Year-end 2017 is shaping up as an important deadline to have tax strategies in place to take advantage of certain opportunities before they sunset along with the close of the tax year on December 31, 2017. A major challenge this year, of course, involves the uncertainty that will remain, likely into late November/early December, over pending tax reform legislation. This includes uncertainty regarding rate cuts, certain deductions, and much more. Effective strategies in response to any of these “tax reform” priorities involve close monitoring of any proposed tax bill as it moves through negotiations within the various Congressional tax committees and Trump administration officials, with year-end action steps ready to go based upon alternative legislative outcomes.
Although year-end 2017 may be unique because of possible tax reform, planning during the final weeks and months of this year involves much more –both in terms of traditional year-end strategies and strategies developed in response to developments that have taken place since last year. Here are some points to consider:
Data gathering. Year-end planning should start with data collection and a review of prior year returns. This includes information on losses or other carryovers, estimated tax installments, and items that were unusual. Conversations regarding next year should include discussions of any plans for significant purchases or dispositions, as well as any possible life cycle events.
Income tax rates. One of the most significant factors in tax planning for individuals is their tax bracket. The most direct control taxpayers have over their tax bracket rests in their ability to control the timing of income and deductible expenses. For example, taxpayers who expect to be in a lower tax bracket in 2018 should consider deferring income to 2018 and accelerating deductions into 2017. Also relevant are “tax reform” proposals that may compress tax brackets and lower tax rates. These changes could present year-end tax planning opportunities for taxpayers depending on when any proposed rate changes go into effect.
Investments. Taxpayers holding investments, whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling toward the end of the year, as well as, exchanging appreciated assets for like-kind property in order to defer gains. Balancing tax considerations with other factors is part of the challenge in dealing with investments, including: the ordinary income tax rates, the net investment income tax rate, the capital gain rates, and the alternative minimum tax (AMT).
Income caps on benefits. Monitoring adjusted gross income (AGI) at year-end can also pay dividends in qualifying for a number of tax benefits. Often tax savings can be realized by lowering income in one year at the expense of realizing a bit more in another year.
Life events. The biggest variables for many taxpayers impacting their year-end tax planning surrounds life events such as marriage, divorce, birth or adoption of a child, a new job or the loss of a job, and retirement. These life events may, for instance, result in a change in filing status that will affect tax liability. The possibility of significant changes and/or significant or unusual items of income or loss should also be part of a year-end tax strategy. Additionally, taxpayers need to take a look into the future and predict, if possible, any events that could trigger significant income, losses, or deductions.
2017 tax law changes. In addition to possible changes for the 2018 tax year, and more remotely for 2017, that may be part of recent “tax reform” efforts, other tax law changes by the IRS and the courts that have taken place during 2017 are worth a look in mapping out year-end strategies.
Timing rules. Timing, and the skilled use of timing rules to accelerate and defer certain income or deductions, is the linchpin of year-end tax planning. For example, timing year-end bonuses or year-end tax payments, or timing sales of investment properties to maximize capital gains benefits should be considered. So, too, sometimes fairly sophisticated “like-kind exchange,” “installment sale” or “placed in service” rules for business or investment properties come into play. In other situations, however, implementation of more basic concepts are just as useful. For example, taxpayers can write a check or can charge an item by credit card and treat these actions as payments. It often does not matter for tax purposes when the recipient receives a check mailed by the payor, when a bank honors the check, or when the taxpayer pays the credit card bill, as long as done or delivered “in due course."
Please feel free to call our offices if you have any questions about how year-end tax planning might help you save taxes. Our tax laws operate largely within the confines of “the tax year.” Once 2017 is over, tax savings that are specific to this year may be gone forever.
Suplee, Shea, Cramer & Rocklein, PA
As year-end approaches, each business should consider the many opportunities that might be lost if year-end tax planning is not explored. A business may want to consider several general strategies, such as use of traditional timing techniques for delaying income recognition and accelerating deductions. A business should also consider customized strategies tailored to its particular situations.
For the 2017 tax year, taxpayers have relative clarity with respect to available credits and deductions. With the exception of a handful of industry specific tax credits and deductions that expired at the end of 2016, most temporary credits and deductions were permanently extended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). A few others were extended for 5-years through 2019. Far less clear, however, is the possibility of the enactment of tax reform legislation by year’s end. The final scope of such legislation, if enacted, remains unknown. At a minimum, tax reform legislation is expected to result in a reduction of corporate and individual tax rates. However, whether such reductions would apply to 2017, as well as to 2018, will remain uncertain, likely until late November or early December. Nevertheless, much of the preparation for these contingencies should begin now.
