What's Up

       Would you rather have $1 today, or wait until next year to receive it? All other things being equal, that $1 in your hand today is worth more because it's a "sure thing." You can spend it, invest it, or keep it folded in your wallet -- right now. Removing any delay eliminates an assortment of risks, which thereby underscores a desirable component of its overall utility. That component translates to the amount of interest you would expect to receive for each $1 owed you.

       You have just been introduced to the concept of "present value." By applying that concept to your income tax situation, you can become more aware, and more astute, about planning some of your financial transactions (rather than merely letting them occur haphazardly), with the specific intent of generating tax savings. The standard, general strategy is to accelerate tax deductions and tax credits into the current year, and to defer income (and the tax liability accompanying it) into the next tax year. A corollary of this strategy is to review your W-4 form carefully AT LEAST ONCE EVERY YEAR to make sure that the withholding on your salary or wages is appropriate -- getting a big tax refund means that you gave the Government an interest-free loan of your money. Think of what you could have done with that money if you'd had it all along. (If you want to set-up some kind of "forced savings" that will benefit you a lot more than getting a big tax refund, then ASK ME -- see phone numbers above!)

       If you have enough deductions, or nearly enough, to itemize them on Schedule A, then try LUMPING DEDUCTIONS. Skewing the timing from one year to another may make the difference in being able to itemize deductions on Schedule A in the "lumped" year, and then you can switch back to using the "standard deduction" in alternating years. Let's assume that you are going to lump deductions for 1997. Here's how:

       If you pay state or local estimated taxes, then mail in your checks prior to December 31. Ordinarily, these fourth-quarter payments are not due until January 15 of the following year, but prepaying by a couple of weeks will trigger your federal tax savings one year sooner. This same tactic can be employed regarding charitable contributions, certain interest and tax payments, medical expenses, and miscellaneous itemized deductions (including union dues, uniforms, work tools, business expenses, and fees on income-producing property).

       Most churches and other public charities accept payment via bank credit cards. If you are going to have to pay off a pledge or are intending to make a deductible contribution anyway, consider doing it by December 31 -- and if your cash flow is tight, then consider charging the payment (see CAVEAT below!). In addition, when cleaning-out your attic or basement, make a list of the contents of the bags or boxes you donate to Goodwill Industries, Salvation Army, or AmVets, make sure you deliver the goods by December 31, and GET A RECEIPT!