Category Archives: Tax

2017 Q3 Tax Calendar

Key tax deadlines for businesses and other employers

tax-formHere are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us at 216-831-7171 or info@cp-advisors.com to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), and pay any tax due. (See exception below.)
  • File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

  • If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
    - File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
    - Make contributions for 2016 to certain employer-sponsored retirement plans.

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Preparing for an IRS Audit

Preparing for an IRS Tax Audit

Business owners: When it comes to IRS audits, be prepared

IRS Audit2If you recently filed your 2016 income tax return (rather than filing for an extension) you may now be wondering whether it’s likely that your business could be audited by the IRS based on your filing. Here’s what every business owner should know about the process.

Catching the IRS’s eye
Many business audits occur randomly, but a variety of tax-return-related items are likely to raise red flags with the IRS and may lead to an audit. Here are a few examples:

  • Significant inconsistencies between previous years’ filings and your most current filing,
  • Gross profit margin or expenses markedly different from those of other businesses in  your industry, and
  • Miscalculated or unusually high deductions.

An owner-employee salary that’s inordinately higher or lower than those in similar companies in his or her location can also catch the IRS’s eye, especially if the business is structured as a corporation.

How to respond
If you’re selected for an audit, you’ll be notified by letter. Generally, the IRS won’t make initial contact by phone. But if there’s no response to the letter, the agency may follow up with a call.

The good news is that many audits simply request that you mail in documentation to support certain deductions you’ve taken. Others may ask you to take receipts and other documents to a local IRS office. Only the field audit requires meeting with one or more IRS auditors.

More good news: In no instance will the agency demand an immediate response. You’ll be informed of the discrepancies in question and given time to prepare. To do so, you’ll need to collect and organize all relevant income and expense records. If any records are missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If the IRS selects you for an audit, we can help you to:

  • Understand what the IRS is disputing (it’s not always crystal clear),
  • Gather the specific documents and information needed, and
  • Respond to the auditor’s inquiries in the most expedient and effective manner.

Our best advice is: Don’t go it alone. Contact Jim Komos, CPA, Ciuni & Panichi, Inc. Tax Partner, at jkomos@cp-advisors.com or 216-831-7171.

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Tax Refund

Turn next year’s tax refund into cash in your pocket now

2018A tax refund, to be sure, feels like getting an influx of cash, and the bigger the check, the better. But it also means you are essentially giving the government an interest-free loan for close to a year. Keeping those dollars throughout the year is much better option for your financial well-being.

Now is the time to make a change in your withholding or estimated tax payments to begin collecting your 2017 refund now.

Reasons to modify amounts
It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2016 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change
You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

The best advice we can offer is don’t go it alone. If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact Tony Constantine, CPA, Ciuni & Panichi, Inc. Tax Partner at tconstantine@cp-advisors.com or 216-831-7171.

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Key Individual 2017 Tax Deadlines You Need to Know

Additional Tax Deadlines

tax-formWhile April 15 (April 18 this year) is the main tax deadline on most individual taxpayers’ minds, it’s important to be aware of other deadlines throughout the rest of year. Here’s a look at when some key tax-related forms, payments and other actions are due.

June 15

  • File a 2016 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
  • Pay the second installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 15

  • Pay the third installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 2

  • If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2016 calendar year (Form 1041) and pay any tax, interest and penalties due, if an automatic five-and-a-half month extension was filed.

October 16

  • File a 2016 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
  • Make contributions for 2016 to certain retirement plans or establish a SEP for 2016, if an automatic six-month extension was filed.
  • File a 2016 gift tax return (Form 709) and pay any tax, interest and penalties due, if an automatic six-month extension was filed.

December 31

  • Make 2017 contributions to certain employer-sponsored retirement plans.
  • Make 2017 annual exclusion gifts (up to $14,000 per recipient).
  • Incur various expenses that potentially can be claimed as itemized deductions on your 2017 tax return. Examples include charitable donations, medical expenses, property tax payments and expenses eligible for the miscellaneous itemized deduction.

Keep in mind that this list isn’t all-inclusive. Your accountant is your best advisor to make sure you are in compliance. Need help? Contact Nick Leacoma, CPA, Ciuni & Panichi, Inc. Tax Department senior manager at nleacoma@cp-advisors.com or 216-831-7171.

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You filed your taxes – could an audit follow?

So you just filed your taxes — could an audit be next?

irs auditLike many people, you probably feel a great sense of relief wash over you after your tax return is completed and filed. Unfortunately, even professionally prepared and accurate returns may sometimes be subject to an IRS audit.

The good news? Chances are slim that it will actually happen. Only a small percentage of returns go through the full audit process. Still, you’re better off informed than taken completely by surprise should your number come up.

Red flags
A variety of red flags can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return. This is often the employer’s mistake or occurs following a merger or acquisition.

In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things may increase the likelihood of an audit, such as:

  • Running a traditionally cash-oriented business,
  • having a relatively high adjusted gross income,
  • using valid but complex tax shelters, or
  • claiming certain tax breaks, such as the home office deduction.

Bear in mind, though, that no single item will cause an audit. And, as mentioned, a relatively low percentage of returns are examined. This is particularly true as the IRS grapples with its budget issues.

Finally, some returns are randomly chosen as part of the IRS’s National Research Program. Through this program, the agency studies returns to improve and update its audit selection techniques.

Careful reading
If you receive an audit notice, the first rule is:  Don’t panic! Most are correspondence audits completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate.

Read the notice through carefully. The pages should indicate the items to be examined, as well as a deadline for responding. A timely response is important because it conveys that you’re organized and, thus, less likely to overlook important details. It also indicates that you didn’t need to spend extra time pulling together a story.

Your response (and ours)
Should an IRS notice appear in your mail, Ciuni & Panichi, Inc. can help.  Please contact Tony Constantine, CPA, at 216-831-7171 or tconstantine@cp-advisors.com. We can fully explain what the agency is looking for and help you prepare your response. If the IRS requests an in-person interview regarding the audit, we can accompany you — or even appear in your place if you provide authorization.

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Saving tax with home-related deductions and exclusions.

real estate trustCurrently, home ownership comes with many tax-saving opportunities. Consider both deductions and exclusions when you’re filing your 2016 return and tax planning for 2017:
Property tax deduction. Property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT).

Mortgage interest deduction. You generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

Home equity debt interest deduction. Interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. But keep in mind that, if home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes.

Mortgage insurance premium deduction. This break expired December 31, 2016, but Congress might extend it.

Home office deduction. If your home office use meets certain tests, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space. Or you may be able to use a simplified method for claiming the deduction.

Rental income exclusion. If you rent out all or a portion of your principal residence or second home for less than 15 days, you don’t have to report the income. But expenses directly associated with the rental, such as advertising and cleaning, won’t be deductible.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Be aware that gain allocable to a period of “nonqualified” use generally isn’t excludable.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2016, but Congress might extend it.

The debt forgiveness exclusion and mortgage insurance premium deduction aren’t the only home-related breaks that might not be available in the future. There have been proposals to eliminate other breaks, such as the property tax deduction, as part of tax reform.

Whether such changes will be signed into law and, if so, when they’d go into effect is uncertain. Also keep in mind that additional rules and limits apply to these breaks. So contact us for information on the latest tax reform developments or which home-related breaks you’re eligible to claim.

Need more information or assistance?  Contact Jim Komos, Partner in the Ciuni & Panichi, Inc. Tax Department at 216.831.7171 or jkomos@cp-advisors.com.

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© 2017

Elderly Parent as a Tax Deduction

When an elderly parent might qualify as your dependent

elderlyIt’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for the adult-dependent tax exemption. It allows eligible taxpayers to deduct up to $4,050 for each adult dependent claimed on their 2016 tax return.

Basic qualifications
For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Tax exceptions may apply if your parent is permanently and totally disabled.) Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the tax exemption.

Factors to consider
Even though Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Don’t forget about your home. If your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the financial burden
Sometimes caregivers fall just short of qualifying for the exemption. Should this happen, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit, the combined medical expenses paid for you, your dependents and your parent must exceed 10% of your adjusted gross income.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

For more information and to see if you qualify, contact Ciuni & Panichi, Inc. Partner Tony Constantine, CPA at 216.831.7171 or tconstantine@cp-advisors.com.

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Sales Tax and Your 2016 Tax Return

Ohio taxpayers can deduct sales tax on their 2016 tax return

David Reape HighRes-08Ohio is one of the states where taxpayers can take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to residents who purchased major items in 2016, such as a car or boat. But it’s one or the other, so it pays to figure out what’s the best benefit for you.

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond
If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact Ciuni & Panichi, Inc.‘s David Reape, CPA, at 216-831-7171 or dreape@cp-advisors.com. He can help you maximize your 2016 savings and effectively plan for 2017.

