December 28, 2016
Year-End Tax Planning For 2016
As a young lawyer I frequently pulled 100-hour weeks between December 15 and 31 each year. When the marathon was over, I was ferociously ready to party, but everyone else was taking down their decorations and trudging back to work. My wife lovingly kept the Christmas decorations up until mid-January so that I could enjoy at least a little bit of holiday spirit, albeit a bit late. As a much older lawyer, I have a bit more discretion in what I take on this time of year, but it's still a crunch. Especially this year, with a new President and new Congress taking over in Washington on January 1 with a radically different agenda than previous administrations. Simply put, no one knows what the Hell is going to happen with taxes and regulations next year. Still, there is 2016 to consider. Nothing is likely to change until after Congress changes hands, so the best advice is not to worry about the new administration's promises made during the election campaign and focus instead on the tax benefits offered by current law. Charitable Deductions. Incoming Treasury Secretary Steven Mnuchin has said in interviews that while the new administration is committed to slashing the top tax rates for high-income taxpayers and dramatically reducing the pass-through tax rate on S corporations and limited liability companies to 15% -- an amazing idea if small business owners use that extra cash to expand their businesses and motivate their employees, not stuff it into their own pockets -- there will be an offsetting reduction in the number of allowable deductions these folks will be able to take on their tax returns. This strategy brings back memories of what Ronald Reagan's administration did in 1986 (remember the days when you could deduct credit card interest?). One of the biggest deductions small business owners take is charitable contributions, so you should plan on maximizing these this year and head off any "cap" Congress may wish to impose next year. Especially if you have an IRA or SEP account - a federal law passed last year allows an exclusion from gross income of contributions up to $100,000 made from such accounts before January 1, 2017 if you are age 70-1/2 or older. Time to endow that building at the local community college, but be sure the transfer to the charity is completed by December 31, 2016. Sign Up for Classes Now. You've always wanted to learn how to code software, right? Well, now's the time to sign up with your local coding academy (for a list of the best ones, see www.switchup.org/research/best-coding-bootcamps). You can take an above-the-line deduction for qualified tuition and related expenses paid prior to January 1, 2017 for semesters that begin up to three months after the start of the new year. The maximum amount of the deduction is $4,000 for an individual whose adjusted gross income (AGI) for the tax year does not exceed $65,000 ($130,000 for a joint return), or $2,000 for other individuals who AGI does not exceed $80,000 ($160,000 for a joint return). Just be sure that the education you seek relates somehow to the business you are in. If you are a plumber, a course in medieval philosophy probably won't qualify for the deduction. Send Your Bills Out Late. If you did work for someone in December, think about sitting on your invoice and sending it out after January 1. It's always a good idea to postpone year-end income into the next year, but especially this year when next year's tax rate is likely to be much, much lower. Prepay Your Professionals, and Your Taxes. There is one reason that I really, really enjoy this time of year: all of my clients who want to do something during the first quarter of next year call me offering to pay me now . . . in advance. Professional fees will always be deductible (professional group lobbyists are among the toughest in Washington) so feel free to pay now to have next year's tax return prepared. Just be sure to call your professional first and let them know you want to do that - if someone sends me a check I'm not expecting I assume it's a holiday tip. Also remember that while your federal and state estimated taxes aren't due until January 15, some states require you to pay the fourth-quarter installment by December 31 in order to take the deduction in the current tax year. The same rules may apply to sales, use and property taxes as well. For a comprehensive list of tax law changes that will go into effect December 31, go to http://news.cchgroup.com/2016/10/10/2016-year-end-tax-planning-tax-briefing-now-available. Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2016 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC.Permission granted for use on DrLaura.com. Posted by Staff at 10:49 AM |