Katz, Daitzman & Kiesel CPAs, LLP

As usual, you may want to utilize some tried-and-true tax strategies as the year winds down. However, there are several interesting twists and turns to year-end tax planning in 2008. Keeping that in mind, here are eight tax moves to consider late this year.
1. Capital gains and losses: Depending on your economic situation, you may want to realize capital gains to offset capital losses realized earlier in the year. Any net long-term capital gain for the year is taxed at a maximum rate of 15%. Even better: For 2008, the preferential tax rate for long-term capital gain is zero percent for taxpayers in the regular 10% or 15% ordinary income brackets.
As a result, it may be prudent for your children in lower tax brackets to sell securities or other property this year. However, be aware of potential “kiddie tax” complications (see number 8).
2. Business assets: Under Section 179 of the tax code, a business taxpayer can “expense,” or currently deduct, the cost of qualified business assets placed in service during the year. The new economic stimulus act passed earlier this year increases the maximum expensing allowance for 2008 to $250,000. (It had been scheduled to be $128,000.) In addition, a business may qualify for 50% “bonus depreciation” deductions for certain assets placed in service before 2009.
The enhanced Section 179 deduction may be combined with bonus depreciation and regular depreciation deductions. See your tax adviser for more details.
3. Alternative minimum tax: Under the complex calculation for the alternative minimum tax (AMT), you may have to effectively pay a higher tax if you have an overabundance of certain “tax preference” items this year. At this time, you should have a professional tax adviser estimate your AMT liability for 2008.
It might make sense to shift some tax preferences to 2009 to avoid or reduce AMT liability. Alternatively, you might accelerate income into 2008 if the AMT rate is lower than your top marginal tax rate.
4. Charitable donations: Generally, you can deduct the full amount of cash donations made before the end of the year. If a donation is made by credit card or via the Internet, you can deduct the gift on your 2008 return, even if the charge is not actually paid until next year. However, strict substantiation is now required for monetary contributions.
5. Medical expenses: It is well known that you can deduct unreimbursed medical and dental expenses to the extent the annual total exceeds 7.5% of your adjusted gross income (AGI). Try to group non-emergency expenses (e.g., new eyeglasses or dental cleanings) in the tax year that provides the best opportunity for a deduction. If you will not qualify for a medical expense deduction this year, you may as well postpone expenses to next year, when possible.
6. Estimated tax penalties: If you do not pay enough federal income tax during the year through withholding or quarterly installments, you may be liable for an “estimated tax” penalty. But no penalty is imposed if annual tax payments for 2008 equal 90% of the current year’s liability or 100% of the prior year’s tax liability. Note: The percentage for the 100% safe harbor is increased to 110% if your AGI for the prior year exceeded $150,000.
7. Business travel: Travel expenses incurred by an employee—including airfare, lodging and 50% of the cost of meals—may be deducted if the trips are business-related. When it is appropriate, you can move up business trips planned for January into December. This allows you to write off the travel expenses on your 2008 return instead of waiting until 2009. Caveat: Unreimbursed travel expenses must be deducted as miscellaneous expenses subject to the usual 2%-of-AGI limit.
8. Family income-splitting: You may be able to reduce the overall family tax bill by shifting taxable income from your high tax bracket to family members in lower tax brackets. For instance, you might transfer income-producing assets to your young children, but be aware of the kiddie tax. How it works: If the unearned income of a child exceeds $1,700 for 2008, the excess is taxed at the top marginal tax rate of the child’s parents.
Beginning in 2008, the kiddie tax applies to children under age 19 or age 24 for full-time students. These higher age limits are triggered if the child’s earned income does not equal or exceed half of his or her annual support.
This is only a summary of several year-end tax-planning ideas. With professional assistance, you can develop an overall plan for your situation.