Teri’s Year End Tax Tips to Beat Taxmageddon
This year more than any other in memory, there are a tremendous number of unknowns about tax policy. Will the Bush tax cuts expire? Will some but not all be extended? Will a deal to avert the “fiscal cliff” change the deductions that can be claimed – either individually or in total? With such a high degree of uncertainty about many major tax changes, yearend planning for clients is more important than ever! At Daszkal Bolton, we strive to reduce client tax liabilities not only for the current year but for the following year as well. We’ve developed some aggressive year end tax planning strategies, because effective tax planning allows you to defer taxable income and to accelerate deductible expenses and losses.
Key Point: It takes planning to successfully minimize your individual and company taxes. While some people think “tax season” is March and April, it really starts in November!
The best year end tax planning begins with a consultation to determine an estimate of your personal and/or business income, expenses, assets and liabilities based on year-to-date numbers, plus estimates through the end 2012. After a projection of the same for 2013 is calculated, we can estimate your tax liability for federal, state and alternative minimum taxes for both years. This is where the opportunities for tax minimization lie!
There are many strategies, legal and ethical, that can minimize taxes over time. We can determine if you will benefit from reducing taxable income in the current year, or if that might substantially increase your taxes for next year. This is especially important now with looming new taxes based on investment income taking affect at 1/1/2013 and with the likelihood that taxes are increasing if your adjusted gross income is over $250,000.
For instance, if you are expecting a $20,000 bonus in late 2012 or early 2013, and you are in the middle of the 25% tax bracket for 2012, but expect to be in the 39.6% tax bracket in 2013, you would save $2,920 by taking the bonus in 2012 instead of 2013. You would pay $5,000 more in 2012 ($20,000 X 25%) but save $7,920 in 2013 ($20,000 X 39.6%). If you were already in the 35% tax bracket in 2012, then you would save $920 in taxes by taking the bonus earlier.
In creating a customized tax plan we look at a number of factors:
How close are you to the next higher or lower tax bracket this year and next?
Are you expecting any life changes (marriage, divorce, retirement, babies, etc.) in the current or next year?
What types of income and expenses (wages, interest, dividends, capital gains, passive, itemized deductions, business losses) do you have?
Do you have or expect to have any unusual income or expenses (sale of property, debt forgiveness, bad debt from a customer or client) in 2012 or 2013?
Do you have any unused carryovers (net operating losses, capital losses, charitable, passive losses, at-risk basis limitations, investment interest expense, credits) from earlier years?
How much have you already contributed to your deductible and non-deductible retirement accounts like IRA, Roth, SEP, Keogh, HSA, etc.?
Can you benefit from any expiring tax laws?
Do you need any new business equipment? How much business equipment have you added in 2012?
Do you plan any major purchases or additions – boat, plane, auto – personally?
If your pass-through company has losses in 2012, do you have sufficient basis left to benefit from those losses?
Checking your current and next year estimates and projections against the factors above, we can find opportunities to reduce your total income tax burden. Great tax planning is not about picking five “tried and true” tax strategies and applying them. It is about analyzing your personal situation and unique tax and financial attributes and finding solutions that will best suit your needs.
For example: Suppose you have a minority interest in a business that is an S corporation which is normally a “passive activity” to you, but this year you have been more involved trying to turn losses into profits. If you have already spent 400 hours working at it (and have kept a log to prove it!), we might recommend that you spend another 101 hours before December 31st so that you meet the rules for “material participation” in 2012. If you had sufficient basis, you would be entitled to immediately benefit from the pass-through of the loss. If you don’t have sufficient basis, we might suggest that you lend or contribute money into the company in 2012, instead of waiting for 2013.
There are many standard tax reduction concepts such as: harvest capital losses if you have capital gains; place new equipment in service before year-end and claim bonus depreciation; or bunch your itemized deductions if you are on the borderline between itemizing and claiming the standard deduction each year. But these strategies don’t take into account the unique aspects of your personal or business situation and a great tax plan should!
Contact Us: Want to Reduce Your Taxes This Year & 2013? Start Planning NOW, before it’s too late! This is just the tip of the iceburg. If you would like to find out how year-end tax planning with Daszkal Bolton can save you money, please contact Teri Kaye, CPA, Tax Partner in Fort Lauderdale. Teri can be reached at 561-367-1040 or [email protected]. Teri focuses on tax solutions for individuals, corporations and other organizations. Teri’s expertise also includes tax consulting, planning, and structuring for individuals and companies interested in acquiring businesses or property. In addition, she has significant experience in SaLT, and representing clients in examinations and inquiries before the Internal Revenue Service, Florida Department of Revenue, U.S. Department of Labor, and other state tax and regulatory agencies.