Monthly Archives: November 2015

November Tax Tips

Gearing up for the ACA’s information reporting requirements

ACAStarting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.
Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

Selling rather than trading in business vehicles can save tax

car2Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in business, it’s not unusual for its tax basis to be higher than its value.

If you trade a vehicle in on a new one, the un-depreciated basis of the old vehicle simply tacks onto the basis of the new one (even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits). However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.

For example, if you sell a vehicle with an adjusted basis of $20,000 for $12,000, you’ll get an immediate write-off of $8,000 ($20,000 – $12,000). If you trade in the vehicle rather than selling it, the $20,000 adjusted basis is added to the new vehicle’s depreciable basis and, thanks to the annual depreciation limits, it may be years before any tax deductions are realized.

For more ideas on how to maximize your vehicle-related deductions, contact the tax experts at Ciuni & Panichi, Inc.  James Komos at jkomos@cp-advisors.com or 216.831.7171.

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October Tax Tips

Social Security Update

© 2015

Social Security Update: The End of File and Suspend

A great claiming strategy to try and optimize Social Security benefits disappears.

Provided by Dane A. Wilson, Wealth Management Advisor

DaneWilson-01 smaller2Congress just changed the Social Security benefit rules. On October 30, Capitol Hill lawmakers approved a two-year federal budget deal. As part of that agreement, they authorized the most significant change to Social Security policy seen in this century, disallowing two popular strategies people have used to try and maximize retirement benefits.(1)

The file-and-suspend claiming strategy will soon be eliminated for married couples. It will be phased out within six months after the budget bill is signed into law by President Obama. The restricted application claiming tactic that has been so useful for divorcees will also sunset.(2)

This is aggravating news for people who have structured their retirement plans – and the very timing of their retirements – around these strategies.

Until the phase-out period ends, couples can still file and suspend. The bottom line here is simply stated: if you have reached full retirement age (FRA) or will reach FRA in the next six months, your chance to file and suspend for full spousal benefits disappears in Spring of 2016.(3)

Spouses and children who currently get Social Security benefits based on the work record of a husband, wife, or parent who filed-and-suspended will still be able to receive those benefits.(3)

How exactly did the new federal budget deal get rid of these two claiming strategies? It made substantial revisions to Social Security’s rulebook.

One, “deemed filing” will only be allowed after an individual’s full retirement age. Previously, it only applied before a person reached FRA. That effectively removes the restricted application claiming strategy, in which an individual could file for spousal benefits only at FRA while their own retirement benefit kept increasing.(2)

The restricted application claiming strategy will not disappear for everyone, however, because the language of the budget bill allows some seniors grandfather rights. Individuals who will be 62 or older as of December 31, 2015 will still have the option to file a restricted application for spousal benefits when they reach Full Retirement Age (FRA) during the next four years.(2)

Widows and widowers can breathe a sigh of relief here, because deemed filing has no bearing on Social Security survivor benefits. A widowed person may still file a restricted application for survivor benefits while their own benefit accumulates delayed retirement credits.(2)

Two, the file-and-suspend option will soon only apply for individuals. A person will still be allowed to file for Social Security benefits and voluntarily suspend them to amass delayed retirement credits until age 70. This was actually the original definition of file-and-suspend.(2)

Married couples commonly use the file-and-suspend approach like so: the higher-earning spouse files for Social Security benefits at FRA, then suspends them, allowing the lower-earning spouse to take spousal benefits at his or her FRA while the higher-earning spouse stays in the workforce until 70. When the higher-earning spouse turns 70, he/she claims Social Security benefits made larger by delayed retirement credits while the other spouse trades spousal benefits for his/her own retirement benefits.(4)

No more. The new law says that beginning six months from now, no one may receive benefits based on anyone else’s work history while their own benefits are suspended. In addition, no one may “unsuspend” their suspended Social Security benefits to get a lump sum payment.(2)

To some lawmakers, file-and-suspend amounted to exploiting a loophole. Retirees disagreed, and a kind of cottage industry evolved around the strategy with articles, books, and seminars showing seniors how to generate larger retirement benefits. It was too good to last, perhaps. The White House has wanted to end the file-and-suspend option since 2014, when even Alicia Munnell, the director of the Center for Retirement Research at Boston College, wrote that “eliminating this option is an easy call … when to claim Social Security shouldn’t be a question of gamesmanship for those with the resources to figure out clever claiming strategies.”(4)

Gamesmanship or not, the employment of those strategies could make a significant financial difference for spouses. Lawrence Kotlikoff, the economist and PBS NewsHour columnist who has been a huge advocate of file-and-suspend, estimates that their absence could cause a middle-class retired couple to leave as much as $70,000 in Social Security income on the table.(3)

What should you do now? If you have been counting on using file-and-suspend or a restricted application strategy, it is time to review and maybe even reassess your retirement plan. Talk with a financial professional to discern how this affects your retirement planning picture.

