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|New Jersey Business
Lawyer | Business Formation
| LLC Limited Liability Company | IRS Tax | Business
Purchase | LLC Lawyer
People Overpay the
Government...But Certainly Not our clients!
J. Cappuccio, J.D., LL.M. (Tax)
Counsellor at Law
1800 Chapel Avenue West, Suite 128
Cherry Hill, New Jersey 08002 US
(856) 665-2121 Fax (856) 665-9005
Serving God is Doing Good to
Man, but Praying is thought an easier Service, and therefore more
Benjamin Franklin Poor Richard 1753
Small and Emerging Businesses become more profitable!
— Until December 31st
With just a couple weeks left in the year, now is the optimal
time to put tax planning ideas into action. Consider these 10 popular
year-end strategies for individuals.
Maximize charitable giving.
As a general rule, you can
deduct the amounts donated to qualified charitable organizations in
2007. This includes charges to your credit card made before year-end.
But before giving too generously, make sure you meet the limitation and
substantiation rules that can be involved with large gifts.
Section 529 Plans Can Provide
Tax-Smart Learning for Kids and Adults
Contributing to a Section 529 Plan before year end on behalf of
children or grandchildren can be a wise idea. But have you ever thought
one of these tax-favored accounts for yourself —
to pay for post-secondary courses you might want to take in the future?
Adults can open up Section 529 plans
(also called Qualified Tuition Programs) and make themselves the
beneficiaries. The plans allow you to put money in a state plan for
tuition, fees, books, supplies, and equipment that are required to
attend an eligible educational institution.
What's an eligible school? "It includes
virtually all accredited public, nonprofit, and proprietary (privately
owned profit-making) postsecondary institutions," according to the IRS.
That means you can generally use
withdrawals to study for a second career, go to graduate school, or do
coursework in retirement.
Section 529 advantages include:
grows tax-free and withdrawals are not federally taxed when used for
eligible education expenses.
allow income-tax deductions (up to different annual maximums) for
contributions to the state’s plan — and some
don’t tax withdrawals.
There are no
income limitations and you can put a substantial amount into a plan at
What if you
don't use the money? You can change the
beneficiary to a family member or leave the account alone and let it
become part of your estate. Another option is to withdraw the money.
However, the earnings will be subject to federal (and any state) taxes,
as well as a 10 percent penalty. (The penalty doesn't apply to the
a Last-Minute Swap of Munis
You might want to arrange a municipal bond “swap”
to reduce your 2006 tax liability.
In reality, a bond swap is the
simultaneous sale of one bond and purchase of another issue. Typically,
you may sell a bond that's showing a loss and acquire a bond with
similar investment characteristics. When the swap is complete, you're
essentially in the same investment position as you were before the
exchange took place.
Now you have a current loss that you can deduct on your 2006 tax
return. And if the bond you acquire in the swap has higher interest, so
much the better.
More muni bonds are usually
available for exchange at year-end than corporate bonds. But the
marketplace can be thin, so move quickly.
Suppose you own an Apple City muni purchased years ago for $10,000. The
bond's current value is $8,000. It will mature in 18 years and has a
4.5 percent interest rate. Currently, you're showing a net $2,000 gain
in capital gain transactions. So you swap your Apple City bond for an
Orange City muni.
The Orange City bond also has a
face value of $10,000 and a current value of $8,000. However, as
opposed to the Apple City bond, it matures in 20 years and has a coupon
rate of 5 percent.
The $2,000 loss from the sale part of the swap eliminates your capital
gains tax for the year. Next, you get a small increase in
annual income. Instead of earning $450 of tax‑free interest each year,
you are entitled to receive $500 tax‑free.
the “wash sale” rule, you cannot realize a tax loss
from a security sale if you reacquire a substantially identical
security within 30 days. To avoid this, consider swapping
bonds of different issuers. Or if the bonds come from the same issuer,
make sure there's a significant difference in the maturity dates and
It may be better from a tax standpoint to contribute certain
appreciated assets to charity that have been held more than 12
months. That way, you avoid paying capital gains tax but can still
deduct the full fair market value as a charitable deduction.
And If you've reached age 70 1/2, there's a new tax saving opportunity
you might want to consider: The Pension Protection Act of
2006 now permits you to make cash donations to many
tax-exempt charities directly out of your traditional or Roth IRA.
for the details.
goods and clothing donated to charity after August 17, 2006 are
generally deductible only if they are in good or better condition.
