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Year End Tax Planning for Individuals

Individual Tax Planning in 2012 & 2013

Year-end tax planning is always complicated by the uncertainty that the following year may bring. Even with the election behind us, 2012 is one of the most challenging in recent memory for year-end tax planning. A combination of events – including possible expiration of some or all of the “Bush-era” tax cuts after 2012, the imposition of new so-called Medicare taxes on investment and wages, doubts about renewal of tax extenders, and the threat of massive across-the-board federal spending cuts – have many taxpayers asking how can they prepare for 2013 and beyond, and what to do before then. The short answer is to quickly become familiar with expiring tax incentives and what may replace them after 2012 and to plan accordingly.

Year-End Tax Planning for Businesses

In recent years, end of year tax planning for businesses has been complicated by uncertainty over the availability of many tax incentives. The 2014 year-end is no different. In the early hours of January 1, 2013, the Senate passed the American Taxpayer Relief Act of 2012, which permanently extended the so-called Bush-era tax cuts. However, other popular provisions were only extended through 2013. Therefore, 2014 tax strategies include concerns over the fate of the expired provisions. President Obama, the chairs of the House and Senate tax writing committees, and individual lawmakers all made tax reform proposals in 2014. The proposals ranged from comprehensive tax reform to more piece-meal approaches. However, any progress on legislation is stalled until after the elections and possibly into the beginning of 2015.

Year-End Tax Planning for Businesses

As year-end approaches, each business should consider the many opportunities that might be lost if year-end tax planning is not explored. A business may want to consider several general strategies, such as use of traditional timing techniques for delaying income recognition and accelerating deductions. A business should also consider customized strategies tailored to its particular situations.

For the 2017 tax year, taxpayers have relative clarity with respect to available credits and deductions. With the exception of a handful of industry specific tax credits and deductions that expired at the end of 2016, most temporary credits and deductions were permanently extended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). A few others were extended for 5-years through 2019. Far less clear, however, is the possibility of the enactment of tax reform legislation by year’s end. The final scope of such legislation, if enacted, remains unknown. At a minimum, tax reform legislation is expected to result in a reduction of corporate and individual tax rates. However, whether such reductions would apply to 2017, as well as to 2018, will remain uncertain, likely until late November or early December. Nevertheless, much of the preparation for these contingencies should begin now.

Year-End Tax Planning for Individuals

Year-end 2017 is shaping up as an important deadline to have tax strategies in place to take advantage of certain opportunities before they sunset along with the close of the tax year on December 31, 2017. A major challenge this year, of course, involves the uncertainty that will remain, likely into late November/early December, over pending tax reform legislation. This includes uncertainty regarding rate cuts, certain deductions, and much more. Effective strategies in response to any of these “tax reform” priorities involve close monitoring of any proposed tax bill as it moves through negotiations within the various Congressional tax committees and Trump administration officials, with year-end action steps ready to go based upon alternative legislative outcomes.

Although year-end 2017 may be unique because of possible tax reform, planning during the final weeks and months of this year involves much more –both in terms of traditional year-end strategies and strategies developed in response to developments that have taken place since last year. Here are some points to consider: