Self-Employed Individuals and Small Businesses Can Still Set Up Retirement Plans for 2016 03-23-2017

(SEPs) If you don’t already have a tax-favored retirement plan set up for your business, consider establishing a Simplified Employee Pensions (SEP). SEPs are stripped-down retirement plans intended for self-employed individuals and small businesses. Plus, if you act quickly enough, you can claim a deduction for your initial contribution on your 2016 tax return.

Putting SEPs to Work for You

Because SEPs are relatively easy to set up and can allow large annual deductible contributions, they’re often the preferred retirement plan option for self-employed individuals and small business owners — unless they have employees (See “Beware of Requirements to Cover Employees” section below).

The term “self-employed” generally refers to:

  • A sole proprietor
  • A member (owner) of a single-member limited liability company (LLC) that’s treated as a sole proprietorship for tax purposes
  • A member of a multimember LLC that’s treated as a partnership for tax purposes
  • A partner

If you’re in one of these categories, your annual deductible SEP contributions can be up to 20% of your self-employment income. For a sole proprietor or single-member LLC owner, self-employment income for purposes of calculating annual deductible SEP contributions equals the net profit shown on their Schedule C, less 50% of self-employment tax. For a member of a multi-member LLC or a partner, self-employment income equals the amount reported on their Schedule K-1, less 50% of self-employment tax claimed on their personal income tax return.

If you’re an employee of your own corporation, it can establish a SEP and make an annual deductible contribution of up to 25% of your salary. The contribution is a tax-free fringe benefit and is, therefore, excluded from your taxable income.

For 2016, the maximum contribution to a SEP account is $53,000. For 2017, the maximum contribution is $54,000. However, there’s no requirement to contribute anything for a particular year. So when cash is tight, a small amount can be contributed or nothing at all.

As with most other tax-advantaged retirement plans, assets in a SEP can grow tax-deferred, so there’s no tax liability until withdrawals are made. Early withdrawals (before age 59½) are generally subject to a 10% penalty, in addition to income tax, and certain minimum distributions are generally required beginning after age 70½.

Setting Up Your Plan

A SEP is fairly simple to set up, especially for a one-person business. Your advisors can help you complete the required paperwork in just a few minutes. A key benefit of SEPs is that you can establish your plan as late as the extended due date of the return for the year in which you claim a deduction for your initial SEP contribution.

For example, say your business is a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for tax purposes. If you establish a SEP and make your initial SEP contribution by April 18, 2017 — the deadline for filing your 2016 federal income tax return — you can deduct the contribution on your 2016 tax return.

Important note: If you extend your 2016 return, you have until October 16, 2017, to set up the plan and make a deductible 2016 contribution.

Beware of Requirements to Cover Employees

Establishing a SEP is more complicated if your business has employees. Specifically, contributions may be required for any employee who:

  1. Is age 21 or older
  2. Has worked for your business during at least three of the past five years, and
  3. Receives at least $600 of compensation.

Your business can deduct any contributions made for employees. Because SEP contributions made for employees vest immediately, a covered employee can leave your company at any time without losing any of his or her SEP money. For this reason, SEPs generally aren’t preferred by businesses with more than a few trusted employees.

Need Help?

SEPs can be a smart way for many small businesses to save tax. You still have time to retroactively set up a SEP for the 2016 tax year and make a contribution that can be deducted on your 2016 return. If you have questions or want more information about SEPs and other small-business retirement plan options, contact your tax or financial advisor.

Feel free to contact us for more information,,, or

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Deduct all of the mileage you’re entitled to — but not more 03-09-2017

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

What are the deduction rates?

The rates vary depending on the purpose and the year:

Business: 54 cents (2016), 53.5 cents (2017)

Medical: 19 cents (2016), 17 cents (2017)

Moving: 19 cents (2016), 17 cents (2017)

Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.

What other limits apply?

The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.

For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)

And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.

Other considerations

There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later.

