Year-End Tax Planning

We are now into the fourth quarter of 2011.  Now is the time to be thinking about year-end tax planning.  This is the time of year where both individuals and businesses can both benefit from a little bit of planning.  A client can take the necessary steps to minimize those taxes or set the money aside that they are going to owe.  By planning before year-end a taxpayer can know where they will approximately stand come April 15th. Below are some things that can be done by individuals and businesses.

Individuals

Tax planning is not just for business owners.  Individuals that are employees of businesses have ways of taking advantage of year-end tax planning.  Below are just a few:

1. W2 employees should take a look at their year-to-date paystubs and see what their income is and project what it is going to be at year end for both income and withholdings.  By doing this now, a taxpayer that normally receives a big refund when they file their taxes could adjust their withholdings at their place of employment and therefore receive the money throughout the fourth quarter as opposed to giving an interest free loan to the government until April 15th.
2. Non-business energy credit is available only through Dec 31st, so any individuals who have not used up their lifetime credit limit who are thinking about doing some energy efficient projects around the house should go ahead and do them before year end.  Perhaps with the money they receive from adjusting their withholdings in this fourth quarter….just a thought.
3. Flexible Spending Accounts – Many employers provide FSA’s.  These are beneficial to taxpayers because they are set aside pre-tax dollars to be used.  Each individual should evaluate the balance they have in their accounts to take advantage of using it up before they lose it at year end.  Also, if you used up your balance this year or anticipate some expenses greater next year, an employee should increase the amount they put in for 2012 so that they save the taxes on it next year.  The FSA is good because it allows taxpayers to deduct otherwise lost medical expenses because of not itemizing or limitations on medical expenses.

Businesses

Businesses have a lot more options when it comes to year-end tax planning.  Each business should get their financials current through at least September 30, 2011 and have a basic idea of what they anticipate their fourth quarter to do.  Whether it is from typical fourth quarters or it is from pre-orders coming in, most business owners can get with their CPA to project what the year-end final numbers are going to be in the ball-park given data from the first 9 months.  There are many ideas for business owners that can be very simple or can get very complex, but here are just a few options business owners have they can think about for tax planning.

• Payroll – Has the owner done a salary to themselves yet? (especially comes into play for S-Corporations)  Are there family members that could be on payroll for certain tax advantages? Does the owner want to reward employees for their efforts with bonuses?
• Equipment – Is there equipment that the business NEEDS (notice I said needs) that they could purchase before year-end and take advantage of some quick tax write-offs?
• Retirement Plans – Has a plan been set up?  Are the funds there to max it out?

No individual or business owner should go down the road with blinders on when it comes to their business planning and tax planning.  Set yourself up a tax planning appointment in the fourth quarter and have the peace of mind you know where you will stand on April 15th.