After Christmas time, comes … TAX TIME
By Herb Drill
Oh, my God, it’s a new year and we have to start looking for 2003 tax receipts and begin dreading April 15 – at least in the U.S., and especially if you’re self-employed and/or own a business
Uncle Sam will be seeking his cut of the pie – if you’re lucky enough not to have been downsized – or even if you have.
Let’s assume you want to keep your 2003 taxes as low as possible. Well, chum, you already missed the boat. But think of next years.
Jeff Brown, a syndicated columnist who appears in the Philadelphia Inquirer (my alma mater) claims the “most valuable tax maneuvers have to be completed by the end of the calendar year, and some take time to implement. Also, the federal tax cuts passed in May cause some changes in the annual year-end tax-planning ritual.”
The basics remain the same, however. Eventually, you’ll have to pay a tax on a profitable investment, but “postponing it leaves that tax-payment money compounding in your accounts longer,” Brown explains. The “main exception” is the person who expects to be in a higher tax bracket, so it makes sense to pay tax at today's lower rates.
My wife, a very competent CPA, says taxes are postponed most easily by delaying receipt of income. (I’m a writer; what income?)
If you have accounts receivable, you can hold off sending the bill so you won't receive payment until after Dec. 31. Or you can ask your boss not to pay your year-end bonus until 2005. If you have the stomach for the stock market, investors have chances to reduce taxes by selling money-losing investments. Many stocks and mutual funds are still trading well below peak prices of several years ago, meaning you can sell shares for less than you paid for them.
But don't buy or sell an investment just to save taxes, Brown admonishes. The investment's prospects come first. A holding which has lost money may well be worth keeping if its future looks bright; a winner you love is worth selling if you think it has seen better days.
The Wall Street Journal had some other ideas. It reported that in a move that could save some taxpayers more than 30% on such things as aspirins and cough drops, the U.S. Treasury Department in 2003 opened the door for people to pay for over-the-counter drugs out of pretax money It’s only one of government-approved tax deductions which exceed the usual breaks for retired investors or homeowners.
Millions of workers are now eligible to set aside money for such expenses as parking and subway passes, babysitters, and even Tums, The Journal stated.
Many of the latest breaks seem more about helping people cope with everyday expenses than about encouraging good investment behavior, but the rules include odd distinctions which can make it hard to sort out how to use them. For example, the cost of summer day camp for kids can be reimbursed -- but not the cost of overnight camp. Over-the-counter cold medicine is covered; vitamin C isn't unless a doctor orders it.
Most important is this: however depressing it is to think of April 15, you’re still here to want to avoid thinking of it.