Apr 15th coming soon!!!! Five months from now, you may be richer if you read this today Martin Skala, Correspondent of The Christian Science Monitor Mon Nov 14, 3:00 AM ET The April 15th income-tax deadline is still five months away. But making some savvy tax moves before Dec. 31 can save you hard-earned cash at filing time. When you prepare your tax return after the close of the calendar year, it's usually too late to trim your tax bill. So reviewing your tax situation now will also make the filing process less stressful next spring. "For effective tax planning, you want to control the timing and way by which your income is reported and your credits and deductions are claimed,' says Bob Scharin, senior tax analyst at RIA, a provider of tax information and software. Deferring income into the following year and accelerating deductions into the current year has been a time-honored strategy for minimizing taxes. This conventional wisdom, however, no longer applies to thousands of taxpayers who are hit by the alternative minimum tax (AMT), experts say. The AMT, created in 1970, was crafted to insure that even the wealthiest paid some tax. Originally set at 10 percent, the AMT has since risen to 28 percent and has become a widespread "add-on" tax for many middle-income families. "You don't have to be wealthy to feel the repercussions from the AMT, and it's different for everyone." says Jennifer MacMillan, a tax professional in Santa Barbara, Calif. "Many deductions and exemptions allowed for regular tax purposes are just wasted if AMT kicks in." she notes. The AMT, for example, does not allow deductions for dependents or for state and local taxes. Married couples earning $146,000 or more can lose as much as 80 percent of their itemized deductions, according to Ms. MacMillan. Therefore, prepaying state and local taxes due in January, normally a smart way to obtain a 2005 itemized deduction, would not make sense for a taxpayer caught in the AMT net. The only way to be sure if you are running afoul of the AMT is to do an estimate of your total income, itemized deductions, and credits on a 1040 form and again on an AMT work sheet. If the AMT calculation turns out higher than what you owed on Form 1040, you owe AMT tax. Figuring out the interactions between the AMT and the regular tax system can be perplexing, according to Peter Michaelson, a tax specialist with Eisner LLP, a New York accounting firm. That's why middle-income taxpayers should consult a tax professional if they are borderline candidates for the AMT, he says. Taxpayers also need to tread carefully to avoid pitfalls caused by income-contingent tax breaks, tax advisers warn. These tax breaks - deductions and credits that taxpayers lose when their income goes beyond specific "phase out " thresholds - have proliferated in recent years. Taxpayers have to calculate the trade-offs between boosting their income and what it would cost if they lost some of the tax breaks they enjoy such as the child tax credit or educational credits. For example, a spouse's part-time job may raise a family's adjusted gross income. A jump in income could also sharply reduce deductions and credits for which they may be eligible. Families that qualify for these tax breaks should consider their tax situation in both this year and next before taking steps to shift deductions or income, says Mr. Scharin. Whether taking a deduction or exclusion is better than a tax credit, depends on your tax bracket. A deduction or exclusion reduces the amount of taxable income that falls within your tax bracket. A credit, on the other hand, reduces, dollar for dollar, the amount of tax that you compute on your taxable income. As a general rule, the lower your tax bracket, the more appealing a tax credit is likely to be. Here are some strategies tax experts recommend you pursue before year-end: Sales-tax deductions. This is the last year you can elect to deduct state and local sales taxes instead of state and local income taxes as itemized deductions from federal filings. The sales-tax deduction may be advantageous if you are buying a big-ticket item such as a boat or car this year. If you live in a state with a relatively low income tax rate and high sales tax, you should also consider taking this deduction. Fund transactions. If you've owned an appreciated mutual fund more than 12 months and decide to sell before year-end, sell before the December dividend distribution. That way your entire gain - including the amount attributable to the upcoming distribution - will qualify for the 15 percent capital-gains tax rate. If you wait, you may owe as much as 35 percent on the ordinary income part of the distribution. If you want to acquire an equity mutual fund, wait until after the distribution (which is taxable income) in late December. Otherwise, you'll get back part of the money you just invested with a tax liability to boot. Retirement planning. Maximize contributions to deductible IRA and employer-sponsored 401(k) plans, which have higher limits this year. IRA contribution limits increase from $3,000 to $4,000. If you are 50 or older, you can add a $500 "catch-up" payment. If you have a 401(k) plan, the contribution cap rises to $14,000, or $18,000, if you will be 50 or older by year end. Many retirees with part-time jobs are unaware that they can continue to contribute to a traditional IRA from earned income up to age 70-1/2, according to tax-specialist Michaelson. After that, you can only make nondeductible contributions to a Roth IRA and you don't have to withdraw Roth IRA funds during your lifetime. Prepayments. If you own a home, ask the town assessor for your real estate bill, and prepay 2006 property taxes before year-end. The same thing goes for your January mortgage, especially if you anticipate you will earn less next year. Gifts. Give appreciated securities instead of cash to college-bound children or grandchildren. You can give $11,000 this year ($22,000 if he or she is married) to a recipient without raising gift- or estate-tax issues. If you are in a 25 percent tax bracket or higher, you have a strong incentive to give securities to children. The youngster is likely to be in a lower income bracket and may pay as little as a 5 percent capital-gains tax upon sale of the asset. Stock losses. It's been a tough year in the stock market, and many investors are likely to have some losers that they want to unload. Use any realized losses to offset capital gains from other sales, plus as much as $3,000 of ordinary income. You will generally get the most tax-saving benefit with a short-term loss. That is because losses on stocks held for 12 months or less go first to offset short-term gains that could be taxed at rates as high as 35 percent. Bunching deductions. If you have paid off the home mortgage, or otherwise find yourself unable to itemize deductions every year, give "deduction bunching" a try. It clusters deductions into every other year to enable you to benefit from itemizing rather than taking a standard deduction every year.