Category Archives: Tax Planning

The Trump Tax Plan

Tax Plan

AMTThe Trump Administration served its opening volley on tax reform.  Although short on details and sure to be extensively debated and modified by Congress, it does offer us some insights on where the debate may be headed.  Of special importance is the omission of some key campaign proposals.  These include the border tax, potential limitations of mortgage interest, and charitable donation.

The Ciuni & Panichi team continues to watch the developing details of tax reform, keeping our clients in mind.  We will keep you abreast of major changes in proposals that will affect you and your businesses.

Summary of Trump’s Tax Plan

  • The business tax rate is reduced to 15 percent.  This includes all businesses even partnerships, S Corporations, and sole proprietors.
  • The number of income tax brackets will be cut from seven to three, with a top rate of 35 percent and lower rates of 25 percent and 10 percent. It is not clear what income ranges will fall under those brackets.  It would double the standard deduction.
  • It would eliminate most tax deductions. The mortgage interest and charitable contribution deductions would be retained.
  • Estate tax, otherwise known as the “death tax” will be eliminated.
  • There will be a “one-time tax” on the trillions of dollars held by corporations overseas.
  • The U.S. would go to a “territorial” tax system. Such systems typically exclude most or all of the income that businesses earn overseas. Most developed countries use this model.
  • Repeal of the alternative minimum tax and 3.8 percent Obamacare taxes.

Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.

 

When to File a Gift Tax Return

Do you need to file a 2016 gift tax return by April 18?

TJCGenerally, you’ll need to file gift tax return if you made gifts that exceeded the $14,000-per-recipient gift tax annual exclusion (unless to your U.S. citizen spouse) and in certain other situations. If you transferred hard-to-value property, such as artwork or interests in a family business, consider filing a gift tax return even if not required.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required
You’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your  U.S. citizen spouse)
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse
  • You wish to split with your spouse to take advantage of your combined $28,000 annual  exclusions
  • To a Section 529 college savings plan for your child, grandchild or other loved one  and you wish to accelerate up to five years’ worth of annual exclusions ($70,000) into  2016
  • Of future interests — such as remainder interests in a trust — regardless of the amount
  • Of jointly held or community property

When filing isn’t required
No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if it’s not required. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline
The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

The best advice we can offer is, “don’t go it alone.” Contact Tony Constantine, CPA, Ciuni & Panichi, Inc. Tax Partner, at 216-831-7171 or tconstantine@cp-advisors.com for the advice you need for a positive tax filing experience.

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Sales Tax and Your 2016 Tax Return

Donating Appreciated Stock Offers Tax Advantages

December Tax Tips

Avoid a 50% penalty:  Take retirement plan RMDs by December 31

RMDAfter you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs).

If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.

So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.

For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact the tax experts at Ciuni & Panichi, Inc.  – Jim Komos at jkomos@cp-advisors.com or 216.831.7171.

Don’t miss your opportunity to make 2015 annual exclusion gifts

tax giftRecently, the IRS released the 2016 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.45 million (up from $5.43 million in 2015). But even with the rising exemptions, annual exclusion gifts offer a valuable tax-saving opportunity.

The 2015 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2016.)

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2015 exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your grandson this year, you can’t add $28,000 to your 2016 exclusions to make a $56,000 tax-free gift to him next year.

Questions about making annual exclusion gifts or other ways to transfer assets to the next generation while saving taxes? Contact Jim Komos at jkomos@cp-advisors.com or 216.831.7171.
© 2015

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November Tax Tips

Social Security: The End of File and Suspend

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.

2015 Year-End Tax Planning Tips

april 15Review your tax situation before year-end to avoid unpleasant surprises, take advantage of tax-reduction opportunities, and budget for a possible tax bill. Here are a few strategies to consider before December 31 from the tax experts at Ciuni & Panichi, Inc.

Pay Deductible Expenses Early
Consider accelerating some deductible expenses to produce higher 2015 write-offs on your itemized return if you expect to be in the same or lower tax bracket next year. You’ll reduce your income tax liability over the long run, however if you’re in the same bracket or higher next year, you’ll simply defer part of your liability until next year.

Perhaps the easiest deductible expense to prepay is your mortgage bill on your primary residence or vacation home due on January 1, 2016. Making that payment this year will give you 13 months’ worth of deductible interest in 2015 (if you didn’t implement this strategy last year). However, if you prepay this year, you’ll have to continue the policy for next year and beyond. Otherwise, you’ll have only 11 months’ worth of interest in the year you stop.  Also easy to prepay are state and local income and property taxes due early next year.

