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Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
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One of the main reasons cited by dentists and dental students for pursuing a career in dentistry is the potential to be their own boss. For many, that starts with the purchase of a dental practice.
Yet, many new dentists get so focused on clinical care that they ignore the business complexities of running a practice. To ensure that you are purchasing a practice that makes financial sense, consider these key areas of due diligence:
Market area — Who will be your competition within 1 mile, 5 miles and 10 miles of the practice? Just as important, are the demographics of the area appropriate for the type of dentistry you wish to practice? For example, if you are interested in emphasizing aesthetic and complex restorative dentistry, you’ll want to practice in a community where the demographics will support it.
Patient characteristics — Are most of the patients returning patients or are there a lot of “one-offs” on the books? How about the ratio of patients with dental insurance to fee-for-service patients?
Growth potential — Assume you analyzed several years of a potential practice’s production reports and saw that the majority of perio and endo services have been referred out. Depending on your personal skill set and comfort level, offering these services in-house might create excellent growth opportunities.
Equipment — If not already in place, it could cost tens of thousands of dollars to upgrade a low-tech practice with technology such as digital radiography, a high-end intraoral camera system and a robust Electronic Dental Records System. On the other hand, if the technology is already in place, how much will it cost to maintain the equipment annually?
Current financials — Have you been able to obtain at least three years of prior tax returns and financial statements? Is the revenue and net profit trending upward or do you see a drop off? Be wary if the seller has not been completely transparent and answered all of your questions in a satisfactory manner.
Financing — In addition to borrowing for the purchase price, you might need to borrow additional funds to support cash flow needs as collections ramp up (it may take time to get revenue flowing, but expenses start immediately).
Cash flow —Your lender will want to see a forecast of cash flow for at least five years. If you can, break the numbers out on a monthly basis for at least the first two years, and then on an annual basis for years 3 – 5. Of course, one of the benefits of purchasing an established practice is that you are purchasing an established income stream.
Structure of the purchase agreement — What exactly are you buying? With an asset sale, you are purchasing the agreed-upon assets of the practice. With a business sale, you are purchasing the owner’s equity in the practice and are, essentially, stepping into the ownership shoes of the seller — liabilities and all.
Allocation of purchase price — Will you and the seller be able to reach an agreement on how to allocate the purchase price between goodwill and assets eligible for accelerated depreciation? This will require some negotiating between both parties.
Acquiring a dental practice is a major step — one that requires some guidance. Our firm can help you with the financial aspects and planning you need to start out on solid footing. We have the experience to help set up new business ventures as well as structuring the purchase of an existing business.
As we approach year-end, one of the earliest business tax reporting tasks that must be completed is preparation of information returns known as Forms 1099. The purpose of Forms 1099 is for businesses to report to the IRS various items of income and deduction for a recipient. The IRS will match the information received on these forms to recipients’ tax returns, and if there is a discrepancy, the IRS will contact the taxpayer regarding the discrepancy.
Form 1099-MISC is the most common 1099 prepared by businesses. This Form reports payments made in the course of a trade or business to individuals and unincorporated businesses that do not constitute wages. The most common types of payments reported are royalty payments or payments to independent contractors for services or work. Below is a list of payments made by businesses that must be reported to recipients on Form 1099-MISC:
NOTE: The exemption from issuing Form 1099-MISC to a corporation does not apply to payments for legal services provided by corporations or for payments for medical or health care services provided by corporations.
Link to example Form 1099-MISC: www.irs.gov/pub/irs-pdf/f1099msc.pdf
Link to IRS instructions for preparation of Form 1099-MISC: www.irs.gov/pub/irs-pdf/i1099msc.pdf
Preparation of the actual Forms 1099-MISC is not difficult. But the determination of which vendors, service providers or other payees must receive a 1099-MISC, as well as gathering and summarizing all of the information that must be reported,can be time consuming.
In order to prepare Forms 1099-MISC, businesses must gather or summarize the following information for each 1099 recipient each year:
We recommend that businesses obtain the first two items of information each year on Form W-9 (http://www.irs.gov/pub/irs-pdf/fw9.pdf) for each recipient before the first payment of the year is issued to the recipient. The payment information can be automatically summarized in accounting software programs or can be summarized from detailed reports by payee.