The last few months of the year provide an important “last chance” to change the final course of your businesses tax year before it closes for good. Among the reasons why year-end tax planning toward the end of 2017 may be particularly fruitful are the following:
Business credits and deductions. Many business-related tax credits and deductions that were scheduled to expire after 2015, were permanently extended by the PATH Act. Others were only extended one year and are not available for the 2017 filing season unless extender legislation is enacted. A few were extended for a five-year period. Taking inventory of what deductions and credits your business has been using and whether they remain available or will be removed in the near future can significantly impact your bottom line. For example, one major tax deduction for many businesses is bonus depreciation. Property placed in service in 2017 is eligible for bonus depreciation at a 50% rate. The rate is reduced to 40% in 2018 and 30% in 2019. Bonus depreciation expires after 2019. Talk of “full expensing” under tax reform also belongs in this mix.
Repair regulations. In 2013, the IRS issued final tangible property regulations (a.k.a., the “repair regs”) on accounting for costs to acquire, repair and improve tangible property. The repair regs impact virtually all businesses by providing the rules for distinguishing between capital expenditures and deductible repairs or other types of deductible expenses. While taxpayers were expected to file change in accounting methods using the automatic consent procedure to retroactively comply with the repair regs for their first tax year beginning in 2014, taxpayers that are not yet subject to a capitalization audit may continue to file these accounting method changes using certain automatic consent procedures.
Business use of vehicles. Several year-end strategies involving both business expense deductions for vehicles and the fringe-benefit use of vehicles by employees require an awareness of certain rates and dollar caps that change annually. Changes affecting 2017 include a drop in the standard business mileage allowance rate to 53.5 cents-per-mile, down from 54 cents-per-mile for 2016. The maximum depreciation limits for passenger automobiles first placed in service during the 2017 calendar year remain the same as 2016.
“Gig” economy. Approximately 2.5 million taxpayers are now earning income each month in the “gig” economy, also commonly referred to as the “sharing” or “on-demand” economy. Participation continues to swell and is expected to double by 2020. In recognition of the increasing importance of the gig economy, the IRS opened a “Sharing Economy Tax Center” this year on its website. It also is reportedly stepping up its audit coverage of taxpayers working in the “gig” economy.
Affordable Care Act. Despite Congressional attempts to repeal the Affordable Care Act (ACA), the basic structure of the ACA for businesses, both large and small, generally remains intact. If an employer is an applicable large employer (ALE) based on the previous year’s employee head-count, employer shared responsibility provisions and employer information reporting provisions are triggered. Small businesses, however, are not unaffected by the ACA and should take the ACA into account in year-end planning. Some incentives in the ACA could help maximize tax savings for small businesses. Planning now, both to qualify for 2017 incentives and to meet 2018 compliance requirements, is advisable.
Tax reform on the horizon. President Trump ran on a platform of consolidating and reducing individual tax rates. The Trump/GOP “framework for tax reform,” released in late September, would reduce the maximum corporate rate to 20 percent, eliminate the federal estate tax and the alternative minimum tax (AMT), as well as limit the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent. It will likely remain unclear until late November or early December whether tax reform will happen before the end of 2017, and if so, whether the law changes will be temporary or permanent and whether they will be prospective or retroactive.
These are just some of the considerations that can yield tax savings for your business as year-end 2017 approaches. Please feel free to contact our offices so we can discuss specific 2017 year-end strategies that might be particularly worthwhile for your business.
Suplee, Shea, Cramer & Rocklein, PA
Tax-related identity theft continues to be an ever-growing national crisis.
The Government Accountability Office (GAO) estimated that in tax year 2013, fraudulent tax refunds misdirected to identity thieves was about $5.8 billion and impacted over 2.4 million U.S. taxpayers. Unfortunately, this fraudulent activity has continued to rapidly expand since 2013. All taxpayers must be diligent in further protecting themselves from becoming identity theft victims.
As a valued client, we want to share with you some proactive steps and resources to help in your defense of tax-related identity theft. However, should you become aware that you are a victim of identity theft or that your private financial information has been compromised, please contact us immediately for additional information and assistance.
Suggestions to Protect You and Your Family from Identity Theft
Secure private personal information. Safeguard family names and birthdates, account numbers, passwords, and Social Security numbers. Carefully consider all requests to provide your Social Security number before giving it out and don’t hesitate to ask why your private information is being requested. Secure your Social Security card in a safe or safety deposit box and never in your purse or wallet. Proactively shred all documents that contain personal data before disposing of them, even solicitations and “junk” mail that may unknowingly contain account numbers and personal information.
