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H&R Block Offer Year-End Tax Planning Tips

by Mike Godfrey,, Washington

01 December 2004

Tax preparation specialists H&R Block has reminded taxpayers of the importance of planning now in order to minimize tax bills for 2004 whilst simultaneously building a sound financial platform for 2005.

The firm is offering seven tips to guide taxpayers thtough the often confusing year-end tax planning maze:

  • Estimate your income and deductions: Assessing this year's likely income against projected 2005 earnings is the key to making wise decisions at tax time. If it looks like you'll make more in 2004 than in 2005, you may find that you're ineligible for important credits and deductions this year. Hence, the wisest course may be to defer as much income as possible into 2005.
  • Assess your options: If you're an employee, your ability to shift income from one year to the next may be limited. You can, however, reduce your income in 2005 by increasing the amount of pre-tax salary deferrals to your 401(k) or other employer benefit plans. This tax-free money is like giving yourself a raise.
  • Consider your IRA: If you're eligible to deduct your IRA contributions, you can make traditional IRA contributions to decrease your 2004 income and you can contribute right up until April 15 to impact your 2004 return.
  • Count the cash: Consider investing in a short-term CD or a Treasury bill that matures next year if you want to shift income to 2004 and have a large amount of cash to invest.
  • Look at your withholding: Now is the time to ensure that you have enough tax withheld or have paid enough estimated tax to meet your projected obligations and - in the case of the estimated tax - to avoid a penalty for underpayment.
  • Examine your portfolio: If you have a large net capital gain in 2004, you might want to consider reducing your tax liability by selling some stock that will generate a loss before year-end. Offsetting a short-term capital gain can be particularly advantageous, since such gains can be taxed as high as 35 percent in 2004.
  • Think about a charitable gift: Making a charitable donation by year-end can help reduce your taxable income for 2004. Donations of clothing and household items to the Salvation Army and similar charities made before January 1, 2005, are deductible on your 2004 taxes.

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