20 smart ideas to reduce your taxes

Black Enterprise, Oct, 1992 by Patricia M. Carey

9. Give appreciated stocks to charity. You get to deduct the appreciated value as long as you've held the investment for more than a year, and you don't have to pay taxes on the gain.

Never donate stocks on which you have a loss. Instead sell the stocks, take the loss and give away the cash.

Corney offers one caveat: Excessive use of this strategy can trigger the alternative minimum tax (AMT), the IRS's way of making sure that higher-income people with many deductions pay at least a minimum amount of taxes. If you think you may be subject to AMT, discuss the subject with your tax adviser.

10. Use flexible benefits plans. Under these plans -- also known as flexible spending or cafeteria plans--your employer deposits pretax income in a special account earmarked for medical costs or child care. After you make approved expenditures, the employer refunds you from the accounts. The limit on flexible spending accounts for child care is $5,000. There is no limit for medical expenses.

The savings from flexible benefits plans can be substantial because the money in the accounts is not reported as wages and is not taxed. If you don't spend all the money in your plan, however, it reverts to the employer.

If you're already using such a plan, review how much you've spent this year and accelerate applicable expenses if you think you might have a surplus. If your employer doesn't have a plan, lobby for one, emphasizing that the only costs to him or her are administrative.

11. Transfer assets to your children. Before 1986, many taxpayers saved or invested for their children's education by giving them cash, stocks or bonds. The interest and dividends were taxed at the children's much lower tax rate.

The so-called "kiddie tax" has reduced, but not eliminated, the advantages of this strategy. Children under 14 pay no tax on the first $600 of unearned income and 15% on the next$600. The kiddie tax kicks in at $1,200. Every dollar beyond $1,200 is taxed at the parent's presumably higher marginal tax rate.

"The first rule of saving for education is, take advantage of the $1,200," says van den Akker. You may give your child up to $10,000 per year ($20,000 if giving jointly with your spouse) without incurring any gift taxes.

Van den Akker suggests giving something with tax deferral built in, such as growth stocks that will not be sold until after the child turns 14 and the kiddie tax no longer applies.

If you're concerned about control, you may set up a Uniform Transfer to Minors Account (UTMA) or a Minor's Trust. Either lets you put the assets in your child's name but act as trustee until the child reaches 18 or 21, depending on the state.

12. Buy Series EE U.S. savings bonds. The bonds are currently paying 5.58% interest and sold at 50% discount on face value. Interest earned on bonds issued after Dec. 31, 1989, is totally free of federal tax if the money is used to pay for qualified education expenses for you, your spouse or your dependent, and if your AGI falls within certain limits. To take full advantage of the program in 1992, heads of households and single taxpayers must have AGI below $44,150. Married couples filing jointly may have AGI up to $66,200. For joint filers, the exemption is gradually phased out between AGIs of $66,2D0 and $96,200 ($44,150 to $59,150 for heads of household and singles).