McAtee & Associates, CPAS

Did you know that a name change could impact your taxes? Here’s what you need to know:

                           A Name Change Could Affect your Taxes

1. Report Name Changes. Did you get married and are now using your new spouse’s last name or are you now hyphenating your last name? Did you divorce and go back to using your former last name? In either case, you should notify the SSA of your name change. That way, your new name on your IRS records will match up with your SSA records. A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.

2. Make Dependent’s Name Change. Notify the SSA if your dependent had a name change. For example, this could apply if you adopted a child and the child’s last name changed. If you adopted a child who does not have a Social Security number, you may use an Adoption Taxpayer Identification Number on your tax return. An ATIN is a temporary number. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS.

3. Get a New Card. File Form SS-5, Application for a Social Security Card, to notify SSA of your name change. You can get the form onSSA.gov or call 800-772-1213 to order it. Your new card will show your new name with the same SSN you had before.

4. Report Changes in Circumstances when they happen. If you enrolled in health insurance coverage through the Health Insurance Marketplace you may receive the benefit of advance payments of the premium tax credit. These are paid directly to your insurance company to lower your monthly premium. Report changes in circumstances, such as a name change, a new address and a change in your income or family size to your Marketplace when they happen throughout the year. Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit.

If you need any advice related to IRS requirements regarding a name change, please give us a call.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

What should you do if you already filed your federal tax return and then discover a mistake?  First of all, don’t worry….     

                                   Filing an Amended Tax Return

In most cases, all you have to do is file an amended tax return. But before you do that, here is what you should be aware of when filing an amended tax return.

Form 1040X, Amended U.S. Individual Income Tax Return, is used to file an amended (corrected) tax return.

The corrected tax return must be filed on paper. An amended return cannot be e-filed. If you need to file another schedule or form, don’t forget to attach it to the amended return.

An amended tax return should only be filed to correct errors or make changes to your original tax return. For example, you should amend your return if you need to change your filing status, or correct your income, deductions or credits.

You normally do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will mail you a request asking for those.

Note: Eligible taxpayers who filed a 2015 tax return and claimed a premium tax credit using incorrect information from either the federally facilitated or a state-based Health Insurance Marketplace, generally do not have to file an amended return regardless of the nature of the error, even if additional taxes would be owed. The IRS may contact you to ask for a copy of your corrected Form 1095-A to verify the information.

Nonetheless, you may choose to file an amended return because some taxpayers may find that filing an amended return may reduce their tax owed or give them a larger refund (see below for additional information).

If more than one amended return is required, a separate 1040X must be prepared for each return and mailed to the IRS in separate envelopes.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 16 weeks to process. You may cash your original refund check while waiting for the additional refund.

If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties. You can use IRS Direct Pay to pay your tax directly from your checking or savings account.

Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. For example, the last day for most people to file a 2013 claim for a refund is April 17, 2017. Special rules may apply to certain claims. For more information, see the instructions for Form 1040X or call our office.

You can track the status of your amended tax return for the current year three weeks after it is filed. You can also check the status of amended returns for up to three prior years. To use the “Where’s My Amended Return” tool on the IRS website, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.

Filing an amended return after receiving a corrected Form 1095-A

If you enrolled in qualifying Marketplace health coverage, then you probably filed a tax return based on a Form 1095-A that you received from the Marketplace.

Some taxpayers may receive a second Form 1095-A because the information on their initial form was incorrect or incomplete. If you filed a 2015 tax return based on the initial Form 1095-A and claimed the premium tax credit using incorrect information from either the federally-facilitated or a state-based Health Insurance Marketplace, you should determine the effect the changes to your form might have on your return. Comparing the two Forms 1095-A can help you assess whether you should file an amended tax return, Form 1040X.

Corrected Form 1095-A

A corrected form generally indicates you previously received a Form 1095-A containing one or more errors.

• If you have not yet filed your tax return, you should use this new form when completing your tax return.
• If you have already filed your tax return, you will need to determine the effect the changes to your form might have on your return. Some changes–such as a corrected address–may not affect your tax return or require any action on your part, while others–such as a change in your monthly premium amount–might. Compare the corrected Form 1095-A to the original form to determine the nature of the change. For a detailed list of these changes, see Corrected or Voided Form 1095-A. This information can help you assess whether you should file an amended tax return, Form 1040X. If you are uncertain whether you should amend your tax return, please contact our office..
• If you believe the information on your corrected Form 1095-A is incorrect or you have question about the form, you should contact your Marketplace.

