December is a time to look forward to the holidays and take a bit of a break from business. However, for real estate and business owners, it is also the time to look at the next fiscal year and forecast likely revenues and expenses. But because the tax laws have a good chance to dramatically change soon it is important that, while we keep a watchful eye to the future, we take full advantage of the laws currently on the books to maximize the income we can keep while we transition into next year.
Do a Solid Business Forecast for 2018 First
If, for example, an expense you would make in 2018 can be moved up to this year, it may make sense to purchase the needed item before December 31st to capture a deduction against 2017 income. Or, one may want to defer revenue into January, thereby moving the tax due on that income into 2018 and delaying payment of the tax until sometime in the first few months of 2019. But it is critical that we be cautious and make sure there are legitimate reasons for doing one or both of these planning approaches. Otherwise, it can make little sense to spend money just to “earn” an income deduction.
When I hear a client say that they need to go out “shopping for deductible expenses,” I immediately have them pause, take a deep breath and be sure that they understand that buying stuff they “may need” just to offset income can be a losing proposition. Does spending $1 to capture 30 cents or so in tax savings make good business sense? Probably not.
Trump Tax Law Could Change Everything
Additionally, if the Trump Tax Plan becomes law, it will usher in a big change to the rules for deductions and expenses, leaving many current planning moves to be no longer viable. If starting next year, for instance, you can write off all capital expenses in one tax year, holding off on all purchases until January may make better sense!
The standard assumption many businesspeople make that they should move expenses up into December and revenue back to January doesn’t always stand up to deep scrutiny. If the business tax rates fall in 2018, expenses are worth more this year as a deduction, which argues for moving the capital expenditure up into December. Switching gears again, if the reduction in the business tax rate is deferred until 2019, then, again, it may be worth waiting!
Whatever the law will be, however, you need to gain as much clarity as possible to make sound decisions. Forecasting next year’s revenues and expenses before deciding to move those outlays up or income back is something you must do. If you think your business will do better in 2018 than this year, you may want to hold expenses until next year to shield some of that rise in income.
- Holding off on expenses to offset them against next year’s income saves a few more pennies per dollar, especially if you jump into a higher marginal tax bracket on your pass-through income.
- Consider also that because today’s cost of money is so inexpensive, waiting twelve months for the payoff may not cost you as much in the value of that sum of money today. Taking those funds and investing it for compounded growth can gain much more for you in future value.
Every business owner’s situation, of course, is unique and each of us needs to carefully inspect our own set of circumstances and answer every question to discern what would give us the greatest tax benefit.
Get Professional Help When Panning for Tax Benefit Gold
Do you have the time to research all this tax planning detail yourself, or even know where to look? Probably not; after all, you have a business to run, property to lease or a renovation project to oversee. Instead, doesn’t it make sense to put your tax planner to work digging through the tax code to find those tax saving nuggets hidden within? Depreciation rules, “repair regulations” on property, and other rules are like shifting sand beneath the taxpayer’s feet. We can guide you to the stepping stones that will safely take you through the tax code complexities and at the end of that path gain for you a great amount in tax savings.
About the Author...
Bruce Jones got his start in financial services in 1970 and has taught the subjects of tax management and financial strategy planning since 1974. He is President and CEO of TaxWealth®, a tax analysis and solutions research firm which provides comprehensive income, capital gains and estate tax remedies for owners of real estate, privately-owned businesses and other capital assets. He also supports CPAs, attorneys, financial advisors and real estate and business brokerage professionals, helping to solve their clients' tax problems.
TaxWealth works with clients and professional partners nationally from its home office in Newport Beach, California. Visit their web site at www.taxwealth.com or call Mr. Jones toll-free at (800) 300-4723 to discuss your tax concerns.