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Tax Planning Tips for the Dog Days of Summer

As we approach the last month of summer, many of us are still trying to gather documents to finalize the 2015 tax returns due in the next few months. But these are the prime months to begin the planning procedures to reduce your taxes in 2016. With the passing of the PATH Act of 2015 last year, the looming issues of expiring tax deductions have been delayed, or extended permanently. For the first time in several years, we know before December what our tax break limitations will be. Here are a few planning options to look into:

Are you in need of new equipment?

This is the best time of year to review your P & L from the first half of the year to project your net income at year’s end. If you have excess income and are looking to reduce the tax burden, it may be the perfect opportunity to purchase new vehicles or equipment and utilize Section 179 or Bonus Depreciation.

Review your withholding or estimate payments for adjustments.

Have you had any life changes, such as getting married, having children, etc.? Or has your business produced more income than you expected when your estimates were prepared? You should review your withholding now to make sure you are not surprised with a substantial bill at tax time, or alternatively, that the IRS is not holding excess funds for the rest of the year that you could be utilizing.

Are you on track to max out your 401K contributions?

You may have an opportunity mid-year to adjust your contributions to make sure you are maximizing your limits. Retirement contributions are a fantastic way to reduce your AGI if you are being hit with Net Investment Income Tax, high tax rates, or limited deductions.

Convert a Traditional IRA into a Roth IRA.

If income is projected to be lower than expected this year, it may be the ideal time to convert your Traditional IRA to a Roth. If you anticipate that this will be the lowest tax bracket that you may be in for the foreseeable future, converting a Traditional to a Roth IRA and taking advantage of the lower tax rates may be ideal. You will have to pay taxes on the converted value of the IRA, but your converted funds will be able to grow and be withdrawn tax free in the future.

Stay Organized.

The best tax advantage for your small business may just be getting every deduction that you deserve. Being organized and maintaining good records throughout the year will help ensure that all of your expenses get properly recorded. This includes maintaining mileage logs, which are much tougher to recreate months later.

And last, but certainly not least, contact your accountant now if you plan to make any large financial moves.

If your accountant is informed about your financial plans before the transaction is made, strategies to mitigate taxes can be discussed. After the transaction is completed, it cannot always be readily reversed and can lead to huge tax implications if done incorrectly.

So enjoy the remaining warm days of summer, but get into the habit of planning for taxes now, and you can reap the benefits of your hard work for years to come.

 

 






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