With the April 17 individual income tax filing deadline behind you (or with your 2017 tax return on the back burner if you filed for an extension), you may be hoping to not think about taxes for the next several months. But for maximum tax savings, now is the time to start tax planning for 2018. It’s especially critical to get an early start this year because the Tax Cuts and Jobs Act (TCJA) has substantially changed the tax environment.

Many variables

A tremendous number of variables affect your overall tax liability for the year. Looking at these variables early in the year can give you more opportunities to reduce your 2018 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

Repairs to tangible property, such as buildings, machinery, equipment or vehicles, can provide businesses a valuable current tax deduction — as long as the so-called repairs weren’t actually “improvements.” The costs of incidental repairs and maintenance can be immediately expensed and deducted on the current year’s income tax return. But costs incurred to improve tangible property must be depreciated over a period of years.

So the size of your 2017 deduction depends on whether the expense was a repair or an improvement.

Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) may be just what you need, and now may be a great time to establish one. A SEP has high contribution limits and is simple to set up. Best of all, there’s still time to establish a SEP for 2017 and make contributions to it that you can deduct on your 2017 income tax return.

Although the drop of the corporate tax rate from a top rate of 35% to a flat rate of 21% may be one of the most talked about provisions of the Tax Cuts and Jobs Act (TCJA), C corporations aren’t the only type of entity significantly benefiting from the new law. Owners of noncorporate “pass-through” entities may see some major — albeit temporary — relief in the form of a new deduction for a portion of qualified business income (QBI).

A 20% deduction

For tax years beginning after December 31, 2017, and before January 1, 2026, the new deduction is available to individuals, estates and trusts that own interests in pass-through business entities. Such entities include sole proprietorships, partnerships, S corporations and, typically, limited liability companies (LLCs). The deduction generally equals 20% of QBI, subject to restrictions that can apply if taxable income exceeds the applicable threshold — $157,500 or, if married filing jointly, $315,000.

The child tax credit increases under the Tax Cuts and Jobs Act. Currently, a taxpayer can claim a child tax credit of up to $1,000 per qualifying child under age 17. For tax years after Dec. 31, 2017, and before Jan. 1, 2026, the credit is raised to $2,000.

The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers). The refundable amount of the credit is increased to $1,400 per qualifying child. A $500 nonrefundable credit is also provided for certain nonchild dependents.

On December 20, Congress completed passage of the largest federal tax reform law in more than 30 years. Commonly called the “Tax Cuts and Jobs Act” (TCJA), the new law means substantial changes for individual taxpayers.

The following is a brief overview of some of the most significant provisions. Except where noted, these changes are effective for tax years beginning after December 31, 2017, and before January 1, 2026.

• Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
• Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately)
• Elimination of personal exemptions
• Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
• Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018, and permanent
• Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
• New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers)
• Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
• Elimination of the deduction for interest on home equity debt
• Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters)
• Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
• Elimination of the AGI-based reduction of certain itemized deductions
• Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
• Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year — permanent
• AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers
• Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing)

Be aware that additional rules and limits apply. Also, there are many more changes in the TCJA that will impact individuals. If you have questions or would like to discuss how you might be affected, please contact us.

The recently passed tax reform bill, commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), is the most expansive federal tax legislation since 1986. It includes a multitude of provisions that will have a major impact on businesses.

Here’s a look at some of the most significant changes. They generally apply to tax years beginning after December 31, 2017, except where noted.

• Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
• Repeal of the 20% corporate alternative minimum tax (AMT)
• New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
• Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
• Other enhancements to depreciation-related deductions
• New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
• New limits on net operating loss (NOL) deductions
• Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
• New rule limiting like-kind exchanges to real property that is not held primarily for sale
• New tax credit for employer-paid family and medical leave — through 2019
• New limitations on excessive employee compensation
• New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Keep in mind that additional rules and limits apply to what we’ve covered here, and there are other TCJA provisions that may affect your business. Contact us for more details and to discuss what your business needs to do in light of these changes.

Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date

To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. 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 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
• Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
• File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
• File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. 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 12 to file the return.
• File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. 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 12 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 945, “Annual Return of Withheld Federal Income Tax,” for 2017 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 12 to file the return.

