Tag Archives: Mid Year Tax Planning

Medicare B Premiums for 2022

The base Medicare Part B monthly premium for 2022 increases to $170.10/month (from $148.50/month for 2021).

The higher premiums some taxpayers have to pay for 2022 vary depending on the taxpayers’ modified AGI (MAGI) as shown on their 2020 income tax returns. The various MAGI levels increased a small amount with the exception of the maximum MAGI levels which stayed the same (except for MFS where the maximum MAGI level actually went down). The exact costs and modified AGI levels can be found at medicare.gov by clicking on the “Your Medicare Costs” tab and then on “Part B Costs”. The top of the page shows the premiums for 2021 and the bottom of the page shows the premiums for 2022.

The highest Medicare Part B premium for 2022 is $578.30/month (up from $504.90/month for 2021) and applies to:

– Individuals with modified AGI of $500,000 or more.

– Married Filing Jointly taxpayers with modified AGI of $750,000 or more.

– Married Filing Separately taxpayers with modified AGI of $409,000 or more ($412,000 for 2021).

Reporting for Cryptocurrency Transactions

The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.

As you are aware, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses. Furthermore, if you transfer stock from one broker to another broker, then the old broker is required to furnish a statement with relevant information, such as tax basis, to the new broker.

The IIJA expands the definition of brokers who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (“Crypto Exchanges”). Any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.

Occasionally you may have a transfer transaction that is not a sale or exchange. For example, if you transfer cryptocurrency from your wallet at one Crypto Exchange to your wallet at another Crypto Exchange, the transaction is not a sale or exchange. For that type of transfer, as with stock, the old Crypto Exchange will be required to furnish relevant digital asset information to the new Crypto Exchange. Additionally, if the transfer is to an account maintained by a party that is not a Crypto Exchange (or broker), the IIJA requires the old Crypto Exchange to file a return with the IRS. It is anticipated that such return will include generally the same information that is furnished in a broker-to-broker transfer.

For the reporting requirements, a “digital asset” is any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. Furthermore, the IRS can modify this definition. As it stands, the definition will capture most cryptocurrencies as well as potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

You may be aware that when a business receives $10,000 or more in cash in a transaction, that business is required to report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. The IIJA will require businesses to treat digital assets like cash for purposes of this reporting requirement.

These digital asset reporting rules will apply to information reporting that is due after December 31, 2023. For Form 1099-B reporting, this means that applicable transactions occurring after January 1, 2023 will be reported. Whether the IRS will refine the Form 1099-B for digital asset nuances, or come up with an entirely new form, is yet to be seen. Form 8300 reporting of cash transactions will presumably follow the same effective dates.

If you use a Crypto Exchange, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so. The transactions subject to the reporting will include not only selling cryptocurrencies for fiat currencies (like U.S. dollars), but also exchanging cryptocurrencies for other cryptocurrencies. A reporting intermediary does not always have perfect information, especially when it comes to an entirely new type of reporting. Thus, the first information reporting cycle for digital assets may be a bit unsettling.

I am here to help you and can provide solutions for any challenges that may develop.

If you have questions or concerns about the digital asset reporting rules, please do not hesitate to contact me.

Year End Individual Tax Update

With the year-end approaching, it is time to start thinking about strategies that may help lower your tax bill for not only 2021 but 2022 as well.

Planning is more challenging than usual this year due to the uncertainty surrounding pending legislation that could, among other things, increase top rates on both ordinary income and capital gain starting in 2022.

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.

If proposed tax increases do pass, however, the highest income taxpayers may find that the opposite strategies produce better results. Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

Our firm has compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you, or a family member, may benefit from many of them. We can narrow down specific actions when we meet to review your particular tax situation.

