European Stars And Stripes (Newspaper) - December 18, 1987, Darmstadt, Hesse                                Still time to save on this year s taxes by Gary Klott Mew York times thought me is Short americans still have two weeks left to take advantage of a variety of lax saving strategies that will make next april 15 less costly. The opportunities Are numerous. They include prepaying some of next year s expenses by dec 31 to earn extra deductions or 1937 Kying to defer receipt of Christmas bonuses and other income until after Jan. 1 when tax rates will be lower setting Money aside in tax deductible retirement accounts and picking the Best Lime to unload stocks and other investments. None of these year end strategies Are Likely to be oiled by legislative developments. The $9 billion package of lax increases that will soon be put together by House and Senate conferees is expected to skirt the types of income tax provisions that individuals will encounter in their year end tax cutting. One of the most widely used and Protil Ablo year end tactics is to prepay deductible expenses such As next year s subscriptions to professional journals and 1938 Charity donations. It is not just a matter of taking a deduction a year earlier. Additional lax savings can be gained this year because of the Way the tax Reform act of 1986 is phased in for one hmm the value o All deductions will be reduced next year As individual tax rates drop to a top Rale of 33 percent irom 38.5 percent this year. Thus taxpayers can save As much As 385 cents in taxes for each Dollar s Worth of deductions this year but no More than 33 cents next year furthermore some deductions will be scaled Back even further next year As the new Law gradually phases out various tax benefits. Of example 65 percent of credit card finance charges Are deductible this year but Only 40 percent next year. The lax Law lets individuals work up until new year s eve in lax saving Maneu vers. An expense paid by credit card on dec. 31 qualities Lor a 1987deduction even though the Billing from the credit card company will not arrive until 1988. In like manner an expense paid by Check qualifies for a deduction As Long As it is mailed by dec. 31. In a few cases it May not pay to Accel Ralo deductions. One such situation involves deductions Wilh in xxx where a minimum level of expense must be incurred before deductions Are allowed. Medical expenses for example Are deductible Only to the extent that they exceed 7,5 percent of adjusted Gross income similarly the miscellaneous category of itemized expenses which includes Union dues and professional subscriptions is deductible Only to the extent that expenses exceed percent of adjusted Gross income. Thus in the threshold cannot be met this Vear it would pay to Deler the expense until next Yar in Hopes that the threshold can then be surpassed. Upper income taxpayers also need to be mindful of their vulnerability to the alternative minimum tax before accelerating Loo Many deductions the alternative tax is intended to prevent higher income taxpayers from taking advantage of Loo Many deductions when an individual is hit by this tax most deductions become useless because they Are not allowed in the alternative tax compilation for those not exposed to the minimum Ian the following strategies for accelerating deductions might prove helpful in reducing 1987 tax Bills. Consumer interest because More consumer interest is deductible i his year than net. Credit card balances car Loans and Page 16 the stars and stripes other consumer debts should be paid Oil by year end. Settling disputes with the internal Revenue service and paying off any inheres a charges assessed will also bring permanent lax savings. Estimated taxes for those who pay estimated state income taxes the final instalment for 1987 is not due until Early next year. But ii it is paid by the end of this month it will qualify Lor a tax deduction on the 1987 Federal income tax return. The same applies for stale and local property tax payments. For those looking Lor every Angle the temptation might be to inflate the estimated tax payment to get a bigger deduction. But that can invite a Challenge from the irs. If there s no reasonable basis or no reality behind your estimate the excess can be disallowed by the irs said Stuart r. Josephs a tax partner at i he accounting firm of Seidman & Seitzman. The estimate has to be  medical expenses taxpayers close to or Over the 7.5 percent threshold of adjusted Gross income Tor claiming medical deductions should consider gelling routine medical and dental checkups As Well As elective surgery performed and paid for before the end of the month. The Purchase of eyeglasses hearing aids and other medical devices also qualities for 1he deduction. Miscellaneous Costa taxpayers should consider paying before year end professional association dues subscriptions to investment and professional publications and Safe Deposit Box rental fees because the deductions Are greater this year. Two carats apply however. First because these sex. Re deductible Only 1o the extent that they exceed 2 percent of adjusted Gross income the payments should be accelerated Only it