2016 Year-end Tax Planning

It’s already here, the end of the year is upon us and that means tax planning season along with it. Like every year now is the time for business owners to consider any year-end items to discuss with your CPA. If you do not already have an appointment scheduled for year-end planning please contact us to set one up today. Among the unknowns, many are anticipating a change in the tax rates for both businesses and individuals by the Trump administration. While still largely unknown what will pass the default strategy is to accelerate deductions into 2016 and defer income to 2017.

Below are just a few other examples start thinking about and we encourage you to bring to our attention so we can help sort through any strategic decisions that may need to made this month.

  • If your business makes things in the US it likely qualifies for the Domestic Production Activities Deduction (DPAD) incentive. If so the calculation is limited by 50% of W-2s so it may be wise to increase Owner Salary in the event the 50% W-2 limitation would reduce your benefit received from the DPAD incentive
  • Do you need to make any equipment purchases in the near future? For tax years beginning in 2016, the expensing limit for qualifying equipment is $500,000 and the investment ceiling limit is $2,010,000
  • Do you have any tax breaks being phased out due to AGI? If so it may make sense to accelerate deductions or defer income to 2017
  • Are you in a low bracket this year and have moneys in a traditional IRA? If you are eligible it may make sense to roll over to a Roth IRA (this will increase your AGI).
  • Does it make sense to incur more itemized deductions this year such as medical expenses where the floor this year is 7.5% for 65 and older and (unless congress extends) is set to increase to 10% in 2017
  • Will you be phased out of the child care tax credit next year? If so you may want to consider increasing your contribution to an Flexible Spending Plan (FSA) this year to use for dependent care
  • Do you plan to make any energy efficient modifications to your home? Unless Congress extends the energy provisions this may not be available next year.

Expiring provisions. We historically have expected congress to extend many of these tax breaks in the last hour or many times even retroactively extend next year, but not always. Uncertainty abound we always want clients to be aware in the event Congress does not extend some breaks, so we can make sure to maximize the savings before year-end. Below are some examples of expiring tax breaks.

  •  A number of energy credits and incentives
  • Exclusion for discharge of indebtedness on a principal residence
  • Deductible mortgage insurance premiums on qualified residence interest
  • Deduction for qualified tuition and related expenses
  • The 7.5% of adjusted gross income floor beneath medical expense deductions for taxpayers age 65 or older.