“Bunching” Medical Expenses Will Be a Tax-Smart Strategy for Many in 2017

“Bunching” Medical Expenses Will Be a Tax-Smart Strategy for Many in 2017

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only if they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction. Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. If tax reform legislation is signed into law, it might be especially beneficial to bunch deductible medical expenses into 2017. The deduction Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income. The 10% floor applies for both regular tax and alternative minimum tax (AMT) purposes. Beginning in 2017, even taxpayers age 65 and older are subject to the 10% floor. Previously, they generally enjoyed a 7.5% floor, except for AMT purposes, where they were also subject to the 10% floor. Benefits of bunching By bunching nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery. Normally, if it’s looking like you’re close to exceeding the floor in the current year, it’s tax-smart to consider accelerating controllable expenses into the current year. But if you’re far from exceeding the floor, the traditional strategy is, to the extent possible (without harming your or your family’s health), to put...
2017 Q4 Tax Calendar: Key Deadlines for Businesses and Other Employers

2017 Q4 Tax Calendar: Key Deadlines for Businesses and Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth 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.     October 16 • If a calendar-year C corporation that filed an automatic six-month extension: o File a 2016 income tax return (Form 1120) and pay any tax, interest and penalties due. o Make contributions for 2016 to certain employer-sponsored retirement plans. October 31 • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941) and pay any tax due. (See exception below.) November 13 • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due. December 15 • If a calendar-year C corporation, pay the fourth installment of 2017 estimated income taxes.   ©...
3 Midyear Tax Planning Strategies for Business

3 Midyear Tax Planning Strategies for Business

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. However, the last major tax legislation that was signed into law — back in December of 2015 — still has a significant impact on tax planning for businesses. Let’s look at three midyear tax strategies inspired by the Protecting Americans from Tax Hikes (PATH) Act: 1. Buy equipment. The PATH Act preserved both the generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 deduction is $510,000, subject to a $2,030,000 phaseout threshold. Without the PATH Act, the 2017 limits would have been $25,000 and $200,000, respectively. Higher limits are now permanent and subject to inflation indexing. Additionally, for 2017, your business may be able to claim 50% bonus depreciation for qualified costs in excess of what you expense under Sec. 179. Bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it’s set to expire on December 31, 2019. 2. Ramp up research. After years of uncertainty, the PATH Act made the research credit permanent. For qualified research expenses, the credit is generally equal to 20% of expenses over a base amount that’s essentially determined using a historical average of research expenses as a percentage of revenues. There’s also an alternative computation for companies that haven’t increased their research expenses substantially over their...
Claiming a Federal Tax Deduction for Moving Costs

Claiming a Federal Tax Deduction for Moving Costs

Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs. Pass the tests The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly. Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.) What’s deductible So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving. In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to...
2017 Q2 Tax Calendar: Key Deadlines for Businesses and Other Employers

2017 Q2 Tax Calendar: Key Deadlines for Businesses and Other Employers

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. April 18 • 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. May 1 • Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), and pay any tax due. (See exception below.) May 10 • 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. June 15 • If a calendar-year C corporation, pay the second installment of 2017 estimated income taxes.   ©...
What You Need to Know About The Tax Treatment of ISOs

What You Need to Know About The Tax Treatment of ISOs

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation.   Current tax treatment ISOs must comply with many rules but receive tax-favored treatment: • You owe no tax when ISOs are granted. • You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences. • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax (NIIT). • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates. So if you were granted ISOs in 2016, there likely isn’t any impact on your 2016 income tax return. But if in 2016 you exercised ISOs or you sold stock you’d acquired via exercising ISOs, then it could affect your 2016 tax liability. And it’s important to properly report the exercise or sale on your return to avoid potential interest and penalties for underpayment of tax. Future exercises and stock sales If you receive ISOs in 2017 or already hold ISOs that you haven’t yet exercised, plan carefully when to exercise them. Waiting to exercise...