February 28

• File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

• If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.

A federal district court will allow several highly-paid commissioned sales representatives to pursue a claim for overtime pay. Under 29 CFR 541.601 of the Fair Labor Standards Act, a highly-compensated employee is deemed exempt from overtime if:

1. The employee earns annual compensation of $100,000 or more, which includes at least $455 per week paid on a salary basis.
2. The employee's primary duty includes performing office or nonmanual work.
3. The employee regularly performs at least one of the duties of an exempt executive, administrative, or professional employee.

29 CFR 541.605 allows the exemption to apply to administrative and professional employees paid on a fee basis, rather than on a salary basis. All of the sales representatives made commissions over $100,000, one earning over $650,000, for the years at issue. However, the court ruled that commissions do not qualify either as "salary basis," defined as a predetermined amount, nor as "fee basis," because the regulations require the fee to be received regardless of results. Nor did the employees perform an exempt duty. Pierce v. Wyndham Vacation Resorts , Docket No. 3:13-CV-641-CCS (DC TN).

Many investors, especially more risk-averse ones, hold much of their portfolios in “income investments” — those that pay interest or dividends, with less emphasis on growth in value. But all income investments aren’t alike when it comes to taxes. So it’s important to be aware of the different tax treatments when managing your income investments.

Varying tax treatment

The tax treatment of investment income varies partly based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at your favorable long-term capital gains tax rate (currently 0%, 15% or 20%, depending on your tax bracket) rather than at your ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay dividends might be more attractive tax-wise than interest-paying income investments, such as CDs and bonds.

Business owners may not be able to set aside as much as they’d like in tax-advantaged retirement plans. Typically, they’re older and more highly compensated than their employees, but restrictions on contributions to 401(k) and profit-sharing plans can hamper retirement-planning efforts. One solution may be a cash balance plan.

Defined benefit plan with a twist

The two most popular qualified retirement plans — 401(k) and profit-sharing plans — are defined contribution plans. These plans specify the amount that goes into an employee’s retirement account today, typically a percentage of compensation or a specific dollar amount.

In contrast, a cash balance plan is a defined benefit plan, which specifies the amount a participant will receive in retirement. But unlike traditional defined benefit plans, such as pensions, cash balance plans express those benefits in the form of a 401(k)-style account balance, rather than a formula tied to years of service and salary history.

The plan allocates annual “pay credits” and “interest credits” to hypothetical employee accounts. This allows participants to earn benefits more uniformly over their careers, and provides a clearer picture of benefits than a traditional pension plan.

If you own a profitable, unincorporated business with your spouse, you probably find the high self-employment (SE) tax bills burdensome. An unincorporated business in which both spouses are active is typically treated by the IRS as a partnership owned 50/50 by the spouses. (For simplicity, when we refer to “partnerships,” we’ll include in our definition limited liability companies that are treated as partnerships for federal tax purposes.)

For 2017, that means you’ll each pay the maximum 15.3% SE tax rate on the first $127,200 of your respective shares of net SE income from the business. Those bills can mount up if your business is profitable. To illustrate: Suppose your business generates $250,000 of net SE income in 2017. Each of you will owe $19,125 ($125,000 × 15.3%), for a combined total of $38,250.

With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until they’ll be starting their higher education, is a Section 529 plan.

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So these plans can be particularly powerful if contributions begin when the child is quite young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer tax incentives for contributing.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

If you acquire a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, if you neglect tax issues during the negotiation process, the negative consequences can be serious. To improve the odds of a successful acquisition, it’s important to devote resources to tax planning before your deal closes.

Complacency can be costly

During deal negotiations, you and the seller should discuss such issues as whether and how much each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa. So it’s common for the parties to wrangle over taxes at this stage.

Charitable giving allows you to help an organization you care about and, in most cases, enjoy a valuable income tax deduction. If you’re considering a large gift, a noncash donation such as appreciated real estate can provide additional benefits. For example, if you’ve held the property for more than one year, you generally will be able to deduct its full fair market value and avoid any capital gains tax you’d owe if you sold the property. There are, however, potential tax pitfalls you must watch out for:

Donation to a private foundation. While real estate donations to a public charity generally can be deducted at the property’s fair market value, your deduction for such a donation to a private foundation is limited to the lower of fair market value or your cost basis in the property.

