Overview of tax-saving moves for the rest of 2018.

Hi Everyone and Merry Christmas/Happy New Year!

YES there is still time for 2018 tax planning if you have not scheduled a meeting yet. The tax laws have changed in a very big way.

*Please note that we no longer use the Chelmsford office location. We’ll keep everything at our Leominster, MA location.

We would like to welcome two of our new accounting staff! Manager Terry Neff, EA, and Staff Accountant Madhu Saiprsad. A third new person begins next week. We will now be able to increase our bookkeeping and other work for clients that want it done right!

There are so many tax changes for 2018, it would be impossible to go into detail for each here.

Fortunately, the economy is buzzing ahead at record pace! This helps everyone and helps generate tax revenue for the country (without increasing our taxes).

Year-end tax planning for 2018 takes place against the backdrop of legislative changes that fundamentally alter the tax rules for individuals and businesses. For 2018, the Tax Cuts and Jobs Act (TCJA) does away with many familiar, long-standing tax rules and introduces a host of new ones. For individuals, there are new, lower income tax rates, a substantially increased standard deduction that for some makes up for severely limited itemized deductions and eliminated personal exemptions, an increased child tax credit (extra $1,000 per child under age 17), and a watered-down alternative minimum tax (AMT), among many other changes. For businesses, the corporate tax rate is cut to 21 %, the corporate AMT is gone, there are new limits on certain business interest deductions, and significantly liberalized expensing and depreciation rules. And the domestic production activities deduction (DAPD) is repealed, although there is a new deduction for non-corporate taxpayers with qualified business income from pass-throughs.

Despite this atmosphere of change, the time-honored approach of deferring income and accelerating deductions to minimize taxes still works for many taxpayers, along with the tactic of “bunching” expenses into this year or the next to get around deduction restrictions.

While many taxpayers will come out ahead by following the traditional approach (deferring income and accelerating deductions), others, including those with special circumstances, may want to consider accelerating income and deferring deductions. Most traditional techniques for deferring income and accelerating expenses can be reversed to achieve the opposite effect. For instance, a cash method professional who wants to accelerate income can do so by speeding up his business’s billing and collection process instead of deferring income by slowing that process down. Or, a cash-method taxpayer who sells property in 2018 on the installment basis and realizes a large long-term capital gain can accelerate income by electing out of the installment method.

Some of the key considerations to take into account when formulating a year-end tax saving plan include the following:

Capital gains. Long-term capital gains are taxed at a rate of 0%, 15% or 20%. And, the 3 .8% surtax on net investment income may apply

Low-taxed dividend income. Qualified dividend income is taxed at the same favorable tax rates that apply to long-term capital gains. However, the 3.8% surtax on net investment income may apply, converting investment income taxable at regular rates into qualified dividend income can achieve tax savings and result in higher after-tax income.

Expensing deduction. For qualified property placed in service in tax years beginning in 2018, the maximum amount that may be expensed under the Code Sec. 179 dollar limitation is $1,000,000, and the beginning-of-phase-out amount is $2,500,000. (Code Sec. 179(b))

First-year depreciation deduction. Most new as well as used machinery and equipment bought and placed in service in 2018 qualifies for a 100% bonus first-year depreciation deduction.

New qualified business income deduction. For tax years beginning after 2017, taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income.

For 2018, if taxable income exceeds $315,000 for a married couple filing jointly, or $157,500 for all other taxpayers, the deduction is subject to multiple limits based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and/or the unadjusted basis of qualified property held by the trade or business. (Nothing is simple here!)

The highest tax rates do not start until you exceed about $600,000 (changes each year for inflation) in taxable income, rather than the old $200,000.

More businesses entitled to use the cash method of accounting. A five-fold increase in a key gross receipts test means many more businesses can choose to use the cash (rather than the accrual) method of accounting. Cash method taxpayers may find it easier to defer income and accelerate expenses!

Changes in individual’s tax status may call for acceleration of income. Changes in an individual’s tax status, due, say, to divorce, marriage, or loss of head of household status, must be considered, see Alternative minimum tax (AMT).

For 2018, the vast majority of individuals no longer have to factor in the AMT when conducting general tax planning or year-end tax planning. That’s because the exemption amounts (and the amounts used to determine the phase-out of the AMT exemption amounts) have been increased, and most of the AMT preferences and adjustments for individuals have effectively been eliminated. And the corporate AMT has been repealed.

Time value of money. Any decision to save taxes by accelerating income must take into account the fact that this means paying taxes early and losing the use of money that could have been otherwise invested.

Estimated tax. For how the estimated tax rules can be affected when taxable income is shifted from one tax year to another, Obstacles to deferring taxable income. The Code contains a number of rules that hinder the shifting of income and expenses. These include the passive activity loss rules, requirements that certain larger businesses use the accrual method, and limitations on the deduction of investment interest.

Charitable contributions. The timing of charitable contributions can have an important impact on year-end tax planning. Individual taxpayers who are at least 70-½ years old can contribute to charities directly from their IRAs without having the amount of their contribution included in their gross income. By making this move, some taxpayers reduce their tax liability even more than they would have if they had received the distribution from their IRA and then contributed the amount distributed to charity. As explained, some taxpayers who could take advantage of this tax break for this year, should consider deferring until the end of the year their required minimum distributions (RMDs) for 2018.

