Seven Essential Tax-Planning Tips for Individual Taxpayers

Estimate your alternative minimum tax (AMT) liability. It may be possible to avoid or reduce the AMT by postponing certain “tax preference” items to the following year. Alternatively, you might accelerate income into the current-year if your AMT rate is lower than your regular tax rate.

Contribute to your favorite charities. Note, however, that tougher substantiation rules apply to monetary gifts made to charity in the current year. In general, the IRS requires written confirmation of your gift.

Bunch medical expenses in the year you may qualify for a deduction. Your unreimbursed expenses can be deducted only to the extent the total exceeds 7.5 percent of your adjusted gross income (AGI).

Avoid estimated tax penalties. No penalty is imposed if your tax payments for the current year, including withholding, equal at least 90 percent of this year’s tax liability or 100 percent of last year’s liability (110 percent if your prior year AGI was $150,000 or over).

Consolidate personal debts into a home-equity debt. Unlike nondeductible personal loans, you can deduct the interest paid on the first $100,000 of home-equity debt, regardless of how you use the proceeds. Caveat: The debt is secured by your home, so use this technique with discretion.

Use capital gains and capital losses to offset each other. Depending on your situation, you may realize gains or losses at year-end. Any excess loss can offset up to $3,000 of ordinary income in the current year.

Be mindful of the twenty most commonly overlooked deductions. Forgetting a few smaller deductions may not seem like a big loss, but those omissions add up. Comb your records for deductible business expenses, such as: advertising costs, association dues, bad debts, charity contributions, coffee and food expenses, clothing required for the job, equipment, gifts to clients, home entertainment, insurance, interest on credit cards for business expenses, Internet fees, investment expenses, legal expenses, licensing fees, office supplies, repair costs, subscriptions, theft losses and travel expenses.

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