Expenses subject to deduction floors based on a percentage of your adjusted gross income (AGI, which is the number at the bottom of page 1 of your Form 1040) merit attention as well. You can deduct such expenses only to the extent that they exceed the applicable floor. If year-to-date you’ve exceeded the floor — or you’re close to exceeding it — consider accelerating additional expenses into 2015. But if you’re far away from the floor, to the extent possible, defer expenses until next year to help you potentially exceed the floor then.

The two prime candidates are medical costs (10% floor for most taxpayers) and miscellaneous deductions (2% floor), such as investment expenses, job-hunting expenses, unreimbursed employee business expenses and fees for tax preparation and advice.

Important note: Prepayment may be a bad idea if you owe the alternative minimum tax (AMT) in 2015. That’s because write-offs for state and local income and property taxes, as well as miscellaneous itemized deductions subject to the 2% floor, are disallowed under the AMT rules. Even if an expense is also deductible for AMT purposes, such as mortgage interest and medical costs, the deduction may be less valuable under the AMT because your AMT rate may be lower than your regular tax rate. Before prepaying expenses, ask your tax adviser if you are in danger of owing AMT in 2015.

Pay College Tuition Bills Early
If you qualify for the American Opportunity credit or the Lifetime Learning credit but haven’t incurred enough expenses to max out the credit for 2015, consider prepaying tuition bills due in early 2016. Specifically, you can claim a 2015 credit based on prepaying tuition for academic periods that begin in January through March of next year.

The maximum American Opportunity credit is $2,500 per student, but it’s phased out if your 2015 modified adjusted gross income (MAGI) is too high. The 2015 MAGI phase out range for unmarried individuals is $80,000 to $90,000. The range for married joint filers is $160,000 to $180,000.

The maximum Lifetime Learning credit is $2,000 per tax return, but it’s also phased out if MAGI is too high. The 2015 MAGI phase out range for unmarried individuals is $55,000 to $65,000. The range for married joint filers is MAGI of $110,000 to $130,000.

For both credits, if your MAGI is within the phase out range, you can take a partial credit. If it exceeds the top of the range, your credit is completely phased out. Many other rules apply to these credits, so contact your tax adviser for details.

Defer Income
It may be worthwhile to defer some taxable income into next year if you expect to be in the same or lower tax bracket in 2016. For example, if you’re a self-employed, cash-basis taxpayer, you might postpone recognizing taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive these payments until early 2016. You can also defer taxable income by accelerating some deductible business expenses into this year. Both moves will postpone tax liability until next year, and could even save taxes permanently, depending on your tax bracket next year.

Deferring income can also be helpful if you’re affected by unfavorable phase out rules that reduce or eliminate various tax breaks, such as the child credit or higher-education tax credits. By deferring income every other year, you may be able to take more advantage of these breaks in alternating years.

Sell Underperforming Stocks Held in Taxable Accounts
Selling losing investments held in taxable brokerage firm accounts can lower your 2015 tax bill, because you can deduct the resulting capital losses against this year’s capital gains. If your losses exceed your gains, you will have a net capital loss.

You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income, including your salary, self-employment income, alimony and interest income. Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2016 and beyond.

Gift Appreciated Assets to Family Members in Lower Tax Brackets
For 2015, the federal income tax rate on long-term capital gains and qualified dividends is still 0% for taxpayers in the 10% or 15% rate brackets. While your tax bracket may be too high to take advantage of the 0% rate, you probably have loved ones who are in the lower tax brackets. If so, consider giving them appreciated stock or mutual fund shares. They can sell the shares and pay 0% federal income tax on the resulting long-term gains.

Important note: Gains will be considered long-term if your ownership period plus the gift recipient’s ownership period equals at least a year and a day.

Giving qualified-dividend-paying stocks to family members eligible for the 0% rate is another tax-smart idea.

But before making a gift, consider the gift tax consequences. The annual gift tax exclusion is $14,000 in 2015 (the same as 2014). If you give assets worth more than $14,000 (or $28,000 for married couples) during 2015 to an individual, it will reduce your $5.43 million gift and estate tax exemption — or be subject to gift tax if you’ve already used up your lifetime exemption. Also keep in mind that, if your gift recipient is under age 24, the “kiddie tax” rules could potentially cause some of his or her capital gains and dividends to be taxed at the parents’ higher rates.

