As End of Year Approaches, Tax Planning Opportunities ExistDecember 17, 2015
Andrew Lattimer, CPA, MST
As the end of the year draws near, there are a number of opportunities people have to take advantage of to ease their tax burden, as well as a few tax “pitfalls” of which to be aware. With tax season right around the corner, taking advantage of these opportunities now—as well as heeding potential issues that could arise—could make it a happier new year for everyone.
For starters, people have an opportunity to defer income and accelerate expenses. This can be done in a number of different ways—deferring bonuses, waiting to sell appreciated assets, waiting to redeem U.S. Savings Bonds, harvesting capital losses and maximizing contributions to 401(k) plans, Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA). Additionally, people can opt to pre-pay state taxes and property taxes, accelerate mortgage payments and account for non-cash contributions. All can lead to tax savings for individuals.
Other tax opportunities include:
- Appreciated stock—This can be gifted to charities or to family members in lower tax brackets
- Having children working in a family business
- Starting a Roth IRA for children with earned income, and contemplating Roth IRA conversions.
Taking advantage of credits
- Child tax credit
- Dependent care credit
- Higher education tax credits
Lastly, opportunities could exist for those supporting elderly parents, and for those who increase withholdings to avoid underpayment penalties, by considering a home office tax deduction and by avoiding potential penalties by making sure you have health insurance. All are chances for savings that could be considered before the end of 2015.
It is equally important to be wary of potential tax planning pitfalls that could exist, namely two taxes—the Alternative Minimum Tax (AMT) and Net Investment Income Tax (NIIT). Failing to take these into consideration while planning could lead to issues down the road.
Additionally, now that Congress has reached an agreement on tax extenders, here are some tax deductions which will be extended if President Obama signs them into law.
- State and local sales tax deduction
- Higher education tuition deduction
- Teacher’s classroom expenses
- IRA distribution to charity
- R&D tax credit
- Section 179 deduction (25,000 vs. 500,000)
- Bonus depreciation
Andrew S. Lattimer, CPA, MST is a tax partner with BlumShapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. The firm, with over 400 professionals and staff, offers a diversity of services, which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services, such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation.
The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.