Tax Tips Newsline - December 2017

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TAX TIPS NEWSLINE Proudly Published in the USA

DECEMBER 2017

Produced monthly for Clients & Friends of the Advisory Group Associates.

Our Mission. Sharing Solutions that deliver real value.

This “TAX TIPS NEWSLINE” is compiled by the founder of the Tax & Advisory firms, Frank

L. Zerjav, CPA and team of Professional Tax Associates, and then it is sent by email each month

because all taxpayers need tax and compliance knowledge. It’s a big part of your life and the

entities that you operate.

The CPA firm engages in proactive Strategic Tax Planning for family-owned or privately-held

businesses and their owners, professionals, investors and individuals. Our clients minimize their

tax burden by appropriate proven strategies, which help them to keep more of what they earn.

Advisory Group’s Tax Resolution Experts also engage in resolving tax problems with either

Federal or State tax agencies for clients who need these specialized, proven solutions and

options. Our devoted team of Professional Tax Advisors and Tax Resolution Experts do

care; their primary objective is the well-being of clients, their family and their survivors, as

well as their satisfaction with the work we do, while our goal is to be the premier choice of

Tax & Advisory firms, not the biggest firm by sharing solutions that deliver real value.

OFFICE CLOSED FOR THE HOLIDAYS

Closed on Monday, December, 25th

and Tuesday, December 26th

Closed on Monday, January 1st, 2018

Inside this Month’s Issue Contact Us

About Charitable Contributions

Year-End Tax Planning Moves For Retirees

Good Records Help Taxpayer To Win IRS Audit

Election Needed: De Minimis “Safe Harbor” Expense Deduction

Update Status: 2018 Health Insurance For S-Corporation Owners

Using Depreciable Antiques In Your Business

Form 1099-K... The New IRS Audit Tool

Year End Moves: Purchase Vehicle To Save On Taxes

Year End Moves: Tax Savings For Existing Vehicle

Year End Moves: General Business Deductions

Year End Moves: Retirement & Medical Tax Deductions

Year End Moves: Tax Strategies For Marriage, Kids & Family

Year End Moves: Tax Strategies For Your Stock Portfolio

Consider A Motor Home For Business Lodging

Wide Range of Services Offered

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Contact Us - There are many events that occur during the year that can affect your tax situation.

Preparation of your tax return involves summarizing transactions and events that occurred during

the prior year. In most situations, treatment is firmly established at the time the transaction

occurs. However, negative tax effects can be avoided by proper planning. Please contact us in

advance if you have questions about the tax effects of a transaction or event, including the

following:

• Pension or IRA distributions. • Sale or purchase of a residence or • Self-employment.

• Significant change in income or deductions. other real estate. • Charitable contributions of

• Job change. • Retirement. property in excess of $5,000.

• Marriage. • Notice from IRS or other revenue • Gifts (over $14,000 to an

• Attainment of age 59½ or 70½. department. individual).

• Sale or purchase of a business. • Divorce or separation. • Starting new business.

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ABOUT CHARITABLE CONTRIBUTIONS With the holidays around the corner, many people will be making donations to benefit charitable

organizations. However, come tax time, the person who made the donation might also benefit.

That’s because taxpayers who donate to a charity may be able to claim a deduction for the

donation on their federal tax return.

Here are five facts about charitable donations from the IRS Tax Tip 2017-77:

Qualified Charities. A taxpayer must donate to a qualified charity to deduct their contributions.

Gifts to individuals, political organizations, or candidates are not deductible. To check the status

of a charity, taxpayers can use Exempt Organizations Select Check on IRSgov.

Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and

itemize their deductions. To do this, taxpayers complete Schedule A, Itemized Deductions. They

file this form with their tax return.

Getting Something in Return. Taxpayers may receive something in return for their donation.

This includes things such as merchandise, meals, and event tickets. Taxpayers can only deduct

the amount of the donation that’s more than the fair market value of the item they received. To

figure their deduction, a taxpayer would subtract the value of the item received from the amount

of their donation.

