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YEAR END TAX-PLANNING STRATEGIES FOR 2007

Although there are only a couple months left in 2007, you still have time to save income taxes for this year. The federal tax law provides many opportunities for taxpayers to cut their tax bills. All you need to do is identify the right planning strategies for you and then implement them.

See Where You Stand Income-wise

Take out your last pay stub and see how much income you’ve earned this year. Take a look, too, at your savings and investment statements and any other paperwork showing how much investment income you have earned. Then, estimate how much more salary, interest, dividends, and other income you might expect for this year. Add up the totals to see how your estimated 2007 income compares to last year’s total income. Use that comparison to estimate how much more or less income you are likely to have this year.

Itemized Deduction Planning

If you expect to itemize your deductions on your tax return, think about paying deductible expenses before the end of the year to lower your 2007 taxes.

Deductible Interest. Consider making your January 2008 mortgage payment (which includes December’s interest) in late December 2007, so that the interest will be deductible on your 2007 return.

Charitable Contributions. If you are planning to make a charitable donation in early 2008, consider a 2007 year-end donation instead. Contributions charged on your credit card in 2007 count as 2007 deductions, even if you don’t receive or pay the credit card bill until 2008.

Note that, for contributions made in tax years beginning after August 17, 2006, you can’t deduct any contribution of cash, a check, or other monetary gift unless you maintain as a record of the contribution a bank record or a written communication from the charity showing its name, plus the date and amount of the contribution.

Medical and Miscellaneous Itemized Expenses. Your deductions are limited to the amounts that exceed 7.5% of adjusted gross
income for medical expenses and 2% of adjusted gross income for miscellaneous expenses. Bunching two years of your or your family’s unreimbursed medical or miscellaneous itemized expenses (such as certain job-related expenses and investment expenses) into one year may allow you to surpass the deduction floors and help you gain a deduction for part of your expenses.

Taxes. If you pay quarterly estimated state income taxes, consider paying your last 2007 estimate before December 31, so that it will be deductible on this year’s tax return.
Employees who have state income taxes withheld from their pay may wish to increase the amount withheld from their remaining 2007 paychecks to cover any projected underpayment.

If you are a high earner facing a limitation on your itemized deductions or if you expect to be in a much higher tax bracket in 2008, accelerating deductions into 2007 may not be your best move. In addition, if you claim high deductions in 2007, you may be subject to the alternative minimum tax. See us for more details and to develop an appropriate strategy for your specific situation.

Tax Deferral Ideas

Review your opportunities to push taxable income into a later tax year. Deferral strategies are especially effective if you expect to be in the same or a lower tax bracket in the year in which you will be reporting the income on your tax return. Any of these strategies may help cut your 2007 tax bill:

· Ask your employer to defer paying your 2007 year-end bonus until early 2008.

· Maximize 2007 contributions to any tax-deferred retirement savings plan in which you participate, such as a 401(k) plan or a 403(b) tax-sheltered annuity.

· If you are self-employed and use the cash method of accounting for income-tax purposes, time late 2007 customer billings so that payment won’t be received until 2008.

If you are self-employed and do not already have a tax-deferred retirement plan, you might consider starting one before year-end. Options to examine include a so-called “solo 401(k)” plan, a Simplified Employee Pension (SEP) plan, or a SIMPLE 401(k) plan. We would be happy to discuss the advantages and restrictions of each type.

Business Tax Breaks

Be sure to take full advantage of the business growth incentives that the tax law gives you.

Included among these provisions is the ability to write off up to $125,000 of the cost of qualifying business assets in the year of purchase (rather than depreciating the assets over time). And, if your business is involved in manufacturing or other “production activities” (which include such diverse activities as qualified property leasing, U.S. construction and architectural services, and qualified movie or TV film production), your company may be entitled to a deduction for a percentage of its business income from those activities. See us to learn about the requirements you need to meet to take advantage of these tax breaks.

Investment Strategies

If you have investments with paper losses and you are thinking about selling any of your poor performers before the end of the year, remember that capital losses offset the capital gains you may have realized. And any net loss is deductible against up to $3,000 of ordinary income per year.

Consider selling appreciated stock or other investments on which you have “paper gains” before year-end to absorb any capital losses that exceed $3,000 per year. If this is not desirable, any unused capital losses for 2007 may be carried forward for deduction in future years, subject to limitations.

Remember, too, that the maximum tax rate on 2007 qualifying dividends and net long-term capital gains is 15%. Ordinary income tax rates range as high as 35%.

Be aware, though, that taxes are just one factor to consider in making an investment decision. Please contact us for help evaluating the tax effect of any proposed transaction.

Expiring Provisions

A couple of beneficial income-tax breaks are scheduled to expire at the end of 2007. If you qualify, you might want to consider taking them.

IRA Distribution to Charity. An income exclusion is allowed for otherwise taxable distributions of up to $100,000 a year paid to a qualified charity from a traditional (or Roth) IRA. The IRA owner must be at least 70½ years old.

Residential Energy Credit. A tax credit may be claimed for residential energy efficient property placed in service before 2008. The credits range from 30% (up to $2,000) for qualified photovoltaic property or solar water heating property to as much as a $500 credit for lesser energy efficiency measures.

We Stand Ready

Our tax professionals are ready to provide you with personal and business year-end tax planning assistance. Call us for an appointment to review your specific situation.

The general information in this publication is not intended to be nor should it be treated as tax advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, you should seek advice from your tax advisor based on your particular circumstances before acting on any information presented.