Frigid temperatures, snowfall and twinkling lights signify that the holidays are upon us and the year is coming to a close. The window to take advantage of end-of-year tax saving opportunities is also rapidly closing. Effective tax planning is crucial in order to maximize year-end savings as well as start the new year off right. Keep in mind that each taxpayer's situation and goals are unique, with the aim of minimizing tax burdens to the greatest extent possible.
Tax rates could be lower in 2017
Postpone income until 2017 and accelerate deductions if possible. This strategy may enable you to claim larger deductions, credits, and other tax breaks in 2016 that may otherwise be phased out. Accelerating or deferring income and deductions will depend in part on the marginal tax rate projected each year for your business as well as your other income. Please remember that in addition to the regular tax rates, many taxpayers must also consider the Alternative Minimum Tax as well as the additional Net Investment Income Tax on investment income and income from passive activities.
Make capital purchases
Many equipment purchases are eligible for immediate expensing. A $2,500 threshold applies to any single item substantiated by an invoice. Purchases that exceed the threshold can be expensed through the election of IRC Section 179 which can now include certain improvements to real estate as well as heating and air conditioning units. As a result, small and some mid-sized businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions. Businesses also should consider making expenditures that qualify for 50 percent bonus first year depreciation if bought and placed in service this year.
Don't Forget to Save for your Future Now is the time to set up and/or contribute to employer retirement plans. For 2016, the inflation-adjusted deferral limit is $18,000 or 100% of compensation (not including the $6,000 catch-up contribution for those who have turned at least 50 years old in 2016).
There's still time for individuals to increase itemized deductions, but beware of AMT Charitable contributions should be made by year-end ensuring the maximum tax benefit for 2016. Gifting clothing and household items is a great way to save taxes without having to write a check. Gifting appreciated stock can also be an excellent strategy. Just make sure to substantiate your contribution and get proper documentation from the charity. If not subject to AMT, make any state estimated tax payments before December 31st to maximize your deductions.
Annual gift exclusion -- use it or lose it
The annual gift tax exclusion allows taxpayers to give up to $14,000 to any individual ($28,000 for married individuals who elect to "split" gifts) gift-tax free and without counting the amount toward the lifetime exclusion. Remember to make gifts prior to year-end.
Reporting Requirements for Businesses
For Employers with 50 or more employees, The Affordable Care Act (ACA) still imposes significant information reporting responsibilities. Similar to Form W-2 reporting system in that an information form, (Form 1095-C) will be prepared for each applicable employee. These forms will be filed with the IRS using a transmittal form, (Form 1094-C) by the end of February. Therefore, employers will be filing these forms for the 2016 calendar year by March 2, 2017. Employers will be subject to penalties of up to $500 per form for failing to timely file the form or furnish statements to employees. In addition, Form W-2 and Form 1099-Misc due dates have been moved up to January 31, 2017. This is earlier than in past years.
Tax Return Forms -- New Due Dates
Due dates have changed for many year-end tax returns including Form 1065 (Partnerships) and Form 1120 (Corporations). Partnership returns will now be due a month earlier to coincide with Subchapter S returns (Form 1120-S). C Corporation returns will now be due on or before April 18th for calendar year forms. This is the same day that individual returns are due.
How each of these opportunities can affect you and your business depends on your specific circumstances. A meeting with or a call to your tax professional can help you take full advantage of year-end planning. At Weiss & Company, we can provide a comprehensive review of the tax-saving opportunities appropriate to your particular situation.
• Jim Hamilton is a partner in the tax services department of Weiss & Company LLP in Glenview.