Type of Donation. For donations of property instead of cash, a taxpayer can only deduct the fair

market value of the donated item. Fair value is generally the price they would get if they sold the

item on the open market. If they donate used clothing and household items, those items generally

must be in good condition. Special rules apply to certain types of property donations, such as

cars and boats.

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Donations of $250 or More. If a taxpayer donates $250 or more in cash or goods, they must

have a written receipt from the charity. The statement must show: • The amount of the donation.

• A description of any property given. • Whether the taxpayer received any goods or services in

exchange for their gift, and, if so, must provide a description and good faith estimate of the value

of those goods or services.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions?

This tool helps determine if a charitable contribution is deductible.

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YEAR-END PLANNING MOVES FOR RETIREES

Contributing to a 401(k) plan can save you thousands of dollars on your 2017 tax return, but you

need to meet the year-end contribution deadline. Retirees must take withdrawals from their

401(k)s and traditional IRAs before the end of the year to avoid a stiff tax penalty. Here’s how to

maximize the value of your retirement accounts before the end of the year.

Contribute to your 401(k) plan. Deposits to your 401(k) plan are typically due by the end of

the calendar year. Dec. 31 falls on a Sunday in 2017, so the last business day to make a

contribution is Dec. 29. However, many people contribute to 401(k) plans via payroll

withholding, and it might take your company a pay period or two to process the change.

The 401(k) contribution limit for 2017 is $18,000. Those age 50 and older are eligible to deposit

an additional $6,000 for a maximum possible contribution of $24,000.

Take required minimum distributions (RMD). Distributions from 401(k) plans and

traditional IRAs must be taken by Dec. 31 each year after age 70 ½. The penalty for missing a

required minimum distribution is 50 percent of the amount that should have been withdrawn in

addition to regular income tax on the distribution.

You get extra time to take your first required minimum distribution. If you turned age 70 ½ in

2017, you have until April 1, 2018 to take your initial required minimum distribution. However,

your second and all subsequent distributions will be due by Dec. 31 each year. Waiting until

April to take your first distribution means you will need to take two distributions in the same

year, which could result in an abnormally high tax bill.

Donate your IRA distribution to charity. IRA owners who are age 70 ½ or older can avoid

paying income tax on part or all of their required RMD by donating up to $100,000 of your

distribution to charity. To qualify for the tax break, charitable distributions for 2017 must be

paid directly from your IRA to a qualified charity by the end of the calendar year.

Qualify for the savers credit. If your adjusted gross income is less than $31,000 as an individual,

$46,500 as a head of household or $62,000 as part of a married couple in 2017 and you

contribute to a retirement account, you might be able to qualify for the saver’s credit. This credit

is worth 10, 20 or 50 percent of retirement account contributions of up to $2,000 for individuals

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and $4,000 for couples, with the exact amount of the credit depending on your income.

More time for IRA contributions. While 401(k) contributions are generally due by the end of

the calendar year, you have until April 17, 2018 to make an IRA contribution that will qualify

you for a tax deduction on your 2017 return. You can contribute to an IRA shortly before filing

your taxes to get a nearly immediate reduction in your tax bill.

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GOOD RECORDS HELP TAXPAYER TO WIN IRS AUDIT

A taxpayer who had good tax records won many deductions that had been overlooked during a

recent IRS audit.

These were new deductions for her because her tax preparer had made a number of technical

errors helping her with her taxes when her returns were prepared in 2015 and would not even

help her with the IRS Audit.

Our team of tax professionals strive to avoid technical errors and do their very best to help

clients lower their tax burden, as well as, comply with the tax law, rules & regulations.

In addition, as a collaborative effort we help clients to help themselves by gaining and sharing

tax knowledge that applies to them and their business. After all, the client knows their business

far better than our team will ever know it, and this way we can work better together to control

your tax burden, build your net worth and keep more of what you earn.

Also, remember it is the client who is the one who has to keep the records that prove their

deductions. The better these records, the more we can do for them.

Nearly 95% of new clients have allowed us to amend their prior year returns when they were not

prepared by us as result of finding mistakes and missed opportunities.

