As a business owner and individual taxpayer, I try to maximize write offs and reduce my tax bill each year. I thought I would share some of my ideas.
Pay January mortgage in DecemberMortgage interest is paid in arrears. When you make your December mortgage payment, you are paying interest from the month of November. If you want to save a few hundred dollars in federal income taxes, consider paying your January mortgage payment in December of this year. This will give you an extra month of interest you can write off. Keep in mind the following year you will only have 11 months of interest unless you the January mortgage payment early again.
Consolidate Two Years of Property Taxes In A Single YearIf you purchased a home mid-year and do not have enough interest and property tax deductions to itemize your taxes this year, consider paying this year’s tax bill in January and pay next year’s tax bill in December. Taxes are not due until the end of January. Paying two years of taxes in a single year may be a better tax strategy if you cannot itemize taxes the first year.
Charitable DonationsConsider donating used clothing or a vehicle to Goodwill or charitable organization. You can deduct the thrift value of the clothing or market value for a used vehicle.
Defer Business IncomeConsider billing customers next year instead of this year. Recognizing income the following year will defer your tax liability for another year. This can especially save money if you anticipate your tax bracket to be lower the following year.
Purchase Capital Equipment And Accelerate Expenses
Consider purchasing capital equipment such as a computer system, phone system, or software. Instead of paying monthly fees for our property management software, we elected to pay the fee for a full year. We received a discount and were able to write off the expense this year. You can even use a credit card to expense items. After discount and tax deduction, we saved 50% by expensing this year.
If you are a business owner, you may be able to purchase a full size pickup truck and write off the entire expense through IRS Section 179. Section 179 allows business owners to write off a full size pickup with a Gross Vehicle Weight (GVW) over 6,000 lbs with a cargo area of six fee. Other SUV vehicles may qualify up to $25,000, and you would depreciate the remaining amount. Please consult your CPA for more details.
SEP/IRAAssuming your adjusted gross income is not too high, consider contributing funds to a deductible IRA. Business owners can setup a SEP as well which allows a higher contribution. These contributions will reduce you federal income tax bill by the amount of your tax bracket (i.e. 25%, 28%, etc.). Business owners are still responsible for paying self-employment taxes for this deduction.
These are just a few tips to consider when tax planning. If you have any questions, please call us at 512-257-9836. Our office provides sales, leasing, property management, and mortgage services.