Put off income until Jan. 1 and you put off the taxes owed on that income until April 15, 2005.
More Top Picks Best Mulching Lawn Mowers
Good as that is, it’s not the only reason for deferring income into the new year.
You might want to do it if you expect to be in a lower tax bracket in the future.
Another reason has to do with phase-outs of a number of tax breaks. Phase-outs are designed to minimize breaks to the wealthy.
The child tax credit, for example, starts to disappear for a married couple filing jointly when their income reaches $110,000. If the couple’s income hits $110,001, the credit will be reduced by $50.
There are other phase-outs at various income levels, including the adoption credit, a number of education-related tax breaks and personal exemptions.
Here are some ways to defer income:
– Ask your employer to put off year-end bonuses until the new year.
– Make sure you put as much money as possible into tax-deferred retirement-plans, such as 401(k)s. In some plans, such as individual retirement accounts, you can make a 2003 contribution after the new year. But it’s still a good idea to put the money in as soon as you can, because that gives your investments more time to grow.
– If you want to put money into a Keogh retirement plan, you must establish the plan before Jan. 1.
– If you are selling property, you may be able to put off some of the payments until next year. There are some fine points that sellers need to check out. In general, dealers can’t do this.
– Think twice before buying mutual fund shares at this time of year. Most funds make distributions of capital gains in November or December. Those distributions are taxable income.
– If you are self-employed, consider putting off the billing some clients. This way, some of your income won’t come in until next year.
———-
Edited by Patrick Olsen ([email protected]) and alBerto Trevino ([email protected])