From the Desk of Michael T. McCormick
My Last Thoughts for Year End Strategizing: Year End Tax Planning Series
As the year comes to a close, I have a few final thoughts on some helpful year end strategies that could save you money at tax time.
Taxpayers may want to take a look at a number of different provisions in anticipation of retirement, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines associated with the concept of taxable year. Among others, these include contributions to employer plans, strategic use of IRAs and “required minimum distributions,” and timing Roth IRA conversions and reconversions to maximize your retirement nest egg.
Affordable Care Act compliance
The Affordable Care Act (ACA) imposes new requirements on individuals and tightens or eliminates some tax incentives. Year-end planning for individuals with regards to the ACA may generally be more prospective than retrospective, but there are some year-end moves that may be valuable, particularly with health-related expenditures.
Acceleration or delay
Year-end tax planning, especially if done “at the eleventh hour,” requires some understanding of the timing rules: when income becomes taxable and when it may be deferred; and, likewise, when a deduction or credit is realized and when it may be deferred into next year or beyond.
Income acceleration/deferral. Taxpayers using the cash method basis of accounting can defer or accelerate income using a variety of strategies. These may include:
• sell appreciated assets
• receive bonuses before January
• sell outstanding installment contracts
• redeem U.S. Savings Bonds
• accelerate debt forgiveness income
• avoid mandatory like-kind exchange treatment
Deduction acceleration/deferral. A cash basis taxpayer generally deducts an expense in the year it is paid, although prepayment of an expense generally will not accelerate a deduction. There are exceptions, including those made in connection with:
• January mortgage payment in December
• tuition prepayment
• estimated state taxes
A New Administration
When the new Administration moves into Washington in January 2017, it is clear that changes will follow. How these changes will impact upon your long-term tax situation remains to be developed. That, and an eventual groundswell for tax reform, make the future more difficult to read than in prior years. Nevertheless, in looking toward the future, you should not lose sight of the short-term tax dollars to be saved immediately through 2016 year-end strategies.
Have a wonderful and safe Holiday Season!
If you missed last week’s blog, click here: PATH Act Extenders and More: Year End Tax Planning Series