And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.  Feel free to contact us for more information,,, or

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Do you need to file a 2016 gift tax return by April 18? 02-15-2017

Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required

Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
  • To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
  • Of future interests — such as remainder interests in a trust — regardless of the amount, or
  • Of jointly held or community property.

When filing isn’t required

No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

Have questions about gift tax and the filing requirements? Contact us,,, or to learn more.

© 2017







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Small Business Tax Issues for 2017 02-09-2017

A new year is upon us and with it comes the time to get ready for tax filing. There have been several changes in tax laws that impact small businesses recently, and with a shift to a Republican-led government in all three branches, even more changes are possible in the coming years.

But before we get ahead of ourselves, the following are some key small business tax issues to be aware of before meeting with your CPA:

Deadline Changes
The most pressing thing for current small businesses are the various deadline changes for 2017 filing:

January 31

  • Businesses that paid someone who is not their employee, such as a freelancer, subcontractor, or attorney, $600 or more for their services will need to complete and file a Form 1099-MISC on or before January 31.
  • They will also need to provide that contractor with a copy on or before January 31. This is also the deadline for employer W-2 form filing.

March 15

  • Businesses who are filing as a Partnership (Form 1065) have had their deadline brought forward from April 15 to now a March 15 deadline.
  • Businesses filing as a C-Corporation have more leeway, as theirs is the only date given an increase in time to file, being pushed back from a March 15 deadline to April 15.

$2,500 De Minimis Safe Harbor Election
A very important and impactful small business tax change  this year is the increase of the de minimis safe harbor election from $500 per item to now $2,500 per item. Making the election enables business owners to expense instead of capitalize and depreciate assets that have either a useful life of less than a year or cost less than the given dollar amount.

For example, a medical office can purchase and immediately write new waiting room furniture that costs less than $2,500. It’s important to note that this is a limit on a per item basis. That means if the business purchases twenty chairs at $300 each, they can expense all of them this tax year and write off the entire $6,000 cost.

Retirement Savings
It is never too early to talk about retirement savings with your CPA. For small business owners who are comfortable with their profitability, now is also the time to consider the tax advantages of different retirement savings vehicles. While the amount will depend on current earnings, owners can potentially contribute as much as $53,000, or  $59,000 for those over the age of 50, into tax-advantaged accounts.

The Solo 401K plan, for example, is one of the most underutilized retirement vehicles and is ideal for sole proprietors without employees. It allows sizeable tax-free contributions, which can be a tremendous boost to your retirement planning.

While these three issues — deadline changes, increased de minimis safe harbor election, and retirement savings — should be a top tax priority for small business owners this year, they are not the only aspects requiring attention. Frequent problems we see with small businesses, particularly new businesses, include incorrectly-filed payroll taxes and miscalculated deductions — both of which attract the IRS’ unwanted attention.

For these reasons and more, it is vital for small business owners to schedule an appointment with an experienced CPA before filing taxes. Even if you have a reliable bookkeeper on staff, many recent changes in tax laws can go by unnoticed. Even a simple oversight frequently results in either lost savings or notices from the IRS.

Contact us today to schedule an appointment to learn more:,,, or!

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The Investment Interest Expense Deduction: Less Beneficial Than You Might Think 01-30-2017

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make this itemized deduction less beneficial than you might think.

Limits on the deduction

First, you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.

Second, and perhaps more significant, your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included.

However, any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.

Changing the tax treatment

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2016 return, please contact us –,,, or . We can run the numbers to calculate your potential deduction or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.

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Deduction for state and local sales tax benefits some, but not all, taxpayers 01-19-2017

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond

If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us –,,, or — we can help you maximize your 2016 savings and effectively plan for 2017.

© 2017

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Help prevent tax identity theft by filing early 01-19-2017

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why early filing helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

Another important date

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2016 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2016 interest, dividend or reportable miscellaneous income payments.

Delays for some refunds

The IRS reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for their refunds. A law passed in 2015 requires the IRS to hold refunds on tax returns claiming these credits until at least February 15.

