Wednesday, December 16, 2015

New year marks last chance for tax plans

Most easily can identify the number of days remaining to Christmas, but how about the days left to the new year?

For most of us, the date is important because it is the last opportunity to do some tax planning for 2015 and 2016.

Year-end tax plans include postponing income when possible and accelerating deductions.
If employed, you possibly could postpone year-end bonuses and maximize deductible retirement contributions. Retirement plan distributions should be reviewed to ensure you have drawn the minimum required. The penalty for not doing so is rough.

Many of you already are planning significant salary increases in the next year, so my earlier advice can be reversed.

You might want to accelerate income and postpone electable deductions. Isn’t tax planning fun?
Nevertheless, most of us need to recognize the responsibility to plan within our tax circumstances.
Many of us have investments and within the year, as a result of managing those investments, we have gains and losses.

To the extent the losses realized exceed the gains, we should review our portfolio for possible appreciated items that make sense to sell at this time to offset the losses.

If at the final close the losses exceed the gains, the losses can be carried to the next year, so we should never just sell to offset a loss. Because long-term gains are taxed at a favorable rate, the opposite advice is true – selling good investments because they now show a loss is not advisable just to offset the gain.
Accelerating deductions also can provide relief. Charitable contributions, real estate taxes and mortgage interest all can be accelerated or prepaid within certain limitations. Many of these personal itemized deductions, however, also can be a trap.

Many of these deductions are added back in the calculation of the alternative minimum tax. So, accelerating the deduction possibly may be counter productive.

You also may find getting rid of income-producing assets as an appropriate option. An individual can give away $14,000 at current value per year, per recipient free of gift tax. A married couple can double the amount.

There are many rules pertaining to gift giving that must be followed. Giving publicly traded investments with a long-term capital gain directly to a charity also should be considered.
The benefit of this gift is that there will not be a tax on the gain, but a deduction for the full fair market value is allowed for tax purposes.

The Affordable Care Act requires a person either to have minimum health coverage or make a shared responsibility payment.

If you think you may be liable for a shared responsibility payment, you carefully should review the exemptions available.

Businesses also have questions and choices at year’s end. Aggressively pursue collections or defer? Prepay expenses or not? Will a piece of aging equipment need to be replaced soon? Buy it and place it in service before year end?

It is uncertain whether Congress and President Barack Obama will pass any depreciation-acceleration bills for the 2015 tax year, but they may do so.

Numerous other business-oriented deductions or credits that expired in 2014 also likely will be extended for 2015.

As I have often ended this column, stay tuned. You also should consult your tax advisers to have a plan in place.