Are Your Prepared for These Year End Income Tax Issues? – Business and Finance tips and Advice

Are Your Prepared for These Year End Income Tax Issues?

Over the course of the yr, I am positive you’ve got observed the ridiculous approach our Congress has acted to replace our tax legal guidelines. By together with tax code provisions in a freeway invoice, a mass transit invoice, and a commerce package deal bill- plus inside the Bipartisan Finances Act and the PATH (Defending People from Tax Hikes) Acts. (These final two had been, certainly, logical locations to control taxes.)

There’s a likelihood that the lame duck Congressional session might act on some tax laws, however provided that these of us work about 1 day a week- after which complain what number of lazy of us are out throughout the US not coming into the workforce (that’s the pot calling the kettle black)- I’m not sanguine they may. So, except they do- this would be the final yr that mortgage insurance coverage will likely be deductible and foreclosed house debt is not going to be a taxable state of affairs, amongst a number of different objects that expire this calendar yr.

However, I figured it could be useful if I mixed all these modifications right into a coherent mass (which our legislators clearly haven’t), so that you may be ready for the 2016 tax season. (Keep in mind, you file your taxes for 2016 by April 2017. Oh- and in case you are a enterprise, the percentages are the date your taxes are due, additionally modified. Extra on that beneath.)

College students and Lecturers (PATH Act provisions)

College students acquired a everlasting change for deductibility of tuition by way of the American Alternative Tax Credit score. This offers as much as $ 2500 of tax credit score for lower-income filers for the primary 4 years of upper training (with a chance of 40% of the unused credit score being obtained as a refund- if no different taxes are owed). So long as the scholars are enrolled at the very least half time for one time period of the yr and never convicted of drug violations. The true change is that filers should embrace the EIN of the school or college involved- and display that they paid the tutoring and costs they claim- not what the establishments might record on the 1098-T type.

However, the tutoring deduction for different college students will expire on the finish of this yr. Oh, and that beneficiant (sic) deduction lecturers get for getting provides for his or her college students that colleges do not provide is now permanent- all $ 250 of it. (Most lecturers spend at the very least twice that!)

Pensions and IRA

People older than 70.5 years of age not must rush to switch their IRA (or parts thereof) to charity, as a result of that provision is everlasting. (PATH) Please observe that the IRS calls for that these transfers not be rollovers. One should make use of a trustee to switch the funds; and that trustee can not hand you the funds to ship to the charity. In the event that they do, you lose the exemption. No surprises I’m positive once I remind you that there should be a contemporaneous acknowledgement (meaning a well timed receipt) from the charity for that deductible donation or switch.

Heirs and Estates

Whereas nonetheless within the unsuitable venue, the Freeway Invoice did repair an enormous drawback. People (or entities) that inherit belongings from an property are actually required to make use of the premise filed within the 706 type for their very own calculations. (Simply so you already know, the foundations stipulate that estates can worth objects as per the date of demise, or by alternate alternative 9 months after that date. Too many “cheaters” would use a distinct foundation for the property they inherited, thereby dishonest the tax authorities with various valuations.)

To maintain this rule in place, executors are actually required to stipulate (i.e., file for 8971 and Schedule A of the 706) stated worth to all heirs and to the IRS. Which suggests anybody who inherits property- and thought they did not have to file Type 706 as a result of the worth of the property was beneath the edge for Property Tax higher rethink. In any other case, the heirs could also be hit with a penalty for utilizing the unsuitable foundation for that inherited asset once they eliminate similar.

Why? As a result of if a 706 type is rarely filed, the premise of all belongings inherited is now outlined as ZERO!!!!! It will get worse. As a result of if an asset had been omitted from Type 706, the premise of that property is now decided to even be ZERO. (Until the statute of limitations remains to be opened, when an Amended 706 may be filed to appropriate this omission.)

One other kicker. If the 706 type is filed LATE, the premise of all belongings that ought to have been included are additionally set at ZERO. Some tax advisors really feel this one little provision may very well be challenged in court docket. However, let’s simply be prudent and file all these 706 Property Tax returns in a well timed vogue. (Submitting a 706 when the property worth is beneath the submitting threshold known as a Protecting 706 Submitting; we have been doing these for years. And, we strenuously study the belongings typically to the consternation of the heirs- to make sure that all of the non-worthless belongings are included. , that 36 diamond tennis bracelet your grandma promised you’d inherit if you turned 16.)

