News & Resources

Year-End Tax Planning for Businesses

There are a number of end of year tax planning strategies that businesses can use to reduce their tax burden for 2016. Here are a few of them:

Deferring Income

Businesses using the cash method of accounting can defer income into 2017 by delaying end-of-year invoices so payment is not received until 2017. Businesses using the accrual method can defer income by postponing delivery of goods or services until January 2017.

Purchase New Business Equipment

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2016 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $500,000 for the first $2,010,000 million of property placed in service by December 31, 2016. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.01 million threshold and eliminated above amounts exceeding $2.5 million. Read more

Year-End Tax Planning for Individuals

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.

General tax planning strategies that taxpayers might consider include the following:

• Sell 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 in 2016 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 a tax return for tax year 2017.
• Prepay 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 2016 tax return. Read more

Employers: Terms to Know about Health Coverage

Under the Affordable Care Act, certain employers–known as applicable large employers–are subject to the employer shared responsibility provisions. You might be thinking about these topics as you make plans about 2017 health coverage for your employees.

If you are an employer that is subject to the employer shared responsibility provisions, you may choose either to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents or to potentially owe an employer shared responsibility payment to the IRS.

Here are definitions of key terms related to health coverage you might offer to employees:

Affordable coverage: If the lowest cost self-only only health plan is 9.5 percent or less of your full-time employee’s household income, then the coverage is considered affordable. Because you likely will not know your employee’s household income, for purposes of the employer shared responsibility provisions, you can determine whether you offered affordable coverage under various safe harbors based on information available to you as the employer. Read more

Tax Tips for Separated or Divorced Individuals

If you are recently separated or divorced, taxes may be the last thing on your mind; however, these events can have a big impact on your wallet at tax time. Alimony, or a name or address change, are just a few items you may need to consider. Here are a few key tax tips to keep in mind:

1. Child Support. Child support payments are not deductible and if you received child support, it is not taxable.

2. Alimony Paid. You can deduct alimony paid to or for a spouse or former spouse under a divorce or separation decree, regardless of whether you itemize deductions. Voluntary payments made outside a divorce or separation decree are not deductible. You must enter your spouse’s Social Security Number or Individual Taxpayer Identification Number on your Form 1040 when you file.

3. Alimony Received. If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages. Read more

Energy Tax Credits Expire at the end of 2016

Certain energy-efficient home improvements can cut your energy bills and save you money at tax time; however, these energy-related tax credits expire at the end of 2016. Here are some key facts that you should know about home energy tax credits:

Nonbusiness Energy Property Credit

• Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors, and roofs.
• The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
• Your main home must be located in the U.S. to qualify for the credit.
• Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
• You must place qualifying improvements in service in your principal residence by Dec. 31, 2016.

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