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2015 Year-End Tax Planning

December 17, 2015 Uncategorized Comments Off on 2015 Year-End Tax Planning
As year-end approaches and we look forward to 2016, we want to share some year-end planning thoughts and considerations.  Individuals and businesses need to be ready for some late potential tax legislation, as Congress procrastinates again, making planning more challenging. We anticipate clarity on the extenders before Congress goes on break December 18th.
 As in past years, business tax planning is uncertain because of the expiration of many popular but temporary tax breaks that have been part of an “extenders” package of legislation. The lengthy list includes provisions such as reinstatement of various business incentives, i.e., higher limits on Code Section 179 expensing of capital purchases and potential reinstatement of bonus depreciation and a credit for increases in qualified research expenditures.

Under current law, a number of popular but temporary individual tax incentives are not available for 2015 unless extended by Congress.  These include the state and local sales tax deduction, the higher education tuition and fees deduction, special mortgage debt forgiveness provisions, IRA distributions to charities, residential energy credits, etc.

Given the higher tax rates which are further increased by the impact of the additional Net Investment Income Tax and Medicare taxes, tax planning has become more and more important. Some of the more beneficial strategies pertain to the reduction of AGI (Adjusted Gross Income); AGI impacts a variety of deductions, credits and phase-out’s. We have included below some considerations that may make good sense depending on your situation.

  • Maximize your 401(k) and 403(b) retirement contributions before year-end. Take advantage of any employer matching and look to maximize the employee portion contribution limits ($18,000 plus additional $6,000 if age 50 or over)
  • Consider maximizing your IRA contributions (deductible or non-deductible) before April 15, 2016. Depending on your mix of IRA accounts, converting non-deductible and deductible contributions to a ROTH may also make good sense.
  • Consider ROTH conversion opportunities to take advantage of tax free growth and no required minimum distributions.
  • Self-employed individuals should consider exploring the benefits of setting up retirement plans where contributions can be made after year-end but apply to 2015. (e.g. SEP plans, defined benefit plans, etc.)
  • Bunching strategies.  Be aware of various thresholds for taking deductions and look to maximize deductions.
  • Deferral of income strategies to take advantage of the time value of money or instances where you may be in lower tax brackets.
  • Work with your investment advisor to minimize capital gains where possible before year-end. Harvest any available losses before year-end to take advantage of the $3,000 per year loss allowed against ordinary income.  Avoid surprises and know where your realized capital gains stand prior to year-end.
  • Consider future strategies to minimize tax on unearned income (interest, dividends, and capital gains) by working with us and your investment advisor team to better position your assets from a tax standpoint. (e.g., making use of tax exempt interest income)
  • Increasing contributions to HSA’s (Health Savings Accounts)
  • If alternative minimum tax is not applicable, consider prior to year-end, prepaying state taxes owed for the Federal tax benefit.
  • Avoid penalties on underpayment of estimated tax. Ensure that you are adequately paid in to reduce or eliminate any penalties.
  • Cash or non-cash charitable donations can improve your tax situation. Remember to keep your receipts for all non-cash donations (e.g.- clothing, furniture, etc.) as these can be valuable deductions. Non-cash donations in excess of $5,000 will typically require an appraisal.
  • For estate planning purposes take advantage of the Gift Tax Exclusion ($14K per taxpayer or $28K per couple to multiple recipients)
  • Making charitable contributions directly from IRA required minimum distributions. (Pending passing of legislation)

This is not an all-inclusive list and there are a variety of other planning opportunities available beyond this list depending on your situation. As always, please do not hesitate to contact us if you have any questions regarding your personal or business tax situation.

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