Year End Tax Preparation

Year End Tax Preparation This time of year many clients have one question on their mind: What can I do to save on income taxes before the year-end? The last month of the year is usually the time to take stock in your activities and analyze where your income, gains and losses will be for the year. It is like doing your tax return on December 15th instead of April 15th.

Project Your W-2 Income

Look at your dividends, your interest income and your gains and losses on your investments. If there is income that you can defer from receiving, postpone a portion of that income until after January 1.

Contemplate Your Business Net Income

Do comparative interim income statements for current and prior years to contrive your final taxable net income for the year. Take any large expense accruals and deductions now, rather than after the year end. If your business is on the cash basis, pay all of your bills on or before December 31. If you have any large receivables coming in, defer collection until the new year. The magic word in tax planning is "deferral."

Make a List of All 1099 Income Statements Expected

Look at the nature of each statement and record any expenses which you incurred to earn that miscellaneous income. Find your receipts for each expense. You don't want any surprise 1099's in January.

Review Your Stock and Investment Statements for Each Month

On the investments that were sold, track down the original costs and the dates that they were purchased. The gains and/or losses on each stock sale will need to be computed. Now is the time to dump all those "dog" stocks and investments that you have been carrying in your portfolio all year. They may have more value to you as a tax write-off, as you can deduct all of your stock losses against your gains. If you had any large personal losses, remember that you can only deduct $3,000 per year. The remainder is carried forward to future years.

Sales or Purchases of Real Estate Property

Acquire the closing statements for each transaction, including the original documents on the date of acquisition. An original cost and tax basis will need to be computed for each sale. If you sold property, figure out how much you invested over the years on improvements, as this may have a favorable impact in computing your tax gain or loss.

Investment Property Income and Expense Summaries

If you have a lot of expenses on your investment properties, make sure you have the bills for each. If you have any large repair projects to complete, now may be the time to do them.

Medical and Dental Expenses

Be sure to include any and all medical insurance premiums which were paid throughout the year. You may want to pre-pay any medical premiums now rather than in January.


If you think you are going to owe taxes, now may be the time to contribute to your favorite charity. Many taxpayers prefer to give their money to a needy organization rather than Uncle Sam. There are special rules for non-cash donations over $500, with limitations as to the amount of the deduction. But for the most part, any portion of the non-cash donation which cannot be deducted this year can be carried forward to future years.

Auto and Vehicle Expenses

The IRS requires proof of any and all automobile expenses used for business. Although you are not required, keeping a log book on your mileage, expense and repair summaries on each vehicle is a good idea. A log book can be as simple as a calendar or appointment book marked down with the approximate miles driven each week and special business trips. Many people ask "Should I buy a new car before the year-end?" Depending on your tax circumstances, a new set of wheels for the business may not be a bad idea.

Travel, Entertainment and Credit Cards

Gather up all your credit card statements and summarize your business travel and entertainment expenses. Pay off those credit cards now. (Even if it means taking out a home-equity loan, as the interest is 100% deductible. Credit car interest is not.) The costs relating to business are only 50% deductible. Keep a diary. Again, this can be as simple as an appointment book. Write down those business lunches or dinners, their business purpose and with whom.

Retirement Plan Contributions

If you think you have a tax liability problem, consider a retirement plan. The importance of getting a retirement plan cannot be stressed enough. It could be as simple as opening an IRA, or as convoluted as a defined benefit pension plan of your business. You may not have to fund the plan before year end, but you will have to set it up before December 31st. The pre-tax dollars that you save and the future benefits you can receive on any retirement plan far outweigh the inconvenience of cash-flow funding. Borrow the money to fund your IRA or SEP plans if you have to.

Tax Payments

If you suspect that you will owe taxes on April 15th, you will need to make sure that all of your estimated tax payments are paid before January 15. Unfortunately, Uncle Sam wants your money in advance, so you will be penalized for not making those estimated tax payments if you owe money. The general rule is 90% of the current year tax liability, or 100% of prior year taxes needs to be deposited in advance.

Tax planning is so very important, especially if you don't like surprises. If you don't become aggressive and project your tax liability now, you'll wish you did less holiday shopping come April 15th!

Disclaimer: All materials presented on this web site are for informational purposes only and should not be considered as a substitute for any tax, accounting or legal advice. Some of the material may have changed due to new legislation. Please contact us for specific information.