From ScienceWriters: Writers need to focus more on tax planning

By Julian Block

ScienceWriters Summer 2016 cover

It's a mistake to think of taxes as a once-a-year affliction caused by the need to grapple with 1040 forms or to assemble records for a paid tax preparer. Federal and state tax planning needs to be a year-round concern on par with ongoing business and personal financial planning.

Those with the foresight to stay on top of changes in tax law and plan ahead can nimbly sidestep pitfalls while capitalizing on scores of perfectly legal opportunities to diminish, delay, or deep-six paying sizable amounts that would otherwise swell IRS coffers.

While that doesn't mean important financial decisions that affect investing, borrowing, and spending should be based solely on tax considerations, it does mean that those decisions warrant at least some consideration of their tax consequences.

Start early on tax planning. Allowing enough time to implement strategies can generate dramatic savings — maybe thousands of dollars — for this tax year and give a head start on tax planning for 2017 and beyond. Let's suppose that you anticipate income from writing and other sources (and tax tab) for 2016 will be higher than for 2017. An IRS-blessed way to lower taxes is to push the receipt of 2016 writing income past New Year's Eve by postponing end-of-year billings until after Dec. 31, or bill clients so late in December that payment this year is unlikely. Do the reverse for existing invoices. Don't press for payment in 2016 of money owed, provided that tactic doesn't jeopardize collection. What about business expenses? Pay them in 2016 rather than deferring payment until 2017.

Second calendar deadline to keep in mind. In addition to the Dec. 31, 2016, deadline, writers have until the filing deadline for 2017 tax returns to make deductible contributions to tax-deferred retirement arrangements, such as traditional IRAs, SEPs (simplified employee pension plans), and other plans that reduce taxes for the prior year.

Educate yourself on tax opportunities and pitfalls. Doing so equips you to weigh the tax consequences before making decisions on whether to move money into retirement accounts or other investments and how much to borrow or to spend. The New York Times, Washington Post, and Wall Street Journal regularly publish articles on various aspects of personal and business financial planning.

Inquisitive clients get the best advice. In these uncertain economic times, it's more vital than ever to assume greater responsibility for your financial future. Do not rely exclusively on paid advisers to keep on top of tax-law changes or other legislation that might make it necessary to revise your plans. At the very least, be knowledgeable enough to raise good questions and evaluate answers when seeking advice from pricey professionals like lawyers and accountants, mavens whose assistance doesn't come cheap.

Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as "a leading tax professional" (New York Times); "an accomplished writer on taxes" (Wall Street Journal); and "an authority on tax planning" (Financial Planning Magazine). He has contributed more than 125 articles to AccountingWeb.com on tax matters, including the latest tax law changes.

Deductions that add up

It is a truth universally acknowledged that writers who overlook write-offs overpay taxes. Which writers trim their taxes to the legal minimum? Those who keep the best records. Even small deductions can add up to surprising savings. Yet year in and year out, many writers routinely fail to claim IRS-blessed deductions, thereby needlessly enriching the agency.

Health insurance deductions. Medical expenses usually are allowable only to the extent that they exceed 10 percent of adjusted gross income. That's a high hurdle that few healthy people can meet. But the law allows writers to deduct 100 percent of what they spend on medical insurance premiums (including qualifying long-term care coverage) for themselves and their spouses and dependents.

Year-end payments. Writers scrambling for last-minute write-offs of business expenses and other deductibles prefer to believe that just writing "Dec. 31" on checks automatically entitles them to claim deductions for 2016. Wrong. They need to put payments in the mailbox in sufficient time for letters to be postmarked by midnight Dec. 31. As long as they do that, the IRS couldn't care less that the checks reach recipients in 2017. The rules are similar when you use credit cards. You qualify for deductions as soon as you authorize charges, even if not billed until 2017. But write-offs might be shifted from 2016 to 2017 when you pay with cards issued by stores who bill you directly. You get no deductions until you pay the bills.

First-year expensing deduction for writers. There are two ways to write off outlays for such purchases of equipment such as computers, copiers, voice recorders, and the like. One is the "standard" route — recovering the cost through depreciation deductions over a period of years. Or opt for the frequently overlooked tactic of expensing and deducting a specified amount of equipment in the year of purchase, assuming that's more advantageous. Instead of depreciating items over five years, they can be immediately expensed. A $10,000 write-off lowers taxes by $3,000 for an individual in a top federal and state bracket of 30 percent.

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