Tax Planning

It’s no secret that in the last few years, Congress has waited until the last possible moment to take action on extending or eliminating tax provisions, and this year will likely be the same. There are a number of laws that will expire unless they are addressed, and though there is a good chance that they will be re-enacted, there’s no need to take a wait-and-see approach. Individual taxpayers and businesses alike are able to get the benefits of these tax breaks now if they act before year end. Top targets for action include:

  • Roth IRA Conversions – If you’re currently holding a traditional IRA and are interested in converting it into a Roth IRA, this may be a good year to do so. Though doing so subjects you to taxes, the value declines that were recently experienced in the stock market may have lowered your IRA value enough so that it is a good time to do it – the same may hold true if your income took a hit this year and was lower than usual. By taking advantage of declines, you increase the tax-free benefits of the Roth IRA in the future, when the value increases.

  • Minimum Required Distribution – For those who turned 70 ½ in the past year, it is important to pay attention to the government’s required minimum distributions (RMD) rules, which apply to employer-sponsored retirement plans, 401(k) plans and IRAs.  If you don’t take out the minimum withdrawal established by tax law, you may be looking at a hefty penalty equal to half of the amount that failed to take out.

  • Section 179 Deduction (Expensing Allowance) – As things stand now, businesses are able to deduct up to $25,000 for expenditures that qualify for the business property expensing option. Though there is talk that Congress may actually expand the deduction to an even larger number, it makes sense for businesses to take advantage of this law that allows them to currently deduct their current machinery and equipment purchases.

  • Increase Basis – Those individuals who have invested in S-corporations or partnerships may want to up their ownership interest in businesses that are going to show a 2015 loss. By increasing your basis, you also increase the amount of loss that you’re able to write off.

  • Retirement Plans for the Self-Employed – There are retirement plans that are specifically available for the self-employed and in some cases it is possible to deduct contributions made during the same year that they’ve been established – even if the tax year’s contribution isn’t made until 2016. There are also credits available for establishing these funds.

  • Don’t Forget the Annual Gift Tax Exemption – For tax year 2015, every individual is able to gift up to $14,000 per person to an unlimited number of recipients, and do so without a gift tax being incurred. This exemption is available every year, but unused amounts are not able to be carried over from year to year.

  • Back to that Roth Conversion – If the idea of converting a traditional IRA to a Roth IRA occurred to you earlier in the year, when the value of your account was higher and you put yourself into a higher tax situation, it’s not too late for a do-over. If the assets that you converted are now at a lower level and it would be beneficial, you can recharacterize the conversion. This means that you can transfer the converted amount, along with its earnings or losses, back to the IRA and then reconvert it again after thirty days in order to reduce your tax burden. One important note – make sure that you do this through a trustee-to-trustee transfer.

  • Capital Gains and Losses – Depending upon your income level for this tax year, there are a number of different strategies that you can employ to minimize your tax burden. For those whose tax bracket is 15% or lower, there is a zero percent capital gains benefit that translates into no taxes being assessed for some or all of your long-term gains. Others who have lost valuation as a result of the market’s decline earlier this year are able to offset gains with any losses that they suffered, and if those losses exceed the $3,000 married filing jointly/$1,500 married filing separately allowable annual capital loss allowance, the excess loss can be carried over into the next tax year.

All of these strategies are subject to a certain level of complication due to the alternative minimum tax (AMT), which may disallow some of the tax breaks that would otherwise be available.  Property taxes, miscellaneous itemized deductions, state income taxes and personal exemption deductions are all impacted by the AMT, as are deductions such as mortgage interest, which may need to be calculated differently.  Though there are many instances where it might be beneficial to pay expenses in 2015 instead of early in 2016, the AMT may negate those benefits.

If you are an individual or small business in search of expert tax assistance, you want an IRS Enrolled Agent.  Contact Tom Gargiulo, E.A. today at 727-345-7790 for help.