- Some businesses and individuals concerned about tax rate increases may be looking to accelerate income. Although income acceleration does not make sense in all circumstances, this article outlines seven proven strategies for accelerating income when it does.
- First, businesses that use the overall cash method can seek to increase collections before year end and/or delay payment of expenses until 2022.
- Second, businesses can delay acquisition of equipment, which defers the deduction.
- Third, individuals can convert a traditional IRA to a Roth to take advantage of the 2021 rates.
- Fourth, many businesses that use the accrual method structure their compensation plans to satisfy the all-events test as of year-end. There may be an opportunity to take steps so that the all-events test is not satisfied as of year-end, delaying the deduction for accrued bonuses.
- Fifth, businesses currently using the deferral method with respect to advance payments may be eligible to change their accounting method to the full-inclusion method using automatic change procedures, providing an opportunity to make this decision with hindsight.
- Sixth, electing out of the installment method may allow the gain to be taxed at the old rates.
- Seventh, several elections are available to capitalize expenses that would otherwise be deductible, such as costs of acquiring assets, prepaid expenses, repair expenses, and research and development costs.
Your Tax Pro On Demand,
R Clyde Olivieri, Jr.
P.S.
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