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		Home Page Mortgage News You Can Use   Starting Planning, Now Tax Planning Is Not Just for April By Ashlea Ebeling Forbes.com Special to ABCNEWS.com Feb. 2 — Yes, even now, there are a few smart moves left for the previous year's taxes. And there's much to do now for the new year. Fund Shelters Individual Retirement Accounts are kind to procrastinators. If you're eligible to contribute to a Roth or deductible IRA for 2003, you can do so until April 15. Couples with income of up to $150,000, or singles earning $95,000 or less, can put $3,000 each ($3,500 for those 50 or older) in a Roth. The money isn't deductible, but later on, withdrawals are tax free. Deductible IRAs (with the same maximum contributions) are available to those with lower incomes or without any other pension. (Nondeductible tax-deferred IRAs are open to all but are not worth it, given the current low top 15 percent tax rate on long-term capital gains and dividends.) While you're at it, consider doubling up and making your 2004 IRA contributions now too. Couples earning $190,000 or less have until April 15 to put $2,000 per child (or grandchild or niece or nephew) in a Coverdell Education Savings Account for 2003. As with a Roth, contributions are not deductible. But earnings are tax free when withdrawn for education. (Warning: Coordinate with other donors. Only $2,000 per child is allowed, no matter how many taxpayers contribute.) Self-employed? You can set up and fund a Simplified Employee Pension plan until April 15, or if you get an extension, the date you file your return. The maximum SEP contribution for 2003 is 20 percent of your net earnings, up to $40,000. So you'll need to know your 2003 earnings. Consider establishing a one-person 401(k) for 2004 — it's too late to open one for 2003, but depending on your age and income, a 401(k) may allow you to sock away more pretax dollars in 2004. Rethink Roth Conversions The tax cuts have made this a fine time to convert a traditional IRA to a Roth — you'll pay taxes at today's low rates on the converted amount, and any further growth will be tax free. But to convert you must have adjusted gross income of $100,000 or less (that's before conversion; the ceiling is the same for couples and singles). If you've already converted and your AGI comes in too high, you'll have to switch back. Or if your account has dropped in value since you converted, you may want to undo the conversion; you have until April 15 or your extended due date. Start Giving You can give anyone else $11,000 a year without worrying about gift tax. It's common to do this at year's end. But it makes sense to do your Santa act early. "No one has any certainty that they will live until the end of the year," says Grand Rapids, Mich., trusts and estate lawyer Mark Harder. Consider giving the kids that tech stock that's had a big run-up and is ripe for sale. They'll likely pay just a 5 percent capital gains rate, versus the 15 percent you'd pay. And if your teenage grandkids or kids had earned income in 2003, they can use your early 2004 gift to open a Roth IRA for 2003. What if you are giving away assets that require an appraisal for gift tax purposes, such as family limited partnership shares? Then it makes sense to bunch your annual gifts, making them Dec. 31 and Jan. 1. That way, one appraisal covers two tax years. Capitalize on Low Rates Low interest rates make certain tax-saving strategies such as grantor-retained annuity trusts and charitable lead trusts especially attractive. But low rates won't last forever. "These are things you shouldn't think about doing on Dec. 15 for the current year or you'll be sweating it, trying to get the paperwork done on time," says Raymond Russolillo, director of tax consulting services with U.S. Trust in New York. Think About Timing With all the gotchas in the tax code and with the Alternative Minimum Tax hitting more taxpayers, it pays to time your income and deductions to the extent you can. Is 2004 a year you're sure to be paying AMT? That could mean you should consider recognizing more income this year. Or might 2004 be a year you can hold your AGI under $100,000 to convert that traditional IRA? "If you plan for these things earlier in the year, you're more likely to be able to achieve your goals than if you wait," says Luscombe. Consider a Health Savings Account These new accounts, created in the Medicare drug subsidy law, allow individuals to stash pretax dollars (up to $2,600 for singles, $5,150 for families and more if you're 55 to 64) into an account that grows tax free if used for medical expenses. You must combine this account with a high-deductible insurance policy. So at first this will be an option only if you're self-insured or own the company and get to pick the insurance. But watch these accounts; you may want to lobby your employer for one.   Back to Original Article: News You Can Use   Continue with: Taming the Paper Tiger Income Tax Software Eases Annual Filing to IRS Online Tax Tools Web Sites Offer Income Tax Advice and Assistance Uncle Sam Watching the Web Internet Taxes Considered, Again Tips to Get Started on 2003 Tax Returns Minimum Tax Causing Taxpayer Headaches Investment Costs Can Mean Tax Breaks Democrats Assail Bush Budget Plans, Tax Cuts Congress to Table Permanent Tax Cuts IRS Employees Targeted in Tax Review Few Tax Changes Expected for Small Biz
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