Our New York CPA office encourages NYC taxpayers to take advantage of tax savings before December 31. The basic strategy is to maximize all available tax savings so that you owe less tax in April of next year. Here are eight year-end tax tips to use now:
- Accelerate tax deductions. Accelerating any eligible tax deductions you may have and deferring income will save you money on your 2018 tax return. Reducing taxable income is the cornerstone of any tax-mitigation strategy. Also, if you have revenue that you can defer, such as self-employment income, try to do so especially if you anticipate a large tax bill coming your way in the future.
- Max out retirement contributions. Contributing as much as possible to a qualified retirement account such as a 401(k) or an individual retirement account (IRA) to shelter the maximum amount from taxes is key to saving tax dollars. The 2018 contribution limits are $18,500 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).
- Delay large gifts. If you are considering making a significant monetary gift which would result in gift taxes, it may be advantageous from a tax perspective to delay it until 2019.
- Revisit your business structure. If you own a business and you haven’t changed your entity type for several years, you may want to consider if another entity type may offer you tax advantages. This is one tip that should likely be done in concert with a tax professional so that you are certain that any entity changes you make will be beneficial to you.
- Postpone debt cancellation. If you owe money, keep in mind that the reduction or cancellation of debt usually results in taxable income to the debtor. If you are planning to negotiate with creditors involving debt reduction, consider waiting until January to defer any debt cancellation income into 2019.
- Accelerate charitable contributions. Make charitable contributions now to reduce your 2018 tax burden. If you are thinking about supporting tax exempt 501(c)(3) organizations this year, don’t delay. Be sure to get a receipt for your contribution so that you can itemize it on your tax return (as long as your deductions will not exceed the new larger standard deduction that you’ll see on your 2018 return).
- Wait to invoice for year-end work. If you’ve had a good year and your income is pushing you into a higher tax bracket, the last thing you need is to add additional income for the current tax year. This is why it may be beneficial for you to wait until January 1, 2019 to invoice for your December business sales. If you do, the income you earn won’t be taxed until your clients pay.
- Consider purchasing equipment for your business. Under tax reform, Sec. 179 business expense deductions and bonus depreciation for first-year businesses are expanded. As such, now is the time to invest in equipment such as computers or other eligible assets for your business so that these deductions can help you reduce your 2018 taxable income.
If you have questions about year-end tax strategies it’s worth taking a few minutes to contact our NYC accountant so we can help you implement the ones that apply to you before the end of the year.