Just over a month away is the election for the 45th President of the United States. No matter which side of the aisle you find yourself on, there is no doubt that each candidate has proposed some substantial tax legislation changes. Here is a comparison of the candidates tax plans:
• “Fair Share Surcharge” – A proposed 4% increase to the top tax rate of 39.6% for individuals making over $5,000,000 per year. All other tax rates for individuals would remain constant.
• Closing loopholes – Strengthening the Buffet Rule and broadening the base of income subject to the rule, closing Bermuda reinsurance loophole and the “Romney Loophole”, and closing the “step up in basis” loophole.
• Closing the “Carried Interest” Loophole – Loophole which allows hedge fund managers to avoid ordinary income tax rates for earnings.
• Restore Estate Tax to 2009 Parameters($3,500,000 Estate exemption, 45% tax rate) with rates increasing to as much as 65% on estates over 1 billion.
• Ensure millionaires pay a minimum tax rate of 30%.
• Impose a “risk fee” on the largest financial institutions.
• Corporate tax rate will remain at 35%.
• Reduce tax rates for individuals from 12% for Married Filing Jointly (MFJ) filers under $75,000, to a maximum of 33% for MFJ filers over $225,000. Single filers would be half of these numbers.
• Retain current capital gains rates(max of 20%).
• Repeal net investment income tax of 3.8%.
• Increase standard deduction to $30,000 for MFJ, and get rid of personal exemptions.
• Cap itemized deductions at $200,000.
• Repeal Estate Tax unless capital gain assets valued over $10,000,000 were held until death, disallow private established charity donations.
• Above-the-line deduction for childcare for children under 13, capped by states per child. Not available to MFJ taxpayers over $500,000.
• Spending rebates for childcare expense to certain low-income taxpayers through the Earned Income Tax Credit (EITC).
• Cut corporate tax rate from 35% to 15%, and provide 1 time repatriation of offshore funds for a 10% tax rate.
Each tax plan is diametrically opposed from the other, but both will change the tax planning efforts that accountants will need to have to properly advise clients in the coming years. To view the tax plans in full detail, click on each candidates name to connect to their websites.
As we approach the last month of summer, many of us are still trying to gather documents to finalize the 2015 tax returns due in the next few months. But these are the prime months to begin the planning procedures to reduce your taxes in 2016. With the passing of the PATH Act of 2015 last year, the looming issues of expiring tax deductions have been delayed, or extended permanently. For the first time in several years, we know before December what our tax break limitations will be. Here are a few planning options to look into:
This is the best time of year to review your P & L from the first half of the year to project your net income at year’s end. If you have excess income and are looking to reduce the tax burden, it may be the perfect opportunity to purchase new vehicles or equipment and utilize Section 179 or Bonus Depreciation.
Have you had any life changes, such as getting married, having children, etc.? Or has your business produced more income than you expected when your estimates were prepared? You should review your withholding now to make sure you are not surprised with a substantial bill at tax time, or alternatively, that the IRS is not holding excess funds for the rest of the year that you could be utilizing.
You may have an opportunity mid-year to adjust your contributions to make sure you are maximizing your limits. Retirement contributions are a fantastic way to reduce your AGI if you are being hit with Net Investment Income Tax, high tax rates, or limited deductions.
If income is projected to be lower than expected this year, it may be the ideal time to convert your Traditional IRA to a Roth. If you anticipate that this will be the lowest tax bracket that you may be in for the foreseeable future, converting a Traditional to a Roth IRA and taking advantage of the lower tax rates may be ideal. You will have to pay taxes on the converted value of the IRA, but your converted funds will be able to grow and be withdrawn tax free in the future.
The best tax advantage for your small business may just be getting every deduction that you deserve. Being organized and maintaining good records throughout the year will help ensure that all of your expenses get properly recorded. This includes maintaining mileage logs, which are much tougher to recreate months later.
If your accountant is informed about your financial plans before the transaction is made, strategies to mitigate taxes can be discussed. After the transaction is completed, it cannot always be readily reversed and can lead to huge tax implications if done incorrectly.
So enjoy the remaining warm days of summer, but get into the habit of planning for taxes now, and you can reap the benefits of your hard work for years to come.
Fundraising has gone digital. Millions of individuals are now utilizing social media sites such as kickstarter.com and gofundme.com to attract contributors or donations to support their cause. Few, though, are thinking about the income tax ramifications that are created by the crowdfunding environment.
