Tax Strategies & Tips

TAX TIPS FOR 2015

Individual

  • IRS allowed Business mileage rate for 2015 is 57.5 cents per mile and it is 54 cents per mile for 2016.
  • Sole proprietors may employ their children, under age 18, without incurring FICA taxes.
  • The “Kiddie Tax” is for dependent children through age 23; thus, investment income over $2,000 will be taxed at the parents’ top tax rate.
  • Pre-age 59 1/2 – IRA distributions for children, grandchildren or your educational purposes are taxable but avoid the 10% premature distribution penalty.
  • If you have children heading off to college, you may be wondering which college savings account to use first to pay for tuition. If your child is age 18 to 23, you may want to cash out at least some of that child’s taxable assets this year before tapping into a 529 account because of the “kiddie tax” law.

 

Retirement

  • 401(k) plan contribution limit is $18,000 but, if 50 years old or older, the maximum is $24,000.
  • Defined-contribution plan limit is $53,000.
  • IRA contributions up to $5,500 for those NOT participating in an employer plan and have no income limitations but must be made by 4/15 of the following year, $6,500 for taxpayers over age 50.
  • Contributions strategically may best be paid into a Roth IRA. The tax consequences attributable to Roth IRA’s are huge compared to the one-time minor benefit. Your specific situation should be discussed with one of our professionals.
  • We can help you do the math regarding when to start receiving Social Security benefits.

 

Charitable Contributions

  • All charitable contributions now must be substantiated to be deductible.
  • If over age 70.5, donations can be made directly from IRA and count towards your RMD.

 

Small Businesses

  • Under Code Sec 179, up to $500,000 can be expensed in lieu of depreciation.
  • The optional method of deducting auto business miles is 56 cents per mile.
  • Employers may pay up to $245/mo. to employees tax-free for parking. Transit passes are up to $245/mo. tax-free.
  • Sole shareholders with no employees may not only have an $18,000 401(k) contribution but also up to 25% of compensation into a SEP-IRA. Maximum contribution of $53,000 to the SEP-IRA is deductible by the corporation.
  • Qualified dividends paid by a C Corporation may be eligible for capital gain tax rates.
  • Sole proprietors or sole shareholder corporations may choose to employ their spouse or other family members. Such employees should have a job description of the tasks actually being performed and for which an appropriate salary is paid. Compensation must be reasonable and might be paid monthly or quarterly to limit the check writing function. Payroll tax returns would be filed quarterly. If appropriate, the spouse not only might be eligible to participate in the retirement plan of the business but also enroll in a medical reimbursement plan which avoids the 10% limitation and results in medical insurance premiums and expenses for the entire family recorded as a business expense.
  • Corporate entities should make major decisions well documented by board of directors and stockholder minutes. Election of officers, review of financial reports, consideration of dividends, adequacy of capitalization, approval/ratification of significant contracts, acquisitions, loans, creation of salary guidelines and retirement plans, and other corporate matters.

 

IRS HIT LIST FOCUSES ON SCHEDULE C TAXPAYERS:

  • Mis-classification of employees as independent contractors when too much control is retained by employer.
  • Long-term capital gain tax rates changed as of 1/1/13. Taxpayers in the 39.6% tax bracket will pay 20% on Long-term capital gains. Taxpayers in the 25, 28, 33 or 35% tax brackets will pay 15% and taxpayers in the 10 or 15% tax brackets will pay 0% on their Long-term capital gains. Qualified dividends will also taxed at these rates; however, if one is subject to the alternative minimum tax (AMT), the rate may be as much as 28%. Tax planning is critical to minimize the damage and plan for state tax as well.
  • Tax preparers face increased penalties to $1,000 for understatement of tax due to an unreasonable position and $5,000 for willful or reckless conduct. Not only will these changes require careful analysis and clear tax planning but also solid documentation to ensure that tax positions are realistic and sustainable.