Oh, yeah. One other actually huge kicker for this little merchandise. Beneath IRC 6501, the IRS has three years to catch cheaters who misstate sure objects (like revenue taxes [except for continuing fraud], employment taxes, excise taxes, and for this provision- property taxes and the outcomes therefrom). No extra. If an asset from an property is misstated in order that it may possibly have an effect on greater than 25% of the gross revenue on a tax return will now have a SIX yr statute of limitation.

Mileage Charges

Not surprisingly, the mileage charges for 2016 are decrease than they had been final yr. Enterprise mileage is now deducted as 54 cents a mile; driving for causes which might be medical or transferring are solely price 19 cents every. After we drive to assist a charity, we solely get 14 cents a mile.

As is often true, now we have no clue what these charges will likely be for 2017. The IRS usually prepares these nicely into the calendar yr.

Actual Property

The PATH ACT made everlasting the power of taxpayers to contribute actual property to certified conservation charities.

Well being and Well being Insurance coverage

The Freeway Invoice (yup) got here up with a bouquet of flowers for our veterans and people at present serving within the navy. Not will they be unable to contribute or use HSA (Well being Financial savings Accounts) ought to they obtain VA or armed service advantages.

Alongside that very same vein, the Freeway Invoice enabled all those that purchase- or are supplied by their employers- excessive deductible insurances (about $ 1500 for a single particular person) to make use of HSAs, too.

Oh, and assuming Obamacare isn’t overturned, there’s a everlasting exemption from penalties for these receiving VA or TriCare Well being Advantages. (For employers, the Freeway Invoice additionally exempts all such workers from being included in figuring out the 50 worker (full-time or equal) threshold provisions.)


There have been quite a lot of modifications for employers. Greater than the exemption for the VA and armed service personnel from inclusion in Obamacare provisions talked about above.

Like ALL 1099s and W-2 are actually due by 31 January. That is an enormous change for a lot of of us who barely get their stuff collectively to file 1099’s. It signifies that corporations have to contact their tax professionals actually early- to allow them to confirm that each one related contractors and consultants obtain these 1099s on time. As a result of the penalties have additionally elevated.

The Work Alternative Credit score has been prolonged by 2019. This is applicable to Veterans (which is why you retain listening to Comcast promoting its dedication to rent some 10,000 veterans over the following few years- they’re no dummies). Different focused teams embrace what are termed these receiving Short-term Help for Needy Households (TANF), SNAP (what was termed Meals Stamp) recipients, ex-felons, and a few of these dwelling in “empowerment zones”.

Households and People

The PATH ACt made the improved baby tax credit score (as much as $ 1000, revenue dependent) a everlasting provision of the code. In addition to the Earned Revenue Tax Credit score provisions that had been to run out.

Social Safety taxes will not be going up per se- however the revenue foundation upon which one pays them is. For the final two years, there was a tax vacation for all wage revenue (or self-employed revenue) that exceeded $ 118,500. Subsequent yr (2017), the taxes will likely be collected for totals of as much as $ 127,200.

If an worker is working abroad and has revenue and/or a housing allowance, the exclusion provisions have additionally modified. For 2016, overseas revenue of $ 101,300 may very well be excluded from taxation, as might housing advantages that had been $ 16,208 or much less. Beginning 2017, these exclusions grow to be $ 102,100 and $ 16,336, respectively.

There is also additional clarification of those overseas exclusions. Specifically, these will have an effect on these within the service provider marine or working aboard cruise traces. As a result of the IRS now holds that when one is in a overseas port, then one is ready to declare overseas revenue. However… when somebody operates in worldwide waters, that’s NOT a overseas nation. That revenue should be computed (by the variety of days one is on stated waters) and isn’t excludable!