Monitor personal information shared on social media. Cybercriminals methodically gather data from online sources, including commonly used identifiers such as birthdate, maiden name, pet name, hometown, significant other, and/or children’s information. Be cautious who you communicate with online and be selective before accepting electronic invitations from people you do not know or recognize. Separate what you post publicly from what you post with your personal contacts. Do not post personal and family data.
Secure your computer. Use current versions of antivirus, malware protection, and firewalls and update these programs frequently. Consider having this software updated automatically, as well as using different computers for business and finances than you do for social media and personal matters. Use strong passwords, change them frequently, and do not share them with others. Review IRS Publication 4524, Security Awareness for Taxpayers, for additional tips.
Beware of impersonators. Criminals utilize sophisticated computer technology, such as dialers and automated questions, to contact thousands of targets daily. Do not provide personal information to callers you do not know. If any caller requests that you verify personal information, be extremely cautious and ask for further confirmation of their identity, such as their telephone number, website, email address, supervisor’s name, and mailing address. The IRS never initiates contact by telephone.
Beware of unsolicited emails and current phishing scams. Don’t open attachments or electronic links unless you know the sender. Internet sites should have a lock symbol to show the site is encrypted. Always beware of entering sensitive data. Forward emails received from IRS impersonators to firstname.lastname@example.org. The IRS never initiates contact by email, text message, or social media channels. For more guidance on phishing scams, go to irs.gov/uac/report-phishing.
Monitor your personal information. Review your bank and credit card statements often.
Consider electronic transmission of financial information. No sensitive tax or personal information should be sent via unsecured email, even information being transmitted to CPAs, bankers, and/or financial advisors. A secure portal, encrypted email, or physical mailing of sensitive information is necessary.
Order your free annual credit report. Call 1-877-322-8228 or go to www.annualcreditreport.com to request your report and/or search for creditors you do not know. Choose to use only the last four digits of your Social Security number on your report. Consider placing a credit card freeze on your account so only creditors you approve are allowed to access your file.
What to Do if You Become a Victim of Tax-Related Identity Theft
You may learn that your identity has been compromised by receiving a letter in the mail from the IRS. Alternatively, your CPA may contact you when your personal income tax return is electronically filed and subsequently rejected. If you receive a notice indicating identity theft, please contact us immediately to schedule a meeting to receive assistance in taking the appropriate steps with the IRS to resolve the matter.
Other ways you may discover your identity has been stolen include:
The unfortunate reality is that personal data is already at risk everywhere, but we will work with you to reduce the likelihood of you being victimized by cyber criminals. As your CPA and trusted advisor, we understand the need to protect your privacy and take data protection very seriously. Our security and data integrity meets the highest industry standards established by the IRS and Federal Trade Commission. We have also established protocols to guard access to client files.
Please don’t hesitate to contact us at [phone/email] with questions or concerns or if you would like to meet with us to discuss this issue or any financial or tax needs.
To speed recovery to the devastated areas of Hurricanes Harvey, Irma and Maria, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Relief and FAA Act of 2017) on September 29, 2017. This letter highlights the tax relief included in the Disaster Relief and FAA Act of 2017 available to individuals impacted by the hurricanes. These provisions include adjustments to limitations and reductions on the personal casualty loss deduction, flexibility for the use of retirement funds, suspension of limitations on charitable contributions, and special rules for determining earned income for purposes of the child tax credit and the earned income credit.
Personal casualty losses. In general, casualty losses are taken as an itemized deduction subject to a $100 reduction per loss occurrence. The total annual deduction for all personal casualty and theft losses is further limited to that amount which exceeds 10 percent of the taxpayer's adjusted gross income. However, the Disaster Relief and FAA Act of 2017 modifies the reduction to $500 per occurrence but eliminates the need to exceed 10 percent of adjusted gross income. In addition, for taxpayers who do not itemize, the standard deduction is increased by the amount of the disaster loss.
Special rules for the use of retirement funds. Many victims of the hurricanes may be able to access retirement funds without triggering the standard early withdrawal penalties.
Special rule for determining earned income. Individuals whose principal residence was in a hurricane disaster area and who is displaced as a result may elect to calculate their refundable child tax credit and earned income credit for 2017 by using their earned income from the preceding tax year.
Charitable contributions. Individuals are allowed to elect to temporarily suspend for all "qualified contributions" the 50-percent contribution base limitation, and the limitation on overall itemized deductions. Qualified contributions means
Recovering from a disaster of this magnitude takes time and there are many decisions to be made. We are here to help you. Please call our office to discuss how this tax relief may benefit you.