Donate to Charity
Charitable donations can be one of the most powerful tax-saving tools because you’re in complete control of when and how much you give. No floor applies, and annual deduction limits are high (20%, 30% or 50% of your AGI, depending on what you’re giving and whether a public charity or a private foundation is the recipient).

If you have appreciated stock or mutual fund shares that you’ve owned for more than a year, consider donating them instead of cash. You can generally claim a charitable deduction for the full market value at the time of the donation and avoid any capital gains tax hit.

If you own stocks that are worth less than you paid for them, don’t donate them to a charity. Instead, sell the stock and give the cash proceeds to a charity. That way, you can generally deduct the full amount of the cash donation while keeping the tax-saving capital loss for yourself.

Consult with your Tax Pro
As always, year-end tax planning must take into account each taxpayer’s particular situation and goals. Contact Ciuni & Panichi, Inc. for tax advice before the end of the year at 216-831-7171 or sign up for our newsletter to get up to date information in your in-box at cp-advisors.com.

 You may also be interested in:

October Tax Tips

2015 Summer State Tax Update

© 2015

2015 Year-End Tax Planning Tips for Individuals

april 15Review your tax situation before year-end to avoid unpleasant surprises, take advantage of tax-reduction opportunities, and budget for a possible tax bill. Here are a few strategies to consider before December 31 from the tax experts at Ciuni & Panichi, Inc.

Pay Deductible Expenses Early
Consider accelerating some deductible expenses to produce higher 2015 write-offs on your itemized return if you expect to be in the same or lower tax bracket next year. You’ll reduce your income tax liability over the long run, however if you’re in the same bracket or higher next year, you’ll simply defer part of your liability until next year.

Perhaps the easiest deductible expense to prepay is your mortgage bill on your primary residence or vacation home due on January 1, 2016. Making that payment this year will give you 13 months’ worth of deductible interest in 2015 (if you didn’t implement this strategy last year). However, if you prepay this year, you’ll have to continue the policy for next year and beyond. Otherwise, you’ll have only 11 months’ worth of interest in the year you stop.  Also easy to prepay are state and local income and property taxes due early next year.

Expenses subject to deduction floors based on a percentage of your adjusted gross income (AGI, which is the number at the bottom of page 1 of your Form 1040) merit attention as well. You can deduct such expenses only to the extent that they exceed the applicable floor. If year-to-date you’ve exceeded the floor — or you’re close to exceeding it — consider accelerating additional expenses into 2015. But if you’re far away from the floor, to the extent possible, defer expenses until next year to help you potentially exceed the floor then.

The two prime candidates are medical costs (10% floor for most taxpayers) and miscellaneous deductions (2% floor), such as investment expenses, job-hunting expenses, unreimbursed employee business expenses and fees for tax preparation and advice.

Important note: Prepayment may be a bad idea if you owe the alternative minimum tax (AMT) in 2015. That’s because write-offs for state and local income and property taxes, as well as miscellaneous itemized deductions subject to the 2% floor, are disallowed under the AMT rules. Even if an expense is also deductible for AMT purposes, such as mortgage interest and medical costs, the deduction may be less valuable under the AMT because your AMT rate may be lower than your regular tax rate. Before prepaying expenses, ask your tax adviser if you are in danger of owing AMT in 2015.

Pay College Tuition Bills Early
If you qualify for the American Opportunity credit or the Lifetime Learning credit but haven’t incurred enough expenses to max out the credit for 2015, consider prepaying tuition bills due in early 2016. Specifically, you can claim a 2015 credit based on prepaying tuition for academic periods that begin in January through March of next year.

The maximum American Opportunity credit is $2,500 per student, but it’s phased out if your 2015 modified adjusted gross income (MAGI) is too high. The 2015 MAGI phase out range for unmarried individuals is $80,000 to $90,000. The range for married joint filers is $160,000 to $180,000.

The maximum Lifetime Learning credit is $2,000 per tax return, but it’s also phased out if MAGI is too high. The 2015 MAGI phase out range for unmarried individuals is $55,000 to $65,000. The range for married joint filers is MAGI of $110,000 to $130,000.

For both credits, if your MAGI is within the phase out range, you can take a partial credit. If it exceeds the top of the range, your credit is completely phased out. Many other rules apply to these credits, so contact your tax adviser for details.

