Want To Trim Your 2000 Tax Bill? Here's Where To Start

Did your recent tax filing painfully point out the need to cut taxes? Three places to try trimming your 2000 tax bill are at home, at work and in your investment portfolio.

At home. Your home and family situation may harbor plenty of tax reduction opportunities, including:

Child Tax Credit - If you have children under age 17, you're likely to get a sizeable write-off. The Child Tax Credit allows a $500 credit on your 2000 income tax for each dependent child, including stepchildren and eligible foster children. The credit begins to phase out at incomes of $110,000 for couples filing jointly, $75,000 for single filers and $55,000 for married people filing separately.

Education Tax Credits - While you're considering the tax benefits of parenthood, see if you qualify for two nonrefundable educational tax credits as well. The Hope Scholarship Credit may be as much as $1,500 for qualified expenses for any family member in their first or second year of college or other post-secondary school. The Lifetime Learning Credit offers a credit of 20 percent of qualified expenses up to $1,000 for any family member in any type of post-secondary course. Both credits begin to phase out at incomes of $80,000 for joint filing married couples and $40,000 for single filers (the credits cannot be claimed by married individuals filing separately).

Home Sale Capital Gain Exclusion - Selling your home is now less taxing, thanks to an exclusion on home sale capital gains - up to $500,000 for married couples and $250,000 for single taxpayers. If you are married and file separately, each of you must determine your gain or loss according to your ownership interest in the home. To get the full exclusion, you must own and occupy the home as a principal residence for at least two of the five years prior to the sale. For shorter holding periods, such as in the case of a sale due to change in place of employment, health or unforeseen circumstances, the exclusion is prorated.

Home Office Deduction - If you work at home - either on your own or at your employer's request- you may be able to write off expenses for a home office. Deductible expenses may include office equipment, furniture, utility and maintenance bills and even part of your home mortgage. Check with your accountant for details.

At work. If you're fortunate, you'll find that many of your best tax-cutting opportunities are related to your employment.

Qualified Retirement Plan - If you have a 401(k), 403(b) or other retirement plan, maximize your contributions for the biggest benefit. With tax deferral of contributions and earnings, and a possible employer match, such plans may be an effective way to build retirement wealth.

Flexible Spending Accounts - These benefits let you avoid tax on income used to pay for qualified medical or dependent care expenses. You set aside a certain amount for each purpose, and when you need the money you withdraw it through your company benefits office. Eligible medical expenses may include health care deductibles, uncovered physicals, prescription eyeglasses and contacts and transportation to and from your doctor. Dependent care costs may include daycare, preschool and care for an aging parent who is physically or mentally incapable of caring for himself or herself.

In your investment portfolio. Planning your investments with an eye on taxes may boost your results in several ways.

IRA and Roth IRA - If you haven't considered the idea of contributing to an IRA in the past couple of years, you're in for a pleasant surprise. The Taxpayer Relief Act of 1997 created some attractive changes. The Roth IRA allows qualifying taxpayers to contribute up to $2,000 for singles and $4,000 for married couples each year although the maximum yearly contribution is phased out for a single individual with adjusted gross income (AGI) between $95,000 and $110,000 and joint filers with AGI between $150,000 and $160,000. For Roth IRAs, even though your contributions aren't tax deductible, withdrawals are tax-free providing certain requirements are met. In addition, if neither you nor your spouse participate in an employer plan, you can fully deduct your contributions to traditional IRAs regardless of your income. Even non-working spouses can contribute $2,000 annually to an IRA subject to AGI limits.

Timing of Securities Sales - By holding securities for more than 12 months before selling them, you'll qualify for the capital gains tax rate of 20 percent (10 percent for taxpayers in the 15 percent income tax bracket on most investments). Sales of collectibles and certain real estate have different rates. If you sell a security earlier, any short-term capital gain will be taxed at your ordinary income tax rate, which will be higher.

Offsetting Gains with Losses - If you have capital gains, you may be able to offset them with losses from other securities. If your losses outweigh gains, you can deduct excess losses against ordinary income up to $3,000 and then carry any remainder over for use in future years.

A planned approach. Touch your tax cutting bases every year by making tax tactics part of your overall financial plan. A knowledgeable financial advisor, accountant and tax attorney can work together to help you succeed.

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