By Robert Wool

(MONEY Magazine) – When down is up, simply stand on your head and all will be clear. This year, that somewhat dizzying prescription should be applied to your year-end tax planning. The reason: in 1988 that most familiar of taxpayer mantras at year- end -- accelerate deductions and defer income -- has been turned upside down. This year, most taxpayers should accelerate income (to take advantage of the favorable 1988 rate schedule) and decelerate deductions (on the chance that rates will soon rise and make the write-offs worth more). With a top tax rate of 28% (plus an additional surcharge of five percentage points on taxable income from $43,150 to $100,480 for singles and from $71,900 to $171,090 for married people filing jointly), 1988 blesses you with the lowest tax rates you are likely ever to see. And they may not be around for long. The recent campaign rhetoric notwithstanding, many tax authorities expect the highest tab on ordinary income to begin sliding up toward 38.5% next year. Others foresee excise taxes on cigarettes, gasoline or liquor, or the introduction of some sort of value-added tax, which is a kind of national sales tax. So take advantage of this year's low rates while you can, pulling income into this year and postponing your deductions. What follow are five ways to minimize your 1988 taxes. Each is a year-end, but not a last-second, suggestion; all will require some logistical legwork this month and next.The tips: -- Get paid early. If you expect a bonus at the start of the new year, ask your employer whether it can be paid to you in 1988. Even if the bonus depends on a final tallying of your company's profits for the year, you might be able to arrange for a partial payment before year-end. As with almost all tax advice, however, there is an exception. In this case, it is caused by that pesky five-percentage-point surcharge that socks upper- middle-income taxpayers. If your taxable income is nearing that danger zone, try to stay out of it by hunting for extra deductions this year and pushing income (such as year-end bonuses) into 1989. Then keep your fingers crossed that the great rate debate holds taxes steady next year. -- Send out bills now. Self-employed people -- doctors, lawyers, consultants and other professionals -- ought to bill now where possible, perhaps inserting a friendly note with the bill urging clients to pay in 1988. You might even point out that some payments, such as certain unreimbursed ones for medical costs, could qualify the payer for a 1988 tax write-off. -- Give stock to charity. As you think about charitable contributions, review % your stock portfolio and consider making a gift of some of your winners or losers. Assuming you itemize and can claim a write-off for charitable contributions, you could be both generous and rewarded with a deduction in return. The basic tax rule governing charitable gifts of stock is this: you may deduct the full market value of the shares you give. Important strategic considerations come into play, however, with respect to the form in which you choose to make your gift. If you want to turn over shares on which you have a long-term capital gain, your smartest tax move is to transfer ownership of the stock to the charity. Result: you get the charitable write-off and you avoid paying capital-gains tax on the appreciation (unless you are among the roughly 1% of taxpayers subject to the alternative minimum tax, which would subject you to a 21% levy on the appreciation). You can effect the transfer in any of several reasonably simple ways, depending on how you have chosen to hold the shares. Your broker and the charity then will tell you how best to do it. Once the paperwork is complete, the charity becomes responsible for the sale (and, unless you pay it, the broker's commission). If you want to give stocks on which you have a loss, however, the strategy is different -- and so is the tax quinella you can hit. Sell the shares yourself and turn over the proceeds to the beneficiary. This way, points out David Kautter, a partner in the Washington, D.C. national tax office of Arthur Young & Co., you get the write-off and you also create a capital loss that you can use to reduce your taxable income. You first apply the loss against any capital gains for 1988 and then use anything left over to pare down as much as $3,000 of ordinary earnings. If you have no capital gains to report this year, you can apply the loss directly to ordinary income. Also, you can carry forward into subsequent tax years any losses that exceed the $3,000 limit. -- Sell real estate now. If you own rental property or land and have been thinking about unloading it, do so this year and take the gains while tax rates are low. Naturally, though, do not let tax considerations cause you to sell in an unfavorable market. -- Buy business equipment. Life is especially sweet when Tax Code Section 179 lets you have your cake and eat it too. The section stipulates that you can take a deduction of up to $10,000 for such items as computers and office furniture that you use in a business. Thus you get the write-off all at once & instead of having to depreciate the equipment and spread the deduction over either five or seven years. The property must be for business purposes only, and your deduction may not exceed your taxable income from the enterprise. A little wrinkle in Section 179 gives shrewd taxpayers another opportunity for savings. The law states that you must take your write-off in the year in which the property is placed in service. Fair enough. Buy the item on a year- end sale in 1988 but do not deploy it until 1989 (when tax rates may be higher and thus the deduction worth more). Remember, this year down is up.


Since the tax man shares in your gains, why not let him in on your losses as well? One way for bondholders to do so is a bond swap -- a tactic worth investigating this year if you own bonds that have lost value after a soggy spring and long hot summer of generally rising interest rates. In a swap, you sell bonds (or fund shares or shares in unit trusts) that have skidded in value, thereby realizing a loss that you can use to reduce your taxable income (subject to rules explained in the item above). Then you replace the unloaded securities with new ones that are comparable but not, in the IRS' phrase, ''substantially identical'' to the ones you sold. This means that while you can replace your old bonds with ones of similar quality and value, either the issuer, the maturity or the coupon rate must differ. Caution: Swaps make little sense if your present bond is within three years of maturity; unless the issuer defaults, the cost of the swap will exceed your tax savings. Indeed, with any swap, make sure your transaction costs don't offset your tax benefits.