It's time to grit your teeth, dig out your 1996 tax and
investment documents, flip on the desk lamp, and do some planning
for the future.
With Thanksgiving just days away, and Christmas-New Year's
holidays coming up fast, financial planning is crucial to avoid
costly mistakes and take advantage of tax benefits before 1996 ends.
"It is extraordinarily important to do planning now, because
this is one of the few times of the year when you actually have a
number of important choices to make that can directly affect your
financial future," says Gary Schatsky, a financial planner and
attorney in New York. "Your choices now can affect your tax
deductions, your contributions to retirement plans, and your entire
level of income."
In your planning, "take the longest view possible," says Evelyn
Capassakis, a tax expert at Coopers & Lybrand LLP in New York.
"Look at 1997 and 1998, as well as 1996," she says. "Don't forget
retirement planning, as well as estate planning."
The tax code is little changed from last year. To get into the
details, you might want to invest a few dollars in an inexpensive
tax guide, such as "The Ernst & Young Tax Saver's Guide 1997"
Many financial planners divide the year-end financial review
into four segments: (1) defining your total annual income, (2)
choosing benefits and investment options for 1997, (3) estate
planning, and (4) structuring your 1996 taxes. "Each person's
situation will be different," Mr. Schatsky says.
Here are some widely used strategies:
Income for 1996. The cardinal rule, according to Coopers &
Lybrand, is to accelerate deductions and defer income. If you are
getting a bonus, for example, ask your company to pay it after Dec.
31. If you are mailing out bills for professional work, mail them
late in the year so payments won't return until next year.
Take all your income stubs in hand. Figure out total salary,
investment, and other earnings. It is on this amount, less
deductions, that your taxable income will be determined. Look to
see how much tax has been withheld. (Add in projected December
taxes.) Was enough withheld? If not, you might ask your company to
boost your tax payments.
If selling a house, you might consider doing so on an
installment plan that specifies that all or some of the proceeds
must be paid next year.
On investments, you might consider waiting to sell investments
until 1997, to avoid capital-gains taxes for this year. And delay
exercising stock options.
Investment/retirement planning. Use tax-deferred retirement
plans such as individual retirement accounts (IRAs), 401(k) or
403(b) accounts, and Keogh or Simplified Employee Pension (SEP)
plans to shelter as much income as possible. …