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The Importance of Year-End Tax Planning

Where has the year gone? Thanksgiving is here and with the holiday season soon in full swing you may not give year-end tax planning the attention it deserves. 
Where has the year gone? Thanksgiving is here and with the holiday season soon in full swing you may not give year-end tax planning the attention it deserves. Too often taxes are only thought of when they need to be paid or when a tax return needs to be filed. This can be costly. There could be actions to take now, before year-end that will minimize your tax bill or will make the most of a unique tax situation you find yourself in.

It's imperative that a year-end tax projection be done to see where 2015 taxable income stands. This projection is the starting point to see what the tax is on the next dollar of income or what the benefit is on the next dollar of deduction. Due to the alternative minimum tax (AMT) and certain phase-outs, you cannot assume that your next dollar of income or deduction will be at your marginal tax rate. For example, certain taxpayers may actually pay tax at a 40+% rate on an additional dollar of income due to the AMT, phase-out of the AMT exemption, the net investment income tax, and self-employment tax.

Here are just a few of the questions to address with year-end planning: 
  • Should I accelerate income? Or defer?
  • Am I subject to the Alternative Minimum Tax? Am I in the "phase-out range" of the AMT exemption?
  • Should I give more to charity this year? Or is next year better?
  • Have I paid in enough tax to protect me from penalties? What can I do if I haven't?
  • Should I make large equipment purchases this year or next? How much can I buy and write off 100%?
  • If I'm going to owe state taxes with my return, is there a benefit to paying those taxes before December 31?
  • Am I utilizing all my deductions? What can I do if I am not?
  • Should I realize capital gains? Should I realize capital losses? How much? Short-term or long-term?
  • Does a Roth IRA conversion make sense? How much?
  • Should I convert some of my 401(k) to Roth 401(k)? Can I?
  • Do I have health insurance coverage for all 12 months of 2015 (and 2016) to avoid the penalty?
The above are some of the more common questions that we can answer for you. There may be many more items to consider based on each taxpayer's unique situation.

To get started you should provide us with your 2015 information (mainly what has changed from 2014). We can run a projection and analyze some "what-if" scenarios to identify year-end actions you should consider. When the clock strikes midnight on New Year's Eve it will be too late to act. Make an early New Year's resolution to save some tax on your tax return by looking at your 2015 tax situation today.

Contact Elek & Noss CPAs at 440-926-9300 to schedule your year-end review and help minimize your tax bill.

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