2017 Year-End Tax Planning — General

2017 Year-End Tax Planning — General
2017 Year-End Tax Planning — General

Year-end tax planning can provide most taxpayers with a good way to lower a tax bill that will otherwise be waiting for them when they file their 2017 tax return in 2018. Since tax liability is primarily keyed to each calendar tax year, once December 31, 2017 passes, your 2017 tax liability for the most part— good or bad– will mostly be set in stone.

Year-end 2017 presents a unique set of challenges for many taxpayers because of current efforts by Congress and the Trump Administration to enact tax reform legislation, the scope of which has not been seen since 1986, according to supporters. Whether this ambitious plan will be successful by the end of this year remains uncertain; but the reasons to prepare to maximize any benefits if it does happen are indisputable. Both talk of lower tax rates, and fewer deductions, requires careful monitoring at this time, with “contingency” plans ready to go before yearend should these changes occur retroactively to 2017, or starting in 2018, either immediately or under phased-in schedules.

Tax reform, although important, is not the only reason to engage in year-end tax planning this year. Other changes in the tax law, made by the IRS and the courts, have already taken place in 2017. Opportunities and pitfalls within these recent changes —as they impact each taxpayer’s unique situation—should not be overlooked. This particularly rings true as we approach year-end 2017.

Life-cycle changes. External influences such as changes in the tax law, however, may be only part of the reason for taking some action before year’s end. Changes in your personal and financial circumstances — marriage, divorce, a newborn, a change in employment, a new business venture, investment successes and downturns—may require a change-in-course tax-wise since last year. As with any ‘life-cycle” change, your tax return for this year may look entirely different from what it looked like for 2016. Accounting for that difference now, before year-end 2017 closes, should be an integral part of your year-end planning.

Other developments: How tax law has changed over the past year by the IRS, the Treasury Department and the courts should be integrated into specific 2017 year-end considerations. This strategy-focused review of 2017 events includes, among many other developments critical to year-end transactions:

  • Growing interest by the IRS in the responsibilities and liabilities of participants within the “sharing” or “gig” economy;
  • Disaster relief both through legislation and relaxed IRS compliance rules;
  • Changing responsibilities of individuals and employers under revised rules implementing the Affordable Care Act;
  • Payroll tax credit option for small start-up companies otherwise unable to make full use of the research tax credit;
  • Changing schedules for business tax incentives that have been temporarily renewed while others have been allowed to sunset;
  • “Repair regulation” elections on equipment purchases to be made for the 2017 tax year; and
  • The reset by the Trump Administration of certain rules affecting debt/equity issues, foreign income reporting, recourse partnership liabilities, and estate tax valuation issues, among others.

Timing rules. Timing, and the skilled use of timing rules to accelerate and defer certain income or deductions, is the linchpin of year-end tax planning. For example, timing year-end bonuses or year-end tax payments, or timing sales of investment properties to maximize capital gains benefits should be considered. So, too, sometimes fairly sophisticated “like-kind exchange,” “installment sale” or “placed in service” rules for business or investment properties come into play. In other situations, however, implementation of more basic concepts are just as useful. For example, taxpayers can write a check or can charge an item by credit card and treat these actions as payments. It often does not matter for tax purposes when the recipient receives a check mailed by the payer, when a bank honors the check, or when the taxpayer pays the credit card bill, as long as done or delivered “in due course.”

Please feel free to contact one of our Professional Tax Advisors if you have any questions about how year-end tax planning might help you save taxes. Our tax laws operate largely within the
confines of “the tax year.” Once 2017 is over, tax savings that are specific to this year may be gone forever.

For more information, contact by phone or email
(314) 205-9595 or toll free 888-809-9595
INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms
Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission: Sharing Solutions that deliver real value.

Visit our website:
www.advisorygroupassociates.com

Advertisements

Year-End Tax-Planning Moves for Businesses

Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2017, the expensing limit is $510,000 and the investment ceiling limit is $2,030,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, air conditioning and heating units, and qualified real property—qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The generous dollar ceilings that apply this year mean that many small and midsized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. The fact that the expensing deduction may be claimed in full (if you are otherwise eligible to take it) regardless of how long the property is held during the year can be a potent tool for year-end tax planning. Thus, property acquired and placed in service in the last days of 2017, rather than at the beginning of 2018, can result in a full expensing deduction for 2017.

Businesses also should consider making buying property that qualifies for the 50 percent bonus first year depreciation if bought and placed in service this year (the bonus percentage declines to 40 percent next year). The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 50 percent first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2017.

Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $2,500. Where the UNICAP rules aren’t an issue, consider purchasing such qualifying items before the end of 2017.

