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New IRS & NYS Requirements

In order to reign in tax fraud new procedures have been imposed on taxpayers and tax professionals. Please understand that the CPA community was informed late in the process nor did they participate in the drafting of these new procedures. They are:

– IRS requires certain questions be answered in order to receive the following tax credits: Earned income credit, Child tax credits and education credits.

– New York State now requires authentication of the taxpayer by providing their drivers license’s document number, identification number, issuance date, expiration, and state of issuance or a state identification card if they do not have a valid drivers license.

Year-End Tax Planning Moves for Individuals

Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.

Postpone income until 2017 and accelerate deductions into 2016 to lower your 2016 tax bill. This is especially true for this year end as tax law changes that reduce tax rates are planned.

For 2016, the”floor” beneath medical expense deductions for those age 65 or older is 7.5% of adjusted gross income(AGI). Unless Congress changes the rules, this floor will rise to 10% of AGI next year. Taxpayers age 65 or older who can claim itemized deductions this year, but won’t be able to next year because of the higher floor, should consider accelerating discretionary or elective medical procedures or expenses (e.g., dental implants or expensive eyewear).

You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.

You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.

Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70 1/2.

Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA)mid you set aide too little for this year.

If you become eligible in December of 2016 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2016.

If you are thinking of installing energy saving improvements to your home, such as certain high efficiency insulation materials, do so before the close of 2016. You may qualify for a nonbusiness energy property credit” that won’t be available after this year, unless congress reinstates it.

Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2016 and 2017 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next.

Year-End Tax-Planning Moves for Businesses & Business Owners

Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, 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 medium sized 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. This opens up significant year-end planning opportunities.

Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this 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% first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2016.

Businesses may be able to take advantage of the “de minims 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 unity of proper 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, purchase such qualifying items before the end of 2016.

A corporation should consider accelerating income from 2017 to 2016 if it will be in a higher bracket next year. Conversely, it should consider differing income until 2017 if it will be in a higher bracket this year, which is looking like the more likely scenario.

A corporation (other than a “large” corporation) that anticipates a small net operating loss(NOL) for 2016 (and substantial net income in 2017) may find it worthwhile to accelerate just enough of its 2017 income (or to defer just enough of its 2016 deductions) to create a small amount of net income for 2016. This will permit the corporation to base its 2017 estimated tax installments on the relatively small amount of income shown on its 2016 return, rather than having to pay estimated taxes based on 100% of its much larger 2017 taxable income.

If your business qualifies for the domestic production activities deduction (DPAD) for its 2016 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2016 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 2016, even if the business has a fiscal year.

To reduce 2016 taxable income, consider deferring a debt-cancellation event until 2017.

To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses.

If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Phishing: Are you the next target?

A client of ours contacted us regarding a suspicious phone call she had received. A woman claiming she was from the IRS told our client she owed the federal government money for tax payments she hadn’t payed. What makes this case especially interesting? Our client happens to be a foreign national, and was threatened with possible deportation from the Country if she didn’t pay the amount owed to the federal government.

We’ve seen these scammers target certain demographics most vulnerable to these types of tactics, and in todays world, personal information such as your address, name, social security number are going to be the pieces of information that these scammers are going to try and use to convince you of who they are. REMINDER: The IRS will NEVER call or email you, always and only through written correspondence should you owe them any sort of payment.

Should you receive one of these calls, and you are being spoken to in a threatening manner, take down their number & hang up. To help the proper authorities deal with these scammers please click the link below to report the incident. https://www.irs.gov/uac/report-phishing

Thinking of Divorce? Here’s some Advice:

Untangling the affairs of a failed marriage is full of financial & tax pitfalls. It is prudent to speak to an impartial professional before either party engages in the service of an attorney. The major items of concern are whether divorce is the only option, what do both parties really want?

8 Important things to consider when going through this process:

•Timing of the divorce

•Payment of Alimony

•Custody if minor children & child support

•Property Settlement

•Health Insurance

•Qualified Retirement plans & IRA

•Business Interests

•Filing of back, current and future tax returns

Attention to tax and financial issues helps the parties involved create certainty and avoid problems later on.

W-2/1099 Filing for 2016

NEW LAW:  W-2’s and 1099-MISC reporting nonemployee compensation are now required to be filed with Social Security or the IRS by January 31st.

In an effort to make W-2 filing more efficient and accurate, please review the names addresses and social security numbers of all your employees for the year.  If any information is incorrect or missing, the correct information should be requested immediately.

The IRS feels that 1099’s are not being properly filed.  They have added two questions to all business related tax returns asking whether you were required to file 1099’s and if you did so.  This new scrutiny means that you must file the appropriate 1099’s.

