By Eva Rosenberg, EA

On July 31, 1997, Congress passed such a sweeping tax bill that my summary runs over 1200 pages.

As if that weren't enough, on November 5. 1997, the House of Representatives passed another batch of changes. And the scramble begins.

Let's just deal with the information we have so far, so we can take advantage of some year-end planning or aim for 1998 targets. Please bear with me, this is meant to be an overview. Some of the laws described below have other provisions that I will not describe due to space, time and life limitations. If something catches your eye, please, please see a tax professional before year-end.

There are so many issues that are still unclarified because IRS still has to interpret and write specific regulations and procedures so these laws can be implemented. The logistics of translating so many tax code modifications is mind-boggling. The IRS will still be writing well into next year. And then they can start on the new changes....a never-ending story.

Most of the provisions will take effect in 1998, but they've thrown us some crumbs for 1997, too.

We'll also include a few suggestions available under previous tax laws, that might help save you money this year.

• Sell your old family home without waiting until age 55 and getting divorced -

Under the old law, if you sold your residence you either had to buy one that cost more than the sales price or pay tax on all the profits - unless you were over 55. Then, you could avoid paying tax on $125,000 of the profits. But if you bought the house in 1960 and it=s value increased by $200,000, you would have to divorced before you sold the house. Then you could avoid paying taxes on all (up to $250,000) the profit.

Effective for sales or exchanges after May 6, 1997, each person can avoid all the taxes on profits of $250,000 ($500,000 for couples) - regardless of your age. You can do this every two years - if you can find property that increases in value that much each year. For most people, this means not having to keep track of (or trying to reconstruct) all the repair and upgrade costs and additions to the property.

Strategy - sell your home and pocket the money. Then move into your old, appreciated vacation home for two years, then sell that at a profit and pocket the money. Keep buying cozy, inexpensive homes in good or improving neighborhoods. Hold them for two years, sell them and live on the profits.

• Long-Term Capital Gains - Maximum rate is 20%, effective for sales or exchanges after May 6, 1997 (If you are in a 15% tax bracket, you=ll still pay 15% the gain - no special benefits for you!). ALong-Term@ has increased from 12 months to 18 months (start counting from the day after the purchase date). If you hold the asset for over 5 years and sell it after December 31, 2000, then your top rate is only 18%. (8% if you are in a 15% tax bracket)

• Net Operating Losses (NOLs) - great news! (Sort of...) You can take them forward for 20 years instead of just 15, for all losses in years starting after August 5, 1997. But they've also reduced the carryback period to two years from three. (This does not apply to NOLs carried forward from tax years prior to August 5, 1997.)

• Why is this good news? Many people (or their preparers) who have NOLs forget to make the statement (called an election) on their tax return that they Aelect to forgo the carryback period...@ By not making this election, they are forced to take the loss and deduct it from their income three years ago, then two years, then one year ago. This is mandatory, even if it doesn't result in any tax benefits because they had high itemized deductions or low taxes anyway. I've seen this cost folks a substantial amount of money because someone left one sentence off the return. Now, this error will only cost you two years instead of three. OK, on the other hand, if three years ago, you had really high taxes and you could have used the NOL to get it back (plus interest), you've lost out.

Be charitable - collect all the things you've been meaning to give to charity all year and donate them all to your favorite charity or charities. You will increase the amount of your deduction if you make a list of all the items donated. Use two columns - one for COST and the other for THRIFT SHOP VALUE.

Submit Expense Reports - since the reimbursed expenses are not generally taxable, you can get more tax free money before year-end. Most people don't bother to gather their paperwork together during the holidays in November and December - it's your money.

Sell stocks with losses - If you could use some money and have no capital losses so far this year, you can take advantage of up to $3,000 loss each year. If you want to sell some profitable stocks, sell others that have losses amounting to $3,000 more than the profit on your stocks. (Actually, this is much better time to buy - When the market dropped, I sold all the stocks in my IRA that had gone up and replaced them with stocks of strong companies whose values had dropped so dramatically. Hopefully, by the time you read this, my IRA's value will have gone up 30% or more...)

IRA's - take advantage of the old and new. If you have children who've been working, consider putting some of their earnings into an IRA. By the time they're ready for college, trade school, marriage or just beach combing, they'll have enough money to do it.

