All right, everybody—it's the end of the year. If (to paraphrase George Gilder in The Spirit of Enterprise) you haven't twisted your tax affairs into low-calorie pretzels to feed to the IRS, it's not too late. You see, every tax specialist will rant and rave at length about doing your tax planning beginning in June or July. But since we're not all little IRS-accountant automatons, no one except those with lots to lose pays any attention to tax matters each year until it's almost too late. Like right now.
But fear not. Here are some special recipes guaranteed to help you put the federal government on a leaner diet.
First of all, if you've got a regular tax-jock who does your taxes each year, call him up right now and make him give you an hour or two of his time to talk about last-minute tax angles. He'll be far more efficient than you could be if you were working on your own. Second, tax-helper or no, take a good long look at your overall financial situation for the year. Have you made some big-ticket purchases that will result in big tax savings, such as depreciation write-offs and investment credits? If so, you may want to put off some of your tax dodges until next year, since you're already shifted into a lower tax bracket.
On the other hand, how was your income picture during 1984? Did both you and your spouse double or triple your income this year? You may want to pull every trick in the tax books. But wait! Did you rake in hundreds of thousands of bucks in 1983, only to find the largesse dry up in 1984? In that case, you might want to save your bag of tax tricks for next year, when your income will doubtless be even higher than it was in 1983.
So what do you do when you find that you're going to get socked with a big tax bill next April 15? Above all, don't go baying off after any questionable tax shelters. Good, solid, aggressive tax shelters with aggressive promoters who will be around to defend their babies, yes. The kind of shelters that give Robert Dole an Excedrin headache because they work, yes. But not the fly-by-night outfits that will cost you a bundle when the IRS clamps down on them and everyone who invested in them. How to tell the difference between wheat and chaff? Ask someone in the tax and investment business whom you know is good. Usually someone with one of the big brokerage houses or big accounting firms can give a realistic assessment.
If you own your own business, you should have either a tax advisor or an accountant you can talk to. Go to him or her, pay well for advice at this late date (and deduct the cost), then do what you're told, immediately, and very definitely before December 31. This may mean things like postponing income through various devices or spending big these last few weeks on necessary equipment or machinery, not to mention all those repairs you've been putting off on your business property and equipment. Then there are write-offs for your business—old inventory and bad debts can be taken off the books, resulting in tax savings. Don't forget shifting compensation around, with bonuses (or the lack of them), stock-option plans, 401-K (deferred compensation) plans, and your pension programs. Don't overlook other expenses that can be paid quickly and will benefit you into the next year.
If you're one of the rest of us—those who don't own our own businesses—here are some ideas to consider in the next few weeks. Make some big purchases of things you can deduct, such as a new business-use car or a business computer (but be careful—the 1984 tax act put some very stringent record-keeping rules into effect). Use your Christmas or year-end bonus for deductible purposes, either spending on deductible equipment or supplies, or even just stashing the money in your IRA account (true, you don't need to put the money in until April 15, 1985, but you've got the money now, and the interest it earns from the time you stash it is all tax-free). Also, check out your charitable deductions. Have you got a favorite organization, like the Reason Foundation or the Foundation for Economic Education, that you would like to see prosper? Contribute to them—and let the government pay for part of it.
There's more. Look over your medical bills for the year. If they're already high and you've got a fair chance of exceeding the 5-percent-of-adjusted-gross-income cutoff, go ahead and send everyone in the family to the dentist. Have that operation you've been putting off (or at least pay for it).
Does someone owe you money and you know you're never going to see a dime of it? Well, take the necessary steps to make sure the debts aren't collectible (consult any popular tax book for the rules governing this area), and then take the losses as nonbusiness bad-debt deductions.
How about nonmoney charitable contributions? You can clean out your attic and throw all that old junk at your church for the rummage sale, or give it to the Salvation Army or Goodwill. Ask them for a receipt, but tell them not to put down their estimates of values. You'll take care of that (your deduction is generally what each object cost you or its fair market value at the time you gave it to charity, whichever is less).
There are plenty of other angles to be exploited, but these give a fair idea of the types available. Also, keep in mind that if you had a low-income year in 1984, all of the above advice is reversed. Put all those expenditures off till next year if you think your income will be higher then. After all, it won't make much difference if you put something off for a few weeks until early January—except for tax purposes, which make plenty of difference.
Finally, if you have already made your bundle, remember that the end of the year is the traditional time to take advantage of estate-tax dodges, including the $10,000-per-year gift exemption. This is not an income-tax planning area, but it is something that should be kept in mind to save on the last tax each of us will ever be hit with. (But keep in mind that the nerds on the Potomac who passed and signed the 1984 tax bill froze the estate exemption at $275,000. It was to have increased to $325,000 in 1984 and higher in later years.)
So for all of us who don't like to pay taxes (and who does, other than drooling idiots?) yet didn't do the smart thing by planning for tax savings all year long, it still isn't too late. But you'd better jump on it now, or your beloved rulers in Washington will be thanking you and chuckling at the suckers.
Tim Condon is an attorney and tax specialist practicing in Florida.