Businesses contemplating large equipment purchases also should keep a close eye on the tax reform plan being considered by Congress. The current version contemplates immediate expensing—with no set dollar limit—of all depreciable asset (other than building) investments made after Sept. 27, 2017, for a period of at least five years. This would be a major incentive for some businesses to make large purchases of equipment in late 2017.

If your business was affected by Hurricane Harvey, Irma, or Maria, it may be entitled to an employee retention credit for eligible employees.

A corporation should consider deferring income until 2018 if it will be in a higher bracket this year than next. This could certainly be the case if Congress succeeds in dramatically reducing the corporate tax rate, beginning next year.

A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation AMT exemption for 2017. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.

A corporation (other than a “large” corporation) that anticipates a small net operating loss for 2017 (and substantial net income in 2018) may find it worthwhile to accelerate just enough of its 2018 income (or to defer just enough of its 2017 deductions) to create a small amount of net income for 2017. This will permit the corporation to base its 2018 estimated tax installments on the relatively small amount of income shown on its 2017 return, rather than having to pay estimated taxes based on 100% of its much larger 2018 taxable income.

If your business qualifies for the domestic production activities deduction for its 2017 tax year, consider whether the 50-percent-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2017 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2017, even if the business has a fiscal year. Keep in mind that the DPAD wouldn’t be available next year under the tax reform plan currently before Congress.

REASONS NOT TO USE AN IRA TO INVEST IN REAL PROPERTY

Apparently reality TV shows are now providing tax advice! The number one questions across the country this year are from clients attending “real estate” seminars and being told to use their IRA to buy and flip homes. Technically legal, the use of an IRA to buy real property is a classic example of promoters misleading taxpayers into horrible tax problems. Here are listed some reasons why putting an IRA in real estate is such a bad idea.

Flipping houses in an IRA creates trade or business income inside the IRA. Trade or business income inside an IRA is subject to a 35% UBIT rate on profits >$1,000.

Performing maintenance on the property inside the IRA is a disqualified self-dealing transaction under IRC Sec. 4975(e)(2)(C) which then treats the IRA as if it has distributed the entire FMV of the property as a taxable distribution.

You cannot use it to buy an office building that you are going to use yourself, even if you pay fair rental value or it is treated as a complete withdrawal at FMV and subject to penalty if you are under 59 and 1/2.

You cannot use it to buy a vacation property if you plan on using it yourself, including at FMV. You can’t rent from it or to it, nor can your family!

If the real estate is leveraged with debt in the IRA and income from the leveraged amount (rental or sale) is taxed to the IRA as unrelated business income at 39.6%. Form 990-T is required and if tax is owed it is treated as a taxable distribution when paid!

If the IRA owes unrelated business income and the tax is paid out of the IRA it is treated as an early withdrawal subject to tax and potential penalty.

Owning real estate outside the IRA will generate capital gains on sale, while inside the IRA it creates ordinary income. (Just like with stock). Real estate sold at a loss outside the IRA is deductible, but real estate sold at a loss inside the IRA is not deductible.

Because land is considered an illiquid or non¬traditional investment it must be valued by the trustee or custodian every year.

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595

INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission:   Sharing Solutions that deliver real value.

Visit our website:

www.advisorygroupassociates.com

Owning A Business With Co-Owners: Buy-Sell Agreement Needed!

If you are either starting or buying a business that will includes more than one co-owner, you want and need a buy-sell agreement—period.

You have multiple reasons to put a buy-sell agreement in place and not one reason not to have a buy-sell agreement.

A well-drafted agreement can do these valuable things for you:

  1. Transform your business ownership interest into a more liquid asset
  2. Prevent unwanted ownership changes
  3. Save taxes and avoid hassles with the IRS

Buy-sell agreements come in two basic flavors:

  • Cross-purchase agreements
  • Redemption agreements (sometimes called liquidation agreements)

When you enter into a cross-purchase agreement, it’s a contract between you and the other co­-owners. Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the remaining co-owners when a triggering event occurs, such as death or disability.

When you enter into a redemption agreement, it’s a contract between the business entity itself and its co-owners (including you). Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the entity when a triggering event occurs.

Both types of agreements have three main goals:

Goal No. 1. Ensure that there will be a willing buyer for each co-owner’s interest when a triggering event occurs.

Goal No. 2. Restrict each co-owner from unilaterally transferring his or her ownership interest to someone outside the existing group.

Goal No. 3. Ensure favorable tax results for all concerned.

The buy-sell agreement is not a “do it yourself’ project. You likely need professional help from your Tax Advisor, Attorney and possibly your insurance agent.


For more information, contact by phone or email:

(314) 205-9595 or toll free 888-809-9595

INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission: Sharing Solutions that deliver real value.

Visit our website: www.advisorygroupassociates.com