Year End Tax Planning

Kevin Shaw, CEO

Shaw & Associates, CPA’s and Financial Advisors

Another year is rapidly coming to an end!  This is the time of the year that many of our clients are setting appointments to get a better idea of what their projected tax burden for the year is going to be and to identify areas where they can minimize their taxes.  I like to use our October newsletter to encourage early tax planning, since once the year is over there are few opportunities to take steps to lower your current taxes.  In this regard, I am going to identify a couple of the more common strategies you can consider, but since everyone’s tax situation is different you may want to meet with your tax advisor before the end-of-the-year to create a plan tailored to your situation.

1. Accelerate Deductions & Delay Income – Since most individuals and many small businesses are cash-basis taxpayers, the timing of when you pay for tax deductions and when you receive income can have a significant impact on your final tax bill. The general rule of thumb is to accelerate payment of items that could create tax deductions and to delay receipt of income that would increase taxes. You would be surprised at how simple some of these can be such as paying your mortgage due January 1st in December, prepaying property taxes, paying for college tuition in December instead of in January, accelerating business deductions, etc.  You could also delay receipts of bonuses, if your employer would agree, or delay collection on customer receivables.  The important thing is to not make these decisions until you fully understand your tax situation.  If, for instance, 2016 is a low income year as compared to what you believe will be a higher income year for 2017, you may actually want to do the opposite, accelerate revenues and delay deductions, to push more of the income into the current year when your marginal tax bracket is lower.
2. Long-Term Capital Gains – This is one of my favorite strategies and can generate significant tax savings. Many people do not realize that if you are in the 15%  marginal tax bracket or lower, any long-term capital gains from the sale of securities, real estate, etc., are taxed at 0% until the 25% marginal tax bracket is reached.  A married couple filing jointly with taxable income (after itemizing deductions and personal exemptions) below $74,900 have their long-term capital gains taxed at 15% or lower. As a simple example if you have gross wages of $50,000 and itemized deductions and personal exemptions of $20,000, your taxable income is $30,000.  You could generate $44,900 of long-term capital gains and pay no taxes on these gains.  If you have an investment portfolio, you should definitely look at this every year.
3. Medical Deductions – Since medical deductions are only deductible if in excess of 10% of your Adjusted Gross Income (AGI), a good strategy could be to “bunch” your medical expenses into one year as opposed to spreading them out over several years. If you incurred significant medical expenses in 2016 and will exceed your floor, you would want to consider accelerating medical procedures into 2016.  Medical expenses include dental, eye doctor, chiropractors, etc. Conversely, if you had very few medical expenses to date in 2016, you may want to defer as much as you can to 2017 when there may be an opportunity to bunch.  As a quick example, if your AGI is $50,000, your medical floor is $5,000. If you have already reached that floor or are close, you would accelerate 2017 medical deductions to make them deductible in 2016.  If you wait, you could have $5,000 of medical expenses in both years and none of it deductible due to AGI limits in both years.
4. Retirement Plans & College Savings – This is an area that really impacts your long-term financial goals and objectives. One of the most frequent questions we get is whether to make contributions to a retirement plan and, if so, what kind.  This is truly specific to the individual and there are so many different scenarios that impact the decision.  Some of the questions relate to comparing the short-term benefit of a current tax deduction from contributing to a Traditional or SEP IRA vs. the long-term benefits of not paying taxes on withdrawals of Roth contributions or earnings.  There are other things to consider as income limitations can put you into a situation where you are paying a penalty for making contributions when you should not have.  And, if you are self-employed or own a business, you may have options to save a significant amount of taxes each year by saving for retirement.  You also have the chance to save for your children’s or grandchildren’s education and get tax benefits.   Maybe this is even the year it makes sense to make a Roth IRA conversion to save tax money in the long run.  Although the decision to make some of these contributions can be delayed until the April 15th tax deadline, others need to be acted on more quickly.  It is better to address this early so that you do not find yourself missing opportunities or trying to make decisions under a tight tax deadline.

These are but a few of the many areas we discuss with our clients.  The more complex your tax situation is (own businesses, rental real estate, have stock options, etc.) the more important it is to have a tax planning meeting with your tax adviser.   If you believe we can be of assistance, please contact Laura at (970) 223-0792 or email laura@kevinshawcpa.com to schedule your appointment.

Client Spotlight

Specialty Auto Body was acquired by Brian and Linda Gunderson on January 1^st 1997. We are a small auto body repair shop with 5 employees, located on east Mulberry St in Ft Collins. Brian works at the shop on a daily basis, keeping things running smoothly and making sure our customers are being taken care of. Linda works at home doing the bookkeeping.

Our customers are not just another repair job for us, we like to get to know them and try to go above and beyond for them, including working with insurance companies to get their claim handled in a timely manner. We repair and re-paint the areas of their vehicle that have been damaged in an accident and our goal is to make the vehicle look better than it did before the accident. We rely on repeat customers and referrals by customers and insurance agents for our business, and we stay very busy without a lot of advertising.

We help to support many non-profits and charities throughout each year, including: Cat Rescue, Girl Scouts, Ft Collins Housing Authority, Youth baseball, The Tyler Mayle Scholarship Safe Shelter of St Vrain, and many others.

We have been trusting Shaw & Associates for 12+ years. Working with Kevin, Marcy and the rest of the team has been a very pleasant experience and they always work hard on our business and personal taxes. As we finish up our 20^th year in this business we reflect on the good and bad times we’ve been through, but getting our taxes done by Shaw & associates has been one of the best decisions we have made.

Brian and Linda Gunderson

Community Events

OpenStage Theatre – Ultimate Beauty Bible
Every modern woman knows how important her friends are, especially when facing relationship drama, work stress or health issues. Danielle, a thirty-something beauty editor at Crimpmagazine, has just received some bad news and needs her friends now more than ever. Co-editors at Crimp, Lee and Tiffany, think they know just how to cheer her up – lipstick, chocolate, wine and a one-night-stand. High fashion and real life collide, creating a precarious balance – like a model in seriously high stilettos.

Show runs from October 14th to October 29th.

Location: Center for Fine Art Photography- 400 N College Ave

Night Lights
The NightLights Tree, erected each holiday season at First Presbyterian Church (531 S. College Ave) and lit in a free community celebration on December 1st is made up of over 30,000 blue LED lights. 

The blue color represents the international color of child abuse awareness and prevention and each light represents a donation of $100 by a business, individual or group to help a child. The “big blue tree” has become a holiday icon in Fort Collins over the past 19 years. 

For more information about the event or to give a NightLight, visit:

www.GiveaNightLight.com