Congress and the IRS have not yet addressed the crowdfunding income specifically, which leaves little guidance for CPAs and tax advisors preparing returns in the coming season. Applying common tax principles, along with some common sense, will help taxpayers and preparers alike to decide the appropriate reporting of funds received.
There are three types of crowd-funding:
Reward and donation-based funding use third party payment processing, such as PayPal. Any campaign creator who collects over $20,000.00 will receive a 1099-K reporting the funds received during the campaign. Pledges for donation-based funding are likely going to qualify as a non-taxable gift, unless an individual gifts more than the annual gift exclusion ($14,000 in 2015 and 2016). Funds received for reward-based funding for creative new ventures are likely to be treated as income to the recipients.
Kickstarter states that it cannot give tax advice, but does indicate that in the US, funds raised through campaigns on kickstarter.com will generally be considered income (see “Kickstarter and Taxes: A Guide for Your Accountant”). They suggest that expenses can offset the income, or that some may be considered gifts, but does not distinguish between the two.
Amounts received for reward-based funding are likely to be treated as income under Section 61 and should be reported by the creator of the campaign in the year of receipt. If it is an active trade or business, business expenses would likely be deductible against the income under Section 62. If this is a hobby, hobby loss rules would apply and limit expenses to the extent of income. Start-up business will also have additional requirements for expensing or capitalizing the organizational costs related to the start-up of the business.
As you can see, there are many different scenarios that will need to be considered when reporting crowd-funding during this period of limbo until the IRS addresses the topic. That makes it even more important as tax preparers and taxpayers alike to ask the right questions, document your position, and substantiate your reporting to the best of your ability.
Two years ago the Treasury Department implemented new Tangible Property Regulations through the passing of TD 9636. The new regulations contained a “Safe Harbor” election to expense any piece of tangible property purchased under $500. Many felt this was too low and increased the administrative burden on small businesses along with the IRS.
After receiving hundreds of comments from tax payers and professionals suggesting an increase to the “Safe Harbor” threshold amount, and the Treasury Department reviewing the goals of the new regulations, common sense prevailed and the Department agreed to increase the election amount to $2,500 per invoiced piece of tangible property. This election does not require you to expense all items under this threshold. You may choose any amount up to $2,500 that fits your business. Just make sure that your capitalization policy states your dollar threshold.
The effective date of the new safe harbor de minimis is for tax years beginning on or after January 1, 2016. Although, the IRS has allowed for those individuals and businesses that had a capitalization policy in place at the beginning of 2015 to use the $2,500 limit. IRS Notice 2015-82 states:
For taxable years beginning before January 1, 2016, the IRS will not raise upon examination the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor provided in 1.263(a)-1(f)(1)(ii) for an amount not to exceed $2,500 per invoice (or per item as substantiated by invoice) if the taxpayer otherwise satisfies the requirements of 1.263(a) – 1(f)(1)(ii). Moreover, if the taxpayer’s use of the de minimis safe harbor provided in 1.263(a) – 1(f)(1)(ii) is an issue under consideration in examination, appeals, or before the U.S. Tax Court in a taxable year that begins after December 31, 2011, and ends before January 1, 2016, the issue relates to the qualification under the safe harbor of an amount (or amounts) that does not exceed $2,500 per invoice (or per item as substantiated by invoice), and the taxpayer otherwise satisfies the requirements of 1.263(a) – 1(f)(1)(ii), then the IRS will not further pursue the issue. “
Taxpayers should review their capitalization policy for 2016 in order to implement the new safe harbor limit. If you have been using the new limit for the 2015 tax year or before, you should review IRS Notice 2015-82 to be sure that your business qualifies for audit protection.
Fixed income recipients may see substantial changes to their “net” take home of Social Security benefits in 2016. Social Security benefits are not likely to see a cost-of-living adjustment (COLA) for 2016 due to stagnant inflation during the year, but Medicare Part B premiums are scheduled to increase around 16%.
If you have already been receiving benefits, and are under the MAGI (modified adjusted gross income) threshold of $85,000 for singles and $170,000 for married, then you should not see an increase in your Part B premiums of $104.90 per month in 2015. This is due to a “hold harmless” provision that is designed to keep recipients’ net Social Security benefits from shrinking. This provision states that an increase in premiums cannot be more than the COLA for the year. Since there will be no COLA for 2016, your premiums cannot increase. This includes about 70% of all recipients.
