October isn’t traditionally the time most of us think about our taxes. But a little planning and forethought now can help to reduce your tax burden next April. Here are a few handy tips for individuals, families and businesses to help you stay a step ahead on your taxes—and save money! Also, be sure to check out our tax planning documents and organizers.
Tax Planning Strategies for Individuals & Families
1. Defer Taxable Income
By law, income is taxed the year it is received. But why pay tax now on income you can defer to the next calendar year? Deferring income can help you stay in a lower tax bracket. For example, year-end bonuses or end-of-year invoicing can be pushed to the next calendar year, which defers your tax obligation on that income. And if you own stocks, bonds, or other securities that have appreciated in value, you can push the capital gains tax on any profits to the next year.
2. Increase “Above the Line” Deductions
Tax reform has doubled the amount of the standard deduction while decreasing the number of possible itemized deductions. As a result, fewer taxpayers are itemizing. But contributions to your retirement account, self-employment taxes, some health insurance costs, and bank penalties for early withdrawal may be deductible. And it’s also a great time to consider maximizing your IRA contributions, which can lower your current tax burden.
3. Time Your Charitable Contributions
Donating to charity is one way to accelerate your deductions and lower your tax obligation. Charitable contributions made during the last quarter will lower your tax burden for the subsequent year. And how you contribute can make a difference as well. For example, by donating property or securities that have appreciated in value rather than cash, you can boost your tax benefits. Before you accelerate your charitable giving, however, check that you’re not already subject to the Alternative Minimum Tax (AMT). If you’re paying AMT, increasing charitable deductions now could actually cause you to pay more in tax.
4. Consider Selling Those Losing Investments Now
Perhaps you’ve been hanging on to some investments that have under-produced, in hopes the momentum would change. Selling off unproductive securities at a loss now can help offset any capital gains tax incurred on your winning investments. Termed “loss harvesting,” this approach gives you more options when considering your overall investment and tax picture.
Tax Planning Strategies for Small Businesses
While some of the tips mentioned above (such as maximizing deductions and managing charitable contributions) apply to both individuals and companies, some tax strategies are more specific to business.
1. Take Those Large Deductions Now
Been considering a large capital expenditure on new equipment or physical improvements for your facility? If you have the liquidity to make the purchase now, do it, and claim the deduction on this year’s return. Making large buys now will decrease your tax obligation in April.
2. Add to Your Business IRA
Have a business retirement plan in place? Increase your contributions in the 4th quarter of this year and you can claim the added deduction on your April return. Don’t have a retirement plan? Now’s the time to create one. The contributions that you make for yourself and your workers may be deductible.
3. Check Your Inventory
Has your business been back-stocked with inventory that’s lost value since it was acquired? Or maybe you have inventory you simply can’t move because of changes in market forces. These losses can turn into real tax savings if you itemize.
4. Review Your Accounting Processes
How your accountants stay on top of your business is up to you. Now’s a great time to take a look at which processes work (those that save you time, hassle, and expense) and at which don’t. Streamlining your accounting process now can help you get out the glitches and kinks, while setting you up for success!
Impact of 2020 Elections
Uncertainty surrounding the 2020 United States presidential elections only complicates the tax planning process. After the November elections are finalized as we will be providing updates on our recommendations for year end tax planning. Be sure to “Subscribe” in order to receive notifications when new posts are published.
We hope you find these tips helpful. At Moskowitz LLP, our decades of legal experience, along with a tradition of excellence and aggressive representation, have earned our firm the stellar reputation it enjoys today. Have questions about your taxes? The principal areas of our tax practice include tax disputes and pre-litigation tax matters, tax litigation, international tax planning and representation, preparation of tax returns, preparation of tax opinions, collections representation, real estate tax matters, and much more!
Don’t face the IRS alone. Contact Moskowitz LLP today.