11/19/2007 by Beth Erickson

Most people don’t want to think about their taxes until April. But a simple check into your finances now could mean some extra green in your pocket come spring.

“So much of your tax return is timing,” says William Seitz, CPA, and vice president of Kolquist, Seitz and Goldman, the Duluth accounting and tax consulting firm. “We really encourage people to sit down now and look at their finances.”

But how do you know what to look for? While the easiest solution is to hire an expert to handle your finances, there are some general things to watch for.

This time of the year marks a good time to review your capital gains and losses. In most cases, you want your losses to be in the same year as your gains so they offset each other. “Normally, if you can match up your gains and losses, it is better for the person filing,” Seitz says.

“The last thing you want to do is to have a $20,000 gain in December and a $20,000 loss the following January.”

When reviewing your portfolio, also take a look at your retirement plan. If you have some extra cash on hand, consider maxing out your 401K or IRA.

If you find yourself with potential capital gains and are in the 15 percent bracket, it may make sense to hold off on posting gains until 2008 if you can. The Capital Gains tax law provides for those qualifying in the 15 percent bracket, to pay zero tax in the 2008 tax year, versus 5 percent in 2007.

If you can’t, there are several ways to move assets in non-tax deductible ways, regardless of your tax bracket. “Each year, you have the option of gifting $12,000 per person ($24,000 per married couple) to someone else,” says Richard Burns, an estate planning attorney at the Hanft Fride law firm. “It can be done through stock or land, and not necessarily cash and will not be part of your taxable estate without any cost.”

Another suggestion from Burns is to dump extra cash into educational plans for your grandkids. “A lot of people don’t recognize that married grandparents have the option of giving up to $120,000 to a 529 Plan for educational purposes at one time,” he says. It will limit what you can give to the same person for five years, but it will be out of your estate, in whole or in part, and can grow tax-free as well as being distributed tax free.

This also is a good time to look at energy saving windows and doors, along with insulating your home. As of 2006, many of these simple “green” upgrades allow you to apply for an energy credit. And if you are green conscience, you always have the option of buying a hybrid car and applying for a different tax credit. Seitz just suggests you ensure the model you are buying still qualifies for the credit. “Only up to a certain number sold of the qualifying models get the tax credit,” he says. “Before buying, you want to confirm that the model you are

purchasing still has tax credits available.”

If you are short on itemized deductions, consider a bunching strategy.

Paying deductible expenses before year-end can accelerate your tax deduction and may allow you to itemize when you otherwise cannot.

“One way to accomplish this is to pay your medical expenses with your credit card in December,” Seitz says. “That way you can claim the expenses this year but pay them off of your credit card next year.”

For those who count on itemizing donations to charities, be sure to keep your receipts. “New in 2007 is something that will affect everyone claiming charitable deductions,” Seitz says.

For the first time, filers need to provide proof, through either a cancelled check or receipt from the charity, regardless of the amount. This means, if you donated $5 in cash to a church and you don’t have a receipt, you cannot claim it on your taxes as a tax-deductible gift.

The rule goes on to say if you gift more than $250, you need written acknowledgement from the organization. “This came about because the government believed too many people were abusing charitable gifts and claiming cash gifts they never gave,” Burns says. “Another tip is to make any significant charitable gifts with stock, as you avoid the capital gains if you held the stock for a year and the documentation will be done,” he says.

Finally, before you make any big life changes, consider talking to your accountant. “We just had someone call up and ask if they should get married this year or next year. While I’m not encouraging couples to hold off on marriage, if there is some flexibility in the date, it is worth looking into,” Seitz says.

While most people want to wait until April to even start thinking about filing, taking a moment now to make that call or set-up an appointment will only make life easier come spring.

Beth Erickson is a freelance writer and media buyer/account executive assistant with The JPG Group, a full service marketing, advertising and e-communications firm. You can contact her at beth@jpgonline.com.

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