As with each year, you will want to push income into 2008 while using the remainder of 2007 to make charitable contributions, pay home mortgages, and pay miscellaneous deductions, such as investment fees or a retainer for legal services (i.e., the deduction that is allowed in 2007 saves total taxes between 2007 and 2008). To begin your planning, you will want (a) to coordinate tax planning with the review of your investments for tax loss harvesting or repositioning (see below) and (b) to review the alternative minimum tax (“AMT” – See below). When you pay the AMT, you lose the value of your deductions. Therefore, you need to reverse the general rule from above. To find out what steps to take, you need to create a projection for both 2007 and 2008 to minimize total taxes paid. Here are actions you should consider now to put income and deductions in the proper year for optimal impact:

  • Take income out and push deductions into the year subject to the highest tax rate.
  • To move income, defer salary and bonus not yet earned or delay collection of self-employed receivables. You can also buy treasuries or CDs to shift interest income into 2008.
  • To move deductions, pay the balance of your state taxes or pay sales taxes on car purchases, pre-pay mortgage interest and real estate taxes, make charitable donations, pay job-related moving expenses or other non-reimbursed business expenses, and pay alimony by December 31. Note that gifts of autos to charities are limited to the amount for which the car was sold.

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