Year-End Tax Planning Strategies for Individuals

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Once again, tax planning for the year ahead presents a number of challenges, first and foremost being what tax reform measures (if any) will actually become legislation–and when they take effect (e.g. retroactive to January 1, 2017, or a future date). Furthermore, a number of tax extenders expired at the end of 2016, which may or may not be reauthorized by Congress and made retroactive to the beginning of the year. And then, of course, there are the normal variations in individual tax circumstances such as the sale of a home that could bump up income into another tax bracket.

With this in mind, let’s take a look at some of the tax strategies you can use given the current uncertainties.

General Tax Planning

General tax planning strategies for individuals this year include postponing income and accelerating deductions, as well as careful consideration of timing related investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following:

  • Selling any investments on which you have a gain or loss this year. For more on this, see Investment Gains and Losses, below.
  • If you anticipate an increase in taxable income this year (2017) and are expecting a bonus at year-end, try to get it before December 31. Keep in mind, however, that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2018 tax return in 2019. Don’t hesitate to call the office if you have any questions about this.
  • Prepaying deductible expenses such as charitable contributions and medical expenses this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid.For example, if you charge a medical expense in December but pay the bill in January, assuming it’s an eligible medical expense, it can be taken as a deduction on your 2017 tax return.
  • If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2018. Exercising this option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December.
  • Caution: Keep an eye on the estimated tax requirements.