Cash basis taxpayers may wish to defer income until 2008 if your tax rate will be equal to or less than your 2007 tax rate.

You can defer income by holding your billings until January 2008.  Holding deposits until 2008 will not defer the income until 2008.

Deductions and Expenses

Cash basis taxpayers can "shift" 2008 deductions and expenses into 2007 by paying the expense in 2007.  Generally if you mail the check or pay with your credit card by the end of the year, payment will be considered to have been made in 2007.

If your itemized deductions fail to exceed the standard deduction most years, you may want to consider bunching your deductions.  This may allow you to itemize your deductions every other year.  Deductions that you may find well suited for bunching are charitable contributions, discretionary medical expenses, estimated state income tax payments, un-reimbursed employee business expenses and your January mortgage payment.

Capital Gains and Losses

Year end sales of stock and bonds may help reduce your taxes.  However, make sure the sale makes sense economically.  Reducing taxes should not be your sole reason for selling a security.

If you have sold stocks or bonds at a gain, considering selling enough stocks or bonds at a loss to cover your gains plus $3,000 to take full advantage of the capital loss limitation for the current year.

If you have sold stocks or bonds at an aggregate loss exceeding $3,000, consider selling enough appreciated stocks or bonds to limit the aggregate loss to $3,000.

Retirement Plans

Contribute the maximum to retirement plans.

If you have not been contributing the maximum ($15,500 for 2007) to your 401(k), some employers will allow you to catch up for the current year.

Consider contributing to an IRA.  If you are not covered by an employer plan, your 4,000 contribution may be fully deductible ($5,000 if you are 50 by the end of 2007.)  Even if you are covered by an employer plan, your spouse may be able to make a tax deductible contribution.

If you are self employed, consider establishing a Keogh plan by December 31.  You will be able to make your 2007 contribution as late as the filing date of your return including extensions.   A  SEP plan is another alternative.  As long as it is created and funded for 2007 by the due date of your return, you will be able to deduct your contribution.  The maximum annual contribution to these plans is $45,000.

Each situation is different.  What is a good solution for one taxpayer may not be so for another.  I want to help you make the best informed decision for YOUR situation.  Give me a call at 303.456.4670 to discuss these tips.