Pay a state estimated tax installment in December instead of at the January due date. However, the payment should be based on a reasonable estimate of your state tax. 

Pay your entire property tax bill, including installments due in year 2008, by year-end (not applicable to mortgage escrow accounts).

Try to bunch "threshold" expenses, such as medical expenses and miscellaneous itemized deductions. (Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income.) By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: Credit cards charges are considered paid in the year of the charge regardless of when you pay on the card.

In the case of tax benefits that are phased out if you have more than a certain level of adjusted gross income (AGI), a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2007. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2008 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2007 if your marginal tax rate is much lower this year than it will be next year.

Tip: If you have a sum of income coming in that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method. Call us for additional support regarding estimated taxes.

Caution: Alternative Minimum Tax no longer just impacting the wealthy! Do not overlook the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2007.

Due to recent tax policy, the AMT will impact many more taxpayers than ever before. The problem is that the tax is not indexed to inflation, and, as a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect the AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions. Please call us for more information.
Other 2007 Purchases to Consider

Hybrid Vehicles: The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

Tax credits for certain hybrid and alternative power vehicles are available for a limited time. Consumers seeking the full credit may want to buy early. Please contact us for further information on the tax credits available depending on the car model and year.

Home Improvements: Tax Credits are available for certain home improvements. Tax credits are available for certain types of home improvements including adding insulation, replacement windows, and certain high efficiency heating, hot water heaters and central air conditioning systems. The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made to your primary residence from January 1, 2006 through December 31, 2007.

So, you still can take a tax break for installing energy-efficient windows, but you need to act quickly: The windows must be installed by December 31, 2007, to qualify for the credit.

Make Charitable Contributions

You can donate property as well as money to a charity. A deduction is usually available for the fair market value of the property. However, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses.

Note: A written record of charitable contribution is required in 2007. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift made on or after January 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit in that you avoid paying capital gains on any profit.