Generally speaking, it's always best to put off paying taxes as long as possible, because in later years the effects of inflation work in your favor. Tax brackets increase annually with inflation, so more income falls under the lower tax brackets with each passing year.

Plus, inflation lowers the value of money, making a dollar now more valuable than a dollar later. To put off taxes, consider:

• If you are in a qualified retirement plan, maximize your contributions before year's end to lower taxable income.
  
  
• If you get an annual bonus, try to arrange to have it delayed until just after the start of 2008, so it will be taxed a year from now and in a more favorable tax bracket, rather than right away in 2007.
  
  
• If you are billing clients, at this point, waiting until after January 1 puts that money in the 2008 income bucket, again deferring your tax hit.
  
  
• If you are thinking about taking a large lump-sum distribution from a retirement account, take some of the distribution now in 2007 and some more again in January - spreading out the distribution over two different tax years might keep you from being pushed to a higher tax bracket, thereby losing some of your hard-earned retirement money.

On the flipside, it often makes sense to accelerate into the current year as many expenses and deductions as possible. This will lower your current taxable income. Consider:

• If you have some deductible expenses that will come due early in 2008, you may want to pay them off ahead of time in 2007 - things like business expenses, property taxes or the cost of medical procedures.
  
  
• A special residential energy tax credit is available only through 2007, so some end-of-the-year home improvements could lower your tax bill.
  
  
• If you can afford it, charitable deductions lower your taxable income, so give before December 31.
  
  
• If by law you must take a retirement fund distribution, you can donate the money pre-tax, ensuring your tax brackets are unaffected and the charity gets the most out of your generosity.

Of course there are exceptions to every rule, which is why it is so important to examine your own situation closely. A couple of upcoming law changes may cause you to break the above-mentioned rules about deferring income and accelerating deductions:

• For 2007, a child under the age of 18 is subject to having unearned income (usually investments) above $1,700 taxed at the parents' highest marginal rates; for 2008 it applies to dependent children under the age of 19 (24 if a full-time student). If your dependent child (18 or older) has this income and will be in either the 19- or 24-year-old categories in 2008, the taxes due will be lower by selling the investments now and paying the capital gains tax, instead of waiting and paying at parents' higher income tax rate in 2008 and beyond.
  
  
• For 2008 through 2010, those taxpayers in the 10- and 15-percent tax brackets are eligible for a special capital gains rate of 0 percent. For retirees and some families, it would make sense to accelerate their income into 2007, so 2008 leaves them with lower taxable income, possibly making them eligible for this special capital gains rate. Consult your tax advisor about such a move.

Unfortunately, tax planning this year requires dealing with a certain level of uncertainty. As of this writing, Congress has yet to approve legislation that would shield some 20 million middle-class taxpayers from the effects of the alternative minimum tax (AMT). Without legislation to adjust the AMT for inflation, the average tax bill would increase by $2,000 for those newly ensnared by it. Taxpayers and the IRS anxiously await the resolution of this situation.

Stay tuned to CompleteTax for the latest information and changes regarding the AMT and the 2007 tax filing season!

Tax Guide 2008

Reducing Your Tax Rate
A basic understanding of the income tax brackets can help you to make sound tax planning decisions.   For further advice on how to manipulate your income and expenses, please read Reducing Your Tax Rate.

Reporting a Child's Income
The tax rules regarding a child's unearned income can be tricky. Without careful planning, this money might be taxed at very high rates.   For more on this subject, please review Reporting a Child's Income.

Gifts to Charities
It's the season of giving, and for good reason. A few well-timed donations could help some needy charities and reduce your tax bill.   For more on this topic, please review Gifts to Charities.

Tax Credits Benefiting the Environment
The tax code encourages certain types of behavior deemed worthy by the government. Among them are certain incentives to save energy.   To learn more about lowering your tax and energy bills, please read Tax Credits Benefiting the Environment.

Tax News

Delayed Start to 2008 Filing Season Could Mean Numerous Problems for IRS, Taxpayers

Congress has been unable to complete needed legislation for the upcoming tax-filing season, which is impacting IRS operations. Ultimately, though, taxpayers bear the brunt of a delayed start to tax filing season, with higher costs for the IRS, untimely refunds for filers, more taxpayer confusion and a higher likelihood of errors for all involved.   For further details, please read Delayed Start to 2008 Filing Season Could Mean Numerous Problems for IRS, Taxpayers.

Clean Patch for AMT Clears Senate

After months of needless delay, a bipartisan Senate overwhelmingly approved a fix for the Alternative Minimum Tax, sparing some 20 million taxpayers from being overcharged by a temporary surtax. House Democrats, however, threaten to kill the measure because it doesn't include offsetting tax increases.    To find out more, please read Clean Patch for AMT Clears Senate.

No Changes Anticipated in Tax Extenders Package

With the start of the upcoming tax season being delayed by congressional inaction, observers are left to guess at what will be included in the final tax bill of the year.    For more information on this important topic, please read No Changes Anticipated in Tax Extenders Package .

"Crisis Looming" for Small Tax Exempts: IRS Taxpayer Advocate

New IRS rules for 2007 require all small tax-exempt organizations to file a special electronic return with the federal government or risk losing tax-exempt status.    For further details, please read "Crisis Looming" for Small Tax Exempts: IRS Taxpayer Advocate.


Tax News Archive

For more stories and features on federal, state and payroll tax issues and how they may affect you, read the listing of articles in the archive.

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