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Tips

From time to time, I post general tax and planning tips that are not well known but may be helpful.  

Please consult your tax advisor (preferably me) before applying any of these tips to your specific situation.

Your health insurance provider needs your social security number, BUT NOT BY E-MAIL!
Posted Wednesday, December 09, 2015

Your health insurance company may request that you provide the Social Security Numbers (SSNs) for you, your spouse, and your children because the Affordable Care Act requires every provider of minimum essential coverage to report that coverage by filing an information return with the IRS. 

Your insurance company may mail you a letter that discusses these rules and requests SSNs for all family members covered under your policy. It should be a written request that is mailed to you through the U.S. Postal Service, not e-mailed to you.

 

An email request could be a phishing attempt by an identity thief who is aware of this requirement, so be cautious and take precautions to protect yourself. Don’t respond directly to the e-mail. Instead, call the insurance company at its main number (not any number contained in the email) or go directly to the insurance company’s website (not from the link or to an address contained in the email) to verify the request.

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Due-date changes for partnership and C corporation returns
Posted Thursday, October 01, 2015

On July 31, 2015, the President signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Highway Act) into law, providing a three-month extension of the general expenditure authority for the Highway Trust Fund (HTF). Part of the HTF extension was paid for by changes to tax compliance provisions, the most significant of which is a change to the longstanding due date for C corporation [Form 1120 (“U.S. Corporation Income Tax Return”)] and partnership [Form 1065 (“U.S. Return of Partnership Income”)] returns.
For tax years beginning after 2015, the Highway Act switches the Form 1120 and Form 1065 initial due dates. Thus, beginning with 2016 returns:

  • The Form 1065 due date will be accelerated by a month to two and a half months after the close of the partnership’s tax year (March 15 for calendar-year partnerships). A six-month extension (through September 15 for calendar-year partnerships) will also be allowed.
  • The Form 1120 due date will generally be deferred by a month to three and a half months after the close of the corporation’s tax year (April 15 for calendar-year corporations). However, under a special transition rule, for C corporations with fiscal years ending on June 30, the change won’t apply (it will continue to be September 15) until tax years beginning after 2025. An automatic six-month extension will generally be allowed. However, until 2026, an automatic five-month extension (to September 15) applies to calendar-year corporations and an automatic seven-month extension (to April 15) applies to June 30 fiscal year corporations.

Note that the filing deadline for S corporations has not changed. So, for years beginning after 2015, S corporations and partnerships will have the same March 15 filing deadlines. Also, for calendar-year entities, the revised deadlines will first apply to 2016 returns filed in 2017.

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Rhode Island Gave, and Rhode Island Hath Taken Away
Posted Wednesday, July 01, 2015

Rhode Island tax changes that take effect today, July 1, 2015: Give to some and take from others.

All sales of any type of heating fuel, electricity and gas are now exempt from Rhode Island’s 7% sales and use tax. Previously, only residential and manufacturing activities received exemptions.

Clearly, this is good for businesses, especially non-manufacturing businesses, reducing their energy costs by 6.5% (.07 tax rate /1.07 prior cost).

Offsetting this benefit for businesses is the new 8% tax on most vacation rentals and 13% tax on short term room rentals. The lie told by government officials is that out of state vacationers will pay this with little effect on Rhode Island residents.

The reality is that the laws of supply and demand do not care what politicians say. Those laws will cause many landlords to lower rental rates because they are competing with Massachusetts and Connecticut rentals. Lower rental rates decrease the value of that type of investment property, which lowers proceeds for sellers and commissions for real estate agents.

To the extent that the taxes are passed on to the renters, they can easily make up the difference by eating out less, or curtailing amusement spending. That negatively affects local restaurants, servers and amusement facilities like mini golf and water slides

This is simply a redistribution of financial burden. Without addressing out of control spending and wasteful government, it just creates different winners and losers.

The more things change, the more they stay the same.

 

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IRS Gets Hacked, 100,000 Taxpayers At Risk
Posted Tuesday, May 26, 2015

The IRS announced today that criminals hacked their secure systems to gain access to private information on approximately 100,000 accounts (AKA taxpayers). 200,000 accounts were targeted, though only 100,000 were successful.

They say that they are contacting all 200,000 taxpayers and offering free credit monitoring to the 100,000 hacked.

Apparently the hacking took place from February through mid May 2015. Additional details are available here.

I hope this is not what we can expect in the future from an agency stained by corruption at the top in recent years. Maybe they should have been leading instead of targeting groups based on their political beliefs.

