Stay on top of filing and reporting deadlines with our tax calendar! Our tax calendar includes dates categorized by employers, individuals, partnerships, corporations and more to keep you on track. 

 

Individual taxpayers who have come close to triggering the alternative minimum tax (AMT) in the past should start planning to minimize 2016 taxes as early as possible. This article will define AMT, how it is calculated, and ways to minimize your AMT liability.

What Is It?

The AMT – a separate tax system that doesn’t allow certain deductions and income exclusions – initially was put in place to prevent wealthy Americans from taking so many tax breaks that they eliminated their tax liability. But even taxpayers who don’t normally consider themselves “upper income” can trigger the AMT. For example, you could be vulnerable if you exercised incentive stock options this year.

AMT calculations can be complicated, but the system basically has two tax rates (26% and 28%) and inflation-adjusted income thresholds for them. An exemption is also available, but it phases out based on income. For 2016, the AMT exemptions are $53,900 for single filers and heads of households and $83,800 for joint filers. The phase-out ranges are $119,700 to $332,100 for single filers and heads of households and $159,700 to $493,300 for joint filers. If AMT income is within the applicable range, a partial exemption is available; if it exceeds the top of the range, no exemption is available.

Which Tax Do You Pay?

To determine whether you owe the AMT, you’ll need to calculate your tax under both the regular and AMT systems. 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. The federal AMT rate is 28%, compared to the top regular income tax rate of 39.6 %.

Under the AMT, you can’t take a personal exemption for yourself and your dependents. And you are not allowed to deduct such items as home equity debt interest not used to improve your home; state and local income and property taxes; and miscellaneous itemized deductions subject to the 2% floor.

Vulnerable Taxpayers

Those with high incomes are more susceptible to the AMT than others, but AMT liability may also be triggered by:

• Large families (meaning you take many exemptions)
• Substantial itemized deductions for state and local taxes, home equity loan interest, medical expenses, or similar expenditures
• Exercising and holding incentive stock options
• Adjustments to passive income or losses
• Interest income from private activity bonds

How Do You Reduce Your AMT Liability?

Fortunately, strategies exist for minimizing your AMT. For example, you might want to delay sales of highly appreciated assets until the next year or use an installment sale to spread the gains over multiple years. You can also try to time the payment of state and local taxes and other miscellaneous itemized deductions for years that you do not expect the AMT to apply. Or you might want to recognize additional income this year to take advantage of the AMT’s lower maximum rate (28% vs. 39.6%).

There is also an AMT credit. If you pay the AMT in one year on deferral items (those that affect more than one tax year, such as depreciation) you might be entitled to a credit for a subsequent year. The credit, however, might provide only partial relief or take years before you can fully use it. Nonetheless, the AMT credit’s refundable feature can reduce the time it takes to recoup AMT payments.

Take Action

Most taxpayers do not even realize that the AMT is looming until it’s too late to do anything to manage it. Failing to pay the AMT can lead to penalties and interest, so it’s best to determine ahead of time whether it will apply. Talk to your tax advisor now while you still have time to strategize for 2016.

 

In a recent blog post to AICPA Insights, guest blogger Tom Pender recognized the importance of not-for-profit organizations' mission and vision but then turned to galvanizing the staff and board to lead. "Having the right staff is critical and having the right board of directors is equally important. Scaling an organization’s impact means not just maintaining core processes, but also constantly sharing knowledge to build the organization’s capacity to affect change. Without leadership to keep the organization focused, staff can fall victim to fighting the daily fires that are a distraction from the larger goal of expanding the organization’s reach." 

 

He gave four considerations to supercharge your board. The full post can be read here.

 

Paying the proper amount of tax by the annual federal income tax filing deadline isn’t enough to avoid interest and penalties; you must also meet requirements for paying tax throughout the year through withholding and/or quarterly estimated tax payments. If you have income from sources such as self-employment, interest, dividends, alimony, rent, prizes, awards or the sales of assets, you may have to pay estimated tax.

