The subject of taxes—particularly income taxes—is a nasty one. Perhaps that's why we taxpayers refuse to think about year-end tax planning until it's too late, thus giving the government millions of extra tax dollars yearly.
Well, the time for such planning—which should be done around September or October—is long past for this year. If you haven't talked with your tax advisor or preparer before now, there's little chance to come up with the kind of tax ploys that can net you thousands.
There are, however, a number of small actions you can take—if you act right now, before December 31—to save a few dollars, maybe more. With that in mind, here are some tax-saving moves for the last few weeks of 1978:
• Perhaps the most important thing you can do is rush down and see your tax man. After a "dry run" is done with your return to ascertain your tax position, the specialist can probably think up a few shrewd last-minute moves to save some money.
• If you find you're going to be hit for a bundle this year, you can quickly increase your deductions for 1978 by making last-minute business expenditures on things such as office supplies, equipment, furniture, repairs, advertising, etc. The only rules are that you must be on the cash accounting method and the expenditures must not be "excessive" by IRS standards (which is obviously a very "grey" area).
• If you're buying capital goods, or in the process of installing them, finish the job quickly. If such materials are "in service" by December 31, you'll be eligible to take an accelerated depreciation write-off, as well as the lucrative investment credit.
• You may want to defer income, if the chance exists. One legal way to accomplish this is by deferring the final delivery of your own goods or services to your customers; you may want to do this only if you're on good terms, and let them know what's happening. Simply putting off billing for goods or services can lead to arguments with the IRS over possible tax fraud, if they ever notice it, and if they can prove you were doing it only to reduce taxes. So watch out.
• If you own a corporation, savings can be had by shifting income back and forth between you and the company, depending on which has the lowest tax bite. This can be done with year-end salary increases, bonuses, and so forth. Your tax specialist knows how to do it.
• There are myriad expenditures that can be made to boost Schedule A deductions. For instance, have you paid off all those medical bills? Need to stock up on medicine cabinet drugs? Have you totally paid up your medical insurance? Do so.
• You can always pick up a bunch of deductions by contributing to one charity or another: the only rule is that you may not deduct more than half your adjusted gross income. This includes not only cash contributions to organizations like the Red Cross, the Reason Foundation, or your local help center but also noncash contributions. Got an attic full of old junk you've been meaning to get rid of? Well, pile it up, take it down to a Salvation Army or Goodwill store, and get a receipt for it. You then put a fair-market value on the mess and put the amount in with your itemized charitable deductions.
• There are other nonbusiness deductions besides those on Schedule A. For instance, one of my favorites is the "credit for contributions to candidates for public office." This is an ultimate in self-serving politicians' ploys but one that nicely backfires. Simply donate the maximum amount to a rabid antitax, antibureaucrat candidate (libertarians are famous for such stands). If you file a single-person's tax return, donate $50 for a maximum credit off your taxes of $25. If you're filing jointly, donate $100 for a maximum $50 tax credit.
• How about child- and dependent-care expenses? Pay them off if there are any pending, then make sure you've spent enough during the year to get up the maximum allowable credit.
Finally, I should mention that there are two schools of thought in the area of spending-in-order-to-save-on-taxes. One side says that expenditures shouldn't be made solely to save taxes—because each dollar spent will only save part of a dollar, the part depending on the tax bracket involved. The other side holds that if any reasonable excuse can be made to spend money so that it won't go to the government, do it.
I like the second side. Since the huge majority of our problems stem from government and the money it has to play with, it becomes almost a moral obligation to pay as little as possible. Besides, if you spend for something, you'll have the benefit of it, whatever it may be. But if the money goes to the government, you take a loss no matter what: the funds will simply be used to further regulate and harass you.
If you can keep the money out of their hands, and even sometimes make deductions work against the bureaucracy…well, it's a satisfying feeling to both save money and fight the hogs sucking so contentedly at the public teat.
This article originally appeared in print under the headline "Taxes: Year-End Tax Ploys".