By Wade Moller

Like it or not, it is time to think about the one topic that most of us do everything in our power to avoid contemplating (aside from a few stressful hours sometime around April 15) - taxes. For calendar year taxpayers, however, April 15 is simply the reporting cut-off for 2005 activities. Year-end tax planning opportunities will need to be undertaken prior to December 31. Here are a few helpful tips:

Individual Taxpayers
Make Anticipated Large Expenditures Before Year End: Unless Congress chooses to extend it, the optional deduction for state and local sales taxes is set to expire this December 31. Thus, make your planned purchase of a car, boat or home improvements before year-end to deduct the sales tax paid on your federal return.

Pay Your January Mortgage Payment in December: Making your January mortgage payment a few days early will have little overall effect on your holiday budget, but by making your payment in December the interest component of this payment will be deductible on your 2005 tax return.

Make Charitable Contributions with Appreciated Stock: Your charitable contribution deduction will equal the fair market value of the contributed stock and you will avoid having to pay tax on the unrealized gain. Contributions should only be made in this manner with stock that has been held for more than a year. Contributions of appreciated stock are generally only deductible to the extent of 30% of the donor's adjusted gross income for the taxable year in question.

Spend the Balance in Your Flexible Spending Account: Flexible spending accounts (FSAs) are "use it or lose it" plans. This means that amounts in the account at the end of the plan year will be lost. The IRS recently provided companies with the option of extending the grace period for employees to spend unused money in their FSAs from December 31 to March 15 of the following year. Many employers have elected not to adopt the additional grace period for 2005, however, so check that your employer has agreed to extend the deadline before postponing your expenditures until after December 31.

Make Year-End Gifts to Take Advantage of the Annual Exclusion: Each taxpayer is allowed to make an annual tax-free gift to each person up to the annual exclusion amount, which is $11,000 for 2005 ($22,000 if you are married and your spouse consents). If such gifts are in your plans, make them on or before December 31 to take advantage of the 2005 annual exclusion.

Maximize Contributions to Your Retirement Plan: Each individual is entitled to contribute up to $14,000 in 2005 to a 401K or $4,000 to a traditional IRA.¹ Contributions to a 401K or a traditional IRA will reduce a taxpayer's income tax liability for 2005 and also increase the deductibility of certain itemized deductions.

Capital Gains and Losses: If you have net capital gains for the current year, you may want to dispose of consistently underperforming stocks to create offsetting capital losses. Avoid purchasing or repurchasing the same stocks sold at a loss within 30 days either before or after the date of the sale generating the capital loss, however, or your capital loss will be disallowed under the "wash sale" rules. You also may deduct up to $3,000 of capital losses against ordinary income even if you have no capital gains for 2005.

Small Businesses
Bad Debts: If you have previously included an amount in income or loaned or made an advance of cash to a client in connection with your practice, and this amount has become uncollectible, you may have a deductible business bad debt. If you are a cash-basis taxpayer, you may not take a bad-debt deduction for income you expected to receive but did not, since this amount was never included in your income.

To be eligible for this deduction, you must show that the business debt became worthless (or partially worthless) during 2005 and that there was an intention at the time of the transaction to make a loan rather than a gift.

Election to Expense Certain Property: A taxpayer may elect to treat the acquisition cost of certain property, up to $105,000,² as a deductible expense if it was placed in service in 2005. This election is generally applicable to computer software and other tangible property acquired for use in the active conduct of a trade or business. n