Will this end-of-year tax strategy work?

I am self-employed and income for 2016 is roughly what I expected.

In 2017 I want to convert an old 401k into a Roth IRA ($20,000) that will be taxed as income.

I have about $5000 in Accounts Payable for my business right now that is due in mid-January. (I would usually pay it at end of December to "even

I am self-employed and income for 2016 is roughly what I expected.

In 2017 I want to convert an old 401k into a Roth IRA ($20,000) that will be taxed as income.

I have about $5000 in Accounts Payable for my business right now that is due in mid-January. (I would usually pay it at end of December to "even out the books" for the end of year)

Is it smart to wait till January to pay that bill?
My logic is that it will show me as starting the year "in the hole" for income purposes, which will help my tax bill for 2017, since I already know that my income will be higher due to the 401k conversion.

Any thoughts or other strategies?

Other answer:

Joe:
You will be increasing your taxes for 2016, in order to reduce them in 2017.

For that to make sense, the combination of your business income in 2017, plus the $20K in additional taxable income, must be enough to push you into the next higher marginal income tax rate. That's something you should be able to make a reasonable forecast about.

EDIT:
Responding to your comments:
Forget the $20K for the moment. If you defer the $5K expense until 2017, you'll be paying taxes on $5K of net income in 2016 (instead of 2017). That's a good idea if your tax rate in 2017 is higher than it was in 2016.

Your tax rate in 2017 may be higher if your Roth Conversion taxable income pushes the total into the next bracket. Is that likely? Would $5K in 2017 expenses prevent it? (Probably not, at least not with any certainty.)

Love big words:
Convert that old IRA over a period of several years. In this way, you can lower the taxable impact each year.
Maris:
Hello every one, My name is Maris Rooney. I live in USA Florida and i am a happy woman today? I told my self that any Loan lender that could change my Life and that of my family, i will refer any person that is looking for loan to Them. If you are in need of loan and you are 100% sure to pay back the loan please contact them, They are USA helping loan seekers get loan with easy steps, please tell the loan agents that Maris Rooney referred you to them. contact Via mail{fountainjessica08@gmail.com}

Leave a Reply

Your email address will not be published. Required fields are marked *