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Changed Deadlines for Tax Forms 1099-MISC, W-3, & W-2

Deadline change for 2016 Tax Form 1099-MISC

tax-formThe new filing deadline for 2016 Form 1099-MISC with amounts in Box 7 (non-employee compensation) is now January 31, 2017 with the 2016 Form 1096.  There is a new box to check on the 2016 Form 1096 when 1099-MISC with amounts in Box 7 are attached to the 1096. This deadline is nearly a month earlier than the previous February 28 date.

Recipient copies of 1099′s are to be provided to recipients by January 31. (No change for 2017.)

Deadline change for 2016 Form W-3 and Form W-2′s
The new filing deadline for 2016 Form W-3 and Form W-2′s (Copy A) with the Social Security Administration is now January 31, 2017, also nearly a month earlier than the previous February 28 deadline.

Employee copies of W-2′s are to be provided to recipients by January 31.  (No change for 2017.)

The due date changes for filing 2016 W-3′s and certain 2016 1096′s is intended to give the IRS more time to process employer - business provided data in order to coordinate with the issuance of tax refunds and reduce fraudulent tax filing and identity theft issues.

Potential for Penalties
Not providing a correct statement (intentional disregard) carries a penalty of $530 per 1099.  Late filing of mandatory 1099′s could lead to penalties ranging from $50 to $260 per 1099 based on when the correct information return is filed.  This may become an issue for clients with the changes to due dates and as the IRS steps up its 1099 compliance.

What clients can do now to alleviate compliance issues in January 2017
Review your records now to see who will need a 1099 for 2016 and verify they have all the information needed (FEI#, name, current address, and federal tax classification) to file accurate returns. This would include sub-contractors, attorneys, etc.  A Form W-9 can be found on the IRS website and provided to potential 1099 recipients to get the necessary information so returns can be processed in a timely manner.  This would be particularly helpful for recipients who will receive a 2016 1099-MISC with non-employee compensation since they will be affected by the change in filing deadlines.

The best advice we can offer is: “Don’t go it alone.” Ciuni & Panichi is here to help you make the right financial decisions for yourself and your employees.   For more information and if you have questions, contact Sue Latine at 216.831.7171 or slatine@cp-advisors.com.

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Be Aware: some tax deadlines have changed

Are you business taxes going up or down?

Be Aware – Several Tax Filing Deadlines Have Changed

By Nick Leacoma, CPA, Senior Manager, Tax

nelsmallerBe aware that tax filing deadlines have changed for various entities including C corporations and partnerships. The changes result from the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.  Many of the changes apply to tax years starting after December 31, 2015.

C corporations
C corporations with calendar year-ends face a deadline shift from March 15 to April 15. Similarly, the tax return due dates for corporations with tax years that end on dates other than June 30 (and other than December 31) will now be the 15th day of the fourth month after the end of their tax years. Corporations with a June 30 year-end will continue to file taxes by September 15, until December 31, 2025. After this date, their filing deadline shifts to October 15.

C corporations with calendar year-ends will be allowed five-month extensions (Sept 15) until 2026, while companies with June 30 year-ends will be allowed seven-month extensions
(April 15), also until 2026. Corporations with other year-ends can receive six-month extensions. Starting with the 2026 returns, all extensions can be six months.

Partnerships
Partnerships with calendar year-ends must now file Form 1065 by March 15. This is a change from the previous due date of April 15. The new date should allow partners to use the information contained in these forms to file their personal returns, which typically are due a month later.

Partnerships with year-ends other than December 31 must file these forms by the 15th day of the third month after the close of their fiscal year-ends. Partnerships can ask for extensions of up to six months.

S corporations
The S corporation deadline remains the same. For those with calendar year-ends, Form 1120S, is due March 15. Similarly, the due dates for S corporations with other than calendar year-ends remain the 15th day of the third month after fiscal year-end. And S corporations are still able to request six-month extensions.

Trusts and Estates
The deadline for filing Estate and Trust returns remains unchanged. Form 1041 is due April 15.
The extended due date for Estates and Trusts has changed. The new extended due date for filing the Estate and Trust return has changed from Sept 15 to Sept 30.

Exempt Organizations
The Exempt Organization deadline also remains the same. For those with calendar year-ends, Form 990 is due May 15. Similarly, the due dates for exempt organizations with other than a calendar year-end remains the 15th day of the fifth month after fiscal year-end. There will now be a single automatic six month extension for exempt organizations, eliminating the current first 90-day extension.

