Tax Tactics: Spring 2017
Tax Tips
Increase Withholding to Avoid Underpayment Penalty
Do you file your tax returns as a sole proprietor, partner, S corporation shareholder, self-employed individual or some combination of these? If so, and if you expect to owe $1,000 or more in taxes, you must make quarterly estimated tax payments. If you’re behind on these payments, consider catching up through increased withholding between now and the end of the year. You can withhold extra taxes from your own salary or year-end bonus or from your spouse’s salary or bonus if you file a joint return.
Why not simply make larger estimated tax payments later in the year? Because the IRS will impose penalties if you underpaid in the first part of the year. In contrast, amounts you withhold from your paychecks (or your spouse’s paychecks) are treated as if they were paid ratably over the course of the year, regardless of when they’re actually paid.
Can your Business Defer Taxes on Advance Payments?
Accrual-basis businesses that receive advance payments this year for goods or services provided next year may have an opportunity to defer this revenue. Deferral may be available if your business receives advance payments for the use of intellectual property or software, certain guaranty and warranty contracts, subscriptions, memberships in organizations, or hotel facilities or other property in connection with providing services.
You can defer advance payment revenue for one year, but only to the extent it’s reported as such on an “applicable financial statement” — that is, one that’s audited or filed with a government agency, such as the SEC (but not the IRS). If you don’t have an applicable financial statement, you may still qualify for deferral if you have a reasonable method for demonstrating that advance payments received this year aren’t earned until next year.
For sales of gift cards or gift certificates, you may be eligible for a two-year deferral of the unredeemed portion if certain requirements are met.
Make the Most of Year-End Gifts
If you plan to make year-end gifts to your loved ones or to charity this year, carefully consider the form of those gifts. For example, if you give appreciated assets to a family member in a lower tax bracket, gain on the sale of those assets will, except in certain situations where the “kiddie tax” applies, be taxed at a lower rate. If you donate appreciated assets to charity, capital gains taxes are eliminated altogether.
Avoid giving assets that have declined in value. You’re better off selling them, enjoying the tax benefits of the loss, and using cash or other assets for gifts.
© 2017
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
Share Post:
