Mid-year tax planning


Sometimes in life, the only certainty is uncertainty — and that especially rings true this summer in the world of personal and business taxes.

While it is dangerous and somewhat impossible to plan for 2018, we still have six months to tax plan for the remainder of 2017. Current tax law may still change between now and year-end, but at this point, it’s anyone’s guess.

The following are a few tax planning ideas from personal and business perspectives that we want you to consider implementing before the end of 2017.

Individual tax:

  • Take advantage of the 0% tax rate on qualified dividends and long-term capital gains. For married taxpayers with taxable income less than $75,900, this can be a powerful planning tool. If your income exceeds this amount, consider giving stock to family members in lower tax brackets.
  • Sell “non-performing” stocks and donate the cash; donate “performing” stock. Selling loser shares may generate a deductible capital loss.  Donating the proceeds may then provide you with a charitable deduction to boot. On the other hand, consider donating winners to charity to avoid capital gains on a sale. You also get the benefit of the charitable contribution deduction.
  • Defer income — especially if rates decrease in 2018! Why pay Uncle Sam today when you can pay him less tomorrow? Generally, it makes sense to accelerate deductible expenses and defer income in times tax rates are expected to decrease.
  • Sell your principal residence and enjoy the exclusion. For married taxpayers, gains of up to $500,000 can be excluded from income if the house was owned and used as your primary residence for at least two years of the five-year period ending on the date of sale. 

Business tax:

  • Sell your car — don’t trade it in. Cars decline in value to a point where the depreciable basis may exceed its fair market value. Selling at a loss may generate a deductible tax loss for the business portion. On other hand, trading in the car does not give rise to a deductible loss.
  • Hire your kid. If you are self-employed, hiring your kid gives you the potential to save payroll taxes and enables them the opportunity to contribute to an IRA to the extent of their earned income. You save taxes, and your kid saves for retirement.
  • Retirement, anyone? Speaking of retirement, consider setting up a SEP-IRA with a match. This generates a tax deduction and funds your retirement. A win-win!
  • Buy stuff. Favorable bonus depreciation and Section 179 provisions allow businesses to accelerate depreciation in the year you purchase the asset. This continues to be a powerful tool in reducing business income and your tax liability.

One final tip is to stay in touch with your estate planning attorney. Exclusions, exemptions and tax rates tend to change every year. Moreover, the entire estate tax structure is on the president’s agenda to repeal. Make sure you understand how these changes affect your plan. You may be advised to make proactive changes accordingly.

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Steven Struck, CPA, MST, CSEP is a principal at Baker Holtz in Grand Rapids and carries the special distinction of being the only Mets fan currently living in the area. When he’s not busy signing autographs, his responsibilities at Baker Holtz include generating and implementing tax-saving ideas, advising clients on mergers and acquisitions and tax planning for businesses and their owners. Outside of work, Steven serves on the finance committee at Legacy Christian School and is the treasurer at his home church, Brookside Christian Reformed. He holds a B.S. in accounting from Calvin College and a master of science in taxation from Grand Valley State University. Steven can be contacted at sstruck at bakerholtz dot com.