FBAR
FinCEN Form 114, “Report of Foreign Bank and Financial Accounts” (also known as “FBAR”), will be due April 15, rather than June 30, starting with the 2016 tax year. This way, it aligns with the deadlines for individual income tax returns. FBAR filers will be able to request extensions of up to six months. For taxpayers filing FBARs for the first time, any penalty for failing to request or file for an extension in a timely manner may be waived.

Help with the changes
If you have questions about the new tax return deadlines, contact me, Nick Leacoma, CPA, Senior Manager in the Ciuni & Panichi, Inc. tax department, at 216-831-7171 or nleacoma@cp-advisors.com. I’ll be happy to help you make these important deadlines.

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A quick look at the President-elect’s tax plan for businesses

20171The election of Donald Trump as President of the United States could result in major tax law changes in 2017. Proposed changes spelled out in Trump’s tax reform plan released earlier this year that would affect businesses include:

  • Reducing the top corporate income tax rate from 35% to 15%,
  • Abolishing the corporate alternative minimum tax,
  • Allowing owners of flow-through entities to pay tax on business income at the proposed 15% corporate rate rather than their own individual income tax rate, although there seems to be ambiguity on the specifics of how this provision would work,
  • Eliminating the Section 199 deduction, also commonly referred to as the manufacturers’ deduction or the domestic production activities deduction, as well as most other business breaks — but, notably, not the research credit,
  • Allowing U.S. companies engaged in manufacturing to choose the full expensing of capital investment or the deductibility of interest paid, and
  • Enacting a deemed repatriation of currently deferred foreign profits at a 10% tax rate.
    President-elect Trump’s tax plan is somewhat different from the House Republicans’ plan. With Republicans retaining control of both chambers of Congress, some sort of overhaul of the U.S. tax code is likely. That said, Republicans didn’t reach the 60 Senate members necessary to become filibuster-proof, which means they may need to compromise on some issues in order to get their legislation through the Senate.

So there’s still uncertainty as to which specific tax changes will ultimately make it into legislation and be signed into law.

It may make sense to accelerate deductible expenses into 2016 that might not be deductible in 2017 and to defer income to 2017, when it might be subject to a lower tax rate. But there is some risk to these strategies, given the uncertainty as to exactly what tax law changes will be enacted. Plus no single strategy is right for every business.

Please contact Ciuni & Panichi, Inc. –  Jim Komos at 216.831.7171 or jkomos@cp-advisors.com to develop the best year-end strategy for your business.

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© 2016

Donating Appreciated Stock Offers Tax Advantages

Not-for-Profit Donations and Tax Savings

By Mike Klein, CPA, Ciuni & Panichi, Inc. Partner-In-Charge of the Not-for-Profit Group

mbkThe best scenario for not-for-profit organizations is when they have the revenue they need to achieve their mission, their benefactors’ pain is eased, and their donors enjoy the rewards of contributing as well as a nice tax deduction. It’s important for donors to know that donating appreciated stock can help fulfill all three needs. And best of all for donors, a gift from his or her portfolio is not only possible, it can boost the tax benefits of the charitable gift.

No pain from gains
Inform your potential and current donors that charitable organizations are more than happy to receive appreciated stock as a gift. Depending on the not-for-profit’s policy, it may maintain a stock portfolio or sell donated stock.

Contributing appreciated stock entitles donors to a tax deduction equal to the securities’ fair market value — just as if the stock was sold and the cash was contributed. The difference is neither the donor nor the charity receiving the stock will owe capital gains tax on the appreciation. Avoiding capital gains tax and also taking a tax deduction is a double benefit for donors.

The key word here is “appreciated.” The strategy doesn’t work with stock that’s declined in value. In this case it’s better to sell securities that have taken a loss and donate the proceeds. This way also allows for a double deduction for donors: one for the capital loss and one for the charitable donation.

Inevitable restrictions
Inevitably, there are restrictions on deductions for donating appreciated stock. Annually donors may deduct appreciated stock contributions to public charities only up to 30 percent of their adjusted gross income (AGI). For donations to nonoperating private foundations, the limit is 20 percent of AGI. Any excess can be carried forward up to five years.

