We are now in the last few weeks of 2015 so it is time to take a look at your income tax picture and see if you have accounted for all changes in the law that may affect your returns, as well as taking a proactive move to lower your taxes.
Here are a few things to consider:
1. Typically people will try to postpone income and accelerate deductions to lower taxes. Prepare a draft of your 2015 tax return, or have your accountant do so. Then consider whether your marginal income will be taxed at regular rates, alternative tax rates, or capital gains rates and at what rate in each category. That will help you decide what steps to take to change the outcome.
2. If you have not paid in enough taxes, consider making an estimated tax payment or increase your withholding from your last paychecks to cover the shortfall. This can also reduce any potential estimated tax penalty if you have not reached a safe harbor by not paying enough. Making your state tax payment this year may also give you a deduction for it on your federal tax return.
3. Watch for news of tax provisions that expired in 2014 being renewed for 2015 and maybe for 2016 as well. The tax extender bill, if enacted should occur this week before Congress goes home for the holidays.
4. Check if your taxable mutual funds are scheduled to pay large capital gain distributions before the end of the year and if you have them being reinvested in the same fund, taken in cash or being reinvested in another fund. You may wish to change those options before the distribution and its impact might affect your tax return if they are expected to be large.
5.If you have been taking a personal exemption for a child who graduated college this year and started working, you should see if you will be able to take the personal exemption for the child in 2015 or if the child will qualify for their own exemption. This will have an impact on both individual's tax liability. Also consider if the child will qualify as a resident of another state where they are now working. They might have to file two state returns this year so be ready for this.
6. Make sure you take required minimum distributions from your retirement plans to avoid a penalty for not doing so. You can always take more if you need the income or if you think you will be taxed in a lower bracket on that money this year compared to next. Consider making a contribution to a retirement plan if you are eligible to do so. Consider whether to make a Roth, or a deductible IRA, or a payment to a business retirement plan. Watch for deadlines on when to open a plan, or fund one.
7. The Affordable Care Act was new to individual taxpayers last year and some who did not have health insurance were subject to a shared responsibility payment. That payment will probably increase if you still don't have insurance. Also check to see if you qualify for exemptions from the payment.
8. The Internal Revenue recently increased the safe harbor for certain business expenses from $500 last year to $2,500 this year. Last year the regulations regarding repairs and maintenance were rewritten and required major changes for most businesses.Take a another look to see if you are in compliance with the new rules.
Now is the time to check on your proposed tax liabilities, not at April 15 when the returns are due. Hope the exercise will give you the piece of mind you need when the time comes to actually file your returns.
Planning for Year end and for the New Year to Come
As 2015 comes to a close, it is time to review your business activities to see if you have met your goals or still have time to do so. Did you ever create an annual budget for the business? If so, are you up to date on your books and records so that you can compare your actual results to the projected ones?
Many small businesses do not have either a budget or up to date books, making it unlikely that they had a business plan where they wrote down their goals and developed a way to meet them.
Some businesses are stymied by the US Congress not having passed a law extending various tax provisions that expired at the end of 2014 and are usually extended retroactively to the beginning of the year when the lawmakers eventually get around to it. Some businesses go ahead and spend the money to buy new equipment even though they are not sure they will get the expected tax break in 2015 for the purchase. Others will wait until the law is passed. Then it might be too late to act. Some equipment can be purchased off the shelf while others require a lead time to create, test and place in service before year end. Manufacturers can anticipate passage of the extenders bill and order sufficient quantities of materials and have acceess to personnel and manufacturing facilities to create the goods on demand.
If a business has not kept its books up to date, how long with it take to get them current? Having up to date books can provide guidance for the end of the year's results. If the company has outstanding loans then the lender may have required the company to meet certain targets in working capital and profitability. Having current books can enable companies to make decisions so that their lenders will be satisfied with the results or can start to develop an explanation as to why they didn't meet their goals.
And 2016 is just around the corner. It is time to prepare your budgets for that year, too.
Will they be based on expected 2015 results? If so you will need reasonably accurate books for 2015 to develop the assumptions used for 2016.
Successful businesses usually have a plan and are implementing it well. See if you can take these steps to put or keep your business on the path to success.