People, Companies, Trusts, Non-Income which have Overseas Accounts

Some huge modifications have an effect on those that should file these FBARs (Overseas Financial institution and Monetary Accounts). It was you needed to report any holdings in a financial institution, inventory account, commodities or future accounts, mutual funds, or [pay attention to this one] poker, playing or gaming website account that was not a US domicile by 30 June. (This additionally means a overseas insurance coverage coverage that has a money worth or overseas retirement accounts [including inheritances] is a overseas account.) It additionally covers latest immigrants to the US! These filings are due similtaneously your revenue tax return. However, whereas there by no means was an extension doable for these kinds, now there’s – for a similar six months that obtains on your private tax filings.

A overseas account doesn’t imply that utilizing the Royal Financial institution of Scotland to deal with funds in New York Metropolis; however having a Citicorp account that’s based mostly in Jerusalem or London does. The important consideration is the place the native department is located, the place the account was opened. By the best way, accessing overseas funds by way of PayPal means you have got a overseas account.

The FBAR submitting makes use of Type 114 and should be now filed electronically. The requirement to file applies to all taxable entities (people and companies) which have $ 10,000 or extra of worth on any given day in the course of the tax yr. And, the conversion charge for stated worth is not allowed to be daily- however decided by the worth on the final day of the tax yr.

There’s a new interpretation, too. The requirement to file applies not simply to the account proprietor(s), however to anybody with signature authority. So, meaning folks like me that preserve consumer accounts abroad will now must file these kinds, as a result of I can situation checks on these accounts. (I’m not chargeable for about 100 of them the place I write the checks for the clients- however don’t have any signature authority.) It additionally means workers of companies or companies or estates which have overseas funds and have signature authority should additionally file Type 114.

All enterprise entities (and trusts and non-profits) ought to acknowledge that each one entities – and people who work for or at these entities- which have signature authority for a overseas checking account, inventory account, gaming or playing account are topic to those provisions. In different phrases, all overseas cash holdings might topic workers, not simply officers of the establishments, to those provisions.

Oh. The IRS additionally requires these overseas entities the place you could or might not have cash to file Type 8938, a FATCA (Overseas Account Tax Compliance Act) submitting. This covers these monetary accounts, shares, securities, contracts, interests- something that exceeds the submitting threshold. These guidelines additionally apply to American entities (people, companies, trusts, and so forth. which have such pursuits in extra of the submitting threshold! (If one resides within the US, these thresholds are $ 50Okay for people, $ 75$ for married of us on the final day of the year- or $ 100Okay and $ 150Okay at any time in the course of the tax yr. These numbers improve by an element of four if one does not reside within the US; the thresholds are $ 200Okay, $ 300Okay, $ 400Okay, and $ 600Okay, respectively.)


The PATH Act modified the 179 (the capital purchases write-off provisions) Election. For good. The utmost Part 179 write-off is now everlasting. (It had been prolonged for a yr or two every time Congress had made a change for some time.) That most can also be to be adjusted for inflation beginning this yr, which is why it’s now $ 510,000. Furthermore, there’s a phaseout when the quantity of latest capitalized property exceeds $ 2.03 million, however to not zero.

Actual Property

For actual property purchases, the utmost Part 179 exclusion is now additionally $ 500Okay. (Final yr, it was capped at $ 250Okay.) This contains HVAC (heating, air flow, and air con), which is a brand new change. Any recapture of this credit score (resulting from an early sale) is now thought of topic to odd revenue taxes.

The time to depreciate actual property is now 15 years for certified leasehold enhancements, eating places, and retail enhancements. Bonus depreciation can also be allowed for the primary half of stated enchancment worth (by 2017), lowering in 2018 to solely 40%, 30% in 2019 and eliminated fully by 2020. The PATH Act additionally let bonus depreciation apply to 39 yr property (for enhancements that had been already in service by the entity).

Cars (Luxurious)

The depreciation limits for autos is proscribed to $ 3160 or 20% of the premise in 2016. Nevertheless, this yr one can write off as much as $ 8000 in bonus deprecation (which is lowered to $ 6400 in 2018, $ 4800 in 2019 after which eliminated perpetually by 2020) for brand new (not used) cars. After all, these numbers apply solely to autos which might be used fully for enterprise. There’s a discount for automobile use that’s not absolutely attributed to enterprise utilization.


The Bipartisan Finances Act (the one which taxes would usually be addressed) has introduced a sea change to the best way partnerships will likely be handled, ought to the IRS discover issues with their tax submissions. The modifications don’t take impact for a number of years- however the time to deal with the modifications is actually now.