So, for example, if you contribute $50,000 of appreciated stock to a public charity and have an AGI of $100,000, you can deduct just $30,000 this year. You can carry forward the unused $20,000 to next year. Whatever amount (if any) you can’t use next year can be carried forward until used up or you hit the five-year mark, whichever occurs first.

Moreover, donors must own the security for at least one year to deduct the fair market value. Otherwise, the deduction is limited to the tax basis (generally what was paid for the stock). Also, the charity must be a 501(c)(3) organization.

Last, these rules apply only to appreciated stock. If you donate a different form of appreciated property, such as artwork or jewelry, different requirements apply.

Intriguing option
A donation of appreciated stock is one of many strategies to encourage your donors to support your mission.

Need help? Contact Mike Klein, CPA, Ciuni & Panichi, Inc. Partner-in-Charge of the Not-for-Profit Group at 216-831-7171 or  mklein@cp-advisors.com. In addition to audit and accounting services, the Not-for-Profit Consulting Group offers a complete menu of advisory services including:  Resource Development, 990 Preparation, Strategic Management, Executive Coaching and Marketing.

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© 2016

 

Alternate Minimum Tax Awareness: Be ready for anything

The dreaded surprise tax: What you need to know about Alternative Minimum Tax

By Tony Constantine, CPA, Ciuni & Panichi, Inc. Partner, Tax

TJCAMT… those three little letters cause almost as much fear and trepidation as the other three letters… IRS!  Alternative Minimum Tax (AMT) just sounds scary, and for those facing it for the first time it can be.  You find the benefit that you count on from your itemized deductions wiped away and an increased (and often unexpected) tax liability.  It is important to understand what AMT is and if you are subject to it now, before you file your 2016 return. If you are, there are steps you can consider taking before year end to minimize potential liability.

Bigger bite
The AMT was established to ensure that high-income individuals pay at least a minimum tax, even if they have many large deductions that significantly reduce their “regular” income tax. If your AMT liability is greater than your regular income tax liability, you must pay the difference as AMT, in addition to the regular tax.

AMT rates begin at 26 percent and rise to 28 percent at higher income levels. The maximum rate is lower than the maximum income tax rate of 39.6 percent, but far fewer deductions are allowed, so the AMT could end up taking a bigger tax bite. For instance, you can’t deduct state and local income or sales taxes, property taxes, miscellaneous itemized deductions subject to the two percent floor, or home equity loan interest on debt not used for home improvements. You also can’t take personal exemptions for yourself or your dependents, or the standard deduction if you don’t itemize your deductions.

Steps to consider
Fortunately, you may be able to take steps to minimize your AMT liability, including:

Timing capital gains – The AMT exemption (an amount you can deduct in calculating AMT liability) phases out based on income, so realizing capital gains could cause you to lose part or all of the exemption. If it looks like you could be subject to the AMT this year, you might want to delay sales of highly appreciated assets until next year (if you don’t expect to be subject to the AMT then) or use an installment sale to spread the gains (and potential AMT liability) over multiple years.

Timing deductible expenses – Try to time the payment of expenses that are deductible for regular tax purposes but not AMT purposes for years in which you don’t anticipate AMT liability. Otherwise, you’ll gain no tax benefit from those deductions. If you’re on the threshold of AMT liability this year, you might want to consider delaying state tax payments, as long as the late-payment penalty won’t exceed the tax savings from staying under the AMT threshold.

Investing in the “right” bonds – Interest on tax-exempt bonds issued for public activities (for example, schools and roads) is exempt from the AMT. You may want to convert bonds issued for private activities (for example, sports stadiums), which generally don’t enjoy the AMT interest exemption.

Appropriate strategies
Failing to plan for the AMT can lead to unexpected — and undesirable — tax consequences. Please contact Ciuni & Panichi’s Tony Constantine, CPA, Partner, Tax, at 216-831-7171 or tconstantine@cp-advisors.com for help assessing your risk now, and to plan and implement the appropriate strategies for your situation.

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© 2016

Save Tax Dollars and Fund Your Health Savings Account

What’s the right tax-advantaged account to fund your health care expenses?

Jeff SpencerHealth care costs continue to climb. Jeffrey R. Spencer, CPA, MAcc, Ciuni & Panichi, Inc. Principal, explains some tax-friendly ways to cover your health care expenses.

Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But it’s important to know the difference to figure out what works best for you. Here’s an overview:

HSA
If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for individual coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

The advantage of an HSA is you own the account and it can bear interest or be invested, growing in tax-deferred dollars similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA
Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses, so you are paying for medical expenses with pretax dollars.

