November, 2002 Tax Tip
2002 Year-End Tax Planning
The average family of four pays more in federal, state, and local taxes than it does for food, clothing, and shelter combined! Therefore, it goes without saying that tax reduction through proper and timely planning is vital to any family’s budget. What you do now can, and will, affect the tax burden, or refund, which you will face next April.
Tax planning is simply arranging your tax-related transactions in order to either permanently escape tax, defer the payment of tax for one or more years, and/or ultimately pay the tax at a lower rate.
The reason year-end tax planning is so important is that once 2002 is over, there are virtually no opportunities available to minimize taxes for the year. Proper planning involves an analysis of each taxpayer’s unique situation and provides recommendations for reducing taxes. This is done by taking into account what has occurred and can still occur in 2002 as well as reasonable projections of income and deductions for 2003 (and in some cases later years). The objective is to reduce the combined tax burden for both years. If you put it off, you run the risk of missing out on many strategies that could considerably reduce your combined 2002 and 2003 taxes.
There are other good reasons for year-end planning. By having a projection of your 2002 taxes you will not be surprised when you get your returns, and it allows you several months to plan for potential payments. If applicable, it also provides an opportunity to have additional tax withholdings in order to avoid penalties for underpayment of estimated tax. Conversely, if you are making quarterly payments and find that you are overpaid for the year, you may wish to cut back on your fourth quarter estimated tax payment that is due on January 15, 2002.
Some of the more common year-end tax strategies deal with the proper year in which to take income and deductions, investment planning, business planning (including purchase of assets), and retirement planning.
Regrettably an alarming number of tax professionals do not offer this valuable service and their clients could, and very often do, pay a BIG price unnecessarily.
I would be most happy to review your tax situation and assist you in saving tax dollars through effective year-end planning.
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