Long time readers will know that it wouldn’t be the Holiday Season if I didn’t comment about year-end tax planning. Even though your time may be fully absorbed running between Holiday parties and shopping excursions, as we approach December 31 now is the time to evaluate your tax situation for 2019 and make any moves necessary to reduce the amount of money you send to the IRS.
But first, let’s talk about one of my least favorite things, politics. The recent tax reform act that kicked in on January 1, 2018 was passed entirely without Democratic support. So, it’s probably safe to assume that IF the Presidency turns over in 2020 and IF Democrats control Congress, it is likely that our tax regime in 1-2 years will start looking decidedly different, with many of the provisions we have today being unwound. Further, Congress currently has a list of technical corrections to the last tax act and a list of expired provisions that everyone wants extended, but given the current level of acrimony there is no desire on either side to cooperate to accomplish either. The takeaway here is that major changes in tax structure may be unwise right now until we see how the elections play out.
With that caveat, let’s drill down a bit.
For businesses there are a lot of things to consider, including wage bonuses to lower corporate tax, salary withholdings to eliminate penalties, equipment purchases to place in service before year end, acceleration of expenses incurred or paid as well as possible deferring of invoicing and resulting collections. There is also the seriously complicated SEC 199A deduction calculation which may be reduced if your business has not paid enough wages, another reason to consider a bonus. Initiating a Defined Benefit plan before year end may also be a tool in our kit of tax saving moves.
For Individuals the list is now shorter thanks to recent tax reform, but there are still things you can consider that will lower taxes. Funding a Donor Advised Fund for donations. Having your donations taken directly from an IRA instead of taking your Required Minimum Distribution. Recognizing investment losses to offset gains or create a $3,000 capital loss. If you own rental property some business provisions may apply to you including the 199A calculations, and we should have a discussion to see if a cost segregation study might help you. These are just a few of the things that should be discussed before year end.
Okay, so now for the shameless plug: most of these and other suggestions need to be analyzed beforehand or you could easily find that your actions may have no effect, or worse, actually increase your taxes. It’s important that we do the ready, aim, fire routine in the proper sequence! As always we are just an email or phone call away to help answer any questions you may have.
But if we don’t hear from you, we here at O&S hope you have a safe and wonderful Holiday Season.