QUESTION: Ever since the tax bill cleared the House-Senate conference committee, I have been hearing financial experts talk about deferring income until next year. How can an ordinary individual like me who gets paid a straight salary do that? And on the flip side, do you have any advice on the kinds of expenses that will be lost next year but that I might be able to push onto this year's tax return?--I. L.
ANSWER: You're correct in assuming that most income-deferral advice is directed at high-income taxpayers who have some say over the timing and size of their pay.
But say you're expecting a bonus at the end of the year. It would be worth your while to ask your employer to delay paying it until Jan. 1 or later. That's because if the tax reform bill becomes law, most individuals' incomes will be taxed at a lower rate in 1987 than they will be for 1986.
It would be even better if you could delay receiving certain income until 1988, when the full benefit of the tax rate reductions will be felt. But that is almost impossible for most ordinary consumers to do.
If you save or invest part of your money, there is another way to take full advantage of the proposed lower tax rates. Instead of putting your money into investments that will pay you interest income this year, invest in such things as Treasury bills or money-market instruments that don't mature until next year. Since you don't have access to the income from those investments until next year, you don't pay taxes on that income until you file your 1987 tax return. Stocks that pay dividends in January instead of in December are another choice, as are bonds with coupons payable early next year instead of late this year.
Capital gains are the one category of income you probably won't want to defer. To encourage investment in corporate America, the current tax laws permit stockholders and owners of other types of capital to pay a sharply lower tax rate on profits from the sale of stock and other capital assets than the tax rate they are assessed on their income--a top rate of 20% versus 50%. That more-favorable treatment would end with tax reform.
If you have some stock that has greatly appreciated since you bought it and your plan was to sell all or part of it next year, you would be well served to talk first with your accountant, broker or other financial adviser. The savings could be substantial.
Now for the flip side of your question. With tax-deductible expenses, you will want to take as many of them this year as possible. Beginning next year, many will be either phased out gradually or lost immediately.
Sales taxes and consumer interest--that is, interest paid on such things as credit cards and car loans--are currently tax-deductible expenses for taxpayers who itemize their deductions. As the tax reform bill now reads, the sales tax deduction would be lost from next year on, and consumer interest deductions would be phased out over five years beginning in 1987.
If you can afford to spend the money now, think about buying before the year ends any big-ticket items you know you will need in the next year. If you make the purchase by Dec. 31, you can write off the sales tax on it. If you buy it even a day later, you lose the deduction. And if you finance the purchase this year, you can write off any interest payments you make before Jan. 1.
Charitable giving is another area you should examine closely. With lower tax rates, the tax benefit of charitable gifts will be reduced. So you might think about giving this year what you had intended to give in 1987.
One other area worth checking into is investment expenses. The fee you pay to have your tax return prepared and the legal and management fees you pay someone to handle your investments would no longer be deductible beginning next year.
Consider asking such advisers about the prospect of being billed in advance for some services you know you will need next year. If they nix that idea, at least be sure to pay before the end of the year any outstanding bill you have with an accountant or lawyer over tax or investment matters.
Q: A few weeks ago you wrote about a new gold coin that will be minted soon. Is there some place I can write for more information about buying gold as an investment--not just in coin form?--H. V.
A: The Gold Institute, a trade association, publishes a 16-page booklet describing various ways to invest in gold. To order, send $2 to the institute's office at 1026 16th St. N.W., Suite 101, Washington, D.C. 20036.
Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Los Angeles Times, 780 Third Ave., Suite 3801, New York, N.Y. 10017.