Generally a copy of Form 1099-MISC must be furnished to a recipient by January 31st of the year following the reporting year. Accordingly, for 2015 reporting, Forms 1099-MISC should be mailed to recipients by February 1, 2016 because the due date falls on a Sunday. If, however, amounts are reported to 1099-MISC recipients in box 8 (Substitute payments in lieu of dividends or interest) or box 14 (Gross proceeds paid to an attorney), copies must be mailed to recipients by February 16, 2016.
Businesses that submit less than 250 of any one type of information returns can file paper Forms 1099. If a business files paper forms, specially prescribed forms must be used so that the paper forms submitted can be read by IRS optical character recognition (OCR) equipment. Most office supply stores sell the specially prescribed Forms 1099. (Do not attempt to download and print Form 1099 from the IRS website!) Failure to use the specially prescribed forms could subject the filer to a penalty of up to $100 per form.
Forms 1099 submitted on paper must be mailed to the IRS on or before February 29th of the year following the reporting year. Forms 1099 filers should submit copy A of Forms 1099 along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) to the IRS at the address listed on Form 1096, based on the principal business location of the filer. Form 1096 is also a specially prescribed form and can also be purchased at office supply stores.
Businesses that must submit more than 250 of any type of information returns must file electronically using a system called FIRE (Filing Information Returns Electronically). The FIRE system is accessed via the Internet at https://fire.irs.gov/firev1r/default.aspx. Users must have software that can produce a file in the proper format according to IRS Publication 1220. Businesses required to submit Forms 1099 electronically generally must obtain IRS approval to do so by submitting Form 4419 – Application of Filing Information Returns Electronically at least 45 days before the due date of the returns. The due date for filing 2015 electronic Forms 1099 is March 31, 2016.
The Internal Revenue Code includes penalties that may apply to businesses required to file Forms 1099. The penalties are applied, unless due to reasonable cause, for:
Generally, the penalties imposed are from $30 per return to $250 per return, depending on the type of failure and how soon the errors are corrected. There is a de minimis exception for returns that failed to include required information or include incorrect information if there was timely filing of information returns and if all errors are corrected by August 1st of the year following the reporting year.
Stockman Kast Ryan + CO is here to help you with this year-end task. We can prepare Forms 1099-MISC for you or we can train you and/or your staff to not only prepare the 2015 Forms 1099-MISC but also assist with a jump start on the 2016 1099-MISC preparation process. We can assist with 1099 QuickBooks mapping and with implementation of procedures to gather and summarize all of the information required to file accurate 1099s as tax year 2016 progresses.
As the end of the year approaches, it is clear that tax planning will be no less complicated than in recent years. Several tax breaks that had expired were extended through the end of 2014, but there is no crystal ball for what Congress will do this year. Fortunately, although there are some year-end tax planning strategies that can’t be implemented until after tax legislation is signed into law, there are still many that can be implemented now.
Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, the following breaks were among those that expired on December 31, 2014:
Enhanced Section 179 expensing election. Before 2015, Sec. 179 permitted businesses to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress failed to extend the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.
50% bonus depreciation. Also expiring at the end of 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it’s unavailable for 2015 (with limited exceptions).
Lawmakers may restore enhanced expensing and bonus depreciation retroactively to the beginning of 2015, but they probably won’t take any action until late in the year. In the meantime, how should you handle qualified asset purchases?
Keep in mind that, to take advantage of depreciation tax breaks on your 2015 tax return, you’ll need to place assets in service by the end of the year. Paying for them this year isn’t enough.
Other expired tax provisions to keep an eye on include the research credit, the Work Opportunity credit, Empowerment Zone incentives and a variety of energy-related tax breaks.
As always, consider traditional year-end planning strategies, such as deferring income to 2016 and accelerating deductible expenses into 2015. If your business uses the cash method of accounting, you may be able to defer income by delaying invoices until late in the year or accelerate deductions by paying certain expenses in advance.
If your business uses the accrual method of accounting, you may be able to defer the tax on certain advance payments you receive this year. You may also be able to deduct year-end bonuses accrued in 2015 even if they aren’t paid until 2016 (provided they’re paid within 2½ months after the end of the tax year).
