When Reviewing Your Tax Strategy Focus on the “Bigger Picture”

It’s never too early to start on your year-end tax strategies. You can make the process go much smoother by keeping all your records current and organized. There are tax strategies that make good financial sense and others that are not so good. This is usually because tax considerations are allowed to override basic economics.

One example is “the tail wagging the economic dog”. If you run a consulting business and you want an additional tax write-off. So you’ve decided that you will spend $10,000 to update your whole office computer system and maybe new office chairs too. If you’re in the 28% tax bracket and you can deduct the entire cost of the upgrade, your tax bill will be reduced by $2,800 (28% of $10,000. You may get a bigger tax break but you will still be $7,200 out of pocket ($10,000- $2,800) and you will have done upgrades that you probably didn’t need. Some other circumstances that a focus on tax considerations while ignoring the bigger financial picture include:

* Holding an appreciated asset indefinitely, solely to avoid paying the capital gains tax.

* Turning down extra income, due to worries about being "pushed into a higher tax bracket."

* Increasing the size of a home mortgage, solely to get a larger tax deduction for mortgage interest.

* Hesitating to pay off a mortgage, just to keep the interest deduction.

Do you need assistance with the “bigger financial picture”? At Summit CPA we offer multiple resources to assist you with all of your tax and financial planning needs. Contact our office at (855) 977-7623 to schedule an appointment with our advisors.