Mainly, the Act stipulates that any change that comes about by an audit are to be collected straight from the partnership- except the partnership elects out of TEFRA (Tax Fairness and Fiscal Accountability Act of 1982). So, it signifies that partnership formation, operations, new associate admissions, and so forth. will all must be reconsidered.

What modified is this- the partnership can resolve to simply accept an IRS resolution that the underpayment is due from the partnership itself or it may possibly elect to have that call divided up among the many companions, in keeping with their proportion possession or legal responsibility proportion. Most advisors are telling partnerships to elect the latter course of. If the partnership doesn’t so select, then the IRS will assess the partnership on the highest tax charge allowed- 39.6%. After all, if the partnership can show (to the satisfaction of the IRS) decrease charge is acceptable, based mostly upon the person tax charges of the companions, then a decrease charge could also be allowed. (Do not financial institution on the IRS doing so.) Nevertheless, this underpayment is not going to be allowed to vary the premise of every of the associate’s pursuits, if the partnership is taxes for the legal responsibility.

If the partnership pushes the problems right down to the associate degree, then every associate is assessed for the tax at its personal charge. And, the partnership can situation an adjusted (amended) Okay-1 for the IRS revisions that may change the premise and keep away from the double taxation chance. The partnership has 45 days from the date of the IRS discover of change to make this election.

There’s one other change that impacts partnerships- the PAL (passive energetic loss) situation. Why? As a result of most companions and partnerships don’t preserve pristine time data. (This additionally impacts actual property leases which might be reported on Schedule E, web page 1.) There are numerous definitions that set the PAL issues- for actual property professionals it’s a minimal of 750 hours of labor a yr. The IRS has allowed different partnerships to make use of totally different designations, resembling 500 hours, or the truth that a specific associate does all of the work (even when lower than 500 hours), and even when a associate spends 100 hours or extra on the partnership and nobody else does extra.

However, the foundations to show how a lot participation are gelling. One can use a file of cellular phone name data, eMails, or bank card costs. Journey itineraries and receipts can show how a lot participation was concerned. Even affidavits from clients and shoppers can be utilized to show the time one participated within the enterprise.

Funds Due

The IRS has been starved to demise for years by Congress. Partly as a result of one get together was offended that the IRS was not mechanically granting these “social welfare” organizations (learn as political collections and donation farms) tax exemptions with out scrutiny. Partly as a result of the IRS is chargeable for accumulating the penalties for individuals who do not adjust to Obamacare. (Hoping that this lack of funds would make it tougher for them to take action.)

However, in my humble opinion, the answer Congress got here up with sucks. The IRS has now been approved to rent these backside feeders- the surface assortment brokers, that harass and topic of us to all kinds of intimidation. The logic behind this alternative? In any case, of us who owe the IRS should be the scum of the earth. (After all, nobody ever considers the truth that the IRS makes errors, chooses random numbers to evaluate non-filing taxpayers who may very well owe nothing, and so forth.)

Many purchasers fall wanting having enough funds to pay their taxes when due. This entails the taxpayer submitting a type 9465 (Installment Settlement Request). These should be mechanically authorized if the taxpayer [individual] owes (or will owe) the IRS $ 50,000 or much less, with the addition of this request- and all tax kinds have been well timed submitted. (Companies are restricted to a $ 25,000 most, with the identical provisos.) Nevertheless, the charges concerned to have the IRS course of the request have been elevated to $ 120, except the taxpayer agrees to have the IRS zap their checking account mechanically every month. Then, the charges are lowered to $ 52. (The IRS has approach too many taxpayers “forgetting” to make well timed funds. This can be a solution to incur fewer manpower points for the service.) Nevertheless, irrespective of how the cost is to be processed by the IRS, all low-income taxpayers (a household of four, with $60Okay or much less in revenue) will not must pay greater than $ 43 to institute a cost plan.

The largest situation? Any taxpayer who isn’t in compliance with IRS code, who has no installment settlement in place, and owes $ 50,000 in taxes, penalties, and curiosity can discover his passport revoked IMMEDIATELY. (If one isn’t but issued, do not anticipate the Division of State to situation one, both.)