Defer Income
It may be worthwhile to defer some taxable income into next year if you expect to be in the same or lower tax bracket in 2016. For example, if you’re a self-employed, cash-basis taxpayer, you might postpone recognizing taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive these payments until early 2016. You can also defer taxable income by accelerating some deductible business expenses into this year. Both moves will postpone tax liability until next year, and could even save taxes permanently, depending on your tax bracket next year.

Deferring income can also be helpful if you’re affected by unfavorable phase out rules that reduce or eliminate various tax breaks, such as the child credit or higher-education tax credits. By deferring income every other year, you may be able to take more advantage of these breaks in alternating years.

Sell Underperforming Stocks Held in Taxable Accounts
Selling losing investments held in taxable brokerage firm accounts can lower your 2015 tax bill, because you can deduct the resulting capital losses against this year’s capital gains. If your losses exceed your gains, you will have a net capital loss.

You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income, including your salary, self-employment income, alimony and interest income. Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2016 and beyond.

Gift Appreciated Assets to Family Members in Lower Tax Brackets
For 2015, the federal income tax rate on long-term capital gains and qualified dividends is still 0% for taxpayers in the 10% or 15% rate brackets. While your tax bracket may be too high to take advantage of the 0% rate, you probably have loved ones who are in the lower tax brackets. If so, consider giving them appreciated stock or mutual fund shares. They can sell the shares and pay 0% federal income tax on the resulting long-term gains.

Important note: Gains will be considered long-term if your ownership period plus the gift recipient’s ownership period equals at least a year and a day.

Giving qualified-dividend-paying stocks to family members eligible for the 0% rate is another tax-smart idea.

But before making a gift, consider the gift tax consequences. The annual gift tax exclusion is $14,000 in 2015 (the same as 2014). If you give assets worth more than $14,000 (or $28,000 for married couples) during 2015 to an individual, it will reduce your $5.43 million gift and estate tax exemption — or be subject to gift tax if you’ve already used up your lifetime exemption. Also keep in mind that, if your gift recipient is under age 24, the “kiddie tax” rules could potentially cause some of his or her capital gains and dividends to be taxed at the parents’ higher rates.

Donate to Charity
Charitable donations can be one of the most powerful tax-saving tools because you’re in complete control of when and how much you give. No floor applies, and annual deduction limits are high (20%, 30% or 50% of your AGI, depending on what you’re giving and whether a public charity or a private foundation is the recipient).

If you have appreciated stock or mutual fund shares that you’ve owned for more than a year, consider donating them instead of cash. You can generally claim a charitable deduction for the full market value at the time of the donation and avoid any capital gains tax hit.

If you own stocks that are worth less than you paid for them, don’t donate them to a charity. Instead, sell the stock and give the cash proceeds to a charity. That way, you can generally deduct the full amount of the cash donation while keeping the tax-saving capital loss for yourself.

Consult with your Tax Pro
As always, year-end tax planning must take into account each taxpayer’s particular situation and goals. Contact Ciuni & Panichi, Inc. for tax advice before the end of the year at 216-831-7171 or sign up for our newsletter to get up to date information in your in-box at cp-advisors.com.

 You may also be interested in:

October Tax Tips

2015 Summer State Tax Update

© 2015

Expiring Tax Breaks

Any chance they will be extended?

David Reape HighRes-08It may feel like a recurring nightmare but here we are again near the end of the year and we still do not know what the key tax provisions will be.  Will the lame-duck Congress tackle the issue?   Find out what you need to do to be prepared.

With the first major winter storm hitting most of the country this past week, we are reminded now is the time to think about year-end planning.  And just as Mother Nature is wreaking havoc with our morning commutes, Congress is also wreaking havoc with the tax law by allowing a number of important expired tax provisions to languish over the course of the summer.  The IRS Commissioner recently made several public comments warning Congress that failure to take action soon would likely delay the start of tax filing season and delay the payment of refunds to taxpayers.

Now that the mid-term elections are behind us, Congress has started to act on passing some sort of extenders bill but the path is still very uncertain.  Some of the more popular business tax breaks such as the 50% bonus depreciation deduction, increased Section 179 expensing deduction and the research tax credit will very likely get extended in some form.  The developing debate which threatens to delay the bill is, for how long?  It’s very probable these provisions will see an extension through the end of 2015.  There are a number of House members who are pushing to make these provisions permanent.  This debate threatens to delay passage of the bill until early next year.