However, you need to predict your annual medical expenses because what you don’t use by the plan year’s end, you generally lose. Some plans may allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution.

HRA
An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

The best advice we can offer is: “Don’t go it alone.” We’re here to help you make the right financial decisions for yourself and your employees. Please contact Jeff at 216-831-7171 or jspencer@cp-advisors.com for more information.

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Three Mutual Fund Tax Hazards to Watch Out For

Tax and Your Mutual Funds

AMTInvesting in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these three tax hazards:

 

  1. High turnover rates. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates.  Turnover percent’s amount of the portfolio that is new on a year by year basis.  Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
  2. Earnings reinvestments. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.  However, you may be on your own for investments made prior to 2012.)
  3. Capital gains distributions. Buying equity mutual fund shares late in the year can be costly tax-wise. Such funds often declare a large capital gains distribution at year end, which is a taxable event. If you own the shares on the distribution’s record date, you’ll be taxed on the full distribution amount even if it includes significant gains realized by the fund before you owned the shares. And you’ll pay tax on those gains in the current year — even if you reinvest the distribution.

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, watch out for these hazards.

The best advice we can offer is, “Don’t go it alone.” Contact David M. Reape, CPA, at Ciuni & Panichi, Inc. to help you avoid unnecessary tax liabilities. Contact us at 216-831-7171 or dreape@cp-advisors.com.

 

Tax-smart Gifting Strategies to Consider Now

More Tax Savings Ideas

tax giftingIf your 2015 tax liability was higher than you’d hoped and you’re ready to transfer some assets to your loved ones, it’s time to get started. Giving away assets will, of course, help reduce the size of your taxable estate. But with income-tax-smart gifting strategies, it also can reduce your income tax liability — and perhaps your family’s tax liability overall. Consider the following:

  • Gift appreciated or dividend-producing assets to loved ones eligible for the 0 percent rate. The 0 percent rate applies to both long-term gain and qualified dividends that would be taxed at 10 or 15 percent based on the taxpayer’s ordinary-income rate.
  • Gift appreciated or dividend-producing assets to loved ones in lower tax brackets. Even if no one in your family is eligible for the 0 percent rate, transferring assets to loved ones in a lower income tax bracket than you can still save taxes overall for your family. This strategy can be even more powerful if you’d be subject to the 3.8 percent net investment income tax on dividends from the assets or any gains if you sold the assets.
  • Don’t gift assets that have declined in value. Instead, sell the assets so you can take the tax loss. Then gift the sale proceeds.

If you’re considering making gifts to someone who’ll be under age 24 on December 31, make sure he or she won’t be subject to the “kiddie tax.” And if your estate is large enough that gift and estate taxes are a concern, you need to think about those taxes, too.

The best advice we can offer is, “Don’t go it alone.” Contact Tony Constantine, CPA at Ciuni & Panichi, Inc. today to explore tax strategies that will position you for a good tax season in 2017 and beyond at 216-831-7171 or tconstantine@cp-advisors.com.

Restricted Stock Units and Your Tax Bill

Awards of RSUs can provide tax deferral opportunity

RSUExecutives and other key employees are often compensated with more than just salary, fringe benefits and bonuses: They may also be awarded stock-based compensation, such as restricted stock or stock options. Another form that’s becoming more common is restricted stock units (RSUs). If RSUs are part of your compensation package, be sure you understand the tax consequences — and a valuable tax deferral opportunity.

RSUs vs. restricted stock
RSUs are contractual rights to receive stock (or its cash value) after the award has vested. Unlike restricted stock, RSUs aren’t eligible for the Section 83(b) election that can allow ordinary income to be converted into capital gains.

But RSUs do offer a limited ability to defer income taxes: Unlike restricted stock, which becomes taxable immediately upon vesting, RSUs aren’t taxable until the employee actually receives the stock.

Tax deferral
Rather than having the stock delivered immediately upon vesting, you may be able to arrange with your employer to delay delivery. This will defer income tax and may allow you to reduce or avoid exposure to the additional 0.9% Medicare tax (because the RSUs are treated as FICA income).

However, any income deferral must satisfy the strict requirements of Internal Revenue Code Section 409A.

Complex rules
If RSUs — or other types of stock-based awards — are part of your compensation package, please contact Jim Komos, CPA, CFP, at 216.831.7171 or jkomos@cp-advisors.com. The rules are complex, and careful tax planning is critical.

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The 529 savings plan: A tax-smart way to fund college expenses

Tax Savings with a 529 Plan

collegeIf you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, earnings avoid income taxes if used for qualifying educational expenses. In addition, many states, including Ohio, offer tax incentives for contributions.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and most states, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

  • They usually offer high contribution limits, and there are no income limits for contributing.
  • There’s generally no beneficiary age limit for contributions or distributions.
  • You can control the account, even after the child is of legal age.
  • You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited.

It’s important to manage your withdrawals from your 529 to fully take advantage of the eligible tax credits. For example, you can benefit from both 529 withdrawals and educational credits in the same year, however the same expenses cannot qualify for both the 529 income exclusion and the educational credit.

The best advice we can offer is, “Don’t go it alone.” Contact James Komos, CPA, CFP, at Ciuni & Panichi, Inc. today to explore tax strategies that will position you for a good tax season in 2017 at 216-831-7171 or jkomos@cp-advisors.com.

Stock volatility can cut tax on a Roth IRA

Tax Savings

401k ficuciary dutyThis year’s stock market volatility can be unnerving, but if you have a traditional IRA, this volatility may provide a valuable opportunity: It can allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional IRAs
Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax-deferred.

On the downside, you generally must pay income tax on withdrawals, and, with only a few exceptions, you’ll face a penalty if you withdraw funds before age 59½ — and an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 70½.

Roth IRAs
Roth IRA contributions, on the other hand, are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free.

There are also estate planning advantages to a Roth IRA. No RMD rules apply, so you can leave funds growing tax-free for as long as you wish. Then distributions to whoever inherits your Roth IRA will be income-tax-free as well.

The ability to contribute to a Roth IRA, however, is subject to limits based on your MAGI. Fortunately, anyone is eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount you convert.

Saving tax
This is where the “benefit” of stock market volatility comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market stabilizes.

Of course, there are more ins and outs of IRAs that need to be considered before executing a Roth IRA conversion. If your interest is piqued, discuss with Ciuni & Panichi whether a conversion is right for you.  Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for assistance and more information.

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Go and save green with sustainable tax breaks
© 2016

Sustainable Tax Breaks Can Save You Green

Save on Taxes Save the Planet

earth2Many people want to do something, however small, to contribute to a healthier environment. There are many ways to do so and, for some of them, you can even save a few tax dollars for your efforts.

Indeed, with the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) late last year, a couple of specific ways to go green and claim a tax break have been made permanent or extended. Let’s take a closer look at each.

Not driving for dollars
Air pollution is a problem in many areas of the country. Among the biggest contributors are vehicle emissions. So it follows that cutting down on the number of vehicles on the road can, in turn, diminish air pollution.

To help accomplish this, many people choose to commute to work via van pools or using public transportation. And, helpfully, the PATH Act is doing its part as well. The law made permanent the requirement that limits on the amounts that can be excluded from an employee’s wages for income and payroll tax purposes be the same for both parking benefits and van pooling / mass transit benefits.

Before the PATH Act’s parity provision, the monthly limit for 2015 was only $130 for van pooling / mass transit benefits. But, because of the new law, the 2015 monthly limit for these benefits was boosted to the $250 parking benefit limit and the 2016 limit is $255.

Sprucing up the homestead
Energy consumption can also have a negative impact on the environment and use up limited natural resources. Many homeowners want to reduce their energy consumption for environmental reasons or simply to cut their utility bills.

The PATH Act lends a helping hand here, too, by extending through 2016 the credit for purchases of residential energy property. This includes items such as:

  • New high-efficiency heating and air conditioning systems,
  • Qualifying forms of insulation,
  • Energy-efficient exterior windows and doors, and
  • High-efficiency water heaters and stoves that burn biomass fuel.

The provision allows a credit of 10% of eligible costs for energy-efficient insulation, windows and doors. A credit is also available for 100% of eligible costs for energy-efficient heating and cooling equipment and water heaters, up to a lifetime limit of $500 (with no more than $200 from windows and skylights).

Doing it all
Going green and saving some green on your tax bill? Yes, you can do both. Van pooling or taking public transportation and improving your home’s energy efficiency are two prime examples. Please contact Tony Constantine, CPA, Partner, at 216.831.7171 or tconstantine@cp-advisors.com for more information about how to claim these tax breaks or identify other ways to save this year.

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