Voided Form 1095-A

A voided form–or letter stating your form was voided–generally indicates you previously received a Form 1095-A that was issued in error. This may happen if you did not complete enrollment in Marketplace coverage. The voided Form 1095-A, as the well as the previously received Form 1095-A, should not be used to file your tax return.

• If you receive a voided Form 1095-A after you have already filed your tax return and claimed the premium tax credit using the original Form 1095-A that the Marketplace sent in error, you should file an amended return.
• If you have not yet filed your tax return, don’t use the information on the voided or on the previously received Form 1095-A to figure a premium tax credit on Form 8962.
• If you had coverage through the Marketplace and you believe they should not have voided your form, you should contact your Marketplace immediately to receive an accurate Form 1095-A.

Please call us if you need assistance filing an amended return or have any questions about Form 1040X.

 
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

After several weeks of quite technical posts about the PATH and FAST Acts, our post this week is much lighter reading, but still gives you very, very important information you will want to be aware of if you get a letter or notice from the IRS…

        What to Do if You Get a Letter from the IRS

Each year, the IRS mails millions of notices and letters to taxpayers for a variety of reasons. If you receive correspondence from the IRS here’s what to do:

Don’t panic. You can usually deal with a notice simply by responding to it. Most IRS notices are about federal tax returns or tax accounts.

Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do.

Your notice will likely be about changes to your account, taxes you owe or a payment request. However, your notice may ask you for more information about a specific issue.

If your notice says that the IRS changed or corrected your tax return, review the information and compare it with your original return. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

If you don’t agree with the notice, you need to respond. Write a letter that explains why you disagree and include information and documents you want the IRS to consider. Mail your response with the contact stub at the bottom of the notice to the address on the contact stub. Allow at least 30 days for a response.

For most notices, there is no need to call or visit a walk-in center. If you have questions, call the phone number in the upper right-hand corner of the notice. Be sure to have a copy of your tax return and the notice with you when you call. If you need assistance understanding an IRS Notice or letter, don’t hesitate to call our office.

Always keep copies of any notices you receive with your tax records.

Be alert for tax scams. The IRS sends letters and notices by mail and does NOT make initial contact by telephone, email or social media to ask for personal or financial information.

Once again, If you receive an IRS Notice or letter and need assistance in understanding it and/or to find out what your options are, please call our office.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

Back on the PATH Act trail with more details for you to consider ….

Protecting Americans from Tax Hikes (PATH) Act
(Part 3)

Nonextender Provisions in the PATH Act

In addition to the tax extenders enacted by the PATH Act that we highlighted in June the new law makes the following additional tax code changes:

• Code Sec. 529 plans. The PATH Act permanently expands the definition of qualified higher education expenses in Code Sec. 529(e)(3)(A) to include expenses for the purchase of any computer technology or equipment. The act also modifies the 529 account rules to treat any distribution from a 529 account as coming only from that account, even if the individual making the distribution operates more than one account. The new law also treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if the amounts are recontributed to as 529 account within 60 days.
• Achieving a better Life Experience (ABLE) accounts. The PATH act amends Code Sec. 529(A)(b)(1) to provide that ABLE accounts may be established in any state. Prior to the change, the law provided that ABLE accounts could only be established in the state of residence of the ABLE account owner.
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs. Under the PATH Act, qualified individuals may generally roll over amounts from an employer-sponsored retirement plan to a SIMPLE IRA if the plan has existed for at least two years.
• Retirement Distributions. The PATH Act provides an exception to the 10% penalty on withdrawals from retirement accounts before age 50 for public safety officers, including nuclear materials couriers. U.S. Capitol Police Supreme Court Police and diplomatic security special agents [Code Sec. 72(t)(19)(B)(ii)].
• Exclusion for work college program payments. For amounts received for tax years beginning after December 18, 2015, the PATH Act exempts from gross income any payments from certain work-learning-service programs that are operated by a work college [(Code Sec. 1119(c)(2)(C)].
• Requirement for issuance of individual Taxpayer Identification Numbers (ITINs). The PATH Act provides that the IRS may issue ITINs if the applicant provides the required documentation either by mail or in person to an IRS employee or a community-based certified acceptance agent. Individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020. An ITIN will expire if an individual fails to file a tax return for three consecutive years.
• Information returns. The PATH Act requires that certain information returns relating to employee wage information and nonemployee compensation be filed by January 31^st, generally the same date as the due date for employee and payee statements and are no longer eligible for the extended filing date for electronically filed returns. In addition, no credit or refund for an overpayment for a tax year will be made to a taxpayer before the 15^th day of the second month following the close of that tax year, if the taxpayer claimed the EIC or additional child tax credit on the return. The PATH Act also includes a safe harbor for de minimis errors on information returns, payee statements and withholding.
• Increase in preparer willful or reckless conduct penalty. Effective for tax returns prepared for tax years ending after December 18, 2015, the PATH Act increases the penalty imposed on tax returns preparers for willful or reckless conduct from 50% to 75% [Code Sec. 6694(b)(1)(B].

