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June: tax-planning season
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June 6, 2000: 5:48 a.m. ET
Experts say start thinking about next year's taxes now -- and save money
By Staff Writer Rob Lenihan
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NEW YORK (CNNfn) - To the financially naïve, tax planning this close to summer is about as welcome as storm clouds at a beach party. Yet you may find some silver lining your pockets if you take the time to prepare. 
The Financial Planning Association advises consumers to consider next year's taxes now, no matter how much you hate doing it.
Many tax strategies and adjustments take time to complete, and if you wait until next April to start working you may be too late. Plus there could be changes in your home, such as kids moving out, that will change your tax profile.
"It's pretty fresh in people's minds," said Victoria Long, a Denver-based certified financial planner (CFP) and a CPA. "Maybe they had a shock last year. Now would be a good time to do something about it so they don't make the same mistake two years in a row."
Get a healthy refund last year? If so, then you overpaid your taxes throughout the year and the government kept your money as a tax-free loan. While some view this as forced savings, experts advise that is generally better to invest or put the money in the bank.
"Why get a huge refund at the end of the year?" asked Cindy Hockenberry, spokeswoman for the National Association of Tax Practitioners. "People think it's free money and it's not. It was their money to begin with."
Put out the dog
Got a dog stock showing no sign of redemption? Now's a good time to give that puppy the heave-ho, Long said.
"If you're sitting on some dogs, go ahead and sell them," she said, "and use the losses to offset any capital gains you might have."
Other strategies include:
* Make charitable donation plans now, such of as donating stock of mutual fund shares. But don't donate the dog stocks, Long said. You only give away appreciated property, not something with a built-in loss.
* You can reduce the amount you owe or receive by adjusting the allowances you claim on your W-4 form. To reduce the size of a refund next year, increase the number of allowances; decrease the number to reduce the amount you owe. 
* Try to more accurately calculate any estimated payments you may need to make, such as for income from retirement accounts, investments or self-employment, so they more closely match your anticipated tax liability.
* If you're self-employed, you need to get your Simplified Employee Pension plan set up by the end of the year. You can wait until April to make the contribution, but get the plan in place now to avoid last-minute headaches.
* Consider "deduction bunching." Certain itemized deductions must meet thresholds before you can claim them. For example, you can deduct only those medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). Bunching elective expenses into a single year might push you over the threshold. But review any itemized deduction strategies to see if they increase your vulnerability to the alternative minimum tax.
* Planning to get married before the year is over? December may not be the best month from a tax perspective if you and your true love are wage earners. The "marriage penalty," in which married couples pay more in combined taxes than they would have paid as single taxpayers, could haunt you like Marley's ghost. Wait until January and you might save enough taxes to pay for the wedding. However, couples with a non-working member might find it more financially beneficial to tie the knot before year's end.
Kids and taxes
Schools out for the summer and that means your kids will be all over the place. The NATP advises parents to keep several issues in mind when planning their child's summer break:
* Childcare: Hire a babysitter to provide child care in your home and guess what? You're an employer. You will have to issue the sitter a W-2 and apply for an employer ID number. Pay the baby sitter over $1,200 and you will have to withhold Social Security and Medicare taxes. But if the sitter is your own kid, you're exempt from withholding Social Security and Medicare tax until he or she reaches 18, regardless of how much you pay them. 
* Kid credits: If your children are under 13, you may be able to claim the child-care credit based on the amount of money you pay the babysitter. The credit can be up to 30 percent of your expenses and to qualify, you must pay these expenses so you can work or look for work. You do not qualify for the credit if the child-care provider is your own child.
* Hire the child: Hire your kids to do household chores and pay them. You will still have to get an employer ID number and possibly issue a W-2 to your child, but he or she will still have earned income. With earned income, you kid can open an IRA or Roth IRA. Remember the payment must be reasonable for the services your child provides and for the child's age. There is no deduction for the wage you pay your child for doing household chores.
* College-age children: If you have college-age children and you operate your own business, you can hire your kids for the summer to do odd jobs. The money they earn can be used towards their tuition while you get a deduction for the wage you pay them on your business return. However, you must operate a sole proprietorship or a partnership where the only other partner is your spouse for this to work. 
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