How do changing tax rates affect the timing strategy? What information do you need to determine the appropriate timing strategy when tax rates change?

Changes in tax rates can have an impact on the considerations of tax planning. Tax costs can fluctuate, and tax savings can differ too. If tax rates increase, the result is higher tax savings for any tax deductions that are taken. Therefore, taxpayers should take advantage of deductions when tax rates are higher.

For tax costs, the contrary is true. Tax costs will be lower as tax rates are decrease. Therefore, income should be recognized when tax rates are lower. An increase in tax rates should mean to accelerate deductions, while a decrease in taxes should mean to defer recognition of income. Another consideration is if additional income will push an individual into a higher marginal tax rate. When considering additional income, these factors must be considered.

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