Preparing for the End of the Year

year-end tax planning

Self-Employed Considerations

If you are self-employed and your business has shown losses for the past several years, there is a danger that the IRS will consider your business a hobby and disallow deductions in excess of revenue. If you are in this situation, there are certain steps we can take to mitigate this potential. For example, we can ensure there is appropriate documentation as to the business-like manner in which the business is carried on, including the adoption of new techniques or the abandonment of unprofitable methods.

The IRS has issued new rules on the capitalization and expensing of tangible property used in a trade or business. If tangible property is a part of your business, these rules will most likely impact your current year taxes and may require certain actions by year end. For example, if you acquired numerous small dollar items, a de minimis safe harbor rule may apply to allow you to deduct all items below a certain threshold. Or, if you incurred significant repair and maintenance costs for heavy machinery, a routine maintenance safe harbor may be used to increase current deductions.

S Corporation Shareholders

In 2014, the IRS loosened the rules relating to S corporation shareholder debt. Under the new rules, it is easier for such debt to give the shareholder basis against which to deduct losses from the S corporation. The rules eliminated the “actual economic outlay” doctrine and made the changes retroactive. Thus, if you previously could not deduct S corporation losses because loans to the S corporation did not meet the actual economic outlay doctrine, amended returns may be in order.

Estate/Gift Tax Considerations

There is still time to reduce your estate by gifting amounts to relatives or friends, free of the gift tax that normally applies. For 2014, you can gift up to $14,000 to each donee.

If you are in the top tax bracket, have appreciated assets that would be subject to capital gains tax if sold, and would like to make a significant gift to a favorite charity while reducing estate or gift taxes, you may want to think about utilizing a charitable remainder
trust (CRT). A CRT, which has an income interest part and a remainder interest part, can allow you to sell appreciated assets tax free, while providing you with a current income tax deduction that can offset all forms of income in addition to providing a charity with
a substantial donation. Please let me know if you would like more information on this option.


About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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