As the year draws to a close, now is an excellent time to review your current tax planning strategies to ensure they are still meeting your needs and to develop plans for 2017. It is also a good time to take advantage of last-minute planning opportunities that can save you money now and in the coming year.
Arizona Tax Credits
The State of Arizona has made significant changes for 2016 to individual tax credits, increasing credit contribution limits and extending funding dates. In October, we sent out an email titled “Significant Changes to Arizona Tax Credits” with all of the details on the tax credits that offer you a dollar for dollar reduction of your Arizona State income tax. You can find more information about these credits on our website under the Newsletter tab.
Expiring Deductions
A few deductions will expire at the end of this year, so it is important to act now to take advantage of them in the remaining months of 2016 and to adjust your plans for 2017.
- Did you pay college costs during the year? A deduction for tuition and expenses paid for yourself, your spouse or a dependent can be used on your 2016 return, but won’t apply in 2017. We can offer advice on other options, including a valuable education credit, the American Opportunity Tax Credit, which is now permanent.
- Planning a home purchase soon? Private mortgage insurance (PMI), the amount you typically pay when your down payment is below 20%, will only be deductible through the end of 2016.
- If you were involved in a foreclosure, short sale or loan modification, you can exclude up to $2 million in forgiven debt from your taxable income, but only through the end of 2016.
Affordable Care Act (ACA) Filing Requirements
Similar to last year’s filing requirement, you are required to report your health insurance coverage on your tax return. You will be receiving tax documents in early 2017 that need to be included on your tax return. If you bought insurance from the marketplace, we must report and reconcile the premium tax credit on your tax return. In addition, if you did not have insurance for all of 2016 or only part of the year, we are required to report and calculate a penalty. The penalty for not having coverage, up from 2015, is the higher of $695 per uninsured adult ($347.50 per uninsured child under 18), or 2.5% of the household income during the filing period. Please be sure to include these important tax documents when dropping off you tax information or meeting with someone in our office.
Reporting Foreign Bank and Financial Accounts (FBAR)
As a reminder, if a taxpayer or their spouse has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, and the account exceeds $10,000 anytime during the year, the Bank Secrecy Act requires the individual to report the account yearly by filing electronically a Financial Crimes Enforcement Network (FinCEN) From 114, Report of Foreign Bank and Financial Accounts (FBAR). The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50% of the total balance of the foreign account per violation. Nonwillful violations that the IRS determines are not due to reasonable cause are subject to a $10,000 penalty per violation.
New Legislation Filing Requirements
Starting with tax year 2016, no American Opportunity Tax Credit will be allowed unless the taxpayer includes the employer identification number of any institution to which qualified tuition and related expenses were paid after December 31, 2015 for education furnished in academic periods beginning after December 31, 2015 with respect to the individual. This information is reported on Form 1098-T and should be received by students in early 2017.
Pension Contribution Limits for 2017
The limit on elective deferral for contributions to 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan remains $18,000 for 2017, and the catch-up contribution limit for those 50 and over remains $6,000. Amounts for many other retirement savings plans remained the same while some increased slightly. Please contact our office for additional information on these other retirement savings plan.
Required Minimum Distributions (RMD)
As a reminder, any RMDs from a retirement plan account must be completed before December 31, 2016. Your financial advisor can assist you with calculating the RMD required for 2016. In lieu of taking the RMD, you can make a transfer directly to a charity which will not be taxable to you. This provision was made permanent in 2015.
Overtime Rule Changes
Effective December 1, 2016, salaried employees who earn $913 a week or $47,476 a year, are subject to overtime pay. A salaried employees whose job duties qualify for this overtime pay if:
- The pay is a fixed salary that is not subject to reductions because of variations in the quality and quantity of work performed.
- The amount of the salary paid must meet a minimum threshold amount set by the DOL regulations.
- The employee’s job duties must fall under the definition of executive, administrative or professional or that of computer professionals and outside sales employees.
Medical Insurance Premiums for S-Corporation Shareholders
As a reminder, if you are a shareholder of an S-Corporation with a greater than 2-percent interest, medical insurance premiums paid under an accountable plan on your behalf by the S-Corporation should be reported in Box 1 of your W2, and is subject to income taxes. These wages however, are not subject to Social Security. Medicare, or Unemployment taxes. If you use a third-party payroll processing company, they can assist you with properly reporting this information. If Pescatore-Cooper handles your payroll reports, please be aware we will be asking for this information for the preparation of the fourth quarter and annual payroll reports.
Expensing Repairs – Safe Harbor Election
Starting with tax year 2016, expenditures supported by an invoice, that might otherwise have been capitalized and depreciated, may be expensed as long as the cost of each item on the invoice does not exceed $2,500. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold when making this election on the tax return.
Identity Theft and Tax Scams
We have sent out several emails over the course of this year with the newest tax scams that the IRS has warned against. If you get a phone call from someone claiming to be from the IRS and asking for money, do not give out any information and immediately hang up. As a reminder, the IRS will never:
- Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
- Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe
- Ask for credit or debit card numbers or payment in gift cards over the phone.
We hope you find this information helpful and urge you to contact us if you have any questions. As always, we appreciate your business and welcome any questions or concerns you may have.
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