Tax Provisions included in the FAST Act

Passport. Under the FAST Act, if the IRS certifies that an individual has a seriously delinquent tax debt, the State Department may deny, revoke or limit that individual’s U.S. passport. For purposes of the FAST Act, a seriously delinquent tax debt is an unpaid federal tax liability which has been assessed, greater than $50,000 (adjusted for inflation after 2016), and for which a federal levy has been made or a notice of a federal tax lien has been filed (and administrative rights under Code Sec. 6320 have been exhausted or have lapsed)(Code Sec. 7345).

Tax Collection. The FAST Act directs the IRS to contract with one or more private agencies for the collection of outstanding inactive tax receivables (Code Sec. 6306). For purposes of the FAST Act, an inactive tax receivable is a case that the IRS has removed from its active inventory because of a lack of resources or inability to locate the taxpayer, a case where more than one-third of the applicable limitations period has elapsed and the case has not been assigned to an IRS employee, or a case where more than 365 days have passed without interaction between the IRS and the taxpayer.

Form 5500. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 provided for an automatic 3½-month extension for the due date for filing Form 5500, Annual Returns/Reports of Employee Benefit Plan. The FAST Act repeals this extension, effective for tax years beginning after December 31, 2015. Therefore, the 2½-month extension period that existed previously is effectively restored.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

Back on the PATH Act trail with more details for you to consider ….

Protecting Americans from Tax Hikes (PATH) Act
(Part 2)

Bonus Depreciation

The PATH Act extends bonus depreciation (additional first-year depreciation) for qualified property acquired and placed in service from 2015 through 2019 (through 2020 for certain longer-lived and transportation property). Eligible taxpayers may claim:

• 50% bonus depreciation for qualified property placed in service in 2015-2017
• 40% bonus depreciation for qualified property placed in service in 2018
• 30% bonus depreciation for qualified property placed in service in 2019

The PATH Act also increases the Code Sec. 280F limitation for a passenger auto or light truck or van that is qualified property if the property is placed in service after December 31, 2014, and before January 1, 2018. For an auto or light truck or van placed in service in 2018, the Code Sec. 280F limitation is increased by $6,400. For an auto or light truck or van placed in service in 2019, the Code Sec. 280F limitation is increased is increased by $4,800 [Code Sec. 168(k)(2)]. The PATH Act also provides the following:

• After 2015, the additional first-year depreciation is allowed for qualified improvement property without regard to whether the improvements are property subject to a lease, and there is no requirement that the improvement must be placed in service more than three years after the date the building was first placed in service [Code Sec. 168(k)(3)].

The new law also extends the rule in Code Sec. 168(k)(4), permitting a corporation to increase the AMT limitation by the bonus depreciation amount with respect to certain property placed in service during 2015 if it forgoes bonus depreciation on that property. Beginning in 2016, the new law modifies the AMT rules by increasing the number of unused AMT credits that may be claimed in lieu of bonus depreciation.

Provision Extended through 2019

The PATH Act extends the following through 2019:

• Work Opportunity Tax Credit (WOTC). The PATH Act retroactively extends the WOTC so it applies to eligible veterans and nonveterans who begin work for the employer on or before Dec. 31, 2019 [Code Sec. 51(C)(4)(B)]. The new law also enhances the WOTC for employers that hire certain long-term unemployed individuals.

 Provision Extended through 2016

The PATH Act extends through 2016, and in some cases modifies, the following:

• Qualified tuition and related expenses deduction. The PATH Act extends the above-the-line deduction for qualified tuition and fees for post-secondary education [Code Se. 222(e)].
• Mortgage debt exclusion. The PATH Act excludes cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return from income through 2016.
• Mortgage insurance premium deduction. The new law retroactively extends Code Sec. 163(h)(3)(E) for two years so mortgage insurance premiums paid or accrued before Jan 1, 2017, can be deducted as qualified residence interest.
• Expensing election for costs of film and television production
• Seven-year recovery period for motorsports entertainment complexes
• Three-year recovery period for certain race horses
• Nonbusiness energy property credit
• Alternative-fuel vehicle refueling property
• Credit for two-wheeled plug-in vehicles
• New energy-efficient home credit
• Energy-efficient commercial building deduction
• Credit for fuel cell vehicles

Solar incentives.  The FY 2016 omnibus extends the solar investment tax credit and the credit for qualified residential solar property but subjects the credits to phase down. Under the omnibus, both credits will be unavailable after 2021.

