Focus CPA Group, Inc. (562)281-1040

What is Reverse Tax Planning? Normally this focuses on reducing taxable income and taxes. Reverse tax planning does the opposite and may actually increase taxes. Why is this a good thing?
If someone is usually in a high tax bracket and experiences an off year in which taxable income is low, then it means there is opportunity to use lower tax brackets. Reverse tax planning focuses on using the lower tax brackets so they don’t go to waste!
I have heard from many of you looking for more reverse tax planning tips, because you will have lower taxable income. So, here they are!
- 5 Reverse Tax Planning Tips -
#1 – Consider Your Tax Elections. Usually the goal in tax planning is to take advantage of all tax elections that give you more deductions sooner. With reverse tax planning, you may want to pass on some of these elections. For example, Section 179 can provide a huge tax write-off. In a year with low taxable income, a huge write-off provides less in tax savings than if the deduction is taken when taxable income and marginal tax rates are high.
#2 – Move Deductions to Next Year. Before you write that next check that is a tax write-off, ask yourself if that expense can be deferred to next year without any consequences? If it can, then hold off on writing that check until the next year. This works if you are a cash basis taxpayer. If you are an accrual basis taxpayer, as some businesses are, then hold off on incurring expenses until next year.
#3 – Move Income to This Year. Call those customers who owe you money! If you are a cash basis taxpayer, collecting accounts receivable before the end of the year can be an effective way to increase your taxable income. If you are an accrual basis taxpayer, then you need to close some sales before the end of the year to increase your income. If this income goes into next year, it could mean your lower tax brackets this year go unused and the income ends up in a higher tax bracket next year.
#4 – Take Advantage of Income Limitations. Many taxpayers lose tax benefits because many tax benefits phase out when income reaches a certain amount. So in a year when your income is lower than usual, you may be able to take advantage of some of these tax benefits. These tax benefits include education credits, tuition deductions, rental real estate losses, medical expenses, miscellaneous itemized deductions, and many, many more. This may be the year to make sure you qualify for these tax benefits!
#5 – Plan Your Taxes for Next Year. The end of the year is a great time to start planning your tax strategy for next year. This is especially true with reverse tax planning since income and deductions are being moved in and out of the next year.

A taxpayer has a choice of itemizing deductions or taking the Standard Deduction in computing his Regular Tax liability.

The degree of control that small business owners and the self-employed have over the timing is much greater than that of employees, and also depends on the structure of their businesses. For example, if a person is small business owner, and thus self-employed, without having formed a legal entity (there would be a Schedule C in your tax return), then the control over the timing of income is based on the business cycle ? i.e., providing services or selling goods, and then billing and collecting from customers. For example, delaying year-end billing can shift income from the current year to next year.

Also, incurring and paying the necessary business expenses is controllable, at least to some degree.

There are several marketing tools tax planning businesses can utilize to promote their company and its services. These companies can opt for high-impact marketing campaigns like billboards, TV commercials, and, radio advertisements. For tax planning service companies in their beginning stages, the use of printed marketing materials can be an affordable and effective choice. Amongst the many printed materials to use, newsletters can serve as resourceful information. They can also serve as efficient promotional materials. Here are some benefits of newsletter marketing for a tax planning business:Information Carriers ? Newsletters have ample room for a collection of information. This information can be composed of references, promotions, tips, and, testimonials. Newsletters can feature a variety of needs that can be answered with just one material. This also means that newsletters can target a more diverse market. Constant Updates ? Because newsletters are circulated periodically, they can serve as tools to disseminate updates such as current economic trends, tax incentives, and, new tax obligations. Newsletters can also serve as materials for updating clients about a tax planning company?s latest services, policies, achievements, and, trade events. Announcements and Listings ? Newsletters can also serve as tools for announcing invitations and a listing of business contacts of related trade organizations like accounting firms or bookkeeping services. They can also be used to announce upcoming chamber of commerce or business club meetings. Finally, they can be used to announce important tax filing and other important dates for business owners. Newsletter marketing can present information using attractive, eye-catching photos, graphic images, and, striking taglines. It is advisable for tax planning businesses to choose a reliable professional printing service for newsletter prints.

If your highest tax bracket under the Regular Tax is higher than your highest tax bracket

under the AMT, what does this mean? It means that by incrementally adding more income, you will be gradually working your way out of the AMT. You can test this and see for yourself the impact on your AMT by changing your ordinary income (not capital gains or qualifying dividends) by $10,000. For example, if you are in the top brackets of 35% for the Regular Tax and 28% for the AMT this additional income would increase your Regular Tax by $3,500 and your AMT by $2,800, which in theory reduces the AMT you pay by $700 ? the difference in the brackets times the income.

The actual difference will vary somewhat because of the several other limitations that are affected by any change in income. Specifically, the $10,000 additional income means that, for the Regular Tax, your personal exemptions and itemized deductions are further reduced, and for the AMT your allowable exemption also is reduced. The change that you see to your AMT liability is the $700 as affected by these other variables.