Let me give some basis: (This list is not comprehensive)
There are some incentives to deaccelerate income this year because of the lower tax per new tax changes. However, there are some cases where it might help to accelerate the income.
- 1)If you expense to be lot higher tax bracket next year.
- 2)If your Head-of-household or surviving spouse status ends after this year
- 3)You plan to get married next year ( combination of income will push you on the higher bracket)
- 4)If you expect to be eligible for one or more credits next year (e.g., the child tax credit), but not this year. These credit are subjected to phase out when AGI reaches specified limits.
Note: Watch out for the AMT, which applies to both individuals and many corporations. A decision to accelerate an expense or to defer an item of income to reduce taxable income for regular tax purposes may not save taxes if the taxpayer is subject to the AMT
Capital Gain planning:
Since short-term capital gains are taxed at the ordinary rate. There are few things that should be kept in mind.
- Avoid: We need to avoid offsetting long-term capital gain with short-term capital loss.
- Do: STCG and Ordinary income are taxed at higher rate, use short-term capital loss to offset short-term capital gain or ordinary income (Limit $3000 for 2016).
- If you do not have any capital loss this year, but expect to have more than deductible capital loss of 3,000 next year, consider shifting some capital loss this year so that you do have to carry over the loss next year instead use this year.
- Use de minimis safe harbor to expense asset (2,500). This is an expense compared to accelerate depreciation that has to be recaptured. So, De minimis is always better than section 179 or bonus 50% depreciation.
- The “de minimis safe harbor election” may be particularly useful when it comes to year-end planning, as it is available for qualifying assets even if they are bought and placed in service near the close of the taxpayer's tax year.
- If you are over the limit of 2500, the bonus depreciation (50%) is better than section 179 because there is no phase-out.
Bonus depreciation is changing to 100% next year but we should always use de minimis because its an expense compared to depreciation that is subject to recapture.
Change passive activity to non-passive:
- Step up material participation hours
- Sale of passive activity: If a you dispose of your entire interest in a passive activity in a fully-taxable transaction, than any loss from the activity for the tax year of disposition (including losses carried over from earlier years) will be non-passive. This might be helpful in some situation.
Combining both capital loss and passive activity strategy:
If you have a capital loss carryover into the year of a disposition of a passive activity, and if the disposition generates a capital gain, the capital loss carryover can offset the capital gain. so, by timing the gain on a sale of a passive activity in a year with a capital loss carryover and a suspended loss carryover from that activity, you get a double tax benefit. The disposition frees up both the capital loss carryover and the suspended passive losses. ( Sorry if this sound complicated, your CPA will understand if you hint this)
S-crop can rent home form the owner and not report income but still get a deduction for the business:
If the home is rented ( for meetings or retreat, or holiday party) less than 15 days a year, the owner can exclude the rent payments from the income. The rent has to be less than the rents that would be paid to the hotel because home and hotel has different rental valuation. Be reasonable.
There are more but It's getting tooooo long. Maybe other more knowledgeable CPAs will chime in.
Getting the greatest tax return is not the goal of tax strategy. Reducing your effective tax rate is.
Also, procrastinating till now to reduce your taxes is poor tax planning. Tax strategy happens during all 12 months of the year. Preparing your tax return is simply a compliance exercise. By then, you should have already executed all your strategies.
Everyone should have a End of year tax planning meeting with their CPA. Every taxpayer has a unique situation. Deferring income and accelerating deductions are generally common planning techniques. Paying 2018 property taxes on a primary residence might be something to consider too. There is no one size fits all
With the imminent tax reform, 2018 will be a completely different animal in terms of tax planning. Be cognizant that certain long term strategies may become obsolete within a month.
@Ashish Acharya Beautiful Reply! Thank You! You're giving my CPA a run for his money off one forum post lol
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