Reducing Your 2002 End of Year Taxes
In the next couple of weeks, you will be finishing out the year according to both the calendar and the IRS. Now is the time to quickly plan and take advantage of tax laws to save money on your 2002 return.
If you are self-employed or if you are expecting a large bonus at the end of the year, you can make the money you receive at the end of the year count towards next year’s income instead. Simply ask your client/customer to pay you in January or ask your employer to wait and give you the check at the beginning of the year. This will push the income into next year, thereby lowering your total income for 2002.
Conversely, if you are or were unemployed for a large portion of 2002, you can request an advance in payment or paycheck for expected pay in January before the end of this year. This way, since you’ll presumably be making more money next year, you will pull some of that income into this year, lowering you total income shown for 2003.
For the self-employed small business owner, no one thing is better for changing the tax burden of the year than realizing expenses before or after the year ends. For instance, if you plan to make a major purchase (or two) of equipment or software for your business, make that purchase in the year that you will need the deduction the most. If you need to lower your liability for 2002, make the purchase before January 1. If not, make the purchase after January 1. The same is said for charitable contributions. Make your contributions before or after the new year to maximize their impact on your tax savings.
Tax-free investments can also be made to enhance their impact on your tax liability. Invest heavily or lightly in your IRA, 401k, SEP or other tax-deferred investments according to your situation. Some of these investments can be deducted from 2002 taxes as late as April 2003 – talk to your tax advisor for more details.
If you have made a huge windfall this year and wish to spread the wealth among family, you are allowed to give up to $10,000 in annual, tax-free gifts to your children or grandchildren without yourself or the recipient incurring taxes on the gift.
As always, you can visit the IRS website to get more information on the ways you can use tax laws to your advantage. Just visit www.irs.gov. Now is crunch-time if you are to take advantage of some of these strategies.
Aaron Turpen is the author of “The eBay PowerSeller’s Book of
Knowledge” and the editor/publisher of two successful newsletters, in
their fourth year of publication, The Aaronz WebWorkz Weekly
Newsletter and Aaronz Auction Newsletter. You can find out more about
these and other great resources from Aaron at his website