The following suggestions can help you identify actions to take before year end to reduce your income tax under the current law.

Purchase needed business equipment. This year you are able to expense the cost of up to $20,000 of equipment, furniture and other tangible property purchases. Take a look at your purchases so far for 2001; if you still have equipment needs, consider making a purchase before year end.

Check your estimated tax payments. If you are a C corporation, you generally must prepay either 90% of 2001’s income taxes or an amount equal to 100% of 2000’s taxes to avoid penalties.

Do you use an auto for business? If so, you will need to document the percentage of business and personal use. If you use a personal vehicle, submit the mileage for reimbursement by the business at 32.5 cents a mile. The money is tax-free to you and deductible by the business. If you drive a corporate vehicle, the personal use will be added to your 2001 W-2 as compensation.

S corporations - Do you have enough basis in your stock to make the losses fully deductible? Basis is generally equal to the money you personally deposited into the corporation (either out of your own pocket or from money you borrowed personally) and any annual earnings from the business.

C corporations - Have you considered maximizing the loss which can then be carried back to prior profitable years to get a tax refund?

If you are an S corporation, partnership or sole proprietorship, taxable income will flow to the owners increasing their individual taxable income.

If you are a C corporation, the business could owe federal and state taxes.

Postpone income. If you are on the cash method for income tax reporting, consider putting off billing and collection activities until January 2001, but only if 2001 is a peak income year and you expect 2001 to be back to normal. Accrual basis taxpayers can delay shipping products or providing services until the beginning of the next year.

Use cash to pay expenses before year end if you are on the cash method for income tax reporting. Accrual basis taxpayers can deduct declared bonuses paid to employees within 2½ months of year end and vacation pay that is vested at year end.

Write off bad debts. Bad debts are deductible for tax purposes only when they are considered worthless and written off the books.

Write down inventory. Odd-lot, damaged and obsolete inventory can be written down to its market value, if less than its cost.

Review depreciable business assets and consider abandoning or selling unused items. Any undepreciated cost will result in a deduction. Also, removing these items will reduce county tangible taxes.

Health Insurance Deduction. For 2001, S corporation shareholders, partners and self-employed individuals will deduct 60% of their health insurance premiums as an adjustment to income. Premiums paid by the business are considered compensation to these individuals.

Maximize retirement contributions. If your employer offers a 401(k) or a Simple IRA, consider making the maximum contribution, which is $10,500 and $6,000, respectively, for 2001. In addition, consider a Roth IRA contribution. Even though the contributions are non-deductible, qualified distributions from a Roth IRA are not included in a taxpayer’s gross income. For 2001, a spouse who is not an active participant in an employer sponsored retirement plan can make a deductible IRA contribution even if the other spouse is an active participant. To receive the deduction, adjusted gross income must not exceed $150,000.

Make charitable donations by year end. This includes donations paid on a credit card. However, those charges must be posted to your account on or before December 31st. Keep in mind that all contributions over $250 must be substantiated by a receipt from the donee. Consider a charitable gift of appreciated capital gain property (such as stock held more than 18 months). Such a donation is deductible at its full market value and you avoid capital gains taxes on the appreciation.

Accelerate or defer income if valuable. If you have the ability to control certain income or expense items, look at your marginal bracket for 2001 and 2002. If you expect to be in a higher bracket in 2002, you may want to accelerate income items into 2001 to take advantage of the lower rate. You may also want to defer expenses until 2002 to reduce taxable income at a higher rate. But, watch out for (1) alternative minimum tax which can be triggered by preferences and certain deductions and (2) taxation of social security income.

Invest for capital gains. Long-term capital gains are taxed at 20%. Shifting the gain on investments from ordinary income to long-term capital gains can save taxes and increase the realized gain. The holding period required is 12 months.

Bunch deductions. If your itemized deductions hover around the standard deduction ($4,400 if single, $7,350 if married filing jointly for 2001 consider bunching them into alternate years to increase your deduction. Deductions such as taxes on your home, charitable contributions, un-reimbursed employee business expenses and medical expenses are the most likely candidates because you may have more ability to control the date of payment.

Consider lowering your family’s overall taxes by transferring income-producing assets to your children and taking advantage of their lower tax rates. You may give up to $10,000 in cash or other property per year without federal gift tax implications. For children under 14, the first $1,400 of investment income is taxable at 15%. Anything above $1,400 is taxable at the parents’ rate. Once a child reaches 14, the first $26,250 of income is taxable at 15%, like any other single person.

Did your filing status change in 2001? Marriage and divorce can have a dramatic affect on your tax bracket and rates. It may affect you positively resulting in a refund, but it can also cause you to be underpaid. Each situation is different. Prepare a projection of income and consult your tax preparer.

IRA owners approaching 70½. If you turned 70½ in 2001, you probably need to begin drawing minimum distributions from your IRA by April 1, 2002. Failure to withdraw the minimum amount will result in an excise tax on top of the ordinary tax. Consider whether accelerating this income into 2001 is beneficial.

Avoid tax penalties. Be sure you have paid either 90% of your 2001 income tax or 100% of 2000’s total tax through withholding and estimated payments. If adjusted gross income exceeds $150,000, you must pay 108.6% of your 2000 tax, or 90% of your 2001 total tax to avoid penalty. In addition, if you fail to properly estimate the amount due with your extension request next April, you will be charged additional penalties and interest.