April 17, 2017, sounds like it’s a long way off. But December 31, 2016, isn’t. If you haven’t given much thought to your 2016 income tax obligation, it’s time.
The holiday season has begun, and the end of the year is approaching. You probably have personal and business to-do lists a mile long. Gifts to buy. Friends and family to visit. Gatherings to plan, and customers to thank for another year of their patronage.
Somewhere in there, though, we highly recommend that you add a few more items related to your 2016 income taxes. There’s still time to reduce your financial obligation to the IRS.
Ask yourself these questions:
Have you been generous enough this year?
You surely know that you can deduct cash and non-cash contributions that you make to qualified organizations. This includes things like churches, nonprofit schools and hospitals, veterans’ groups, and the Salvation Army. You can also claim out-of-pocket expenses incurred if you did volunteer work for a qualified organization.
The IRS has many rules—and exceptions—governing these donations, so if you’re not sure about the status of a group or institution, ask. In some cases, you may need to get a letter from that organization documenting your contribution.
Tip: You can also consult an online IRS tool called Exempt Organizations Select Check.
You may also be able to “gift” money or property worth up to $14,000 ($28,000 for a married couple) to someone without having to pay the IRS’s gift tax. Again, there are numerous rules and exceptions.
Have you paid all estimated taxes due to date?
By now, you should have made three estimated tax payments for 2016; the final one will be due in January 2017. If you forgot, or if you fear you may not have paid enough, the IRS will accept those quarterly payments any time, even if they occur outside of the stated deadlines (though you may face a penalty).
Have you been tracking your company’s income and expenses carefully?
Here’s where we can pitch in a lot. If you let us work with you throughout the year—starting now, even—we can help you with the complex financial reports that you need to really understand the status of your company’s finances.
You should be creating reports regularly on your own to keep an eye on things like aged receivables and payables, sales, inventory levels, and expenses. If you’re using an accounting application, this is easy. You can also set up Excel to display report data. And you can even pull together numbers manually, but it’s not a simple, automated process.
Bottom line: We know what information you need in order to stay on top of your income tax obligation year-round and avoid filing-time surprises.
Have you generated a lot of revenue without a lot of expenses to offset it?
We have two suggestions here. First, have you been putting off a major acquisition like equipment, vehicles, property, or technology tools? If so, consider following through on one or more of those purchases before December 31. Second, can you defer some income to 2017? Call us for tips on both of those tax-savings ideas.
Have you been contributing regularly to your retirement plan?
The money you’ve been putting away to use after you stop working is financially advantageous in two ways. You’ll be more secure in your retirement years, of course. But depending on the type of plan you’re enrolled in, it could make good income tax sense to max out your contributions before the end of 2016. Don’t know the limits of your particular plan, or not sure how your taxes are affected? We can help.
Have you been following the possible tax law changes for 2016?
Much of this information, of course, isn’t final yet. And it’s hard to tell from just watching the TV news or reading the newspaper just what might have impact on your 2016 income tax obligation. We follow tax law closely, and we know what you might be able to anticipate.
The best time to start planning for the next year’s income taxes, frankly, is any time. November and early December, though, are especially critical in terms of taking any action you need to before December 31. So let us help you minimize your tax obligation for this year.
Stock images courtesy of FreeDigitalPhotos.net