Please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:

  • Higher-income individuals must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of MAGI over a threshold amount, $250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case. • As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax will depend on the taxpayer’s estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize additional NII for the balance of the year, others should try to reduce MAGI other than NII, and some individuals will need to consider ways to minimize both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs or most other retirement plans.
  • Pending legislative changes to the 3.8% net investment income tax NIIT proposed to be effective after this tax year would subject high income, phased-in starting at $500,000 on a joint return; $400,000 for most others, S shareholders, limited partners, and LLC members to NIIT on their pass-through income and gain that is not subject to payroll tax. Accelerating some of this type of income into 2021 could help avoid NIIT on it under the potential 2022 rules, but would also increase 2021 MAGI, potentially exposing other 2021 investment income to the tax.
  • The 0.9% additional Medicare tax also may require higher-income earners to take year-end action. It applies to individuals whose employment wages and self-employment income total more than an amount equal to the NIIT thresholds, above. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. This would be the case, for example, if an employee earns less than $200,000 from multiple employers but more than that amount in total. Such an employee would owe the additional Medicare tax, but nothing would have been withheld by any employer.
  • Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to net long-term capital gain to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount, $80,800 for a married couple; estimated to be $83,350 in 2022. An example: If $5,000 of long-term capital gains you took earlier this year qualifies for the zero rate then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses will offset $5,000 of capital gain that is already tax-free.
  • Postpone income until 2022 and accelerate deductions into 2021 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2021 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. In some cases, it may benefit some taxpayers to actually accelerate income into 2021. An example: A person who will have a more favorable filing status this year than next such as head of household versus individual filing status, or who expects to be in a higher tax bracket next year.
  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in stocks and mutual funds that have devalued into a Roth IRA in 2021 if eligible to do so. Keep in mind that the conversion will increase your income for 2021, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation.
  • It may be advantageous to try to arrange with your employer to defer, until early 2022, a bonus that may be coming your way. This might cut as well as defer your tax. Again, considerations may be different for the highest income individuals.
  • Many taxpayers will not want to itemize because of the high basic standard deduction amounts that apply for 2021,$25,100 for joint filers, $12,550 for singles and for marrieds filing separately, $18,800 for heads of household, and because many itemized deductions have been reduced or eliminated, including the $10,000 limit on state and local taxes; miscellaneous itemized deductions; and non-disaster related personal casualty losses. You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions will not save taxes unless they total more than your standard deduction. In addition to the standard deduction, you can claim a $300 deduction , $600 on a joint return, for cash charitable contributions.

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. An example: a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years’ worth of charitable contributions this year. The COVID-related increase for 2021 in the income-based charitable deduction limit for cash contributions from 60% to 100% of MAGI assists in this bunching strategy.

  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2021 deductions even if you do not pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2021, consider asking your employer to increase withholding of state and local taxes or make estimated tax payments of state and local taxes before year-end to pull the deduction of those taxes into 2021. But this strategy is not good to the extent it causes your 2021 state and local tax payments to exceed $10,000.
  • Required minimum distributions RMDs from an IRA or 401(k) plan or other employer-sponsored retirement plan have not been waived for 2021, as they were for 2020. If you were 72 or older in 2020 you must take an RMD during 2021. Those who turn 72 this year have until April 1 of 2022 to take their first RMD but may want to take it by the end of 2021 to avoid having to double up on RMDs next year.
  • If you are age 70½ or older by the end of 2021, and especially if you are unable to itemize your deductions, consider making 2021 charitable donations via qualified charitable distributions from your traditional IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. However, if you are still entitled to claim the entire standard deduction. The qualified charitable distribution amount is reduced by any deductible contributions to an IRA made for any year in which you were age 70½ or older, unless it reduced a previous qualified charitable distribution exclusion.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2021 if you are facing a penalty for underpayment of estimated tax and increasing your wage withholding won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2021. You can then timely roll over the gross amount of the distribution, the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2021, but the withheld tax will be applied pro rata over the full 2021 tax year to reduce previous underpayments of estimated tax.
  • Consider increasing the amount you set aside for next year in your employer’s FSA if you set aside too little for this year and anticipate similar medical costs next year.
  • If you become eligible in December of 2021 to make HSA contributions, you can make a full year’s worth of deductible HSA contributions for 2021.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2021 to each of an unlimited number of individuals. You cannot carry over unused exclusions to another year. These transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
  • If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred or on the return for the prior year, generating a quicker refund. If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2021 to maximize your casualty loss deduction this year.

