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Posted by robpimentel on September 8, 2007, 12:26 am
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Hi Tom, and thank you. This was the type of response I was
hoping for. Please see below for more.
> robpimen...@yahoo.com wrote:
>> I can expect to "lose" money if the credits ever exceeded
>> the tax I owed. Having said that, I expect that the two
>> values will be nearly equal again this year. Little has
>> changed for me (income is up a bit, filing status is the
>> same, number of exemptions is the same, itemized deductions
>> will be about the same, etc.).
>
>> ... If not, are there any other
>> strategies I could employ to keep my tax owed high enough to
>> maximize the benefit of the credits (I.e. itemize some
>> deductions in a subsequent year, generate more interest
>> income through investments to bring up AGI)?
> There are generally two strategies for managing this issue.
>
> 1. You can delay deductions into the following year by not
> paying them this year. One easy one to move about, if you
> have a mortgage, is the mortgage payment due on Jan. 1st. If
> you pay early you get it this year. Property taxes can
> sometimes also be managed in a similar fashion. Optional
> payments, like (some) medical expenses and charitable
> contributions can also be easily moved into the following
> year.
Unfortunately my property taxes are handled through an
escrow account, so I can't dictate when they are paid.
However, the extra mortgage payment and charitable
deductions are definitely something I can leverage.
> 2. You can generate more income. Interest income from
> investments is one possibility, although usually not that
> easy to control directly. If you have appreciated capital
> assets like stocks or mutual funds, you could sell them to
> realize capital gains this year. If you want to stay in the
> same investment, you could even sell and immediately
> repurchase. The "wash sale" rules apply only to losses, not
> gains. That would allow you to carefully control the amount
> of extra income you get this year.
Thanks for the info on the "wash sale". Still a novice, so
not ready to invest in something I don't fully understand
(E.g. stocks). However, I have been contemplating moving my
emergency fund from a tax- free MM account, to a interest
bearing checking or savings account, or another similar
entity that yields no risk but a higher rate of return than
the MM account. Since my credits would probably absorb most
of the additional tax generated from the interest of a
taxable ~5% account, it should produce better results than
the 3% tax-free MM account currently holding my money.
Thanks.
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