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ELECTION NEEDED: DE MINIMIS “SAFE HARBOR”

EXPENSE DEDUCTION

For years 2015 through 2018, you can elect the de minimis safe harbor to expense assets costing

$2,500 or less, per item, ($5,000 with audited financial statements or something similar).

The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if

you properly abided by the rules of the safe harbor.

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Here are four benefits of this safe harbor:

1. Safe harbor expensing is superior to Section 179 expensing because you don’t have the

recapture period that can complicate your taxes.

2. Safe harbor expensing takes depreciation out of the equation.

3. Safe harbor expensing simplifies your tax and business records because you don’t have

the assets cluttering your books.

4. The safe harbor does not reduce your overall ceiling on Section 179 expensing.

Here’s how the safe harbor works. Say you are a small business that elects the $2,500 ceiling for

safe harbor expensing and you buy two desks costing $2,100 each. On the invoice, you see the

quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup

charge, for a total of $4,778.

Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778/2) and then

either Section 179 expense, or depreciated it. You would have kept the desks in your

depreciation schedules until you disposed of them.

Now, with the safe harbor, you simply expense the desks as “de minimis safe harbor expense.”

This makes your tax life much easier.

To benefit from the safe harbor requires a two-step process that works like this:

Step 1: For safe harbor protection, you must have in place an accounting policy—at the

beginning of the tax year—that requires expensing of an amount of your choosing, up to the

$2,500 or $5,000 limit.

Step 2: When your tax return is prepared, the election must be made on your tax return for you to

use safe harbor expensing. This requires attaching the election statement to your federal tax

return and file that tax return by the due date (including extensions).

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UPDATE STATUS: 2018 HEALTH INSURANCE FOR

S-CORPORATION OWNERS

You and your S corporation continue to enjoy good news in 2018 when it comes to your

health insurance.

And that good news also applies to your 2017 taxes.

You first have to thank the 21st Century Cures Act for:

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1. Reinstating and extending IRS Notice 2015-17 to eliminate the $100-a-day penalty

through December 31, 2016—and this gives new life for 2017 and 2018, as we explain.

2. Creating the qualified small employer health reimbursement account (QSEHRA) that can

work very well if you have employees in your S corporation.

The good news is, the old rules still apply as we write this, and we don’t expect any changes in

2017 or 2018. The S corporation first establishes a health insurance plan for you, the owner, in

one of two ways:

1. The S corporation makes the premium payments for health care coverage (including

dental, vision, long-term care & disability) covering the owner-employee who has more

than 2 percent ownership (and his or her spouse or dependents, if applicable).

2. The owner-employee who has more than 2 percent ownership makes the premium

payments to the insurance company and furnishes proof of the premium payments to the

S corporation, which in turn reimburses the owner-employee for the premium payments.

This is Step 1—getting the cost of the insurance on the S corporation’s books.

In Step 2, the S corporation has to include the health insurance premiums on the

owner-employee’s W-2 form. The income is not subject to payroll taxes (Social Security and

Medicare). In other words, the S corporation includes the additional compensation in box 1 of

the W-2 but not in boxes 3 or 5.

In Step 3, you (the owner-employee with ownership of more than 2 percent of your S

corporation) claim the health insurance deduction on page 1 of Form 1040, providing you

otherwise qualify for that page 1 deduction.

Small Employer’s Rank-and-File Employees and the New QSEHRA

As a small employer, your S corporation does not have to provide any health insurance benefits

to its employees. “Small employer” for this purpose means a business with fewer than 50 full-

time employees or full-time equivalents.

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USING DEPRECIABLE ANTIQUES IN YOUR BUSINESS

Here’s a good business rule to follow: buy low and sell high.

That’s good, but the three-step process below is even better:

1. Buy low.

2. Depreciate to zero.

3. Sell high.

And you can accomplish this by using antiques in your business.

If you can buy an antique car, clock, rug, desk, cabinet, bookcase, paperweight, conference table,

chair, umbrella stand, coatrack, library table, or other asset that will function in your business

just as well as a new purchase, take the antique that might increase in value. It simply adds to

your net worth.

