Making the Best Mid-Year Tax Moves

Following our plan will help you trim your federal, state and local obligations

you for a new career.

Besides the tuition, you can write off such related expenses as travel and supplies. "Don’t forget to include books you buy for your own education," says Taneshia Nash Laird, Roland’s wife, who works as a development director for a design firm. "I deduct the cost of books about interior architecture, which I buy to improve my professional knowledge."

Weigh your stock options. If you’re like many corporate employees, your real payday will come in the form of stock options. That means that you will be in need of even more savvy tax planning. Such securities may be doled out as incentive stock options (ISOs), which are granted to executives if the company achieves such financial goals as a certain level of sales or profits, or nonqualified stock options (NQSOs), which are given to employees as part of their compensation package. With an ISO, taxes are due when the underlying security is sold, not when the options are converted to a company stock. Favorable capital gains rates apply if you wait to sell the underlying stock after two years of the granting of the option and one year since the option was exercised.

Roland Laird has some ISOs that recently became more valuable because a larger corporation bought his employer. He is now thinking about making a possible conversion. "Whenever you exercise an ISO, the spread between the grant price and the exercise price is an adjustment for the alternative minimum tax [AMT]," says the Lairds’ tax advisor, Peter Weitsen of Mendlowitz Weitsen in East Brunswick, New Jersey. "If you’re affected by the AMT, certain tax benefits can be delayed or even wasted. Therefore, you need to plan before you exercise ISOs. We’ll sit down with Roland and work out a schedule to maximize his gains and minimize his tax obligations, keeping in mind his long-term goals and objectives."

Holders of NQSOs don’t have to worry about the AMT. However, when those options are exercised, the holder is taxed at a regular rate. So if you delay the transaction, then you defer the tax hit. One caveat: doing so may leave you vulnerable to a drop in the stock price. The best course is to gradually exercise your stock options over a period of years to reduce the overall tax bill.

Shelter your taxes with a second home. You can rent a home for up to 14 days per year without having to declare a cent of taxable income. This tax break, which has been threatened by proposed federal legislation, may not be around for long — but you can use it in 1999.

"This tax opportunity is especially appealing if you own a vacation home," says Roger Lusby, a partner in the Atlanta-based accounting firm Frazier & Deeter, "because you may find short-term renters, especially in the summer."

WHAT THE SELF-EMPLOYED CAN DO
There are advantages to hanging out your own shingle. For example, expenses associated with

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