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November, 2004 Tax Tip  

2004 Year-End Tax Planning


While it seems there has been at least one tax law enacted every year, would you believe two in one month?   In October, President Bush signed into law the Working Families Tax Relief Act of 2004 and the American Jobs Creation Act of 2004.  These new laws, along with the continuing beneficial provisions of the 2003 law, make year-end planning this year more important than ever before.   My Tax Newsletter article this month will highlight some of the more important provisions of the new 2004 laws which could impact your taxes.


The average family of four pays more in taxes than it does for food, clothing, and shelter combined.  Thus, it goes without saying that tax reduction through proper and timely planning is vital to any family’s budget. What you do between now and the end of the year can, and very likely will, affect the tax burden or refund that you will face next April.  You must know what to do and the proper time to do it in order to take full advantage of the tax savings opportunities available to you.  Tax planning at this time is particularly critical because, once 2004 is over, there are very few opportunities to minimize taxes for the year.

Tax planning involves 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.  An effective tax plan requires 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 2004 as well as reasonable projections of income and deductions for 2005 (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 2004 and 2005 taxes.

There are other good reasons for year-end planning.  By having a projection of your 2004 taxes, you will not be surprised when you get your returns.  Further, It allows you several months to plan for potential payments.  If you have withholdings from wages or other payments, it provides an opportunity to have additional tax withholdings in order to avoid penalties if you have underpaid your estimated tax.  Conversely, if you are making quarterly payments and find that you are overpaid for the year, you may
be able to cut back or eliminate your fourth quarter estimated tax payment that is due on January 15, 2005.  This is particularly helpful in the aftermath of the holiday expenses.  

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.

There are also many non-tax factors that could influence your year-end planning.  Among these are a significant raise or bonus, a change in jobs, changes in the amounts of your business expenses or itemized deductions, birth of a child, a death in the family, or a change in your marital status.

Regrettably many 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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