Year-End Tax Planning Tips


Income and Deductions
December is the month to consider delaying or accelerating income and deductions, taking into
consideration the impact on both this year’s taxes and next. Doing so may help you minimize your tax
liability. If you expect to be in a lower tax bracket next year, you might want to postpone income from this
year to next so that you will pay tax on it next year instead. At the same time, you may want to accelerate
your deductions in order to pay less tax this year.

To delay income to the following year, you might be able to:
• Defer compensation from your employer
• Defer year-end bonuses or commissions
• Take installment payments rather than a lump-sum payment on capital gain sales
• Postpone receipt of distributions (other than required minimum distributions) from all retirement

To accelerate deductions into this year:
• Consider paying medical expenses in December rather than January, if doing so will allow you to
qualify for the medical expense deduction (over 7.5% of AGI)
• Prepay deductible mortgage and investment interest
• Pay alimony payments early
• Make charitable contributions before the year-end

Non-charitable Gifts
Now is also a good time to consider making non charitable gifts. You may give up to $15,000 ($30,000 for
a married couple) to as many individuals as you want without incurring any gift tax consequences. If you
gift an asset that has appreciated in value, you won’t have to pay capital gains tax on the gain; any tax is
deferred until the recipient of your gift disposes of the property.

Retirement Plan Contributions
To reduce your taxable income this year, consider maximizing your contributions to an employer sponsored
retirement plan such as a 401(k). You won’t be taxed on the contributions you make now, and
you may be in a lower tax bracket when you do eventually withdraw the funds and report the income.
If you qualify, you might also consider making either a tax-deductible contribution to a traditional IRA or
an after-tax contribution to a Roth IRA. In the first instance, a current income tax deduction effectively
defers income–and its taxation–to future years; in the second, while there’s no current tax deduction
allowed, qualifying distributions you take later will be tax free. You’ll generally have until the due date of
your federal income tax return to make these contributions.

For more helpful tips and to discuss year-end planning, please call us at (727) 807-3399