Income tax planning is likely to minimize an individual's federal income tax liability if addressed at the beginning of the tax year and then revisited throughout the year as the taxpayer's financial situation, tax goals or objectives and the taxing environment change.

While year-end tax planning may not be ideal, an individual taxpayer may find it worthwhile to estimate their adjusted gross income, review their tax bracket and then consider whether accelerating or deferring income or deduction will result in reducing their taxes.

An individual taxpayer that undertakes year-end tax planning should calculate expected adjusted gross income, or AGI. Calculate AGI by determining income (including wages, interest, capital gains, retirement income and alimony received) reduced by specific deductions and deductible contributions to an IRA, Keogh or SEP.

An individual's AGI is important in year-end tax planning because many tax benefits are only available to individuals at certain levels of AGI. For example, the child tax credit of $1,000 per child is phased out for taxpayers with higher incomes.

A couple with two qualified children and AGI in excess of $150,000 will not receive any child tax credit in 2007. In addition, AGI is used as a floor or a ceiling for various tax deductions.

For example, an individual's AGI establishes a floor for allowable medical expense deductions. An individual is only allowed to deduct medical expenses in excess of 7.5 percent of AGI. For charitable deductions, AGI establishes a ceiling.

An individual's deduction for charitable contribution is limited to 50 percent of the individual's AGI (further limits apply where an individual's AGI exceeds a certain threshold). Since many tax benefits depend on an individual's AGI, it is a necessary step to determine an individual's ultimate tax liability and to identify available tax benefits.

An individual taxpayer may also benefit from determining their tax bracket for year-end tax planning. An individual's tax bracket is the tax rate at which the individual's last dollar of income is tax for that year.

In 2007, tax brackets range from 10 percent to 35 percent. An individual determines their tax bracket by reducing their AGI by the applicable standard deduction (or the individual's itemized deductions) and the taxpayer's personal exemptions to reach the individual's taxable income.

Once an individual knows their applicable tax bracket, the individual may develop alternatives for reducing their tax liability such as accelerating or deferring income or maximizing deduction opportunities.

An individual taxpayer may benefit from accelerating income into 2007 if the taxpayer expects to fall into a higher tax bracket in 2008. Alternatively, a taxpayer may desire to defer income into 2008 when the taxpayer anticipates a higher tax bracket applying in 2007.

Where a taxpayer receives a year-end bonus, then the taxpayer may consider requesting their employer to pay the bonus prior to or subsequent to Dec. 31, depending on whether the taxpayer will benefit from the acceleration of or deferral of income.

A retired taxpayer may accelerate income by increasing their taxable distributions from retirement funds or defer income by reducing distributions.

An individual taxpayer may also find that the timing of various deductions will maximize their year-end tax planning objectives. For example, as discussed above, medical expenses are only deductible for the amount in excess of 7.5 percent of an individual's AGI therefore consideration should be given to bunching medical expenses into a year with a lower AGI.

Individuals may choose to make charitable contributions in various forms such as cash or tangible or intangible property at year-end for a deduction. If an individual does not have cash available, charging a charitable contribution on a credit card will allow the individual to take a deduction in the year the contribution is charged and defer payment until the following year.

For tax years 2006 and 2007, taxpayers who own a traditional or Roth IRA and who are age 70.5 or older, may withdraw up to $100,000 from their traditional or Roth IRA and exclude that amount from income if it is given directly to a charity.

The availability of alternatives to accelerate or defer income or take deductions depends on an individual taxpayer's income, investments, dependents, age, goals and many other factors that change throughout the tax year.

Year-end tax planning may provide some benefit to an individual; however, effective tax planning requires more than a few year-end calculations and consultation with a tax advisor on tax law changes is recommended.