Year End Tax Planning and Important Tax Dates
2017 is lurching to a close, and people everywhere are looking to the end of the year and gazing ahead to the beginning of the new one. With all of the things that happen at the end of the year, especially Christmas and Thanksgiving, sometimes more mundane things can slip by. One of these boring things that tends to fall by the wayside is year-end tax planning.
Year-end tax planning isn’t the most exciting or glamorous thing to be focused on as the year closes. After all, there are holiday parties, family get-togethers, and more fun things to do. But whether you file as an individual or married couple, or even if you own and operate your own small business, taking some time to sit down with a CPA to plan your tax strategy is a good idea that can save you hundreds or even thousands of dollars.
Before you start strategizing about how you’re going to save money on your taxes, here are a few important tax dates that you should remember between now and the end of the year.
- November 13 (listed for reference): If you have received more than $20 in tips during October, you need to report them to your employer using IRS Form 4070 (Employee’s Report of Tips to Employer).
- December 11: If you have received more than $20 in tips during November, you need to report them to your employer using IRS Form 4070 (Employee’s Report of Tips to Employer).
- December 15: For corporations, this is when you should make your fourth installment payment for your estimated income tax for 2017. Use IRS Form 1120-W (Estimated Tax for Corporations) to calculate your payment.
Year-End Tax Planning as an Individual
When it comes to planning your taxes as an individual, one of the key things you want to do is reduce your adjusted gross income (AGI). By reducing your AGI, you reduce your overall tax debt for the year. For example, for the 2016 tax year, the tax burden for an individual who make between $91,150 and $190,150 was $18,558.75 plus 28% of the excess over $91,150. In contrast, the tax burden for someone who earned between $37,650 and $91,150 was only $5,183.75 plus 25% of the excess over 37,650.
What this means is that if you earned over $91,150 and can reduce your AGI to below that, you start saving $0.25 for every dollar you go below that threshold. For example, if your original taxable income was $95,000 and you reduce it to $85,000, you will save $2615.50 in taxes.
$95,000 = $18,558.75 + $(.28 * (95,000 – 91,150)) = $19,636.75
$85,000 = $5,183.75 + $(.25 * (85,000 – 37,650)) = $17,021.25
As you can see, that small reduction in AGI added up to significant savings. The question then becomes, how do you accomplish that?
A CPA like one of the professionals at Camputaro can sit down with you and analyze your financial situation and come up with the best way to help you accomplish that. Whether it’s maximizing your 401(k) deductions or taking advantage of gifting thresholds to establish college funds for your children, there are several avenues to reducing your AGI. The best solution for you will depend on your income and your living situation.
Business Tax Planning at the end of the Year
When you’re doing taxes for your business, there are other considerations besides just reducing your tax burden. Not every business will want to take an aggressive stance when it comes to year-end tax strategies. While you should maximize your deductions, in some cases it isn’t a smart business decision to pursue deductions that don’t provide an equal return on investment.
This is especially true if your business has had an off year. For example, if you are looking at purchasing new equipment for your business, it may be worth your while to push the large deductible expense to the next fiscal year. After all, a $5,000 purchase this year may net you a large tax deduction this year, but next year it could push you into a lower tax bracket, making your tax savings even more substantial.
It pays to have an outside dispassionate party take a look at your current tax strategies as well. A thorough review of your profit and loss numbers as well as your current tax plan can reveal things that you didn’t know were possible. This becomes especially relevant when you transition from one type of business to another. If you used to be a sole proprietor and have taken the steps to incorporate your business, your taxes shift dramatically, which will have an effect on your year-end tax strategy.
At the end of the year, when it comes to taxes, the overall goal of anyone, be they business or individual, is to minimize the amount that they have to pay. There are different ways to do this for each type of filing party. The best way to find out all of your options is to consult with a licensed CPA in your area.
Camputaro & Associates CPA, located in Ormond Beach, has been helping businesses and individuals with their taxes for over 40 years. Our team of licensed CPAs is ready to look at your current financial situation and determine how best to help you reduce your tax burden for 2017 and years to come.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174