Midyear Tax Planning: Drum Up More Business

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By Ken Berry

The summer doldrums have set in. Aside from the occasional "emergency", your office is quiet, as most clients pursue outdoor activities and tend to personal business. Tax planning is probably the last thing on their minds. 

But it doesn't have to be that way. You can give your tax practice a needed shot of adrenalin – and boost the bottom line in the process – by reaching out to clients via a timely notice. What will start the juices flowing? Alert your clients to the need for midyear tax planning. For instance, you can send e-mails, postcards, or other communications to your client database, pointing out various tax planning strategies that may be beneficial during the summer months. Most likely, your clients will appreciate the information and might contact you for more details. 

Why should you focus on midyear planning? All too often, tax planning is relegated to the end of the year. By then, it may be too late to take meaningful action, while certain tax breaks are geared toward summertime activities. In that vein, here are several worthwhile ideas to pitch to individual and business clients at this time.

Midyear Ideas for Individuals

Harvest capital losses. Don't get "boxed in" at the end of the year. Reap tax benefits early by realizing capital losses to offset capital gains plus up to $3,000 of highly taxed ordinary income. On the flip side, capital gains realized now may be absorbed by prior losses. Under the new American Taxpayer Relief Act (ATRA), the maximum tax rate on net long-term capital gain remains 15 percent in 2013 but increases to 20 percent for certain upper-income taxpayers.

Rake in charitable deductions. Are you cleaning out the basement, attic, or garage this summer? Whether its gardening tools or used clothing or furniture, you can write off the cost of items donated to a qualified charity as long as they're in good condition. The deduction is based on the property's current fair market value. Many organizations, including the Salvation Army, provide guidelines to follow.

Generate an energy credit. ATRA revived the residential energy credit and extended it through 2013. The credit, which is generally equal to 10 percent of the cost, is available for a wide variety of energy-saving improvements. However, be aware that certain restrictions apply, including a lifetime maximum cap of $500. 

Dodge the "wash sale" rule. Under the wash sale rule, you can't deduct a loss from the sale of securities if you reacquire "substantially identical" securities within thirty days of the sale. To avert this result, you might (1) wait at least thirty-one days to buy back comparable securities, or (2) acquire the comparable securities first and wait at least thirty-one days to sell the original shares. Making this decision at midyear should give you ample time to secure a loss for 2013.

Minimize personal use of vacation homes. If you rent out a vacation home, you can generally use expenses to offset taxable income from the rental. However, you can't claim a loss from the activity if your personal use of the home exceeds the greater of fourteen days or 10 percent of the time the home is rented out. Watch out for this limit if you plan on taking an end-of-summer vacation at your home.

Midyear Ideas for Businesses

Load up on new equipment. Thanks to extensions by ATRA, there are two key tax incentives for acquiring qualified business property before 2014. Under Section 179 of the tax code, a business may currently deduct up to $500,000 of qualified business property placed in service this year (subject to a phase-out threshold of $2 million). In addition to the Section 179 deduction, 50 percent bonus depreciation is available for qualified property. Remember that property must be placed in service in 2013, so give yourself enough time.

Take off business travel expenses. When you travel away from home, you may deduct your travel expenses – including airfare or other transportation costs, lodging, and 50 percent of your meals – as long as the "primary purpose" of the trip is business related. Naturally, you might have some downtime relaxing, but spending more time on business activities is critical. Note that the cost of personal pursuits is nondeductible.

Employ special hiring credits. ATRA also revived the Work Opportunity Tax Credit (WOTC), available for hiring workers from several "target groups", and extended it through 2013. The maximum WOTC is generally $2,400 per qualified worker. Furthermore, a business may qualify for a credit for hiring disadvantaged teens in the summer, up to a maximum of $750 per worker.

Score summer entertainment deductions.If you treat a client to a round of golf at the local club or course, you may deduct qualified expenses – such as greens fees, club rentals, and 50 percent of your meals and drinks at the nineteenth hole – as long as you hold a "substantial business meeting" with the client before or after the golf outing. The discussion may take place the day before or after the entertainment if the client is from out of state.

Of course, every situation is different, so you might decide to tailor your communications to the specific needs of your clients. This "extra touch" will show those clients how much you care and with further strengthen existing relationships. At the very least, don't just sit back and wait for more business to come to you – be proactive!

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