These are just some of the year-end steps that can be taken to save taxes.

If you received an Economic Impact Payment in 2021 or received  Advanced Child Tax Credit Payments, these amounts will be required to be reconciled on your 2021 Federal Income Tax Return.

With holidays rapidly approaching, we wish each of you safe travels and wonderful times with friends and family.

We are here to serve you and look forward to your call.

Year End Business Update

With year-end approaching, it is time to think about moves that may help lower your business’s taxes for 2021 and 2022.

2021 is more challenging than usual due to the uncertainty surrounding pending legislation that could increase corporate tax rates plus the top rates on both business owners’ ordinary income and capital gain starting in 2022.

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for most small businesses, as will the bunching of deductible expenses into this year or next to maximize their tax value. If proposed tax increases do pass, however, the highest income businesses and owners may find that the opposite strategies produce better results: Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you or your business, but you may benefit from many of them. We can determine specific actions when we meet to tailor a particular plan for your business, In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:

  • Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2021, if taxable income exceeds $329,800 for a married couple filing jointly, about half that for others, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business, such as law, accounting, health, or consulting, the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property, such as machinery and equipment held by the business. The limitations are phased in; for example, the phase-in applies to joint filers with taxable income up to $100,000 above the threshold, and to other filers with taxable income up to $50,000 above their threshold.
  • Taxpayers may be able to salvage some or all of this deduction, by deferring income or accelerating deductions to keep income under the dollar thresholds, or be subject to a smaller deduction phaseout, for 2021. Depending on their business model, taxpayers also may be able increase the deduction by increasing W-2 wages before year-end. The rules are quite complex.
  • More small businesses are able to use the cash method of accounting rather than the accrual method than were allowed to do so in earlier years. To qualify as a small business a taxpayer must, among other things, satisfy a gross receipts test, which is satisfied for 2021 if, during a three-year testing period, average annual gross receipts don’t exceed $26 million. Next year this dollar amount is estimated to increase to $27 million. Not that many years ago it was $1 million. Cash method taxpayers may find it   easier to shift income, for example, by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments. • Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2021, the expensing limit is $1,050,000, and the investment ceiling limit is $2,620,000. Expensing is generally available for most depreciable property. other than buildings, and off-the-shelf computer software. It is also available for interior improvements to a building. but not for its enlargement, elevators or escalators, or the internal structural framework, for roofs, and for HVAC, fire protection, alarm, and security systems.

The generous dollar ceilings mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year.  Expensing eligible items acquired and placed in service in the last days of 2021, rather than at the beginning of 2022, can result in a full expensing deduction for 2021.

  • Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment bought used, with some exceptions, or new if purchased and placed in service this year, and for qualified improvement property, described above as related to the expensing deduction. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2021.
  • Businesses may be able to take advantage of the de minimis safe harbor election, also known as the book-tax conformity election, to expense the costs of lower-cost assets and materials and supplies, assuming the costs aren’t required to be capitalized under the UNICAP rules. To qualify for the election, the cost of a unit of property cannot exceed $5,000 if the taxpayer has an applicable financial statement. If there’s no AFS, the cost of a unit of property cannot exceed $2,500. Where the UNICAP rules are not an issue, and where potentially increasing tax rates for 2022 are not a concern, consider purchasing qualifying items before the end of 2021.
  • A corporation, other than a large corporation, that anticipates a small net operating loss (NOL) for 2021 and substantial net income in 2022 may find it worthwhile to accelerate just enough of its 2022 income or to defer just enough of its 2021 deductions to create a small amount of net income for 2021. This allows the corporation to base its 2022 estimated tax installments on the relatively small amount of income shown on its 2021 return, rather than having to pay estimated taxes based on 100% of its much larger 2022 taxable income.
  • Year-end bonuses can be timed for maximum tax effect by both cash- and accrual-basis employers. Cash-basis employers deduct bonuses in the year paid, so they can time the payment for maximum tax effect. Accrual-basis employers deduct bonuses in the accrual year, when all events related to them are established with reasonable certainty. However, the bonus must be paid within 2½ months after the end of the employer’s tax year for the deduction to be allowed in the earlier accrual year. Accrual employers looking to defer deductions to a higher-taxed future year should consider changing their bonus plans before yearend to set the payment date later than the 2.5-month window or change the bonus plan’s terms to make the bonus amount not determinable at year end.
  • To reduce 2021 taxable income, consider deferring a debt-cancellation event until 2022. • Sometimes the disposition of a passive activity can be timed to make best use of its freed-up suspended losses. Where reduction of 2021 income is desired, consider disposing of a passive activity before year-end to take the suspended losses against 2021 income. If possible 2022 top rate increases are a concern, holding off on disposing of the activity until 2022 might save more in future taxes.

In our year- end planning, these are some of the steps that can be taken to save taxes.

Our firm looks forward to your call.

Summer Activity that May Affect Your Tax Return!

Things people do during the summer that might affect their tax return next year

IRS Tax Tip 2021-102, July 15, 2021

It’s summertime and for many people, summertime means change. Whether it’s a life change or a typical summer event, it could affect incomes taxes. Here are a few summertime activities and tips on how taxpayers should consider them during filing season.

Getting married

Newlyweds should report any name change to the Social Security Administration. They should also report an address change to the United States Postal Service, their employers, and the IRS. This will help make sure they receive documents and other items they will need to file their taxes.

Sending kids to summer day camp

Unlike overnight camps, the cost of summer day camp may count towards the child and dependent care credit.

Working part-time

While summertime and part-time workers may not earn enough to owe federal income tax, they should remember to file a return. They’ll need to file early next year to get a refund for taxes withheld from their checks this year.

Gig economy work

Taxpayers may earn summer income by providing on-demand work, services or goods, often through a digital platform like an app or website. Examples include ride sharing, delivery services and other activities. Those who do are encouraged to visit the Gig Economy Tax Center at IRS.gov to learn more about how participating in the sharing economy can affect their taxes.

Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer to account for the summer’s work. They’ll use this to prepare their tax return. They should receive the W-2 by January 31 next year. Employees will get a W-2 even if they no longer work for the summertime employer.

Summertime workers can avoid higher tax bills and lost benefits if they know their correct status. Employers will determine whether the people who work for them are employees or independent contractors PDF. Independent contractors aren’t subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes.

 

Last-Minute Savings for Tax Year 2016

Attention last minute savers! There’s still time to reduce your tax burden for 2016.

Have you funded a traditional IRA, Roth IRA, or SEP this year? The deadline for contributions to IRAs is April 18, 2017 — this year’s filing deadline. For self-employed taxpayers, contributions to a SEP may be postponed until October 16, 2017 if a tax return extension has been filed.

Increasing your 401(k) contribution so that you are putting in the maximum amount of money allowed is a smart way to lower taxes. If you can’t afford the maximum contribution, $18,000 for 2016, $24,000 if you are age 50 or over, you should still contribute the full amount that will be matched by employer contributions – no reason to leave money on the table!

If you are currently enrolled in an employer sponsored retirement plan, your contribution to a traditional IRA will not be tax deductible, but you will be able to take advantage of tax-deferred interest compounding. The cap for contributions to a traditional or Roth IRA in 2016 is $5,500 for taxpayers under 50 and $6,500 for those over 50.

