1999 Tax Guide: Year-End Tax Moves

DT OnLine Home Tax Guide Year-end moves
Next | Previous | Search | Tax Guide Contents

Chapter 2
Year-End Tax Moves

he year-end tax planning process begins with estimating your 1999 income, deductions, exemptions, and credits. Starting early will give you extra time to obtain additional information about items that concern you or to investigate additional ideas for tax savings or deferral. The tax rate tables and worksheet (1999 Individual Income Tax Rates and Tax Forecasting Worksheet) can help you compute your expected taxable income and tax liability. The worksheet will help you view the current year and next year together and will provide a starting point for evaluating the tax effects of the various strategies set forth in this book.

Six Steps for Determining Where You Are

Estimate your income, deductions, credits, and exemptions for 1999 and 2000 using the Tax Forecasting Worksheet.
Identify items that you can shift from 1999 to 2000 or vice versa by reviewing Personal Tax Planning 1999.
Determine your marginal tax rate -- the rate at which your next dollar of income will be taxed -- for 1999 and 2000.
Determine how much tax you owe and when you must pay it to avoid underpayment penalties.
Determine whether you are subject to the alternative minimum tax (AMT).
Take the actions needed to make the best of your tax situation.

Minimizing Your 1999 Tax

Your goal in working through the year-end tax planning process is to reduce the amount of tax-to-be as much as you can. There are two ways to do this: through permanent savings of taxes or by deferring taxes to some future year. Examples of permanent savings are the reduction or elimination of liability for the alternative minimum tax or the reduction of your current tax liability by converting ordinary income into capital gain income that is subject to a lower marginal tax rate. Table 2-1 shows that your marginal tax rate can actually be higher than the "advertised" tax rates of 31 percent, 36 percent, and 39.6 percent.

Table 2-1 1999 Effective Marginal Tax Rates on Income
	"Advertised" Rate
	31%	36%	39.6%
Effect of 3-percent reduction in itemized deductions	0.9%	1.1%	1.2%
Phaseout of each exemption	0.6%	0.7%	0% a
Totals for:
Individual	32.5%	37.8%	40.8%
Family with two children	34.3%	39.8%	40.8%
Family with four children	35.4%	41.1%	40.8%
a. Typically, married taxpayers with taxable incomes of $271,050 or more, who are therefore in the 39.6% bracket, will have adjusted gross income above the $304,300 level at which personal exemptions are fully phased out.

It is extremely important that, after you determine your 1999 tax liability, you also determine when those taxes must be paid to avoid underpayment penalties. The following section discusses the rules that govern the requirements for the payment of taxes.

Next: Avoiding estimated tax penalties -->