First, and foremost, you want to make sure you have all expense receipts and documentation needed for any expenses you will be deducting on your tax return for 2016, especially major expense items like per diem and fuel. For your per diem expenses, be sure you have all 12 months of paper or electronic logs to substantiate time, date and place of the expense. Or, if you use Per Diem Plus®, all you need to do is run a report and send it to your accountant directly from the app. Unfortunately, per IRS Regulations, a calendar is not sufficient substantiation for per diem expenses.
Defer income into next year
If you are self-employed and have the ability to control when you invoice for end-of-year work, then delay invoicing for an end-of-year run until January, which will push the income into next year. This only makes sense if you expect to be in the same, or lower, tax bracket next year as this year.
Accelerate expenses into this year
If there are repairs that need to be made to your truck or supplies you need to purchase, etc. then make and pay for those purchases by year-end versus waiting until next year. Payment can be made using a credit card and still qualify for deduction in the current year even if you do not pay the credit card bill until next year.
Do you itemize your deductions rather than take the standard deduction? If so, then make some extra charitable contributions, cash or non-cash by the end of the year. However, be sure to obtain receipts for all charitable contributions regardless of the amount.
If you are on the borderline of being able to itemize, then aggregate deductions into one year or the other. This takes a little more planning. Examples include, paying an extra mortgage payment in one year to pay extra interest; paying two years of real estate taxes in one year, if you have control over the timing of payment (pay one on January 2nd to minimize interest and penalties and the other at the end of the year); and bunching charitable contributions into one year. Although the chance is slim, you do need to be cognizant of the Alternative Minimum Tax and whether this strategy could trigger it. You would want to discuss this with your tax professional before engaging in this strategy.
Contribute to a retirement plan or IRA
If you are self-employed, contributing to a retirement plan is a great way not only to save for retirement but to save taxes as well. There are several different plans to choose from. However, depending on which one you choose, governs when it needs to be set up. A SIMPLE plan would need to be set by October 31st of the first year of contributions; others need to be set up by December 31st. A SEP plan can be set up all the way up to the due date of the tax return, including extensions. Therefore, if you want to make a contribution but do not have the money by April 15th, you can extend your return in order to buy more time to make the contribution. Just remember, an extension to file the return is not an extension of time to pay the tax, just the SEP contribution.
IRA contributions must be made by April 15th even if you have filed for an extension. Generally, you can make a larger contribution to a plan other than an IRA, unless you plan to use the spousal IRA rules in order to double your contribution. This is another area where consulting with your tax professional may be beneficial to determine the best course of action.
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This article was written by Donna R. Sullivan, CPA of Per Diem Plus, LLC. Sullivan has over 25 years of tax consulting and preparation experience.
Please remember that everyone’s tax and financial situations are different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.
Copyright 2016 Per Diem Plus, LLC. Per Diem Plus® proprietary software is the trademark of Per Diem Plus, LLC.