Appropriate Checklists for Year-End Tax Planning - Part 1

Tax planners often develop checklists to guide taxpayers toward year-end strategies that might help reduce taxes. Typically, suggestions are grouped into several different categories, such as “Filing Status” or “Employee Matters,” for ease of reading. When year-end approaches, it might be wise to review each suggestion under the categories that may apply to you.

If you’re married (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file married separately. Determine which results in lower overall taxation.

Determine whether you’re entitled to claim a dependency exemption for a parent or other relative. You will need to have contributed more than half of that individual’s support during the year, and other conditions may also apply.

If you’re claiming a dependency exemption for a child who is 19 or older (age 24 or older if a full-time student), make sure that the child’s gross income doesn’t exceed $3,950 (for 2014, $3,900 for 2013).

If you and several other people financially support someone but none of you individually qualifies to claim the individual as a dependent, you should consider making an agreement with all of the other parties to ensure that at least one of you can claim the individual as a dependent.

Consider making gifts of up to $14,000 per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.

Take advantage of tax credits for higher education costs if you’re eligible to do so. These may include the American Opportunity (Hope) credit and the Lifetime Learning credit. Note that these credits are based on the tax year rather than the academic year. Therefore, you should try to bunch expenses to maximize the education credits.

Tip: If you have qualified student loans (and meet all necessary requirements), you may be entitled to take a deduction for the interest you paid during the year. The maximum amount you can deduct is $2,500.

Self-employed individuals (who generally use the cash method of accounting) can defer income by delaying the billing of clients until next year. You may also be able to defer a bonus until the following year.

Use installment sale agreements to spread out any potential capital gains among future taxable periods.

Employees can deduct their business expenses as long as these expenses exceed 2 percent of annual adjusted gross income (AGI). Therefore, attempt to bunch as many of these business expenses as possible during the current year in order to maximize the deductions.

Accelerate expenses (such as repair work and the purchase of supplies and equipment) in the current year to lower your tax bill.

Increase your employer’s withholding of state and federal taxes to help you avoid exposure to estimated tax underpayment penalties.

Pay last-quarter taxes before December 31 rather than waiting until January 15.

Make sure that you meet the required threshold percentages of your AGI to deduct expenses by “bunching” miscellaneous expenses into the same year.

If you have significant business losses this year, it may be possible for you to apply them to the prior year’s returns to receive a net operating loss carryback refund. If you had significant income in prior years, you should maximize the current year’s losses by deferring income if possible.

In certain circumstances, it may be possible for the full cost of last-minute purchases of equipment to be deducted currently by taking advantage of Section 179 deductions.

Generally, you are able to make a contribution to your retirement plan at any time up to the due date (plus extensions) for filing a given year’s tax return.

Please call me to find out more information, Jennifer Williams, President J. Williams Personal Financial Planning:

413 S. Curry St, Tehachapi, California

Office phone 661-822-7517

Office email: [email protected]

Jennifer is a Registered Financial Consultant. She has over 20 years of experience in the industry.

Article is courtesy of Forefield.Securities offered through NPB Financial Group, LLC. A Registered Investment Advisor/Broker-Dealer Member FINRA, MSRB, and SIPC