3 midyear tax planning strategies for business

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. However, the last major tax legislation that was signed into law — back in December of 2015 — still has a significant impact on tax planning for businesses. Let’s look at three midyear tax strategies inspired by the Protecting Americans from Tax Hikes (PATH) Act:

1. Buy equipment. The PATH Act preserved both the generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 deduction is $510,000, subject to a $2,030,000 phaseout threshold. Without the PATH Act, the 2017 limits would have been $25,000 and $200,000, respectively. Higher limits are now permanent and subject to inflation indexing.… Read more

Keep real estate separate from your business’s corporate assets to save tax –

It’s common for a business to own not only typical business assets, such as equipment, inventory and furnishings, but also the building where the business operates — and possibly other real estate as well. There can, however, be negative consequences when a business’s real estate is included in its general corporate assets. By holding real estate in a separate entity, owners can save tax and enjoy other benefits, too.

Capturing tax savings

Many businesses operate as C corporations so they can buy and hold real estate just as they do equipment, inventory and other assets. The expenses of owning the property are treated as ordinary expenses on the company’s income statement. However, if the real estate is sold, any profit is subject to double taxation: first at the corporate level and then at the owner’s individual level when a distribution is made. As a result, putting real estate in a C corporation can be a costly mistake.… Read more

Cooking the books

What’s the most costly type of white collar crime? On average, a company is likely to lose more money from a scheme in which the financial statements are falsified or manipulated than from any other type of occupational fraud incident. The costs frequently include more than just the loss of assets — victimized companies also may suffer lost shareholder value, lower employee morale, premature tax liabilities and reputational damage. Let’s take a closer look at what’s at stake when employees “cook the books.”

Low frequency, high cost

The Report to the Nations on Occupational Fraud and Abuse published in 2016 by the Association of Certified Fraud Examiners (ACFE) found that less than 10% of the fraud schemes in its survey involved financial statement fraud. However, those cases clocked the greatest financial effect, with a median loss of $975,000. Compare that amount to the median losses for asset misappropriation ($125,000) and corruption ($200,000).… Read more

Operating across state lines presents tax risks — or possibly rewards

It’s a smaller business world after all. With the ease and popularity of e-commerce, as well as the incredible efficiency of many supply chains, companies of all sorts are finding it easier than ever to widen their markets. Doing so has become so much more feasible that many businesses quickly find themselves crossing state lines.

But therein lies a risk: Operating in another state means possibly being subject to taxation in that state. The resulting liability can, in some cases, inhibit profitability. But sometimes it can produce tax savings.

Do you have “nexus”?

Essentially, “nexus” means a business presence in a given state that’s substantial enough to trigger that state’s tax rules and obligations.

Precisely what activates nexus in a given state depends on that state’s chosen criteria. Triggers can vary but common criteria include:

  • Employing workers in the state,
  • Owning (or, in some cases even leasing) property there,
  • Marketing your products or services in the state,
  • Maintaining a substantial amount of inventory there, and
  • Using a local telephone number.
  • Read more

Choosing the best way to reimburse employee travel expenses

If your employees incur work-related travel expenses, you can better attract and retain the best talent by reimbursing these expenses. But to secure tax-advantaged treatment for your business and your employees, it’s critical to comply with IRS rules.

Reasons to reimburse

While unreimbursed work-related travel expenses generally are deductible on a taxpayer’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction, many employees won’t be able to benefit from the deduction. Why?

It’s likely that some of your employees don’t itemize. Even those who do may not have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income floor. And only expenses in excess of the floor can actually be deducted.

On the other hand, reimbursements can provide tax benefits to both your business and the employee. Your business can deduct the reimbursements (also subject to a 50% limit for meals and entertainment), and they’re excluded from the employee’s taxable income — provided that the expenses are legitimate business expenses and the reimbursements comply with IRS rules.… Read more

AICPA ISSUES NEW TRUST SERVICES PRINCIPLES

The AICPA recently issued new Trust Services Principles (TSP Section 100) in April 2016 which supersedes the previous version issued in 2014. The most significant changes to the TSP include the following:

Restructures and creates a new set of privacy criteria that is incorporated as part of the common criteria method of assessment and reporting. As such, privacy principles is now consolidated into a more concise set of additional criteria for privacy that is to be reported as part of the common criteria report instead of a separate report for Generally Accepted Private Principles.

Revised Appendix B, “Illustration of Risks and Controls for Sample Entity” to include additional privacy criteria and examples of risks that may prevent the privacy criteria from being met as well as controls designed to address those risks.

Modified criteria CC3.1 and CC3.2 to specifically require the need to address potential threats including those arising from the use of vendors and other third parties providing goods and services.… Read more

TAKING CONTROL OF THE FINAL FORM 1040

Because they don’t encounter them often, many tax practitioners are hesitant to prepare a decedent’s final Form 1040, U.S. Individual Income Tax Return. Often, the most that tax practitioners do differently from a return for a living client is to determine who can sign the return on the decedent’s behalf.

But it is better to take control of the situation and make the final Form 1040 a powerful and effective part of the post-mortem planning process. Practitioners should aim to stride confidently into the final Form 1040 preparation and come out of it with tax savings for the decedent’s family.

Here are some things I have learned about tax planning and preparation during a quarter century of helping clients after the loss of a loved one.

Stop making estimated tax payments

Once a taxpayer dies, he or she is no longer required to make estimated tax payments. Many well-meaning family members continue to submit the decedent’s quarterly estimated tax vouchers, which is not necessary and may require taking funds out of an investment portfolio, where they could otherwise be growing and earning income for as long as a year.… Read more

NEWLY-PERMANENT TAX PROVISIONS

path-act For the past several years, taxpayers have had to wait until the last minute to know if certain tax provisions were going to be extended.  On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) was enacted. This new law made permanent a number of provisions that had previously been on a year-to-year basis.  Included in the tax breaks that are now permanently in the law are:

  • American Opportunity Credit for certain education expenses ($2,500 per year for four years)
  • Educator’s deduction of $250 per year
  • The deduction of state and local income taxes
  • Tax-free distributions to charities from IRA accounts (limited to those age 70½ or older)

Taxpayers who stand to benefit from these and other provisions of the new law will now be able to plan ahead. Jerry Dreier Manager – Packer Thomas Feel free to contact Jerry with your questions:  jdreier@packerthomas.com (800) 943-4278 (330) 533-9777Read more