A recent flurry of tax legislation may have an impact on your year-end tax planning for 2004. The American Jobs Creation Act of 2004 allows taxpayers to elect to take state and local general sales and use taxes as an itemized deduction in 2004 and 2005, instead of deducting state and local income taxes. This option can benefit taxpayers living in states with no income tax, and others, depending on their particular situations. The Jobs Act also creates tougher deduction and substantiation rules for post-2004 charitable contributions of autos, thereby giving taxpayers an incentive to donate autos in this year rather than the next.

The Working Families Tax Relief Act of 2004 extends certain credits through 2005, keeps the child tax credit at $1,000 through 2009, and extends marriage penalty relief. A special deduction for educators who incur teaching-related expenses has been extended, too (through 2005). On the other hand, “bonus” first-year depreciation was not extended by recent tax legislation. Thus, it generally won't be available for assets bought and placed in service after 2004.

We have compiled a checklist of actions that may help you to save taxes if you act before year-end. Not all actions will apply to everyone, but many clients will benefit from numerous items. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

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• If you have any capital gains or losses from sales of stock or other capital assets or you have stock or other capital assets that are ripe for sale, it may be advisable for us to meet to discuss how you can best coordinate timing your gains and losses to minimize tax on your gains and maximize the tax benefit from your losses.


• You may be able to take steps to convert investment income taxable at regular rates (e.g., interest income) into qualifying dividend income taxed at a top rate of 15%.


• If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.


• Business clients should consider putting new equipment in service before year-end to get a 50% bonus first-year depreciation allowance, plus regular depreciation deductions on the remaining adjusted basis. 2004 is the last year for the bonus.


• Affected taxpayers in a Presidential Disaster Area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

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• You may be able to save taxes this year and next year by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.


• Those facing a penalty for underpayment of estimated tax may be able to eliminate or reduce it by increasing their withholding.


• Self-employed individuals should consider setting up a self-employed retirement plan.


• You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $11,000 each year to an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.


• If you're thinking of donating a used auto to charity, consider doing so before 2005 in order to maximize your deduction.


• Consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc., to bunch into 2004 miscellaneous itemized deductions subject to the 2%-of-AGI floor.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

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