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Scam Alert - they're NOT from the government and they are NOT here to help you
Posted Monday, August 25, 2014

I had a message on my home telephone answering machine saying, "The issue at hand is extremely time sensitive. This is Officer Julie Smith from the Internal Revenue Service and the hotline to my division is 2025069236. I repeat, it's 2025069236. Don't disregard this message. You or your attorney must return this call before we take any action against you. Goodbye and take care."

It sounded ominous and I can see why a certain percentage of people might think this is a valid issue, but it isn't.

It's a scam that has been going around.

I know it is a scam for several reasons. For individuals, the IRS will first make contact by mail, several times; each successive letter more serious than the last. Their letters clearly cite the issues and the ramifications.

If ignored and depending on the issues, an agent may pay you a visit. Usually they don't. After sending a briefcase full of letters, they may follow through on the last few that said they would put liens on your assets. Afterwards, you may find that your bank accounts have been drained and your checks are bouncing.

But remember, it all starts with letters, lots of letters. Not a vague telephone call.

Don't let yourself be in the small group duped by this call.

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What Every Business Needs to Know About Obamacare
Posted Thursday, September 19, 2013

What Every Business Needs to Know About the Patient Protection and Affordable Care Act

I don't usually post links to the work of others, but this is an exception. The folks at Robert Half have prepared an excellent download explaining the new health care law. I suggest that all business managers read through the document and keep it as a reference.

It can be downloaded here.

The one year delay of business mandates gives businesses time to plan for the changes coming their way. Some of the key provisions use prior year employee levels to determine a company's responsibilities. Businesses should  use the remainder of 2012 to plan actions to be implemented in 2013.

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Tick Tock - Time is running out on valuable tax breaks for business
Posted Saturday, September 14, 2013

Several favorable business tax provisions have a limited term life that may dictate taking action between now and year-end. They include the following two provisions.

Section 179 Deduction. Your business may be able to take advantage of the temporarily increased Section 179 deduction. Under the Section 179 deduction privilege, an eligible business can often claim first-year depreciation write-offs for the entire cost of new and used equipment, software, and eligible real property costs. For tax years beginning in 2013, the maximum Section 179 deduction is $500,000, including up to $250,000 for qualifying real property costs. However, you cannot claim a Section 179 write-off that would create or increase an overall business tax loss. For tax years beginning in 2014, the maximum deduction is scheduled to drop back to only $25,000, and most real property costs will be ineligible.

50% First-year Bonus Depreciation. Above and beyond the Section 179 deduction, your business can also claim first-year bonus depreciation equal to 50% of the cost of most new (not used) equipment and software placed in service by December 31 of this year. For a new passenger auto or light truck that’s used for business and is subject to the luxury auto depreciation limitations, the 50% bonus depreciation break increases the maximum first-year depreciation deduction by $8,000. The 50% bonus depreciation break will expire at year-end unless Congress extends it

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Family LLCs Ease Planning Complexities
Posted Monday, February 25, 2013

Because limited liability companies (LLCs) provide flexibility in allocating rights to profits and capital, they are frequently used to shift income and property appreciation from higher bracket, older generation taxpayers to lower bracket children and grandchildren. Family LLCs are created by the transfer of property from one or more individuals to the LLC for the common benefit of the family members. The transferred assets are titled in the name of the LLC. Typically, the senior family members (parents) transfer assets to a family LLC in exchange for membership interests, which, under the terms of the operating agreement, carry certain rights, such as management control and income distributions. This initial capitalization of the LLC is generally a tax-free event. 

If you are interested in gradually transferring partial ownership of assets to your children, a good method might be to transfer them to a family LLC and subsequently gift membership interests in the LLC to your children. With that in mind, here is some information about using a family LLC to transfer ownership of assets.

Using a family LLC to own a family’s assets, whether it be business or investment assets, can be beneficial. One reason is that consolidation in one entity simply makes it easier to manage the assets compared to individual ownership by you and your children or by you and trusts for your children. Consolidation may also allow you to take advantage of investment or diversification opportunities based on the size of the combined assets held by the LLC.

Another advantage of holding assets in a family LLC is to protect the assets from creditors. The creditor of an LLC member generally cannot access the assets of the LLC or participate in management. Instead, the creditor can only receive distributions to which the member would have been entitled. Additionally, your children, as LLC members, could not reach the assets of the LLC or compel the LLC to make distributions. A buy/sell agreement between LLC members can also be used to prevent the membership interests from being sold or transferred outside the family group, such as a transfer resulting from the divorce of a child.