A further topic which could delay passage of the tax extenders bill are the various energy related tax incentives.  The wind energy credits have long been supported by Democratic lawmakers but the recent gains by the GOP in the mid-term elections have put these provisions squarely in the target circle for possible cuts or outright repeal.

In spite of the political posturing going on in Washington, we anticipate passage of the more popular tax provisions.  We may not know for certain until next year.  As the tax extenders bill develops, we will keep you posted on the status of those changes.

If you have questions about tax legislation or would like assistance in determining how to make the most of your tax provisions, the tax professionals at Ciuni & Panichi can help you start planning now.  For more information, please contact David Reape at 216.831.7171 or dreape@cp-advisors.com.

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

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Beware of Alternative Minimum Tax Triggers

College Tax Breaks Help Save You Money

© 2014

Tax Advantage for Business Income

business incomeTiming business income and expenses to your tax advantage.

 

Typically, it’s better to defer tax. Here are two timing strategies that can help businesses do this:

  1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
  2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

But if you think you’ll be in a higher tax bracket next year, consider taking the opposite approach by  accelerating income and deferring deductible expenses.  This will increase your tax bill this year but can save you tax over the two-year period.

These are only some of the nuances to consider.  Please contact us to discuss what timing strategies will work to your tax advantage, based on your specific situation.

If you have questions about timing business income and expenses or would like assistance in determining how to make the most of your timing, Ciuni & Panichi can help you start planning now.  For more information, or on tax reporting requirements, please contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com.
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Audit Your Retirement Plan Before the Government Does

© 2014

Short-term ACA Relief Now Available for Midsize and Large Employers

AACA Health Care ReformRecently released IRS final regulations for the Affordable Care Act’s (ACA’s) employer shared-responsibility provision provide some short-term relief for midsize and large employers.

Under the ACA, the shared-responsibility provision (commonly referred to as “play-or-pay”) applies to “large” employers — those with the equivalent of 50 or more full-time employees. Play-or-pay had been scheduled to go into effect in 2014, but last year, the IRS pushed that out to 2015. Now, under the final regulations, eligible midsize employers that otherwise would be considered large employers under the ACA won’t be subject to the provision until 2016.

To Qualify for the Midsize-Employer Relief, an Employer Must:

      • Employ on average fewer than 100 full-time employees, or the equivalent, during 2014,
      • Maintain its workforce size and aggregate hours of service,
      • Maintain the health care coverage it offered as of Feb. 9, 2014, and
      • Certify that it meets these requirements.

Some Relief for Large Employers as Well

The final regulations also provide some relief for large employers that don’t qualify for the midsize-employer relief.  In 2015, they can avoid the penalty for not offering minimum essential coverage by offering such coverage to at least 70% of their full-time employees, rather than the 95% originally scheduled. The 95% requirement will apply in 2016 and beyond.

The final regulations also clarify certain aspects of the play-or-pay provision. Please contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information. You can also submit an inquiry on our contact us page.

To read more about Ciuni & Panichi’s Employee Benefit Plan Services, including employee benefit plan financial audits, preparation of annual Form 5500 filings, annual compliance tests required by ERISA and the IRS, and much more, visit our Employee Benefit Plan Services page.

Related posts covering employer-sponsored benefits:

FSA Plans: Employers, Have You Amended Your Plans to Allow Rollover?

Do an Employee Benefit Plan Audit Before the IRS or DOL

Deadline Coming Up to Report Foreign Account Holdings

FSA Foreign Accounts BankThe deadline is approaching for US taxpayers to report accounts they hold in foreign banks and other financial institutions (foreign account holdings).

You also may be required to report foreign account holdings over which you have signature authority, such as an account that you maintain on behalf of a relative or employer — or if you have power of attorney over an elderly parent’s foreign account holdings, even if you never exercise that authority.

By June 30, 2014, citizens and residents of the United States, as well as domestic partnerships, corporations, estates, and trusts, must generally file a Report of Foreign Bank and Financial Accounts (FBAR) form electronically with FinCEN if:

  1. They have a direct or indirect financial interest in — or signature authority over — one or more accounts in a foreign country. This includes bank accounts, brokerage accounts, mutual funds, trusts, or other types of foreign financial accounts; and
  2. The total value of the foreign accounts exceeds $10,000 at any time during the calendar year.

