Something that people are starting to find important is the year-end tax planning. Many people suggest that you focus your tax planning on specific areas. There are three that are most commonly used, deferring or accelerating your expenses or revenue and expiring tax provisions. Looking into these examples can help a person to find the best way to handle the year-end tax planning.
Another way to handle your year-end tax planning is through deferring or accelerating your expenses. It is commonly known that if you have more deductibles then you will have less income that is taxable. Many times, it is not smart to increase your expenses at the end of a year just to avoid some taxes.
The expenses cannot be just any expense; it can only be ones that are considered tax-deductible expenses. Some examples of tax-deductable expenses
- Medical expenses
- Charitable donations
- Taxes (sales, state, local, and property, etc.)
- Mortgage interest
- Childcare expenses
- Job-related expenses
Accelerating these expenses is something that you should talk to a tax professional regarding. However, to accelerate your expenses is simply paying them before midnight on the 31st of December. Once you begin to accelerate your expenses you will need to do this from year to year.
It is commonly known that the more income you have that is taxable the more taxes that you will end up paying. It can be weird for a person to think about decreasing their revenue. However, deferring your revenue to the next year can be helpful. Selling any taxable investments is something that you should hold off to do until the New Year.
- It can be difficult for an employee that is salaried to decrease their revenue. Even though the employer has most of the ability regarding your revenue, you are able to ask the employer to hold your end of year bonus until January.
- As a contracted employee or the owner of a small business, you have the ability hold off you invoices until the New Year. This can delay payment until the next year and ultimately reduce your revenue for the current year.
- If you are in retirement, you could possibly have the ability to stop taking your withdrawals until the beginning of the New Year.
There is something important to remember when your year-end tax planning begins to fall into place. Like expenses, if you defer revenue you will need to continue to defer revenue every year. If you do not then you will find yourself in a situation where you will have revenue for 13 months in one year.
The last way that you can help your year-end tax planning is through expiring provisions. Expiring provisions can sometimes entice individuals to use them similar to those last items on the shelf for sale. This is a way of encouraging taxpayers to act when it comes to those provisions.
There are so many things that can be talked about regarding this subject. There are many tax rate changes that could be looked at, just like those from the last year. There are changes in what is considered income, limits, deductions, and credits. These are things that change every year and sometimes they do.
- It can be exhausting to type all of the expiring tax provisions. However, the Joint Committee on Taxation has an expiring provisions page that can be very helpful.
- One of the things that will change the most is for an individual is the re-inclusion of income. This can mean that for those people who wish to do a short sale that this is the year to do it. You will not have to pay any taxes on the debt that is forgiven.
It can be important that a person should look into expiring provisions during your year-end tax planning.
No matter what you decide to do for yourself in regards to the year-end tax planning talk to a tax professional to make sure that you are doing what is best for your situation. Three important areas not to forget about when looking into your taxes are expenses, revenue, as well as expiring provisions.
Asking yourself a few questions can help you to decide which way you should steer your year-end tax planning.
- Is it possible to defer or accelerate your revenue? Is it beneficial with your current situation?
- Will it be beneficial for you to defer or accelerate your expenses? Is this option even possible in your current situation?
- With all of the expiring tax provisions, are there any that you can take advantage of?
Knowing the answers to these questions can help you to decide if expenses, revenue, or tax provisions are the best way.