New Millennium Tax Planning.

• Author: SCHNEPPER, JEFF A.
• Position: Brief Article

THE DAWNING of the new millennium is also the fresh start of a new tax year. While the last thing on your mind is 2000 taxes, that is exactly when you should start planning. The earlier you design a strategy, the more opportunities you have to correct, amend, or reformulate it as economic and financial changes demand.

1. Know the tax you have to pay. If you pay estimated tax, Jan. 15 is the due date for your final payment for 1999. Your first 2000 estimated payment isn't due until April 15. You don't want to pay any more than you have to, so you base your 2000 estimated tax payment on your 1999 total tax, which you should know by April 15. If you pay at least 100% (106% if your 1999 adjusted gross income is more than $150,000) of your 1999 total tax, even if you owe more, there will be no interest or penalty.

   Be careful, however. If you do owe more money, you will have to come up with those additional dollars when you file your return. What I suggest is that you monitor your income and expenses on a quarterly basis. If you see that your taxable income is increasing, rather than upping your estimated payments, put extra dollars to cover the increased tax into a special money market account that you plan to empty when the tax is due. That way, you get the interest on the extra dollars, rather than the IRS.

2. Start bunching. If you itemize deductions, there are many expenses that are not allowed unless they exceed a specified floor level. For instance, medical expenses are only allowed to the extent they exceed 7.5% of adjusted gross income. If your adjusted gross income is $100,000, the first $7,500 of medical expenses don't count. Alternatively, miscellaneous itemized deductions--such as unreimbursed business expenses, investment expenses, etc.--are only allowed to the extent they exceed two percent of your adjusted gross income. In the example above, the first $2,000 of those expenses would not be allowed.

   The solution here is to bunch your expenses so that they exceed these floor levels. Accelerate (or defer) elective medical treatment such as orthodontia. Prepay for two years of investment publications; prepare to prepay your accountant for your 2000 tax return (due in 2001) to get the earlier deduction; etc. The key is to pile deductions into a year where they are allowed and to avoid or at least minimize them when they give you no tax benefit.

3. To Roth or not to Roth? If you qualify (income limits phase out from $95,000 to $110,000 for...