One of the best but sometimes least used estate planning technique is the annual gift tax exclusion. Under the provisions of this exclusion you may gift up to $13,000 per individual per year tax free (or $26,000 if married filing jointly.)
Be sure to keep the beneficiary on life insurance policies up to date. If the beneficiary has deceased, proceeds from the life insurance will go into your estate and may result in the payment of estate taxes
If you employ domestic help and pay them over $1,000 during the year, the amount you pay them is subject to FICA and FUTA. Although you do not need to file payroll returns with the IRS quarterly, you may need to file quarterly reports with the state.
If you go on a trip that is primarily for business, and the destination is within the US, the full cost of travel to and from the destination is deductible even though not all of your time was spent on business. Meals and entertainment expenses on the days primarily related to business are 50% deductible. These expenses and any other expenses on days not primarily related to business are not deductible. If another person accompanies you for non-business purposes, that person’s expenses are not deductible. The rules are a little bit different when travel is to a destination outside the US.
The per diem rates for travel can generally be used to substantiate properly documented business travel, but not if you own 10% or more of the stock of the paying corporation or are a sole proprietor or partner.
In those cases, you must substantiate the expense with actual receipts, although reimbursement can be made at the standard per diem rate, and will be excludable from income under an accountable reimbursement plan.
Charitable contributions of $250 or more are deductible only if there is written proof of the deduction from the organization receiving the donation. The written proof should be obtained at the time the donation is made.
Due to the limitation on the deduction for real estate and state and local income taxes (otherwise known as the SALT deduction) to $10,000 in 2018, people are thinking that they can prepay these taxes in 2017 while there is no such limitation. Congress anticipated this and limited the 2017 deduction of prepaid taxes.
The only prepaid taxes that will be deductible in 2017 are those that were assessed in 2017 but do not require a payment until 2018. The payment of these taxes would need to be made before the end of 2017 to be deductible in 2017.
If the tax assessment is related to 2018, the payment of it will not be deductible in 2017.
On December 20th new changes in tax laws were finalized and passed both houses in Congress. Be careful about relying on what you have read that is prior to this date, as there were a number of changes right up until the final version on December 20th.
The new tax laws will become effective in the 2018 tax year except for some provisions that disallow bunching up some deductions in 2017 in anticipation of them being disallowed in 2018.
Two of the changes that will affect every personal income tax return are:
- There will no longer be a deduction for personal exemptions. The personal exemption was $4,050 per taxpayer and per dependent in 2017.
- The standard deduction that can be taken in lieu of itemizing deductions will be approximately doubled. As an example, if you file married filing joint the standard deduction in 2017 was $12,600. This amount will be $24,000 in 2018.
For taxpayers who have an interest in what is known as a pass through entity (S corporations, LLC’s and partnerships, there will generally be a new 20% deduction allowed for what is referred to as “qualified business income.” The calculation of the allowable deduction is subject to a number of qualifications and limitations and is actually one of the more complex areas of the new tax laws.
The above is intended only to give the reader a sample of some of what is in the new tax laws, and as always, anything that is presented here should be discussed with a tax professional to determine how it specifically applies to your situation. I have deliberately tailored my discussion to make it more understandable. I will also be updating my discussion of the new changes as well.
The penalty for late filing of the partnership return is $195 per partner per month or part of a month for which the partnership information return is filed late, with the penalty capped at 12 months.
The penalty is waived if the failure to file is due to reasonable cause [Sec. 6698]. Small partnerships are considered to have met the reasonable cause exception if certain tests are met [Rev. Proc. 84-35].
Small Partnership Exception to Late Filing Penalty Domestic partnerships composed of ten or fewer partners and meeting other tests are considered “small partnerships” exempt from the late or non-filing penalty. Each partner in a small partnership must be an individual (other than a nonresident alien), a C corporation or an estate of a deceased partner. Spouses (and their estates) are treated as one partner for the ten or fewer count [Rev. Proc. 84-35].
As an additional small partnership requirement, all items of income, deductions, and credits must be allocated in proportion to the pro-rata interests. And to qualify for the reasonable cause exception to the late filing penalty, the small partnership or any of its partners must establish that all partners have fully reported their shares of the income, deductions and credits of the partnership on their timely filed income tax returns [Rev. Proc. 84-35, sec. 3.01].
Generally, the Section 179 deduction is limited to the income of the business before consideration of the deduction (i.e. you generally cannot take the Section 179 deduction if it will generate a loss.) However, if your Section 179 deduction is limited because of this, there is a carryforward of the disallowed deduction that does not expire.
What this means is that if a business has a Section 179 deduction that is limited as described above, the carryforward can be used in the next tax year rather than taking depreciation deductions over 5 or 7 years. So, if your goal is to keep taxable income to a minimum this may be the best approach to take.
There may be other considerations such as possibly being in a higher tax bracket in future years that will increase the value of deductions in those years that may affect taking the Section 179 deduction, so it is always best to review your situation with a tax professional before making a decision.
For 2016 and later years the penalty for not filing a Form 1099 when you should have is $250 per form. If you file it late the penalty is $15 if filed within 30 days after the due date. If 1099 is not filed for someone, and it can be shown that not doing so was intentional, the fine is $530 per 1099. The due date for 2017 Form 1099’s is January 31, 2018.
Prior to 2016 property that was generally required to be capitalized and depreciated was property with a cost of $500 or more. Starting in 2016 this amount was increased to $2,500.