End of the Year Tax Deductions For Traders and Businesses
Here we are, December 1st, 2015 and we have one month to find last-minute tax deductions. If you're not already thinking of ways to save on your taxes, you better get going.
If you're self employed and don't have employees (including sole proprietorship with earned income, S corporation , and LLCs taxed as S corporation or sole proprietorship), you still have time to create a Solo 401K. As long as you create it by the end of the year, you have options to fund it even into next year. There's lots of rules involved and it goes beyond the scope of this piece, but it's one of the best ways to park money into retirement account if you qualify.
If you or your spouse has earned income, you may qualify if your income is low enough to fund an IRA. For traders, self-directed IRAs offer the ability to manage your own money. E-Trade (ETFC) Interactive Brokers (IBKR) TD Ameritrade (AMTD) and Charles Schwab (SCHW) all offer the ability to trade your own IRA. I believe selling out of the money puts in the S&P 500 ETF SPY (SPY) is one of the best strategies to out perform the major index. There's more to it than simply selling puts and it goes beyond the scope of this article, but I go into great detail in how to do so in my options newsletter.
Health Savings Account HSA. A HSA can be used for retirement and health expense planning. It's one of the most flexible ways to dial in this year's tax exposure if you qualify. You must have a high enough deductible and you'll want to talk with a tax advisor/ HSA expert to see if you qualify.
If you have a home office that you use and can deduct from your taxes, you may want to make some last-minute improvements. In some cases, it's possible to make your banker, taxman, and spouse happy at the same time with some of the possibilities. Energy efficient appliances, like moving from electric to natural gas (UNG) which is cheap right now, is a great way to expense this year, while saving in the future.
Credit cards are as good as cash. When you buy a business related purchase with a credit card this year, you get the expense/depreciation this year, even if you don't pay the credit card until next year. The credit card statement helps you prove the expense also. Don't forget the credit card points you get, and if you're not receiving credit card points, you may want to change cards. I've taken two cruises on credit card points. It can take a while, but they add up.
If you're mailing a check, don't forget that the envelope must be post marked this year for it to count on this year's taxes. It doesn't cost much more to send a flat priority mail piece with tracking to prove the postage date. If the payment is large enough, it may be well worth it for you.
Unfortunately, the same is true when you receive a check. Once it hits your mailbox, it's taxable income. Letting checks pile on your desk isn't an effective strategy to push income into the next year. You might as well cash them and use the income. Maybe use it to buy things for this year that you wouldn't have otherwise.
Prepaid expenses are only as good as they are needed for this tax year. So there's no point in paying for expenses that you won't use this year.
Selling stock that's losing money is an obvious one. It can be difficult for some people to let go, especially if they're thinking the bottom is right "now". But you can sell now, and if the stock starts to make a recovery, there's no rule that says you can't buy it again. Otherwise, wait it out until after the wash-rule is no longer applicable and buy it again if you feel it's still a good investment. Chances are, you'll be able to buy it at or at a better price because stocks trending lower tend to continue lower until they are well below fair value. There's no rule as to when a downward trending stock is going to turn around of course. Otherwise, making money in the market would be even easier, but selling losing stocks quickly tends to work out well for investors.
Section 179 accelerated deprecations are a great way to increase this year's deductions at the cost of next year's. If your marginal rate is high after a very successful year, you may want to employ section 179 to lower this year's exposure. You have to have income to use against it, otherwise it doesn't work (for this year anyway).
I'm not a tax expert and I don't even play one on TV. So make sure you always speak with a tax expert before you make any move and your comments are welcome.