Medical devices. The PATH Act imposes a two-year moratorium on the 2.3% excise tax imposed on the sale of medical devices by the manufacturer or importer of the device. Therefore, the tax will not apply to sales during 2016 and 2017.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

More tax law changes and extensions you should know about…..

                                2015 Year-end Tax Legislation Impacts All Taxpayers

On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act, a multi-year highway and transportation spending bill that also includes tax provisions impacting some taxpayers.  The FAST Act includes authorization for the federal government to deny or revoke a U.S. passport for individuals with seriously delinquent tax debt, mandates that the IRS contract with private collection agencies to collect some tax debts, extends highway taxes and repeals an extended due date for Form 5500, Annual Returns/Reports of Employee Benefit Plan.

On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015.

Tax Incentives Permanently Extended
The PATH Act permanently extends the following tax incentives that had expired:

• State and local sales tax deduction. Effective January 1, 2015, the PATH Act retroactively revives and makes permanent the election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes [Code Sec. 164(b)(5)(1)].
• AOTC. The PATH Act makes the AOTC permanent  The AOTC increased the pre-existing Hope Scholarship Credit to $2,500 for four years of post-secondary education and increased the adjusted gross income (AGI) phaseout amounts to $80,000 (single) and ($160,000 (married filing jointly).
• Child tax credit. The PATH Act makes the enhanced child tax credit permanent by providing the threshold dollar amount for purposes of computing the refundable credit at an unindexed $3,000 [Code Sec. 24(d)]. Under the PATH Act, the child tax credit, available up to $1,000 for qualifying dependents under age 17, may be refundable to 15% of the taxpayers earned income in excess of $3,000.
• Earned income credit. The PATH Act makes permanent the increased $5,000 income phaseout amount that applies to joint filers and the increased 45% credit percentage for taxpayers with three or more qualifying children.
• Teachers’ classroom expense deduction. The PATH Act permanently extends the above-the-line deduction for elementary and secondary school teachers’ classroom expenses.  It also modifies the deduction by indexing the $250 ceiling amount to inflation beginning in 2016. The Path Act includes professional development expenses, including courses related to the curriculum in which the educator provides instruction, within the scope of the deduction.  The modification for professional development courses applies to tax years beginning after December 31, 2015.
• Transit benefits parity.  The Path Act permanently retroactively enacts parity among transit benefits, which includes van pool benefits, transit passes and qualified parking. For tax years beginning in 2016, the inflation-adjusted monthly exclusion amount for transit passes and van pool benefits will be $255 (up from 250 in 2015), in line with the inflation-adjusted amount for qualified parking. The exclusion for a qualified bicycle reimbursement is unchanged by the new law and is limited to $20 times the number of months during which the employee uses the bicycle for commuting purposes. In Notice 2016-6, the IRS explained how employers should address the retroactive increase for periods after 2014 in the monthly exclusion for transit passes and van pooling benefits. The IRS also provided a special administrative procedure for employers for making adjustments on their Forms 941, Employer’s Quarterly Federal Tax Return, filed for the fourth quarter of 2015, and in filing Forms W-2 Wage and Tax Statement.
• Charitable distributions from Individual Retirement Accounts (IRAs). The PATH Act permanently extends the provision that allows individuals age 70 ½ and older to make tax-free distributions of up to $100,000 each year from IRAs to a qualified charitable organization [Code Sec. 408(d)(8)(F)]. Amounts in excess of $100,000 must be included in income but may be taken as an itemized charitable deduction, subject to the usual AGI annual caps for contributions. The new law also includes a provision on the deductibility of charitable contributions to agricultural research organizations.
• Qualified conservation contributions. The Path Act retroactively revives and permanently extends the rule that allows taxpayers to claim a charitable deduction for contributions of real property for conservation purposes [Code Sec. 170(b)(1)(E)]. In addition, the new law permanently extends the enhanced deduction for certain individuals and corporate farmers and ranchers. The new law also modifies the deduction that permits Alaska Native Corporations to claim deductions for donations of conservation easements up to 100% of taxable income [Code Sec. 170(b)(2)(C)].
• Code Sec. 179 expensing. Prior to the enactment of the PATH Act, the dollar limit for Code Sec. 179 expensing for 2015 had reverted to $25,000 with an investment limit of $200,000. The new law makes multiple changes to the Code Sec. 179 expensing deduction. The $500,000 expensing limitation and the $2 million overall investment limit (both amounts indexed for inflation beginning in 2016) are retroactively extended and made permanent [Code Sec. 179(b)]. The rule that allows expensing for computer software is retroactively extended and made permanent [Code Sec. 179(d)(1)(A)]. For tax years beginning after December 31, 2015, expensing of qualified real property is made permanent without a carryover limitation [Code Sec. 179(f)(1)]. The $250,000 expensing limitation with respect to qualifying real property is eliminated. For tax years beginning after December 31, 2015, air conditioning and heating units are eligible for expensing [Code Sec. 179(d)(1)]. Finally, for tax years beginning after December 31, 2014, the new laws makes permanent the provision that an expensing election or specification of property to be expensed may be revoked without IRS consent [Code Sec. 179(c)(s)].
• Research tax credit. The PATH Act permanently extends and modifies the research and development tax credit [Code Sec, 41(h). For tax years that begin after December 31, 2015, eligible small businesses ($50 million or less of gross receipts) may claim the credit against their alternative minimum tax (AMT) liability [Code Sec. 38(c)(4)(B)]. In addition, for tax years that begin after December 31, 2015, qualified small businesses may elect to claim a portion of their research credit as a payroll tax credit against their employer FICAs tax liability, rather than against their income tax liability [Code Sec. 41(h)].
• 100% gain exclusive on qualified small-business stock. The PATH Act retroactively and permanently extends the 100% exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than five years by noncorporate taxpayers [Code Sec. 1202(a)(4)]. In addition, the new law retroactively and permanently provides that none of the excluded gain is subject to AMT.
• Reduced recognition period for S corporation built-in gains tax. The PATH Act retroactively and permanently extends the rule providing for a five-year recognition period (instead of the generally applicable 10-year period) for built-in gain following conversion from a C corporation to an S corporation [Code Sec. 1374(d)(7)].
• 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements. Effective for property placed in service after December 31, 2014, the new law retroactively extends and makes  permanent the inclusion of qualified leasehold improvement property, restaurant property and retail improvement property in the 15-year Modified Accelerated Cost Recovery System class [Code Sec. 168(e)(3)(E)].
• Payments to charity from controlled entity. The PATH Act retroactively and permanently extends the rule in Code Sec. 512(b)(13)(E)(iv) providing special tax rules for payments made to a charity from a controlled entity.
• Charitable deduction for contribution of food inventory. The PATH Act retroactively and permanently extends the rules in Code Sec. 170(e)(3)(C)(iv) enabling a taxpayer engaged in a trade or business to claim an enhanced deduction for donations of food inventory.
• Employer wage credit for employees who are active duty members of uniformed services. The PATH Act retroactively and permanently extends the rules in code Sec. 45P(f) providing that eligible small business employers may claim a credit if they pay differential wages to employees during periods of more than 30 day of active duty with the U.S. uniformed services.
• Minimum low-income housing tax credit for nonfederally subsidized buildings. The PATH Act retroactively and permanently extends the rules in Code Sec. 42(b)(2)(A) providing for a low-income housing 9% credit rate freeze.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

