Smart Tax Planning

This year so far

It isn’t January just yet, but we’re just around the corner from 2017. That’s enough time to do some year-end tax planning. First off, since there’s not a lot of tax changes going into 2017. But, sometimes last minute changes do happen. Our recommendations are straightforward. So, If we plan for 2016 taxes, we can save some money.

As of August, we have over 7 months of information to use for tax planning. So, we can estimate the remaining 5 months. Doing this can help you plan for the end of the year and into next year. Higher income taxpayers should check to see if itemized deductions will get phased out. Maybe you will be subject to alternative minimum tax. Or maybe you’re subject to extra medicare taxes that went into effect on January 1, 2013. This tax was for individuals having modified adjusted gross income of $200,000. If any of these apply to you, it would be wise to start to look at ways to defer income. Also, look for ways to speed up deductions. Finally, look for ways to defer income down to lower tax brackets.

High-Income Tax Year?

Consider deferring income. Taxpayers put in place this strategy by pushing income into the next calendar year. This can be helpful if you had a high earning year and expect to make less next year. Ask employers to defer bonuses until after January 1st. Also, with stock options, can you take them in January versus December? And, if there are any assets you’re considering selling, you may want to wait until January.  This is only if there is a gain. But, deferring doesn’t always make sense so look at it from a big picture perspective. If you’re far into a high-income tax bracket there may not be an easy way to lower it. But, if your right on the edge of a high-income tax bracket, you may be able to make some changes.
Look at accelerating deductions. Charitable contributions can lower your tax bracket. Real estate can also be a powerful tool to use. By pushing payments into December, you can often lower your tax liability. Also, if you’re planning on increased earnings, you may consider, putting off some deductions. If you’re subject to the alt min tax, you may not receive a benefit for certain deductions.


consider deflecting income to family members in lower tax brackets. If you have children who are in a lower tax bracket, it may make sense to gift certain assets to them. You can gift up to $14,000, per child, per year, tax-free.  They can then sell the assets and pay taxes on that sale at their lower rate. Most children are in a zero tax bracket for capital gains. So, this strategy can pay off.
Max out retirement, college-saving contributions. Consider increasing your 401(k) contributions, IRA, or other pre-tax plans. Or, if you’re self-employed, you may be able to deduct much more by contributing to an SEP-IRA. Also, remember to make your 529 college savings plan contributions before the end of the year. And, if you have a college-aged son or daughter, who works, give them a Roth IRA contribution. This is a way to help them start saving for retirement.
Finally, contribute to charity. Think about giving appreciated stock that you’ve held for more than 12 months. You get a deduction for the full value of the contribution and you don’t have to pay tax on the appreciation. You can actually get more cash into the hands of the charity this way; it’s a gift that gives back.

Do you need more tax advice or just a wiser CPA, give us a call? It doesn’t cost just to talk.

Jay Allen Finn, CPA, PC
Former IRS Agent


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