With a new president inaugurated today and holiday vacations long forgotten, 2017 is already fast passing by. As we prepare for the tax filing season at Peterson CPA Solutions, there are several important things we would like to share.
2016 Tax Update
There were no major tax law changes for 2016. Here are a few noteworthy items:
- For certain business types, tax filing deadlines have changed this year. Review tax deadlines and tax rates Here.
- Self-employed persons are able to deduct 100% of health insurance premiums for them and their family.
- Bonus depreciation is still available at 50% in 2016 & 2017 for qualified purchases. It reduces to 40% in 2018 and 30% in 2019.
- Equipment purchases are eligible for Section 179 deductions of up to $500,000 if placed in service by 12/31/16. Deductions begin to phase out with purchases of over $2M in a year. This provision has now been made permanent and will be indexed for future inflation.
- De Minimis Safe Harbor provisions for business capital expenditures has raised the limit from $500 to $2,500 beginning in 2016. See our Sample Capitalization Policy.
Looking Ahead - 2017
You can probably anticipate with reasonable assurance that there will be significant changes to tax law as a result of President Donald Trump taking office and Republican control of both houses of Congress. Trump and the House GOP differ somewhat in their proposals so no firm specifics can accurately be predicted and some compromises will have to be made.
Basics of Trump’s Proposed Plan
- Collapse the current seven tax brackets to three:
||Married Filing Joint
||Less than $75,000
||Less than $37,500
||$75,000 - $225,000
||$37,500 - $112,500
||More than $225,000
||More than $112,500
- Personal & dependent exemptions are eliminated
- Head of Household filing status is eliminated
- Standard deduction is increased to $30,000 for joint filers and $15,000 for single filers
- This results in an estimated 60% of taxpayers who currently itemize, would no longer have to itemize.
- Itemized deductions capped at $200,000 for joint files and $100,000 for single filers
- Alternative minimum tax will be eliminated
- Eliminate the 3.8% Net Investment Income Tax
- If the Affordable Care Act (ACA; Obamacare) is repealed, the 0.9% additional medicare tax would also be eliminated.
- Existing capital gains rate structure will be maintained with new tax brackets.
- Replacing the current Child & Dependent Care Credit with an above the line deduction for child care for children under age 13 and elder care for a dependent parent.Limitations apply.
- Dependent Care Savings Account for the benefit of specified individuals including unborn children.Contributions limited to $2,000 per year and when a child reaches age 18, funds remaining can be used for education expenses.Anticipated to work similar to Health Savings Accounts.Lower income families may be eligible for a 50% match on parental contributions up to $1,000 per year.
- Business tax rate lowered from 35% to 15% - available to large and small businesses that want to retain profits in the business.This is most easily applied to C-Corps, however, there is speculation that it may be applicable to other business types that would then be taxed at the entity level.
- Eliminate the corporate AMT.
- Raise the Section 179 expensing cap from $500,000 to $1,000,000 – adjusted for inflation.
- US Manufacturing firms may elect to expense capital investment, but lose deductibility of corporate interest expense.
- Deemed repatriation of corporate profits held off-shore at a one-time tax rate of 10%.
The House GOP Plan aka the “Better Way” plan differs primarily in the following ways:
- Changes planned for death / estate taxes. Very unclear details but includes possibility of repealing the death tax with other provisions that tax capital gains exceeding certain thresholds.
- Continue the EITC but look for ways to improve it.
- Eliminate itemized deductions completely except for home mortgage interest and charitable contributions.
- Completely repeal the estate tax
- Allow interest expense to be deducted by businesses only against interest income.
- Additional information can be found Here.
2016 Tax Filings
We strive to continually streamline our processes for tax engagements. Below you will find the process that we have outlined for the 2017 filing season.
- E-sign an engagement letter to Peterson CPA Solutions. An email will be sent to you requesting this.
- Complete Client Update / New Client Form.
- Review tax organizer to assist with compilation of your tax documents. If we have prepared your personal return in the past, a link to an organizer will be sent to you. New clients can access a blank organizer Here. In addition to the normal tax documentation, there are new requirements for CPAs to review certain tax documents, see below.
- Upload documents to your personal secure space on SmartVault and notify us when you believe that you have uploaded everything necessary for the preparation of your return.
- Documents required to be reviewed:
- All Forms 1095-A, 1095-B, 1095-C
- If you qualify for the Earned Income Credit (EIC) – additional supporting documentation will be requested.
- Education expenses must be substantiated with documentation from the institution.
Reminders for Businesses
Year End Reminders:
Business Owners and Employers, you have several fast approaching deadlines for 2016 form filings. The following is not a comprehensive list but it highlights the most common year end filing requirements.
Business Owners & Employers
- Forms 1099, 1098 must be sent to recipients by January 31.
- Businesses that file Forms 1099-Misc with payments in box 7 (most common) must file their related Form 1096 with copies of the Forms 1099 to the IRS by January 31 also.
- Common EXEMPTIONS from 1099 Reporting:
- Rental real estate owners are NOT required to report payments of $600 or more to service providers.Unless HOWEVER, your real estate ownership qualifies as a trade or business, i.e. real estate professional)
- Most payments to Corporations including LLC S-Corps.
- Payments for merchandise (goods and tangible property), telephone, storage, freight, and other similar items.
- Payments not made in the course of a trade or business)
Preparing for Tax Preparation
- Forms W-2 must be sent to employees by January 31.
- Forms W-3 and Copy A of all Forms W-2 must be submitted to the IRS by January 31.
- Annual Form 940 and Fourth Quarter 2016 Form 941 must be submitted by January 31. (Note: Related tax payments may be due before this date.)
Business owners there are several things that you can do to prepare for the upcoming tax season.
- E-sign an Engagement Letter to Peterson CPA Solutions.
- Reconcile all bank accounts, credit cards, and loans through December 31, 2016.
- Review fixed asset accounts to see if anything should be moved out or into a fixed asset account.If you are just submitting financial statements, please prepare a schedule of fixed asset additions.
- Separate loan payments into principal and interest.Principal portions will reduce your loan liability and interest payments will increase your interest expenses.
- If you did incur any personal expenses with business resources, please reclass the appropriate amounts to equity distributions.
- Please clearly indicate any officer/owner payroll amounts.
- Document major changes to business structure or circumstances.
- Review your need for a Capitalization Policy. If you have tangible assets, including real estate, you need one. See a sample Here.