(MONEY Magazine) – Think you've heard more than enough about this year's maddeningly complex tax law? Think again. Unless you're hip to its devilish details, you may overlook year-end moves that could save you more than ever. Or you may unwittingly employ time-honored tax-cutting strategies and actually see your tax bill explode.

Consider:

--Follow the age-old advice to defer income into next year, and you may lose out on the new $400-per-child tax credit as well as generous education breaks and expanded Individual Retirement Accounts.

--Pull too many write-offs into this year, and you could get whacked by the dreaded alternative minimum tax and pay as much as 18% more.

--Time your capital gains and losses poorly, and you could nearly double your taxes.

To help you avoid costly blunders and ax your tax in 1997 and beyond, here are nine smart new moves--plus four oldies but goodies--to make now.

Rethink your preconceptions about income shifting. Consider a hypothetical couple, Mary and Tim Kelly, who have two children under 17 and adjusted gross income of $126,000. If they match that AGI next year, they will not be eligible for the full $400-per-child credit, which phases out for couples with AGI above $110,000 ($75,000 for singles). But they can capture the new credit if they defy conventional tax wisdom by accelerating $16,000 of their 1998 income into 1997--a maneuver that would trim their taxes by $605 over both years. Since Tim is self-employed, he could step up efforts to collect unpaid bills. The couple could also sell appreciated stock this year instead of next. Or Mary could reduce her AGI by increasing contributions to her employer-sponsored 401(k) retirement plan and flexible savings account, where she sets aside pretax dollars to pay unreimbursed medical and day-care costs (see Idea of the Month on page 41).

Take a tip from the Kellys: Check out the income eligibility ranges now for the new child credits, education breaks and IRAs that take effect next year. If you are close to the cutoffs, accelerate income into 1997. Then decrease your W-4 withholding in January to reflect the new breaks, and put more money in your paycheck. If, however, your income is safely above or below the triggers, deferring income still makes sense. If you're self-employed, delay billings. Or strike a deal with your boss to pay your bonus in January.

Don't inadvertently pass up the new capital-gains breaks. The new tax law makes 1997 the best year to sell appreciated securities and most other assets since 1986--but also the trickiest. In general, the top rate on long-term capital gains drops from 28% to 20%. Taxpayers in the 15% income tax bracket (taxable income under $41,201 for couples, $24,651 for singles) will now pay only 10%. But the new rates apply only to assets sold after July 28, 1997 and held for more than 18 months, vs. 12 under the old law. One exception: If you sold between May 7 and July 28, the new rates apply for assets held for more than one year. But if you sell an asset now that you have held between 12 and 18 months, you'll be hit with the old rates of 28%, or 15% if you're in the 15% bracket.

So what should you do if you are nervous about the market and want to sell a security but have held it for less than 18 months? Lehman Bros. managing director Robert Willens suggests a clever strategy to lock in a high price and a low tax rate: Buy put options, which guarantee a sales price, then relax and sell the stock after you pass the 18-month mark.

Mutual fund owners have an additional reason to pay attention to the timing of their sales. If you plan to sell shares this year, do so before your fund reports its 1997 capital-gains distributions, which many funds do in December. That way, your gains will be taxed at the new low long-term rate of 20%, as long as you held the shares for more than 18 months. Wait until the fund reports its actual gains, and you could be hit with ordinary income tax rates as high as 39.6% on your share of its short-term gains.

Take greater care than ever not to waste your losses. When you take losses, you are obliged first to match long-term losses against long-term gains, and short-term losses against short-term gains. Then you can use remaining losses against long- or short-term gains or against as much as $3,000 of ordinary income. That hasn't changed. But with the top long-term rate down to 20%, there's even less incentive to offset long-term gains.

For example, using a $3,000 loss to offset $3,000 of short-term gains--or ordinary income if you have no gains--would save $930 if you're in the 31% bracket (marrieds with taxable income of $99,601 to $151,750; singles with $59,751 to $124,650). But if you use the loss to offset gains on stock held more than 18 months and taxed at the new long-term rate of 20%, your tax savings will shrink to $600, vs. $840 at the old 28% rate. To take full advantage of your losses, sell in a year when you have a short-term gain or no gain at all.

Reappraise your taxable and tax-sheltered portfolios. It has always been good advice to go for growth and value stocks in your taxable accounts, where returns are based on appreciation--not income--and taxed at low capital-gains rates. Now with cap-gains rates lower, that advice is even better.

Mutual fund investors should look for funds that buy and hold such shares. Some top picks: T. Rowe Price Small-Cap Value (three-year annualized return to Sept. 1: up 21.7%; 800-638-5660) and Nicholas and Nicholas II (up 26.8% and 25.1% a year respectively; 414-272-6133). Another smart option for your taxable accounts: real estate investment trusts. That's because a portion of REIT dividends are taxed as capital gains when the shares are sold.

By contrast, put your high-yielding stocks and taxable bonds--whose interest and dividends will be taxed at ordinary income tax rates--in your tax-deferred retirement accounts.

Consider taking advantage of the new capital-gains tax breaks on the sale of your home. If you've been thinking of trading down, there's never been a better time to do so. That's because the new tax law eliminates the old rule that you paid capital-gains taxes on profits from the sale of your home unless you were over 55 and could take advantage of a one-time $125,000 tax exclusion. Now you can exclude up to $250,000 of gain ($500,000 for married couples) on the sale of any home after May 6, 1997 regardless of your age, as long as you lived there for two of the past five years.