But what about the other 30% of recipients? There are three questions that need to be asked:
If you answered “Yes” to any of these questions, chances are likely that your Medicare Part B premiums will increase in 2016. This is because only individuals under the MAGI threshold who have begun collecting benefits prior to 2016 are protected under the “hold harmless” provision. The remaining 30% of recipients will bare the costs of the increase. Click here for an officially released table from the Centers for Medicare & Medicaid Services(CMS) for the anticipated increase of Part B premiums for 2016 for those not protected by the “hold harmless” provision.
So, for those unlucky individuals who fall into these categories, be prepared for a reduction of “net” Social Security benefits in 2016 and forward.
MAGI Simple Calculation = AGI + passive losses – passive income +non-taxable interest.
The housing market is beginning to turn around in Nevada over the last couple years. Data provided by Trulia.com indicates that twice as many home sales occurred in 2015 when compared to the bottom of the market in 2009. Many home owners who either lost, or liquidated, their homes over the past several years are finally in a stable financial position to get back into the market.
Many of the homes that are being purchased during this period of growth are those that have either been left vacant for years, require some refurbishing, or need massive upgrades and overhauls to qualify for lending, or to even be livable! Even new homes require additional capital influx in order to complete the front or backyard landscaping.
When we purchase a house, many of us use this required influx of capital to negotiate down the current selling price. But how many of us keep track how much actual additional capital we put back into the house after the sale has been completed? Improvements and substantial repairs such as landscaping, a new roof, fencing, etc., should be accounted for and included in your basis (capital costs) of your home. Keeping track of and having the appropriate record keeping of, these improvements can save you thousands of dollars in capital gains, and possibly net investment income tax, when you decide to sell the home in the future. Even if you decide that renting the home is a better course of action, having an accurate recordkeeping of the basis will allow you to depreciate the maximum allowable amount in order to reduce the rental income created from the business use of the property.
Keeping track of your basis in real property is an important part of homeownership that many of us forget about until it is time to sell. Twenty years from now, will you remember how much you paid the landscaper to put in a sprinkler system? Probably not. So help your future self out of a headache, and probably save a couple bucks, and keep track of those expenditures that you put into your new home. And after you are done, sit down on that new patio with a cold drink and relax, you’ve earned it.
The Reno Tahoe Odyssey, or “RTO” as it has become to be known around the area, is a relay race that begins in the heart of downtown Reno, traverses the hills up through Verdi and Truckee, to the West Shore of Tahoe, back down through Genoa and Carson City, continues up to Virginia City and culminates back in Reno at Idlewild Park. It consists mainly of 12 person teams, but can be as small as 1 (in 2014, “Army of Juan” completed the course for the first time solo!) in an attempt to travel the 178 miles in less than 33 hours. Most teams consist of 12 individuals who each run 3 legs of the relay race. Each team member runs approximately 15 miles during the day and half of sheer agony, beginning Friday morning at 7 am and concluding no later than 4pm on Saturday afternoon.
This year will be my first attempt at this adventure. I am writing this portion of my blog prior to running as I begin my legs in about 3 ½ hours. I am excited and nervous at the same time. I have been training for about 3 weeks as I was a late addition to my team. I feel completely under-prepared as I am the unfortunate one to draw the hardest ranked set of legs – 7, 19, and 31. I’m still not really sure what to expect. I am having a hard time grasping the team aspect of the race, and am mainly worried about how fast my individual splits will be. I wonder how my Outlook will change over the next two days…
What an amazing, terrible, agonizing, wonderful event. Sleep deprivation, burning legs, and the inability to breathe makes you question your sanity…until you see your team standing at the next exchange point. As soon as you make the handoff you beam with confidence and accomplishment at the task that you have completed. Even though I could barely stand, it was one of the greatest events of my life.
My personal goals are immediately set aside as I found myself running purely for the rest of my team. While running, or even those walking, constant applause and encouragement came from every angle as other runners, support vans, and patrons alike cheer you on as you make your way through this daunting event. I can surely say that it has changed my life. The camaraderie of the race restored my faith in humanity as 3,000 runners came together to accomplish a common goal. I can’t imagine not being a part of this event for the rest of my life.