More detailed de minimus safe harbor information for your consideration as to how it may apply to and benefit you…..

De Minimis Safe Harbor for Expensing Increased

 The IRS increased from $500 to $2,500 the maximum threshold for expensing certain capital items under the de minimis safe harbor (provided in Reg. 1.263(a)-1(f)) in Notice 2015-82, IRB 2015-50) for effective for tax years beginning on or after January 1, 2016. The threshold for taxpayers with an applicable financial statement (AFS) remains set at a maximum of $5,000 per invoice (or per item as substantiated by the invoice).  For tax years beginning before January 1, 2016, the IRS will not raise the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor for an amount that does not exceed the new $2,500 limit, as long as the taxpayer otherwise satisfies the requirements for using the safe harbor.

Business Expenses
The repair regulations provide a de minimis safe harbor election, which will enable taxpayers to deduct up to $2,500 per invoice for amounts paid or incurred to acquire or produce a unit of tangible property, provided the taxpayer is not required to have an AFS financial statement; has written accounting procedures for expensing amounts paid or incurred for such property under certain dollar amounts; treats such amounts as expenses on its AFS in accordance with its written accounting procedures; and paid no more than $2,500 per invoice (or per item as substantiated by the invoice) [Reg. 1.263(a)-1(f)(1)(i)]. Moreover, taxpayers can take advantage of the election for an unlimited number of invoices, increasing their immediate deduction for business equipment in excess of the Code Sec. 179 expensing limits.

