Year-end tax planning tips


Welcome to December — the last month of the calendar year. If not already, your life is about to be consumed with shopping, holiday parties and family gatherings. There is another item to add to your list before the end of the year that’s not very glamorous but could reap significant rewards: year-end tax planning.

Yes, I know what you’re thinking. Who has time to deal with this? Well, this year you have a few things going for you that you didn’t have last year. Remember the hubbub last year about Congress approving a year-end bill of tax extenders? We were in the dark wondering if many important tax breaks would be extended. This year there are no surprises because last year’s last-minute act of Congress applies to this year as well.

The main objective of year-end tax planning is to identify specific transactions (save, pay, donate, sell, buy, etc.) that are worth making before Dec. 31. Generally, you’ll want to look for ways to defer taxation of income until another year and to increase deductible expenses you’ll pay this year. With careful planning, you’ll have less income, more deductions, and thus pay less 2016 income tax.

Following is a list of a few “low-hanging” items that could save you from cutting Uncle Sam a “thank you” check. In fact, implementation of a few of these items may free up the cash to buy yourself that last item on your Christmas list!

Defer income and accelerate deductions

Why pay Uncle Sam now when you could pay him later? The time value of money can make deferring tax almost as valuable as escaping it. Perhaps you have income items that you can delay or expense items that you can accelerate. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

Open your checkbook and empty your house

Donating to charity before the end of the year is a great way to reduce both your federal and alternative minimum tax liabilities. Many people are charitably inclined to scratch a check to a 501(c)(3) organization at this time of year. But in this season of “spending,” sometimes cash flow is too low to do so. In that case, venture down to your basement and consider parting ways with clothing or household goods that are simply collecting dust. You’ll feel good about it and get a tax deduction equal to its thrift shop value. Remember to always get a receipt of acknowledgment of your donation to substantiate the deduction.

Losses can help

Now is the time to review your 2016 investment portfolio. Do you have substantial capital gains income? If so, perhaps you have a few investments in the portfolio that can be sold at a loss. The tax code allows you to offset capital gains with capital losses. In fact, you can “harvest” enough capital losses to not only offset your entire capital gains income, but to also offset up $3,000 of ordinary income such as wages, business income or interest income.

Run a few numbers

What is your projected tax liability? Are you safe from underpayment penalty and interest? Will you owe in April or will you be due a refund? What can you do to reduce that liability? It pays to answer these questions now before it’s too late. A little planning before year-end may save you in the long run!

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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.