Ways to increase or decrease your taxable income

By Goldman Sachs Ayco Personal Financial Management

During year-end tax planning you may want to manipulate the timing of income or deductions. Review some common strategies.

Accelerating deductions and deferring income can reduce your tax liability. In some cases, you may want to do the opposite—accelerate income and delay deductions. These methods can help you pay a lower income tax rate in the long run, especially if your tax rate is—or could be—changing in the next year.

If you have access to Ayco, your advisor can help you implement a tax-efficient strategy. You can also work with a tax advisor to review your specific circumstances.

Whether it’s best for you to increase or decrease your taxable income for the year, here are some strategies to consider.


Typical methods of deferring income


If you want to defer income, consider:

  • Deferring compensation if still available to you, given the deferral election limitations of §409A.
  • Making investments, such as Treasury Bills, that will not generate income until next year
  • Deferring the exercise of non-qualified stock options
  • Deferring the recognition of capital gains. One way to lock in price in the current year but defer gain until next year is to sell property on an installment basis with, if possible or appropriate, payment to be made next year. This technique does not work for sales of publicly traded securities, the gain on which will be taxed immediately based on the trade date
  • Deferring gain into a Qualified Opportunity Zone investment or by engaging in a like-kind exchange
  • Delaying the timing of the cancellation of debt to the extent possible
  • Delaying the billing of clients or customers if possible and if doing so will not prevent the taxpayer from having enough business income to maximize retirement plan contributions


Typical methods of accelerating deductions


In addition to deferring income, another way to decrease your tax liability in the current year is to accelerate deductions. Here are some common methods:

  • Pre-funding multiple years’ worth of charitable contributions by funding a donor advised fund, such as the Ayco Charitable Gift Fund
  • If possible, settling a casualty loss claim with an insurance company this year so that the loss can be taken in the current year
  • Business or rental-related property taxes that have already been assessed but are not due until next year can be deducted and paid in the current year


Typical methods of accelerating income


If you want to accelerate income, consider:

  • Exercising non-qualified stock options
  • Making an 83(b) election upon receipt of restricted property from an employer
  • Shifting (to the extent possible) the timing of the discharge of indebtedness income
  • To the extent possible, billing customers or clients so payments are received prior to year-end

There are additional strategies if you’re looking to accelerate capital gains:

  • Selling appreciated assets in the current year
  • Electing out of installment sale treatment
  • Intentionally avoiding like-kind exchange treatment
  • Not deferring gains from an investment in a Qualified Opportunity Fund
  • Choosing to not reinvest proceeds from the sale of qualified small business stock in new qualified small business stock


Typical methods of deferring deductions


If you expect your deductions to produce a larger tax savings next year, here are some common methods of deferring them:

  • Paying deductible taxes that have already been assessed but are not due until the next tax year
  • Disposing of a passive activity that has accumulated suspended passive losses can be delayed until the next tax year, allowing the freed-up suspended losses to offset income in that year
  • Delaying the purchase of business-use assets if the asset will be subject to bonus depreciation or §179 expensing
  • If you own an interest in a partnership or S corporation where losses are suspended due to insufficient basis, you can delay creating additional basis until the next tax year
  • Deferring the sale of an asset in a loss position until the next tax year

Connect with your advisor for more on this topic.


The information herein is for educational purposes only. GS PFM does not provide tax advice or prepare taxes. We encourage you to connect with your team of advisors regarding your unique situation.


United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC (“GS&Co.”) and subsidiary of The Goldman Sachs Group, Inc., a worldwide, fullservice investment banking, broker-dealer, asset management, and financial services organization. Advisory services are offered through United Capital Financial Advisers, LLC and brokerage services are offered through GS& Co., member FINRA/SIPC.

GS PFM makes recommendations based on the specific needs and circumstances of each client. Clients should carefully consider their own investment objectives and never rely on any single chart, graph, or marketing piece to make decisions. Investing involves risk, and investments may lose value. There are no investment strategies that guarantee a profit or protect against loss.

GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. The material is based upon information which we consider reliable, but we do not represent that such information is accurate or complete, and it should not be relied upon as such. The information, data, analyses, and opinions contained herein include confidential and proprietary portfolio information of GS PFM, may not be copied or redistributed for noncommercial or personal purpose without GS PFM’s expressed permission.

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Based on “Year-End Planning for 2021” by “Heidi Goetting”, 2021 The Ayco Company, L.P.

Additional materials and revisions by © 2022 United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management. All Rights Reserved.

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ABOUT THE AUTHOR

Goldman Sachs Ayco Personal Financial Management

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United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.

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