The rules

Generally, you must pay estimated tax if both of these statements apply:

1. You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
2. You expect withholding and credits to be less than the smaller of 90% of your tax for the year or 100% of the tax on your previous year’s return. There are special rules for farmers, fishermen, certain household employers and certain higher-income taxpayers.

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Making the payments

Payments are spaced through the year into four periods or due dates. Generally, the due dates are April 15, June 15, Sept. 15 and Jan. 15, unless the date falls on a weekend or holiday. 

Estimated tax is calculated by factoring in expected gross income, taxable income, taxes, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

If you’d like assistance determining whether you need to pay estimated tax or calculating your payments, contact us. 

Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.

Deduction limits

Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:

• For recreational or social activities for employees, such as summer picnics and holiday parties,
• For food and beverages furnished at the workplace primarily for employees, and
• That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Recordkeeping requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses. If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.

1. Get Educated. Educate yourself about the types of scams, malware, phishing, spyware and other common and emerging threats that exist on the internet and how to avert them.
2. Install Protective Software. Install a firewall and antivirus software, with automatic updates, on all computers and networks (including wireless) to avoid hackers, malware and viruses.
3. Enable two-factor authentication (passwords and PINS) on devices, apps and on-line accounts, including e-mail accounts, whenever possible–one of the strongest cybersecurity measures available. Most on-line banking, finance, e-commerce and social media sites, as well as many e-mail providers, allow two-factor authentication.
4. Use strong passwords with a combination of 10 to 15 upper and lower case letters, numbers and special characters. 
5. Change Passwords Frequently. Passwords should be changed every 90 days and should be different for each account.  
6. Click with caution.  Don’t open emails, download files or click links received from people or organizations that you don’t recognize. Even if the message is from someone you know, be cautious and look for information that indicates that the message is legitimate.
7. Use Alerts. Add alerts to your on-line bank and credit card accounts so that you’ll know about unusual transactions immediately.
8. Be Vigilant. Check your on-line bank and credit card account balances and transactions for fraudulent activity every day.
9. Surf safely.  Use a search engine to navigate to the correct web-address to avoid phony web-sites. 
10. Practice safe shopping.  Before you enter any payment information look for the following items on the web-site:  look in the address bar to see if the site starts with “https://; look for a trustmark to make sure the site is safe; when you’re on a payment page, look for the lock symbol in your browser, indicating that the site uses encryption or scrambling to keep your information safe. 

You might be able to claim a deduction for the business use of a home office. If you qualify, you can deduct a portion of expenses, including rent or mortgage interest, depreciation, utilities, insurance, and repairs. The exact amount that can be deducted depends on how much of your home is used for business.

Basic rules for claiming deductions

The part of your home claimed for business use must be used:

• Exclusively and regularly as your principal place of business,
• As a place where you meet or deal with patients, clients, or customers in the normal course of business,
• In connection with your trade or business in the case of a separate structure that’s not attached to your home, and
• On a regular basis for the storage of inventory or samples.

A strict interpretation

The words “exclusively” and “regularly” are strictly interpreted by the IRS. Regularly means on a consistent basis. You can’t qualify a room in your home as an office if you use it only a couple of times a year to meet with customers. Exclusively means the specific area is used solely for business. The area can be a room or other separately identifiable space. A room that’s used for both business and personal purposes doesn’t meet the test. The exclusive use rule doesn’t apply to a daycare facility in your home.

What if you’re audited?

Home office deductions can be an audit target. If you’re audited by the IRS, it shouldn't result in additional taxes if you follow the rules, keep records of expenses and file an accurate, complete tax return. If you do have a home office, take pictures of the setup in case you sell the house or discontinue the use of the office while the tax return is still open to audit.

There are more rules than can be covered here. Contact us about how your business use of a home affects your tax situation now and in the future. Also be aware that deductions for a home office may affect the tax results when you eventually sell your home.

