SS&G: How to make the most of your year-end tax planning

Before year’s end, taxpayers need to talk with advisers about their personal tax situation — wages, interest income, dividend income, capital gains, pass-through income from a business and other deductions. This preliminary road map can be used to make appropriate decisions.

“Years ago, I went through a projection with a client. We didn’t move the needle on their taxes much, but the client’s wife said, ‘I feel so much better knowing in December exactly what’s going to happen in April,’” says Patricia Rubin, CPA, director of assurance services at SS&G.

By reflecting in December, taxpayers have time to plan ahead, she says.

Smart Business spoke with Rubin about maximizing year-end planning.

Alternative minimum tax (AMT) is always a big topic. How can you plan around it?

This year, Congress formalized and stabilized many AMT issues. You should do an annual calculation to determine whether AMT will apply to you. A taxpayer must calculate taxes using the regular method and then recalculate following AMT rules and pay the higher amount. AMT rules are similar to regular tax rules. However, under AMT certain items are not deductible in computing taxable income, such as state and local income taxes.

Certain taxpayers will find themselves in AMT every year, but 2014 could have different results as regular tax rates have increased.

How can you reduce taxes with year-end planning?

Donating appreciated stock to a charity is one option, and taxpayers can deduct this under either tax system. If you bought a share of stock for $1,000 that is now worth $10,000, the charity gets $10,000 and you don’t have to pay capital gains on the difference while also claiming a deduction for $10,000. There’s also charitable giving of cash and non-cash items. If you’re cleaning out your closet, make a list. You cannot deduct without specifics on the thrift shop value of donated items. You also can time payments of your state and local taxes — bunching them up and paying them in 2013, or deferring into 2014.

What are some new taxes this year?

These are a little harder to plan for, so consult with your adviser to understand if, and how, these taxes affect you. In addition to the higher tax rates, there is a new 3.8 percent Medicare tax on certain net investment income, as well as a 0.9 percent Medicare tax on earned income. Both of these new taxes apply only if the thresholds have been exceeded. The first year, you need to understand which items are subject to the tax.

In addition, there is a phase out of itemized deductions if your income exceeds the threshold amounts.

What year-end planning is available for a business owner working in the business?

The income of a business owner with an S Corporation, LLC or a partnership passes through to his or her individual return, making tax planning critical.

Make sure your retirement plan maximizes the value to you and your employees, to take advantage of planning opportunities. You can accrue what you’re going to fund into the plan in the current year and pay it next year.

Two depreciation items may be significant. Under Section 179 of the tax code, you can deduct purchases of property, plant and equipment up to $500,000. As the law stands, it drops down to $25,000 in 2014. Also, you still can get 50 percent bonus depreciation for new equipment, which is scheduled to sunset in 2014.

Other items to capture are a health insurance credit for those with less than 50 employees and a self-employed health insurance deduction, which might apply to a shareholder in a closely held company.

Overall, the promise of tax planning is to let you know what’s coming, properly plan for the appropriate deferral of income taxes and reduce your overall taxes. You may not have all three, but year-end tax planning always helps avoid surprises.

Patricia Rubin, CPA, is director of Assurance Services at SS&G. Reach her at (440) 248-8787 or [email protected].

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