On Aug. 29, 2017, the IRS warned taxpayers about “possible fake charity scams emerging due to Hurricane Harvey.” Taxpayers should select recognized charitable groups as the recipients of their donations, the agency said. “People should be aware of criminals who look to take advantage of [the generosity that has been forthcoming] by impersonating charities to get money or private information from well-meaning taxpayers,” IRS said. Scammers may contact potential donors by telephone, social media, email or in-person solicitations, it added.

The agency recommended that people utilize a search feature on the IRS website, Exempt Organizations Select Check, which can be found at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. IRS also recommended that taxpayers consult Publication 526, Charitable Contributions, which is located at https://www.irs.gov/publications/p526/index.html.

Most of the talk about possible tax legislation this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act. But there are a few other potential tax developments for individuals to keep an eye on.

Back in December of 2015, Congress passed the PATH Act, which made a multitude of tax breaks permanent. However, there were a few valuable breaks for individuals that it extended only through 2016. The question now is whether Congress will extend them for 2017.

In the quest to reduce your tax bill, year end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here are three strategies that can be more effective if you begin executing them midyear:

1. Consider your bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

Your compensation may take several forms, including salary, fringe benefits and bonuses. If you work for a corporation, you might also receive stock-based compensation, such as stock options. These come in two varieties: nonqualified (NQSOs) and incentive (ISOs). With both NQSOs and ISOs, if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for.

The tax consequences of these types of compensation can be complex. So smart tax planning is critical. Let’s take a closer look at the tax treatment of NQSOs, and how it differs from that of the perhaps better known ISOs.

It’s common for a business to own not only typical business assets, such as equipment, inventory and furnishings, but also the building where the business operates — and possibly other real estate as well. There can, however, be negative consequences when a business’s real estate is included in its general corporate assets. By holding real estate in a separate entity, owners can save tax and enjoy other benefits, too.

Capturing tax savings

Many businesses operate as C corporations so they can buy and hold real estate just as they do equipment, inventory and other assets. The expenses of owning the property are treated as ordinary expenses on the company’s income statement. However, if the real estate is sold, any profit is subject to double taxation: first at the corporate level and then at the owner’s individual level when a distribution is made. As a result, putting real estate in a C corporation can be a costly mistake.

If your employees incur work-related travel expenses, you can better attract and retain the best talent by reimbursing these expenses. But to secure tax-advantaged treatment for your business and your employees, it’s critical to comply with IRS rules.

Reasons to reimburse

While unreimbursed work-related travel expenses generally are deductible on a taxpayer’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction, many employees won’t be able to benefit from the deduction. Why?

It’s likely that some of your employees don’t itemize. Even those who do may not have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income floor. And only expenses in excess of the floor can actually be deducted.

On the other hand, reimbursements can provide tax benefits to both your business and the employee. Your business can deduct the reimbursements (also subject to a 50% limit for meals and entertainment), and they’re excluded from the employee’s taxable income — provided that the expenses are legitimate business expenses and the reimbursements comply with IRS rules. Compliance can be accomplished by using either the per diem method or an accountable plan.

There have been a number of changes related to sales and use tax and what services are subject to sales and use tax in North Carolina. Sweeping changes took effect on March 1, 2016 that left many business owners perplexed regarding the complicated rules. The NC Legislature and the NC Department of Revenue recognized the inconsistencies related to retailers and contractors providing the same service, as well as, other flaws in the regulations and have worked to correct and clarify some of these issues. Effective January 1, 2017, significant changes come into effect again. Below are some of the major highlights. The definitions below for capital improvements and repairs and maintenance for NC sales tax purposes do not necessarily have the same meaning for IRS capitalization and depreciation purposes.

1. Repairs, maintenance and installation (“RMI”) services are subject to sales tax unless the service can be classified as real property construction or capital improvement. If so, the service is not subject to sales tax.
   

