At this point in the fourth quarter of any given year, businesses and their principals are beginning to consider — and to plan for — their 2016 tax liabilities.
In addition to well-known hedges — such as incurring capital expenditures on equipment or machinery in the current year, deferring asset sales or other profitable transaction closings into 2017 (unless a 1031 like-kind exchange can be achieved), and other such strategies — we encourage including tax credit investing into your tax planning.
While bad news can be a cloud over business confidence, uncertainty might be a storm that could affect market sentiment for an extended time. The economy is growing, albeit tepidly, and there is job growth but certainly the growth in jobs has not included the manufacturing industries that have been displaced over the past decade.
Moreover, since most of our job growth is in the technology area, continued engineering advances will generate economic growth but may in fact shrink job growth — as many current jobs will become automated. Adding to that, we are certainly living in uncertain times — particularly given that we are less than a week away from an election in which one candidate is calling for tax increases for those making more than $250,000 per year, while the other candidate is claiming high-income individuals should receive a tax cut.
Things are changing, and they are changing rapidly; resulting in an uncertain landscape that will challenge tax professionals. What I am suggesting will amount to more certainty in the planning for tax obligations, and that is a good thing!
Consider adding a tax credit strategy to your planning. Simply stated, a tax credit is a dollar-for-dollar offset against taxes that are due to either the state or federal government. Taxpayers can utilize their tax credits to offset taxes or transfer their tax credits to other taxpayers.
Certain taxpayers, such as those holding newly acquired and rehabilitated real estate or newly formed single asset entities, may not have generated sufficient income to be able to utilize their tax credits. For such taxpayers, selling their tax credits is a better alternative than anticipating the future usability of those credits. Conversely, for the tax credit transferees — who usually receive the tax credits at a discount — such a transaction invariably results in substantial tax savings.
There are two months remaining in the 2016 calendar. It’s not too late to learn how to implement a tax credit strategy in a way that can reduce your tax liability. Consult with a qualified tax adviser today about ways you can reduce your tax obligation in April of 2017.