If a taxpayer is required to have an AFS, the $2,500 amount is increased to $5,000.

If a taxpayer makes the de minimis safe harbor election:

• The election applies to all amounts an eligible taxpayer pays during the tax year for eligible property [Reg. 1.263(a)-1(f)].
• A covered amount is deductible in the tax year it is paid, as long as it otherwise constitutes a deductible business expense [Reg. 1.263(a)-1(f)(3)(iv)].
• A covered amount cannot be treated as a capital expenditure paid for the acquisition or production of a unit of tangible property under Reg. SS1.263(a)-2(d)(1) or 1.263(a)-3(d) [Reg. 1.263(a)-1(f)(3)(iv)].
• Upon its sale or other disposition,  property that was subject to the safe harbor is not treated as a capital asset under Code Sec. 1221, or as property used in the trade or business under Code Sec. 1231[Reg. SS1.263(a)-1(f)(3)(iii)].

AFS Defined
Reg. 1.263(a)-1(f)(4) defines an AFS as one of the following:

• A financial statement that must be filed with the SEC (Form 10-K or the annual statement to shareholders)
• A certified audited financial statement that is accompanied by the report of an independent Certified Public Accountant (or in the case of a foreign entity, by the report of a similarly qualified independent professional) and is used for credit purposes, reporting to shareholders, partners or similar persons, or any other substantial non-tax purpose
• A financial statement other than a tax return that must be provided to any federal or state government agency other than the SEC or the IRS

Additional Costs
The de minimis safe harbor can also apply to additional costs incurred facilitating the acquisition or production of the tangible property that is covered by the de minimis safe harbor, as well as to the costs for work performed before the date the tangible property is placed in service, as follows:

• The cost of tangible property covered by the safe harbor includes all additional costs that are included on the same invoice with the tangible property, including delivery fees, installation services or similar costs.
• An electing taxpayer may, but is not required to, extend the safe harbor to additional costs of acquiring or producing the property that are not included in the same invoice at the tangible property.
• When an invoice includes multiple tangible properties and additional invoice costs related to them, the taxpayer must allocate the additional invoice costs to each property using a reasonable method including, but not limited to, specific identification, a pro rata allocation or a weighted average method based on the property’s relative cost.  Each property, including allocable labor and overhead, must be eligible for the safe harbor [Reg. 1.263(a)-1(f)(3)(i)].

Materials and Supplies
If a taxpayer elects to apply the de minimis safe harbor, the taxpayer must also apply the de minimis safe harbor to amounts paid for all materials and supplies [Reg. 1.263(a)-1(f)(3)(ii)].

Exclusions
The safe harbor is unavailable for amounts paid for property that is or is intended to be included in inventory; amounts paid for land; amounts paid for rotable, temporary and standby emergency spare parts that are capitalized and depreciated; and amounts paid for rotable and temporary spare parts accounted for under the optional method of accounting for rotable parts [Reg. 1.263(a)-1(f)(2)].

Taxpayer without an AFS
Under the safe harbor provided in Reg. 1.263(a)-1(f)(1)(ii)(D), a taxpayer without an AFS may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property subject to the de minimis safe harbor does not exceed $2,500 per invoice (or per item as substantiated by the invoice). In contrast, under Reg. 1.263(a)-1(f)(1)(i)(D),  a taxpayer with an AFS may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property does not exceed $5,000 and the taxpayer treats the amount paid as an expense on its AFS according to it written accounting procedures. A large safe harbor limitation is reasonable for a taxpayer with an AFS because an AFS provides independent assurance that the taxpayer’s de minimis policies are consistent with the requirements of generally accepted accounting principles and do not materially distort the taxpayer’s financial statement income.

Election Required
The de minimis safe harbor must be elected annually by including a statement with the taxpayer’s tax return for the year elected.  The irrevocable election applies to all qualifying expenses, including qualifying materials and supplies other than rotable and temporary spare parts.  An election to use the safe harbor may not be made by filing an application for change in accounting method. A late election may be made on an amended return only with IRS consent [Reg. 1.263(a)-1(f)(5).]

Audit Protection
For tax years beginning before January 1, 2016, the IRS will not raise the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor for an amount not to exceed $2,500 per invoice (or per item as substantiated by invoice) if the taxpayer otherwise satisfies the safe harbor requirements. Moreover, the IRS will not further pursue the issue if the taxpayer’s use of the de minimis safe harbor is an issue under consideration in examination, in appeals or before the U.S. Tax Court in a tax year that begins after December 31, 2011, and ends before January 1, 2016.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

This week we are highlighting information directly from the IRS’s website’s which is important for you if you have a financial interest in or signature authority over a foreign financial account.

