Tax planning in a down year

tax planning in down times

Maybe it’s all the talk of a recession, but as I’ve been working through tax projections with clients this summer, I’ve been thinking a lot about how tax planning can be different in a down year. From a stagnant business to a job loss – when you’re going through financial hard times, it’s understandable to avoid talking about them and feel the need to just “push through it.” Counterintuitively though, this may be the perfect time to open up to your CPA so you can uncover tax savings.

What could this type of planning look like?

  • Passthrough business losses could offset income from a Roth IRA conversion.
  • Time capital gains vs loss transactions to avoid incurring significant gain in one year and significant losses in the next.
  • Plan around exercises and sales of employer-issued stock-based compensation.
  • Deduct out-of-pocket medical expenses.
  • Lump itemized deductions in the same year as a severance payout.
  • Adjust withholdings and estimated tax payments.
  • Make the most of the gain exclusion on the sale of a primary residence.
  • Take advantage of divorce-related strategies such as filing jointly or separately for the year before the divorce, filing as Head of Household and claiming child tax credits, etc.

Even in the best of economic times, any of us can experience financial dips. If you find yourself in such a situation, take the time to brainstorm with your tax advisor about ways you may be able to defer – or even permanently avoid – taxes based on your specific situation.

 

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