A huge thank you to the hundreds of volunteers who help put this event on. Only 51 weeks left until next year…time to start training!
Many people think that tax season is over until next year, but in reality taxes and accounting need to be year long processes and continually addressed throughout.
Having your accounting processes and procedures in place during the summer months and into next year helps reduce the stress and expense of trying to accomplish everything at year end…or even later!
And for those individuals that received an extension, it is even more important to stay on top of the process to avoid another rush in September or October.
Several significant changes occurred during the past tax season that will affect the way business owners will account for repairs, maintenance, materials, and reimbursement for health coverage. In order to stay in compliance (and avoid possible fines) with new regulations, now is as important a time as ever (and possibly the most accessible time) to get in contact with your accountant to discuss these new regulations and how they will affect your business in the coming years.
The next few months should be utilized as an opportunity to get ahead, not to rest and push responsibilities off until later. Whether you are looking to make a new equipment purchase, invest in income producing property, or to determine if you have enough funds for a well-deserved vacation, having your accounting correct and up to date will provide you will the tools for informed decision making and the reduced chance of surprises coming down the pipeline.
What is a Series LLC?
A Series LLC was first introduced to assist the mutual fund industry avoid filing multiple SEC filings for different classes of funds. The idea was to use one entity for all funds filing under one “umbrella”, but permit the funds individual activity to be conducted separately. Only a few states allow the creation of a Series LLC, one of which is Nevada.
What is the purpose of a Series LLC?
The purpose or utility of a Series LLC is to protect personal assets from a legal claim relating to real estate investments or business liabilities. Past practices involved forming a separate LLC for each business activity or investment property to protect the personal assets, as well as protect the entities from liabilities arising from each other. The formation of many entities increased the costs to the individual by paying annual state fees, and having to file a separate tax return for each LLC. The creation of a Series LLC allows a group of series, or cells, to each own distinct assets, incur liabilities, and have different managers and members, but all is filed under one umbrella LLC. The entities have liability protection from each other and protection for the individual, but reduce costs involved by filing one tax return and may qualify to pay only a single set of annual state fees. In certain circumstances it may also help the taxpayer qualify for additional safe harbor elections under the new Tangible Property Regulations. Make sure to consult a tax advisor before you decide to pursue the formation of a Series, LLC.
Due to its relatively new adoption (2005 in Nevada), the IRS will be constantly adapting the tax treatment of the Series LLC. States continue to pass legislation to follow suit, but at this time there are no court cases that support or deny the current tax treatment.
Whether you were for or against health care reform, there is no denying that the recently implemented Affordable Care Act (ACA or “Obamacare”) is something that will affect you during the coming tax season.
Even if you have been insured during the entire year, the IRS will require that you provide proof of insurance during your tax preparation in the coming year. This will increase the burden on tax preparers to retrieve documentation from the taxpayer in order to file your 2014 tax return. Be prepared upon filing that in order to complete any personal tax return, your accountant will require proof of health insurance coverage.
If you did not have insurance for the year, or had insurance for only a portion of the year, you may be subject to a tax penalty based upon your household income. The penalty for 2014 is the greater of $95.00 per adult ($47.50 per child), or 1% of your household income that is above the tax return filing status threshold for your filing status. This amount is prorated for the months that you were covered by the minimum health insurance coverage.
The vast majority of taxpayers will fall into the 1% penalty, which will be significantly larger than the $95.00 penalty that most individuals assume they will be hit with. The penalty continues to increase in 2015 and 2016 to “encourage” the un-insured to pursue health insurance from the marketplace or other provider. The penalty is capped at $3,600 per adult and $1,900 per child for 2014, and continually increases over the next two years. A family of four could be hit with a penalty as much as $11,000.00 for 2014!(Equivalent to the bronze plan premium for insurance coverage).
In order to avoid exorbitant tax penalties in the future, it is important to know when the enrollment periods are open to obtain health insurance. A recent poll indicated that 89% of registered voters were unaware of the open enrollment periods for the Marketplace. Here are the dates that you need to be aware of:
2015 Open Enrollment start November 15, 2014
2015 Open Enrollment Ends February 15, 2015
In future years the enrollment period will shift from October 31 to December 7. So make sure you are aware of the open enrollment periods and obtain health insurance to avoid this costly tax penalty.