                Report of Foreign Bank and Financial Accounts (FBAR)

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.

Who Must File an FBAR

United States persons are required to file an FBAR if:

1. the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

• Certain foreign financial accounts jointly owned by spouses
• United States persons included in a consolidated FBAR
• Correspondent/Nostro accounts
• Foreign financial accounts owned by a governmental entity
• Foreign financial accounts owned by an international financial institution
• Owners and beneficiaries of U.S. IRAs
• Participants in and beneficiaries of tax-qualified retirement plans
• Certain individuals with signature authority over, but no financial interest in, a foreign financial account
• Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
• Foreign financial accounts maintained on a United States military banking facility.

Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation. For guidance on circumstances including natural disasters that prevent timely filing of an FBAR, see FIN-2013-G002(June 24, 2013).

Note:  The recently enacted Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changes the standard FBAR due date to April 15 beginning with the 2016 calendar year reports, which are due in 2017. The FBAR deadline for calendar year 2015 reports remains June 30, 2016 (with no extensions allowed).

U.S. Taxpayers Holding Foreign Financial Assets
May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act Web page.

Offshore Voluntary Disclosure Program

On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Program following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.

Streamlined Filing Compliance Procedures

On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.

On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States; reference IR-2014-73. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue. For more information, go to Streamlined Filing Compliance Procedures.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’sBSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

This is a complicated issue, so please contact us for assistance if you have one or more foreign `financial accounts.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

This week, we are sharing more income tax savings information you may be able to use…..

                       Employee Business Expenses

If you pay for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income. Here are five other facts you should know:

1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.

2. Expense Examples. Some costs that you may be able to deduct include:

• Required work clothes or uniforms not appropriate for everyday use.
• Supplies and tools you use on the job.
• Business use of your car.
• Business meals and entertainment.
• Business travel away from home.
• Business use of your home.
• Work-related education.

This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more call the office or check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463,Travel, Entertainment, Gift and Car Expenses.

3. Forms to Use. In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.

4. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you pay in 2016. These may include books, supplies, equipment and other materials used in the classroom. Claim this deduction as an adjustment on your return, rather than an itemized deduction. For more on this topic, please call.

5. Keep Records. You must keep records to prove the expenses you deduct so that you can prepare a complete and accurate income tax return. The law doesn’t require any special form of records; however, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim. If you file a claim for refund, you must be able to prove by your records that you have overpaid your tax. For what records to keep, see Publication 17, Your Federal Income Tax.

Please call us if you have any questions about employee expenses or need help setting up a recordkeeping system to document your expenses.

And, here is some additional potential tax savings advice that may be of benefit to you…

Tips for Deducting Medical and Dental Expenses

If you, your spouse or dependents have significant medical or dental costs in 2016, you may be able to deduct those expenses when you file your tax return next year. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You can only claim medical expenses that you paid for in 2016, and only if you itemize on Schedule A on Form 1040. If you take the standard deduction, you can’t claim these expenses.

2. Deduction is limited. You can deduct all the qualified medical costs that you paid for during the year. However, you can only deduct the amount that is more than 10 percent of your adjusted gross income. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception applies through December 31, 2016.

3. Expenses must have been paid in 2016. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can’t deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Costs reimbursed by insurance or other sources do not qualify for a deduction. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and certain long-term care insurance in your expenses. And, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2016.

8. No double benefit. You can’t claim a tax deduction for medical and dental expenses you paid for with funds from your Health Savings Accounts (HSA) or Flexible Spending Arrangements (FSA). Amounts paid with funds from those plans are usually tax-free. This rule prevents two tax benefits for the same expense.

Please call if you need help figuring out what qualifies as a medical or dental expense.

If you have any questions about these topics or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

           Tax Planning Strategies to Use This Year

Looking to save money on your taxes this year? It’s never too early to start planning ahead using these proven tax planning strategies.

Max Out Your 401(k) or Contribute to an IRA

You’ve heard it before, but it’s worth repeating because it’s one of the easiest and most cost-effective ways of saving money for your retirement.

Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies, these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available. Check with your employer about the availability of such a plan and contribute as much as possible to defer income and accumulate retirement assets.

Tip: Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional (pre-tax contributions) or a Roth IRA (after-tax contributions). You may also be able to contribute to a spousal IRA even when your spouse has little or no earned income.

