By Ken Rubin, CPA, PFS
There are many important tax changes taking effect in 2016!
Our tips highlight the key tax changes that may affect your business and individual tax returns, and action you should consider taking before the end of the year.
Here are our top 52 year-end tax and business tips for the remainder of 2016!
FOR YOUR BUSINESS
· 1. Reimburse yourself by 12/31/16 for all business expenses you paid using personal money or personal credit card.
· 2. Fully deduct all Staff Meetings/Lunches. Do not categorize these costs as “Meals & Entertainment”. You can take a 100% tax deduction (rather than only 50%) for them if categorized in your accounting as “Staff Meetings”.
· 3. Home office (No longer a red flag!) reimbursement or deduction. If you operate as a corporation, you may reimburse yourself for the use of your home office. The office space must be used regularly and exclusively for business activities even if just for administrative activities.
· 4. Prepay expenses this year. This strategy works best if you are in a higher tax bracket this year than you expect to be in next year.
· 5. Delay receiving income. If tax rates drop under the new president’s tax plan, you will pay less taxes on the income in 2017.
· 6. Small Business Health Insurance Tax Credit. If you pay at least 50% of your employee’s qualified premiums, you can qualify for a tax credit up to 50% of the amount you pay. To qualify you must purchase your insurance through the State Exchange program.
· 7. Reimburse yourself for actual car expenses. We can help you determine if the tax savings would be greater than simply using the government 54 cents per mile. Personal use of the corporate vehicle must be on your W-2, and remember to keep a detailed driving log.
· 8. Purchase your car through the business. If the car is used more than 50% for business, use of the vehicle for Section 179 rapid depreciation can be used. Get the largest depreciation deduction by buying a heavy vehicle that is over 6,000 pounds GVW (but consider the higher fuel expense that you will be having).
· 9. Maximize contribution to retirement plan. Make catch up contributions if over 50 years old, consider adding a Defined Benefit Plan if want to contribute more than $53,000 for yourself.
· 10. If your practice is renting the building from you, time your payments. Talk to us about increasing self-rent payment to shift some corporate profit to rental income. Make sure you have a separate bank account for your building LLC and that all mortgage payments are paid from the LLC bank account!
· 11. Maximize donations. You often get the largest tax deduction if your donation can be classified as advertising, especially if you are incorporated.
· 12. Buy equipment, furniture and install it in before Dec. 31. The maximum Section 179 deduction remains at $500,000 ($25,000 for Calif) for 2016 and Bonus depreciation (federal only) remains at 50% on new property. Consult with us about this!
· 13. Disabled tax credit. If you have installed ADA compliant bathrooms, expanded hallways, repaved parking areas, etc. for patients who are disabled, you may qualify for a $7,500 tax credit.
· 14. Give your kids responsibility. Keep a time sheet, job description, and pay regularly through a W-2. Kids can only be paid as employees if they do work for the office. They can be paid whatever the going rate is to pay a non-family member for the same job. Also have them participate in your company retirement plan and establish their own ROTH or Traditional IRA account.
· 15. Include your spouse in the business. Pay your spouse and maximize their retirement plan contribution for the year. There are several other tax advantages that make it worthwhile to pay your spouse.
· 16. If using a medical reimbursement plan, reimburse by Dec 31. You can no longer reimburse for over the counter items (unless you have a Section 105 plan). You also cannot reimburse an employee for insurance paid through a spouse’s employment pre-tax. Consider setting up a formal medical reimbursement plan if you do not have one in place.
· 17. S Corp health insurance. To secure the best deduction for your premiums, you must comply with reporting rules. Your health insurance premiums must be reported on your W-2 as S-Corp owner health insurance premiums
· 18. Cost segregation study. If we have not done one for you yet and you spent over $500,000 on an office build-out or construction after 1986, we could reclassify the asset allocation and write off the assets much faster, thereby reducing your taxes.
· 19. Consider an S Corporation conversion. If your business is a C Corporation. You could save thousands of dollars in taxes each year by avoiding part of the Social Security and Medicare tax on distributions.
· 20. If you have a C Corporation, remember to bonus out all profit by Dec. 31 to avoid double tax.
FOR YOUR PERSONAL TAX RETURN
· 21. Prepay expenses. Pay your January home mortgage payment in December and the April property tax installment in December to get the tax deductions in 2016. If you are making estimated tax payments, consider making your state payment in December to get the state tax deduction on your federal return in 2016 (unless you are subject to the Alternative Minimum Tax.
· 22. Rent your home or vacation home to your practice, a colleague, friend, or anyone for up to 14 days per year. You do not have to pay taxes on this rental income, and the payer can deduct the payment if they have a business purpose.
· 23. Consider having a trust own your home and/or gift the home to your heirs over a period of time. Value is determined when the home is added to the trust. This helps you avoid estate taxes. Make sure to gift it within the gift exclusion tax limits ($14,000 per person; $28,000 per couple 2016). Because your heirs do not get a future “step up in tax basis” careful analysis must be done to make the best decision. This type of trust is called a “QPRT”.
· 24. Offset capital gains with capital losses. Dump some losing stocks if you have a capital gain to offset it with this year. Or sell stocks with gains if you are carrying over capital losses.
· 25. Own a business building? If you own it personally, consider converting ownership to an LLC.
· 26. Install geothermal heat pumps or solar energy systems for a tax credit of up to 30% of the cost. The credit also applies to small wind turbines and all of these credits may be claimed for principal residences as well as second homes. There are also credits available for energy saving costs such as insulation and energy efficient appliances.
· 27. Using a HSA for first time this year? You can make the full year’s HSA contribution by December 1st and deduct a full year’s worth of contributions. Also remember if HSA contributions are made through payroll reduction under a cafeteria plan, they are not subject to employee or employer payroll taxes.
· 28. Give appreciated stock or property to charity. You avoid the tax on the increase in asset value and get a tax deduction for the donation if you do not sell the asset first. If over $5,000 must have a qualified appraisal (unless the donated item is a publicly traded stock or other security.) Donate clothes and housewares that you no longer use. You need a receipt to claim the deduction. Donations must be physically made before 12/31/16.
· 29. Do not gift a car or boat to charity – sell it first! You can now only take the tax deduction for the amount the charity sells your car or boat for, not for the actual value. Charities often sell your asset for parts only, which drastically reduces the value and your tax deduction.
· 30. College savings. Consider increasing your 529 plan and ROTH IRA contributions; encourage grandparents to gift money to a 529 plan for your child – it helps them reduce their estate and avoid gift tax exclusion issues.
· 31. Student in college? If your income is too high to take advantage of education credits, consider paying your student enough wages so they can take full advantage of education credits on their return. If income is lower, plan on using the American Opportunity Credit, or Lifetime Learning Credit, or a tuition deduction.
· 32. Did you or a spouse go back to college, even if online? You may also qualify for either American Opportunity Education Tax Credit or Lifetime Learning Credit. Qualified expenses must have been paid by 12/31/16.
REGARDING RETIREMENT ACCOUNTS
· 33. Consider an annual ROTH IRA conversion. You can contribute $5,500 (or $6,500 if over age 50) to a ROTH each year by making a nondeductible contribution to your traditional IRA and then converting it to a ROTH. Until the law is changed, you can do this every year. Limitations exist if you have an existing IRA – check with us first!
· 34. IRA owners who turned 70 ½ in 2016. Although you may take first required distribution before end of 2016, you are allowed to wait as late as 4/01/17. Consider taking first payment in 2016 however, because if you wait until 2017 you will be required to take two payments in 2017, which could cost more in taxes if it bumps you into a higher bracket. If you don’t withdrawal enough, the penalty is 50% of the amount that you were supposed to take out.
· 35. Consider converting an existing traditional IRA into a ROTH IRA. This can be an excellent way to build wealth for your children or grandchildren because a ROTH does not require mandatory distributions and the assets will grow tax free. Note: taxes on the conversion must be paid out of non-IRA account funds.
· 36. Consider making your 401K deferrals ROTH deferrals. You can set up your company 401K plan to allow these deferrals for you and your employees, on an ongoing basis, with no income limitations!
· 37. Individuals not carrying health insurance could face a penalty. For tax years beginning after Dec.31, 2013, non-exempt U.S. citizens and legal residents must pay a penalty if they do not maintain minimum essential coverage.
IF BUYING A CAR
· 38. Try to make it qualify for business ownership. Must use the vehicle for business purposes, over 50% of the miles that are put on the car (for section 179); commuting miles excluded.
· 39. Consider converting a personal vehicle to business use. Document odometer reading at beginning of each year, and keep a good mileage log for at least three months – preferably more.
ITEMS TO GET IN THE HABIT OF REVIEWING ONCE A YEAR
· 40. Update your Will and your Asset Protection & Estate Planning strategy. This is becoming more and more important to have planned out well in advance of a lawsuit or tragedy! Call us for a recommendation.
· 41. Review bank accounts you may have outside the U.S. Tell us if any exist – you are required to report these to the IRS as well as interest income received worldwide. There are HEAVY penalties for non- compliance.
· 42. Make sure your family knows where all your important papers are. This includes life insurance policies, will, investment accounts, and practice transition sales directive.
· 43. Consider mortgage refinance. Rates are still at relatively low rates.
· 44. Consider consolidating. Credit card debt and practice loans if no prepayment penalty.
· 45. Review your business insurance. Do you need to increase the value of the policy to cover new equipment, or furniture you have bought?
· 46. Examine your liability insurance if you have an employee driving to do office tasks. Are you covered if he or she gets in an accident?
· 47. If incorporated, make sure your Corporate Minutes are up to date.
· 48. If incorporated in California, remember to pay your annual $25 annual fee to the California Secretary of State to avoid the $250 penalty and suspension of your corporation. California LLC entities must file their Statement of Information every two years with a $20 fee.
MANAGE COLLEGE PLANNING
Consider these tax-favored ways to pay for college costs:
· 49. A Coverdell education savings account. You may make a maximum contribution of $2,000 per year per child, subject to income limitations.
· 50. A 529 college savings plan. Although there’s no limit to how much you can contribute each year, each state’s plan has its own lifetime limit – typically more than $200,000 per designated beneficiary. You can also treat a 529 contribution as being made over five years for gift tax purposes.
· 51. Tax credits. The American Opportunity Credit is a modification of the Hope Credit and makes the credit available to broader range of taxpayers. Through 2017, you may claim a credit up to $2,500 on eligible college expenses paid from a non-529 account, subject to income limitations. You will need the 1098-T form to claim the credit in 2016.
· 52. Tax deductions. You may be able to deduct up to $2,500 of student loan interest, subject to income limitations.
Don’t try this at home! Be sure to call us with any questions before trying to implement tax strategies on your own.