The recession is official, sweeping new tax laws are on the books, and Congress is debating an economic stimulus package that, in one version, would drop capital gains taxes to 8%. Many people might not want to think about April 15. But for those who are ready, there's still time to take advantage of the new laws during the last month of the year.

But be prepared: The changes make it harder than ever to come up with advice that everybody, regardless of tax bracket, can use. Basically, the Tax Relief Act of 2001 drops the tax rate each year. But the act also consists of various rules that make universal counsel hard to deliver. Some of the rules encourage saving, others adjust exemptions, and still more apply to only a thin sliver of the population.

To make matters even more complicated, different parts of the tax code will phase in and out, making it difficult to establish a long-term plan for anybody.

"With the new act, there's actually over 500,000 pages of tax law," said Diane Kennedy, author of

Loopholes of the Rich


Nevertheless, a few basic steps during December can make April 15 more than a dreaded red circle on next year's calendar.

No. 1: Take It Next Year

If you receive a big bonus at the end of the year, work on commission or expect any other large checks, ask your boss to postpone payment until 2002. Since the tax rate will be lower next year, people should postpone as much income as possible. "You'd rather pay tax tomorrow than today. And that's especially true now," Kennedy says.

Last year's top tax bracket, 39.6%, will drop to 39.1% this year and will keep decreasing until it hits 35% in 2006. And while half of a percentage point may not seem like much, every bit adds up. Unfortunately, for people in lower tax brackets, putting off reporting income until next year is moot because their tax rate remains flat at 10% until 2009.

No. 2: Take It All Off

Because tax rates are higher now than they'll be in a month, spend more on tax-deductible expenses. Own a business and plan to buy a lot of supplies? Do it now and deduct it. Planning to pay off the mortgage? Don't hesitate. You'll only get less of a deduction for it next year.

Remember, charity is tax-deductible. According to recent polling, more than half of all Americans have made a cash donation to charity since Sept. 11. One option is to donate stock held for more than a year instead of cash. Say you bought shares for $100 a few years back, and now the shares are worth $500. You can deduct the $500 without paying taxes on the $400 gain.

No. 3: Save, Save, Save

In 2002, saving money for retirement and college will become easier, so if you have a choice between saving now or waiting, postpone putting money into these accounts to take full advantage of the changes.

Don't want to pay any taxes on college savings? Now you don't have to. Experts recommend saving for college with a state college savings plan called a Section 529. Like Roth accounts, the 529s are currently not federally tax-deductible, but starting in 2002, the money and any earnings it gains can be withdrawn tax-free. And in some states, 529 plans can hold up to $250,000, enabling parents to save for their children's college education without paying any taxes.

Also in 2002, people 50 years or older can play "catch-up" when it comes to retirement savings. They'll be able to add $1,000 more a year to 401(k)s starting in 2002, and $5,000 more a year starting in 2006.

"Limits on all of the retirement programs have increased for just about everyone, especially people 50 or over," said Herbert Daroff, a certified financial planner with Baystate Financial Services in Boston.

However, employers can choose to match any increased contributions. "Just because the tax law changed doesn't mean an employer's plan has changed," Daroff says. "Many of those plans need to be amended. Check into it."

No. 4: The Capital Gains Game

Now more than ever, people need to be careful with capital gains. The pending economic stimulus package may drastically alter the capital gains tax rate. And even though the Tax Relief Act of 2001 was signed in June, the IRS warns that tax code changes may not be over.

"The ambiguity related to the Congress' pending action affects us," said Bruce Friedland, a spokesman with the IRS. "It looks likely Congress will act again this year. Until it does, we don't have a final list of changes."

To sell or not to sell? That's a big question this year, with such large stock losses on the books. But experts advise caution. "Don't just buy and sell things for tax reasons," Daroff says. Instead, this year make portfolio decisions based on investment goals, he says, because nobody knows yet how the tax code will change in the next month.

No. 5: The Alternative Minimum Tax Changes

There are two systems of taxation: regular income tax and the alternative minimum tax, or AMT, which was created three decades ago to ensure that rich people can't avoid taxes through shelters and credits.

In 1998, more than 850,000 returns out of 125 million received by the IRS paid the AMT, according to the IRS. By 2010, that number is expected to hit 17 million.

How does the AMT work? Basically, it is an extra tax some people have to pay in addition to regular income tax. AMT provides an alternative set of rules to determine the minimum amount of tax that someone earning a certain income must pay. If regular income tax covers that minimum amount, a person doesn't have to pay AMT. But if a person's regular tax falls below this minimum, the taxpayer has to make up the difference by paying AMT.

"The AMT starts with taking regular taxable income and adding back net operating loss, subtracting itemized deduction limitations and adding back tax-preference items, such as accelerated depreciation. You then subtract the exemption allowed -- currently $49,000 for married," explains Kennedy. "Anyone who makes over $150,000 should get with an accountant to make sure they aren't responsible."

With the exemption boosted from last year's $45,000 to this year's $49,000, your AMT status may have changed.

And Some Quick Things Before You Go ...

Got credit card problems? Pay them off with a home equity loan and convert those nondeductible debts into deductible debts.

Big givers should postpone gifts. If you're approaching the lifetime limit of $675,000, then wait until 2002, when the lifetime limit is $1 million.

If you pay the final installment of state-estimated tax, then get a deduction in 2001 instead of 2002. "You always want to take a deduction as soon as possible," Kennedy says. "A deduction today is worth more than a deduction in a month." has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from