If you have rolled over profits from previous home sales--starting with a $50,000 bungalow, say, and working your way up to a $700,000 Tudor--you may have accumulated more than $250,000 in gains ($500,000 for couples). If you're in this enviable tax vise, consider an installment sale that would at least let you defer your gain, and taxes, over several years.

Maximize your 1997 retirement plan contributions. Don't let the dazzling menu of new 1998 retirement savings options deter you from contributing the largest amount possible to your retirement accounts this year. Anyone with a 401(k) plan at work should always try to max out. If you and your spouse's combined AGI is less than $40,000 ($25,000 for singles) or you don't have a pension plan at work, make sure to contribute the maximum $2,000 per person to your deductible IRA as well. And don't forget: For the first time this year, nonworking spouses can contribute the full $2,000 to a spousal IRA and deduct their contribution as long as their partner is eligible to deduct. Starting next year, any eligible spouse can get the write-off even if his or her mate can't.

By January, decide which of the new 1998 IRAs are best for you. Starting in 1998, most taxpayers will have a choice between contributing $2,000 a year to a liberalized deductible IRA, the new Roth IRA or a combination of both. Fully deductible IRAs will be available to couples with AGIs up to $50,000 ($30,000 for singles). By contrast, the new Roth IRA will be available to couples with AGIs up to $150,000 ($95,000 for singles).

In general, if your tax rate goes up or stays the same when you retire--and you have at least 15 years of saving ahead--you'll probably be better off with a Roth IRA. For example, a 30-year-old bachelor in the 15% bracket who saves $2,000 a year for 35 years and whose tax bracket goes up to 28% in retirement will have $702,034 after taxes to spend over 20 years of retirement with a Roth IRA (assuming an 8% return). That's 25% more than the $559,981 he'd have with a deductible IRA. By contrast, a 55-year-old couple now in the 28% bracket who contribute $4,000 a year for 10 years and whose tax bracket drops to 15% in retirement will end up with $124,452 with a deductible IRA, 5% more than the $118,040 they would accumulate with a Roth IRA.

If the Roth IRA is your best bet and your AGI is less than $100,000 (the same for singles), you must also decide whether to convert your existing IRAs. But remember: You'll owe ordinary income taxes on your previously untaxed IRA contributions and earnings. You can pay that bill over four years, as long as you convert in 1998. But you probably won't come out ahead unless you can pay the taxes from sources other than your IRA, will work another decade or so and end up in a higher tax bracket when you retire.

Whichever new IRA is best for you, try to make your $2,000 contribution in January. Waiting until the April 15, 1999 deadline will cost you 15 1/2 months of tax-deferred compounding worth $1,101.

Grab a new credit that doesn't officially kick in until next year. If you're paying college tuition this year and your 1998 AGI is not likely to exceed $40,000 ($80,000 for couples), consider deferring the payment of your second-semester tuition until January. That way you can capture as much as $1,500 in Hope credits for the first two years of college tuition and fees, as long as your total expenses are at least $2,000.

Investigate ever-more-valuable incentive stock options. When it's time to talk raises with the boss, ask about the possibility of incentive stock options (ISOs) instead of cash. You don't owe tax when ISOs are issued or when you exercise them but only when you sell the stock. And if you sell at least two years after the ISO grant and 18 months after the exercise, your long-term gain will be taxed at a top rate of only 20% (10% if you're in the 15% bracket).

And now the evergreens:

Mount a last-minute defense against the alternative minimum tax (AMT). If you exercise ISOs or claim large deductions for such things as state and local taxes or mortgage interest, you could get clobbered by the AMT. Your best defense: See a tax pro ASAP. In the last few months of the year, you can mitigate the damage by pulling income into this year or pushing deductions into 1998 and beyond.

Maximize write-offs. If you're not in the AMT danger zone, the tried-and-true technique of pulling deductions from 1998 into 1997 still works. You can prepay January's estimated state income taxes, property levies or some mortgage and home-equity-loan payments. Also, try to rise above the floors that would prevent you from deducting medical expenses that exceed 7.5% of your AGI and miscellaneous expenses above 2%. To do that, schedule medical appointments, purchase uniforms, pay professional dues and subscribe to trade magazines before year-end.

Use your 1997 flexible spending account balance, or lose it. To avoid forfeiting unspent balances in your FSA, you must incur expenses by year-end and submit the bills by April 15. If you're running short, buy eyeglasses, hearing-aid batteries and other medical supplies, or schedule checkups or elective surgery before year-end.

Also, don't forget to sign up this year for your 1998 FSA. If you're in the 28% bracket, paying $5,000 in medical or day-care costs from an FSA will cut your 1998 income and payroll taxes by $1,783.

Do a last-minute check on your withholding. Estimate your total tax liability for 1997 this month. If your quarterly estimated-tax payments plus your withholding fall short of your obligation by $500, you're courting an underpayment penalty of 9% on the unpaid balance. Pay up by filling out a new 1997 W-4 form and increasing your withholding this year. Then make a New Year's resolution to take advantage of the other tips in this story to slash your taxes in 1997 and beyond.

Reporter associate: Roberta Kirwan