Last-minute tax strategy tips can lead to savings

Paula Dougherty, ChFC, CLU, MBA, is a financial planner with American Express Financial Advisors Inc.

If you're holding off on filing your tax return, you're not alone. According to the Internal Revenue Service, nearly one-third of all Americans wait until the final two weeks before April 15 to file their federal tax returns.

Ideally, your tax planning strategy should be something you follow year-round not just once a year during tax season. But even if you've put off tax planning until now, you may still be able to take steps that can potentially reduce 2002's tax bill and improve your overall financial picture.

Charitable contributions

If you donated money or property to charity in 2002, you may be able to claim a deduction on your taxes.

The tax benefit for charitable contributions is available to taxpayers who itemize deductions about one-third of all filers, according to the IRS.

To claim deductions for charitable contributions made in the 2002 calendar year, be sure to get receipts when required. For any single gift of $250 or more, you'll need to have a written receipt from the charity to claim a deduction. You'll also need a written receipt if your gift exceeds $75 and you received something of value from the charity.

Similarly, if you donated a used car or other property (aside from publicly traded securities) worth more than $5,000, you'll need to include a qualified written appraisal with your tax return.

When donating a used car, for example, IRS rules allow you to take a deduction equal to the car's fair market value, which depends on the vehicle's age, model, mileage, condition and strength of the local market.

Investment transactions

Review your investment transactions to determine whether you had any capital losses to offset capital gains during the 2002 calendar year. You can offset the taxes on any capital gains, dollar-for-dollar, against capital losses. In addition, you can apply up to $3,000 in capital losses each year against ordinary income. You can carry forward capital losses that exceed $3,000 to future years.

Remember that it's usually not a good idea to sell a stock or bond just to get a tax break. Your overall financial goals and investment strategy not taxes should drive your decision to buy or sell an investment.

Medical deduction?

You also may be able to reduce your taxes if you're enrolled in a weight-loss program recommended by your physician. Under an IRS ruling issued last year, people who have been diagnosed as obese by their doctor may be able to claim a medical deduction for costs related to weight-loss programs, including membership fees, diet plans and program literature.

Not every expense can be deducted. For example, the new guideline does not permit you to claim dietary foods as an expense. Also, your total medical expenses diet-related or otherwise must reach 7.5 percent of your adjusted gross income to qualify as an itemized deduction. See your tax advisor for full details.

Job-hunting expenses

If you went looking for a new job in 2002, you may be able to claim a tax deduction even if your job search was unsuccessful. As long as you looked for a new job in the same line of work, you may be able to claim a deduction for job-search-related expenses, along with other miscellaneous itemized deductions that exceed 2 percent of your adjusted gross income.

Generally, you can claim a wide range of deductions for job-hunting expenses. For example, you might claim the costs of preparing a resume or consulting an employment agency.

Keep in mind that such job-search deductions usually aren't available to people who are switching professions or who have been out of work for a long period of time.

For example, you probably can't claim a deduction if you're a salesperson searching for employment as a computer programmer. Similarly, college students and other individuals looking for their first job aren't able to deduct job-hunting expenses.

Start planning ahead

Getting a head start on your tax and financial planning is always a good idea. It can help you avoid the panic of preparing your taxes at the last minute, and it can potentially give your money more time to grow. For example, funding a tax-deferred individual retirement account now, rather than waiting until next year's tax deadline, can give your money a full year to experience the potential benefits of compound interest.

Consider taking full advantage of the power of tax-deferred compounding interest by investing the maximum allowable amount in an IRA.

For tax year 2002, you can invest up to $3,000 in a traditional or Roth IRA any time before April 15, 2003. If you're age 50 or older, Uncle Sam will allow you to contribute up to $3,500.

Last-minute assistance

As you work through your return, you can find answers to your specific tax questions by visiting the IRS Web site, www.irs.gov, or by calling the toll-free IRS help line at 800-829-1040. You may be able to further simplify the task of preparing your taxes by using automated tax-preparation software for your home computer.

If your tax situation requires the help of an expert, be sure to use a professional tax advisor who is experienced in tax situations similar to yours.

Now may also be a good time to consult with your qualified financial advisor to ensure that your overall financial strategy is well-rounded and in tune with your tax-planning goals.