To speed recovery to the devastated areas of Hurricanes Harvey, Irma and Maria, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Relief and FAA Act of 2017) on September 29, 2017. The tax relief in the Disaster Relief and FAA Act of 2017 includes an employee retention credit for eligible employers.
The employee retention credit allows eligible employers in the hurricane disaster areas a 40-percent credit for qualified wages paid to eligible employees. The amount of qualified wages which may be considered for any one eligible employee is limited to $6,000. The credit is part of the current year business credit and therefore is subject to tax liability limitations. This credit does not apply to wages paid to employee-owners who own more than fifty percent of the business. For purposes of this credit:
Qualified wages include wages paid without regard to whether the employee performs no services, performs services at a different place of employment other than the principal place of employment, or performs services at the principal place of employment before significant operations have resumed.
Employers cannot claim a retention credit and a Work Opportunity Credit for the same employee.
The employee retention credit is intended to encourage the economic recovery of the hurricane affected areas. If you have any questions related to this credit, please call our office. We are here to help.
Receiving an envelope from an IRS may seem daunting, however you must always take that first step and make sure to open the envelope to look at its contents. If you have received an IRS notice, timely response is always important, and we can always help you with that process. Please read below these helpful tips on how to handle an IRS notice or a letter. Remember to always contact us for assistance and sucessful resolution.
Next time your phone rings, and you see an unfamiliar number, pause before answering your phone, especially if the number on your display is not a local number. Tax scam is on the rise, and in the latest IRS bulletin, you will find a listing of the latest scams going around. Read below for more, and if you ever get contacted by the IRS, please make sure to let us know.
On May 25, 2017 Governor Rick Scott signed House Bill 7109, which is supposed to reduce the state sales tax rate on commercial leases from 6% to 5.8% starting 1/1/18. This rate decrease will be applicable to new leases. In addition, there is no change to the local surtax, which for Sarasota county is currently 1%. As a result, effective rate in Sarasota County for leases starting on or after January 1, 2018, would be 6.8%.
IRS has issued a very urgent alert to employers about a W-2 phishing scam that is being distributed via email. Everyone should be on alert and question any request that comes in for a W-2 information from a superior. Please read this alert below and feel free to contact our office with any questions.
The end of the year is upon us, but you can still do a few things before the year is over. Here are a few tips from the IRS:
- Deductible donations can be charged to a credit card now and paid in 2017, as well as checks can be mailed before the end of the year in order for them to be counted as 2016 donations.
- Retired taxpayers who reach the age of 70 1/2 during 2016 can wait to take their first RMD from their IRA or workplace retirement until April 1, 2017. In turn, individuals have until April 18, 2017 to contribute to an IRA account and receive a deduction for their contribution (check with us to make sure you qualify).
- Notify the IRS, employers and the postal service of any changes in your address.
- If your name changes, you must notify the Social Security Administration in order for them to match your name with the IRS records.
- Taxpayers who file returns using ITINs may be subject to having to renew their numbers. If you did not use your ITIN at least once in the last three years, it will not be valid. Also, ITINs with middle digits 78 or 79 are also subject to expiration. Call our office if you are not sure about your ITIN number, or you received a notice of expiration.
- Always keep copies of your tax returns.
Please call our office with any questions or if you require any year-end planning.
In a recently announced Notice 2016-79 the IRS has issued 2017 standard mileage rates to compute deductions for costs to operate vehicles for business, medical, moving and charitable purposes during 2017 tax year. The 2017 tax rates are as follows:
- 53.5 cents per mile for business purpose
- 17 cents per mile for medical and moving purpose
- 14 cents per mile for charitable purpose
The full text of the IRS notice is available in the link above. Should you have any questions regarding this announcement, please call our office.
Should you ever receive an email, a phone call or a pop-up online informing you that you owe money to the IRS, this is a sign of a scam. The IRS never calls you or emails you or reaches you online, and the IRS never demands that you make any payments over the phone. If you ever receive any communication from the IRS, please contact our office.
As you may have heard, there was a change in the overtime regulations of the Fair Labor Standards Act, and effective December 1, 2016, there should have been an increase in salary threshold for eligible workers (from $455/week to $913/week), in addition to a few other changes. Due to a litigation in the U.S. District Court of Eastern District of Texas, there is a hold in implementing of these new regulations, and the Department of Labor has filed a note to appeal the preliminary injunction to the US Circuit Court of Appeals. We will continue watching this issue, and we will update you as more information becomes available. For more detail, please click below to go to the Department of Labor website.
