It is now November and it is a good time to review your tax situation for 2003. Are you going to owe taxes or are you going to receive a refund? Let’s go over a quick and rather painless way to estimate your 2003 tax situation.

First find your 2002 tax return. Now let’s compare the 2002 amounts to what is going on in 2003. Determine how your wages and salaries compare from 2003 versus 2002. Your latest pay stub should have a “Year-to-Date” amount. Figure out how many pay periods are left in the year and then you can project your 2003 wages and salaries figure. For self employed individuals the estimation process is a little more complex. Self employed individuals will need to find their 2002 Schedule C and compare the income and expense items from last year to what has happened so far in 2003. Then make
a reasonable estimation on what income and expenses will be for the rest of the year.

The next step is to compare the other items on the 2002 tax return with what you expect to happen in 2003. Interest and dividends may be similar from year to year; however, if you used some of your savings to pay off loans, pay for your child’s education or perhaps you increased your investment portfolio, you will need to adjust the amount from the previous year.

Capital gains and losses usually change every year. Keep in mind that you may have a loss carryover and there is a maximum loss amount that can be deducted from income. If you have rental property determine if the property was rented for the same time and amount as occurred in 2002. Also factor in any extraordinary costs incurred to upgrade and maintain the property.

Continue to compare the 2002 amounts on your tax return with what you expect in 2003. You also need to compare the itemized deductions that are shown on your 2002 return with what you expect in 2003. Go over the amounts on the Schedule A and make sure you adjust for any changes in 2003. If you refinanced this may affect your interest expense. Also, if you just recently purchased a home the real estate tax deduction may be different from the previous year. Unexpected medical costs and how much charitable donations (cash and other than cash) are also items that could change from year to year.

Calculate your estimated taxable income for 2003. Is this amount significantly different from 2002? If the taxable income is close to the amount reported in 2002, then determine the effective tax rate for 2002. Since the tax rates for 2003 were lowered by approximately two percent, adjust the effective 2002 tax rate accordingly. Compare the estimated tax liability with the amount that was withheld as shown on your pay stub. For self employed individuals compare the estimated tax with your quarterly tax deposits (do not forget to add the self employment tax to your amount owed).

After reviewing your estimated tax owed or refund due, remember that your dividend income can be taxed at a maximum of 15 percent and net capital gains at a maximum 15 percent (for sales that occurred after May 5, 2003).

Looking for deductions and since it is only November; you can still donate clothes and other items to charities. You can pay deductible costs in 2003 that may not be due until 2004 to receive the deduction in 2003 (organization dues, subscriptions, house payment, real estate taxes, and business costs). Also consider having your customers pay you in 2004 instead of 2003 to lower your income (for cash basis tax payers).

If your income is low for 2003 and you are expecting 2004 to be a better year then delay paying some deductible costs until 2004. Also consider having your customers pay you in December instead of January to shift some income from 2004 to 2003.

The estimating of your tax situation now, rather than in April will give you and your tax professional time to maximize the money that you work so hard to earn. Before you make any decisions please discuss your situation with your tax professional.