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com
cp-advisors.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – thehill.com/blogs/floor-action/senate/258629-senate-approves-budget-deal-in-overnight-vote [10/30/15]
2 – marketwatch.com/story/key-social-security-strategies-hit-by-budget-deal-2015-10-30 [11/2/15]
3 – pbs.org/newshour/making-sense/column-congress-pulling-rug-peoples-retirement-decisions/ [11/1/15]
4 – slate.com/articles/double_x/doublex/2015/10/budget_deal_closed_social_ security_loophole_known_as_file_and_suspend.html [10/30/15]

 

Plan for a Better Tax Year

2016With the holidays just around the corner, it is time, once again, to start your year-end tax planning. And like so many years in the recent past, we are once again waiting on Congress to pass the tax extenders bill to know what many of the most common 2015 tax provisions will be.

What we do know is the 2015 tax rates and tax brackets for individuals are very similar to 2014. The IRS just released the 2016 rates and brackets, which are very similar to the 2015 because of the past year’s low inflation. Since the tax rates and brackets have been pretty consistent from year to year, there isn’t a great incentive to accelerate or defer income or deductions this year due to changing tax rates. The old rule of thumb still applies:

  • Try to accelerate deductions into the current year and defer income into next year. Some ways to accomplish this is to maximize deductible retirement plan contributions such as 401(k) or deductible IRAs this year.
  • With the recent downturn in the stock market, you may consider selling some losing positions in order to offset capital gains or take advantage of the $3,000 of capital losses individuals can take to offset ordinary income.
  • Accelerate itemized deductions such as medical expenses, state and local income tax payments, real estate tax payments or charitable contributions into the current year.  Before making large itemized deduction payments you should consult with your tax advisor to make sure the payments do not trigger the Alternative Minimum Tax (AMT).

For businesses, year-end planning is a bit murkier. The popular deductions and credits such as bonus depreciation, research tax credit and Work Opportunity Tax credit all expired at the end of 2014. While it is expected these provisions, along with about 50 others, will be retroactively reinstated before the end of the year, we currently don’t have any timeline as to when. In recent years, the tax extenders bill has been rushed through Congress just before (or shortly after) the end of the year. However, Congress has been known to make small tweaks to some of the provisions. It is possible something could change or be dropped altogether. An example is the popular section 179 deduction for purchases of equipment. The maximum deduction for 2014 was $500,000 but the current maximum is $25,000. This provision will also likely be updated in the tax extenders bill but it may be in an amount different from the $500,000 maximum for 2014.

While there is still much uncertainty regarding Federal tax planning, Ohio’s tax situation is much clearer. The Ohio General Assembly passed the bi-annual budget this past June reducing income taxes for individuals and small business owners. The budget bill included a 6.3 percent across the board rate decrease reducing, for example, the top individual tax rate from 5.333 percent to 4.997 percent. Small business owners of pass through entities will see further tax reduction as well. Small business owners will be able to take advantage of the 75 percent of the first $250,000 of Ohio sourced pass through income exemption for 2015 and will be able to take a 100 percent exemption for such income in 2016. In addition, the business income exceeding the exemption amount will now be limited to a maximum three percent income tax rate instead of the normal graduated tax rates.

Before making any big year-end planning moves, it is always a good idea to consult with your tax advisors to make sure the ideas suggested above make sense given your specific tax circumstances. As always, please feel free to contact us at Ciuni & Panichi, Inc. if you have any questions.

David Reape is a Principal in the firm’s Tax Department. He has experience in all facets of taxation for individuals and closely-held businesses, along with their owners and key personnel. His clients are in a wide range of industries, including not-for-profit, manufacturing, service, restaurants, and health care.

Visit cp-advisors.com to learn more.