December 2003

Act Now To Save 2003 Taxes!   In just a few short months, these words may appear on the top of your to-do list: FILE 2003 TAX RETURN. Have you done everything you can to minimize your tax bill? Reviewing your situation before the end of the year may uncover planning steps you've missed.   Contribute to charity. If you don't have the cash to make your donation, remember that contributions made with a credit card in 2003 are deductible on 2003's return, even if you don't pay the credit card bill until 2006.   Pay deductible medical/dental expenses. Paying for expenses like dental work and eye exams in late 2003 may result in a higher tax deduction. But remember the "floor" rule. It basically says that before you can deduct your first dollar of medical/dental expense in any given year, your total expenses for the year must exceed a "floor" amount equal to 7.5% of your adjusted gross income (AGI). Only expenses exceeding the floor are deductible.   Pay deductible miscellaneous expenses. A similar rule applies to the itemized deduction for miscellaneous and unreimbursed employee business expenses. However, with expenses in this category, the floor is 2% of AGI. Pay everything you can in 2003 if you think you'll have enough expenses to claim a deduction. If you won't surpass the floor this year, it may make more sense to delay year-end expenditures until 2006 and try again on next year's return. Buy business assets. In 2003, up to $100,000 of qualifying purchases may be "expensed" rather than depreciated over several years. Another provision allows a 50% first-year depreciation "bonus" for qualifying asset additions. These tax breaks are available even if you finance your purchase.   Realize investment losses. Do you have investments in your taxable portfolio that you'd like to sell? Capital losses aren't welcome from an investment standpoint, but they can save you taxes. Each year, you can deduct your losses to the extent of realized capital gains and up to $3,000 of ordinary income. Note that losses you can't use in 2003 may be carried forward for deduction on your 2006 (or a later) return, subject to the same rules.   Maximize retirement plan deferrals. Salary you defer to a 401(k), 403(b), 457, or SIMPLE retirement plan isn't included in your current taxable income (limits apply). Thus, contributing the most you can afford to your employer's plan will save you valuable tax dollars and increase your retirement nest egg. If you are self-employed, you also have an opportunity to cut your taxes by maximizing contributions to a retirement plan. See us if you need information about getting one started.   Please contact our office if you would like us to prepare a 2003 tax projection to assist you in your year-end planning.   Other articles in our November/December Tax Report: SUVs Trucks, Vans, and Taxes "Wages" or Not? The IRS cares. Loaning Money to Your Corporation