Year-End Tax Planning Strategies for 2007

As we near the end of the year, there is still plenty of time to lower your tax bill, add to your tax-advantaged retirement accounts, and do a little planning for next year.

Here are a few year-end tax planning strategies for 2007…

Contribute to Your IRA

You can contribute up to $4,000 ($5,000 if you are age 50 or older by year-end) to your IRA for 2007 if certain conditions are met.

For married couples, the combined contribution limits are $8,000 ($4,000 each) and $10,000 ($5,000 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income.

The IRA contribution amount is scheduled to increase to $5,000 for 2008, creating an even better opportunity to increase your tax-deferred savings.

Keep in mind that contributions to traditional IRAs may not be deductible for many of you who are participants in retirement plans. But you may contribute to an IRA and treat it as a “non-deductible” IRA.

Non-deductible IRA’s offer tax-deferred earnings that an IRA provides and in the future you may be able to convert this IRA to a Roth IRA making it even more appealing.

Sell Capital Assets

It may be a good time to consider selling capital assets (e.g., common stock) with a low-cost basis.

The maximum capital gains tax rate is 15% for gains from the sale of qualifying assets held more than one year. The 15% maximum tax rate is available for both the regular and alternative minimum tax (AMT).

In addition, qualifying dividends individuals receive during 2007 will generally be taxed at the 15% (or less) capital gains rate.

Maximize Elective Deferrals

The 2007 annual deferral limit for qualified retirement plans is $15,500.

If you are at least age 50 by year-end, you can contribute an additional $5,000 to your 401(k) plan for 2007.

Be sure to take a look at a recent payroll stub to see if you are deferring the maximum for your situation. Make any changes necessary before the end of the year.

Section 179 Expensing

For your business, the Section 179 (election to expense otherwise depreciable assets) limit is $125,000 for eligible property placed in service during 2007 and includes qualifying property placed in service as late as December 31, 2007.

However, the Section 179 deduction phases out, dollar-for-dollar, after eligible equipment purchases reach $500,000.

So the $125,000 deduction amount for 2007 is completely phased-out when eligible equipment purchases reach $625,000.