Tip: To get the most from IRA contributions, fund the IRA as early as possible in the year. Also, pay the IRA trustee out of separate funds, not out of the amount in the IRA. Following these two rules will ensure that you get the most tax-deferred earnings possible from your money.

If You Have Your Own Business, Set Up and Contribute to a Retirement Plan

Similarly, if you have your own business, consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting businesses. Several types of plans are available which minimize the paperwork involved in establishing and administering such a plan.

Use the Gift-Tax Exclusion to Shift Income

In 2016, you can give away $14,000 ($28,000 if joined by a spouse) per donee, per year without paying federal gift tax. And, you can give $14,000 to as many donees as you like.

Note: Special rules apply to children under age 18. Also, if you directly pay the medical or educational expenses of the donee, such gifts will not be subject to gift tax.

For gift tax purposes, contributions to Qualified Tuition Programs (Section 529) are treated as completed gifts even though the account owner has the right to withdraw them. As such, they qualify for the up-to-$14,000 annual gift tax exclusion in 2016. One contributing more than $14,000 may elect to treat the gift as made in equal installments over the year of gift and the following four years so that up to $56,000 can be given tax-free in the first year.

Consider Tax-Exempt Municipal Bonds

Interest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipal bonds will often be greater than from higher paying commercial bonds after reduction for taxes. Gain on sale of municipal bonds is taxable and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is non-deductible.

Give Appreciated Assets to Charity

If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash prevents your having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale. Additionally, you can obtain a tax deduction for the fair market value of the property.

Tip: Many taxpayers also give depreciated assets to charity. Deduction is for fair market value; no loss deduction is allowed for depreciation in value of a personal asset. Depending on the item donated, there may be strict valuation rules and deduction limits.

Tip: Taxpayers age 70 1/2 and older can take advantage of tax benefits associated with Qualified Charitable Distributions (QCDs)–IRA withdrawals that are transferred directly to a qualified charitable organization. See the article, Qualified Charitable Distributions from IRAs, below, for additional details.

Keep Track of Mileage Driven for Business, Medical or Charitable Purposes

If you drive your car for business, medical or charitable purposes, you may be entitled to a deduction for miles driven. For 2016, it’s 54 cents per mile for business, 19 cents for medical and moving purposes, and 14 cents for service for charitable organizations. You need to keep detailed daily records of the mileage driven for these purposes to substantiate the deduction.

Take Advantage of Employer Benefit Plans Such as Flexible Spending Accounts (FSAs) or Health Spending Accounts (HSAs)

Medical and dental expenses are generally only deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). For most individuals, particularly those with high income, this eliminates the possibility for a deduction.

However, you can effectively get a deduction for these items if your employer offers a Flexible Spending Account (sometimes called a cafeteria plan). These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account. Ask your employer if they provide either of these plans.

If Self-Employed, Take Advantage of Special Deductions

You may be able to expense up to $500,000 in 2016 for qualified equipment purchases for use in your business immediately instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums as business expenses. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan, or a Health Savings Account, as mentioned above.

If You’re Self-Employed, Hire Your Child in the Business

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.  Payments for the services of a child under age 21 who works for his or her parent in a sole proprietorship or a partnership (as above) trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax.  Payment for the services of a child are subject to income tax withholding, regardless of age.

In addition, your child may be able to contribute to an IRA using earned income. This will reduce your income for both income and employment tax purposes and shift assets to the child at the same time; however, you cannot hire your child if he or she in under the age of 8 years old.

Take Out a Home-Equity Loan

Most consumer-related interest expense, such as from car loans or credit cards, is not deductible. Interest on a home equity loan, however, can be deductible. It may be advisable to take out a home-equity loan to pay off other nondeductible obligations.

Bunch Your Itemized Deductions

Certain itemized deductions, such as medical or employment related expenses, are only deductible if they exceed a certain amount. It may be advantageous to delay payments in one year and prepay them in the next year to bunch the expenses in one year. This way you stand a better chance of getting a deduction.

A word about proper documentation…

Unfortunately, many taxpayers forgo worthwhile tax credits and deductions because they have neglected to keep proper receipts or records. Keeping adequate records is required by the IRS for employee business expenses, deductible travel and entertainment expenses, and charitable gifts and travel, and more.

But don’t do it just because the IRS says so. Neglecting to track these deductions can lead to overlooking them.

You also need to maintain records regarding your income. If your receive a large tax-free amount, such as a gift or inheritance, make certain to document the item so that the IRS does not later claim that you had unreported income.

Again, it’s never too early to get started on tax planning for 2016 and beyond.  Call our office if you would like to discuss how you can save money on your taxes this year.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.