Strategies for individuals and small-business owners
The summer is not just the season for recreation and relaxation. It can also be the time to reduce your 2015 tax liability. Here are seven prime examples for individuals and small-business owners:
1. Harvest gains or losses. The maximum tax rate for long-term capital gains is 15%, increasing to 20% for some high-income taxpayers. When appropriate, you may realize capital gains to benefit from this special tax treatment. Conversely, if it suits your purposes, you might harvest capital losses instead. Capital losses offset capital gains plus up to $3,000 of ordinary income. Any remaining loss is carried over to the next year.
2. Maximize Section 179 benefits. Under Section 179 of the tax code, you may currently deduct the cost of qualified business property placed in service during the year. The maximum deduction, which was $500,000 for 2014, is reduced to only $25,000 for 2015 unless Congress chooses to extend a higher allowance again. At this point, wait to see what happens after you reach the $25,000 maximum.
3. Sell real estate on an installment sale basis. Generally, you can defer tax on the sale of real estate if you receive payments over a period of two years or longer. Not only do you stretch out the tax liability over time but you might also reduce your overall effective tax rate. Also, you are more likely to complete a deal if you do not insist on receiving full payment up-front.
4. Schedule summer business trips. If you travel away from home on business, you may deduct your travel expenses—including airfare, lodging and 50% of the cost of meals—if the primary purpose of the trip is business-related. But the number of days spent on business vs. pleasure is crucial, so be careful how you allocate your time.
5. Enjoy business entertainment. A small-business owner who entertains clients during the summer may claim entertainment deductions. For instance, if you treat a client to a round of golf before or after a “substantial business discussion,” you can deduct 50% of the fees, club rentals, and meals and drinks afterward. Note: If the client comes from out of town, the business discussion can take place either the day before or the day after the golf outing.
6. Support a college graduate. If your child graduated from college this year, you still may be entitled to a $4,000 dependency exemption for the child if you provide more than half of his or her support in 2015. Figure out how much more support you must give to push you over the halfway mark and give it as a gift. This is likely the last time you will qualify for the exemption.
7. Sweep up charitable deductions. As a general rule, you can deduct the fair market value of property you donate to a qualified charitable organization if you have owned the property for more than a year. For example, if you decide to clean out the basement, attic or garage during the warm weather, you might give used clothing and furniture in good condition to charity and then claim a deduction.
These are just seven midyear tax-planning ideas to consider. Schedule a meeting to discuss the best strategies for your particular circumstances.