WASHINGTON -- During December's bustling days of holiday shopping and family get-togethers, people could save themselves some money in April by making a few key tax moves, financial advisers say.
For the most part, Dec. 31 is the cutoff date for taxpayers to realize benefits on their 1998 federal returns. People who itemize deductions -- an estimated 35 million in 1996 -- have the most at stake."Now is the time to make sure you have done everything to minimize the taxes due," said Sandra Soltis, a partner with Blackman Kallick Bartelstein accountants.
Some actions are simple, such as paying the January mortgage bill in December to deduct the interest on this year's tax return. Others are complicated, such as selling poorly performing stocks to take advantage of capital gains tax rules.
"No single plan can reduce or defer taxes for all taxpayers," said Michael Wolff, managing tax partner at the Grant Thornton accounting firm. "To be effective, the plan must be tailored to your circumstances."
Still, tax advisers say millions of middle-class taxpayers should consider a few key things.
Converting a regular individual retirement arrangement, or IRA, to a new Roth IRA is one such item. Roth IRAs are advantageous for many people because withdrawals are tax-free if they are made after age 59 1/2 and the money has been in the account at least five years.
There is an up-front tax on the amount converted. But if the conversion is made by Dec. 31, the tax can be spread out over four years instead of just one. That installment plan disappears on New Year's Day.
To make the conversion, adjusted gross income must be less than $100,000 for individuals and couples. For people at the cusp, a few steps in the coming weeks could ensure the level is reached.
For instance, a self-employed person could defer an income payment until January, or a wage earner could ask the boss to put off that end-of-year bonus a few weeks.
"You have to be in a situation where your income is flexible," said John Gardner, senior manager at KPMG Peat Marwick accountants.
Minimizing adjusted gross income, a taxpayer's earnings before itemized or standard deductions or personal exemptions are subtracted, also could help a family take advantage of the new $400 per-child tax credit and new education credits. Those credits are phased out above certain income levels.
Steps also can be taken to bulk up itemized deductions.
Some tips:
--Increase charitable contributions. Be aware the Internal Revenue Service requires a receipt for giveaways above $250.
--Pay state or local taxes in advance, including property taxes.
--Pay the January mortgage bill early and make sure the check is dated in December.
--Delay investing in a mutual fund, because taxable distributions are typically made in December.
--Pay outstanding medical bills early; these expenses are only deductible above 7.5 percent of adjusted gross income.
--Pay 1999 dues to professional organizations in 1998.
For investors, the key is whether a net capital gain or loss is projected. Taxes are imposed on net gains, but a deduction of up to $3,000 is permitted for a net loss -- meaning an investor may want to unload some poorly performing stocks at a loss to reach the maximum.
"It makes sense, if that is your investment philosophy, to go ahead and sell those dogs," Gardner said.
One other way to reduce long-term tax liability, particularly inheritance taxes, is to give away money. The law allows tax-free gifts of up to $10,000 each year to each of an unlimited number of people.
"For somebody who can afford to give away money, it is a good way to start your estate planning early," Gardner said.
One cautionary note on deductions: Too many could trigger the alternative minimum tax, which is intended to ensure that higher-income taxpayers pay at least some tax but can trap others who have tax shelters. The alternative tax often is higher than regular taxes. A local IRS office or tax professional can provide details.