There is a tendency among US citizens to only think about US individual income taxes shortly before their tax return is due. This timing is usually two to four months late. Tax planning strategies can be set when you meet with your advisor to prepare your prior year's return, but the strategy can only be for the current year. Below, are some relatively simple strategies that often are overlooked until after year end.

Tax Brackets Before you start to plan, you should know approximately how much income tax you are going to pay in 1996. The tax brackets for a married couple with two dependent children are: $0 to $40,100 15% $40,100 to $96,900 28% $96,900 to $147,700 31% $147,700 to $263,750 36% $263,750 and above 39.6% If you are living in Bermuda and have qualified for the foreign earned income and housing exclusions, and your annual rent is about $23,000, your first $100,000 of foreign earned income is not subject to tax. Hence, your starting point for tax planning is income in excess of $100,000, the first $40,100 of which is taxed at 15 percent.

Captain Gains There is a tendency to think about capital gains as being taxed at 28%. This is the highest tax rate that can be imposed on capital gains. If you have a salary of $100,000, minimal investment income, and significant unrealised capital gains, consideration should be given to realising some of these gains, as they will only be taxed at a 15% rate. The stock can be repurchased immediately if you feel it will continue to appreciate.

Municipal Bonds Carolyn Hall of Gulfstream Financial Ltd. tells me that she frequently receives calls from US citizens requesting that she buy them tax free bonds with the key motive being "tax free''. Investment decisions should not be made solely on the basis of the tax outcome. The "key'' question should be whether it is a good investment decision. Then taxes should be considered. If your investment advisor offers two choices, with one debt instrument having a taxable yield of 6 percent and the other a "tax free'' yield of 4 percent, and the instruments are similar, the differentiating factor may be taxes. If your investment will yield either $6,000 before tax or $4,000 after tax, you need to know your tax bracket to compare the tax yields. If you are in the 15 percent bracket, the after tax yield will be 5.1 percent. If you are in the 39.6 percent bracket, the after tax yield will be 3.6 percent. Hence, it is important to know your tax bracket before making a decision.

Bonuses If you are eligible to receive a bonus for services rendered in 1996, it is a common practice of most companies to pay this amount in January, 1997. Our hypothetical client has a salary of $100,000 and expects a bonus of $30,000.

There are varying circumstances in which we may either want to accelerate or defer the bonus.

If you are going to return to the US in January, 1997, it would be prudent to request that your bonus be paid prior to December 31, 1996, since it will only be subject to tax at the 15 percent tax rate. If it is paid in 1997, it will probably be subject to tax at the 31 percent rate.

However, if you are going to be transferred to a country that has a high rate (60 percent), you may wish to defer your bonus until you arrive in that country. Why? Most countries will not subject your Bermuda bonus to local income tax, even if it is received after you take up residency. But, because your bonus is considered foreign source income, you can use the high foreign taxes that you will be paying to offset some or all of the US tax on your Bermuda bonus.

Timing Summer is usually a quite time for your tax advisor. He has more time to think about your particular situation and can probably help you in your planning. An hour spent with him now could yield significant savings to you next March.

The tax advice given in this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant about how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of Expatriate Tax Services, P.O. Box 617, Bernardsville, NJ and is associated with Gulfstream Financial Ltd., In Bermuda.