But deferring income and accelerating deductions isn’t the best strategy in all circumstances. If you expect your business’s marginal tax rate to be higher next year, you may be better off accelerating income into 2015 and deferring deductions to 2016. This strategy will increase your 2015 tax bill, but it can reduce your overall tax liability for the two-year period.
Finally, consider switching your tax accounting method from accrual to cash or vice versa if your business is eligible and doing so will lower your tax bill.
Something else to think about on the tax front as we approach year end is the upcoming deadline for the Affordable Care Act’s information reporting provisions for applicable large employers (ALEs). ALEs — generally those with at least 50 full-time employees or the equivalent — must report to the IRS information about what health care coverage, if any, they offered to full-time employees.
The reporting deadline is February 28 (March 31, if filed electronically) of the year following the calendar year to which the reporting relates. Smaller employers that are self-insured or part of a “controlled group” ALE will also have reporting obligations.
With the deadline approaching, now is the time for affected employers to begin assembling the necessary information. The compliance obligation will likely require a joint effort by the payroll, HR and benefits departments to collect the relevant data.
The IRS has developed new forms for this type of information reporting: Form 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns,” and Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” (A non-ALE self-insured employer should file Forms 1094-B and 1095-B.)
Uncertainty over expired tax breaks has been an issue with year-end tax planning for the past few years. Nevertheless, most steps to reduce your 2015 tax bill must be taken before year end. We can guide you through the uncertainty by helping you to implement the strategies available today and to be in a position to act quickly when tax legislation is signed into law.
Donating a car or vehicle to charity can be a great way for taxpayers to get a large deduction on their income tax returns. Prior to January 2005, the IRS allowed taxpayers to take a tax deduction based solely on their vehicle's market value. Determining the market value of a donated vehicle was often quite difficult and time-consuming, which made determination of the amount of the tax deduction confusing.
Fortunately, as a result of the tax law that went into effect in January 2005, the IRS has taken the guesswork out of determining the value of your donated car, truck, RV, boat or other vehicle. Generally, if the charity sells your vehicle, your deduction is limited to the gross proceeds the charity receives from its sale.
If the charity intends to make significant intervening use of the vehicle, a material improvement to the vehicle, or intends to give or sell the vehicle to a needy individual at a price significantly below fair market value, you will need to determine your vehicle's fair market value as of the date of the contribution.
Fair market value is the price a willing buyer would pay and a willing seller would accept for the vehicle when neither party is compelled to buy or sell nor has reasonable knowledge of the relevant facts.
If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is
Moreover, the fair market value of a vehicle cannot exceed the price listed for a private-party sale.
State charity officials recommend that the donor take responsibility for transfer of title to ensure termination of liability for the vehicle. In most states, this involves filing a form with the state motor vehicle department which states that the vehicle has been donated. A taxpayer donating a vehicle in Colorado need only complete a vehicle title transfer with their local Department of Motor Vehicles.
If you are considering donating a vehicle to charity and have further questions on the tax deduction you will be receiving, don't hesitate to reach out to us with any questions or concerns.
The federal government supports generosity by allowing you to deduct your charitable donations on your income tax return if you itemize deductions. You must, however, follow the IRS's reporting and substantiation rules to assure your charitable deduction is allowed. While all contributions must be susbstantiated, there are numberous and overlapping requirements.
For a contribution of cash, check or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, date and amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.
For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization's name, the date and location of the contribution, and a detailed description (but not the value) of the property. If circumstances make obtaining a receipt impracticable, you must maintain a reliable written record of the contribution. the information required in such a record depends on factors such as the type and value of property contributed.
If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won't be able to claim the deduction. If you make separate contributions of less than $250, you won't be subject to the written receipt requirement, even if the sum of the contributions to the same charity totals $250 or more in a year.
The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and, if so, must provide a good faith estimate of the value of the goods or services. If you received only "intangible religious benefits," such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and therefore doesn't reduce the charitable deduction available.
If the total charitable deduction you claim for noncash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000 and attach an appraisal summary to the tax return. A qualified appraisal, however, isn't required for publicly traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) non-publicly traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more. The IRS may also request that you provide a photograph.
As we get closer to the end of the 2015 tax year, a review of a 2015 Tax Court Memorandum Decision (TC Memo 2015-71, Kunkel v. Commissioner) provides a reminder that the IRS and the courts take the charitable contribution rules seriously and that good tax documentation is required to support a deduction for noncash charitable contributions. Here's a summary of the take-away lessons from the Kunkel case regarding documentation of noncash charitable contributions:
If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if any of the following are true.
