Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, May 9, 1994                   TAG: 9405100037
SECTION: MONEY                    PAGE: 6   EDITION: METRO 
SOURCE: By STEVEN ADVOKAT KNIGHT-RIDDER/TRIBUNE
DATELINE:                                 LENGTH: Medium

NOW IS THE TIME FOR TAXPAYERS TO LOOK AHEAD TO '95

Indeed, half of U.S. taxpayers waited until the first two weeks of April to send in their 1993 income tax forms.

But now is the time to consider next year's return if you hope to trim your taxes and avoid some of the new pitfalls that could cost you.

Make maximum use of any tax-deferred retirement program, such as a 401(k) plan. With higher tax rates that went into effect last year, these programs are more advantageous than ever. Money grows tax-deferred until withdrawn, presumably after you've retired and are in a lower tax bracket.

The maximum you can contribute to a 401(k) this year is $9,240.

Avoid 10 percent penalties for withdrawing retirement money early.

Money in a tax-deferred retirement account - such as an IRA or 401(k) - may not be withdrawn without penalty until you are at least 591/2 years old. If you must make a withdrawal before then, do so in equal payments over several years.

This will enable you to avoid the 10 percent penalty. You must continue making the withdrawals annually until you reach 591/2 or for five years after the initial withdrawal, whichever is later.

The amount of money on which you'll have to pay Social Security taxes this year is $60,600, up from $57,600 last year.

Employers and employees both have to pay 6.2 percent tax on that income. Self-employed individuals have to pick up the whole tab at 12.4 percent.

The maximum amount an employee has to pay in 1994 is $3,757. If you've had more than that withheld, report the excess as a tax payment on the 1994 return (line 58a).

``A lot of people don't realize that they have to get the excess back on their tax returns,'' said H&R Block representative Linda Gardner.

Consider investing in a Uniform Gift to Minors account.

The first $600 of income from money invested under your child's name and Social Security number is free from tax. The next $600 is taxed at the child's rate, usually 15 percent.

Anything more than that is taxed at the parent's rate.

Money invested in a child's name can't be used for things you're legally obligated to provide, such as food, clothing and shelter, but it can be used for other items you intend to pay for.

For example, if you're planning to send your child to an expensive summer camp in two years, a UGTM account could be a tax-effective way to save up for it.

Take long-term capital gains this year and defer higher-taxed income into 1995.

Short-term capital gains, such as gains from stocks you held for less than one year, can be taxed at the 36 percent and 39.6 percent tax rates. The maximum tax rate for long-term capital gains (gains on equities held for more than a year) is 28 percent.

If you are in the higher tax brackets (single persons with taxable income over $53,500 or married persons filing jointly with taxable income over $89,150), consider selling stocks and mutual funds you held for under one year and paying the maximum 28 percent tax.

If you expect to be in a lower tax bracket next year - perhaps you are retiring in 1994 - or if you expect business losses or high deductibles in 1995, try to defer higher-taxed regular income into 1995.

If you are in the higher tax brackets, consider investing in tax-free municipal bond funds. The funds generally involve lower yields than taxable funds. Because the yields are free from taxation, you could end up with more money in your pocket despite the lower yields.