Year-end tax tips: planning can mean money in your pocket.

With the year-end rapidly approaching, there is still time to take steps that could reduce your tax expenditure for the 2006 calendar year and also pay dividends for years to come. Two tax-related bills passed in 2006--the Pension Protection Act (PPA) and the Tax Increase Prevention and Reconciliation Act--affect a wide variety of tax planning areas, including investing, educational funding, retirement planning, charitable giving, and the alternative minimum tax (AMT).

Clean the Cupboard of Stale Stocks

This year has been a glorious one on Wall Street. The Dow has reached record highs and, on average, mutual funds have gained about ten percent. This good news for those on the receiving end inevitably brings tax consequences. Reports have speculated that this could come to the tune of $20 billion from the combination of stock sale gains, dividends and capital gains. In short, whatever gains are not from a tax deferred account, such as an IRA or 401k, is fair game for the Internal Revenue Service.

If you are basking in the success of a good year, it might be an ideal time to unload some underperforming or worthless stocks. Worthless stock can be sold to a broker for $1 a share to establish a loss and the losses you incur from any stock can be used to help balance out the tax liability from your gains.

Maximize Charitable Giving

Charitable contributions are generally fully deductible as long as your itemized deductions exceed the standard deduction and you don't surpass statutory limits--50%, 30% or 20% of your adjusted gross income (AGI), depending on what you donate and whether the recipient is a public charity on an operating or non-operating foundation.

Another great way to benefit a charity and help ensure your own financial future is to fund a charitable remainder trust (CRT) that will, for a given term, pay income to you. At the end of the term, the trust's remaining assets pass to one or more charitable organizations that you have selected. You receive an income tax deduction for the present value of the amount that will go to charity.

Maximize home deductions

You can deduct interest on a second home as long as your combined home mortgage debt does not exceed $1 million.

Donate Your Charitable Contributions from your IRA

The PPA has a "charitable rollover provision" which offers taxpayers who are 70 1/2 or older the opportunity to make charitable contributions directly from their IRA accounts without realizing income. The provision is limited to 2006 and 2007 and cannot exceed $100,000 per taxpayer per taxable year. The donations may be distributed to as many charities as the IRA trustee chooses so long as the amount does not exceed this limit. As these are direct contributions, they cannot be made to individuals, deferred gift vehicles, donor advised funds or supporting organizations of the charity.

The direct rollover may not be particularly effective as a short-term strategy for those who itemize their deductions, since the value of their deductions is already taken into account when they file their taxes. However, without the charitable rollover provision, those who do not itemize their taxes would have to pay income taxes on the amount withdrawn prior to their donation.

Let the Roth 401(k) Make Its Mark

More and more people are being given the option between the traditional and Roth 401(k). Traditional 401(k) plans allow members to defer taxes for the savings they take out of their income, while the Roth version allows members to pay taxes on the savings up front but the assets grow and are eventually withdrawn tax free. A high-net worth individual would achieve adequate results using the Roth for income purposes alone, but the greatest benefit would come when used in conjunction with estate planning.

Save Money for Family Members

There are a number of ways you can help other members of your family while relieving your tax burden. You can set aside educational funds for children or grandchildren, such as a 529 Plan or Coverdell Education Savings Account, or assist with the payment of their health expenses. You can also make a gift to relatives without paying the gift tax if it is $12,000 or under individually, or $24,000 or under from married couples. These gifts can be made on an annual basis.

Time Payments and Bonuses

There are several housekeeping items that could accelerate tax deductions. If you pay your state income tax, property tax or make an additional mortgage tax payment early (the interest portion is deductible), you will increase the corresponding tax deduction for the current year. On the other hand, if you are in line to receive a bonus, consider taking payment next year, which will postpone the payment of taxes on the bonus. Tried and True Tips

* Just as you can with stocks, you also can sell bonds that are down to generate a tax loss. It is easy to sell a bond and buy a similar one. You will essentially have the same investment but with more spending money.

* Sign up for your company's flexible spending accounts. You can deduct money from your paycheck on a pre-tax basis to pay for a number of health care expenses not covered by insurance, child care or elder care.

* Use your credit card. When you pay with a credit card, the IRS considers the expense deductible in the year that the charge is incurred, not necessarily when you pay the credit card charge.

Because of the complexity of the tax law, we recommend that you review your overall tax strategy with your certified public accountant.

BY MARC WIEDER, CPA 

ANCHIN, BLOCK & ANCHIN LLP