If you have reason to believe you’ll be in the same or a lower tax bracket next year, it may make sense to defer income by taking capital gains in 2017 instead of in 2016. If you are self-employed or freelancing and can push revenue into a lower earning year, it may be wise to do so. Winding up in a higher tax bracket can result in a big surprise in your tax bill. Your forecast for personal income this year vs. next year is an important issue to discuss with your tax professional.

Charitable deductions are another great way to lower your taxes before year’s end. Just make sure that the charity to which you are donating is recognized by the IRS as being tax-exempt, and that you document and photograph all items donated.

“Loss harvesting” is the practice of selling stocks and mutual funds with the goal of realizing losses. Those losses can offset taxable gains you have realized during the year, dollar for dollar. This is another good conversation to have with your enrolled agent.

To make sure you’re taking advantage of all available tax savings, tax credits and deductions for 2016, be sure to bring the right documents to your tax professional. Along with any Forms W-2 from your employer, bring Forms 1099 declaring misc. income, mortgage interest information, and K-1 forms showing income from a partnership, small business or trust. Bring documentation of any student loans you may be paying off, and money spent on child care.

Some other things to consider: if you collected unemployment benefits at any time during the year, that money is generally taxable and you will need to bring a form 1099-G. For state filing, you’ll want to remember to include any personal property tax paid – for example, on your automobile. Did you collect Social Security, rent a property, receive self-employment income or pay alimony? Cancelled checks and receipts can help to document expenses you wish to claim, such as those related to a home office. Job search expenses, moving expenses and college expenses may all be deductible under certain circumstances. Medical expenses might be deductible, but the bar is high.

As with everywhere else in life, often what the large print giveth the small print taketh away. For instance, IRA contributions — both traditional and Roth — have some tricky limitations (and some workarounds, too). Enrolled agents (“EAs”), America’s tax experts, are well placed to help you navigate. Please feel free to call my office at xxx-xxx-xxxx to schedule an appointment.

 

About Enrolled Agents

To earn the EA license from the US Department of Treasury, candidates must pass a background check and a stringent three-part exam on tax administered by the IRS. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.

10 Year-End Tax-Planning Tips for Individuals

  1. Accelerate Deductions and Defer Income

It sometimes makes sense to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

  1. Bunch Itemized Deductions

Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving a procedure into this year or postponing it until next year. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.

  1. Make Up a Tax Shortfall with Increased Withholding

Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall by increasing withholding on your salary or bonuses. A bigger estimated tax payment can leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.

  1. Leverage Retirement Account Tax Savings

It’s not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement accounts (IRAs) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2016 contribution limits are $18,000 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).

  1. Reconsider a Roth IRA Rollover

It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

  1. Get Your Charitable House in Order

If you plan on giving to charity before the end of the year, remember that a cash contribution must be documented to be deductible. If you claim a charitable deduction of more than $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a contemporaneous written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.

  1. Give Directly from an IRA

Congress finally made permanent a provision that allow taxpayers 70½ and older to make tax-free charitable distributions from IRAs. Using your IRA distributions for charitable giving could save you more than taking a charitable deduction on a normal gift. That’s because these IRA distributions for charitable giving won’t be included in income at all, lowering your AGI. You’ll see the difference in many AGI-based computations where the below-the-line deduction for charitable giving doesn’t have any effect. Even better, the distribution to charity will still count toward the satisfaction of your minimum required distribution for the year.

  1. Zero out AMT

Some high-income taxpayers must pay the alternative minimum tax (AMT) because the AMT removes key deductions. The silver lining is that the top AMT tax rate is only 28 percent. So you can “zero out” the AMT by accelerating income into the AMT year until the tax you calculate for regular tax and AMT are the same. Although you will have paid tax sooner, you will have paid at an effective tax rate less than the top regular tax rate of 39.6 percent. But be careful, this can backfire if you are in the AMT phase-out range or the additional income affects other tax benefits.

