Hurry! Tax-Planning Tips to Act on Now
December 18, 2015 12:28 PM
Hurry! Tax-Planning Tips to Act on Now
As the year draws to a close, advisors and their clients should run through this last-minute checklist of tax planning issues. A turbulent economic and legislative environment means there are several major complications to heed, according to accounting firm Grant Thornton.
Manage Health Care Costs
If you're helping clients with health care issues, bunching itemized deductible expenses into one year can help them exceed adjusted gross income floors. If possible, they should consider scheduling costly, non-urgent medical procedures in a single year to exceed the 10% AGI floor for medical expenses (7.5% for taxpayers age 65 and older).
Make Up Tax Shortfalls With Increased Withholding
Dont forget that certain kinds of taxes are due throughout the year. Check with clients about withholding and estimated tax payments while you have time to fix a problem. If they are in danger of an underpayment penalty, they can try to make up the shortfall by increasing withholding on salary or bonuses. A bigger estimated tax payment can leave them exposed to penalties for previous quarters, while withholding is considered to have been paid throughout the year.
Watch for Extensions (or Not) of Widely Used Tax Breaks
Lawmakers have to decide whether to extend popular tax provisions before the end of the year. Any changes will impact planning decisions for your clients. Some notable provisions must be extended in order to allow:
tTaxpayers aged 70 ½ and older to make tax-free charitable contributions to IRAs.
tBusinesses to deduct up to half of eligible equipment placed in service this year.
tStudents and parents to receive an above-the-line deduction for tuition expenses.
tCompanies to receive a credit for qualified research expenses.
tTaxpayers in states without an income tax like Washington, Texas and Florida to deduct state sales taxes.
tTeachers to receive an above-the-line deduction for $250 in classroom expenses.
tTaxpayers aged 70 ½ and older to make tax-free charitable contributions to IRAs.
tBusinesses to deduct up to half of eligible equipment placed in service this year.
tStudents and parents to receive an above-the-line deduction for tuition expenses.
tCompanies to receive a credit for qualified research expenses.
tTaxpayers in states without an income tax like Washington, Texas and Florida to deduct state sales taxes.
tTeachers to receive an above-the-line deduction for $250 in classroom expenses.
Document Business Activities
Applies to your own practice and to clients with their own businesses: The 3.8 % Medicare tax on business income may be avoided if you participate in the business enough so that you are not considered a passive investor. Participation is defined as almost any work performed in a business as an owner, manager or employee as long as it is not an investor activity. Even so, activities must be documented, and the IRS doesn't allow ballpark estimates after the fact. Make sure you document the hours youre spending with calendar and appointment books, emails, etc.
Out-of-State Tax Obligations
States have recently become more aggressive in taxing corporations that are not physically present in their states, but have significant sales to customers in those states. While there may be exceptions for limited business activities, it is wise to check on the activities of your staff who travel to different states to ensure you are filing all state corporate tax returns as needed.
Determine State Residency Status
For clients who split their time in two different states throughout the year, consider where they may be taxed as a resident for 2015. Make sure clients track the number of days they are spending in each jurisdiction. Generally, if a client lives in a state for 183 days or more, that state will assert residency and the ability to tax all income. Furthermore, if a client moves to a new state but maintains significant contacts with the old state (including drivers license, residences, bank accounts and the like), they could run the risk of being taxed as a resident