If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.
You can substantiate a contribution that you make by withholding from your wages with a pay stub, Form W-2, or other document from your employer that shows the amount withheld for payment to the charity.
You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn't provide goods or services in return for contributions made by payroll deduction.
The deduction from each wage payment is treated as a separate contribution for purposes of the $250 threshold in case each individual contribution is less than the $250 threshold.
Although you can't deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed, when you performed them and the organization for which you performed the services. Keep receipts, canceled checks and other reliable written records relating to the services and expenses.
As discussed earlier, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn't know how much those expenses were. You can, however, satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return and a description and good faith estimate of the value of those goods or services.
Please call us if you have any questions about these rules. Together, we can make sure that you'll get all the deductions to which you are entitled when we prepare your 2015 tax returns.
The IRS has issued its cost-of-living adjustments for 2016. Inflation remains low, so many amounts are the same as last year, and those that did increase did so only modestly. Nonetheless, it’s helpful to know the 2016 amounts as you evaluate which 2015 year-end tax planning strategies to implement.
Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $50 to $100, depending on filing status, but the top of the 35% bracket increases by $1,050 to $2,100, again depending on filing status.
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2016 ordinary income tax brackets |
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|
Tax rate |
Single |
Head of household |
Married filing jointly or surviving spouse |
Married filing separately |
|
10% |
$0 – $9,275 |
$0 – $13,250 |
$0 – $18,550 |
$0 – $9,275 |
|
15% |
$9,276 – $37,650 |
$13,251 – $50,400 |
$18,551 – $75,300 |
$9,276 – $37,650 |
|
25% |
$37,651 – $91,150 |
$50,401 – $130,150 |
$75,301 – $151,900 |
$37,651 – $75,950 |
|
28% |
$91,151 – $190,150 |
$130,151 – $210,800 |
$151,901 – $231,450 |
$75,951 – $115,725 |
|
33% |
$190,151 – $413,350 |
$210,801 – $413,350 |
$231,451 – $413,350 |
$115,726 – $206,675 |
|
35% |
$413,351 – $415,050 |
$413,351 – $441,000 |
$413,351 – $466,950 |
$206,676 – $233,475 |
|
39.6% |
Over $415,050 |
Over $441,000 |
Over $466,950 |
Over $233,475 |
The personal and dependency exemption increases by only $50, to $4,050 for 2016. The exemption is subject to a phaseout, which reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s adjusted gross income (AGI) exceeds the applicable threshold (2% of each $1,250 for separate filers).
For 2016, the phaseout starting points increase by $700 to $1,400, to AGI of $259,400 (singles), $285,350 (heads of households), $311,300 (joint filers), and $155,650 (separate filers). The exemption phases out completely at $381,900 (singles), $407,850 (heads of households), $433,800 (joint filers), and $216,900 (separate filers).
Your AGI also may affect some of your itemized deductions. An AGI-based limit reduces certain otherwise allowable deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold (not to exceed 80% of otherwise allowable deductions). For 2016, the thresholds are $311,300 (up from $309,900) for joint filers, $285,350 (up from $284,050) for heads of households, $259,400 (up from $258,250) for singles and $155,650 (up from $154,950) for separate filers.
The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.
Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2016, the threshold for the 28% bracket increased by $900 for all filing statuses except married filing separately, which increased by half that amount.
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2016 AMT brackets |
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Tax rate |
Single |
Head of household |
Married filing jointly or surviving spouse |
Married filing separately |
|
26% |
$0 – $186,300 |
$0 – $186,300 |
$0 – $186,300 |
$0 – $93,150 |
|
28% |
Over $186,300 |
Over $186,300 |
Over $186,300 |
Over $93,150 |
The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts for 2016 are $53,900 for singles and heads of households and $83,800 for joint filers, increasing by $300 and $400, respectively, over 2015 amounts. The inflation-adjusted phaseout ranges for 2016 are $119,700–$335,300 (singles and heads of households) and $159,700–$494,900 (joint filers). (Amounts for separate filers are half of those for joint filers.)
