Start now to reduce 2000 tax bill

April 15 is a long way off, so you can forget about taxes until next year,

right? Wrong!

Now is a good time to focus on your 2000 tax liability. There are many

ways to cut your tax bill, and there is plenty of time to do it. Here are

some strategies to consider:

* Donate appreciated assets to fund charitable gifts.

You and your charity can benefit if you donate appreciated assets instead

of selling the assets and donating the after-tax proceeds. The savings can

be significant, depending on how much capital gains tax you would have paid

on the sale.

For example, suppose you are in the 36 percent bracket and plan to make

a gift to a charity of appreciated securities worth $100,000 for which you

paid $40,000. You must choose between gifting the securities outright or

selling the securities and giving the cash proceeds. The gift of stock allows

you to take a full $100,000 charitable gift deduction and permanently avoid

$12,000 of tax on the stock’s appreciation ($60,000 appreciation times 20

percent capital-gains tax rate). If you sell the securities, you must pay

the $12,000 capital gains tax, leaving you with just $88,000 in cash to

donate to the charity. Your charity gets less of a donation and you get

a smaller deduction by selling the stock and donating the proceeds. By donating

the appreciated stock, someone in the 36 percent bracket saves $4,320.

Keep in mind, however, that the maximum deduction you can take in any

one year for charitable contributions is limited to 30 percent of your adjusted

gross income. Any excess can be carried forward for five years (subject

to the same percentage limitations in those years).

* Open an IRA for your nonworking spouse.

Think about a $2,000 individual retirement account contribution for

your spouse if his/her earnings are less than $2,000. Joint filers can contribute

as much as $4,000 to IRAs in one year — $2,000 per spouse.

* Calculate your tax liability as if filing both jointly and separately.

In certain situations, filing separately may save money for a married

couple. If you or your spouse is in a lower tax bracket or if one of you

has large itemized deductions, filing separately might lower your total

taxes. If an accountant prepares your taxes, make sure this is being done.

If you do your own taxes, make sure you go though this exercise. It could

pay off handsomely.

Filing separately may also lower the phase-out of itemized deductions

and personal exemptions, which are based on adjusted gross income. When

choosing your filing status, you should factor in the state tax implications.

You don’t want to shoot yourself in the foot by reducing your federal tax

liability if that means increasing your state tax liability by more than

you saved on your federal return.

The bottom line: Use the remainder of 2000 to fine-tune your tax planning

— don’t fritter away the time that’s left. If you do, it’s going to cost

you.

--Zall, Bureaucratus columnist and a retired federal employee, is a freelance

writer based in Silver Spring, Md. He specializes in taxes, investing, business

and government workplace issues. He is a certified internal auditor and

a registered investment adviser.

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