Individual Tax Planning Strategies for Year-End – Part I
As another year draws to a close, it is important to be mindful of recent changes in tax legislation and other updates. Of equal or perhaps more importance is reflecting on the current year to review the information that can be used to set your financial goals for the upcoming year. December provides taxpayers with their best and last opportunity to implement tax-saving strategies for the current tax year before it closes.
Typically, a good starting place for individual year-end tax planning is to compare prior year tax returns to the current year’s tax information to focus in on any potential benefits or pitfalls that might have appeared over the last year. A close review of 2016 personal and business-related information will help you highlight relevant changes to which you’ll want to react. This will assist you with year-end preparation related to planning for your investments, business transactions, charitable contributions, taxes, and retirement. As presented in detail in a previous blog post, the new presidential administration is also certain to affect various tax considerations for 2017.
This is Part I of a two-part blog in which we’ll provide an overview of strategies you might find useful in preparation for the 2016 year-end and 2017. Part I will focus on tips related mainly to business and investment, with Part II focusing on miscellaneous individual tax planning considerations.
When purchasing property or equipment for your business, there are a number of strategies you can use to maximize your deductions and lower taxable income. By paying close attention to the benefits of various deductions available to you, you might find it’s more beneficial to plan purchases in one year over another.
You can increase your deductions for property and equipment by taking advantage of Bonus Depreciation or the IRS Code Sec.179 depreciation election. These provisions were made permanent during the Obama administration, but the limits will phase down over the next five years, and could change depending on future legislation.
CAPITAL GAINS & LOSSES
If you have significant income from capital gains in 2016, you might consider offsetting the gains by selling stock or securities in a loss position that you would also want to remove from your portfolio. Keep in mind that under the wash sale rules your losses may be disallowed if you purchase substantially identical stock or securities within 30 days. As always, you should keep your tax adviser informed of any large gains or losses anticipated to enable efficient planning.
RETIREMENT PLANNING FOR SOLE PROPRIETORS
Self-employed individuals who do not have employees can particularly benefit from setting up SEP (Simplified Employee Pension) IRA accounts for retirement planning. Contributions to these accounts provide a tax deduction in the current year, and tax-deferred growth in the retirement account. A maximum of $53,000 may be contributed for 2016, but the deduction could be lower depending on the net income realized by the business. The account does not have to be funded until the tax return filing deadline in the subsequent year, providing additional flexibility.
You should be aware that several tax filing deadlines have changed effective for the new year. As certain deadlines have moved forward, you may need to file an extension when in prior years your return was filed by the initial due date. The most notable filing deadlines that will change for tax years beginning after December 31, 2015 are as follows:
* Please note that if a tax filing deadline falls on a weekend or legal holiday, the deadline defers to the next business date that is not a weekend or holiday
We recommend that you closely review the filing deadlines set forth for the state and local tax jurisdictions in which you intend to file.
We recommend taking time in December to review your tax information for the year-to-date to identify the items that are new or that have changed substantially from the prior year. These factors will affect forecasting for the year-end and the upcoming year. The goal for most individuals when approaching year-end tax planning is to gain clarity as to what their tax liability will be, and to create a strategy that will increase tax savings over a multi-year period.
Our experienced staff of professionals at FF&F can work with you to provide a thorough tax projection as well as to offer advice on any number of tax concerns and considerations you may have. To discuss your year-end tax planning strategy, or for more information, please contact us at firstname.lastname@example.org or (212) 245-5900.
John Gontijo, CPA, MBA, has been at FF&F as a Senior Tax Accountant for 4 years. He has over 10 years of experience with high net worth individuals, small businesses, and international taxation. Prior to joining FF&F, he worked for a niche CPA firm in NYC which specialized in inbound U.S. tax matters for German, Swiss, and Austrian clients, including Offshore Voluntary Disclosure Programs.