December 2017 Tax & Business Alert

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EDUCATE EMPLOYEES ON REQUIRED MINIMUM DISTRIBUTION RULES

Businesses with employees headed for retirement can provide a helpful service by educating these workers on rules regarding required minimum distributions (RMDs). If violated, these rules could trigger hefty penalties. This article explains RMD requirements for IRAs and 401(k)s. A sidebar looks at other RMD issues, such as beneficiary spouses and form of distribution.

DAPTS OFFER A HOMEGROWN APPROACH TO ASSET PROTECTION

The most effective way to protect assets from future creditors is to transfer them to children or other family members with no strings attached. But, understandably, many wealthier individuals want to retain some control over their wealth. This article looks at one potential option of doing so: creating a domestic asset protection trust.

5 COMMON MISTAKES WHEN APPLYING FOR FINANCIAL AID

Given the astronomical cost of college, even well-off parents should consider applying for financial aid. A single misstep, however, can harm a child’s eligibility. This article looks at five common mistakes.

ENSURING YOUR YEAR-END DONATIONS ARE TAX DEDUCTIBLE

Many people decide to make donations at the end of the year. When doing so, it’s important to know the rules about whether such contributions will be considered tax deductible for 2017. This brief article discusses two important concepts: delivery dates and qualified charities.

Accrual-basis taxpayers: These year-end tips could save you tax

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With the possibility that tax law changes could go into effect next year that would significantly reduce income tax rates for many businesses, 2017 may be an especially good year to accelerate deductible expenses. Why? Deductions save more tax when rates are higher.

Timing income and expenses can be a little more challenging for accrual-basis taxpayers than for cash-basis ones. But being an accrual-basis taxpayer also offers valuable year-end tax planning opportunities when it comes to deductions.

Tracking incurred expenses

The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2018. This will enable you to deduct those expenses on your 2017 federal tax return. Common examples of such expenses include:

Commissions, salaries and wages,
Payroll taxes,
Advertising,
Interest,
Utilities,
Insurance, and
Property taxes.
You can also accelerate deductions into 2017 without actually paying for the expenses in 2017 by charging them on a credit card. (This works for cash-basis taxpayers, too.)

As noted, accelerating deductible expenses into 2017 may be especially beneficial if tax rates go down for 2018.

Prepaid expenses

Also review all prepaid expense accounts. Then write off any items that have been used up before the end of the year.

If you prepay insurance for a period of time beginning in 2017, you can expense the entire amount this year rather than spreading it between 2017 and 2018, as long as a proper method election is made. This is treated as a tax expense and thus won’t affect your internal financials.

And there’s more …

Here are a few more year-end tax tips to consider:

Review your outstanding receivables and write off any receivables you can establish as uncollectible.
Pay interest on all shareholder loans to or from the company.
Update your corporate record book to record decisions and be better prepared for an audit.
To learn more about how these and other year-end tax strategies may help your business reduce its 2017 tax bill, contact us.

Thanks for Being a Part of Our Firm’s Family!

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At this time of year, we sit down with our families to acknowledge all the many things that have made us thankful throughout the year. Since we consider you a member of our firm’s family, we want to take the chance to express our gratitude to you for giving us the opportunity to serve you.

We get lots of satisfaction from working with clients, whether we’re helping you identify tax-saving opportunities, plan for college or retirement, address critical business concerns or tackle any number of other financial issues. So please accept our sincere thanks for your business! We look forward to continuing our valued relationship with you in the coming year. Please remember that we’re always here to help when you need us.

 

Reduce your 2017 tax bill by buying business assets

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Two valuable depreciation-related tax breaks can potentially reduce your 2017 taxes if you acquire and place in service qualifying assets by the end of the tax year. Tax reform could enhance these breaks, so you’ll want to keep an eye on legislative developments as you plan your asset purchases.

Section 179 expensing

Sec. 179 expensing allows businesses to deduct up to 100% of the cost of qualifying assets (new or used) in Year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and real property improvements.

The Sec. 179 expensing limit for 2017 is $510,000. The break begins to phase out dollar-for-dollar for 2017 when total asset acquisitions for the tax year exceed $2.03 million. Under current law, both limits are indexed for inflation annually.

Under the initial version of the House bill, the limit on Sec. 179 expensing would rise to $5 million, with the phaseout threshold increasing to $20 million. These higher amounts would be adjusted for inflation, and the definition of qualifying assets would be expanded slightly. The higher limits generally would apply for 2018 through 2022.

The initial version of the Senate bill also would increase the Sec. 179 expensing limit, but only to $1 million, and would increase the phaseout threshold, but only to $2.5 million. The higher limits would be indexed for inflation and generally apply beginning in 2018. Significantly, unlike under the House bill, the higher limits would be permanent under the Senate bill. There would also be some small differences in which assets would qualify under the Senate bill vs. the House bill.

First-year bonus depreciation

For qualified new assets (including software) that your business places in service in 2017, you can claim 50% first-year bonus depreciation. Examples of qualifying assets include computer systems, software, machinery, equipment, office furniture and qualified improvement property. Currently, bonus depreciation is scheduled to drop to 40% for 2018 and 30% for 2019 and then disappear for 2020.

The initial House bill would boost bonus depreciation to 100% for qualifying assets (which would be expanded to include certain used assets) acquired and placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for certain property with a longer production period).

The initial Senate bill would allow 100% bonus depreciation for qualifying assets acquired and placed in service during the same period as under the House bill, though there would be some differences in which assets would qualify.

Year-end planning

If you’ve been thinking about buying business assets, consider doing it before year end to reduce your 2017 tax bill. If, however, you could save more taxes under tax reform legislation, for now you might want to limit your asset investments to the maximum Sec.179 expense election currently available to you, and then consider additional investments depending on what happens with tax reform. It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. Contact us to discuss the best strategy for your particular situation.