How many business assets have you bought and used in your business that have gone up in

value?

If you are like most businesspeople, the answer to this question is “none” or “very few.” In fact,

you may not have considered antiques at all.

But now that you know their business potential, give antiques a serious look. With antiques, you

can get the best of all worlds:

• beautiful assets you use in your business,

• assets you can depreciate and/or Section 179 expense against your business income, and

• assets that can increase in value.

If you were to buy antiques for your business today, you could expense up to $500,000 of

qualifying costs using Section 179 expensing.

We are closing in on the end of the year. Are you looking for some last-minute deductions?

Consider antiques!

If you have questions about the antique strategy planning opportunity for your business

contact one of our Professional Tax Advisors by calling 314-205-9595.

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FORM 1099-K... THE NEW IRS AUDIT TOOL

Form 1099-K reports credit card sales to the IRS and also gives the IRS another audit weapon.

The rules have now been around long enough to now appear in court cases.

When lawmakers enacted the rules for the 1099-K, they stated that the reason for the new

1099-K was to improve “voluntary” compliance by business taxpayers and to help the IRS

determine if business tax returns are correct and complete.

There’s little question that the 1099-K has improved and will continue to improve voluntary

compliance because with the 1099-K weapon, the IRS now knows how much money businesses

have collected with credit cards.

The 1099-K is sent to the business and also filed with the IRS by banks and other organizations

that settle payment card transactions.

Businesses should receive 1099-Ks for debit, credit, and stored-value card transactions, although

transactions handled by PayPal and other third-party payers are exempt if the payments are under

$20,000 and there are fewer than 200 transactions during the year.

Form 1099-K reports the gross amount of transactions settled for the business during the prior

year. It includes sales tax, shipping, and other fees or charges to the customer, as well as tips in

the case of a bar or restaurant. The 1099-K does not include amounts that banks and credit

processors charge the business for use of its merchant cards.

On your business tax return, your business may report credit card and other card receipts on a net

basis. For example, say the gross receipts you report on your tax return don’t include sales taxes.

But the 1099-K forms your business receives report the gross dollar amounts, and those amounts

include the sales taxes.

This means that the IRS cannot verify whether the 1099-K amounts were properly reported on a

business’s tax return without requesting additional information from the business. For that

reason, the IRS developed a series of three letters. It sends one of the letters to businesses with

smaller-than-expected income based on its analysis of Form 1099-K.

ACTION NEEDED: review your books to see what can be done to reduce the likelihood of

receiving one of those three IRS letters asking about your 1099-Ks.

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YEAR END MOVES:

PURCHASE VEHICLE TO SAVE ON TAXES

As the end of the year approaches, it’s a good time to think of planning moves that will help

lower your tax bill for this year. One strategy that will provide big tax deductions is purchasing a

vehicle.

If you’re looking for a replacement business car, SUV, van, or pickup truck, then now is the

time to act. If you want the deductions, you need to:

• own the vehicle, and

• place it in business service before midnight on December 31.

The “placed in service” requirement means that you must drive the vehicle at least one business

mile before midnight on December 31. In other words, you want to both own and drive the

vehicle to ensure that it qualifies for the big deductions.

Following are five categories of vehicles and what you could gain with the purchase of each

type. I urge you to contact me if you have any questions about the tax-saving benefits associated

with each of these vehicles.

1. Used SUV, Crossover Vehicle, or Van

Assuming the newly purchased vehicle has a gross vehicle weight rating (GVWR) of 6,001

pounds or more, the vehicle gives you three big benefits:

• Section 179 expensing of up to $25,000 (in other words, a huge instant deduction)

• MACRS depreciation using the five-year table (quickly write off the vehicle over five

short years)

• No luxury limits on vehicle depreciation deductions (because tax law doesn’t consider it

a luxury vehicle)

Example. Before midnight on December 31, 2017, you buy and place in service a used $50,000

qualifying SUV for which you can claim 90 percent business use. Your business cost is $45,000

(90 percent times $50,000). Your maximum write-off for 2016 is either $29,000 or $26,000,

computed as

• $25,000 in Section 179 expensing, and

• $4,000 in MACRS depreciation (or $1,000 if the mid-quarter convention applies because

you placed more than 40 percent of your assets in service in the last quarter of the year).

