Is it Too Early to Start Thinking About Year-End Tax Planning?
There is an old saying about procrastination: “He who waits to do tomorrow what can be done today will…” I forget the end – I will look it up later. Speaking of procrastination, it seems for all the talk in Congress of passing sweeping tax legislation, we don’t seem any closer to change than we were prior to the election. With the assumption that no tax changes will occur during 2017, here are a few ideas that you can implement this year to lower your tax liability.
- Bonus Depreciation – As of now, after 2017 the bonus depreciation amount will be reduced from 50% to 40% in 2018 and 30% in 2019. If you have plans to purchase (or are even flirting with the idea of purchasing) big ticket assets in the near- to mid-term, it might make sense to do so before year-end to get the most out of your depreciation deduction. For example, a piece of equipment purchased for your business for $100,000 and placed in service on December 28 of this year will generate $60,000 of depreciation. If that same piece of equipment is placed in service in 2018 (under current law), it will generate only $52,000 of depreciation.
- Gifting Appreciated Stock – For the charitably minded, charitable donations are a great way to not only accomplish your philanthropic goals, but also rack up a hefty tax deduction. You reduce your taxable income dollar for dollar up to 50% of your AGI (subject to certain itemized deduction limitations). However, donating appreciated stock directly to charitable organizations allows for an even greater benefit. With the stock markets at or near all-time highs, many people have unrealized gains sitting in their brokerage account that would be subject to tax if sold. If you were to donate this stock, you would get a charitable deduction for the fair-market value of the stock without having to recognize any of the gain on the disposition of the stock.
- Donor-Advised Charitable Funds – For those with continuous charitable intentions, a Donor-Advised Fund allows you to “pre-fund” your charitable donations and take the deduction now without having to immediately transfer the funds to the charity. This is an account you can set up with your brokerage firm (for a nominal fee) and fund with cash, stock, or other investments. You can take a charitable deduction for the fair market value of what you contribute and direct when and where the assets are distributed. There is no timetable as to when the donations must be transferred to the charities, and the funds will grow tax-free while in the account. You will want to discuss the details with your broker as there are usually set up and annual management fees, so what eventually goes to charity may not be what you anticipated.
It is never too early to start tax planning. We would love to talk to you about these ideas and other ideas that might be more specific to your individual circumstances. Give us a call at (949) 260-1430.
Written by Brett Simpson, CPA
SKINNER FOUCH & OLSON LLP