A federal judge has blocked the implementation of the new Department of Labor overtime rules with just over a week before it was scheduled to take place. This injunction means that the new rule will not go in effect on December 1 as previously planned.  Although it is uncertain at this time when and if these rules will go into place it is important as business owners and employees to be aware of the potential impact these new rules could have on you and your business.

New rules related to salaried employees, overtime pay, and comp time where scheduled to go into effect under the Fair Labor Standards Act (FLSA) on December 1, 2016. FLSA covers employers whose annual sales total $500,000 or more or employers who are engaged in interstate commerce. The new rules increase the minimum compensation level required for an employee to be exempt from overtime. These salary thresholds will be automatically updated every three years under the new regulations.  Further, the new regulations add requirements related to the percentage of a salaried employees’ pay and the related timing thereof that can be the result of commissions and nondiscretionary bonuses.

Ladoska Keeter is leading an effort to bring needed supplies to hurricane victims in Eastern North Carolina, especially in the Robeson County area which has been tremendously devastated. Ladoska will be loading her trailer and personally taking these supplies to the affected area. We are inviting, friends and clients to drop donations off at our office in the next week or so to support this effort.

Supplies Needed

Toiletries
Toothbrushes, toothpaste, dental floss, soap, shampoo, conditioner, lip balm, deodorant, razors, shave gel, hand sanitizer, feminine hygiene

Baby Items
Formula, diapers, wipes, jar food, snacks, pull ups

Food and Beverages
Non perishable food items such as canned goods, crackers, chips, soups, bottled water, drink mixes, condiments (mayo, ketchup, mustard, salt, and pepper)

Elder Care Needs
Adult diapers, denture adhesive, denture cleaner

Paper Products
Napkins, paper towels, toilet tissue, paper plates, plastic utensils

Linens
Bath towels, washcloths, blankets, sheets, pillows

Cleaning Products
Spray cleaners, powder cleaners, cleaning cloths, laundry detergent

Entertainment
Cards, board games, crosswords, dice

Miscellaneous
Batteries, school supplies, light bulbs

Keeping your finances in order isn’t always the easiest thing to do, even if you’re not a business owner. But when you tack on the extra responsibility that comes with accounting for the assets of your own company, the process of maintaining good standing finances gets a bit trickier.

Are you looking for ways to save on business taxes this year? Here are five ways to reduce business taxes in 2016.

1. Reimburse Eligible Expenses
Employees and business owners should make sure they are reimbursed for all out of pocket expenses prior to year-end. Reimbursement of expenses to an individual under an accountable plan results in a tax deduction for the business and the reimbursement is non-taxable to the employee. The most common types of reimbursements include mileage, cell phone, meals and entertainment and home office expenses. Under an accountable plan, the individual must have adequate documentation supporting the reimbursement, such as a mileage log or receipts. Any amounts reimbursed or paid under a non-accountable plan could be subject to income taxes on the individual’s tax return.     

Businesses and individuals with business type activities, such as certain rental activities, are required to issue 1099s to unincorporated vendors who provided services to them during the year.  If you paid another individual, a partnership or an LLC for providing services to your business, you are required to issue them a 1099 by January 31st of each year.  Copies of the 1099s and a transmittal are due to be mailed to the IRS by February 28th each year.  The most common types of 1099s issued are for cleaning services, repairs and maintenance, landscaping, contract labor, rent, interest and professional services provided by unincorporated entities (such as IT companies and accounting firms). 

2016 Tax Season Opens on January 19, 2016

The IRS recently announced that individual tax returns will be accepted starting on Tuesday, January 19, 2016.  They will begin processing paper tax returns at the same time.

“We look forward to opening the 2016 tax season on time,” IRS Commissioner John Koskinen said.  “Our employees have been working hard throughout this year to make this happen.  We also appreciate the help from the nation’s tax professionals and the software community, who are critical to helping taxpayers during the filing season” (IRS.gov).

In December 2015, Congress passed a law extending many provisions that had expired at the end of 2014.  Many of these provisions were made permanent, while others will require further Congressional action in the future.

Selected “Business” provisions made permanent are as follows: 

• Increased Section 179 deduction
• Research and Experimentation Credit
• 5 year waiting period for Built-In Gains Tax
• Qualified Small Business Stock 100% gain exclusion