Honored to share a guest post this week by Ira Blecker, CPA …
Taxes can be a stressful topic for an attorney. Whether this will be your first year filing taxes on your own or you have been operating your firm for many years, you still have time before the end of the year to consider ways to reduce your 2016 tax bill.
Start organizing your 2016 tax information now. Not knowing what your net income is can make year-end planning very difficult. Create a “2016 Tax Information” folder for your receipts, cancelled checks, etc. and make sure your books are up to date. Waiting until taxes are due can prove to be costly.
Avoid Underpayment Penalties
Individuals must prepay 90% of their 2016 tax liability or 100% of their 2015 tax liability (110% for individuals whose 2015 AGI was greater than $150,000) in order to avoid underpayment penalties. For wage earners, income tax withheld from your paycheck is treated as being paid equally throughout the year, thus allowing for additional withholding towards the end of the year to offset prior underpayments can reduce potential penalties.
Retirement Plan Contributions
While traditional IRA contributions for 2016 can be made as late as April 15, contributions to 401(k) plans must be made by the end of the year. The maximum deferral for 2016 is $18,000 ($24,000 for taxpayers over age 50). Self-employed individuals should consider establishing a solo-401(k) plan that allows you to contribute the individual maximum plus an additional amount up to 25% of compensation or 20% of business profit (subject to a total maximum contribution of $53,000 for individuals under 50 and $59,000 for individuals 50 and older).
Taxpayers typically want to defer income into future years and accelerate deductions into the current year. But it is important to consider your specific tax situation for both years together in order to make sure this is the best strategy.
These are just a few of the year end planning ideas that could make a substantial difference in your 2016 tax liability. It is not too late to put a plan in place to save significant tax dollars with a properly crafted tax plan.
Ira Blecker is a partner with Levy Tax & Consulting. He has provided tax planning and compliance services to lawyers and law firms for over 15 years. He takes a proactive approach to planning to take the guesswork out of taxes. You can find him at www.levycpafirm.com or email@example.com.