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Plan well now or pay more later. YOUR TAXES

TRYING to think about tax planning for 1988 while you're slogging through the 1987 income tax forms probably seems like deciding what you're going to have for dinner while pushing through waist-deep snow: You've got enough to worry about. But ``you've got to start tax planning for 1988 immediately,'' says Harry Salerno, a partner with O'Connor & Drew, an accounting firm in Braintree, Mass. ``While you're preparing last year's returns is really the best time to prepare for '88.''

In fact, Mr. Salerno says, people should begin making plans now that will affect the taxes they pay for the next couple of years.

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Tax accountants, preparers, and other experts have long advised their clients to begin thinking of the tax consequences of purchases, investments, income, loans, and other financial matters well before the end of the year. But this year, with the 1986 tax reform and some amendments contained in the Revenue Act of 1987, tax planning becomes even more important.

One reason is that while the number of tax brackets has been reduced from a hodgepodge of 15 to 2 (actually, there are 3, but that will be explained later), and most people will have a lower tax rate, there will be fewer deductions, making the effective tax higher for many people, which means they'll be paying more in taxes than before.

Reduction in the number of tax brackets was a cornerstone of the 1986 tax act. This was supposed to simplify things, but for many people, just the opposite has happened.

The first new bracket is fairly simple: From zero to $29,750, on a joint return, the tax rate is 15 percent. The increase in the personal exemption to $1,950 this year ($2,000 next year) means a couple won't pay any tax on the first $3,900 of income.

The second bracket covers joint income from $29,750 to $71,900 (for singles, the range is $17,850 to $43,150). In this bracket, the tax rate is 28 percent. So a couple with taxable income of $65,000 would pay 15 percent on the first $29,750, and 28 percent on the remaining $35,250.

Those are supposed to be the two tax brackets. Here's why, for many people, there's a third: Married taxpayers with incomes between $71,900 and $149,250 (the range is $43,150 to $89,560 for singles) will pay an additional 5 percent surcharge on this income, while still paying 28 percent on most of the first $71,900, and 15 percent on some of the rest.

For example, a couple with a taxable income of $90,000 would pay 28 percent on the first $43,150 and 33 percent on the remaining $46,850.

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Finally, there's one more bracket - sort of. Couples earning more than $149,250 and singles with incomes over $89,560 will pay just 28 percent on everything. They don't have to worry about the 33 percent surcharge.

This last aspect of the new rates has some in for some criticism.

``To have $1 million taxed at 28 percent, while $100,000 is taxed at 33 percent, is bizarre,'' says George Mundstock, a professor of law at the University of Miami.

The new brackets are more complicated than the old 15-bracket system, says Diane Cornwell, tax manager in the Chicago office of Arthur Andersen & Co. ``It means the next dollar you bring home may be taxed at 33 cents, while previous dollars were taxed at 28 cents, and some of those may have been taxed at 15 cents.''

It also means, she says, that someone who is close to topping the $149,250 level may actually want fewer deductions or more income this year, so they'll have everything taxed at 28 percent. ``If you're due for a bonus this year, you may want to make sure you get it before Dec. 31,'' Ms. Cornwell says. On the other hand, many taxpayers will want to be careful they don't boost their incomes so much they push their top brackets from 28 percent to 33 percent.

Another reason for some people to boost income this year is the almost universal assumption that while the tax rates of 1988 are lower than they've been since the 1930s, the rates are also as low as they're likely to be in the future.

``We may be in the lowest tax year we're ever going to see,'' says Thomas J. McFarland, a financial planner in Concord, Mass. ``People should be thinking about getting more income in this year,'' because it could be taxed at a higher rate - certainly no lower - next year.

Savers, for instance, might try to buy certificates of deposit and Treasury securities that will mature before the end of the year. And if investors have watched some of their stocks fall and not recover, they might consider selling them and taking the capital losses. Those losses can then be used to offset capital gains, which could be taxed as high as 33 percent this year. Again, you're guessing about what Congress might do here, but many observers believe a cut in the capital gains tax is possible, while an increase is highly unlikely.

Accelerating income into this year many be a little easier for professionals who send bills to clients, like doctors, lawyers, accountants, even financial planners. They can try to send their bills out early enough so the checks come back before Dec. 31.

Many of their clients, at least those who want to boost their deductions, will appreciate this, too. This year, many of these ``miscellaneous'' deductions will fall under a 2 percent floor, meaning only those that exceed 2 percent of taxable income can be deducted.

This includes unreimbursed employee expenses, fees for professional services, subscriptions, and medical expenses not covered by insurance. So a taxpayer with $50,000 of income would not be able to deduct the first $1,000 of miscellaneous deductions. But anything over that would be deductible, and might keep some people out of the 33 percent range.

``We're going to be trying to bunch up deductions for clients to get them over the 2 percent floor,'' Cornwell says. Since year-round accounting services and tax return preparation fees for people in complex financial situations can easily run $1,500 to $2,000 a year, this fee alone could be enough to push many people over the 2 percent floor.

For many people, however, it may be harder to make deductions worth anything at all this year. Last year, the standard deduction for a single person (on tax returns being prepared now) was $2,540 and for a joint return, $3,760.

For 1988, the standard deduction goes up to $3,000 for singles, but jumps to $5,000 for couples. This means a couple will have to have more than $5,000 of deductions, including miscellaneous deductions, home mortgage interest, and property taxes to be able to itemize deductions.

Even if itemizing isn't possible, there's still one tax break that should not be overlooked: the individual retirement account.

``If you're eligible for the IRA, take it,'' Mr. McFarland says. Actually, everyone is eligible for an IRA, though only part of the contribution can be deducted when joint income falls between $40,000 and $50,000. There's also no deduction when either or both partners in a marriage is covered by a company pension plan.

But that doesn't mean you can put money in an IRA. As long as you don't exceed the $2,000 annual limit ($2,250 for a couple with a non-working spouse), you can make the deposits and watch the money grow tax-free until you retire.

``The IRA is alive and well,'' Professor Mundstock says. ``There may not be a deduction, but the earnings are tax-exempt, and over time that's going to be bigger break than a deduction. The fact that I can earn money tax-free is a wonderful scam.''

A not-so-wonderful change in the tax law concerns interest deductions - make that disappearing interest deductions. If you're involved in doing your 1987 return, or you've already done it, you know that only 65 percent of consumer interest on items like credit cards and auto loans is deductible. For this year, the deductibility drops to 40 percent, and disappears altogether by 1991.

The strategy from here on, then, is to keep consumer interest as low as possible. If you haven't paid off credit card bills, try to do it, even if you have to tap some savings.

While those savings may be earning 6 to 10 percent, outstanding credit card balances could be costing as much as 18 or 19 percent. Even cards with the lowest rates still cost 12 to 15 percent, so there's no point in keeping those balances around. Of course, don't deplete all your emergency funds to pay off these bills.

Finally, one of the more visible effects of tax reform may be the sales of folders and boxes to put receipts, bills, and other records in. Especially for businesses, including self-employed people, the new tax rules require much more careful and complete record-keeping.

One reason more record keeping is needed are the new rules for interest deductions. While the deduction for consumer interest is being phased out, business interest is still fully deductible. So if you've done any borrowing for your business, you must show what spending came from business loans, compared with spending that came from personal loans. If you don't already have them, you may want to open separate checking and savings accounts for the business.

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