Tips to reduce taxes
before year’s end

As the busy holiday season approaches, don’t forget to put tax planning on your “to do” list. It sounds dull, but it could make a big difference in your tax bill next spring. Consider the following ideas — you may find one that just fits your personal tax situation.

Clean out your closets: Making noncash charitable donations is a great way to support the community while saving taxes. Devote one day to gathering and donating household items in good condition that you no longer want — clothing, exercise equipment, etc. Be sure to keep a list of what you gave, its estimated “thrift shop” value and get a receipt. An added bonus: You get extra space by cleaning house.

Over age 70? Take your “MRD”: Don’t miss the Dec. 31 deadline for withdrawing your annual “minimum required distribution” from your IRA or other retirement plan. Failure to take the MRD costs a stiff 50 percent penalty. You get extra time for the first one — until April 1 of the year after the calendar year when you reach age 70. New this year: If you don’t need the money and want to donate to charity, you can give up to $100,000 of your IRA directly to charity without recognizing the income on your tax return. You must be over 70, and it counts as an MRD.

Set up a retirement plan: The simplest plan for a small business is the SEP-IRA, which can be set up anytime before the extended tax return due date. But if you have lots of profits and want to sock away as much as possible, you could set up a 401(k) plan. This needs to be done before Dec. 31 to be effective for 2006.

Check your investments: The limit on deducting net capital losses is $3,000. The rest is carried over to 2007. If you have excess losses, consider selling other stock to trigger gains at no extra tax cost. You can always buy it back if you want. On the flip side, if you sold some property at a big gain this year and are bracing yourself for the tax hit, consider selling stock at a loss to soften the blow. Wait at least 31 days to buy it back; otherwise, you can’t deduct the loss.

It’s better to give: If you’re in a position to make large gifts to family and friends, don’t forget that you can reduce your estate tax by making annual gifts up to $12,000 per donee with no reporting requirements. There is no limit on the number of donees. After Dec. 31, this opportunity is gone for 2006.

There are lots of great ways to reduce taxes before year’s end. However, each taxpayer is unique. Take an hour to rough out your estimated tax, or sit down with your CPA. Checking your 2006 tax picture now is the best way to discover what year-end tax strategies work best for you.