Yes, the holidays are fast approaching. But there’s a deadline that you can’t afford to forget – Dec. 31, the end of the tax year for most business tax filers and all individuals. That’s less than 60 business days away. And with the extended time off that many people take for the holidays, you may have far fewer business days to meet the deadline.
Remember that for a business or individual to obtain a tax deduction on qualifying expenses or capital expenditures, in most cases, those expenditures must occur before the end of the year.
That’s why it’s important for you and your tax and business advisers to be able to project financial results for the remainder of the year. Based on those projections, you can determine your optimum tax strategy for the remaining business days before year-end. Here are some items to consider:
• Will your projected gross revenue for the last quarter of the tax year be so significant that you will have a large estimated tax bill come Jan. 15, 2018?
• Are there planned business expenditures for calendar year 2018 that can be accelerated and made before the end of 2017?
• The PATH Act of 2015 allows extended bonus depreciation for certain qualified business property through 2019. The allowed depreciation is 50 percent for 2017, and lowers to 40 percent for 2018, then to 30 percent in 2019. This includes certain passenger vehicles and light trucks purchased for business use. There also is a cap on the depreciation you can take for certain vehicles: $8,000 for 2017, $6,400 for 2018 and $4,800 for 2019.
• If your firm is an S-Corporation, did you pay yourself a reasonable salary? If you did, even though that could increase certain payroll tax expenditures, it could decrease S-Corp dividends and therefore reduce any potential for the Net-Investment Income Tax?
• If you are a participant in a 401k plan, have you made the maximum pre-tax deferrals before year-end? What about catch-up deferrals? Check your Plan’s Summary Plan Documents for the last date deferrals can be accepted for 2017.
• Can you deduct school expenses for yourself and your children? This could include summer day camp expenses as part of the Child and Dependent Care Credit. Did you know not all college expenses may be listed on the Form 1098-T?
• Should you itemize deductions or use the standard deduction? Doing a comparison now could give you some help with deciding whether certain expenditures should be made before 2017 year-end or can wait until 2018.
And be sure to document everything. If you don’t have the records and receipts, as far as the IRS is concerned, it did not happen. Your record keeping does not have to be complex. I generally help businesses set up their record keeping procedures to match the chart-of-accounts they use for their financials. I suggest individual and personal record keeping based on line-items and areas on past tax returns.
Lastly, don’t make your first call to your tax professional after January 2018. Tax planning should be a year-round activity and an integral part of your business and personal financial planning.
Timothy P. Turner, CExP™, EA, AIF®, is a strategic partner of Allegiance Capital Corporation. He is the owner of bizSTEPS and Turner Tax and Insurance Services. He provides succession, transition and exit scenario planning for private business owners with an emphasis on maximizing tax efficiencies. He can be reached at firstname.lastname@example.org or email@example.com.
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