  1. Don’t Squander Your Gift Tax Exclusion

You can give up to $14,000 to as many people as you wish in 2016, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. You and your spouse can use your exemptions together to give up to $28,000 per beneficiary.

  1. Leverage Historically Low Interest Rates

Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. An appreciating market and historically low rates create the perfect atmosphere for estate planning. The past several years presented a historically favorable time, and the low rates won’t last forever

 

Not sure what to do?  Give our office a call!!  663-8686

 

The “Protecting Americans from Tax Hikes Act of 2015”

Overview of the Provisions

PERMANENT PROVISIONS

The bill makes over 20 tax relief provisions permanent, including provisions from 11 different bills marked up by the Ways and Means Committee in 2015.

  • Research and Development Credit (base credit, 14% ASC, AMT and Payroll provisions)
  • Section 179 expensing ($500,000 and $2 million limits, no limitation on real estate)
  • State and local sales tax deduction
  • 15-year depreciation for leaseholds and improvements
  • International tax relief: Active finance exception
  • Deduction for teacher classroom expenses
  • 100% exclusion on gains from sale of small business stock
  • Low-Income Housing Tax Credit extenders: the 9% floor and military housing allowance
  • Employer wage credit for employees on active duty (expanded for all employers)
  • All three charitable extenders: food inventory, conservation easements, and IRA charitable rollover, and exemption for certain payments to a controlling exempt organization
  • Both S corporation provisions: 5-year built in gains tax and charitable contributions
  • Mass transit parity
  • Deduction for teacher classroom expenses (indexed for inflation)
  • Enhancements since 2001: Earned Income Tax Credit, Additional Child Tax Credit, and American Opportunity Tax Credit
  • Two provisions for mutual funds: treatment of RIC dividends for foreign investors and subjecting RICs to FIRPTA

FIVE-YEAR PROVISIONS

  • Bonus depreciation (50% for 2015-17, 40% in 2018, 30% in 2019)
  • International tax relief: Controlled foreign corporation look-through rule
  • The New Markets Tax Credit
  • The Work Opportunity Tax Credit

TWO-YEAR PROVISIONS

  • Exclusion of discharged mortgage debt relief from gross income (modified)
  • Mortgage insurance premiums treated as qualified residence interest
  • Above the line deduction for qualified tuition and related expenses
  • Indian Employment Tax Credit
  • Railroad Track Maintenance Credit (modified)
  • Mine Rescue Team Training Credit
  • Qualified Zone Academy Bonds
  • Race horses: 3-year recovery period
  • Motorsports complexes; 7-year recovery period
  • Accelerated depreciation for business property on Indian reservations (modified)
  • Election to expense mine safety equipment
  • Film and television expensing (modified to include live theater)
  • Section 199 deduction for activities in Puerto Rico
  • Empowerment Zone tax incentives (modified)
  • Temporary increase in rum cover over
  • American Samoa economic development credit
  • Nonbusiness energy property credit
  • Alternative fuel vehicle refueling property credit
  • 2-wheeled plug-in electric motor credit
  • Second generation biofuel producer credit
  • Biodiesel and renewable diesel incentives credit
  • Indian Coal Production Tax Credit (modified)
  • Credit for facilities producing energy from certain renewable resources
  • Credit for energy-efficient new homes
  • Special allowance for second generation biofuel plant property
  • Energy efficient commercial buildings deduction
  • Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
  • Credits relating to alternative fuels
  • Credit for new qualified fuel cell motor vehicles
  • Medical device tax moratorium

EXCISE TAXES

  • Medical device tax moratorium
  • Craft Beverage Modernization and Tax Reform Act