New tax season is almost upon us, but what do we do with our prior documents and tax returns? According to the IRS, you should keep copies of your tax returns and supporting documentation for at least three years. Certain documents should be kept for 7 years should you need to amend your return. Documents pertaining to the sale of real estate should also be kept for 7 years. For more information, and full text of this informative IRS Newswire, please see the link below. As always, feel free to call our office with any questions.
Any change in Presidential Administration brings the possibility, indeed the likelihood, of tax law changes and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses. This letter highlights some of the President-elect’s tax proposals. Keep in mind that a candidate’s proposals can, and often do, change over the course of a campaign and also after taking office. This letter is based on general tax proposals made by the President-elect during the campaign and is intended to give a broad-brush snapshot of those proposals.
At the same time, the end of the year may bring some tax law changes before President Obama leaves office. This letter also highlights some of those possible changes with an eye on how late tax legislation could impact your year-end tax planning.
During the campaign, President-elect Trump called for reducing the number of individual income tax rates, lowering the individual income tax rates for most taxpayers, lowering the corporate tax rate, creating new tax incentives, and repealing the Affordable Care Act (ACA) (including presumably the ACA’s tax-related provisions). The President-elect, in his campaign materials, highlighted several goals of tax reform:
· Tax relief for middle class Americans
· Simplify the Tax Code
· Grow the American economy
· Do not add to the debt or deficit
President-elect Trump also identified during the campaign a number of tax-related proposals that he intends to pursue during his first 100 days in office:
· The Middle Class Tax Relief and Simplification Act: According to Trump, the legislation would provide middle class families with two children a 35 percent tax cut and lower the “business tax rate” from 35 percent to 15 percent.
· Affordable Childcare and Eldercare Act: A proposal described by Trump during the campaign that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare and create tax-free savings accounts for children and elderly dependents.
· Repeal and Replace Obamacare Act: A proposal made by Trump during the campaign to fully repeal the ACA.
· American Energy & Infrastructure Act: A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”
Individual income taxes
The last change to the individual income tax rates was in the American Taxpayer Relief Act of 2012 (ATRA), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. During the campaign, President-elect Trump proposed a new rate structure of 12, 25 and 33 percent:
· Current rates of 10% and 15% = 12% under new rate structure.
· Current rates of 25% and 28% = 25% under new rate structure.
· Current rates of 33%, 35% and 39.6% = 33% under new rate structure.
This rate structure mirrors one proposed by House Republicans earlier this year. During the campaign, President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12% rate on income up to $75,000; a 25% rate for income between $75,000 and $225,000; and 33% on income more than $225,000 (brackets for single filers will be half those dollar amounts) and “low-income Americans” would have a 0% rate. As further details emerge, our office will keep you posted.
Closely-related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed percent income tax bracket levels.
AMT and more
President-elect Trump proposed during the campaign to repeal the alternative minimum tax (AMT). The last time that Congress visited the AMT lawmakers voted to retain the tax but to provide for inflation-adjusted exemption amounts
During the campaign, Trump proposed to repeal the federal estate and gift tax. The unified federal estate and gift tax currently starts for estates valued at $5.49 million for 2017 (essentially double at $10.98 million for married individuals), Trump, however, also proposed a “carryover basis” rule for inherited stock and other assets from estates of more than $10 million. This additional proposal has already been criticized by some Republican members of Congress, while some Democrats have raised repeal of the federal estate tax as a non-starter.
Other proposals made by President-elect Trump during the campaign would limit itemized deductions, eliminate the head-of-household filing status and eliminate all personal exemptions. President-elect Trump also has called for increasing the standard deduction. Under Trump's plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation
Possible new family-oriented tax breaks were discussed by President-elect Trump during the campaign. These include the creation of dependent care savings accounts, changes to earned income tax credit and enhanced deductions for child care and eldercare.
The Affordable care Act (ACA) created a number of new taxes that impact individuals and businesses. These taxes range from an excise tax on medical devices to taxes on high-dollar health insurance plans. The ACA also created the net investment income (NII) tax and the Additional Medicare Tax, both of which generally impact higher income taxpayers. The ACA also made significant changes to the medical expense deduction and other rules that affect individuals. For individuals and employers, the ACA created new mandates to carry or offer insurance, or otherwise pay a penalty.
President-elect Trump made repeal of the ACA one of the centerpieces of his campaign. During the campaign, the President-elect said he would call a special session of Congress to repeal the ACA. At this time, how repeal may move through Congress remains to be seen. Lawmakers could vote to repeal the entire ACA or just parts. Our office will keep you posted of developments as they unfold.
Business tax proposals
On the business front, President-elect Trump highlighted small businesses, the corporate tax rate, and some international proposals during his campaign. Along with simplification, and the reduction, of taxes for small business.
