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November 2016 Report


As we approach the year-end, taxpayers should be focusing on possible tax considerations that may save them taxes either this year or possibly in 2017.


One of the main areas of concern is whether or not you fall into the Alternative Minimum Tax (AMT) which was originally intended to catch approximately 1,000 of the wealthiest taxpayers in the country but now affects millions of other high income earners.


The tax code basically has two different ways of calculating a person’s tax, and of course you pay according to which ever method results in the higher tax. The AMT disallows certain itemized deductions the main one being state, local and real estate taxes. It also taxes certain nontaxable income items such as municipal bond interest on “Specified Private Activity Bonds”


If you know you are going to be in the AMT you should try to accelerate income into this year since the tax rate on AMT taxable income currently maxes out at 28% as opposed to 39.6% on ordinary income taxed on the “regular” tax method. You should also try to defer deductions which will be not be allowed under the AMT, into the next year. There is one important factor to pay attention to when determining the amounts to either accelerate or defer, and that is to not adjust so much that it takes you out of the AMT.


Another area to pay attention to before the year end is where you stand on capital gains and losses. Not only on the character of the gains i.e. short-term, long-term or gains on collectibles, but you need to understand the netting of the various gains and losses and the effect of you other income on the potential tax rate you will pay on any net gain. If your other income is low enough you may pay zero percent on any net gains and if your other income is high enough you may pay the additional tax on “net investment income” of 3.8%. One area that makes this planning difficult is for those taxpayers who are invested in mutual funds.


If the funds have recognized gains during the year they are not distributed until sometime in December and can affect your previous planning. We strongly suggest you reach out to your investment advisors or the funds themselves toward the end of December to determine how much in gains they may be distributing if any. You also need to pay attention to any stocks which have become worthless during the year. If they are truly worthless they are considered to be sold on December 31st of the year they become worthless for $-0-. If you do not recognize the loss in the year they actually become worthless you cannot recognize it in a later year. You may be asked to prove the basis for determining that the stock actually became worthless in the year you recognize the loss.


Tax planning should be a year round consideration but as we approach the end of the year some decisions can be more critical than others.


As we have stated in the past touching base with your tax professionals before the end of the year is probably a very worthwhile thing to do even if there are no changes to be made. The other critical point we like to always stress is the importance of reaching out to your tax advisor before entering into any significant financial transaction. Once the transaction is consummated it is usually too late to take advantage of any potential tax savings which may have been available to you.


We at Shandling and Landsman, LLP want to wish each and every one of you a Happy, Healthy and Prosperous New Year.



 ©2016 Shandling & Landsman LLP