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2. New SUV, Crossover Vehicle, or Van

If you purchased a brand-new SUV, crossover vehicle, or van, then you get an added benefit—

bonus depreciation of 50 percent of the cost. So in the example above, your maximum 2017

write-off with the inclusion of bonus depreciation would be either $37,000 or $35,500, computed

as

• $25,000 in Section 179 expensing,

• $10,000 in bonus depreciation, and

• $2,000 in MACRS depreciation (or $500 if the mid-quarter convention applies because

you placed more than 40 percent of your assets in service in the last quarter of the year).

3. New or Used Pickup

If you buy a pickup truck with a GVWR of more than 6,001 pounds and a cargo area (commonly

called a “bed”) of at least six feet in interior length, then you can probably deduct the entire cost

with the help of Section 179’s rules for trucks. With Section 179 expensing, you can deduct

$500,000 of its cost off the top and then depreciate the remainder, and a remainder is highly

unlikely.

4. New or Used Qualifying Cargo or Passenger Van

You get the same Section 179 expensing benefit: a deduction of $500,000 for cargo and

passenger vans, allowing you to write off the entire cost this year.

Tax law considers the vehicle a cargo van if it

• has a GVWR of more than 6,001 pounds,

• fully encloses the driver compartment and the load-carrying area,

• does not have seating behind the driver’s seat, and

• has no body section that protrudes more than 30 inches ahead of the leading edge of the

windshield.

A passenger van that qualifies for Section 179 expensing of up to $500,000 is a van that has a

GVWR greater than 6,001 pounds and is designed to seat more than nine people behind the

driver’s seat.

5. New Passenger Vehicle

Finally, if you buy a new passenger vehicle for business, you get up to $8,000 in bonus

depreciation. A passenger vehicle is a regular car with a curb weight less than 6,000 pounds or

an SUV, van, or pickup with a GVWR of less than 6,000 pounds. You can add the $8,000 in

bonus depreciation to the $3,160 luxury limit, for a 2016 limit of $11,160.

If you’re already in the market for a replacement business car, SUV, van, or pickup truck,

then this is a terrific tax-smart strategy to lower your 2017 income taxes.

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YEAR END MOVES: TAX SAVINGS FOR EXISTING VEHICLE

As the end of the year approaches, we want to share tax-smart options and explain how your

existing vehicle may be able to provide you with big tax savings. There are actions you can take,

so examine the strategies described below and see if you can take advantage of any of the

options.

Just keep in mind that all actions must be completed before midnight on December 31, 2017.

Take Your Child’s or Spouse’s Car and Sell It

If you gave your old business vehicle to your child or spouse to use, then consider selling it

before the end of the year. Your old business vehicle could have a big tax loss embedded in it, in

which case your strategy is easy. Take the vehicle and sell it to a third party before December 31

so that you have a tax-deductible loss this year.

Replace Your Vehicle

If you’re considering replacing your business vehicle, then how you should proceed depends on

whether it would sell for a gain or loss.

If the sale would result in a gain (i.e., the fair market value is greater than your undepreciated

basis), it’s better to trade in the car for a different one so that it’s considered a tax-deferred

Section 1031 exchange. This will allow you to avoid the taxes on the gain if you sell the vehicle.

If you prefer to sell the vehicle outright, you should engage a Section 1031 exchange

intermediary in order to do so (rather than trade it in) and then buy a replacement vehicle. The

exchange intermediary charges a fee and does the paperwork that makes this happen, resulting in

no taxable gain this year.

If the sale would result in a loss, then you should sell the vehicle so you can benefit from this

tax-deductible loss in 2017.

Put Your Personal Vehicle in Business Service

Now that lawmakers have reinstated bonus depreciation for 2017, you can use this as an effective

strategy to get a big deduction. If you or your spouse owns a vehicle that you purchased new and

never deducted for tax purposes, you can convert that personal car to business use to take

advantage of bonus depreciation.