PROGRAM INTEGRITY

  • Modification of filing dates of returns and statements relating to employee wage information and nonemployee compensation to improve compliance
  • Safe harbor for de minimis errors on information returns and payee statements
  • Requirements for the issuance of ITINs.
  • Prevention of retroactive claims of earned income credit after issuance of social security number.
  • Prevention of retroactive claims of child tax credit. Sec. 206. Prevention of retroactive claims of American opportunity tax credit
  • Procedures to reduce improper claims. Sec. 208. Restrictions on taxpayers who improperly claimed credits in prior year
  • Treatment of credits for purposes of certain penalties.
  • Increase the penalty applicable to paid tax preparers who engage in willful or reckless conduct.
  • Employer identification number required for American opportunity tax credit.
  • Higher education information reporting only to include qualified tuition and related expenses actually paid.

MISCELLANEOUS PROVISIONS

Family Tax Relief

  • Exclusion for amounts received under the Work Colleges Program
  • Improvements to section 529 accounts
  • Elimination of residency requirement for qualified ABLE programs
  • Exclusion for wrongfully incarcerated individuals.
  • Clarification of special rule for certain governmental plans
  • Rollovers permitted from other retirement plans into simple retirement accounts
  • Technical amendment relating to rollover of certain airline payment amounts
  • Treatment of early retirement distributions for nuclear materials couriers, United States Capitol Police, Supreme Court Police, and diplomatic security special agents
  • Prevention of extension of tax collection period for members of the Armed Forces who are hospitalized as a result of combat zone injuries

Real Estate Investment Trusts

  • Restriction on tax-free spinoffs involving REITs
  • Reduction in percentage limitation on assets of REIT which may be taxable REIT subsidiaries
  • Prohibited transaction safe harbors
  • Repeal of preferential dividend rule for publicly offered REITs
  • Authority for alternative remedies to address certain REIT distribution failures Limitations on designation of dividends by REITs
  • Debt instruments of publicly offered REITs and mortgages treated as real estate assets
  • Asset and income test clarification regarding ancillary personal property
  • Hedging provisions.
  • Modification of REIT earnings and profits calculation to avoid duplicate taxation
  • Treatment of certain services provided by taxable REIT subsidiaries
  • Exception from FIRPTA for certain stock of REITs
  • Exception for interests held by foreign retirement or pension funds
  • Increase in rate of withholding of tax on dispositions of United States real property interests
  • Interests in RICs and REITs not excluded from definition of United States real property interests
  • Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations

Additional Provisions

  • Deductibility of charitable contributions to agricultural research organizations
  • Removal of bond requirements and extending filing periods for certain taxpayers with limited excise tax liability
  • Modifications to alternative tax for certain small insurance companies
  • Treatment of timber gains
  • Modification of definition of hard cider
  • Church plan clarification

Revenue Provisions

  • Updated ASHRAE standards for energy efficient commercial buildings deduction
  • Excise tax credit equivalency for liquified petroleum gas and liquified natural gas
  • Exclusion from gross income of certain clean coal power grants to non-corporate taxpayers
  • Clarification of valuation rule for early termination of certain charitable remainder unitrusts
  • Prevention of transfer of certain losses from tax indifferent parties
  • Treatment of certain persons as employers with respect to motion picture projects

TAX ADMINISTRATION

Internal Revenue Service Reforms

  • Duty to ensure that IRS employees are familiar with and act in ac- cord with certain taxpayer rights
  • IRS employees prohibited from using personal email accounts for official business
  • Release of information regarding the status of certain investigations
  • Administrative appeal relating to adverse determinations of tax-exempt status of certain organizations
  • Organizations required to notify Secretary of intent to operate under 501(c)(4)
  • Declaratory judgments for 501(c)(4) and other exempt organizations
  • Termination of employment of Internal Revenue Service employees for taking official actions for political purposes
  • Gift tax not to apply to contributions to certain exempt organizations
  • Extend Internal Revenue Service authority to require truncated Social Security numbers on Form W-2
  • Clarification of enrolled agent credentials
  • Partnership audit rules

United States Tax Court

  • Filing period for interest abatement cases
  • Small tax case election for interest abatement cases
  • Venue for appeal of spousal relief and collection cases
  • Suspension of running of period for filing petition of spousal relief and collection cases
  • Application of Federal rules of evidence
  • Judicial conduct and disability procedures
  • Administration, judicial conference, and fees
  • Clarification relating to United States Tax Court

Expired Tax Breaks Renewed

At long last, Congress granted a reprieve for most of the expired tax provisions that had remained in limbo this year, but the late-breaking tax relief is only temporary.

