written by Jacque Mattson
It is a perfect time to start year-end tax planning. Many strategies take time to set up in order to gain maximum benefit, but here are some preliminary considerations that may help with the preparation.
Gather your Data
One major benefit of year-end planning is that you usually now have a clear picture of what your total income and deductions will look like for the entire year. From those estimates, you may do some planning to accelerate or defer income and/or deductions in a way that can lower your overall taxes for this year and next. To do that effectively you need to have a good picture of your year-to-date income and deductions, as well as likely events that may occur between now and December 31st, which could also impact your overall income. Since you’ll need to gather this data for next year’s tax return, you can gain some benefits by looking over these items now.
Personal Changes
Changes in your personal and financial circumstances, such as marriage, divorce, a newborn, change in employment, investment successes and downturns, should all be considered in your overall year-end tax planning. For example, a newborn may not only entitle parents to a dependency exemption, but also a child tax credit and possible child care credit as well. Investment successes and downturns, may not only increase the amount of regular or capital gains taxes, but also trigger the net investment tax depending on what tax bracket a taxpayer falls into. Also, as with any “life-cycle” change, your tax return for this year may look entirely different from what it looked like in 2015. Accounting for these differences now, before 2016 closes, is an important part of year-end tax planning.
New Developments
Recent tax law changes should also be integrated into the 2016 year-end plan. A review of some 2016 developments to consider include:
- the PATH Act, including those handful of extended provisions that will expire before 2017, as well as longer-extended changes to bonus depreciation and expensing rules
- new de minimis and remodel-refresh safe harbors within the ground-breaking and far-reaching “repair regulations”
- the definition of marriage as applied by new IRS guidance
- growing interest by the IRS in the liabilities and responsibilities of participants within the “sharing economy”
- changing responsibilities of individuals and employers under revised rules within the Affordable Care Act
- the impact of recent Treasury Department regulations, including those affecting certified professional employer organizations, late rollover relief, changes to deferred compensation plans, partial annuity payment options from qualified plans and more.
Timing
Once December 31, 2016 has passed, there is very little a person can do to lower a tax bill for 2016. There are some retirement plan contributions that can be made early in 2017 and still be used to offset 2016 income. There are some accounting related elections that may be made when filing a 2016 return; however, once the year has ended those opportunities are limited, with a potential of saving less by waiting until after year-end to review and plan. For business taxpayers, one of many planning points to keep in mind is the deduction for equipment is not allowed until the equipment is placed in service within the business operations. Purchasing the equipment is not enough to allow for the deduction.
Please contact us to further discuss year-end tax planning 417-881-0145.
