#TaxTipTuesday- Year-end tax strategies for accrual-basis taxpayers

 

The last month or so of the year offers accrual-basis taxpayers an opportunity to make some timely moves that might enable them to save money on their 2016 tax bill.

 
Record and recognize
The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2017. This will enable you to deduct those expenses on your 2016 federal tax return. Common examples of such expenses include:
• Commissions, salaries and wages,
• Payroll taxes,
• Advertising,
• Interest,
• Utilities,
• Insurance, and
• Property taxes.

 
You can also accelerate deductions into 2016 without actually paying for the expenses in 2016 by charging them on a credit card. (This works for cash-basis taxpayers, too.) Accelerating deductible expenses into 2016 may be especially beneficial if tax rates go down for 2017, which could happen based on the outcome of the November election. Deductions save more tax when tax rates are higher.

 
Look at prepaid expenses
Also review all prepaid expense accounts and write off any items that have been used up before the end of the year. If you prepay insurance for a period of time beginning in 2016, you can expense the entire amount this year rather than spreading it between 2016 and 2017, as long as a proper method election is made. This is treated as a tax expense and thus won’t affect your internal financials.

 
Miscellaneous tax tips
Here are a few more year-end tax tips to consider:
• Review your outstanding receivables and write off any receivables you can establish as uncollectible.
• Pay interest on all shareholder loans to or from the company.
• Update your corporate record book to record decisions and be better prepared for an audit.

 
Consult us for more details on how these and other year-end tax strategies may apply to your business.

Advertisement

Filing for an extension isn’t without perils

 

Yes, the federal income tax filing deadline is slightly later than usual this year — April 18 — but it’s now nearly upon us. So, if you haven’t filed your return yet, you may be thinking about an extension.

 
Extension deadlines
Filing for an extension allows you to delay filing your return until the applicable extension deadline:
• Individuals — October 17, 2016
• Trusts and estates — September 15, 2016

 
The perils
While filing for an extension can provide relief from April 18 deadline stress, it’s important to consider the perils:
• If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 18.
• If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

 
A tax-smart move?
Filing for an extension can still be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you need help or have questions about avoiding interest and penalties.

Teach your child this vital skill

 

Financial literacy is a vital skill in today’s world. Will your children be able to handle their finances when they became adults? Here are tips to help ensure the answer is yes.

 
Shave spending. Take the weekly allowance to the next level by helping your child develop a budget. Review the results to reinforce good habits.

 
Stress savings. Even young children can grasp the power of compound interest. A simple example is asking your child to put a dollar in a piggy bank. Offer to pay five percent interest if the money is still there in a week or a month. Make the same offer at the end of the first time period, and pay “interest on the interest” as well.

 
Introduce investments. Create a portfolio, either real or paper, consisting of shares of one or more stocks or mutual funds. Make a game of charting the investment’s progress on a regular basis.

 
Cover credit. Take on the role of lender and let your child request an advance on a weekly allowance. Charge interest.

 
Talk taxes. Use word search or crossword puzzles to teach tax terminology. Consider creating a “Family Economy” game using examples from your own budget.

 

 
Lessons in financial responsibility can benefit your children now and in the future. Get them started on the right path.

 

 

 

 

Not all “income” is taxable

There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

• Borrowed money such as from banks or personal loans.
• Money received as a gift or inheritance from family or friends.
• Money paid on your behalf directly to a school or medical facility.
• Most life insurance proceeds.
•  Cash rebates from businesses when you buy an item.
• Child support payments.
• Money you receive for sustaining an injury.
•  Scholarships for tuition and books.
• Disability insurance proceeds from a policy purchased with after-tax dollars.
• Up to $500,000 of profit for a couple selling their personal residence.
• Interest received on municipal bonds.If you have included any of these on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.