Spring Cleaning…Fall Tax Planning

For those of you who don’t me personally, one of my favorite extra-curricular activities is performing in community theatre. I was just in a show in which I played (of all things) an accountant! In one scene, one of the other characters asks me if it was a slow time for accountants, to which I reply “I’m doing a lot of tax planning for clients these days”. The play takes place in November, so I’m a couple of weeks ahead of that, but now’s the time to start thinking about tax planning, since there’s still plenty of time before year end to consider various things.

Defer income and accelerate deductions-this is a “standard” CPA tax planning mantra. For wage earners, deferring income isn’t something that usually happens (“thanks boss, but you don’t have to pay me this month…wait ‘til January”), but for small business owners with the ability to hold off billing clients, this can effectively push off income (and tax) from this year to next. Prepaying the January mortgage payment in December can increase the amount of mortgage interest deductible this year. If you think that you won’t wind up with an Alternative Minimum Tax (AMT), prepaying your January state tax estimate by Dec 31 could help save some federal tax.

Capital gains and losses-now is a good time to take a look at last year’s tax return, and see if you have a capital loss carryforward to this year. On the outside chance that you have some stocks that are actually up right now, it may be a good time to lock in those gains, if you have loss carryforwards to offset the gains. On the flip side, if you have a bunch of gains from earlier this year, you might want to think of selling some losers off now, to offset the losses against the gains.

Retirement plans-my character in the play talked about “retirement plans, IRAs, 401Ks, pensions” as part of the tax planning for clients, and you should follow my character’s lead! If you can afford to take money out of current cash flow, and put it toward your retirement, do it, and do as much as possible. If you’re in a 28% marginal federal tax bracket, and earn a dollar in taxable interest income, you’ll net seventy two cents in your pocket. If that same dollar is in a retirement plan (any type) you’ll net one hundred cents!

Charitable giving-if you are charitably inclined, and have securities that have appreciated in value, but you don’t want to pay tax on the gain (if you sell), you can give appreciated stock to a recognized charity, and get a deduction for the fair market value of the stock. So not only do you not pay tax on the gain, you get a deduction for the appreciated value!

These are just few things to consider, to help you save a few bucks in taxes by the end of this year. I hope you found this article helpful, and please pass it along to somebody you know who could benefit from the information. As always, if you have any thoughts or personal experiences on this topic, please leave a comment, and let me know if there’s a topic you’d like to see me write about.

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