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Year-End Tax Planning Strategies for Individuals

Posted on November 19th, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

Once again, tax planning for the year ahead presents a number of challenges, first and foremost being what tax reform measures (if any) will actually become legislation–and when they take effect (e.g. retroactive to January 1, 2017, or a future date). Furthermore, a number of tax extenders expired at the end of 2016, which may or may not be reauthorized by Congress and made retroactive to the beginning of the year. And then, of course, there are the normal variations in individual tax circumstances such as the sale of a home that could bump up income into another tax bracket.

With this in mind, let’s take a look at some of the tax strategies you can use given the current uncertainties.

General Tax Planning

General tax planning strategies for individuals this year include postponing income and accelerating deductions, as well as careful consideration of timing related investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following:

  • Selling any investments on which you have a gain or loss this year. For more on this, see Investment Gains and Losses, below.
  • If you anticipate an increase in taxable income this year (2017) and are expecting a bonus at year-end, try to get it before December 31. Keep in mind, however, that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2018 tax return in 2019. Don’t hesitate to call the office if you have any questions about this.
  • Prepaying deductible expenses such as charitable contributions and medical expenses this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid.For example, if you charge a medical expense in December but pay the bill in January, assuming it’s an eligible medical expense, it can be taken as a deduction on your 2017 tax return.
  • If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2018. Exercising this option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December.
  • Caution: Keep an eye on the estimated tax requirements.

For more details, see our entire article here.


Year-End Tax Planning Strategies for Businesses

Posted on November 5th, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

There are a number of end of year tax planning strategies that businesses can use to reduce their tax burden for 2017. Here are a few of them:

Deferring Income

Businesses using the cash method of accounting can defer income into 2018 by delaying end-of-year invoices, so payment is not received until 2018. Businesses using the accrual method can defer income by postponing delivery of goods or services until January 2018.

Purchase New Business Equipment

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2017 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $510,000 for the first $2,030,000 million of property placed in service by December 31, 2017. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.03 million threshold and eliminated above amounts exceeding $2.5 million.

Bonus Depreciation. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.  Contact your accountant to find out what kinds of property quality.

Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here’s a simplified explanation:

Other Year-End Moves to Take Advantage Of

Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees (average annual wages of $52,400 in 2017) may qualify for a tax credit to help pay for employees’ health insurance. The credit is 50 percent (35 percent for non-profits).

Business Energy Investment Tax Credit. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2021, and businesses that want to take advantage of these tax credits can still do so. Contact your accountant to determine eligibility.

Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) are able to take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or per invoice). Businesses with applicable financial statements are able to deduct $5,000. Small business with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Contact your accountant for more information on this topic.

Partnership or S-Corporation Basis. Partners or S corporation shareholders in entities that have a loss for 2017 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity’s tax year.

Caution: Remember that by increasing basis, you’re putting more of your funds at risk. Consider whether the loss signals further troubles ahead.

Section 199 Deduction. Businesses with manufacturing activities could qualify for a Section 199 domestic production activities deduction. By accelerating salaries or bonuses attributable to domestic production gross receipts in the last quarter of 2017, businesses can increase the amount of this deduction. Call your accountant to find out how your business can take advantage of Section 199.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2017. Call today if you need help setting up a retirement plan.

Budgets. Every business, whether small or large should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business planning tool.

A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

Tip: Year-end is the best time for business owners to meet with their accountants to budget revenues and expenses for the following year. (A budget feature is available in QuickBooks, and our firm can assist you with this.)

Call a Tax Professional First

These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2017. If you’d like more information about tax planning for 2018, contact your accountant to discuss your specific tax and financial needs, and develop a plan that works for your business.

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