Improving your tax strategy.

• Author: Branson, Kevin

Practical ways to save on your income tax payments.

Figuring out your best tax strategies can be one of the most economically rewarding uses of your time. Think of it as an investment that will bring you benefits far into the future.

The most important element of tax planning is to know the tax laws that affect you. If you do not know the tax rules and find it difficult to make time to learn them, your first strategy should be to sit down with a qualified tax professional. Though you'll need to spend some money to lower your taxes, hopefully the professionals you choose will cost a lot less than the dollars they save you in taxes.

FIRST, PROJECT YOUR INCOME

Before you can start working on a strategy, you need to project at least two years of taxable income and tax liabilities.

Currently, it does not look like there will be a tax rate change for 1994 and 1995. Therefore, tax planning should be done based on your marginal tax bracket for 1994 and 1995 using the following guidelines:

(1) If you expect to stay in the same marginal bracket for 1994 and 1995, consider deferring income and accelerating deductions.

(2) If you expect to be in a higher marginal tax bracket in 1995, consider accelerating income and deferring deductions.

Many strategy suggestions are outlined below. Identify which of these ideas fits either of the guidelines above that you chose, then follow through on the ideas that best fit your tax situation.

STRATEGIES FOR INDIVIDUALS

Do you have or expect high amounts of non-reimbursed medical expenses and low income? Medical expenses should be grouped into one year so that the costs double up. It is possible to go over the 7.5 percent limit of adjusted gross income in such cases. Do not forget you can pay expenses with a credit card in 1994 and still deduct it on your 1994 tax return, no matter when you pay your credit card bill.

Miscellaneous itemized deductions reduce your adjusted gross income by 2 percent. You should group miscellaneous expenses into the year with the lowest income to get the highest deduction. Also, consider allocating the deduction to a business schedule. For example, accounting fees can be partially allocated to a sole-proprietorship business and deducted on Schedule C of your Form 1040.

Are you thinking about donating property? You generally need a qualified appraisal if the value of the property is more than $5,000. Publicly traded securities are not required to have an appraisal.

New for 1994 is the...