Submitting Dates


There was no change within the due date for 1040 submitting, in that it’s nonetheless due on 15 April (or the following enterprise day, ought to the 15th fall on a weekend or authorized vacation). Until you possibly can show you had been in a foreign country on 15 April- then you have got the appropriate to increase the submitting date to 15 June. Or, you filed an extension request- that provides you till 15 October (with the identical proviso for when it falls on a weekend or authorized vacation).


Here is the place the massive modifications arrive. And, it’s about time. As a result of too many pass-through entities have been screwing over their companions, their stockholders by delaying their submitting. Oh, positive, they might pay a penalty, however that does not assist the multitudes who cannot file their taxes in a well timed vogue because of the lassitude of those entities.

So, any further, all cross by entities- these are partnerships, LLCs, and S entities should no file their tax returns by the 15th day of the third month after the tip of their tax yr. Acknowledge that the IRS permits corporations which have “good” causes to not use a pure yr (i.e., 1 January to 31 December) to selected one other month to finish their tax yr. However, for many entities, the due date will now be 15 March. Which provides the companions or the stockholders a month to complete their very own tax returns. (Corporations that function on the US Authorities yr, which ends 30 September, for instance, should file their taxes by 15 November.)

Common Companies (C entities) not must file by the 15th day of the third month, however now have till the 4th month. So, for these corporations working on a pure yr foundation, the due date has been prolonged (completely) from 15 March to 15 April. (An analogous 15th day of the 4th month after year-end applies for these not working on a pure yr foundation.)

Enterprise, Trusts, Non-Income, and Pension Plan Extensions

There’s yet another change for C companies. Their extension is not 6 months long- however 5 months. In different phrases, earlier than once they needed to file by 15 March, however might prolong the due date till 15 September… nonetheless have that very same ultimate prolonged due date, regardless that the unique submitting date is now 15 April.

Partnerships and S entities nonetheless have a 6 month extension- which additionally falls (for individuals who use a pure yr) on 15 September.

Trusts and Estates of the Deceased file type 1041. The one extension request supplied 5 months past the due date. Now, the due date is 5.5 months. Meaning the due date for submitting is 15 April, however an extension means the due date may be 30 September.

Non-Revenue entities file type 990 on 15 Could- or the 15th day of the fifth month after the tip of their fiscal yr. Extensions was supplied for three months; they now have extra time- six month extensions are the brand new guidelines.

Worker Profit Plans (Pension Plans, 401(ok), welfare plans) should file their tax returns with the IRS by the final day of the seventh month after their yr finish. (For pure yr plans, meaning 31 July). Earlier than the plans might prolong that deadline by 2.5 months; now the rule offers for a further month to three.5 months.

Late Submitting Penalties

The minimal penalty for submitting late (greater than 60 days) has been elevated from $ 135 to $ 205. Besides in sure circumstances, that penalty may be lowered to the quantity of tax owed, which ever is smaller. (By 2017, the penalty will go as much as $ 210.)

Which entities are affected by this modification? People (all kinds 1040, together with non-citizens). Estates and Trusts (Type 1041). Company Information (all types of the 1120 submitting). And, Non-Revenue entities that may file a 990-T (they’ve unrelated enterprise revenue of $ 1000 or extra.)

There are extra penalties, too. These had been included within the Commerce Bundle Laws. The act included late submitting of 1099 kinds, W-2s, and 1095 (Well being Care Reporting). You’ll observe that the deadlines for a few of these kinds have been moved up- so listen and file them on time. As a result of the penalties may be $ 1060 for every delinquent 1099 form- as a result of you have got deliberately filed late to the federal government AND to the payee!

After all, in case you file the 1099 solely 30 days late, the penalty is $ 50 (again- for every – the payee and the federal government). When you get your act collectively by 1 August, the penalty is $ 100 (once more, for every). And, in case you miss that date, the penalty is $ 250 each- except the IRS feels it was intentional (and you already know that quantity is $ 530).

There you have got the massive modifications for the yr. Now, you need to be able to file your taxes comes the 1rst of the yr. However, do not anticipate actually quick refunds (as one would have anticipated earlier than). As a result of the IRS goes to be checking to verify the taxpayer is legit- they do not need all these id theft and tax fraud conditions to acquire.

Tax Info:

You might also like More from author