10 Legal Tax Savings Secrets: Learn How to Save…
Client Talking Points
Do you want to add some value? Here are some points that can add value to you and your clients right now…
- Legal Tax Savings Secret: Holding Real Estate in the corporate solution (C-Corp or S-Corp). Is your client holding assets that appreciate in value using the corporate solution? Corporations do not get the benefit of long-term capital gains rates. The corporate rate is presently 35% and corporation dividends to shareholders are not deductible to the corp., and are thus, double-taxed. Holding assets that depreciate (go down) in value in a corporate solution makes sense. However, if the value of the asset increases, liquidating that asset has inefficient tax consequences for the small business owner. This applies to S-Corporations as well. Nevertheless, if President Trump, Senator Ted Cruz, and Congress achieve their goal of reducing corporate tax rates to 15%-20%, then this would be a future opportunity to liquidate corporate holdings at reduced corporate tax rates. TALKING POINT: Ask your client to monitor this proposed legislation, anticipated for 2018.
- Legal Tax Savings Secret: 1031 Like-Kind Exchange. Is you client aware of 1031 Exchanges? 1031 exchanges allow clients to sell business property including real estate or business personal property and exchange it for similar items. Taxes from the exchange are deferred and the client’s basis carries to the new property. Corporations can use this as well. TALKING POINT: Ask your client whether he or she is planning to liquidate business property (especially real estate, or rental real estate) to take advantage of an opportunity. If the client doesn’t need the cash and would prefer to re-invest, mention the 1031 exchange.
- Legal Tax Savings Secret: IC-DISC. Does your client export products that have US-made components? The IC-DISC is an export incentive permitted by the tax code. Essentially, a manufacturer, exporter, or supplier can reduce its tax rate to 20% by paying sales commissions to an IC-DISC that it owns and controls. The IC-DISC is a corporation that makes an election to be treated as an IC-DISC. Instead of paying 35%, it pays 20%, and can defer income as well. TALKING POINT: Ask your client if they export goods produced or remanufactured in the US, or whether the client knows if its goods or services are ultimately exported downstream. If Harley Davidson’s motorcycles are exported by unrelated suppliers, Harley would be eligible.
- Legal Tax Savings Secret: Cost Segregation. Is your client aware of cost segregation studies? Normally commercial buildings are depreciated over 39.5 years. This means the price paid for the building is recovered at 2.5% annually. Cost segregations allow buildings to be depreciated in part as personal property, allowing significant depreciation in early years. TALKING POINT: Speak to your client about newly acquired or recently renovated buildings. Good candidates are buildings recently remodeled or perhaps less than 15 years old.
- Legal Tax Savings Secret: IRS Penalties. Has your client recently been penalized by the IRS? IRS penalties can be issued for a variety of reasons. However, the IRS can be surprisingly gracious with removing penalties from accounts under the right circumstances. If a client has been given significant penalties, simply asking to remove them may do the trick.
- Legal Tax Savings Secret: Asset Protection. Corporate entities and LLCs often can provide significant asset protection. The entity acts as a shield between the creditor and its shareholders. However, the entity’s assets themselves may be subject to creditor’s claims. On the other hand, operating a thinly-capitalized company could render the corporate shield weak, and subject to piercing (attacking personal assets). TALKING POINT: Ask clients with significant assets in their corporate accounts if they have an asset protection strategy, or have considered whether their assets could be subject to attack from creditors.
- Legal Tax Savings Secret: Non-US-Residents and Non US Domiciliaries owning real estate in the US. US citizens and US residents get generous estate and gift tax exemptions currently in excess of $5.5 million filing single, and $11 million for married persons. By contrast, foreign owners of real property receive a $60,000 exemption. TALKING POINT: Why give all that hard-earned money to the IRS, needlessly? Utilize a foreign corporation to block the tax, as shares of foreign corporations are not subject to the estate tax. Be aware, as discussed above, that capital gains tax rates become corporate rates. But see President Trump’s proposal, above, regarding reducing corporate rates. Therefore, some planning is involved. Also, you may consider life insurance to pay for the potential tax consequences.
- Legal Tax Savings Secret: Compliant on Estimated Taxes. What is better: to pay down back taxes or make estimated tax payments? A big issue we encounter is people fall behind on past tax debts. This causes them to miss estimated tax payments because they are devoting resources to paying back taxes. The best strategy is to make sure estimated taxes (future taxes) are paid before back taxes. How you accomplish this warrants a discussion with a professional and an analysis of your client’s situation.
- Legal Tax Savings Secret: Filing Tax Returns. Has your client filed all tax returns? This is important for many reasons. Firstly, it is criminal to willfully fail to file returns. Also, the penalty for failing to file a return is greater than failing to pay. Finally, for those people who are W-2 wage earners, failing to file a return is a compliance risk for your employer. Yes. One of the first things the IRS requests in a corporate audit is copies of the C-Suite’s personal tax returns. Other responsible parties may be requested as well.
- Legal Tax Savings Secret: Estate Planning. When is the last time your client considered his or her estate plan. Believing you’ll live a long time is wishful thinking. You’ll never know what tomorrow brings. Make sure your family is protected.
W-2 Deadline Dates To File W-2s
|January 31st||February 29th*||March 31st*|
|Deadline to distribute Forms W-2 to employee||Deadline to file using paper Forms W-2||Deadline to file using Business Services Online|
* If this date falls on a Saturday, Sunday or legal holiday, the deadline will be the next business day.
W-2 Deadline Changed as a result of Identity Theft.
Tax information from 104,000 filers was recently stolen. The IRS is paying for credit monitoring for victims. Victims can also apply for identity theft numbers. In a major about face, the IRS indicated it WILL give victims copies of the false returns to help taxpayers assess the damage from the intrusion. ALERT: The IRS and Congress also move up the date for employers to file W-2s with the feds to January 31 from March 31.
Identity Theft Letter.
Potentially impacted individuals are notified of the data loss via Letter 4281C, IM Breach Notification Letter. See IRM 10.5.4.4.3 (12-02-2014).
Estates wanting to elect portability must timely file an estate tax return, even if not required. Under the portability rule, when one spouse dies, the unused estate and gift tax automatically passes to the surviving spouse. In order to take advantage, file a 706.
2012 data show: the average tax rate of the top 1% of earners was 22.83%. The top 1% is defined as AGI of at least $434,682. The rate at the top 0.01% was 19.53%. These 13,608 taxpayers had AGI of $12.1 MIL. At the top 0.001; 17.6%. AGI was $62 MIL.
Employee or not employee (independent contractor)? That is the question. Worker misclassification. Labor Dept to get involved. IRS suspects employers near 50 workers will 1099 some to avoid ACA mandate. There is a reduced penalty for voluntarily correcting errors. IRS uses three part test: behavioral, financial, and type-of-relationship.
The Internal Revenue Service announced today its 2018 annual tax inflation adjustments. The tax year 2018 adjustments generally are used on tax returns filed for the tax year 2018 and due beginning in 2019.
The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.
The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)
For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively.
The limitation for itemized deductions claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).
The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017.
In 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking,
For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017: $695.
Participants who have self-only coverage in a Medical Savings Account, must have an annual deductible that is no less than $2,300, an increase of $50 from tax year 2017, but not more than $3,450, which is an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. Participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017, however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.
The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
The foreign earned income exclusion for 2018 is $104,100, up from $102,100 for tax year 2017.
Estates of decedents who die during 2018 have a basic exclusion amount of $5,600,000, up from a total of $5,490,000 for estates of decedents who died in 2017.
The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.