Taxpayers also may be subject to FBAR compliance if they file an information return related to: certain foreign corporations (Form 5471); foreign partnerships (Form 8865); foreign disregarded entities (Form 8858); or transactions with foreign trusts and receipt of certain foreign gifts (Form 3520).

Some individuals are exempt.

Exceptions to the Foreign Account Holdings Reporting Requirement

There are FBAR 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;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans; and
  • Certain individuals with signature authority over — but no financial interest in — a foreign financial account.

To determine eligibility for an exception, consult with your tax adviser.

Increased Scrutiny, Stiffer Penalties for Noncompliance

Take the FBAR requirement seriously. Several legislative changes, as well as a clarification of the IRS’s interpretation of the “willful standard,” have led to increased enforcement and stiffer penalties for noncompliance of foreign account reporting requirements.

The IRS states that the form “is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”

Failing to File an FBAR Can Result in the Following Penalties:

  • A civil penalty of as much as $10,000, if the failure was not willful. This penalty may be waived if income from the account was properly reported on the income tax return and there was reasonable cause for not reporting it.
  • A civil penalty equal to the greater of 50 percent of the account or $100,000, if the failure to report was willful.
  • Criminal penalties and time in prison.

Consult with your Ciuni & Panichi international tax adviser if you have an interest in — or authority over — a foreign account. Your tax adviser can ensure you meet the FBAR reporting requirements and remain in compliance with the law.

Other posts relating to personal finance:

Changing Jobs: What About My Old Retirement Plan?

Retirement Planning: When to Increase Contributions

Watch Out for These Personal Finance Strategies

 

Business Tax Deductions: Meals and Entertainment

plateWho’s subject to the 50% limit on tax deductions?

In general, when meal and entertainment expenses are incurred in the context of an employer-employee or customer–independent contractor relationship, one party will be subject to a 50% limitation on the deduction.  But which party?  Last year, the IRS finalized regulations that address this question.

In the employer-employee setting:

  • If the employer reimburses the employee for meal or entertainment expenses and treats the reimbursement as compensation, the employee reports the entire amount as taxable income. The employer deducts the payment as compensation, and the employee may be able to claim a business expense deduction, subject to the 50% limit.
  • If the employer doesn’t treat the reimbursement as compensation, the employee excludes the entire amount from taxable income and the employer deducts the expense, subject to the 50% limit.

In a customer–independent contractor setting, the final regulations allow the parties to agree as to who will be subject to the 50% limit.  If there isn’t an agreement, then:

  • If the contractor accounts to the customer for meal and entertainment expenses reimbursed by the customer (i.e., properly substantiates the expenses), the 50% limit applies to the customer.
  • If the contractor doesn’t, the limit applies to the contractor.

The rules surrounding meal and entertainment expense deductions are complex.  The tax professionals at Ciuni & Panichi, Inc. know the answers.  Please contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com to ensure you’re making the most of the deductions available to you but not putting yourself at risk for back taxes, interest, and penalties.

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Internal Controls for Business Owners to Use Today
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© 2014

Watch Out for These Personal Financial Strategies

The Top Three Personal Financial Pitfalls to Avoid

Finance Strategy FSA 401(k)There are three financial strategies that seem to make good financial sense at first glance, but have the potential for abuse.

Here are the potentially appealing strategies and their dangers:

1. Purchasing the Largest Home You Can Afford.

Many individuals calculate the maximum amount they can borrow and then purchase a home based on that amount. Then, they find their budgets strained, with little money left over for other expenses. It’s a better personal finance strategy to do an in-depth review of all your expenses, deciding how much you’re comfortable devoting to a mortgage payment. You want to make sure there will be money left over for other financial goals and that unforeseen problems won’t prevent you from making your mortgage payment.

2. Paying off Your Credit Card Debt with a Home-Equity Loan.

Credit card and other consumer debt typically carry high interest rates that are not tax deductible. Home-equity loans, on the other hand, typically have lower interest rates and the interest is tax deductible as long as the balance is less than $100,000. Thus, using a home-equity loan to pay off consumer debt replaces higher interest, nondeductible debt with lower interest, tax-deductible debt. This is not necessarily a bad strategy, but the danger is you will run up credit card balances again. In that case, you reduced your home’s equity without improving your financial situation.

