Tax Tip #1: Be cautious after cashing in your hot stock purchases - you could stand a price drop of almost 20 percent and still be ahead after-tax.
The new IRS rules on losses can be quite favorable to taxpayers. In effect, you may offset any capital losses against your highest taxed gains first.
Tax Tip #2: If you have any short term (under 12-months) or intermediate (12-18 months) gains, realize all of the losses you can. You will probably never pay capital gains tax at those rates again.
Does your family have a Private Foundation?
Tax Tip #3: The '97 tax act gives you until June 30, 1998 to contribute publicly traded stock (held over 12 months) to it and deduct the full fair market value against your income. Afterward, unless Congress extends the law, you could only deduct your tax cost.
Sold Your Residence?
Or if you plan to sell, you are likely aware of the new $250,000 per person exclusion. To exclude $500,000, each spouse must qualify (have occupied the house as their principal residence for at least 2 of the last 5 years before the sale).
Tax Tip #4: If your gain is more than $250,000 and you sold the old house between May 7 and August 5, 1997, or if you bought your new house between these dates, use the old rollover provision. If both you and your fiancee have houses with under $250,000 of appreciation, consider selling both before you get married.
Thinking about an IRA Contribution?
Starting in 1998, if your modified adjusted gross income (MAGI) is not more than $95,000 (single) or $150,000 (joint), you should consider contributing to the new "Roth" IRAs - the so-called back-loaded IRAs (no deduction is allowed, but the income may come out tax free).
Tax Tip #5: Most tax planners consider the Roth IRAs to be too good a deal to turn down.
Have an IRA?
If your MAGI will be under $100,000 in 1998, you may be eligible to roll it into the new Roth IRA before January 1, 1999, without a 10 percent penalty, and with a favorable income averaging rule.
Tax Tip #6: Consider accelerating income into 1997 to take advantage of this opportunity.
Does your Spouse Not Work Outside the Home?
A $2,000 IRA contribution may be allowed for 1997 and years later. For 1998 and years later, you may be eligible even if the working spouse is covered by an employer-sponsored plan, as long as your combined MAGI is not above $150,000.
Tax Tip #7: Even if your income is too high to make a deductible 1997 spousal contribution, consider setting up a spousal IRA in early 1998 to take full advantage of the income tax deferral.
Buying Long-term Care Insurance?
Starting in 1997, part of the premiums paid for a qualified policy are deductible as a medical expense, and benefits received up to $175 per day can be excluded from your income.
Tax Tip #8: Make sure you buy a "qualified policy" (one that qualifies as being non-taxable and not employer-provided).
Work at Home?
Congress greatly liberalized the home office rules in the new tax act. Check with your accountant to see if you will qualify.
Tax Tip #9: Unfortunately, Congress did not phase in this new rule until January 1, 1999. However, for 1996 and later years, if you regularly store inventory or product samples, you get a partial home office deduction.
Owe Education Loans?
Starting in 1998, you can deduct (even if you don't itemize) $1,000 per year (the ceiling goes up gradually to $2,000 per year by the year 2001) of interest on education loans. This deduction is allowed only for the first 60 months on which interest is required.
Tax Tip #10: Postpone paying your December 1997 student loan payments until 1998.
|Return to Baltimore||Comments for Webmaster||Return to Life Style Page|