The maximum benefits of various education- and child-related breaks generally remain the same for 2016. But most of these breaks are also limited based on the taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within the applicable phaseout range are eligible for a partial break — breaks are eliminated for those whose MAGIs exceed the top of the range.
The MAGI phaseout ranges generally remain the same or increase modestly for 2016, depending on the break. For example:
The American Opportunity credit. The MAGI phaseout ranges for this education credit (maximum $2,500 per eligible student) remain the same for 2016: $160,000–$180,000 for joint filers and $80,000–$90,000 for other filers.
The Lifetime Learning credit. For 2016, the MAGI phaseout range for this education credit (maximum $2,000 per tax return) increases only for joint filers, to $111,000–$131,000 (up $1,000). The phaseout range remains at $55,000–$65,000 for other filers.
The adoption credit. The MAGI phaseout ranges for this credit also increase for 2016 — by $910, to $201,920–$241,920 for joint, head-of-household and single filers. The maximum credit increases by $60, to $13,460 for 2016.
(Note: Married couples filing separately generally aren’t eligible for these credits.)
These are only some of the education- and child-related breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible.
Retirement-plan-related limits remain unchanged for 2016:
|
|
2015 limit |
2016 limit |
|
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans |
$18,000 |
$18,000 |
|
Annual benefit for defined benefit plans |
$210,000 |
$210,000 |
|
Contributions to defined contribution plans |
$53,000 |
$53,000 |
|
Contributions to SIMPLEs |
$12,500 |
$12,500 |
|
Contributions to IRAs |
$5,500 |
$5,500 |
|
Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans |
$6,000 |
$6,000 |
|
Catch-up contributions to SIMPLEs |
$3,000 |
$3,000 |
|
Catch-up contributions to IRAs |
$1,000 |
$1,000 |
|
Compensation for benefit purposes for qualified plans and SEPs |
$265,000 |
$265,000 |
|
Minimum compensation for SEP coverage |
$600 |
$600 |
|
Highly compensated employee threshold |
$120,000 |
$120,000 |
Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Most IRA-related MAGI phaseout range limits remained unchanged in 2016:
Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if the taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:
Taxpayers with MAGIs within the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.
But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $5,500 contribution limit (plus $1,000 catch-up if applicable and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA.
Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:
You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.
(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)
The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2016 the amount is $5.45 million (up from $5.43 million for 2015).
The annual gift tax exclusion remains at $14,000 for 2015. It’s adjusted only in $1,000 increments, so it typically increases only every few years. It increased to $14,000 in 2013, so it might go up again for 2017.
With inflation in check this year, many 2016 cost-of-living adjustment amounts are $0, and where there are adjustments, they’re minimal. If you’re unsure how this may affect your year-end tax planning or retirement planning, please contact us. We’d be pleased to help you tweak your plans based on next year’s adjustment amounts.
As the end of the year approaches, it is clear that tax planning will be no less complicated than in recent years. Several tax breaks that had expired were extended through the end of 2014, but there is no crystal ball for what Congress will do this year. Fortunately, although there are some year-end tax planning strategies that can’t be implemented until after tax legislation is signed into law, there are still many that can be implemented now.
Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, the following breaks were among those that expired on December 31, 2014:
Enhanced Section 179 expensing election. Before 2015, Sec. 179 permitted businesses to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress failed to extend the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.
50% bonus depreciation. Also expiring at the end of 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it’s unavailable for 2015 (with limited exceptions).
Lawmakers may restore enhanced expensing and bonus depreciation retroactively to the beginning of 2015, but they probably won’t take any action until late in the year. In the meantime, how should you handle qualified asset purchases?
Keep in mind that, to take advantage of depreciation tax breaks on your 2015 tax return, you’ll need to place assets in service by the end of the year. Paying for them this year isn’t enough.
Other expired tax provisions to keep an eye on include the research credit, the Work Opportunity credit, Empowerment Zone incentives and a variety of energy-related tax breaks.
As always, consider traditional year-end planning strategies, such as deferring income to 2016 and accelerating deductible expenses into 2015. If your business uses the cash method of accounting, you may be able to defer income by delaying invoices until late in the year or accelerate deductions by paying certain expenses in advance.
If your business uses the accrual method of accounting, you may be able to defer the tax on certain advance payments you receive this year. You may also be able to deduct year-end bonuses accrued in 2015 even if they aren’t paid until 2016 (provided they’re paid within 2½ months after the end of the tax year).
