This article was written by Sam J. Adams CPA, P.C.
This 2017 personal tax planning guide aims to provide you with information and planning tips to assist you in understanding and making the most of the laws affecting your tax situation. Using the guidance in this article will help ensure that you retain the tax benefits to which you are entitled and protect the wealth you have created. Below we look at some new tips based on the tax law changes of 2016 – and then revisit some tried and true tactics.
New Tax Tips for Filing in 2017
Here are some new items to consider as we close out the 2016 tax year and move into filing season.
- Reduced Business Mileage Expenses: In responses to lower gasoline prices, the IRS lowered the standard mileage rate for business travel from 57.5 cents down to 54 cents. Depending on your situation, it might warrant re-examining taking the actual auto expenses versus the standard mileage deduction.
- Retirement Giving and Planning: Remember that Qualified Charitable Distributions are back on the table. These have been permitted on an on-again, off-again basis since 2007. QCDs allow taxpayers who are 70½ or older and have a traditional IRA to make charitable donations of up to $100,000 out of the IRA.
- New Depreciation Categories: There is a new category of depreciable property that gets depreciated over a 15-year period called Qualified Improvement Property. Generally, QIP is any non-residential interior building improvement to already in service real property originally placed in service after Dec. 31, 2015. QIP is similar to Qualified Leasehold Improvements; however, there are subtle distinctions. For example, QIP is not restricted to expenditures under a lease between non-related parties. The rules can be nuanced and complex, so it is best to consult your tax advisor regarding details and how they impact your business.
- Limits on Transfers: Many companies are family owned, and often families own assets through investment or holding companies. Traditionally, these types of assets often were transferred from one family member to another with discounted valuations, resulting in significant tax savings. Currently, both the IRS and U.S. Treasury have issued proposed regulations that may curtail or even end these valuation-related tax breaks for family-controlled entities.
Evergreen Tax Tips
This past year did not see a substantial number of major changes to tax rules, and as a result you may benefit most from revisiting the tried and true strategies and tactics, including the following.
- Do you pay the Alternative Minimum Tax? If so, don’t worry about paying your fourth-quarter state estimated tax payment until after year ends since you won’t get to deduct it as an itemized deduction anyway. Just make sure to pay it soon enough to avoid interest and penalties.
- If you are thinking about selling taxable assets, consider taking action before Dec. 31 so the losses are available to offset other sources of capital gains – and potentially up to $3,000 of ordinary income.
- Do you already own a home or plan on buying one? Do you also owe debts that are not deductible? If both are true, then consider the potential advantages of paying off the non-deductible debt by either financing a larger portion of the new home or taking out a home equity loan on your existing residence.
- You may not be allowed to deduct your time or the value of services you donate to charity; however, you can deduct out-of-pocket expenses related to charitable activities such as mileage on the use of your own car.
- Do you need child care? You may be able to pay a relative to care for your children and have the payments qualified for the child and dependent-care credit. However, this works only if the relative you pay reports the payments as income on her return as well. There can be significant tax advantages depending on the tax rate arbitrage between your and her tax rates, as well as other factors.
- Married couples, particularly those 65 or older, may benefit from filing separately when one spouse has high medical expenses. This is because medical expenses are deductible only after they exceed a certain threshold of adjusted gross income, and it is harder to exceed it when married filing jointly if you and your spouse have a high AGI.
Remember that while there are no major changes anticipated between now and the end of 2016, there is no guarantee of what will actually happen. Use this guide as a starting point for a dialogue with your tax professional to ensure that you plan now and plan smart for the upcoming tax filing season.