J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

28.2 When To Defer Income and Accelerate Deductions

Your tax bracket may shift from year to year because of fluctuations in income or expenses. If you expect to pay less tax in the following year than in the current year, consider deferring income and accelerating deductible expenses and losses. Even if you expect your tax bracket to remain the same, you may want to accelerate deductions to reduce tax for the current year or defer income, if possible, to delay the payment of tax.

Election year complication. Although typical year-end strategies involve trying to defer income and accelerate deductions, high-income taxpayers who fear the possibility of higher tax rates in 2013 (if the Obama Administration returns to office) may be wary of deferring income beyond 2012, and if they have substantial paper long-term capital gains, they may prefer to realize the gains before the end of 2012.

Postponing income.

You may not defer salary income by not cashing a paycheck or not taking salary that you have earned and that you can receive without restrictions. Under certain conditions, you may contract with your employer to defer the taxable receipt of current compensation to future years. To defer pay to a future period you must take some risk. You cannot have any control over your deferred pay account. If you are not confident of your employer’s ability to pay in the future, you should not defer pay.

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Planning Reminder

Deferring Business Income

If you are self-employed ...