10 Tax Moves to Make Before Year End
1. S-Corp Election – If your LLC or Schedule C Business is going to be making a healthy profit, it is time for some entity planning. Having the right entity can save you thousands of dollars in taxes and lower your audit risk dramatically.
2. Adjust Your Withholding – If your business is doing better than you expected, you may need to increase your withholding in order to avoid penalties. This is also true if you have capital gains or any other exceptional income during 2016. By using withholding rather than estimated tax payments, you avoid the potential penalty for underpayment of taxes. Similarly, if you have not had as profitable year as you might have liked, you can lower your withholding or skip estimated tax payments.
3. Look At Your Itemized Deductions – Medical expenses are only deductible if they are over 10% of your adjusted gross income (7.5% if you or your spouse is over 65). If you have had a lot of medical expenses in 2016, it may be worth getting more health care in the last two months of the year.
4. Required Minimum Distributions – If you turned 70 and a half in 2016, you must start taking required minimum distributions. The penalties for not doing so are extremely harsh.
5. 401(k) Contributions – In order to get a tax break for your 401(k) or Simple contributions, they must be made before 12/31/16.
6. Gift Tax Exclusion – Every year, you can gift 14,000 per giftee with no reporting or tax consequences. This is the most basic kind of estate planning but it must be done every year to get the benefit of it.
7. Section 179 - If your business had a profitable year, it makes sense to consider making equipment purchases before the end of 2016. With Section 179, you can expense capital expenditures that ordinarily would need to be depreciated. Call us today at (619)468-6800 to see if you can take advantage of this opportunity to grow your business and save on your taxes.
8. Education Expenses – If you are expecting a large tax bill or need some more tax credits, any payments you make in 2016 for 2017 expenses will be deductible this year. This can make sense if your income is going to be low for 2016 due to business conditions and in 2017 you will have too much income to take advantage of these credits.
9. Capital Gains and Losses – If you had some investments pay off in 2016, you might consider selling some of your portfolio that is not performing so well. Capital losses offset capital gains and will cancel some of the taxes you incur with your gains.
10. Estimated Tax Payments – You must make estimated tax payments by 1/17/17 in order to avoid penalties for underpayment. If your year has gone better than expected, it is time to come speak with us about your taxes.