As long as you make the conversion by December 31, you get a deduction for bonus

depreciation, which can be as much as half the fair market value on the date of conversion,

depending on the vehicle.

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YEAR END MOVES: GENERAL BUSINESS DEDUCTIONS

As the end of the year approaches, it’s a good time to think of tax-smart planning strategies that

will help lower your taxes for 2017. The goal is for you to leverage your tax deductions and

credits to the fullest extent.

Following is five different strategies that can be powerful tools in lowering your tax bill. And the

really great part is that each of these strategies is easy to understand and implement.

1. Prepay expenses.

2. Stop billing customers and patients.

3. Buy office equipment.

4. Use your credit cards.

5. Don’t assume you are taking too many deductions.

1. Prepay Expenses

The IRS allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months

in advance (through December 2018) without challenge, adjustment, or change by the IRS. For a

cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent

payments on offices and machinery, and business and malpractice insurance premiums.

This is a great way to pump up your 2017 deductions with expenses you will eventually pay

anyway.

2. Stop Billing Customers and Patients

An easy strategy for reducing your taxable income for this year is to stop billing your customers

until after December 31, 2017. Customers, patients, and insurance companies generally don’t pay

until billed. Not billing customers and patients is a time-tested tax-planning strategy that business

owners have used successfully for years.

3. Buy Office Equipment

With Section 179 expensing, you can write off up to $500,000 of office equipment in 2017.

Qualifying Section 179 purchases include new and used personal property such as equipment,

computers, desks, chairs, and certain qualifying vehicles. To qualify for expensing, you need to

both buy the items and put them in business service on or before midnight December 31, 2017.

4. Use Your Credit Cards

If you are a business owner, the day you charge a purchase to your business or personal credit

card is the day the expense is deductible. Therefore, consider using your credit cards to buy

office supplies and other business necessities.

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If you operate your business as a corporation, and if the corporation has a credit card in the

corporate name, the same rule applies: the date of charge is the date of deduction for the

corporation.

But if you operate your business as a corporation and you are the personal owner of the credit

card, the corporation must reimburse you if you want the corporation to realize the tax deduction,

and that happens on the date of reimbursement. Thus, submit your expense report and have your

corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

Make sure you record all of your rightful deductions for 2017, because if your business

deductions exceed your business income, you have a tax loss for the year. After a few

modifications to the loss, tax law calls this a “net operating loss,” or an NOL.

The good news is that tax law allows you to carry back the NOL for two years and get instant

refunds from taxes previously paid. If, after going back for two years, you still have unused

losses, you can carry them forward for up to 20 years. In other words, you have a 22-year

window during which you can realize the benefits of your deductions. So always document your

expenses in order to get your rightful deductions.

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YEAR END MOVES: RETIREMENT & MEDICAL

TAX DEDUCTIONS

With the clock ticking on 2017 and the ability to lower your tax bill coming to a close, it is time

to consider tax-smart strategies including retirement and medical deductions that help to lower

your 2017 tax burden and keep more of what you earned.

The six tax-smart strategies are as follows:

1. Establish Your 2017 Retirement Plan

Stashing away funds for retirement not only provides security for your future, but also decreases

your current taxes. Make sure your retirement plan is in place by the end of the year so you can

get a tax deduction for 2017.

Several retirement plans comprise contributions from both the employee and the employer. And

remember, in most cases you are considered both employee and employer. So check the

deadlines for when each contribution must be made for your specific retirement plan. While

elections for employee contributions are usually due by year-end, you can take your time with

the employer contributions as long as they are in before the tax return is filed.

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2. Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA. If you make good money on

your IRA investments and you won’t need the retirement funds during the next five years, the

Roth is far superior to the traditional retirement plan.

Before you convert to a Roth, you should know how much your tax bill will be upon conversion,

to ensure you have the money on hand. Just make sure not to use your existing 401(k) or

traditional IRA for the cash to pay the taxes, because that is likely to trigger both income and

penalty taxes.

