{"id":1021,"date":"2018-09-10T06:45:39","date_gmt":"2018-09-10T06:45:39","guid":{"rendered":"https:\/\/huddlestontaxcpas.com\/?page_id=1021"},"modified":"2020-05-21T20:15:25","modified_gmt":"2020-05-22T03:15:25","slug":"year-end-tax-planning","status":"publish","type":"page","link":"https:\/\/huddlestontaxcpas.com\/year-end-tax-planning\/","title":{"rendered":"Year End Tax Planning"},"content":{"rendered":"
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What should I consider before December 31 to minimize my tax burden?<\/span><\/strong><\/p>\n<\/header>\n

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Answer<\/strong>:\u00a0 If you act now, there are many things you can do to minimize your tax burden.\u00a0 Unfortunately, most individuals wait until the year is over to see a tax accountant.<\/p>\n

First, decide whether you want to lower or raise your current year taxable income.\u00a0 Most will want to lower their current year taxable income because a dollar in tax savings today is worth more than a dollar saved next year.\u00a0 However, often new businesses will anticipate a lower marginal tax rate in the current year, which will outweigh the benefits of tax deferral.<\/p>\n

Income.\u00a0<\/strong>The timing of bonuses, recognition of capital gains from the sale of stocks, and exercise of non qualified stock options are all events that can easily be delayed into a subsequent year.\u00a0 Income can also be deferred through various qualified retirement plans or deferred compensation plans. Business owners have even greater flexibility to adjust their revenue through the timing of invoicing and negotiating the timing of large payments.<\/p>\n

Deductions.\u00a0<\/strong>Cash basis taxpayers can also defer their tax obligations by paying deductible expenses by December 31.\u00a0 Business owners can often deduct up to $102,000 in equipment purchases even if purchased on December 31.\u00a0 Other expenses that would otherwise be paid in the next year can generally be deducted if paid by December 31.<\/p>\n

For individuals, the search for deductions will focus on itemized deductions.\u00a0 Taxpayers can accelerate the deduction of the portion of their mortgage interest accruing to January 1 by mailing the check in December.\u00a0 Likewise for property taxes<\/a>.\u00a0 If you are planning on making a gift to charity<\/a>, consider paying it before December 31.\u00a0 Get extra tax savings by gifting long term appreciated stocks or other property.\u00a0 You can get a deduction based on the fair market value and avoid paying capital gain on the appreciation.<\/p>\n

Your strategy for medical expenses and miscellaneous itemized deductions may be quite different.\u00a0 Medical expenses are only deductible to the extent they exceed 7.5 percent of adjusted gross income.\u00a0 Miscellaneous itemized deductions are only deductible to the extent they exceed 2 percent of your adjusted gross income.\u00a0 Because of this, you may want to adopt a bunching strategy.<\/p>\n

For example, assume $100,000 adjusted gross income and $10,000 medical expenses between two years.\u00a0 If you pay the medical expenses in the year incurred, you will have a $2,500 deduction each year, because only the portion exceeding $7,500 (7.5 percent of adjusted gross income) is deductible.\u00a0 Your total deduction for both years is $5,000 (($10,000 \u2013 $7,500) x 2).<\/p>\n

If instead, you delay paying all your medical expenses until the following year, (your Doctor will understand), your total deduction for both years is $12,500 (i.e. $20,000 \u2013 $7,500).\u00a0 By bunching your expenses in one year, more of the expenses are deductible because your don\u2019t have to meet the $7,500 threshold twice.<\/p>\n

Estimated Tax Payments.\u00a0<\/strong>One way to minimize your tax burden is to minimize your penalties for failure to pay sufficient estimated tax payments.\u00a0 Often, individuals starting new businesses get into tax trouble because they no longer are making withholding payments, since they quit their job, and they are incurring a new self employment tax<\/a> up to 15.3 percent.\u00a0 Even if they make a sufficient tax payment on January 15th<\/sup>, they will likely still end up with a penalty because the IRS wants them to make even payments throughout the year.\u00a0 The answer may lie in increasing federal withholding on your spouse\u2019s income or on your income as an employee of your own business.\u00a0 Payments made through withholding from your paycheck are treated as paid equally throughout the year.\u00a0\u00a0 This allows you to make up for underpaid estimated tax payments retroactively.<\/p>\n

Call us if you need advice from a good tax accountant.\u00a0 We serve Seattle, Bellevue and the surrounding area.<\/p>\n

<<Entity Choice (Saving Tax with S Corporations)<\/a><\/strong>Back to Table of Contents >><\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

What should I consider before December 31 to minimize my tax burden? Answer:\u00a0 If you act now, there are many things you can do to minimize your tax burden.\u00a0 Unfortunately, most individuals wait until the year is over to see a tax accountant. First, decide whether you want to lower or raise your current year […]<\/p>\n","protected":false},"author":2,"featured_media":3708,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"content-sidebar","footnotes":""},"class_list":{"0":"post-1021","1":"page","2":"type-page","3":"status-publish","4":"has-post-thumbnail","6":"entry"},"_links":{"self":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/comments?post=1021"}],"version-history":[{"count":3,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1021\/revisions"}],"predecessor-version":[{"id":4248,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1021\/revisions\/4248"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/media\/3708"}],"wp:attachment":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/media?parent=1021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}