The Money Issue
10 tax moves for 2015
Business owners and individual taxpayers can benefit from an extension of some tax breaks
Last December, Congress temporarily extended more than 50 tax breaks via the Tax Increase Prevention Act. As this year comes to a close, tax planners are watching closely to see whether lawmakers will extend them again.
The tax breaks involve deductions for things like research and development, private mortgage insurance, tuition and educational expenses, home improvements that save energy and sales tax (in states like Florida with no income tax).
"This is important for almost every taxpayer," says Stam Stathis, past president of the Florida Institute of Certified Public Accountants.
In recent years, the tax breaks have been extended piecemeal — one or two years at a time — because many lawmakers have said they wanted a more broad revamp of the tax code. So far, that hasn't happened, and, with a presidential campaign under way, tax professionals don't believe an overhaul of the tax code is likely.
Stathis says it is likely Congress will extend some of the tax breaks another year and make others permanent. "Keep an eye on Washington, go through any changes in the tax law and plan accordingly," he advises. "If the tax breaks are extended, it could be huge planning opportunity."
Meanwhile, consider other tax planning moves
1\. 401(k) Contributions
If you don't contribute enough to earn your employer's maximum match (a percentage that varies from company to company), you're passing up free money, says Mari Adam, founder and president of Adam Financial Associates in Boca Raton. At many companies, you need to contribute 6% of your salary to earn the full match. To truly be prepared for retirement, you need to contribute from 10% to 15%, she says. "When you get the full employer match, you're earning up to a 100% return on your own dollars," she says. Because the money you contribute to your 401(k) retirement account is not included in your taxable income, your tax bill is reduced. Contribution limits for 2015 are $18,000, or $24,000 if you are 50 or older.
“When you get the full employer match, you’reearning up to a 100% return on your own dollars.”
— Mari Adam, Adam Financial Associates, Boca Raton
2\. Same-Sex Filers
Same-sex couples who are legally married are now required to file taxes as married filing jointly or married filing separately. For federal estate and gift tax purposes, couples can take advantage of certain marital benefits, such as the unlimited marital deduction, "gift-splitting" and "portability" of the estate tax exemption.
Scott Goldberger, an estate and trust principal with Kaufman Rossin's Boca Raton office, says same-sex married couples should explore whether amending their state returns from prior years could yield refunds and should consider whether it is necessary to revise wills or trusts to take advantage of marital benefits for estate and gift tax purposes.
Scott Goldberger says samesex couples may want to revise wills or trusts.
3\. Sales Tax
Business owners need to review their sales tax procedures. James H. Sutton, a tax attorney with Moffa, Gainor, & Sutton in Tampa, says the Florida Department of Revenue has been increasing audits and penalties and getting more aggressive with sales tax collection. Owners should be aware of what it takes for a sale to be exempt and what documentation is necessary.
In addition, business owners may owe sales tax on rent for a related party, even if rent wasn't paid. "This catches a lot of business owners off guard," Sutton says. About 10% of the annual sales tax collected statewide — more than $2 billion a year — comes from commercial rent, he says.
Owners who overcollect sales tax, thinking the state will view it favorably, may end up facing class-action lawsuits from consumers. Sutton advises getting all paperwork in order, including shipping records for out-of-state sales, sales tax exemption certificates and documentation for property improvements. Business owners with periods of under-reported sales tax should clean up their accounts with a voluntary disclosure.
About 10% of the annual sales tax collected statewide — more than $2 billion a year — comes from commercial rent.
— James H. Sutton, tax attorney, Moffa, Gainor, & Sutton
Despite government efforts to repeal or limit the use of 1031 exchanges (also known as like-kind exchanges), a robust real estate market is driving demand for this tax-planning tool. Individuals may defer taxes on the sale of certain assets or investment property when they reinvest the proceeds into similar property of equal or greater value, says John G. Ebenger, director of real estate tax services with Berkowitz Pollack Brant Advisors and Accountants in Boca Raton.
Property holders can benefit by selling a long-held, low-tax-basis investment property that has appreciated in value without incurring significant federal and state income taxes.
For example, Ebenger says, "If I owned an apartment complex, I could sell it and buy a piece of raw land that I would own as an investment. That would allow my original dollars invested to continue to grow tax-free." Taking advantage of 1031 exchanges requires careful planning and understanding of a complex set of rules, says Ebenger, who advises consulting a tax adviser.
“If I owned an apartment complex, I could sell it and buy a piece of raw land that I would own as an investment. That would allow my original dollars invested to continue to grow tax-free.”
— John Ebenger, director of real estate tax services, Berkowitz Pollack Brant Advisors
5\. Amily Limited Partnerships
For many years, family limited partnerships (FLPs) have been used to transfer property to family members at significant discounts, saving estate and gift taxes. For example, if the owner of a $10-million shopping center transfers his ownership into a partnership and then gifts 10% to a child, that gift would be valued at $1 million. But because of current rules, that gift could be valued using a discount of as much as 40%. However, those discounts may soon be going away. IRS and Treasury officials have indicated they will issue proposed regulations to substantially reduce or eliminate discounts when valuing family limited partnerships and other non-operating businesses for estate, gift tax and generation-skipping transfer tax purposes.
