No sweeping tax changes this year, but there are new options
For the first time in three years, taxpayers have a break, sort of. They don't have a sweeping new tax law to figure out. After wrestling with the loftily named Economic Recovery Tax Act (ERTA) of 1981 and the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, people considering end-of-the-year tax moves may wonder if there are any moves left.Skip to next paragraph
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There are. Many TEFRA measures did not become effective until this year, and, of course, the tax breaks set up in ERTA are still in effect. Also, the Internal Revenue Service has made some tax points of its own through its rulemaking. So there are some potentially rewarding moves that can be made, if you act before year-end.
You can, for example, take advantage of a recent ruling by the IRS concerning charitable donations made by upper-income taxpayers. As of this Dec. 1, it is possible to set up a ''charitable remainder trust'' and claim a larger deduction than would have been possible before that date.
You can put almost any kind of asset, including stocks, bonds, or real estate , in a charitable remainder trust. You then receive an amount of money annually from the trust, either for a specified number of years or as long as you or your spouse lives. At the end of that period, the assets in the trust are paid to whatever charitable organization you have chosen - a college, church, or other charitable group. This way, you get some of the tax benefits of a charitable donation now while continuing to receive income from it.
For example, a donor might put $100,000 into the trust. A spouse could provide that when he passes on, the widow or widower will receive a $6,000 annuity every year from the trust as long as the survivor lives. When that person passes on, the principal goes to the charity.
The recent IRS ruling that makes these trusts more attractive increased the up-front deduction that could be claimed. Before Dec. 1, the deduction has been
Also, says Herman M. Schneider, tax partner in the New York office of Coopers & Lybrand, the accounting firm, by using the one-month ''window'' between Dec. 1 and the end of the year to set up the trust, the taxpayer will have had the use of the money almost all year. Yet he will have created the trust early enough to claim the deduction on 1983 taxes.
For people making smaller contributions to their favorite charity, there are other ways to ease the tax bite. If, for instance, you do not itemize deductions in either 1983 or '84, you can still deduct up to 25 percent of the first $100 of contributions made this year. Next year, however, you can deduct up to 25 percent of the first $300 that you donate. So, if you did not itemize this year but expect to do so next year (perhaps you bought a house in the last few months of this year, for example), it would be to your benefit to hold off making these contributions until 1984 and claim the larger deduction.
One of the TEFRA provisions taking effect only this year affects people investing in tax shelters. Beginning this year, there is a revised and expanded ''alternative minimum tax,'' which includes a higher tax rate and tighter restrictions on certain kinds of tax shelters. This makes it important to check with your accountant or tax lawyer to see if you have too many shelters. Perhaps some should be sold or some other tax-planning alternatives considered.
In another tax shelter area, there is more incentive to be careful about which one you choose - or promote, if that is your business. This year TEFRA imposes a new civil penalty on anyone who organizes, assists, or participates in the sale of tax shelters if misstatements are made about the size of the tax benefits or if there is a gross overvaluation of an item. The penalty comes to $ 1,000 or 10 percent of the promoter's current or future gross income derived from the shelter, whichever is greater.
Two of the greatest tax ''shelters'' are quite legal and are gaining more interest and money every year. They are individual retirement accounts (IRAs) and Keogh (or HR 10) plans. IRAs are available to anyone who earns income, and Keoghs can be opened by anyone who has self-employment income, including people who have a full-time job but do free-lancing on the side.
If you have not yet opened an IRA, you have until the date you file your 1983 return, which can be as late as April 15 (or later with a fairly easy-to-get extension). You also have until that date to make any IRA contributions that you want credited to 1983. The limit on individual contributions to an IRA is $2,000 a year, or $2,250 if the IRA is being opened for you and a nonworking spouse.
Keogh plans are a little different. In addition to having a higher limit of 15 percent of your self-employment income, up to a maximum of $15,000, Keoghs must be opened before the end of this year. You can, however, put 1983 money into the Keogh anytime next year before you file the income tax return.
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