Year End Tax Planning?

Buffalo got six feet of snow the other day. I understand Santa has put a change of address form in at his local post office deciding to move his operation to New York State. With all the snow flakes as a real reminder, it is time once again to begin receiving the “ things you absolutely must do to save taxes by year end”. I get those magazines, newsletters and articles too. Lots of them. The ideas range from the obvious to the bizarre. Most all of the strategies depend on tax rates staying about the same next year. That remains to be seen with both houses controlled by Republicans. With that said and not intending to become just another list of must do’s, here are some basic tax planning ideas that may actually work. If you are in control of your income it may make sense to simply put some off until next year. A tax deferred may be a tax saved. Even if the tax must be paid next year it simply feels good not paying it now. So for lawyers, skip billing your clients until next year. Of course, one must weigh whether delaying billing results in the client not paying. The tax rates don’t go to 100% so sometimes it makes more sense to just take the income and pay the tax. As to deductions, should you possess a reasonably accurate crystal ball, consider accelerating deductions into the current year. This obvious mismatch will come back to haunt you next year when those accelerated deductions will not be available on that tax return. Then comes the matter of state and local income tax. This one can be managed and manipulated by simply sending in any estimate of taxes for this year before the close of the tax year. This game can also be played with regard to mortgage interest again remembering any deduction you accelerate will be missing next year. Charitable deductions may be a fertile area for tax planning year end at least according to most of the newsletters that are written during this season. If in fact you are charitably minded, you can move deductions from one year to another depending upon when the gifts are made. It is also possible to give a gift of appreciated stock and deduct the fair market value and thereby walk away from any capital gain that would have been due had it been sold. Oh yes, there is one flaw in many of the plans. It's called the alternative minimum tax. Congress and the IRS got wise to the potential manipulation of deductions by creating this sneaky version of the tax rates. What happens is some of the deductions a person can claim are simply added back to calculate the AMT. A taxpayer pays either his regular tax or the AMT, whichever is greater. By the way, one suggestion I thought was bizarre, was deciding to move up your elective surgery so that medical expenses could be accelerated. Nothing like a hospital stay during the holidays. My advice is to take these “must do” planning ideas with a grain of salt and perhaps a hot toddy.