3. Reimburse Section 105 Expenses Now

If you previously put your husband-and-wife Section 105 medical reimbursement plan in place,

make sure the reimbursements take place before midnight on December 31 to qualify them as

business deductions for this year.

4. Make Sure Your Section 105 Plan Complies with 2017 Law

The Affordable Care Act has had a big impact on Section 105 medical reimbursement plans. If

you have more than one eligible employee on your 105 plan date, you need a group health plan

for 2017 to avoid big penalties. Make sure the plan document is signed by you or your

corporation and the one eligible employee.

5. Comply with S Corporation Rules for Health Insurance Deductions

If you are the owner of an S corporation, make sure you comply with these two requirements

before December 31:

1. The S corporation has either paid for your health insurance or reimbursed you for the cost

of the insurance.

2. The cost of your health insurance is going to be on your W-2.

6. Claim the Tax Credit

If you provide health insurance as a fringe benefit to your employees, you may be eligible for tax

credits. If you are an Affordable Care Act—defined small employer and you cover your

employees with group health insurance, you can claim a tax credit of 50 percent in tax years

2017 and 2018 (limited to two consecutive tax years). There are several nuances to this tax

credit.

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YEAR END MOVES: TAX STRATEGIES FOR MARRIAGE,

KIDS & FAMILY

The end of the year is approaching, so now is the time to utilize last-minute strategies to lower

your 2017 tax burden. There are four tax-reduction strategies that apply if you are getting

married or divorced, have children who did or could work in your business, and/or have

situations where you give money to relatives and friends. One or more of these strategies could

be helpful in your year-end planning.

1. Put Your Children on Your Payroll

If you have children under age 18 who helped you in your business this year, make sure you pay

them for their work and give them a W-2. You get a business deduction for the wages paid to

your child. And if you operate as a sole proprietor, the wages are exempt from federal payroll

taxes for both you and your child.

Your child can use the 2017 standard deduction to eliminate income taxes on up to $6,350 in

wages, in addition to contributing up to $5,500 to a tax-deductible IRA. That means for you, as a

sole proprietor in your 40 percent tax bracket:

• you can pay your child $11,850 and save $4,740 in federal FICA taxes, and

• your child pays zero federal taxes on the income.

If you operate your business as a C or an S corporation, both your corporation and your child pay

payroll taxes. This is not a deal breaker for the strategy, but it does reduce the tax savings.

2. Consider Getting Divorced After December 31

Tax law tends to provide more benefits to married couples. And you are considered married for

the entire year if you are married on December 31. If you are getting divorced soon, it may make

sense to run the 2017 numbers as both a married and a single taxpayer to see what the difference

is. This allows you to see the true impact of getting divorced before or after December 31.

3. Consider the Impact of Getting Married by December 31

If you are getting married soon, consider the impact on your taxes if you get married before year-

end. There are both pros and cons to getting married by December 31.

One big disadvantage to getting married by year-end is in regard to the mortgage. The rules on

home mortgage interest deductions recently changed.

Now, if you own a home with someone other than your spouse, you individually can deduct

mortgage interest on up to $1.1 million of a qualifying mortgage. So if you and your friend live

together and own the home together, the mortgage ceiling on deductions for the two of you is

$2.2 million. But if the two of you get married, the ceiling drops to $1.1 million.

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On the other hand, there are several other big savings that the IRS makes available to you if you

are married on or before December 31, 2017.

You have to run the numbers in your tax return both ways to know the tax benefits and

detriments for your particular situation.

4. Make Use of the 0 Percent Tax Bracket

A single person with less than $37,950 in 2017 taxable income and married couples with less

than $75,000 in 2017 taxable income pay 0 percent capital gains tax. If you give money to your

parents or other loved ones to make their lives more comfortable, and if they qualify for the 0

percent tax bracket, you can use this tax-reduction strategy to your advantage.

Example: You give your aunt shares of stock with a fair market value of $10,000, for which you

paid $1,000. Your aunt sells the stock and pays zero capital gains taxes. She now has $10,000 in

after-tax cash to spend. Had you had sold the stock, you would have paid taxes.

