Planning in an Uncertain Tax Environment

Posted On December 30, 2014
by Emily Godman

While I would love to be telling you all about a new 2014 tax law extending the 54 tax provisions that expired at the end of 2013, I can’t because it is mid-November and Congress still has not passed any tax legislation to clarify the situation. Even without a new tax law there are still some personal and business tax planning ideas you should consider before year end.

Individuals

  • Have you reviewed your investment portfolio performance to determine the amount of capital gains that have been recognized for the tax year? Is it time to harvest some losses?
  • Have you considered the tax impact of your year-end bonus?
  • Have you maximized your 401k contribution for the year?
  • Have you maximized your health savings account contribution for the year?
  • If eligible, have you considered contributing to a traditional, SEP or SIMPLE IRA.
  • Have you considered donating low basis stock to charitable organizations?
  • If you are over age 70 1/2, have you considered contributing directly to a charitable organization from your IRA for your required minimum distribution (RMD). While this is one of the tax rules that expired last year, it is expected to be one of the first reinstated when Congress returns.
  • If you are not paying Alternative Minimum Tax (AMT), have you considered paying your state and local income tax and real estate taxes before year end to take advantage of the deductions in 2014 rather than 2015.
  • Are you covered under a health care plan that provides minimum essential coverage in accordance with the Affordable Care Act?
  • Finally, when reviewing your tax planning for 2014, don’t forget to include the 2015 tax year as well. Year end strategies should always focus on two years; so that you do not take one option that saves tax in the current year, but ends up costing more in the succeeding year.

Business

  • If you report your income on a cash basis, have you projected your cash basis income for the year? This is an ever changing number based on your cash receipts and disbursements and obviously does not track your accrual income.
  • Have you reviewed your accounts receivable and written off any uncollectible accounts as bad debts?
  • Have you taken a physical count of your inventory and adjusted your accounting records accordingly. Any obsolete inventory should be disposed of prior to year end.
  • Have you reviewed your options for funding your retirement plan?
  • If you are a S Corporation, have you included the health insurance paid for more than 2% shareholders in their W-2’s ?
  • Have you reported all employee fringe benefits appropriately?
  • Do you know what your basis is in your S Corporation or your capital account balance for your partnership? This is important to ensure any losses for the year will be deductible and cash distributions will not be taxable.
  • Are you going to meet your bank covenants for the year?
  • Do you have a written capitalization policy?
  • Be sure all fixed assets that are purchased are in service prior to year end. While the increased section 179 deduction and bonus depreciation rules expired last year, it is expected those rules will be reinstated retroactively to January 1, 2014 when a new tax law is passed.

Burke & Schindler takes pride in providing proactive tax advice. Our goal is to ensure you do not pay any more tax than you have to pay any earlier than required. If you would like more information on any of these ideas please contact your Burke & Schindler tax advisor today.