But deferring income and accelerating deductions isn’t the best strategy in all circumstances. If you expect your business’s marginal tax rate to be higher next year, you may be better off accelerating income into 2015 and deferring deductions to 2016. This strategy will increase your 2015 tax bill, but it can reduce your overall tax liability for the two-year period.
Finally, consider switching your tax accounting method from accrual to cash or vice versa if your business is eligible and doing so will lower your tax bill.
Something else to think about on the tax front as we approach year end is the upcoming deadline for the Affordable Care Act’s information reporting provisions for applicable large employers (ALEs). ALEs — generally those with at least 50 full-time employees or the equivalent — must report to the IRS information about what health care coverage, if any, they offered to full-time employees.
The reporting deadline is February 28 (March 31, if filed electronically) of the year following the calendar year to which the reporting relates. Smaller employers that are self-insured or part of a “controlled group” ALE will also have reporting obligations.
With the deadline approaching, now is the time for affected employers to begin assembling the necessary information. The compliance obligation will likely require a joint effort by the payroll, HR and benefits departments to collect the relevant data.
The IRS has developed new forms for this type of information reporting: Form 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns,” and Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” (A non-ALE self-insured employer should file Forms 1094-B and 1095-B.)
Uncertainty over expired tax breaks has been an issue with year-end tax planning for the past few years. Nevertheless, most steps to reduce your 2015 tax bill must be taken before year end. We can guide you through the uncertainty by helping you to implement the strategies available today and to be in a position to act quickly when tax legislation is signed into law.
Year-end tax planning this year will be just as complicated as it was last year because of uncertainty surrounding many expired tax breaks for individuals. While Congress mulls legislation to extend (or even make permanent) some expired tax provisions, it’s difficult to predict what will be included in the final bill. Rather than waiting to act until potential legislation is passed, implement these year-end tax planning strategies today because most steps to reduce your 2015 tax bill must be taken before year end.
Individuals often can reduce their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. To defer income, for example, you might ask your employer to pay your year-end bonus in early 2016 rather than in 2015.
And to accelerate deductions, you might pay certain property taxes early or increase your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2015 contributions to IRAs, and certain other retirement plans, after the end of the year.
Remember that, when you use a credit card to pay expenses or make charitable contributions this year, you can deduct them on your 2015 return even if you don’t pay your bill until next year.
Other year-end tax planning strategies to consider include:
Offsetting capital gains. If you’ve sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss.
Reducing capital gains is particularly important if you’re subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of 1) your net income from capital gains, dividends, taxable interest and certain other sources, or 2) the amount by which your MAGI exceeds the threshold.
In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.
Charitable giving. If you plan to make charitable donations, consider donating highly appreciated stock or other assets rather than cash. This strategy is particularly effective if you own appreciated stock you’d like to sell but you don’t have any losses to offset the gains.
Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes, while still claiming a charitable deduction. Then you can take the cash you’d planned to donate and reinvest it in other securities.
Monitoring expired tax breaks. Keep an eye on Congress. If certain expired tax breaks are extended before the end of the year, you may have some last-minute planning opportunities. Expired provisions include tax-free IRA distributions to charity for taxpayers age 70½ and older, the deduction for state and local sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
Although not new, uncertainty over expired tax breaks certainly creates some challenges. We can help you to implement the strategies available today and to be in a position to act quickly when tax legislation is signed into law. Call us today to set up a time to begin your year-end tax planning.
The Financial Accounting Standards Board recently proposed Accounting Standards Update No. 2015-230, which would significantly change a 20-year-old financial reporting model. The changes are intended to simplify the current net asset classification requirements and the presentation of information in nonprofits’ financial statements and footnotes about liquidity, financial performance and cash flows.
Outcome (or performance) measurement should gauge the level of accomplishment of a program goal in terms of changes in the lives of individuals, families or the community at large. This article defines outcome measurement, discusses its importance to a not-for-profit and highlights the caveats.
In this issue, “Newsbits” discusses a report that uncovers dissatisfaction among millionaires who donate to charities; findings of an annual compensation survey showing that executives of large not-for-profit's and foundations are starting to see bigger raises; and a new tool that assigns dollar values to social projects.
