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Year-End Tax Planning for Businesses and Owners

December 21, 2017

While tax planning has always been an important financial tool, it has never been more vital now that tax reform is a reality. Taking a good look at your current situation and implementing strategies to save money now, or deferring tax into a future year, should be on everyone’s to-do list.

More Money, Deductions and Long-Term Strategy

Tax planning can be used as a way to postpone or re-direct taxable events. It should also be a part of a broad multi-year analysis of business operations, cash flow, budgets/projections, and industry outlooks. Ultimately, effective tax planning helps save money and increase cash by maximizing deductions, taking advantage of available tax credits and incentives and creating a business tax strategy.

Tax planning can be used as a way to postpone or redirect taxable events. By employing effective tax planning strategies, there will be more money to save and invest, or more money to spend. Tax planning strategies help support long-term goals.

Impact of Tax Reform on Individual Owners

Tax reform presents the prospect of lower effective income tax rates encouraging taxpayers to embrace the usual tenets of tax planning more than ever. A few possible considerations include:

  • Defer income and accelerate deductions, particularly for those individuals that will make a change from itemizing deductions to taking advantage of the new higher standard deduction amounts in 2018. Consider prepaying allowable amounts of state taxes, mortgage interest, charitable contributions and miscellaneous items in 2017. Click here to read an article on state tax prepayments. Also, think about pre-funding future years’ charitable donations, selling loss assets, maximizing retirement plan contributions, and purchasing and placing in service business equipment.

  • For estate planning, generally avoid incurring gift taxes on transfers in light of the higher basic exclusion amount.

  • Because of the interdependency of many tax reform changes, to understand how the changes will affect your tax position, you need to do some “what if” thinking and run some calculations. Don’t forget about AMT, potential limitations and state tax conformity issues when making those calculations.

Business Impact

There are many business changes in the tax reform bill to consider in 2017 and 2018 tax planning for a business. The changes to consider include the corporate tax rate, pass-through income deduction, limitations on net interest expense, full expensing of business assets, changes to net operating loss deductions, limitation of like-kind exchanges, limitation on deductibility of FDIC premiums, corporate alternative minimum tax, rules for recognition of income, changes to business tax credit, modified limits on excessive compensation, and modified deductions for meals and entertainment expenses.

Next Steps

Most tax reform changes won’t take effect until 2018, but that creates some great opportunities to save, or defer tax by taking time to act in the short time remaining in 2017. Tax planning will allow you to be prepared and determine what actions will provide the biggest benefit for you and your business. Let’s talk and discuss your current situation and determine the tax moves that will save or defer tax in 2017. Remember—with the passage of tax reform legislation, doing nothing is not really an option.

Contact your Eide Bailly representative to start your tax savings discussion.