Year-end moves to trim your '07 tax bill

Pension or IRA contributions. These are especially important if you are self-employed. Unless tax rates shoot up, you want to pay your tax "tomorrow" rather than today.

If you're contributing to a retirement plan such as a 401(k) plan or a 403(b) plan, you can put in $15,500 this year and the same amount in 2008. If you're 50 or older, you can put up another $5,000 as a catch-up contribution.

Cash gifts. If you might ever be subject to the estate tax, make your $12,000 tax-free gift before the end of the year.

Capital gains and losses. 2007 has been a wacky, volatile year for investors, but the market is likely to show gains for the year. If you have capital gains, remember that any net capital losses over the $3,000 allowed on your 2006 tax return should be carried forward to offset those 2007 gains. If you still have net losses, up to $3,000 may be used to offset ordinary income for 2007.

All net long-term gains are subject to a maximum 15% rate. If you're in the 15% or lower tax bracket, your tax hit is softened to only 5%.

If you're single with taxable income of $31,850 or less, you get the 5% rate. With a standard deduction of $5,350 and a $3,400 personal exemption, you can have as much as $40,600 in gross income and still qualify.

If you have net capital gains, sell losers to offset those gains. If you have more losers, sell at least enough to get the $3,000 offset against ordinary income. If you have shares of stock pregnant with gains and you don't expect them to appreciate further, sell those shares and shelter the gains with the losses on your losers. Worst case -- pay the maximum 15% tax. You can't go broke taking profits.

A headache you may face

I fully expect some relief on the alternative minimum tax. And if we don't get it, I encourage you to really yell at your representative and senators for not getting the job done.

More and more middle-income taxpayers are being hit with the AMT each year, which is basically a parallel tax system designed to ensure that everyone pays some tax. It is, however, forcing too many people to pay more tax than they probably should.

Last year, Congress extended the AMT exemption, increasing the exemption to $62,550 in taxable income for married couples filing jointly and $42,500 for single taxpayer.

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Congress has promised to extend the AMT exemption for 2007 and increase it to $66,250 for married couples filing jointly and $44,350 for single taxpayers.

Watch this carefully because it could cost you. If the exemption is not passed, the 2007 exemption amounts would be $33,750 for individual filers and $45,000 for joint filers.

In fact, if you think you're subject to the tax, filing your taxes may get complicated because tax forms may not reflect the changes.

Tax-free IRA distributions to charities

If you're 70 1/2 or older and looking to make a donation to a favorite cause using funds from your individual retirement account, this may be the year to do it. For 2007, you can distribute as much as $100,000 directly from your IRA without recognizing any income.

You don't get a charitable-donation deduction (unless the distribution was from a Roth IRA), but the distribution does count toward your minimum-distribution amount.

A note: This provision expires after Dec. 31 unless Congress renews it. A renewal is expected, however.

Updated Nov. 20, 2007

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