An additional benefit

Let us know if you have questions about tax identity theft or would like help filing your 2016 return early. If you’ll be getting a refund, an added bonus of filing early is that you’ll be able to enjoy your refund sooner.  Contact us for additional information:,,, or

© 2017

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2017 Q1 tax calendar: Key deadlines for businesses and other employers 01-19-2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28

File 2016 Forms 1099-MISC with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting nonemployee compensation in Box 7 must be filed by January 31, beginning with 2016 forms filed in 2017.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2016 tax return. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.

© 2016

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Travel Expense Deductions – Business or Pleasure? 01-17-2017

Many business owners combine travel for work with some vacation days. There is absolutely nothing wrong with that, but to be sure you are accounting for it correctly on your tax return, here are some tips:

Business or Pleasure?
Before determining what you can deduct, you need to determine whether the trip is classified as business or pleasure. You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days. So what days count as business days?

  • Travel days, as well as weekends and holidays if they fall between days devoted to business, and it would be impractical to return home.
  • Standby days (days when your physical presence is required), even if you aren’t called upon to work those days.
  • Any other day principally devoted to business activities during normal business hours.
  • Days when you intended to work but couldn’t due to reasons beyond your control (such as local transportation difficulties).

What Can You Deduct?
If you determine that the purpose of your trip was primarily business, you can deduct:

  • Transportation costs to and from the location of your business activity
  • Travel to and from your departure airport, airfare, baggage fees, tips, cabs, etc.
  • Costs for rail travel or driving your personal car.
  • Out-of-pocket expenses for business days once at the destination
  • Lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare.

It isn’t enough to get yourself comfortable that your trip was primarily for business. You must be able to prove it to the IRS. If your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take notes to show you attended the sessions.

Here are two recent U.S. Tax Court cases that help illustrate the rules for documenting deductions, and the consequences for failing to do so:

Case 1: Insufficient records
In the first case, the court found that a taxpayer with a consulting business provided no proof to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question.

The business owner said the travel expenses were incurred ”caring for his business.“ That isn’t enough. ”The taxpayer bears the burden of proving that claimed business expenses were actually incurred and were ordinary and necessary,“ the court stated. In addition, businesses must keep and produce ”records sufficient to enable the IRS to determine the correct tax liability.“ (TC Memo 2016-158)

Case 2: Documents destroyed
In another case, a taxpayer was denied many of the deductions claimed for his company. He traveled frequently for the business, which developed machine parts. In addition to travel, meals, and entertainment, he also claimed printing and consulting deductions.

The taxpayer recorded expenses in a spiral notebook and day planner and kept his records in a leased storage unit. While on a business trip to China, his documents were destroyed after the city where the storage unit was located acquired it by eminent domain.

There’s a way for taxpayers to claim expenses if substantiating documents are lost through circumstances beyond their control (for example, in a fire or flood). However, the court noted that a taxpayer still has to ”undertake a ‘reasonable reconstruction,’ which includes substantiation through secondary evidence.“

The court allowed 40% of the taxpayer’s travel, meals and entertainment expenses, but denied the remainder as well as the consulting and printing expenses. The reason? The taxpayer didn’t reconstruct those expenses through third-party sources or testimony from individuals whom he’d paid. (TC Memo 2016-135)

The Moral? Be Prepared
Keep detailed, accurate records to protect your business deductions, whether for travel or anything else. Record details about expenses as soon as possible after they’re incurred (for example, the date, place, business purpose, etc.). Keep more than just proof of payment. Also keep other documents, such as receipts, credit card slips, and invoices.

If you’re unsure of what you need, check with a CPA.  Contact us,,, or!

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Few changes to retirement plan contribution limits for 2017 12-28-2016

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2017. The only limit that has increased from the 2016 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of limit 2017 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans $18,000
Contributions to defined contribution plans $54,000
Contributions to SIMPLEs $12,500
Contributions to IRAs $5,500
Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans $6,000
Catch-up contributions to SIMPLEs $3,000
Catch-up contributions to IRAs $1,000

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2017. And if you turn age 50 in 2017, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2017, check with us,,, or

© 2016
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