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

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The Tax Benefits of Showing a Loss

Tax Benefits  pic
Tax Benefits
Image: thebalance.com

As head of the team of professionals at ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms, Frank L. Zerjav Sr., CPA, guides a respected St. Louis County, Missouri, with clients nationwide that for over 40 years of trust offers a broad spectrum of professional accounting, compliance, tax & advisory services to Individuals, Investors, professionals, business and real estate owners. In their complimentary monthly electronic newsletter to subscribers the TAX TIPS NEWSLINE which provides comprehensive and timely insight on a wide range of taxation issues including federal and state incentives and current issues, Frank Zerjav, CPA, and the team recently highlighted strategies for Individuals or businesses that show a loss.

Business or Investment losses, in which income is exceeded by deductions, present a number of tax benefits that can also improve cash flow dynamics. This has to do with the way in which a Net Operating Loss (NOL) within a tax year results in a deduction that is carried back two years and carried forward 20 years. The carry-back element typically results in an instant refund of federal and state income taxes paid during the two years prior.

In certain cases where the NOL carry-back would not generate a significant tax refund, or the money is not immediately needed, it may be advantageous to waive the two-year carry-back and carry the NOL forward. Given the complexity of the subject, it makes sense to seek out the guidance of a knowledgeable tax advisor. The ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms offer an initial complimentary consultation to help identify proven tax-smart strategies, options and solutions that deliver real value for the professional services needed based upon the particular situation of any taxpayer.

For more information, answers to questions or concerns, do not hesitate to contact a Professional Tax Advisor by calling toll free (888) 809-9595 or visit their recently launched website: www.advisorygroupassociates.com

WHAT YOU NEED TO KNOW ABOUT IRS FORMS 1099

WHAT YOU NEED TO KNOW ABOUT IRS FORMS 1099It’s that time of year again, when IRS Forms 1099 arrive. Perhaps no one likes IRS Forms 1099 except the IRS. The agency loves them, because they allow for the easy computer matching of Form 1099 data against tax returns. Businesses may not like sending the forms out, but there are penalties for failing to issue them.  Besides, no one wants trouble from the IRS. So as all the forms descend this time of year, here are things to know about Forms 1099:

  • Better to give than to receive. Generally, businesses must issue the forms to any payee (other than a corporation) who receives $600 or more during the year. That’s just the basic threshold rule, but there are many exceptions. That’s why you probably get a Form 1099 for every bank account you have, even if you earned only $10 of interest income.
  • Report every 1099. The key to Forms 1099 is IRS’s matching. Every Form 1099 includes the payer’s employer identification number and the payee’s Social Security number. The IRS matches Forms 1099 with the payee’s tax return. If you disagree with the information on the form but can’t convince the payer you’re right, explain it on your tax return. If you receive a Form 1099, you can’t just ignore it, because the IRS won’t.
  • There are many varieties. There’s a 1099-TNT for interest; 1099-DIV for dividends; 1099-G for state and local tax refunds and unemployment benefits; 1099-R for pensions and payouts from your individual retirement accounts; 1099-B for broker transactions and barter exchanges; 1099-S for real estate transactions, etc.  There are many categories, but the Form 1099-MISC (for miscellaneous) seems to prompt the most questions and covers the biggest territory.
  • Timing is everything. Businesses must now send out Forms 1099 by Jan. 31 for the prior calendar year. However, don’t assume you’re off the hook for reporting income if you don’t receive a Form 1099 by February or even March. There are penalties on companies that issue Forms 1099 late, but some come as late as April or May when you may have already filed your return. Even if you never receive a Form 1099, if you receive income, you must report it. You don’t need a 1099 to report income received.
  • Beware changed addresses. The information will be reported to the IRS based on your Social Security number regardless of whether you receive the form. Update your address directly with payers, as well as putting a forwarding order in with the U.S. Post Office. You’ll want to see any forms the IRS sees.
  • The IRS gets them, too. Any Form 1099 sent to you also goes to the IRS. The deadline is Jan. 31 for mailing some Forms 1099 to taxpayers, but the payer generally has until the end of February to send all its Forms 1099 to the IRS. This year (2017, for 2016 payments), the IRS has moved up the filing date for Forms 1099-MISC reporting non-employee compensation in box 7.  The reporting date to the IRS will now be the same as the due date for the forms to be issued to recipients, January 31.
  • Report errors immediately. If there is an error on a Form 1099 tell the payer immediately. There may be time for the payer to correct it before sending it to the IRS. If the payer has already dispatched the incorrect form to the IRS, ask the payer to send in a corrected form (document this request in writing).
  • IRS Notices. If you forget to report a Form 1099, the IRS will send you a computer-generated letter billing you for the taxes (CP2000 Notice).
  • Don’t ask. Keeping payers advised of your current address is a good idea, as is reporting errors to payers. In some cases, if you are missing an IRS Form 1099, you may want to keep quiet. If you are expecting a Form 1099, you know about the income, so just report that amount on your tax return. IRS computers have no problem with that. If you call or write the payer and raise the issue, you may end up with two of them, one issued in the ordinary course (even if it never got to you), and one issued because you called.

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.

Businesses Should Not Mistake Profit for Cash Flow

 

Profit, Cash Flow pic
Profit, Cash Flow
Image: investopedia.com

The recipient of an MBA from St. Louis University, Frank L. Zerjav Sr., CPA, is the founder and CEO of Advisory Group Associates’ Tax & Advisory firms. From his CPA office in the Westport area of St. Louis County, Mo. Frank Zerjav advises clients on the management of income and cash flow.

The two terms are common in financial discussions, but they do not mean the same thing, and substituting one term for the other can cause a great deal of confusion. The reason is the accrual system of accounting.

The accrual system requires income and expenses to be accounted for when they are incurred, and that is not necessarily when the cash was actually received or paid. For example, on an income statement, credit sales are used to calculate profit, even when no cash has been received for the sales. For an item such as prepaid rent, when a business pays rent in advance, it does not include the prepaid rent in the income statement. In this case, the expense has not yet been incurred, even though the cash has left the business.

Because of these types of differences, a business can post huge profits while struggling with the necessary cash flow to pay for daily operation. Cash flow management focuses purely on actual cash moving in and out of the business and is necessary to avoid problems. Businesses must always distinguish between reported profits and actual cash in hand.