Each year, savvy individuals review their tax picture to date and determine the steps they should complete before the end of the year in order to minimize their tax bill. This year is especially challenging for year-end tax planning because of several factors: the economy, the number of tax breaks that are expiring, and the potential for adverse tax changes in the future. The sooner that year-end planning begins, the more opportunities there are for tax savings.
General Planning Strategies
Conventional wisdom suggests that wherever possible, income should be deferred to next year or later years and deductions that might otherwise be taken next year should be accelerated into this year. Conventional wisdom should not automatically be applied at this time. This wisdom is predicated on the thought that a taxpayer’s tax rates could be lower next year due to indexing of tax brackets, having lower income, or a reduction in tax rates. At this time, none of these reasons may apply:
