PLAN FOR THE YEAR AHEAD!
AS 2015 COMES TO AN END, A TURBULENT ECONOMIC AND LEGISLATIVE ENVIRONMENT MEANS TAXPAYERS MUST STAY FOCUSED ON MANY MAJOR PLANNING ISSUES, ACCORDING TO GRANT THORNTON LLP.
- Keep An Eye On Congress!
Your top priority for planning your taxes this year should be to keep an eye on Congress and see whether lawmakers manage to extend popular tax provisions 2015 comes to an end. Some notable provisions need to be extended in order to allow the following:
• Taxpayers above the age of 70½ may be able to use their IRAs (individual retirement accounts) to make tax-free charitable contributions;
• Businesses to deduct up to half of eligible equipment placed in service this year;
• Teachers to receive an above-the-line deduction for $250 in classroom expenses;
• Students and parents to receive an above-the-line deduction for tuition expenses;
• Companies to receive a credit for qualified research expenses; and
• Taxpayers in states without an income tax – like Washington, Texas and Florida – to deduct state sales taxes.
- All Activity For Your Business Should Be Documented!
If you participate in a business enough to not be considered a “passive investor”, you might not have to pay a 3.8 percent Medicare tax on your business income. Almost any work that is performed in a business as an owner, manager or employee can be considered as participation. The only exception would be for investor activities. Even so, documenting all of your activities is necessary, and the IRS does not accept any ballpark estimates after the fact. Make sure the hours that are being spent are documented using appointment books, calendars, narative summaries and emails.
- Gather Information For Reporting Ahead Of Time!
Make sure your mandatory reporting is completed on time by gathering all of your information as early in the year as possible. New legislation has been enacted by congress. Late or incorrect information returns are now doubled for most penalties. This includes the Form W-2 employers must provide to all employees and the Form 1099 a business must provide to any contractor it pays at least $600 for services. These returns are due to recipients by Feb. 1 and the IRS soon after.
- Make Sure Your Charitable House In Order!
If you plan on donating funds to a charity, remember to properly document your cash contributions. In doing so, you will ensure that they can be deductible before the year comes to a close. Form 8283 must be attached for any donated property with a charitable deduction claim of more than $500. Car donations will need a written acknowledgement from the charity, including a vehicle description, for any deduction claim of $250 or more. Remember, donations cannot be deducted to individuals, social clubs, political groups or foreign organizations.
- Do Not Forget Your Local And State Tax Obligations!
Keep in mind that local and state governments impose their own filing and payment responsibilities with different types of income, sales and property taxes. States have begun showing more aggression when it comes to taxing corporations that are not actually physically located in their states, but sell to a significant amount of customers in their states. While there may be exceptions for limited business activities in particular states, it is always a smart idea to keep up with the activities of your salespeople that travel and sell to customers in other states to make sure you are filing all of the necessary state corporate tax returns.
- Observe Your State Residency Status More Closely!
If you fall into the category of those who spend their time between two states within the year, now is the perfect time to consider where you may be taxed as a resident for 2015. To increase the chances of a high-tax jurisdiction respecting the move and discontinue taxing you as a resident, it is optimal to document the number of days you spend within each state. In most cases, if you sped over 183 day residing in a state, that state will then tax your income by asserting residency. In addition, if after relocating to a different state you keep important contacts with your old state (such as a bank account, home, or driver’s license and registration), there is a chance of being taxed as a resident in your old state.
- Speed Up The Time of Deductions And Defer Your Income!
With the option of paying taxes at a later date, why pay it now? The time value of money can make deferring tax almost as valuable as escaping it. In most cases, it is usually better to deffer income while speeding up your deductions. There are lots of controllable expenses and items of income. It can also be beneficial to defer bonuses, consulting income or self-employment income. On the deduction side, it is possible to expedite state and local income taxes, interest payments and real estate taxes.
- Manage Your Gains And Losses!
Because it is easy to control when they are sold, capital gains and losses are amazing candidates for deferral. However, you should still be cautious whenever you are harvesting losses. In general, capital losses can not be used against other kinds of income, and if the same security is bought within 30 days prior to or after being sold, you the loss cannot be used under the wash sale rules.
- Consolidate Your Itemized Deductions!
Exceeding a certain percentage of your adjusted gross income (AGI) is a way that lots of expenses can be deducted. Consolodating itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving a procedure into this year or postponing it until next year. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.
- Make Up A Tax Shortfall With Increased Withholding
Don’t forget that certain kinds of taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall by increasing withholding on your salary or bonuses. A bigger estimated tax payment can leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.