Year-End Tax Planning Tips

Year-End Tax Planning Tips

December 2008

When money is tight, it’s important to save every dollar you can. And that includes every dollar you pay the IRS. As you look toward the end of the year, there are several strategies that you may consider as you work to minimize your tax liability. The following are some tips for both individuals and businesses.

Individual Tax Tips

1. Control income and expenses. If you expect to be in the same or a lower tax bracket in 2009, consider deferring income until next year and accelerating deductible expenses in 2008. Alternately, if you expect an increase in income in 2009, consider accelerated income this year and deferring expenses to 2009.

2. Group itemized expenses. If you are close to being able to itemize your deductions, you can get a greater tax benefit by grouping your itemized deductions into one year (and then taking the standard deduction the next year). This tip applies to deductions subject to percentage of income limits by accelerating expenses such as unreimbursed employee expenses, investment expenses or medical expenses, so they are paid in the same calendar year. State and local income tax, real estate tax and mortgage interest payments can also be accelerated or deferred to bunch the expenses into a single year.

3. Allocate tax-advantaged payments. Any extra payments that can be made to tax-advantaged debts, investments or expenses such as IRAs, 401(k)s, interest on student loans or 529 plans, can result in extra tax advantages.

4. Examine your portfolio. You can take up to $3,000 of losses from stock you sell in 2008 against your ordinary income. This does not apply to 401(k) or IRA stocks.

Business Tax Tips

1. Control income and expenses. If you expect to be in the same or a lower tax bracket in 2009, consider deferring income until next year and accelerating deductible expenses in 2008. Consider accelerated expense options such as 179 expenses or bonus depreciation items in planning your year-end expenditures. Purchase machinery, equipment or other infrastructure items and expense most or all of their cost this year. Alternately, if you expect an increase in income in 2009, consider accelerating income this year and deferring expenses to 2009.

2. Re-examine your business structure. Consider the favorable tax provisions passed as part of the bail-out plan such as the new 15 year depreciation period for improvements of retail and restaurant space, enhanced charitable deductions for donations of food and books for certain businesses, and enhanced expensing of tangible property.

3. Take advantage of new provisions. Consider the favorable tax provisions passed as part of the bail-out plan such as improvements for retail and restaurant space, enhanced charitable deductions for food and books, and enhanced expensing of tangible property.

4. Consider tax advantages of going green. From energy credits for alternative fuel producers to energy-efficient home construction, a wide array of incentives are available to almost every line of business. Even fighting high energy prices is now easier with government subsidies for installing solar, wind and geothermal electricity generating property.

5. Create or evaluate your benefit plan. Use the historically low markets to create a 401(k), defined contribution or defined benefit plans that fits your business needs, or review your current plan to make sure it is still in compliance and still meets your needs.

You should always take care to plan your year-end tax obligations. This year it’s even more important to ensure you take advantage of any tax savings that could be put to better use in your bank account.