mortgage interest payments, and other deductible expenses. The more deductible expenses you incur in 2003, the lower your tax bill goes.

For some taxpayers, planning ahead and "bunching" or "grouping" expenses from two years into one calendar year makes the most of deductions. The strategy goes like this: Say your deductions in a typical year don’t total more than the standard deduction, so you don’t itemize. By adjusting your timing, you can push your totals above the standard-deduction amount, itemize them, and pay less income tax. For example, if you paid your 2002 property taxes in January 2003, pay your 2003 property taxes in December 2003.

These strategies don’t make sense for every taxpayer and could even have negative consequences, so make sure to talk it over with your tax consultant before you make any moves.

Illustration © Artville.

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