Year-End Tax Planning for 2016

Posted: Dec 07, 2016 12:01 AM
As most of us prepare for a joyous holiday season, lawyers, accountants, tax planners and financial planners prepare for the dreaded year-end crunch, when virtually all of their clients try to cram deals through the pipeline before the ball drops in Times Square on New Year's Eve.

As a young lawyer, I frequently pulled 100-hour weeks between Dec. 15 and 31 each year. When the marathon was over, I was ferociously ready to party, but everyone else was taking down their decorations and trudging back to work. My wife lovingly kept the Christmas decorations up until mid-January so that I could enjoy at least a little bit of holiday spirit, albeit a bit late.

As a much older lawyer, I have a bit more discretion in what I take on this time of year, but it's still a crunch, especially this year, as the new president and Congress, which have a radically different agenda than previous administrations, will take over in Washington, D.C., on Jan. 1. Simply put, no one knows what the hell is going to happen with taxes and regulations next year.

Still, there is 2016 to consider. Nothing is likely to change until after Congress changes hands, so the best advice is not to worry about the promises made during the election campaign and focus instead on the tax benefits offered by current law.

Charitable Deductions. Incoming Treasury Secretary Steven Mnuchin has said in interviews that while the new administration is committed to slashing the top tax rates for high-income taxpayers and dramatically reducing the pass-through tax rate on S corporations and limited liability companies (to 15 percent) -- an amazing idea if small business owners use that extra cash to expand their businesses and motivate their employees, not stuff it into their own pockets -- there will be an offsetting reduction in the number of allowable deductions these folks will be able to take on their tax returns. This strategy brings back memories of what President Ronald Reagan's administration did in 1986 (remember the days when you could deduct credit card interest?).

One of the biggest deductions small business owners take is for charitable contributions. You should plan on maximizing these this year and head off any cap Congress may wish to impose next year -- especially if you have an individual retirement account (IRA) or a simplified employee pension plan (SEP). A federal law passed last year allows an exclusion from gross income of contributions up to $100,000 made from such accounts before Jan. 1, 2017, if you are age 70-1/2 or older. It's time to endow that building at the local community college. But be sure the transfer to the charity is completed by Dec. 31, 2016.

Sign Up for Classes Now. You've always wanted to learn how to code software, right? Well, now's the time to sign up with your local coding academy (for a list of the best ones, visit You can take an above-the-line deduction for qualified tuition and related expenses paid prior to Jan. 1, 2017, for semesters that begin up to three months after the start of the new year. The maximum amount of the deduction is $4,000 for an individual whose adjusted gross income, or AGI, for the tax year does not exceed $65,000 ($130,000 for a joint return), or $2,000 for other individuals whose AGI does not exceed $80,000 ($160,000 for a joint return).

Just be sure that the education you seek relates somehow to the business you are in. If you are a plumber, a course in medieval philosophy probably won't qualify for the deduction.

Send Your Bills Out Late. If you did work for someone in December, think about sitting on your invoice and sending it out after Jan. 1. It's always a good idea to postpone year-end income to the next year, but especially this year because next year's tax rate is likely to be much, much lower.

Prepay Your Professionals, and Your Taxes. There is one reason that I really, really enjoy this time of year: All of my clients who want to do something during the first quarter of next year call me offering to pay me now, in advance. Professional fees will always be deductible (professional group lobbyists are among the toughest in Washington), so feel free to pay now to have next year's tax return prepared. Just be sure to call your tax professional first and let him or her know you want to do so -- if someone sends me a check I'm not expecting, I assume it's a holiday tip!

Also remember that while your federal and state estimated taxes aren't due until Jan. 15, some states require you to pay the fourth-quarter installment by Dec. 31 in order to take the deduction in the current tax year. The same rules may apply to sales, use and property taxes as well.

For a comprehensive list of tax law changes that will go into effect Dec. 31, go to

Cliff Ennico ( is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at