Mid-Year Tax Planning

Posted by on May 21, 2015 in Tax, Tax Planning | 0 comments

Mid-Year Tax Planning

Getting your tax return in order for 2015

The 2015 tax year is already nearly halfway through (where does the time go?). So we thought now would be a great time to remind you of some of the more important tax issues to consider when planning your return for this year.

Changes to the repair and capitalization regulations

There’s been an ongoing debate over the need to change the new repair and capitalization regulations – and small businesses have lost this particular battle with the IRS.

The new regulations from the IRS mean you now have three possible choices for handling repairs, supplies and asset purchases. And you’ll need to make these choices annually and attach them with your income tax return.

What happens if you don’t attach these choices? If you don’t, your accountant will have to look at every single repair, supply and asset purchase to determine the correct tax treatment – even if it’s only for a dollar! So it makes sense to make these choices early and file them with your return.

This is a big consideration as it’s likely to affect a great many people – it will impact every sole proprietor, farmer, S or C Corporation, LLC, partnership, rental property owner, and employee who deducts unreimbursed business expenses.

Making the right health care deductions

Last year’s tax bill reduced your deduction for medical costs, including health insurance for 2014. But we’ll see very few deductions available for medical costs now unless you have substantial bills.

In most case, the amount of your medical expenses must now be more than 10% of your income before we can deduct anything, so it’s worth considering whether to go to the trouble of summarizing these costs. And don’t forget, if you’re self-employed, we still need to know how much you paid for health insurance.

Deductions for contributions to charity

Have you made any contributions to a charity in this this tax year? If you have and want to claim a deduction, you’ll need to have a receipt for every transaction on your return.

And if the contribution was over $250, you also need to have an acknowledgment letter from the charity. This letter needs to be dated prior to the date of filing and must show every contribution over the $250 threshold as well as clearly stating that no goods or services were received in return for the contribution.

Declaring your foreign accounts

If you hold any offshore accounts, you’re required to disclose these to the IRS. There are substantial penalties for non-disclosure of these funds, so talking to a professional adviser is definitely recommended.

This applies if you hold an account, retirement account, or business interest with a value over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund). If you do, please let us know. We’ll explain the special rules that will apply to you and can advise you on the best way to disclose these interests to the IRS.

Tax returns for your dependent children

One implication of the Affordable Care Act (or Obamacare) is the potential for penalties if your children fill out their tax return incorrectly.

We strongly advise that you don’t let your dependent children or college students file their own returns this year. If they get it wrong, this can cost you literally thousands of dollars in Health Care penalties and/or credits. So please do come and talk to us if you’re in this position – we can file your children’s return and make sure all the correct information is included.

Rental property and mortgage interest

If you own rental property, the IRS will be asking for a lot more information from you this year.

When you fill out Form 1099-K, you’ve now got to file information for each individual property, separately. This includes the location, the type of property (single-family, duplex, etc), and a record, by property, of the number of days rented and the number of days used for personal purposes. Getting this right takes time, and we can help you by filing this along with your return.

And for those of you that have taken out a mortgage to buy a property, we now need Form 1098 from you when you pay mortgage interest. We’ll also need any refinancing closing statements, and if you drew money out on a home mortgage or refinancing, we must have general information on how you’ve used this money.

Should you convert your retirement accounts to Roth IRAs?

There’s been a lot of talk in the media about the need to convert your retirement accounts to Roth IRAs (individual retirement arrangements).

There are some advantages to converting to Roth IRAs, primarily that they’re not taxed if certain conditions are met. But there can be an equal number of disadvantages that could carry some major tax consequences. If you’re thinking about converting your accounts, please do come and talk to us first – we can outline the pros and cons and help you make the right decision.

Changes to the amount you can gift to someone

The amount you can give to one person in one year without any gift tax return filing requirements was increased to $14,000 back in 2013. Very few Americans need to worry about Federal estate taxes because of changes in the estate tax limit, $5.35 million in 2014.

Planning for the new surtaxes

The media has been talking a lot about the ‘2% club’ of high earners lately. But increases in inflation could mean that many more people will be joining this high-earning bracket soon. And that means planning ahead for this eventuality.

When the surtaxes on this group of Americans were passed, Congress purposefully didn’t adjust the thresholds for inflation. Within 6 years, over 50% of all Americans will pay these surtaxes based on estimated inflation rates. So that means you’re very likely to be affected too.

Our advice is to begin planning now, whether you are a 2% club member or not, by maximizing 401-k contributions. This could mean:

  • Utilizing employer-sponsored cafeteria plans to their fullest limit.
  • Investigating and using employer sponsored fringe benefits such as childcare and education.
  • Turning in job expenses for reimbursement.
  • Considering your marital status as your income increases because of the incredible marital penalty built into the surtaxes.

Plan ahead and get your return in early!

As always, we highly recommend planning early for this year’s tax return and filing.

We’d be very happy to sit down with you and talk over your finances for the year and highlight any potential hurdles or challenges that will take more time to resolve. If your income is over $200,000, it’s particularly important to account for the new surtaxes and to plan accordingly.

Please do drop us a line or call us if you’d like to set up a tax meeting for the 2015 tax year – we’d be very happy to talk you through the changes and potential issues to be aware of.

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