DON’T WAIT UNTIL
IT’S TOO LATE!
P
resident Franklin Roosevelt once said,
“The only thing we have to fear is fear
itself.” But I suspect that President Roosevelt
never had to deal with a constantly changing
tax environment.
The uncertainty of taxes can be unsettling.
Have you ever looked at your tax return only
to feel shocked by how much you owed in
taxes? Good news! You can avoid that awful
feeling and have a better idea of what you
might owe simply by looking at your tax
situation periodically throughout the year.
When you start planning and projecting what
your taxes might look like at the end of the
year, you have the ability to make changes
and take actions to make your situation
more favorable. In other words, the first step
is gaining a better understanding of your
specific tax situation. Then you can start
looking at some of the various tax planning
opportunities to see which ones might be
applicable and beneficial to your situation.
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TAX PLANNING TIPS TO
SOFTEN THE BLOW
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Accelerate deductions: This is an old
standard in tax planning, but it can be
very effective. Individuals file using the
cash basis method of accounting so they
have the ability to control deductions
simply by paying them in the current year
rather than right after the year-end.
Contribute to a health savings account
(HSA): An HSA can be powerful planning
tool – and not just for healthcare purposes.
For example, you might consider
making a full year’s worth of deductible
HSA contributions in December. Late
HSA contributions are great if you
recently became eligible to make HSA
contributions or you had not previously
contributed the max and still have excess
out-of-pocket medical expenses. Or, you
might be able to contribute to get the
Rise & Shine • Summer 2018
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deduction and immediately reimburse
yourself for the expenses you had
already paid.
Take advantage of bonus depreciation
(Section 179): Consider purchasing
equipment for your Schedule C (sole-
proprietorship) or Schedule F before the
end of the year to take advantage of the
100 percent bonus depreciation and/or
Section 179 deduction, which is currently
maxed out at a deduction of $1 million.
Pay state & local taxes / estimates
by the end of the year: State & local
taxes are deductible when paid. But you
should also understand your current tax
situation – if you’re subject to alternative
minimum tax (AMT), then you might
not see any benefit from making these
payments. Also, under the new tax rules,
the maximum itemized deduction you can
take related to state/local and real estate
taxes is $10,000, so prepaying your taxes
may not be beneficial.
Prepay your real estate taxes: Similar
to state and local taxes, real estate taxes
are deductible in the year they are paid.
However, be mindful of AMT to ensure
that you receive the full benefit of the
deduction. Also be aware of the maximum
itemized deduction for taxes is $10,000
(please see the previous point).
Consider a bunching strategy:
Consider the possibility of “bunching”
real estate taxes, medical expenses and
charitable contributions. This may help
you exceed the standard deduction that
you might not ever exceed if you paid all
expenses and deductions in the year in
which they relate. Be mindful that under
the new tax rules, the standard deduction
for a married couple filing a joint return is
now $24,000, so it may be possible that
even the “bunching” strategy may not get
you above the standard deduction.
“Harvest” capital losses: You can deduct
up to $3,000 per year of capital losses
against ordinary income. Consider selling
stock to generate a capital loss that could
Don’t Wait Until
Year-End For These
Tax Planning Tips
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be used to offset all of your capital gains
and up to $3,000 of ordinary income.
Maximize your retirement plan
contributions: There are a variety of
retirement plans that have different
maximum contribution levels. Consider
increasing your contributions to any
pre-tax retirement plans that you have
established to increase your current year
deduction.
Record your volunteer activities:
Keep track of your mileage and other
out-of-pocket expenses you spend
while volunteering for various non-
profit organizations in order to claim a
deduction.
Donate appreciated stock: Rather
than writing a check or giving cash to a
charitable organization, consider donating
appreciated stock. When you donate
appreciated stock you can deduct the fair
market value of the stock (rather than the
lesser amount that you paid for it) and you
don’t have to report any capital gain from
the stock on your tax return.
Consider if you qualify for the 20 percent
business income deduction: As with any
rule that Congress and the IRS may try
to enact, there are some complexities to
this calculation. However, in general, you
may be able to deduct up to 20 percent of
your “qualified business income.”
Are you looking for more tax tips? Give me
a call. Identifying a tax strategy is just as
important as ever, even with the tax savings
opportunities with the new regulations.
by: Ben
Froese, CPA
545 N. Market St.
Wooster, OH 44691
234.249.3454
ben.froese@reacpa.com