Dunham PaulAs the end of 2015 draws closer, it is once again time to meet with clients and discuss year-end tax strategies. At the top of every year-end planning list is the status of the “extenders” – those some 50+ provisions that expired effective January 1, 2015. Speculation would provide that many of these provisions will likely be reinstated at the last minute as did indeed happen last year. The purpose of this article is to not address the status of the “extenders,” but rather discuss other year-end tax strategies that are generally effective without regard to the status of the extenders. A list of such strategies follows.

• Income tax rates for individuals are currently static and the highest marginal tax rate remains at 39.6%. Given the current environment that income tax rates will likely be the same for 2016, tried and true strategies of deferring income and/or accelerating deductions are still applicable.

• The maximum long-term capital gain rate remains at 20%. Consideration should be given to harvesting capital losses before year end to offset capital gains already realized during the year.  When harvesting the losses before year end, be mindful of the “wash loss” rules.

• Consideration should be given (if applicable) to using the installment sales rules for the disposition of real property and certain business interests. The spreading of the principal payments (and corresponding gains) over time, may allow the use of a lower tax bracket for the capital gains as they are recognized over time. Further, there may be other future opportunities to make use of “future” capital losses against such gains that are recognized in the future. Lastly, by spreading out the principal payments (and related gains) over time, it may allow an individual to fall below the income thresholds for the 3.8% net investment income tax.

• Consideration should be given to using the “like-kind exchange” provisions under Section 1031 and/or the “involuntary conversion” deferral provisions under Section 1033. Both provisions effectively defer realized gains to be recognized at a later/future recognition event.

• Consideration should be given to maximizing HSA, IRA, 401(k), Solo 401(k), SEP, and other “retirement type” plan contributions.  Some types of retirement plans do not require action before year end, and can be created and funded in 2016 and still be effective for the 2015 tax year.  However, there are certain types of plans that do require action (i.e., the creation of the plan) before year end to be effective for the 2015 tax year.

• Consider making an election to treat certain long-term capital gains and qualified dividends at ordinary income rates to maximize the investment interest expense deduction.

• Consider using long-term capital gain property to make charitable contributions. The benefit of this strategy would be to get a fair market value deduction for the charitable contribution without having to recognize the inherent gain in the property. A word of caution to double check holding periods and charitable contribution AGI limitation percentages before advising of such plan.

• Consider the use of a donor advised fund whereby a charitable contribution can be taken in 2015, but the actual payments to charity are made over time at the direction of the donor.

• Be mindful of the itemized deduction phase out limits when advising on any types of itemized deductions. At times, it will make sense to “bunch” deductions in one tax year versus taking them over two years.

• For the 3.8% net investment income tax, consider shifting investments to tax-exempt, deferred annuities or insurance products. Also, consider grouping passive activities that comprise an appropriate economic unit to qualify them as nonpassive.

• From an estate and gift tax planning perspective, remember to use the $14,000 annual gift tax exclusion amount. Once a year has passed the $14,000 exclusion is not cumulative and is lost.  Remember that certain educational and medical costs do not count towards the $14,000 annual gift tax exclusion amount.

• For estate tax purposes, consider using the life time exclusion amount of $5,430,000 if not already used.  In using such exclusion amount, consider transferring property that would qualify for minority and/or marketability discounts. There are indications that such discounts are currently under attack and may not be available too much longer.

While waiting for legislative action regarding the extenders, there are still many tax planning ideas/strategies that should be discussed with clients before year end. Hopefully, the items noted above will help generate some ideas and thoughts for your clients.

Paul Dunham is a Managing Director in the Tax Group of CBIZ MHM in Tampa Bay. He has served both public and privately held companies on a wide range of tax issues, including implications of corporate acquisitions and divestitures, S corporation and partnership operations, income tax accounting methods, estate planning, real estate investment and related taxation.

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