The new legislation – the Tax Increase Prevention Act of 2014 – restores these tax breaks retroactive to January 1, 2014. However the provisions expire again on December 31, 2014, so Congress will likely take up these measures again after the holidays. The president is expected to sign the approved bill into law.

The tax extenders cover a wide range of tax breaks both large and small for individuals and businesses. Here are ten of the most popular items for your clients.

1.State and local tax deductions: In lieu of deducting state and local income taxes, a taxpayer may elect to deduct states sales taxes. Deductions are based on actual receipts or a state-by-state table (plus sales tax paid for certain big-ticket items).

2.Section 179 deductions: A business can currently deduct, or “expense,” up to $500,000 of qualified assets placed in service in 2014, subject to a phaseout threshold of $2 million. Prior to the latest extension, the maximum allowance was just $25,000 with a $200,000 phaseout threshold.

3.Bonus depreciation: A separate provision allows a business to claim 50% “bonus depreciation” for qualified assets placed in service in 2014. Note that bonus depreciation may be combined with the Section 179 deduction in some cases.

4.Charitable IRA rollover: If you’re over age 70½, you can roll over up to $100,000 of IRA proceeds to a charity without paying tax on the distribution. This technique is often used to satisfy the rules for required minimum distributions (RMDs).

5.Research credits: This popular tax credit, which has been extended numerous times in the past, provides a tax credit equal to 20% of qualified expenses exceeding a base amount. Alternatively, a business can elect to use a simplified 14% credit.

6.Tuition-and-fees deduction: Taxpayers may deduct tuition and fees paid to a college in lieu of claiming one of the higher education tax credits. However, the maximum deduction of $4,000 is phased out based on modified adjusted gross income (MAGI).

7.Hiring credits: The Work Opportunity Tax Credit (WOTC) is available to employers hiring workers from one of several disadvantaged groups. Generally, the maximum credit is $2,400 per worker, although it can be high as $9,600 for certain veterans.

8.Mortgage loan forgiveness: This provision authorizes a tax exclusion for mortgage loan forgiveness on debts up to $2 million. The exclusion is available only on debt forgiveness for a principal residence.

9.Home energy credits: The residential energy credit has existed in various forms for years. For 2014, a maximum $500 credit may be claimed for 10% of qualified energy-saving expenditures like new heating and air conditioning systems.

10.Teacher classroom expenses: Teachers and certain other educators are able to deduct up to $250 of their out-of-pocket classroom expenses. This deduction is claimed above-the-line.

 

The Top 10 Reasons to Contact Your EA

Minimizing your taxes requires a year round effort. The following events will have an impact on your tax liability. In most cases, proper tax planning can minimize any negative tax consequences. Whenever a situation on this list occurs, call your EA.

 

  1. Buying, selling or exchanging any real property (land or building), including converting your residence to a rental; selling securities.
  2. Changing your marital status (marriage, divorce).
  3. Making gifts to any one person totaling more than $14,000 in any calendar year.
  4. Taking out a loan using your home or other real property as security.
  5. Going into business for yourself.
  6. Expecting a significant change in your income and/or deductions.
  7. You receive correspondence from the Internal Revenue Service or state taxing authority.
  8. Making contributions to or receiving distributions from retirement plans.
  9. Receiving an inheritance.
  10. Changing jobs or retiring.