Tax Reduction Tips – Cost Segregation
Last summer’s highway trust fund extension law* includes a few important federal tax provisions that affect business and individual taxpayers.
Return due dates
The new law accelerates the filing deadline for partnership returns by one month, effective with returns for tax years that begin after December 31, 2015. As a result, the due date for partnership returns will be the fifteenth day of the third month after the end of the partnership’s tax year — March 15 for a partnership with a calendar year.
C corporations will have an additional month to file their returns, generally effective with returns for tax years beginning after December 31, 2015. As a result, C corporation returns will be due by the fifteenth day of the fourth month after the end of the tax year (by April 15 for a C corporation with a calendar year). The extended deadline doesn’t take effect until tax years beginning after December 31, 2025, for C corporations with fiscal years ending on June 30.
For federal estate-tax purposes, property included in the gross estate is generally valued at its fair market value on the decedent’s date of death. That same fair market value then becomes the property’s income-tax basis in the hands of the person who acquires the property from the decedent.
The new law doesn’t change this rule. However, it requires the executor of any estate required to file a federal estate-tax return to furnish an information statement to the IRS and to each person receiving property from the estate. The statement must show the value of the property as reported on the return (and any other information the IRS may require). There are penalties for failure to file and for tax understatements resulting from inconsistencies in basis reporting.
Mortgage information returns
Under the new law, mortgage lenders must include additional items, such as the amount of principal outstanding at the beginning of the year, on information returns required to be furnished after December 31, 2016.
If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.
Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993. We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.
* Surface Transportation and Veterans Health Improvement Act of 2015
Alimony and Child Support
Alimony payments are tax deductible; child support payments are not. On the other hand, amounts received as alimony have to be included in income for tax purposes, while child support can be received tax free.
Typically, the parent who has legal custody of a child has the right to claim the dependency exemption. However, parents can agree otherwise. A custodial parent uses IRS Form 8332 to release the exemption.
Generally, the parent who claims the child as a dependent also gets the benefit of child-related tax credits, such as the child tax credit and the credit for higher education expenses.
Retirement Plan Benefits
Retirement plan benefits received from the retirement plan of a former spouse under a court-issued document called a “qualified domestic relations order” are taxable to the recipient.
Gain from the sale of a principal residence is not taxable if certain requirements are met. The tax-free ceiling is $500,000 of gain for a married couple and half that amount for a single person.
Income tax preparation becomes more complicated for divorcing individuals. If you’d like assistance, call Steven Graber at 410-466-3779. We have two offices in Baltimore to better service you. Our Baltimore CPA Accounting Firm has operated since 1993.
Graber & Associates focuses on lowering your taxes within the legal limits. Our firm specializes in IRS Tax Problem Resolution in the event that problems arise down the road.
If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, FBAR violations.
To illustrate, the IRS Dirty Dozen tax scam list for 2016 clearly illustrates the emphasis placed upon hiding money or foreign bank accounts (see excerpt below).
The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.
“Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said IRS Commissioner John Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.”
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
The IRS continues to beat this drum more aggressively each year. If you would like to discuss this situation, simply call 410-466-3779 and ask for Stephen Graber, CPA.
Graber CPA is a full service CPA Accounting Firm with two offices in Baltimore to better serve you, Pikesville and Inner Harbor on International Drive (Legg Mason Tower). Regardless of your situation, our goal is to minimize your tax obligation within the legal guidelines. We have served the Baltimore community since 1993 and we are experts in taxation.
By now, we all know how frustrating Cam Newton was by losing the Super Bowl. To make matters worse, he actually lost money since the Super Bowl was held in California and he is subject to “jock taxes.” Technically, he has to pay the state of California more than his Super Bowl check. Learn the details.
Depreciation deductions can be extremely valuable for a business. For example, in a recent court case, a federal judge ruled a company could begin taking its depreciation deductions for two buildings housing retail stores at a point prior to when they were “open for business.” The ruling allowed the company to show a loss for that tax year, which the company then used to offset income in earlier years and ultimately claim a total tax refund of over $2 million.*
Although this case involved a special 50% depreciation allowance made available by the Gulf Opportunity Zone Act of 2005, the fact remains that even regular depreciation deductions can significantly reduce a company’s tax bill.
If business property has a useful life greater than one year, the owner generally is prohibited from deducting the full cost of the property in the year it is placed in service. Instead, a portion of the cost may be deducted each year as depreciation. The depreciation rules apply to most types of tangible property, with notable exceptions being inventory and unimproved land.
Different schedules specify the proper depreciation calculations for different types of property. The most widely used schedules are set forth under the Modified Accelerated Cost Recovery System (MACRS). MACRS assigns property to a recovery class based on the property’s “class life.”
For example, office equipment is assigned to the seven-year MACRS class. Assume a business purchased a piece of equipment for $20,000 and placed it in service in 2012. The property would be in its fourth year of service in 2015. Applicable IRS tables indicate that the appropriate deduction percentage is 12.49% of the cost, so the business could deduct $2,498 for that equipment in 2015.**
Placed in Service
As the above-mentioned court decision suggests, the date property is placed in service can be an important consideration. Though the IRS has specific definitions for different types of assets, generally, property is first placed in service on the date the taxpayer first places it “in a condition or state of readiness and availability for a specifically defined function.”
Because the definition is broad, taxpayers sometimes litigate how it should be applied to specific situations. In the decision mentioned above, the key issue was the “placed-in-service” date of two buildings that would eventually be used as building supply stores. The IRS had argued that the “placed-in-service” requirement meant that the buildings had to be open for business for retail customers. The court disagreed, however, holding that the buildings were placed in service when they were substantially complete and limited certificates of occupancy had been issued so that workers could enter the buildings to install necessary racks and shelving.
Businesses may be able to benefit from the tax law’s Section 179 provisions to garner faster write-offs for some of their asset purchases. Currently, businesses will be allowed to expense up to $25,000 of qualifying property placed in service during the 2015 tax year, with that limit subject to further reduction once the amount placed in service exceeds $200,000.*** In addition, a current deduction may be available for certain limited amounts paid for property that the business expenses for financial accounting purposes. We can tell you more about these “de minimis safe harbor” regulations.
If you are tired of overpaying taxes, then call 410-466-3779 and ask for Steve Graber. Lower your overall tax liability using depreciation is right up our alley.
Graber and Associates is a Baltimore CPA Accounting Firm with two convenient office locations, Downtown Baltimore and Pikesville. To better service our small business clients who use QuickBooks, we are Certified QuickBooks ProAdvisors.
* Stine, LLC v. USA (DC LA, 1/27/2015)
** Calculation assumes the half-year depreciation convention.
*** Congress kept the Section 179 limit at $500,000 for 2014 in late-year extender legislation.