By Maureen Werther
Between now and the end of the year, financial planners, advisors and CPAs will be busy working with clients to ensure their future financial security and minimize their tax liabilities for the coming year.
However, this year is fraught with more uncertainty than any other time in recent memory, some advisors say.
With tax reform still being negotiated in Washington, D.C., financial professionals will be waiting to see what the coming months will mean for the year ahead.
According to global financial giant, Wolters-Kluwer, year-end strategies will become clearer as the legislation moves forward. For the time being, they advise flexibility and preparedness. In other words, an accountant should be ready to adjust to whatever changes are brought about and they should be ready to execute effective strategies for clients as late as December.
For larger, well-established companies or high-wealth individuals, their team has already been planning for several different scenarios. For smaller and younger companies, there are also basic strategies they can employ to ensure them from unnecessary vulnerability.
Stephanie Mumford, CPA and partner at Teal, Becker and Chiaramonte, said that on some level everyone can benefit from financial and tax planning.
“With newer businesses, or if a person is self-employed, it’s so important to have up-to-date reporting and good records. You’d be shocked at the number of small business owners who fail to maintain proper records,” she added. Having a Quickbooks bookkeeper on staff, or as a contract employee, is an idea for people just starting out in business. It protects them from future scrutiny and potential tax and liabilities due to poor bookkeeping and incomplete or missing records.
Mumford said with an S or C corporation, an accountant will look at income statements and balance sheets to get a handle on the income and determine the tax. Once they have looked at the statements, the accountant can advise a client to implement a strategy that will result in a tax savings.
It might be an appropriate time to purchase equipment and put it into use before year’s end, she said. This is called an accelerated appreciated deduction, according to Mumford, and will benefit clients by reducing their tax liability and making smart investments in the form of equipment that will help their business’ growth.
Mumford agreed there are certain challenges for all businesses this year, with the uncertainty at the federal level. However, she said it is not likely that anything will happen at this point that would impact 2017.
She cautioned that, if the tax rate is reduced in 2018, it would be better for business owners to purchase equipment then, at a lower rate than it is currently. Mumford’s advice is to make plans now, based on what the law is now. But, she added, it is critical during the next two months to “pay attention” to what is happening.
Mumford said that one piece of advice that every individual would benefit from is to make the maximum allowable contributions to 401ks or IRAs, especially if Congress decides to change the maximum allowable limits. The same is true for employer contributions.
“You’re spending money, but you’re also investing in the future of your employees or yourself,” said Mumford.
Steve Ellwanger, a CPA in Saratoga Springs, also had advice for individuals and employers in uncertain times. The HSA—health savings account—is a good way to set aside pre-tax dollars to use for medical equipment and expenses.
“If you have a high-deductible insurance plan—which is $1,300 or more for a single person and $2,600 or more for a family—it’s a good idea to take advantage of the HSA,” said Ellwanger. Contribution limits are $3,350 for a single person and $6,750 for families.
Ellwanger said as part of year-end planning, individuals need to look at what is left in their account. Most plans will not allow a person to carry over a balance from one year to the next and they will be taxed on any remaining funds left in the HAS by Jan. 1. If a person has not used the entire amount in the plan, they can purchase medical items in order to avoid the penalty. Going forward, adjust the amount that will be contributed to the HAS for 2018.
For people nearing retirement age, advisors say speak with an accountant or financial planner to determine the optimal time to begin taking Social Security benefits. Avoid taking IRA distributions prior to age 59 ½. Otherwise, a 10 percent early penalty may apply.