Particularly for small businesses, Trump has proposed a doubling of the Code Sec. 179 small business expensing election to $1 million. Trump has also proposed the immediate deduction of all new investments in a business, which has also been endorsed by Congressional tax reform/simplification advocates.
The current corporate tax rate is 35 percent. President-elect Trump called during the campaign for a reduction in the corporate tax rate to 15 percent. He also proposed sharing that rate with owners of “pass through” entities (sole proprietorships, partnerships and S corporations), but only for profits that are put back into the business.
Based on campaign materials, a one-time reduced rate would also be available to encourage companies to repatriate earnings of foreign subsidiaries that are held offshore. Many more details about these corporate and international tax proposals are expected.
More immediately, the calendar is quickly turning to 2017. Congress will meet for a “lame duck” session and is expected to take up tax legislation. Exactly what tax legislation Congress will consider before year-end remains to be seen. Every lawmaker has his or her “key” legislation to advance before the year-end. They include:
· Legislation to renew some expiring tax extenders, especially energy extenders.
· Legislation to fund the federal government, including the IRS, through the end of the 2017 fiscal year.
· Legislation to enhance retirement savings for individuals.
· Legislation to help citrus farmers, small businesses and more.
Some of these bills, if passed and signed into law, could impact year-end tax planning. The expiring extenders include the popular higher tuition and fees deduction along with some targeted business incentives. If these extenders are renewed, or made permanent, our office can assist you in maximizing their potential value in year-end tax planning.
Another facet of year-end tax planning is looking ahead. President-elect Trump has proposed some significant changes to the Tax Code for individuals and businesses. If these proposals become law, especially any reduction in income tax rates, and are made retroactive to January 1, 2017, your tax planning definitely needs to be reviewed. Our office will work with you to maximize any potential tax savings.
Working with Congress
When the 115th Congress convenes in January 2017, it will find the GOP in control of both the House and Senate, therefore allowing Trump to move forward on his proposals more easily. It remains to be seen, however, what compromises will be necessary between Congress and the Trump Administration to find common ground. In particular, too, compromise will likely be needed to bring onboard both GOP fiscal conservatives who will want revenue offsets to pay for tax reduction, and Senate Democrats who have the filibuster rule to prevent passage of tax bills with fewer than 60 votes. Beyond considering tax proposals one tax bill at a time, it remains to be seen whether proposals can be packaged within a broader mandate for "tax reform" and "tax simplification."
The information generally available now about President-elect Trump’s tax proposals is based largely on statements by him during the campaign and campaign materials. President-elect Trump will take office January 20, 2017. Between now and then, more details about his tax proposals may be available. Please contact our office if you have any questions.
Suplee, Shea, Cramer & Rocklein, PA
As businesses approach year end, each has a unique opportunity to save additional taxes through taking a variety of strategic steps. Businesses seeking to maximize tax benefits through 2016 year-end tax planning may want to consider several general strategies, such as use of traditional timing techniques for income and deductions, and the role of the tax extenders (those made permanent and those expiring at the end of 2016), as well as strategies targeted specifically to their particular business.
As in past years, planning is uncertain because of the expiration of at least some popular but temporary tax breaks. Also added to the mix is the far-reaching Affordable Care Act (ACA) and whatever changes to 2017 the new Congress and Administration may make to the Tax Code.
Tax Law Changes
Changes to the tax laws in 2016 made by new IRS regulations and other guidance should also be considered in assessing year-end strategies for 2016. And year-end tax savings can be found in avoiding penalties, by knowing how to comply with some of the IRS’s news rules and regulations.
PATH Act “Extenders.” The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted at the end of 2015, made permanent many business-related provisions that had been up for renewal, including the 100-percent gain exclusion on qualified small business stock; the reduced, five-year recognition period for S corporation built-in gains tax; 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements; charitable deductions for the contribution of food inventory and others. Perhaps most significant, especially for small businesses, enhancements starting in 2016 were added to both a permanently extended research credit and Code Sec. 179 expensing deduction.
