The timing of purchases and sales of assets affect whether they are subject to special long-term tax treatment or considered part of ordinary income. People with variable income from year to year should pay special attention to when they pay bills or accept income.
For example, some expenses can be prepaid or paid early to maximize a deduction, such as property taxes.
Bonuses and stock awards could be deferred from one year to the next if you are likely to be in a lower tax bracket in the future year.
This ability to move income from one period to the next underlies the benefit of tax-advantaged retirement savings: Defer payment of taxes in high-tax earning years until the low-tax, lower income retirement years.
This is part of an occasional series of tax tips from Tom Brunberg, head of Wade Financial Group’s Year Round Tax Planning Service.