Be Organized, Well-Timed & Nimble

November 2015

Tax planning this year will be challenging! Just a couple of cases in point:

1. Comprehensive tax-reform, while a continued inside-the-beltway hot topic, is up in the air given that the president is now a less than two years to go resident at 1600 Pennsylvania Avenue.

2. At the 11th hour of 2014, Congress signed the law that retroactively extended various tax relief provisions that had expired at the end of the prior year. These are referred to as the “extenders” and the question is which, if any, will endure for tax year 2015. In the balance are many valuable business tax breaks that may or may not survive.

So the uncertainty of what changes may yet occur by year-end, plus the timing of when any revisions may be announced, raises the yellow flag of caution to remain knowledgeable, agile and tuned-in. Acknowledging the complexity, your success in maximizing your tax savings while minimizing your tax liability is enhanced with the help of a skilled tax advisor.

Be Organized – That Means Get Organized

A good and relatively simple place to start is a review of significant life events that you experienced during 2015 that may directly affect your income tax reporting to the IRS. As a prompt to your thinking, consider happenings such as these:

· Major purchases or sales should be presented to your tax-preparer, even if you are doubtful of any tax benefit.

· An inheritance may trigger a taxable event.

· Children may provide exemptions and child tax credits. Additionally, if your family expanded through adopting a child, you may qualify for a tax credit. Likewise, there may be a dependent care tax credit to reimburse you for some of the costs of child care while you are working.

· Marriage during 2015 will change your tax filing options and likely save you some money by filing jointly with your new spouse.

· Divorce of course has many ramifications including your tax filing status. A divorce that is final right up to December 31 means that each party is considered unmarried for all of 2015.

· A job change that caused you to incur relocation costs may qualify for some write-offs.

· A business start-up requires expert advice from a capable accountant. Depending on a number of factors, including the form of business organization, a new business may have tax implications to you as an individual.

Next logical step is to organize your information in a common-sense manner. Begin with the big obvious stuff that is easy to assemble and will help to minimize your tax bill. For example:

· Mortgage interest on your primary residence as well as a vacation home or rental property

· Real estate taxes

· State & local income taxes

· State & local personal property taxes

· Charitable contributions – cash and non-cash

As part of this next step, draw together all supportive documentation, e.g. receipts, statements, business filings, etc.

Quick Tip 1: Check with your credit card companies. Often you will be able to access online summaries of your expenditures. Print those that are tax-deductible.

Quick Tip 2: An excellent way to simplify this entire process is to use a tax-organizer prepared by a qualified tax advisor. Click here for your copy (pdf) One advantage to using the same tax preparer year-to-year is your current year tax-organizer will contain prior year’s tax info as a time-saving prompter.

Some things often overlooked include maximizing deductions for work-related opportunities. For example, contributions to your employer’s 401(K) retirement plan; pre-tax dollars applied to a flexible spending account (FSA) to supplement medical care and/or Health Savings Accounts (HAS).

Be Well-timed

Timing is not just important, it may be everything when it comes to matching income and expenses to maximize tax deductions and thereby generate savings. Some examples of tax saving opportunities include:

Tax loss harvesting is a strategy to offset capital gains taxes by selling a losing security and applying the loss to offset investment gains.

Bunch itemized deductions to exceed minimum percentages of your adjusted gross income to qualify for 2015 tax deductions. Examples include scheduling costly non-urgent medical procedures in a single year to exceed the 10 percent floor for medical expense deductions.

Defer Income/Accelerate Deductions such as consulting or self-employment income; and pre-pay state and local income taxes, interest payments and real estate taxes to drive deductions.

Look ahead to anticipate events in 2016 that may affect your tax status, e.g. drawing down income from a retirement account, sale of an asset or starting a new business. If so, bring that to the attention of your tax-preparer to help with any pre-event planning that may lower your tax bill.

There are others, but these will give you an occasion to initiate a dialogue with your tax advisor to uncover additional or alternate opportunities.

Be Sprightly

The state of tax extenders legislation in Congress remains uncertain. However, while there are no guarantees, many experts expect Congress to revive key tax breaks retroactive to January 1, 2015. That is consistent with what happened last year with the extenders signed into law in late December. So, we’ll see.

While caution is the operative word, it is equally critical to remain nimble enough to benefit from a positive extender extension vote that may butt up against year-end deadlines. At stake are significant business issues such as extension of Section 179 expensing which is anticipated to be extended to $500,000 from its current $25,000 limit. That means major consequences as it relates to capital investment, deductions and depreciation.

On an individual level, some of the extenders that remain up in the air include teachers to receive up to a $250 deduction for classroom expenses and tuition expense deductions for students and parents.

Back to being nimble … it is important to have a game-plan in place to move on tax saving opportunities that may require rapid decision-making and execution. At this time of year, that means being in a position to have nearly minute-to-minute expert guidance and direction from a tax professional.

Summary

Admittedly, many tax issues remain ill-defined and subject to last-minute volatility. That makes the 2015 tax year one that is particularly critical to enlist the counsel of a capable accountant. It is accounting professionals’ responsibility to keep track of all the changes in rules and regulations to maximize your deductions, minimize your tax liability and conform to appropriate reporting forms and deadlines.