Five-year Extensions. The PATH Act extended several business-related provisions available for five-years, under the expectation that general tax reform will consider a more permanent fate. Among these provisions, bonus depreciation and the Work Opportunity Credit have widespread applicability. Notably, in addition to extending bonus depreciation, a number of modifications have been made that:
· reduce the bonus rate from 50 percent to 40 percent for property placed in service in 2018 and to 30 percent for property placed in service in 2019 (for 2016 and again for 2017 it remains at 50 percent);
· replaces the bonus allowance for qualified leasehold improvement property with a bonus allowance for additions and improvements to the interior of any nonresidential real property, effective for property placed in service after 2015;
· allows farmers to claim a 50 percent deduction in place of bonus depreciation on certain trees, vines, and plants in the year of planting or grafting rather than the placed-in-service year, effective for planting and grafting after 2015;
· reduces the $8,000 bump-up in the first year luxury car depreciation cap for passenger automobiles on which bonus depreciation is claimed to $6,400 for passenger automobiles placed in service in 2018 and $4,800 for passenger automobiles placed in service in 2019, and only if the taxpayer does not generally elect out of bonus depreciation; and
· extends long-term accounting method relief for bonus depreciation claimed on property placed in service in 2015 through 2019.
Expiring at Year-End 2016. A handful of business-related tax breaks did not fare well by the PATH Act, being extended only through 2016. Further extensions remain uncertain. 2016 year-end strategies therefore should include, where appropriate, the acceleration of expenses to maximize use of:
· Film and TV production expense elections
· Energy efficient commercial buildings deductions
· Mine safety equipment expense elections
· Additional depreciation for biofuel plant property
Revised Repair Regulations. The IRS issued final tangible property regulations (aka, the “repair regs”) over three years ago. They continue to control the accounting for costs to acquire, repair and improve tangible property. These “repair regs” impact virtually all asset-based businesses and have reverberated into 2016, with additional “clean-up” expected in 2017.
For 2016 year-end planning, qualifying for new safe harbors: a de minimis expensing safe harbor and a remodel-refresh safe harbor – both can yield substantial immediate deductions if followed.
Partnership Audit Rules. The Bipartisan Budget Act of 2015 (Budget Act) repealed the TEFRA unified partnership audit rules and replaces them with streamlined procedures. The Budget Act delayed the effective date of the new audit rules for returns filed for partnership tax years beginning after 2017. However, subject to certain exceptions, partnerships may choose to apply the new regime immediately to any partnership tax year beginning after November 2, 2015.
Business Use of Vehicles. Several year-end strategies for both business expense deductions for vehicles and the fringe-benefit use of vehicles by employees involve an awareness of certain rates and dollar caps that change annually. 2016 changes to the standard mileage rates and vehicle depreciation limits are critical to these strategies.
Affordable Care Act
Despite several delays and legislative tweaks, the basic structure of the ACA for businesses, both large and small, generally remains intact. If an employer is an applicable large employer (ALE), this triggers employer shared responsibility provisions and the employer information reporting provisions. Small businesses, too, are not unaffected by the ACA and should take the ACA into account in year-end planning. Some incentives under the ACA, including health reimbursement arrangements and small business health care tax credits, can help maximize tax savings for small businesses. Information reporting under the ACA continues to challenge all businesses.
The due date for filing partnership and C corporation returns was modified by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Generally applicable to returns for tax years beginning after December 31, 2015, both Forms 1120-S and 1065 are due on or before the 15th day of the third month following the close of the tax year (March 15 for calendar-year taxpayers). The due date for the filing of Form 1120 by C corporations is changed to the 15th day of the fourth month following the close of the tax year (April 15 for calendar-year taxpayers).
Many taxpayers and tax professionals have long advocated for these changes to return due dates. These staggered due dates were recommended not only to enable taxpayers to receive Schedule K-1 information in time to meet their initial filing deadlines. They also help even out the workflow faced by tax preparers both in dealing with initial deadlines and with extensions. Further, the revisions are expected to contribute to a reduction in the need for extended and amended individual income tax returns.
These are just some of the considerations that make up year-end tax planning for businesses. Please feel free to contact our office so we can discuss specific 2016 year-end tax strategies that might be particularly worthwhile for your business.
Suplee, Shea, Cramer & Rocklein, PA
Although tax planning is a 12-month activity, year-end is traditionally the time to review tax strategies from the past and to revise them for the future. Year-end has also become a time when there is an increasing need to take a careful look at what’s changed within the tax law itself since the beginning of the year. Opportunities and pitfalls within these recent changes – as they impact each taxpayer’s unique situation—should not be overlooked. This is particularly the case during year-end 2016. Here are some of the many consideration that taxpayers should review as year-end 2016 approaches.
Data, including 2015 return
Year-end planning should start with data collection and a review of prior year returns. This includes losses or other carryovers, estimated tax installments, and items that were unusual. Conversations about next year should include review of any plans for significant purchases or dispositions, as well as any possible life changes. Alternative minimum tax liability also needs to be explored as well as potential liability for the net investment income tax and the Additional Medicare Tax.
