Claude Solnik, The Daily Record Newswire
As the economy improves, accountants are advising private and corporate clients to take advantage of deductions and strategies that will lessen the sting of their end-of-year taxes.
That sting is likely to be bigger for many this year, especially corporate taxpayers, with the economy slowly gaining steam and many businesses’ profits on the rise. And that means taxpayers need to be especially cautious in their decision-making – for instance, calculating taxes for the current and subsequent year to determine which will likely have the higher rate (taxpayers often benefit by recording revenues in the year likely to have the lower rate).
“They have to not only look at 2014, but also at 2015,” said Craig Rubin, tax partner at Nussbaum Yates Berg Klein & Wolpow. “Which will give you the most bang for the buck?”
There are many other financial maneuvers to consider. Companies may want to make big purchases – even pull the trigger on a merger – in the current year, to get the benefit of depreciation and other deductions as soon as possible.
“It depends which side you’re looking at or whether a profit or loss will be made,” noted Dennis Cancellarich, senior manager at Manhattan-based WeiserMazars. “If you’re going to sell a business and make a profit, you’d like to push it off into the subsequent year. But the buyer might want it done this year for tax purposes.”
Another often-overlooked loophole: Businesses can use losses to offset taxes for two prior years – or for 20 years going forward – but companies in the red have to decide which is the best fit.
“It’s definitely a question,” Cancellarich said. “If they’re not going to have profits going forward for the next couple of years, they may want to carry back the loss.”
Companies also need to decide whether they should be taxed on a cash or accrual basis (smaller taxpayers typically can choose, unless they’re required by law to pick one). Firms taxed on a cash basis may want to delay billing, since they’re only taxed on revenue they receive, while companies taxed on an accrual basis pay based on when they perform services or incur costs.
Businesses also need to look at, and if possible reduce, their “nexus,” or their exposure to state taxes in multiple states.
“You can be exposed to state income taxes in places where you don’t anticipate, if you have nexus,” said Robert Spielman, a tax partner at Marcum. “States are passing new laws trying to grab more revenue.”
By this time of the year, some individuals and companies may have already paid estimated taxes, allowing them to get whatever tax benefits they have coming sooner. Some can also mitigate capital-gains taxes by purposely selling stocks at a loss, essentially erasing those gains.
“Look at the portfolio and see what’s gone down in value,” Rubin said. “Sell and recognize a loss. If you feel it’s a viable investment, it can be bought back 31 days later and you can still claim the loss on the sale.”
Individuals must determine whether they’re in the alternative minimum tax or traditional tax brackets, since different deductions apply. Only taxpayers in traditional tax brackets, for instance, can cut their tax tabs by paying state and local taxes early.
Individuals can also reduce their taxes by maximizing their retirement-plan contributions, estate and gift planning and charitable donations. And they can ask employers to postpone bonuses until the following year, unless their taxes are likely to rise then; they may also want to hold onto their stocks for another year before selling to obtain long-term capital gain rates, which can go as low as 20 percent (short-term rates can be nearly 40 percent).
Putting money into health savings accounts can also cut individuals’ taxes, while setting aside cash for future medical expenses.
One area where individuals often miss the boat is the home-office deduction. Many claim savings through this provision, but with an increasing number of Americans working from home, many are failing to maximize the benefits.
“People typically forget about business use of the car and overlook the home-office deduction for those without another office,” said Anthony Basile, a CPA and accounting professor at Hofstra University. “Home offices are overlooked a lot.”
