Two valuable depreciation-related tax breaks can potentially reduce your 2017 taxes if you acquire and place in service qualifying assets by the end of the tax year. Tax reform could enhance these breaks, so you’ll want to keep an eye on legislative developments as you plan your asset purchases.
Section 179 expensing
Sec. 179 expensing allows businesses to deduct up to 100% of the cost of qualifying assets (new or used) in Year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and real property improvements.
The Sec. 179 expensing limit for 2017 is $510,000. The break begins to phase out dollar-for-dollar for 2017 when total asset acquisitions for the tax year exceed $2.03 million. Under current law, both limits are indexed for inflation annually.
Under the initial version of the House bill, the limit on Section 179 expensing would rise to $5 million, with the phaseout threshold increasing to $20 million. These higher amounts would be adjusted for inflation, and the definition of qualifying assets would be expanded slightly. The higher limits generally would apply for 2018 through 2022.
The initial version of the Senate bill also would increase the Sec. 179 expensing limit, but only to $1 million, and would increase the phaseout threshold, but only to $2.5 million. The higher limits would be indexed for inflation and generally apply beginning in 2018. Significantly, unlike under the House bill, the higher limits would be permanent under the Senate bill. There would also be some small differences in which assets would qualify under the Senate bill vs. the House bill.
First-year bonus depreciation
For qualified new assets (including software) that your business places in service in 2017, you can claim 50% first-year bonus depreciation. Examples of qualifying assets include computer systems, software, machinery, equipment, office furniture and qualified improvement property. Currently, bonus depreciation is scheduled to drop to 40% for 2018 and 30% for 2019 and then disappear for 2020.
The initial House bill would boost bonus depreciation to 100% for qualifying assets (which would be expanded to include certain used assets) acquired and placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for certain property with a longer production period).
The initial Senate bill would allow 100% bonus depreciation for qualifying assets acquired and placed in service during the same period as under the House bill, though there would be some differences in which assets would qualify.
If you’ve been thinking about buying business assets, consider doing it before year end to reduce your 2017 tax bill. If, however, you could save more taxes under tax reform legislation, for now you might want to limit your asset investments to the maximum 179 expense election currently available to you, and then consider additional investments depending on what happens with tax reform. It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. Contact us to discuss the best strategy for your particular situation.
Like many businesses, yours may allow retirement plan participants to take out loans from their accounts. Such loans are governed by many IRS and Department of Labor (DOL) rules and regulations. So if your company offers plan loans, your plan document must comply with current laws — including setting a “reasonable” interest rate.
Neither the IRS nor DOL provides a set percentage for plan sponsors to use. Yet both require the rate to be “reasonable.” The IRS asks if the interest rate is similar to local interest rates and to what local banks charge individuals for similar loans with similar credit and collateral. Meanwhile, DOL regulations say that an interest rate is reasonable if it’s equal to commercial lending interest rates under similar circumstances.
The DOL provides several examples of how to determine the interest rate. For example, suppose the plan loan interest rate is set at 8%, but local banks offer between 10% and 12% for similar circumstances. In this example, the loan will fail to meet the reasonable standard.
Keep in mind that the plan participant pays the interest to his or her own retirement plan account. That’s one reason why charging an interest rate that’s lower than what local banks are charging isn’t considered reasonable. The purpose of charging interest on retirement plan loans is to help prevent long-term harm to the participant’s retirement nest egg.
If your plan fails to assess a reasonable interest rate, participant loans may result in a prohibited transaction. What does this mean? Prohibited transactions are certain transactions between a retirement plan and a disqualified person. Disqualified persons taking part in a prohibited transaction must pay a tax.
A prohibited transaction includes the lending of money or other extension of credit between a plan and a disqualified person. However, the laws specifically exempt plan loans from the prohibited transaction list as long as they comply with applicable rules. If your interest rate isn’t reasonable, the plan loan may lose its exempt status and become subject to the prohibited transaction tax.
Ensuring you’re offering a reasonable plan loan interest rate is an ongoing task. Review your plan document and loan policy statement to determine whether the plan sets an interest rate. You may need to update the document to comply with the more recent regulations and interest rates. We can help you with this review, as well as in calculating a reasonable rate.
Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in business, it’s not unusual for its tax basis to be higher than its value. This can be costly tax-wise, depending on how you dispose of the vehicle:
Trade-in. If you trade a vehicle in on a new one, the undepreciated basis of the old vehicle simply tacks onto the basis of the new one — even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits.
Sale. If you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.
For example, if you sell a vehicle you’ve used 100% for business and it has an adjusted basis of $20,000 for $12,000, you’ll get an immediate write-off of $8,000 ($20,000 – $12,000). If you trade in the vehicle rather than selling it, the $20,000 adjusted basis is added to the new vehicle’s depreciable basis and, thanks to the annual depreciation limits, it may be years before any tax deductions are realized.
For details on the depreciation limits or more ideas on how to maximize your vehicle-related deductions, contact us.
Many business owners are accustomed to running the whole show. But as your company grows, you’ll likely be better off sharing responsibility for major decisions. Whether you’ve recruited experienced managers or developed “home grown” talent, you can empower these employees by taking a more collaborative approach to management.
Not employees — team members
Successful collaboration starts with a new mindset. Stop thinking of your managers as employees and instead regard them as team members working toward the same common goals. To promote collaboration and make the best use of your human resources, clearly communicate your strategic objectives. For example, if you’ve prioritized expanding into new territories, make sure your managers aren’t still focusing on extracting new business from current sales areas.
You also must be willing to listen to your managers’ ideas — and to act on the viable ones. Relinquishing control can be hard for business owners, but keep the advantages in mind. A collaborative approach distributes the decision-making burden, so it doesn’t fall on just your shoulders. This may relieve stress and allow you to focus on areas of the company you may have neglected.
Confidence and development
Even as you move to a more collaborative management model and include employees in strategic decisions, don’t forget to recognize their individual skills and talents. You and other managers may have uncertainties about a new marketing plan, for instance, but you should trust your marketing director to carry it out with minimal oversight.
To ensure that managers know they have your confidence, conduct regular performance reviews where you note their contributions and accomplishments and explore opportunities for growth. Moreover, help them grow professionally by providing constructive, ongoing training to develop their leadership and teamwork skills.
An open mind
As you learn to trust your management team with greater responsibility, keep in mind that the process can be bumpy. In a crisis, your instinct may be to take charge and brush off your managers’ advice. But it’s critical to keep your mind open and be receptive to input from people who may one day run your company. Let our firm assist you in assessing the profitability impact of your management team.
Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
- If a calendar-year C corporation, file a 2016 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.
- If a calendar-year C corporation, pay the first installment of 2017 estimated income taxes.
- Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), and pay any tax due. (See exception below.)
- Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.
- If a calendar-year C corporation, pay the second installment of 2017 estimated income taxes.
Mentoring… A process that helps us to develop, maintain a teachable attitude and take a “new” look at what you are doing on a daily basis.
When I think of mentoring, my mind immediately thinks of two words – why and how.
I connect mentoring with these two little words because of many teachable moments. My 3 year old granddaughter is in the “why” stage. She will ask a question, I give an answer…and then the “why’s” begin. I can choose to answer each “why” with a logical answer or stop the conversation with the word….”because.”
There is something about that “because” word that ends the conversation.
Just like my experience with a 3 year old, a Mentor we can lose effectiveness and end conversations when we give a “because” response. The more they ask (and get a response), the more they learn, the quicker our mentee’s will grasp the knowledge that we are trying to help them reach.
So, as long as our mentee’s are asking questions…bring them on.
The “how” is also very important to explain. Sometimes the “how” is answered in step-by-step directions, and at other times it can be a one word answer. The significance is that it deserves a response. If a mentee has the nerve to ask their mentor “how” to perform a certain task, then, as a mentor, you need to have the tools to lead them in the right direction.
I firmly believe that the mentoring process – sometimes as a mentor and sometimes as a mentee – can have a profound impact on a person’s personal and professional life. We just have to take the time to answer the “why’s” and the “how’s” …and enjoy those teachable moments!!