Taxpayers holding investments toward the end of the year, whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling (or like-kind exchanging). Balancing the existing tax rates within those considerations is part of that challenge: the ordinary income tax rates, the capital gain rates, the net investment income tax rate, and the alternative minimum tax (AMT), all play a role.
Income caps on benefits
Monitoring adjusted gross income (AGI) at year end can also pay dividends in qualifying for a number of tax benefits. Often tax savings can be realized by lowering income in one year at the expense of realizing a bit more in the other: in this case, either 2016 or 2017. Some of those tax benefits that get phased out depending upon the taxpayer’s AGI level include:
· itemized deductions
· personal exemptions
· education savings bond interest exclusion
· maximum child’s income on parent’s return (form 8814):
· medical savings account adjustments
· education credits
· student loan interest deduction
· adoption credits
· maximum Roth IRA contributions
· maximum IRA contributions for individuals
PATH Act “extenders” and more
Year to year, the tax law changes; and with it, opportunities and pitfalls that need particular attention at year end. In many cases, these changes are accounted for based on a tax-year period. Once the current tax year is over, there often is no going back for a “do-over” for a missed opportunity or to correct a costly mistake. Year-end 2016 is no exception to this rule.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted immediately before the start of 2016, permanently extended many tax incentives that were previously temporary, removing for the first time in many years the year-end concern over whether these incentives will be extended either retroactively for the current year or prospectively into the coming year. Not all of these “extenders” provisions were extended beyond 2016, however; and some were modified in the process. Others were extended for up to five years, deferring to “tax reform” a more lasting solution. Here’s a list of the major changes made by the PATH Act, especially focused on how they impact year-end transactions:
· permanent American Opportunity Tax Credit
· permanent teachers’ $250 “classroom” expense deduction
· permanent state and local sales tax deduction election, in lieu of state income taxes
· permanent exclusion for direct charitable donation of IRA funds of up to $100,000
· permanent 100-percent gain exclusion on qualified small business stock
· permanent conservation contributions benefits
· five-year solar energy property
· nonbusiness energy property credit through 2016
· fuel cell motor vehicle credit through 2016
· mortgage insurance premium deduction through 2016
· tuition and fees deduction through 2016
Life events such as marriage, birth or adoption of a child, a new job or the loss of a job, and retirement, all impact year-end tax planning. A change in filing status will affect tax liability. The possibility of significant changes and/ or significant or unusual items of income or loss should be part of a year-end tax strategy. Additionally, taxpayers need to take a look into the future, into 2017, and predict, if possible, any events that could trigger significant income, losses or deductions.
Taxpayers may want to take a look at a number of different provisions in anticipation of retirement, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines associated with the concept of taxable year. Among others, these include contributions to employer plans, strategic use of IRAs and “required minimum distributions,” and timing Roth IRA conversions and reconversions to maximize your retirement nest egg.
Affordable Care Act compliance
The Affordable Care Act (ACA) imposes new requirements on individuals and tightens or eliminates some tax incentives. Year-end planning for individuals with regards to the ACA may generally be more prospective than retrospective but there are some year-end moves that may be valuable, particularly with health-related expenditures.
Acceleration or delay
Year-end tax planning, especially if done “at the eleventh hour,” requires some understanding of the timing rules: when income becomes taxable and when it may be deferred; and, likewise, when a deduction or credit is realized and when it may be deferred into next year or beyond.
Income acceleration/deferral. Taxpayers using the cash method basis of accounting can defer or accelerate income using a variety of strategies. These may include:
· sell appreciated assets
· receive bonuses before January
· sell outstanding installment contracts
· redeem U.S. Savings Bonds
· accelerate debt forgiveness income
· avoid mandatory like-kind exchange treatment
Deduction acceleration/deferral. A cash basis taxpayer generally deducts an expense in the year it is paid, although prepayment of an expense generally will not accelerate a deduction. There are exceptions, including those made in connection with:
· January mortgage payment in December
· tuition prepayment
· estimated state taxes
A New Administration
When the new Administration moves into Washington in January 2017, it is clear that changes will follow. How these changes will impact upon your long-term tax situation remains to be developed. That, and an eventual groundswell for tax reform, make the future more difficult to read than in prior years. Nevertheless, in looking toward the future, you should not lose sight of the short term tax dollars to be saved immediately through 2016 year-end strategies.
Please feel free to call our offices if you have any questions about how year-end tax planning might help you save taxes. Our tax laws operate largely within the confines of “the taxable year.” Once 2016 is over, tax savings that are specific to 2016 may be gone forever.
Suplee, Shea, Cramer & Rocklein, PA