the 2 percent threshold can be exceeded. The second caveat generally the irs prohibits deductions on 1937 returns for prepayments of subscriptions and other expenses beyond 1988. Gifts o Charity donations planned for next year should be made this month since deductions for Charity Are Worth less in 1988 with the drop in individual tax rates. There Are two exceptions however. Taxpayers who do not expect to itemize deductions will Gal no Benalil from speeding up donations since the non itemized charitable deduction was abolished by the 1986 tax act. The second exception applies to upper income taxpayers who donate Slock real estate works of Art or other property that has appreciated in value. They should be mindful of the alternative minimum tax in timing their donations. Normally donating property that has appreciated in value can be even More rewarding than giving Cash because donors gel a double Benefit they Are entitled to a deduction Lor the full fair Market value of the property As Long As the asset was owned by the investor of More than six months. And they also avoid capital gains taxes on the increased value of the properly. But the deduction relating to the appreciation in value of the asset can be sharply diluted if the donor is subject to the alternative minimum tax. Under the new tax Law a portion of the deduction has to be added Back to income when computing the minimum lax. Thus those vulnerable to the minimum tax can safeguard their Charity deduction by Liming the donation in years when they Are not otherwise subject to that tax. Rental properties investors who on a rental property be in a Friday december 18,1987 condominium in Miami or a Home no the seashore can increase their deductions by paying for repairs and other related expenses before the end of the year. Bui landlords need to keep in mind the now limits on writing off expenses that exceed rental income. Such excess expenses constitute tax losses. Under the now lax Law. Investors can use up to 125,000 a year in tax losses from rental properties that they actively manage to offset other income. The $25,000 allowance applies Only to investors with adjusted Gross income of no More than of 00,000. The allowance is reduced by 50 cents for each Dollar of income beyond the $ 100.000 level and is eliminated once adjusted income exceeds $150,000. Diesel cars for those thinking about buying a diesel powered car or truck the Federal government will help subsidize purchases made by year end with a $102 tax credit for a car and $198 Lor a Light truck or Van. The lax credit which is a Dollar for Dollar offset against taxes was intended to compensate Consumers for an increase in diesel fuel taxes that was intended to fall mainly on the trucking Industry. The credit expires Al the end of this month. Major Purchase there is no longer any reason to Rush into buying major personal items such As a non diesel car or a boat in Hopes of getting a bigger sales tax deduction because the deduction was abolished by the new tax Law. Those who run their own businesses however May Benefit by buying cars computers office furniture or other business equipment and placing them in service before the year is out. Under the new lax Law. Self employed business people can write off up to $10,000 in business equipment purchases on their 1987 lax return instead of depreciating the Cost Over a period of years. That is up from s3.000 in past years. The hitch under 1he new Law is that the amount written off by this method known As expending is limited to the amount of taxable income from the business. The alternative is to depreciate the Cost placing equipment in service even at this late Dale can yield a deduction covering part of the first year s depreciation. But lha decision on wielder to accelerate purchases of business equipment is especially difficult this year. It All depends on How much other equipment was purchased during he year and when. As a general Rule first year depreciation while offs Are computed As it the equipment were placed in service in the Middle of the year providing a half year s Worth of depreciation Tor All purchases. But there is a major exception if 40 percent of the year s business purchases Are made m the final three months of Trie year. The business owner May get even less than a Hall year s Worth of Depro Calion deductions. All property placed in service during any Calendar Quarter that year has to to treated As having been placed in service at the midpoint of that Quarter. T so if you go above 40 percent by accelerating purchases it could make you worse of than you were before you made the year end purchases said Albert Ellentuck a senior tax Parl or Al the accounting firm of Laventhol & Horwath but Josephs of Seidman & Sidman says there Are situations in which a business owner would want to make year end purchases in order to exceed the 40 percent threshold such a situation would arise if a targe portion of the year s equipment acquisitions were placed in service Early m the year. By being forced into computing depreciation from the Middle of the Quarter write offs Lor the Early purchases could to greater than Tho Normal Hall Yucai allowance