To reduce the amount of tax you owe when you file your 2000 return next year, you may have some tax decisions to make between now and December 31.

The secret to successful year-end tax planning is to consider your tax situation two years at a time. The idea is to reduce the tax you will pay over both years (’00 & ’01), not just one. You need to look at the income and deductions which apply to ’00, which fall into ’01 and which are available in either year.

It is usually better to defer income and accelerate deductions. This way you will delay, for the longest period of time, the tax you pay. This will be especially true if there is an across the board tax decrease in ’01. (Possible, but don’t hold your breath!). If you expect to be in a higher tax bracket in ’01 the opposite strategy, delaying deductions and accelerating income, would probably be more beneficial.

Your investments offer a way to shift income at year-end. You can decide when to take the gain or loss, this year or next. You shouldn’t let taxes be the sole driving reason for making changes in your investments. Whatever decisions you make should make overall economic sense.

Retirees can juggle payouts from IRAs for the best tax result.

Tax planning using deductions may be the most successful. Three types of itemized deductions are easiest to shift:

Charitable Contributions – Deducted in the year your check is mailed. Also consider donating appreciated securities. You get to deduct the full value of the asset (if held for more than one year) and avoid paying income tax on the appreciation.

State and local taxes - This works especially well with estimated state income taxes. You can pay the estimate that is due in January ’01 in whichever year it produces the best result. The second half of property taxes due in April can also be considered for prepayment in December if needed. Care should be taken to make sue that the alternative minimum tax does not come into play.

Interest Expense – You may consider paying the January mortgage payment in December. It is important to make sure the Mortgage Company receives the payment before the end of the year. This way it will be reflected on Form 1098 that shows the interest paid by you for the year.

Other itemized deductions can also reduce you income tax bill:

Medical – The deduction is limited to 7-½% of AGI. Shifting payments from one year into the next may allow you to exceed this limitation and get a deduction in at least one of the years.

Miscellaneous – The deduction is limited to 2% of AGI. This deduction includes investment and tax advice, job-hunting expenses, unreimbursed employee business expenses, IRA fees and safety deposit box charges. Shifting these expenses into one year or the other may enable you to exceed the limits.

Some individuals, by careful planning, are able to itemized in one year and use the standard deduction in the second year.

The alternative minimum tax should always be carefully considered. If it applies to your tax situation many of these strategies will just not work!

Careful tax planning can make a difference in your income tax liabilities. Please contact your tax advisor for more specific tax saving ideas that may be used in your specific tax situation.

Diane K. Burch, CPA