Business Equipment - The 1997 deduction for one-time write offs (Section 179) has increased to $18,000. If you=re going to need that new computer, printer, fax machine, desk, etc. for next year, buy it before year end. The tax savings will help pay for it.

Collecting Social Security? If you are collecting Social Security but you're earning more than the limits for your age [$8,640 if you=re under 65; $13,500 for age 65-69; no limits if you're over age 70), you=ll have to pay it back next year. This is terrible because for 1997, you'll include the appropriate proportion of the full amount of the social security you received and pay tax on the income. Next year, when you pay it back, you'll get little, if any tax benefit. Call Social Security and return the overpayments this year. And next year, don't collect if you're working and know you'll simply have to return it. They don=t send out the questionnaire until later in the year, so you can continue to collect social security in error for many months. It's a real hardship to pay it back. But easier never to get it at all.

Try Income shifting - move expenses from next year into this year. You will get immediate benefit for the tax savings when you file your return in the next few weeks. But watch out, for 1998 your deduction will be lower - in fact, you may be able to just use the standard deduction. This strategy can give you high deductions every other year. Think about it, it might make more sense than you think:

Tax Deductions - prepay your full property taxes (i.e. the half that isn't due until next year), increase your state income tax withheld, pay your vehicle registration fees a month or so early.

Mortgage Interest - Pay your January payment in December. This gives you a higher interest expense for 1997. For 1998, you=ll only have 11 months' interest. Then in 1999, you can have 13 months again. This strategy is helpful if you=re just on the border of being able to itemize.

Don't send out invoices or put off getting bonuses, if possible - If you tell an employer, client or customer not to pay you, you are still responsible for reporting that income. But if they've never been billed, or you haven't submitted the right reports, you=re not responsible for the income. Send the paperwork out right at the beginning of the year and collect the income a week or two late. You'll get the use of the tax money that much longer.

Good Stuff for 1998

• Mileage deduction for Charitable (volunteer) miles grows to 14 cents per mile (up from 12 cents). Wow, very generous!

• Child Tax Credit of $400 per child ($400 starting in 1999). It doesn't spell out if there are a limit to the number of children you may take the credit on. But they do have to be under age 17. But you can be sure they included other ways to limit the credit:

• 1) You lose the entire credit when your Adjusted Gross Income or AGI rises to $120,000 for married, filing jointly, $65,000 if you=re filing separately or $85,000 for single parents.

• 2) If you have 3 or more children, the maximum credit can't be larger than the greater of

• a) your regular tax liability, less all credits other than the earned Income Credit or EIC. In other words, you get to take advantage of the credit to reduce your taxes AND still get money back from our generous government. Now who said they never do anything for you?

Or....

• b) your regular tax liability, plus the FICA that was withheld from your paycheck - less the EIC refund you to which you would otherwise be entitled.

Don't try this without professional help. You could twist around and break something.

• Then there's the EIC- They've smarten up and stopped giving it to wealthy people whose incomes were reduced by tax shelters, capital losses, rental losses, estate and trust losses and 50% of business losses. Congress put some teeth into this law - anyone who fraudulently claims an EIC and is caught, loses the right to take advantage of this refund for the next 10 years.

This article is already twice as long as it should be and I haven't even gotten started. Rather than boring you with ALL the details, click on these links. They contain good summaries in plain English. You can read about issues that affect you:

IRAs and ROTH IRAs

USA Today - http://www.taxlogic.com/t3bin/page/+/1997/ira.html

Education Credits

USA Today - http://www.taxlogic.com/t3bin/page/+/1997/school.html

General Business Provisions

http://www.us.kpmg.com/taxact/booklet/5busines.html

Partnership Changes

http://www.us.kpmg.com/taxact/booklet/6partner.html

Estate and Gift Tax Issues

http://www.us.kpmg.com/taxact/booklet/3estate.html

Don't let year-end tax-planning wear you out. But get as much money back into your pocket as you can, so you can pay for all those holiday presents and parties.

Eva has also created a fanciful gift registry on the Internet at URL: http://www.mywishlist.com and can be reached by e-mail at taxwriter@taxmama.com

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