Watch out for the alternative minimum
which can blindside unsuspecting taxpayers. Ask Ronald J. Cappuccio,
J.D., LL.M.(Tax) to hel;p estimate your AMT for 2007.
You might be
able to avoid the AMT by postponing certain “tax
items” to 2008.
Take required IRA distributions.
you're due to take a mandatory withdrawal from a retirement account for
2007, don't forget to complete the transaction by December 31.
Neglecting to do so could result in a 50 percent penalty on the
withdrawal you should have taken.
Balance investment holdings.
If you’re showing a net capital gain for the year —
for example, you had more stock money makers than losers —
you might realize some losses before the end of the year. Losses can be
used to offset capital gains, plus up to $3,000 of highly taxed
ordinary income. Any excess loss is carried over to next year.
Conversely, if you have more stock losers than winners thus far, you
could realize some capital gains before the end of the year. Since the
gains are offset by the prior losses, they are effectively tax-free up
to the amount of the losses.
Secure college tax breaks.
Do you have a college tuition bill that's due in early 2008? If you pay
it this year, you can take advantage of the Hope and Lifetime Learning
credits on your 2007 tax return, if you qualify. You're allowed to
prepay for academic periods beginning in the first three months of 2008.
You can deduct unreimbursed medical
dental expenses but only to the extent the annual total
exceeds 7.5 percent of your AGI. That is a tough hurdle for many
taxpayers. Try to “bunch” non-emergency medical
expenses — such as eye exams, ongoing prescriptions and
dental cleanings — this year if you expect to clear
the 7.5 percent threshold.
Provide more support.
have a child in college or grad school under age 24, you can still
claim a dependency exemption for the child by providing more than half
of his or her support. You might decide to add a few extra dollars of
support at year-end to ensure the exemption for another year.
Bulk up your qualified retirement
Extra contributions made to the plan can help build up your nest egg on
a tax-deferred basis. Plus, if you qualify, you can reduce your taxable
income for the year, within limits.
Consider a Roth conversion.
December 31 is the deadline to convert a traditional IRA into a Roth
IRA. You have to pay income tax on the amount placed in the Roth
account but you escape taxes on future appreciation and earnings that
accumulate. To qualify for a conversion, your adjusted gross income for
the year must be under $100,000. This can be a good strategy if you are
involved in a start-up business and your income is down.
Bonus: If the value
of your IRA is currently down, the tax cost of converting a
traditional IRA to a Roth will be lower too. What if you
converted to a Roth earlier this year when your IRA was worth much
more? You can change your mind by "recharacterizing" the conversion by
the end of the year. Then, you'll have a regular IRA again.
you recharacterize to a regular IRA, you can switch back or "reconvert"
to a Roth IRA and owe a lower tax bill. But you have to wait 30 days
after the recharacterization, or until the next calendar year,
whichever is later.
Be energy efficient.
2007 individuals can make energy-conscious purchases that provide tax
benefits. Two limited tax credits are available for expenditures to
improve the energy efficiency of existing homes and include outlays for
items such as storm windows, insulation, electric heat pumps and solar
Remember: Converting an IRA increases your
adjusted gross income, which can make you ineligible for certain tax
breaks. A boost in your income can also make
some or more Social Security benefits taxable. The rules are tricky so
consult with your tax attorney.
This is just a brief overview of ten
techniques. Here are a couple more tax-saving considerations for 2007. Call Ronald
J. Cappuccio, J.D., LL.M.(Tax) at (856) 665-2121
can provide more information for your situation.
Shift a child’s investments
into tax-free or tax-deferred vehicles to minimize “kiddie
tax” complications. A new rule: For 2006
and after, investment income above $1,700 received by a child under
age 18 is taxed at the top tax rate of the
child’s parents. Before 2006, the tax only applied to
children under age 14.
Think about consolidating personal
into home equity debt. Although interest on personal debt
can’t be deducted, you can write off the mortgage interest
paid on the first $100,000 of home equity debt, even if the proceeds
are used personally. But be careful: A home
equity loan must be secured by your residence.
2007 Ronald J.
Cappuccio, J.D., LL.M.(Tax) 1800 Chapel
Avenue West, Suite 128 Cherry Hill, NJ 08002 USA