You should also determine who should get 1099’s and review the names, addresses and ID numbers (EIN or Social Security numbers) of possible recipients.  A form W-9 should be completed by anyone who is required to file an information return with the IRS (i.e. 1099).  A W-9 form can be downloaded from: https://www.irs.gov/pub/irs-pdf/fw9.pdf.  If you are not sure who should receive 1099’s feel free to contact us.

1099-MISC with nonemployee compensation are now due to the recipient and the IRS by January 31st.  Other 1099’s are generally due to the recipients on January 31st and to the IRS on February 28th (March 31st if filed electronically).

Filing your 1099’s and your W-2’s is your responsibility.   The penalties for not filing or for inaccurate or incomplete reporting have increased.   We will be happy to complete the required 1099’s and W-2’s if you furnish us with the correct information.

Thinking of Divorce? Here’s some advice:

Untangling the affairs of a failed marriage is full of financial & tax pitfalls. It is prudent to speak to an impartial professional before either party engages in the service of an attorney. The major items of concern are whether divorce is the only option, what do both parties really want?

8 Important things to consider when going through this process:

•Timing of the divorce

•Payment of Alimony

•Custody if minor children & child support

•Property Settlement

•Health Insurance

•Qualified Retirement plans & IRA

•Business Interests

•Filing of back, current and future tax returns

Attention to tax and financial issues helps the parties involved create certainty and avoid problems later on.

Department of Labor and Issuing Forms 1099: Cause for concern

The IRS is referring to the US and NYS Departments of Labor taxpayers who were issued a single Form 1099Misc that was reported on their Form 1040 Schedule C and who had not been issued a Form W-2 and reported no wages on line 7 of their Form 1040.

To summarize the situation in laymen’s terms, the IRS is informing the US and NYS Departments of Labor which individuals earned all their income from one company as an independent contractor to look into whether they should be reclassified as an employee.  Receiving as single Form 1099 and having no other source of earned income is a strong indication that the worker maybe an employee and not an independent contractor.

The department of labor will be using this information to determine which companies they need to audit. If your company is audited and they determine that the workers should be reclassified as employees, as an owner of your company you will be personally liable for the payroll taxes due plus penalties and interest.

Please be aware that there are many factors that determine whether or not a payee who has performed work for a company should be classified as an independent contractor (IC) versus an employee. The most important factor is a written contract between a business and a contractor. If you do not have a contract you will have a very difficult time defending your practices in an audit.

In order to determine how you should proceed it is our recommendation that a law firm that specializes in labor law be retained to perform a “self-audit”. As part of a self-audit, they will review your company’s contract with your IC’s and the actual procedures that are followed. For many firms the conditions set in an IC’s contract and what actually occurs are quite different. If that is the case you stand a great chance of losing if and when the Department of Labor audits you.

Hackers: One step further

The efforts of hackers have gone one step further, like a biological evolution, they continue to find ways to steal personal information. A computer virus doesn’t necessarily infect your computer from opening an infected email, or clicking on an advertisement on a website. What some hackers are doing now is they go into your web browser, check to see if you have any bookmarks for your personal banking, etc. then redirecting the link to a site that mimics the website you are trying to access. When you type in your information you are giving them the keys to your account.

You are left vulnerable to simply giving away your personal passwords, emails and other private information to hackers without you noticing. We know all too well what this can do to a business, as one of our clients experienced such a hack and was left with their assets stolen or frozen. In an age where we are starting to live our lives with the internet as an integral part of our sense of communication with the rest of the world, private information faces an all too real danger.

And not just from individual hackers anymore, there are now organized cybercriminal gangs, government surveillance, as well as hacks from nation states. As cited by noted tech guru Dan Kaminsky in his Black Hat Keynote speech, a study by the National Telecommunications and Information Administration indicates that “Half of all Americans are backing away from the net due to fears regarding security and privacy”.

Our advice: remove all current bookmarks on your web browser that link to any online banking sites, or any other site that requires personal username IDs or passwords. It may require that you input the site’s url, but it is better to be safe than sorry.

Your Most Trusted Advisors

Yesterday a client made me realize how much a CPA needs to know and is responsible for. She graciously said that you need to be a special person to do the kind of work that we do.

I came to realize that Marvin and I have both been working in the field of accounting for better than 30 years and have accumulated plenty of useful and not so useful knowledge over the years.

Everyone needs to take advantage of the build up knowledge that their CPA possesses. They have just about seen it all, and they are your most trusted advisor. As we stated in our previous blog, the first person that needs to be advised if you are contemplating a divorce is your CPA. You will also need a CPA’s advice when it comes to business and investment planning, estate planning and elder care issues to name a few.

If you have any of the above issues, please feel free to give us a ring or drop us a note.