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Remember the end is near... of the year that is!
Tip of the Month
November 2002
Remember the end is near... of the year that is!
New Saverâs Credit
This new credit will make saving for retirement even more appealing to some workers. Tax credits come into play after you calculate how much you owe and reduce your tax bill dollar-for-dollar. For, example, if the tax you owe is $1,000 and you are eligible for a $500 credit, the check you have to write to the IRS is cut in half. Filers who meet certain earning limits will be able to claim the new Saverâs Credit on their returns but only if they sock away some retirement savings. In some cases, thrifty taxpayers can reduce their tax liability by as much as $1,000. Check with your CPA for details on this new credit.
Flexible Spending Accounts
This time of the year is a good time to review and make changes to your employee benefits. If your company offers a flexible spending account or cafeteria plan, these will allow you to withhold money from your paycheck that you can later use to pay for medical or child care expenses. Since the contributions are taken out before payroll taxes are figured, the system reduces both income and Social Security tax liability while setting aside money an employee will need to cover expenses anyway.
Evaluate your investments!
These last two months of the year offer the final chance to assess your investment portfolio and potential tax consequences. Throughout the year, mutual fund managers sell holdings and pass along any profits from those sales to shareholders as capital gains distributions. That means that even if your fundâs overall value declines, you could still owe capital gains tax on these pass-through distributions. To find out how much of a tax bite to expect, check with your fund. If your holdings have simply shrunk, sell down investments and apply the loss as an offset to capital gains. You had no gains? Then use up to $3,000 of your capital losses to reduce your âordinaryâ wage and salary income.
Maximize deductions
Know is the time to explore ways to take full advantage of tax-cutting deductions. You can only claim medical expenses that exceed 7.5% of your adjusted gross income. Do you have any outstanding bills or procedures to be done before December 31 to put you over this threshold? Also, donât wait until the last minute to make noncash donations to your favorite charity. You may get into too big a rush during the holidays and miss out on reducing your tax bill. Ask your CPA what other deductions would benefit your personal situation before year-end.
This new credit will make saving for retirement even more appealing to some workers. Tax credits come into play after you calculate how much you owe and reduce your tax bill dollar-for-dollar. For, example, if the tax you owe is $1,000 and you are eligible for a $500 credit, the check you have to write to the IRS is cut in half. Filers who meet certain earning limits will be able to claim the new Saverâs Credit on their returns but only if they sock away some retirement savings. In some cases, thrifty taxpayers can reduce their tax liability by as much as $1,000. Check with your CPA for details on this new credit.
Flexible Spending Accounts
This time of the year is a good time to review and make changes to your employee benefits. If your company offers a flexible spending account or cafeteria plan, these will allow you to withhold money from your paycheck that you can later use to pay for medical or child care expenses. Since the contributions are taken out before payroll taxes are figured, the system reduces both income and Social Security tax liability while setting aside money an employee will need to cover expenses anyway.
Evaluate your investments!
These last two months of the year offer the final chance to assess your investment portfolio and potential tax consequences. Throughout the year, mutual fund managers sell holdings and pass along any profits from those sales to shareholders as capital gains distributions. That means that even if your fundâs overall value declines, you could still owe capital gains tax on these pass-through distributions. To find out how much of a tax bite to expect, check with your fund. If your holdings have simply shrunk, sell down investments and apply the loss as an offset to capital gains. You had no gains? Then use up to $3,000 of your capital losses to reduce your âordinaryâ wage and salary income.
Maximize deductions
Know is the time to explore ways to take full advantage of tax-cutting deductions. You can only claim medical expenses that exceed 7.5% of your adjusted gross income. Do you have any outstanding bills or procedures to be done before December 31 to put you over this threshold? Also, donât wait until the last minute to make noncash donations to your favorite charity. You may get into too big a rush during the holidays and miss out on reducing your tax bill. Ask your CPA what other deductions would benefit your personal situation before year-end.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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