Since an LLC is governed by an operating agreement that can be amended as needed, it offers a great deal of operating flexibility to help you respond to changing circumstances. In contrast, an irrevocable trust document cannot be amended. Additionally, if you have concerns over giving your children immediate access to the transferred assets, the operating agreement can contain provisions to prevent members from easily converting their interest to cash and to control the extent and timing of distributions. An operating agreement can also be used to require arbitration of family and business disputes, as well as to establish other ground rules, such as the sharing of expenses involved in a dispute.

A family LLC also offers the advantage of simplifying the process of making gifts to your children. The gift of an interest in the LLC is much easier than gifting undivided interests in each asset to your children and can be accomplished by a simple assignment form.

All of these are excellent business reasons to consider using a family LLC. Additionally, a family LLC offers some estate and gift tax advantages such as permitting a reduction in the value of your estate, having a lack of marketability and, where applicable, allowing for a minority interest. However, these tax advantages should be secondary to the economic, legal, or family reasons we discussed as the basis for creating the family LLC.

Please contact us if you would like to learn more about family LLCs and how this structure can be used to meet your specific needs.

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New Retirement Plan Limits for 2013
Posted Friday, January 25, 2013

The IRS has announced cost-of-living adjustments affecting the dollar limitations for retirement plans, deductions, and other items. Several of the limitations are higher for 2013 because the increase in the cost-of-living index met the statutory threshold. However, some limitations did not meet that threshold and remain unchanged from 2012.

 

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased from $17,000 in 2012 to $17,500 in 2013. The catch-up contribution limit for those age 50 and over remains unchanged at $5,500.

The contribution limit for both Roth and traditional IRAs has increased $500 from 2012. You can contribute up to $5,500 ($6,500 if you are age 50 or older by year-end) to your IRA in 2013 if certain conditions are met (i.e., sufficient earned income). For married couples, the combined contribution limits are $11,000 ($5,500 each) and $13,000 ($6,500 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income.

Keep in mind that contributions to traditional IRAs may be tax-deductible, subject to specific limitations that increase for 2013. When you establish and contribute to a Roth IRA, contributions are not deductible, but withdrawals are tax-free when specific requirements are satisfied. In addition, there are no mandatory distribution rules at age 70 1/2 with a Roth IRA, and you can continue to make contributions past age 70 1/2 if you meet the earned income requirement.

The 2013 limitation for SIMPLE retirement accounts increased $500 to $12,000. However, the SIMPLE catch-up contribution for those age 50 by year-end is unchanged from 2012 at $2,500.

The 2013 contribution limit for profit-sharing, SEP, and money purchase pension plans is the lesser of (1) 25% of the employee’s compensation—limited to $255,000, an increase of $5,000 from 2012 or (2) $51,000, an increase of $1,000 from 2012.

The social security wage base, for computing the social security tax (OASDI), increases to $113,700 in 2013, up from $110,100 for 2012. The additional $3,600 for 2013 represents an increase of 3.3% in the wage base.

 

Finally, the annual exclusion for gifts increased by $1,000 and is $14,000 in 2013.

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Seniors Get More Bang for the Charitable Buck
Posted Thursday, January 17, 2013

An effective way for people over 70-1/2 to make charitable contributions is to make the contributions directly from their IRAs. The taxpayer can get the deduction even if they do not itemize. Also, the payments count toward their minimum IRA distributions and until January 31, 2013, taxpayers can make contributions that count toward 2012.

Specifics: IRA owners at least age 70-1/2 have until January 31, 2013, to make a direct transfer, or to contribute an IRA distributions received during December 2012, to an eligible charity. The American Taxpayer Relief Act of 2012 (P.L. 112-240 ) extended for 2012 and 2013 the provision authorizing qualified charitable distributions (QCDs) paid directly to an eligible charitable organization. Each year, the IRA owner can exclude from gross income up to $100,000 of these QCDs. The QCD option is available regardless of whether an eligible IRA owner itemizes deductions on Schedule A. Transferred amounts are not taxable and no deduction is available for the transfer. QCDs are counted in determining whether the IRA owner has met his or her IRA required minimum distributions for the year. For tax-year 2012 only, IRA owners can choose to report QCDs made in January 2013 as if they occurred in 2012. In addition, IRA owners who received IRA distributions during December 2012 can contribute, in cash, part or all of the amount distributed to eligible charities during January 2013 and have them count as 2012 QCDs.

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