Individual and Business Tax Planning Help
2017 Year-End Individual Tax Planning Newsletter
Most Tax Laws Remain Unchanged For 2017 But Immediate Action Needs To Be Taken To Prepare For Potential Income Tax Changes In 2018
Here are the most important things you need to know
- Individual Mandate for minimum essential health insurance remains the law. Penalties up to $695 per adult and $347.50 per child, (up to $2,085 per family) or 2.5% of family income, whichever is greater. For this reason, it is required to bring your 1095 forms to your tax appointment.
- No tax refunds will be paid until at least February 15, 2018 if the Earned Income Credit or the Additional Child Tax Credit is claimed. Returns can be completed prior to then, but the IRS will not process the payment until after February 15th.
- Money received from crowdfunding sources such as GoFundMe, Kickstarter, and Indiegogo may be taxable when received if used for business purposes, without being given as part of an ownership interest if the giver receives something of value in return.
- Bitcoin held in a non-US exchange or wallet, should be indicated on their tax return and reported as a foreign bank account since the penalties are extremely high for failing to report foreign accounts. Additional filings fees may apply to the filing of a foreign bank account return.
- Increased documentation requirements for Earned Income Credit (EIC), Additional Child Tax Credit (ACTC) and American Opportunity Tax Credit. It is important to bring receipts related to books and education not reported on 1098-T. Other documentation requirements apply to the EIC and ACTC. Additional tax preparation fees could apply to the preparation of these items.
- Business mileage reimbursement rate decreases to 53.5 cents per mile for 2017.
- Remember your 1098-T from your college students. This is a source of large tax credits and we are required to see it to deduct it on your taxes.
All Business must report any cash transactions of over $10,000 to the IRS within 15 days using form 8300.
- Landlords – Must prepare and send 1099’s - For those renting properties it is important that you prepare 1099s for anyone who provided a service to your rental property. This is required for each provider that was paid more than $600 during the year.
What you can do to reduce your taxes for 2017 & 2018
- Pay 4th Quarter state estimated tax payment by December 31, 2017; May not be deductible next year
- Pay 2nd Installment of Real Estate Taxes by December 31, 2017; May not be deductible next year
- Defer the income you control Wait to exercise stock options. Wait to bill for self-employment work and delay the collection of rents and royalties until the New Year;
- Maximize contributions to any current 401(k), 403(b) or any other similar plan;
- Donate Required Minimum Distributions (RMD) to Charity - Have the RMD sent directly to the charity
- Make contributions to your IRA before April 18th, 2018;
- Sell investments with losses by 12.31.2017 to reduce any capital gains and to create up to $3,000 of loss
- Donate appreciated investments, you get the benefit of receiving a charitable contribution for the fair market value of the investment, and not have to report any of the gain on the appreciation of the investment.
- Make the best out of a bad year. If your 2017 income is substantially less than normal, you are likely in a lower tax bracket, making it a great time to sell appreciated stock and mutual funds. If this year’s ordinary income tax rate is 15% or less, then your capital gains tax rate is 0%.
- Convert your IRA to a Roth IRA. It is not immediate, but will provide tax savings in the future;
- Take Required Minimum Distributions (RMD’s) from retirement accounts if you are over 70 ½.
- Hold onto investments for at least 1 year if you don’t think the value will drop to get long-term tax rates;
- Pay January Mortgage payment to be received by December 31, 2017;
- Make Charitable Contributions and donate old clothes and furniture by December 31, 2017;
- Pay deductible expenses like business expenses, and medical bills by credit card by December 31, 2017.
Please call us at your convenience so we can set up an appointment and estimate your tax liability for the year and discuss any questions you have.
Stephenson Accountancy Corporation
Dear Business Client:
As the end of the year approaches and with income tax reform likely to become law soon, it’s more important than ever to think and plan for the best strategies to take maximum advantage of the proposed tax law changes. Although we don’t know the final results of the tax law changes, all of the recommendations I make in this letter are beneficial whether the new law passes or not. All these recommendations will become even more valuable if the proposed tax law changes do become law in 2018.
I will briefly discuss five different strategies that can be powerful tools in lowering your tax bill. These recommendations are easy to understand and implement.
- Prepay expenses.
- Defer billing customers and patients.
- Buy office equipment.
- Use your credit cards to pay business expenses
- Don’t assume you are taking too many deductions.
- Prepay Expenses
The IRS allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance (through December 2018) without challenge, adjustment, or change by the IRS. For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums. This is a great way to pump up your 2017 deductions with expenses you will eventually pay anyway.
- Defer Billing Customers and Patients
An easy strategy for reducing your taxable income for this year is to defer billing your customers until after December 31, 2017. Customers, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.
- Buy Machinery & Office Equipment
With Section 179 expensing, you can write off up to $500,000 of office equipment in 2017. Qualifying Section 179 purchases include new and used personal property such as equipment, computers, desks, chairs, and certain qualifying vehicles. To qualify for expensing, you need to both buy the items and put them in business service on or before midnight December 31, 2017.
- Use Your Credit Cards
If you are a sole proprietor, the day you charge a purchase to your business or personal credit card is the day the expense is deductible. Therefore, as a proprietor, consider using your credit cards to buy office supplies and other business necessities.
If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.
But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you by December 31 if you want the corporation to realize the tax deduction.
- Don’t Assume You Are Taking Too Many Deductions
Make sure you record all of your rightful deductions for 2017, because if your business deductions exceed your business income, you have a tax loss for the year. Tax law calls this a “net operating loss,” or an NOL.
You are allowed to carry back the NOL for two years and get instant refunds from taxes previously paid. If, after going back for two years, you still have unused losses, you can carry them forward for up to 20 years. So always document your expenses in order to get your rightful deductions.
Please contact me to discuss in greater depth any of the strategies outlined above.
Stephenson Accountancy Corporation
Douglas Stephenson CPA, CFP®