No matter what the profession – you need to embrace the mentor inside you.
Author: Christine Dill, Firm Administrator
Each year, the IRS creates a list of the top tax scams it has seen throughout the year.
This year’s “Dirty Dozen” are:
Taxpayers should be wary of fake e-mails and website looking to steal personal information.
- Phone Scams
Taxpayers should be aware of callers that are impersonating IRS agents and threatening taxpayers with arrest, deportation, unpaid taxes, and more.
- Identity Theft
Especially during tax season, there are criminals that file fraudulent returns under another person’s Social Security number.
- Return Preparer Fraud
Tax season brings about con artists that perpetuate return fraud, identity theft, and scams to taxpayers.
- Fake Charities
There are groups that disguise themselves as charities in hopes of collecting donations for their benefit. Taxpayers should pay close attention to the charity’s name and status before donating. The IRS has tools that will help.
- Inflated Refund Claims
Taxpayers should always be cautions of a promised “big refund”, especially when your records has not been reviewed.
- Excessive Claims for Business Credits
Taxpayers should avoid improperly claiming business credits.
- Falsely Padding Deductions on Returns
Taxpayers should avoid falsifying deduction such as charitable contributions and business expenses.
- Falsifying Income to Claim Credits
Taxpayers should not create false income to quality for a tax credit; this can lead to back taxes, penalties, and, in some cases, criminal prosecution.
- Abusive Tax Shelters
Taxpayers should avoid using the use of phony tax shelters to avoid paying what is owed.
- Frivolous Tax Arguments
Taxpayers should avoid outlandish and unreasonable claims to avoid paying tax.
- Offshore Tax Avoidance
Taxpayers should avoid hiding money in unreported offshore accounts.
For many, tax season brings about the dreaded task of scrounging through stacks of paper work – looking for receipts, bills, statements and more.
Forbes published an article this month offering 5 organizational strategies for the disorganized taxpayer.
1. Find the Perfect Spot
Dedicate a specific spot for important tax papers. This spot should be convenient, so you do not fall back into the habit of putting papers in a junk drawer or leaving them on the counter.
Tip: Search Google and Pinterest for organizational ideas.
2. Divide and Conquer
Use file folders or binders to create a filing system. Separate different receipts into categories such as: insurance payments, donations, medical bills, mortgage statements, etc.
3. Consolidate your Finances
Perform financial “decluttering”. Visit our Record Retention Policy, and shred papers you do not need anymore. Consolidate and pay down accounts and/or debt if able.
4. Consider Electronic Storage
Look into apps that allow you to track and store your information online. For example, there are many different apps that will allow you to take pictures of receipts and categorize them.
5. Stow Some Documents Separately
Find a specific place for important documents that should be preserved (will, trust, marriage license, birth certificates, Social Security documents, etc.). These documents should be kept in a fire-safe lockbox.
At Brickley DeLong, we aid your tax planning and preparation process and strive to have it go as seamless at possible. Our clients receive a tax organizer each year to help them answer important questions related to their return. If you need help, we encourage you to set up a tax planning meeting with one of our tax advisors.
To read the full article from Forbes, click here.
Visit our Individual and Business Tax Preparation page for more information on our tax services or to request information.
Effective January 1, 2017, the Grand Haven firm of Walburg+Associates PC has joined with Brickley DeLong PC. This merger will add a fourth office location expanding our regional footprint and industry niches.
“Walburg+Associates has a solid reputation of success in the community,” said Donald E. Swick, Managing Partner of Brickley DeLong. “Their focus in the construction industry will strengthen our presence in that practice area.”
The downtown Grand Haven location will allow us to better serve the Lakeshore and Ottawa County markets.
“The combination of our complementary teams of talented individuals, who are dedicated to providing exceptional client service, will bring growth to our Firm, service lines, and industry niches” Swick added. “Walburg+Associates has demonstrated admirable leadership over the years, and we are excited to benefit from their knowledge.”
“We did an extensive search looking for a firm to partner with that shares the same client-driven values that we have” said Curt Walburg. “We found just the right fit with Brickley Delong.”