Tag Archives: Mid Year Tax Planning

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.

 

 

 

 

 

 

 

 

 

Mid-Year Tax Planning – 2014

Tax Season 2014 has come and gone and now it’s time to think about tax planning for tax year 2014. Items which could impact your 2014 taxes include certain life events and expired tax provisions.

Certain Life Events

Have you recently had a birth, adoption or death in your family? Have you gotten married, divorced, retired, or changed jobs this year? If any of these life events occur in 2014, we need to discuss the potential impact on your 2014 taxes. For example:

    1. For Qualifying Children under the age of 17, a tax credit up to $1,000 per qualifying child may be allowed (which may be refundable.)
    2. If you have retired (or are planning on retiring), we need to analyze how your change in income resulting from receiving IRA or pension distributions, and/or Social Security benefits will impact your tax liability.
  • A divorce or marriage could impact your tax situation in multiple ways (for example, alimony paid or received, deductions for mortgage interest and real estate taxes on your home, QDROs (qualified domestic relations orders) and potential changes in the standard deduction and personal exemptions allowed.)Given the current political climate, it is not known if or when an agreement on extending the Expiring Tax Provisions (“extenders”) may be reached. These extenders have made tax planning a challenge for both taxpayers and tax professionals. Therefore, if any of these provisions impact you, it is important that you contact me so that we may discuss the possible tax consequences:
  • Expiring Tax Provisions

 

    1. Sales Tax Deduction: Prior to 01/01/2014, taxpayers may have been eligible to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. This included the sales tax paid on the purchase of a vehicle. This deduction is no longer available to individuals.
    2. Mortgage Insurance Premiums: Prior to 01/01/2014, taxpayers may have been eligible to deduct the amounts paid for qualified mortgage insurance premiums along with their mortgage interest (subject to adjusted gross income limitations). Effective 01/01/2014, no deduction is allowed for these premiums paid or accrued after this date.
  • Tax-free Distributions from Individual Retirement Plans for Charitable Purposes: Prior to 01/01/2014, taxpayers over 70 ½ may have been eligible to exclude from their gross income distributions up to $100,000 from their IRA to a qualified charitable organization. This permitted taxpayers to satisfy their Required Minimum Distribution (RMD) and not include the amount in their income. As this reduced their Adjusted Gross Income (AGI), which favorably impacted the taxable amount of Social Security benefits received, this was a large tax advantage for taxpayers. This special distribution provision is not available for distributions after 2013.

 

  1. Qualified Principal Residence Debt Exclusion: Prior to 01/01/2014, the discharge of principal residence debt (qualified mortgage on a taxpayer’s main home incurred to buy, build or substantially improve his or her main home) was generally excluded from gross income. As many taxpayers are still experiencing financial difficulties resulting in foreclosures, short sales or debt forgiveness on their primary residence, the tax ramifications for 2014 will have major tax consequences.

Other Steps to Consider Before the End of the Year

You should thoroughly review your situation before year end to determine the best tax strategies for 2014 and the impact on 2015 as well. Accelerating income/deferring deductions into 2014 or deferring income/accelerating deductions to 2015 are just a couple of approaches that could benefit you.

If you have any foreign assets, be aware that there are reporting and filing requirements for those assets. Noncompliance carries stiff penalties.

Please call me at your convenience to set up an appointment to estimate your tax liability for the year and discuss any questions you may have.