#TaxTipTuesday-Ensure your year-end donations will be deductible on your 2016 return

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Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. To ensure your donations will be deductible on your 2016 return, you must make them by year end to qualified charities.

When’s the delivery date?

To be deductible on your 2016 return, a charitable donation must be made by Dec. 31, 2016. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Is the organization “qualified”?

To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2016 tax bill.

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

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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.

Are you contemplating year-end-tax-related moves? Focus on the big picture.

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Some tax-cutting strategies make good financial sense. Others are simply bad ideas, often because tax considerations are allowed to override basic economics.

 

 

 

Here’s one example of the tax tail wagging the economic dog. Let’s say that you operate an unincorporated consulting business. You want an additional tax write-off, so you decide to buy $10,000 of office furniture that you don’t really need. If you’re in the 28% tax bracket and you deduct the entire cost, this purchase will trim your tax bill by $2,800 (28% of $10,000). But even after the tax break, you’ll still be out of pocket $7,200 ($10,000 minus $2,800) – and stuck with furniture that you don’t really need.

Other situations in which the focus on tax considerations ignores the bigger financial picture include:

● Increasing the size of a home mortgage, solely to get a larger tax deduction for mortgage interest.

● Hesitating to pay off a mortgage, just to keep the interest deduction.

● Turning down extra income, due to worries about being “pushed into a higher tax bracket.”

● Holding an appreciated asset indefinitely, solely to avoid paying the capital gains tax.

Tax-cutting strategies are part of a bigger financial picture. If you’re contemplating year-end tax-related moves, we can help make sure that everything stays in focus.