3. Get a Loan From Your 401(k) Plan.

Most 401(k) plans allow participants to borrow against their balances, believing it will increase employee participation by allowing access to funds before retirement age. The loan is not considered a distribution, so it is not subject to income taxes or the 10 percent early withdrawal penalty. Typically, interest rates are reasonable and the loan is fairly easy to obtain. Any interest paid on the loan is going back into your 401(k) plan.

The danger is that most people will have trouble saving enough for retirement without regularly dipping into their 401(k) plans. Also, some of your investments are sold to provide the loan proceeds. Even though your original contributions to the plan were made with pre-tax dollars, the money used to repay the loan is made with after-tax money.

Another danger exists if you leave your job before the loan is paid off, since you must then repay the entire balance in a short time or the balance will be considered a taxable distribution, subject to income taxes and possibly the 10 percent federal income tax penalty if you are under 59 1/2 years of age. For more information and assistance with related questions please contact us at 800-606-2292 or leave us your contact information here.

Related Personal Finance Posts:

Retirement Planning: When to Increase Contributions

Watch Out for These Personal Finance Strategies

Deadline Coming Up to Report Foreign Account Holdings

Some Tax Saving Ideas for Trust Income

Need another idea to help you save on your tax liability?

Ciuni & Panichi is constantly looking for ways to assist you.  Our Tax Group is always available if you have any questions.

This year, trusts are subject to the 39.6% ordinary-income rate and the 20% capital gains rate to the extent their taxable income exceeds $12,150.  And the 3.8% net investment income tax applies to undistributed net investment income to the extent that a trust’s adjusted gross income exceeds $12,150.  Three strategies can help you soften the blow of higher taxes on trust income:

  1. Use grantor trusts.  An intentionally defective grantor trust (IDGT) is designed so that the trust’s income is taxed to you, the grantor, and the trust itself avoids taxation.  But if your personal income exceeds the thresholds that apply to you (based on your filing status) for these taxes, using an IDGT won’t avoid the tax increases.
  2. Change your investment strategy.  Non-grantor trusts are sometimes desirable or necessary.  One strategy for easing the tax burden is for the trustee to shift investments into tax-exempt or tax-deferred investments.
  3. Distribute income.  When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which is taxed at the beneficiary’s marginal rate.  Thus, one strategy for avoiding higher taxes is to distribute trust income to beneficiaries in lower tax brackets.

vacationSome of these strategies may, however, conflict with a trust’s purpose.  We can review your trusts and help you determine the best solution to achieve your goals.

Jim Komos is the Partner-in-Charge of the firm’s Tax Department.  He has experience in all facets of taxation for individuals, closely held businesses, their owners and key personnel.  His clients are in a wide range of industries, including manufacturing, service, real estate, and construction.  Contact him at 216.831.7171 or jkomos@cp-advisors.com.

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Tax Deduction:  Is my elderly parent a dependent?

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© 2014

Taxes and a Charitable Remainder Trust

Need another idea to help you save on your tax liability?

eggsCiuni & Panichi is constantly looking for ways to assist you.  Our Tax Group is always available if you have any questions.

Would you like to benefit a charity while reducing the size of your taxable estate, yet maintain an income stream for yourself?  Would you also like to divest yourself of highly appreciated assets and diversify your portfolio with minimal tax consequences?  Then you should consider a Charitable Remainder Trust (CRT).  Let us tell you how it works:

  • When you fund the CRT, you receive a partial income tax deduction and the property is removed from your estate.
  • For a given term, the CRT pays an amount to you annually.
  • At the term’s end, the CRT’s remaining assets pass to charity.

If you fund the CRT with appreciated assets, it can sell them without paying tax on the gain and then invest the proceeds in a variety of stocks and bonds.  You will still owe capital gains tax when you receive CRT payments, but much of the liability will be deferred.  And, only a portion of each payment will be attributable to capital gains.  This also might help you reduce or avoid exposure to the 3.8% net investment income tax and the 20% top long-term capital gains rate.

Looking for more ideas on tax-smart gifts to charity, minimizing estate taxes, maintaining an income stream?  How about diversifying your portfolio for the utmost tax reduction, contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.

Mr. Komos is the Partner-in-Charge of the firm’s Tax Department.  He has experience in all facets of taxation for closely held businesses, their owners and key personnel.  His clients are in a wide range of industries, including manufacturing, service, real estate, and construction.   (c) 2014

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Pay Professional Fees Now and Reduce Your Tax Bill

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