If you don't already have a family limited partnership, you may still have enough time to create one and then gift or sell an interest in it prior to the new regulations going into effect, says John R. Anzivino, CPA and a principal in Kaufman Rossin's Miami office, where he leads the firm's estate, trust and exempt organization practice.
There still may be time to take advantage of old rules governing family limited partnership gifts.
— John R. Anzivino, CPA/principal, Kaufman Rossin
6\. Health Care Reporting
The Affordable Care Act requires all businesses with 50 or more full-time or full-time equivalent employees to collect and report employee health coverage information for the first time. All affected employers should start compiling their 2015 information now so they can fulfill their obligations, says Mark Margulies, tax partner and Florida tax practice leader with Grant Thornton, based in Fort Lauderdale.
Employers are required to provide detailed information on the type of employee coverage and premium costs. Act now and get help if necessary — reporting that information incorrectly or incompletely can lead to penalties of up to $3 million. Statements will be due to the IRS by Feb. 1, 2016, and to employees by March 31, 2016. Businesses with fewer than 100 employees have until 2016 to offer coverage plans, but they are still required to file the tax form in January.
Businesses with at least 50 employees are required to report health coverage information.
— Mark Margulies, tax partner and Florida tax practice leader, Grant Thornton
7\. Business Investing
With certain tax breaks expiring, keep a close eye on how that could affect your tax strategy, says Gerri Lazarre, managing partner of TriMerge CPA in Miami. Taxpayers need to stay on top of whether Congress extends certain tax breaks for businesses such as Section 179 expensing and bonus depreciation, which allows business owners to purchase equipment and receive accelerated depreciation. "This is truly a great tax incentive because it provides a boost to the economy and helps businesses invest for the future," Lazarre says. Other important deductions and credits that business taxpayers should keep on their radar Include the research and development credit, the renewable energy credit and the hiring of veterans credit among others.
With certain tax breaks expiring, keep a close eye on how that could affect your tax strategy.
— Gerri Lazarre, managing partner, TriMerge CPA
8\. Income Shifting
For high-income earners, the additional 3.8% tax on net investment income has brought back a formerly popular planning strategy: Passing investment income to children.
Matthew King, tax director of private wealth service at Grant Thornton in Fort Lauderdale, suggests three strategies: First, consider passing on to children anything that generates dividends and capital gains (make sure to consider gift taxes and exemptions). The children's income (up to the first $200,000) will be taxed at a parent's rate only for income tax purposes, which helps the family avoid the additional 3.8% net income investment tax liability. But be careful how you file. If you elect to report your children's interest and dividends on form 8814, this income will still go into your net investment income and you will be subject to the tax. Make sure your children instead claim this income on their own returns using form 8615.
Second, if you eventually have to pay estate taxes, consider establishing a gifting program for your children and grandchildren to take advantage of the annual gift tax exclusion. The annual exclusion is $14,000 per recipient in 2015. You can double this exclusion to $28,000 by electing to split gifts with your spouse. Even if you want to give to just four individuals, you and your spouse could give a total of $112,000 this year with no gift tax consequences. If you have more people you would like to benefit, you can remove even more money from your estate every year.
Last, consider taxable gifts. Making taxable gifts can have significant tax benefits. The amount of gift tax paid is removed from the estate.
Consider passing to children anything that generates dividends and capital gains.
— Matthew King, tax director of private wealth service, Grant Thornton
With a few months left in 2015, it's a good time to make charitable donations. You can deduct the fair market value of your gift if you collect documentation for the items you give away. "You'll be amazed at how much you may be able to take off on your tax return," says Stam Stathis, a CPA with Thielen Tax and Business Consulting in Tallahassee.
Along with paper documentation, Stathis recommends using apps to track expenses and receipts with your smart phone. Stathis likes the American Express expense-tracking app — users can take a photo of receipts, set up tags and generate an expense report that can serve as documentation. "The big challenge anyone faces when being audited is having documentation to support expenditures," he says. "Use technology to make it easy to provide that support."
"You'll be amazed at how much you may be able to take off on your tax return."
— Stam Stathis, CPA, Thielen Tax and Business Consulting
10\. College Savings
Offered by numerous states (including Florida), 529 college savings plans allow holders to save money and withdraw tax free — as long as the proceeds are used toward approved college costs, like tuition, fees, room and board and books.
There is a push in Congress to make the rules governing 529 college savings plans more flexible. A proposed bill would allow the funds in 529 plans to be used for expenses such as computers and internet access.
Stuart Morris, a CPA and estate-planning attorney with Morris Law Group in Boca Raton, says many people don't realize that their contribution to a 529 plan qualifies for the $14,000 annual gift tax exclusion. That means you can make fairly large contributions without incurring the gift tax, he explains. You actually can make five years worth of contributions in one year by contributing up to $70,000 and electing to treat the contribution as made over a five-year period for gift tax purposes. This allows you to shelter a larger contribution, and the money (and the growth of your account) gets out of your estate faster than if you made annual contributions.
Many people don't realize that their contribution to a 529 plan qualifies for the $14,000 annual gift tax exclusion.
— Stuart Morris, CPA and estate-planning attorney, Morris Law Group