• Time your income and deductions so that your taxable income is about even for 2000 and 2001 in order that your tax bracket remains the same. If you anticipate being in a higher tax bracket for 2001, accelerate income into 2000 and defer deductions into 2001. Income can be delayed through setting up deferred compensation arrangements, postponing year end bonuses, maximizing deductible retirement contributions, and delaying year end billings.
• Maximize the value of itemized deductions between 2000 and 2001. Some taxpayers achieve this balance by paying all bills that generate itemized deductions in one year. Itemized deductions for medical expenses are allowed only to the extent they exceed the 7.5 percent adjusted gross income floor; miscellaneous itemized deductions must exceed a 2 percent "AGI" level. Still others may need to balance income if they anticipate exceeding the income level above which certain itemized deductions must be reduced ($128,950 in 2000); or the level beyond which personal exemptions, ROTH IRAs, the child credit, and education tax credits are either limited or denied;
• Compute whether you are in danger of being subject to the alternative minimum tax for 2000 or 2001 (a growing number of "average" taxpayers are). If necessary, investigate whether certain deductions should be more evenly divided between 2000 and 2001 for AMT purposes;
• If you're in business, consider timing final quarter equipment purchases to capitalize on "half-year" and "mid-quarter" conventions; and space the purchase of depreciable assets to take full advantage of the $20,000 immediate write off allowable in 2000 and the $24,000 write off allowed in 2001;
• Time the recognition of capital gains and losses to minimize net capital gains tax (and maximize deductible capital losses). This involves an often complicated process of determining short term gains (taxed as ordinary income), long term gains, short term losses, long term losses, "25%" depreciable gains, and "28%" gains and losses, and then determining how you might vary the mix before year end to maximize existing losses and minimize existing gains;
• Income shifting between low bracket family members and higher bracket members usually starts with transferring income producing assets before the start of another tax year, followed by careful timing of year end sales to maximize use of the lower tax bracket.

In addition, changes in circumstances, such as marriage, divorce, the birth of a child, death, retirement or an economic windfall through the stock market, earnings or inheritance, may signal a special need for year end tax planning. Once January 1, 2001 rolls in, however, it will be too late to alter most of your bottom line tax liability for 2000 due to these, or other "more ordinary" events.

If you are interested in investigating what year end tax planning will work best in your situation, please contact our office.