2016 Year End Tax Planning Strategies

SAVILLE CPAs & Advisors

2016 Year End Tax Planning Strategies

Considering President-elect Donald Trump’s victory paired with a GOP Congress, it’s likely that tax changes will start next year. The proposed plans provide for the lowering of income tax rates which reduces the value of deductions and exemptions. Therefore, NOW is the time of year to plan for opportunities to lower 2016 business and individual income taxes since many strategies will be effective only if they’re implemented before year-end. To help with your year-end planning, we have provided a list of strategies you may want to consider for 2016.

Business

  • Adjust timing of income and expenses
    • Depending on the accounting method of your business, consider deferring income to 2017 by delaying customer billings and/or accelerating payment of vendor invoices prior to year end
  • Maximize depreciation expense
    • Take advantage of available tax breaks using Section 179 expensing, 50% bonus depreciation, accelerated depreciation, and expensing of lower cost purchases
  • Make retirement plan contributions
    • Set up and maximize tax-deductible contributions to a retirement plan for yourself and any eligible employees to lower business taxes and accumulate retirement funds
  • Review form of entity
    • Consider making an S corporation election to save payroll taxes and self-employment tax
  • Reimburse out of pocket employee business expenses
    • Using an accountable plan, reimburse expenses incurred by owner and employees before year end (e.g., vehicle, parking/tolls, travel expenses, meals and entertainment, dues and subscriptions, home office expenses, business gifts, work-related education)
  • Hire your child
    • Pay your child for doing legitimate work for your business; deduct wages as business expense; income to child sheltered from income tax up to $6,300 standard deduction

Individuals

  • Defer income/accelerate deductions
    • Depending on your tax bracket, consider deferring income (bonuses, self-employment income, sale of appreciated assets, Roth conversion) and/or accelerating deductions (property taxes, mortgage interest, charitable donations)
  • Make deductible retirement plan contribution
    • Increase salary deferral to 401(k) retirement plan up to maximum amount of $18,000 ($24,000 if age 50 or older)
    • If you qualify, fund an IRA up to $5,500 ($6,500 if age 50 or older)
  • Make year end charitable contributions
    • Donate cash or appreciated securities held over 12 months to a qualified charity
  • Plan investment gains and losses
    • Realize capital losses before year end to offset capital gains
    • If you have incurred net capital losses in 2016, consider taking profits on appreciated investments you no longer want to hold
  • Increase W-2 withholding or make estimated tax payment before yearend to avoid IRS underpayment penalty
    • Make sure estimated payments and withholding equal at least 90% of your 2016 tax liability or 110% of your 2015 tax (100% if your 2015 adjusted gross income was $150,000 or less)
  • Make Roth IRA conversion
    • Consider benefits of converting traditional IRA to a Roth IRA for tax-free growth

 

Saville has the knowledge and experience to help you with your tax planning needs. Please visit our website at www.savillecpa.com or contact us at (214) 922-9727 if you have any questions or would like to schedule an appointment.

 

______________________________________________________

The general information provided is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, please consult with one of our professional advisors who has been provided with all pertinent facts relevant to your situation.

No comments yet.

Leave a Reply