The nights are getting chilly and the leaves are turning. That could only mean one thing: It’s that time of year when you need to look at your tax situation for 2016. Every good tax return starts with planning. Proper planning and organization also helps lessen your tax burden. There’s not as much new legislation this year in comparison to the past few, but there are certain items that may benefit your tax situation that can be implemented by year’s end. There are, however, a large number of changes in the due dates of returns that are taking place in 2017:
New Filing Deadlines – This is the biggest change for the upcoming year.
W-2 and 1099s
- Prior years the deadline was February 28. New deadline is January 31.
- Penalty for late filing was $100 per form. It is now $250 per form
- Prior year deadline was March 15th. New deadline is April 15th.
- Extensions are now only 5 months resulting in a September 15th extended deadline.
- Prior year deadline was April 15th. New filing deadline is March 15th.
- Extension were 5 months, now they are six months. The extended filing deadline is still September 15th.
- Unchanged. Filing deadline remains March 15th and the extended deadline remains September 15th.
FBAR (Foreign Bank Accounts)
- Prior year deadline was June 30. The new filing deadline is April 15th.
- Prior years did not allow an extension. Now the filing deadline can be extended to October 15th.
Code Sec. 179 Expense Deduction and Bonus Depreciation - Two of the biggest deductions available to a business are Sec. 179 expense deduction and bonus depreciation. For 2016, the maximum amount for Sec. 179 that your business can expense is $500,000. The biggest change for 2016 is that air conditioners and heating units now qualify for Sec. 179.
For the property that does not fall under the Sec. 179 deduction, the 50 percent bonus depreciation deduction is another possible benefit for items placed into service in 2016. Unlike Sec 179, the 50% bonus depreciation does not have the $500,000 maximum nor is it subject to phase-out.
Research Tax Credit - Last year's tax extender legislation permanently extended the research tax credit. Beginning in 2016, this credit can be used by certain businesses against the employer's payroll tax liability. Also, starting in 2016, small businesses may claim the credit against alternative minimum tax (AMT) liability. While qualifying for the credit in prior years had been a large undertaking, the new simplified method has made the research credit much more attainable and beneficial to small businesses.
Make sure your compensation is properly reported - If your business is taxed as an S-Corporation, officers must receive a reasonable salary that is reported on a W-2. Additionally, shareholders who have ownership greater than 2% must have their health insurance premiums paid reported on their W-2 in order for it to get Self Employed Health Insurance treatment. Partners in a partnership should NOT be receiving a W-2 or a 1099. The payments for services provided by a partner should be classified as guaranteed payments that are reported on their K-1.
Get your reimbursable expenses together – Make sure that your mileage logs show total miles driven, commuting miles, and business related travel. Depending on the entity, the mileage reimbursement check will need to be cut from the business to the individual. Also, any personally paid business expenses need to be compiled and reported. Once again the treatment of these expenses varies.
Bundle Expenses – Depending on your situation, all of the expenses that are due around the end of the year to beginning of the next year can be either paid early to include them in 2016, or paid after Dec 31 and have them expensed in 2017. This is of course assuming that you are on the cash basis in regards to tax reporting. Key point, it is the date you send the check, not the day the vendor cashes the check which determines which period the expense falls.
Avoid double taxation – For businesses that are C-corporations, there is generally no reason to be double taxed on income. If the profit is going to be used in the company at a later date for expansion, operations etc., fine, pay the tax at the corporate level and keep the assets in the company. However, if there are no immediate plans for utilizing the profits, pay a bonus to yourself to zero out the income. Yes, there will be additional payroll taxes due, but the payroll tax rates are much lower than the corresponding income tax rates.
Fund your retirement – Perhaps the largest tax savings vehicle is your retirement plan. If you are not fully funding your retirement plan you are giving money away. This is something that needs to be an extremely high priority. Depending on how your business is setup and how many employees you have, there are numerous ways a retirement plan can be setup and funded.
HSA Accounts – Contributions to your HSA are not only deductible, but the distributions from the plan are tax-free if used for qualifying medical expenses. Also, money left in the account grows tax free while in the account.
Employing Family Members – If your spouse and or children do not have other employment, they may benefit by working for the business. There are multiple possible benefits to this including qualifying for future social security benefits, eligibility for retirement plans, possibly removing income from the parents’ higher bracket. One thing to remember is that any wages paid to a child need to be for actual work performed. Attempting to pay your newborn a salary is not going to fly.
Fund education savings - If you have children, consider creating and funding 529 plans for their college savings. www.path2college529.com is a great site offered by the State of Georgia to learn about these plans.
Cash management planning - The year-end tax planning time can also create a serious cash flow crunch when weighing important tax planning decisions and investments. A cost-benefit approach should be carefully considered. Lines of credit, and other forms of debt can be helpful, but pay close attention to their true cost.
Contact Fusion CPA today to learn how we can help your company with year-end tax planning needs.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.