Common Ways to Accelerate Deductions and Defer Income for Year-end

Another year is coming to a close, and yes he’s been watching you. You wish I meant Santa Claus, but I am referring to Uncle Sam. With year-end steadily approaching, it is a key time to evaluate how well you have performed and if any opportunities exist to reduce your tax liability. One form of planning is to accelerate deductions and defer income. Here are some practical points for both business owners and individuals.

For self-employed business owners there are income items and expenses you may be able to control. For a cash basis business consider delaying invoices and prepaying business expenses. An accrual business can complete jobs the following year if possible, and receive shipment of office supplies this year. Both cash and accrual businesses can take advantage of Section 179 to accelerate expense deductions for capital assets placed in service.

An individual can defer compensation income by simply asking your employer to pay your end of year bonus and final few months of fringe benefits in the following year. Exercise nonqualified stock options next year instead of this year. Contribute to an IRA or 401(k), to the extent deductible contributions can be made. If over 50, consider additional “catch-up” contributions.

Need to accelerate deductions but short on cash or time? No problem. Credit card charges are treated as deductible in the year charged to accelerate the payment of charitable deductions, medical expenses, or other deductible expenditures before year end.

Another itemized deduction opportunity is to increase state income tax withholding or make estimated state tax payments or increase your current payment amounts.

Finally, if necessary donate appreciated stock or securities. Generally, the deduction for appreciated stock is the fair market value at the time of the donation. On the flip side, sell investments with unrealized losses to offset capital gains or utilize the $3,000 per year offset against ordinary income.

These are just a few suggestions to consider when planning for year end and assessing your tax burden. Please keep in mind that many deductions are subject to income limitations, deduction floors and alternative minimum tax “AMT” rules in order to be maximized. It is always a good idea to consult with your CPA when considering your planning strategy.