If your business claims deductions for meal, entertainment, vehicle or travel expenses, be aware that the IRS may closely review them. Too often, taxpayers don’t have the necessary documentation to meet the strict requirements set forth under tax law and by the IRS.

Be able to withstand a challenge

Whether you file a business return or file Schedule C with your personal return, these deductions can be a hot button for the IRS. Here are some DOs and DON’Ts:

DO keep detailed, accurate records. Documentation is critical when it comes to deducting meal, entertainment, vehicle and travel expenses. You generally must have receipts, canceled checks or bills that show amounts and dates. In addition, there are other rules for specific expenses. For example, you must record the business purpose of entertainment expenses, as well as the names of those you entertained and their business relationship to you. If you reimburse employees for expenses, make sure they comply with the rules.

DON’T re-create expense logs at year end or wait until you receive an IRS deficiency notice. Take a moment to record the details in a log or diary at the time of the event or soon after. Require employees to submit monthly expense reports.

DO keep in mind that there’s no “right” way to keep records. The IRS website states: “You may choose any recordkeeping system suited to your business that clearly shows your income and expenses.”

DO respect the fine line between personal and business expenses. Be careful about trying to combine business and pleasure. For example, you can’t deduct expenses for a spouse on a business trip unless he or she is employed by the company and there’s a bona fide business reason for his or her presence.

We can help

These are general rules and there may be exceptions. If your records are lost due to, say, a fire, theft or flood, there may be a way to estimate expenses. With guidance from us, you can maintain records that can stand up to IRS scrutiny. For more information about recordkeeping, contact us.

If you’ve been bitten by the net investment income tax (NIIT) in the past three years, you may be ready now to get more serious about exploring strategies to avoid or reduce your exposure to this complicated 3.8% Medicare surtax on investment income. Below are ten strategies to minimize the bite of this surtax in 2016 and succeeding years.

1. Sell securities with losses before year-end to offset gains during the year from the sale of securities.
2. Donate appreciated securities instead of cash to IRS-approved charities so that gains won’t be included on your return even though you will receive a tax deduction for the donation.
3. Use installment sales or Section 1031 like-kind exchanges to either spread the gain recognition over several years or defer the gain on the sale of property. These two strategies work best for investment real estate.
4. Invest more taxable investment funds in municipal bonds. Interest income from municipal bonds is federally tax exempt and also state exempt as well, if bonds are issued by your resident state. If you are subject to the NIIT, be sure to include the 3.8% in your municipal bond interest conversion calculation.
5.  Invest taxable investment funds in growth stocks. Gains won’t be taxed until the stocks are sold, and growth stocks generally do not distribute dividends.
6. Consider conversion of traditional IRA accounts to ROTH accounts. This idea is part of a long-term strategy and requires careful coordination with your tax and investment advisors, because the taxable income from the conversion does increase your taxable income and may result in more of your investment income being subject to the NIIT in the year of the ROTH conversion. In the future, though, this strategy could result in tax savings since the earnings and gains inside the ROTH will be exempt from both income tax and the NIIT when distributed.
7. Invest in life insurance and tax-deferred annuity products. Earnings from life-insurance contracts and annuity contracts generally aren’t taxed until they are withdrawn. Life-insurance death benefits are generally exempt from federal income tax.
8. Invest in rental real estate. Rental income is offset by depreciation deductions, reducing the amount of net investment income.
9. Maximize deductible contributions to tax-favored retirement accounts such as 401(k) and self-employed SEP accounts
10. If you are a cash basis self-employed individual or sole shareholder of an S-Corporation, consider accelerating business deductions into 2016 and deferral of business income into 2017.

Bottom-line, the NIIT is complex, and all strategies should be discussed with your tax and investment advisors before implementation to avoid other unintended tax consequences. Many of these strategies take time to implement as well, so start planning now. We can help you evaluate which strategies would be best for your particular situation, so give us a call soon to get started on your 2016 planning process.