Cut your taxes with midyear planning
Summer's here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there's little time for changes to take effect. But if you take the time to plan now, you still have six months for your new tax strategies to make a difference on your 2002 tax return. So set aside some time for tax planning. Begin by pulling out your 2001 return.
Review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year's income below the threshold?
Evaluate your investment portfolio. By now you should have an idea whether you'll be selling any investments this year. Taking losses by pruning your portfolio can be an effective way to manage income.
Build a retirement fund and cut taxes too. Take advantage of the new higher contributions allowed for IRAs, SIMPLEs, SEPs, and 401(k) plans, especially if you're 50 or older.
Check out education tax breaks. If you or your children are in college, review the new education tax breaks for 2002. These include a new deduction for higher education expenses, expanded deductions for student loan interest, changes to education savings accounts, and improved Section 529 plans.
Don't overpay your taxes. Finally, if you received a large refund on last year's taxes, consider reducing your withholding for this year. To adjust your withholding, file a new Form W-4 with your employer.
