As the year quickly comes to a close, it is important to consider if you have taken the necessary steps to minimize your taxes. One of the questions that tax conscious people ask is, “Should I delay income as part of my yearend tax plan?”

Here are some factors to consider:

Analyze your financial position for 2014 and 2015

If you are a cash basis tax payer, you can choose to delay payments from your customers if it will lessen your overall tax picture. To effectively do this, you will need to analyze your financial position both this year and next year to see if it is beneficial. Next you will need to determine the tax implications of getting paid this year over next year.

To do this you will need to:

• Pull up your financial software and review your financial statements for the year. You should keep up with your income and expenses on a regular basis and not wait till year end.
• Next create a quick budget for 2015. If you have been in business for a while, you should have developed a feel about your business trends.
• Account for increased revenue and expenses if you are implementing a new marketing initiative.
• Estimate your taxes for 2015
• Determine if you are better off with more income in 2014 or 2015.

Examine your adjusted gross income (AGI)

Another reason you might want to consider shifting income to another year is your adjusted income is reaching the phase out limit for standard or itemized deduction. This typically happens at $250,000 for a single filer and $300,000 for the married filer.

The personal exemption of $3,900 is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly).

If you see you are approaching the limit this year, it might be better to shift income to the next year and be very proactive in your tax planning exercise in 2015.

Figure out if you qualify for an expiring tax break

The following tax breaks have been extended for 2014 and may no longer exist for 2015:

• State and local sales tax deduction
• $250 Deductions for teachers expenses
• Equal treatment of commuting costs – more allowed for driving and paying for parking for up to $250 per month
• Tuition deduction
• Mortgage insurance premiums deduction
• Exclusion of forgiven mortgage debt
• Tax free IRA withdrawals for charity – for over 701/2

If you were going to benefit from any of these tax breaks, you will be better off maximizing the tax benefits this year as they may no longer exist in 2015.

Figuring out what year to shift taxes

Once you have completed the steps discussed above and you decide it is necessary to shift income to the next year.

To figure out what year to shift income follow the following steps:

• Figure out your marginal tax rate. Cross reference your filing status and taxable income level with your tax rate in the table below:

 

• If any additional income causes your marginal tax rate to increase in the current year, then consider shifting to the next year and vice versa.

 

In summary, figuring out which year to shift income requires analyzing your current financial situation, estimating your tax obligation for 2014 and for 2015, identifying transactions with tax implications that could take place either this year or next year, and then figuring out what year to recognize the income.