As you start thinking about your year-end taxes make sure you pay close attention to your expenses and deductions. This will help you save money on taxes. The key for taking these deductions is to keep accurate and detailed records. Business and personal deductions, as well as exemptions and tax credits, are all significant items to consider for year-end planning. Here are a few reminders that will help minimize tax liability for your business and personal benefit.
1. Take Note of the Deduction Allowance Limit
The 2016 tax year was the first year that Section 179 was affected by the PATH Act, which was passed at the end of 2015. This act raised the deduction allowance to $500,000, and made it permanent. In addition, there is a 50% bonus depreciation deduction. To take advantage of this deduction, the equipment must have been purchased and put in service before December 31, 2016.
2. Perform Truck Maintenance Before Year-End
Some expenses for truck improvements and repairs are eligible for a tax deduction. Should the expense fall under or around the amount of $500 for an item, the business may claim the purchase as a deduction under a safe-harbor tax election. To add to business deductions and further reduce tax liability, perform repairs and preventative maintenance on your truck before December 31, 2016. Remember, document and save invoices/receipts for all business expenses, and send them to ATBS before your taxes are prepared.
3. Keep Track of Personal Tax Deductible Expenses
Track and detail personal expenses (itemized deductions) to further reduce tax your liability. Medical and dental expenses, home mortgage interest, property taxes, charitable contributions, tax preparation fees, unreimbursed employee expenses (for company drivers), and losses of property are all itemized deductions. However, only medical and dental expenses above 10% (7.5% for individuals or households 65 years of age or older) of adjusted gross income are deductible. Should total medical and dental expenses be at or near the 10% threshold, it may be beneficial to plan final doctor visits and medical purchases before the end of the year. Unreimbursed employee expenses and tax preparation fees are also bound to a deductible threshold amount (above 2% of adjusted gross income).
4. Claim Dependent Deductions and Education Credits
Finally, claim all personal tax exemptions and credits available. Dependent exemptions and education credits provide significant tax benefit. There is a $4,050 dependency exemption for qualifying children (under 19 or a full-time student under 24) given more than half of their living support. As to education credits, there are two options for parents of students: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. The AOTC offers the maximum credit of $2,500 for students enrolled at least half-time in a degree program (limited to the first four years of higher-education). The more available Lifetime Learning Credit allows a credit up to $2,000 per household with a student enrolled in at least one education course.
If future tax-liability is a concern, perhaps convert funds into a traditional IRA to a Roth IRA. Although conversion from a traditional IRA to a Roth IRA requires taxes paid for the year of conversion, the choice may dole out rewards at a later date in the form of tax-free distributions.
As always, if you have any tax questions as to the qualification of an expense deduction, exemption or tax credit, please ask your business consultant or tax consultant. We are always happy to help!
Author: Piper Dargent