Our Accounting Articles
The 529 Savings Plan: A Tax-Smart Way to Fund College Expenses
November 10, 2015
If you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.)
Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.
529 plans offer other benefits as well: read more…
Carefully Timing Business Income and Expenses – Save Tax or at Least Defer It
November 3, 2015
The first step to smart timing is to project your business’s income and expenses for 2015 and 2016. With this information in hand, you can determine the best year-end timing strategy for your business.
If you expect to be in the same or lower tax bracket in 2016, consider:
Deferring income to 2016. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
Accelerating deductible expenses into 2015. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.
If you expect to be in a higher tax bracket in 2016, accelerating income and deferring deductible expenses may save you more tax over the two-year period (though it will increase your 2015 tax liability).
For help projecting your income and expenses or for more ideas on how you can effectively time them, please contact us.
© 2015 Thomson Reuters/Tax & Accounting
Thinking of Refinancing a Home? 2 Tax Consequences to Consider.
October 27, 2015
Now may be a great time to refinance, because mortgage rates are still low but are expected to increase. Before deciding to refinance, however, here are a couple of tax consequences to consider:
- Cash-out refinancing. If you borrow more than you need to cover your outstanding mortgage balance, the tax treatment of the cash-out portion depends on how you use the excess cash. If you use it for home improvements, it’s considered acquisition indebtedness, and the interest is deductible subject to a $1 million debt limit. If you use it for another purpose, such as buying a car or paying college tuition, it’s considered home equity debt, and deductible interest is subject to a $100,000 debt limit.
- Prepaying interest. “Points” paid when refinancing generally are amortized and deducted ratably over the life of the loan, rather than being immediately deductible. If you’re already amortizing points from a previous refinancing and you refinance with a new lender, you can deduct the unamortized balance in the year you refinance. But if you refinance with the same lender, you must add the unamortized points from the old loan to any points you pay on the new loan and then deduct the total over the life of the new loan.
Is your head spinning? Don’t worry; we can help you understand exactly what the tax consequences of refinancing will be for you. Contact us today!
© 2015 Thomson Reuters/Tax & Accounting
Your Exec Comp Could be Subject to the 0.9% Additional Medicare Tax or the 3.8% NIIT
October 20, 2015
The additional Medicare tax and net investment income tax (NIIT) apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.
The following types of executive compensation could be subject to the 0.9% additional Medicare tax if your earned income exceeds the applicable threshold:
- Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
- FMV of restricted stock when it’s awarded if you make a Section 83(b) election
- Bargain element of nonqualified stock options when exercised
- Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture
And the following types of gains from exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:
- Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
- Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements
Concerned about how your exec comp will be taxed? Please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.
© 2015 Thomson Reuters/Tax & Accounting
Gearing Up for the ACA’s Information Reporting Requirements
Starting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.
Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.
If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.
© 2015 Thomson Reuters/Tax & Accounting
Should You “Bunch” Medical Expenses into 2015?
October 13, 2015
Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but generally only to the extent that they exceed 10% of your adjusted gross income.
Taxpayers age 65 and older can enjoy a 7.5% floor through 2016. The floor for alternative minimum tax purposes, however, is 10% for all taxpayers.
By “bunching” non-urgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.
If it’s looking like you’re close to exceeding the floor in 2015, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your or your family’s health), you might want to put off medical expenses until next year, in case you have enough expenses in 2016 to exceed the floor.
For more information on how to bunch deductions or exactly what expenses are deductible, please contact us.
© 2015 Thomson Reuters/Tax & Accounting