******

YEAR END MOVES: TAX STRATEGIES FOR YOUR STOCK

PORTFOLIO

With the end of the year approaching, it is now time to review how you can make use of your

stock portfolio to lower your tax burden. There are seven tax-reduction strategies that you can

use to your advantage that are helpful in your year-end planning.

First, some background information. Your short-term capital gains are taxed like ordinary

income. This means you pay federal taxes at rates of up to 43.4 percent: the top income tax rate

of 39.6 percent plus the 3.8 percent Affordable Care Act tax on investment income. You pay

taxes on your long-term capital gains at rates of up to 23.8 percent (20 percent for capital gains

plus 3.8 percent on investment income). And if you are in the 15 percent income tax bracket,

then you pay zero taxes on long-term gains.

The goal of the strategies below is to avoid the 43.4 percent tax, and instead pay tax at the 23.8

percent or even the 0 percent rate when possible.

1. Use Low Taxes to Offset High Taxes

Examine your portfolio for stocks that you want to unload. When you sell stocks subject to

short-term gains (with a tax rate as high as 43.4 percent), also sell stocks subject to long-term

losses (with a tax rate up to 23.8 percent). With this, you offset the gains with the losses.

In other words, make the high taxes disappear by offsetting them with low-taxed losses, and

pocket the difference.

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2. Use Losses Against Ordinary Income

Use long-term losses to offset up to $3,000 of your ordinary income. Again, you are trying to use

the 23.8 percent loss to kill a 43.4 percent tax.

3. Use Extra Losses as an Opportunity for Free Gains

If you have plenty of capital losses, use this opportunity to sell some capital gains assets so as to

create tax-free gains. For example, sell additional stocks, rental properties, and other assets to

generate gains that offset your capital losses.

4. Avoid Wash Sales

Under the wash-sale rule, if you sell a stock or other security and you purchase substantially

identical stock or securities within 30 days before or after the date of sale, you may not recognize

any loss on that sale. You definitely want to avoid this.

If you want the loss deduction in 2017, you have to sell the stock and wait at least 30 days before

repurchasing that stock. You never want to throw away a capital loss.

5. Gift Stock Instead of Cash

If you usually give money to your parents or older children (old enough that they are not subject

to the kiddie tax), consider giving appreciated stock to them instead. If they are in lower tax

brackets than you are, you get a bigger bang for your buck by gifting the stock to them and

having them sell it.

6. Donate Stock to Charity

Similarly, you should consider donating appreciated stock to charity instead of cash. You get a

big benefit at a low cost using this strategy because

• you deduct the fair market value of the stock, and

• you don’t pay taxes on the gain.

7. Never Donate Loser Stocks

Finally, if you could sell a stock at a loss, do not donate that loss-deduction stock to charity.

Instead sell the stock first to create your tax-deductible loss and use it for your own benefit. Then

give the charity the cash from the sale of the stock as your donation.

******

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CONSIDER A MOTOR HOME FOR BUSINESS LODGING

An interesting tax-reduction strategy specifically for the business traveler who is constantly on

the road traveling for their business.

Instead of the hassles of airports, train rides, and staying in hotel rooms, a business motor home

may provide an ideal solution to your business lodging and transportation needs. Just think about

it—you would know how clean the interior is and the motor home’s smoking history. You would

know how many pets, if any, have graced the premises. It could be like your home away from

home.

Another big factor is that if purchased before Dec 31 you could even write off the entire

business cost of the motor home. With the 2017 Section 179 expensing limit of $500,000, you

should easily be able to deduct the entire business cost. As long as the motor home has a gross

vehicle weight rating (GVWR) of more than 14,001 pounds, it escapes the $25,000 limit on

Section 179 expensing of SUVs and qualifies for expensing up to the $500,000 limit.

******

Contact us to schedule your consultation to identify proven

tax-smart strategies, options & solutions that deliver real value for

the professional services needed based upon your particular

situation by calling (314) 205-9595.

******

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