Although summer is traditionally the time for rest and relaxation, you can still “work on” your 2016 tax bill. What’s more, special tax incentives for individuals and small-business owners have been restored by the Protecting Americans from Tax Hikes (PATH) Act of 2015. Here are seven popular tax-saving ideas.
1. Maximize business property 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 $500,000 Section 179 deduction has been permanently preserved (with indexing) by the PATH Act. Also, the new law restores the 50% bonus depreciation for qualified business property.
2. Harvest gains or losses. The maximum tax rate for long-term capital gains is 15% (20% for certain 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.
3. Clean up on charitable deductions. Generally, you can deduct the fair market value (FMV) 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.
4. Schedule summer business trips. If you travel away from home on business, you may deduct your business 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 pay close attention to your allocation of 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 cost of the fees, golf club rentals, and food and drinks afterward. If the client is from out of town, the business discussion can take place either the day before or after the golf outing.
6. Support a college graduate. If your child graduated from college in May, you still may be entitled to a $4,050 dependency exemption for 2016 if you provide more than half of the child’s annual support. Figure out how much more support you must give to push you past the halfway point. This is likely the last time you will qualify for the exemption.
7. Hire target workers. Under an extension of the PATH Act, a business can claim a Work Opportunity Tax Credit (WOTC) for hiring workers from a target group. Plus, your firm may benefit from a special summertime version of the WOTC for hiring youths residing in empowerment zones or enterprise communities. The WOTC is set to expire again after 2019.
These are just seven midyear tax-planning ideas to consider. Schedule a meeting to discuss the best strategies for your personal and business situation.