Call the office anytime at 978-514-8829 or FAX at 978-514-8820

All email should go to INFO@henrykulikcpa.com to allow it to be received in properly where it is tagged, scanned, and forwarded appropriately.

PLEASE do not send requested information or any source documents to an individual accountant’s mailbox. We can always ask another accountant to work on your case if need be, or collaborate with the first. The new updated and very qualified staff (plus the others that remain like me and more!) will ensure things will go as smoothly as possible for everyone.

The few appointment slots that remain open with me are mid- January and after April 15. (Plus there always a few cancellations- we still use the call list) Also, other qualified, experienced staff will be available for interviews too. It was truly a blessing to find these people who want to work hard for the benefit of the client. Of course. Clients may mail in everything if you desire, or send in via the online portal system. Either one will result in a telephone call to review and ask questions.

Thank You for letting us serve you, our valued clients! May you enjoy this joyous Holiday season safely and I look forward to hearing from everyone and seeing you soon!

Henry C Kulik, Jr.
Certified Public Accountant, LLC

Although IRS audit continue to get reduced for various reasons (short-staffed for one) computer generated audits are rammed up:

2017 Individual audit rates overall was .6% (1 of 167)

Earned Income Credit filers: over 1%

Schedule C returns: 1% – 2.1%, especially with gross receipts over $25,000.
Income over $200,000 and no Schedule C: .8% audit rate
with a Schedule C over $200K 1.6%

Millionaires 4.4%

C Corps– 1%

S Corps .3% (lowest)

Partnerships .4%

Our U.S. Congress, in its infinite superior legislative style, passed over 60 2017/2018 tax law changes on February 09, 2018. These include:
1.Making PMI deductible again if AGI is below $100,000 for a couple, $50,000 if MFS,
2. allowing HELOCs to be deductible again (only if used to build, maintain, improve your main home),
3. Discharge on Qualified principal residence debt not taxable (Fed, but taxable in MA),
4. Bring back for 2017 the education deduction above the line if AGI below $160,000 MFJ
5. Business Indian Credits returned through 2017
6. Credit for certain fuel cell vehicles
7. Restore residential energy credit through 2021
8. Renewable energy production credit
9. New energy efficient home credit through 2017

..and many other parts that are too deep to get into here. (See Bipartisan Budget Act of 2018″ HR 1892, P.L. 115-123)

All others remain as stated in the new 2018 tax law changes. Rumors of everything being grandfathered in are likely false, except the $1M debt limit if loan was taken out prior to 11/17/17)

We are still waiting for regulations and guidance from the IRS.

NOTE: My appointment calendar is already booked solid through February, 2019. Please do not wait until later if you expect to have an appointment with me. There are still some January spots available and March 01 and forward. Calls have been coming in since October of 2017 for 2019 appointments. Although I would love to se everyone, the President has ignored my pleas for a 9 day workweek!

Thank you for your business!

SPECIAL DECEMBER 27, 2017 TAX ACT CHANGE SUMMARY

Dear Client:

I am writing to inform you about changes to the individual and corporate income tax rates that take effect beginning in 2018 under the major piece of tax legislation called the Tax Cuts and Jobs Act (the Act).

I know many of you are excited and interested about all the details of every tax law change; so here are quite a few details. I have separated parts for easier reading! This newsletter is more detailed than the previous one.

This informational research is from Thomson-Reuters tax division, our research library and software provider.

Rate changes for individuals. New rates. Beginning with the 2018 tax year and continuing through 2025, there will still be seven tax brackets for individuals, but their percentage rates will change to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

For MFJ example:

1. The first $19,050 taxed at a flat 10%
2. The next $58,350 taxed at 12% (Now you are at $77,400 taxable income)
3. The next $87,600 taxed at 22% (Equals to $165,000)
4. The next $150,000 taxed at 24% (Now you are at $315,000 taxable income)
5. The next $85,000 taxed at 32% (Equals to $400,000)
6. The next $200,000 taxed at 35% (Equals to $600,000)
7. Whatever exceeds $600,000 taxed at 37%

Bottom line. While these changes will lower rates at many income levels, determining the overall impact on any particular individual or family will depend on a variety of other changes made by the Tax Cuts and Jobs Act, including increases in the standard deduction, loss of personal and dependency exemptions, a dollar limit on itemized deductions for state and local taxes, and changes to the child tax credit and the taxation of a child’s unearned income, known as the Kiddie Tax.

Comment: Although the corporate rate reduction is permanent, the new individual rates expire after 2025. The type of format used to pass this bill does not allow them to be greater than that period. It was not limited due to anyone wanting to “screw” anyone! There was no choice.

Capital gain rates.

The Act, generally, keeps the existing rates and breakpoints on net capital gains and qualified dividends. For 2018, the 15% breakpoint is: $77,200 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $51,700 for heads of household, and $38,600 for other unmarried individuals. The 20% breakpoint is $479,000 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $452,400 for heads of household, and $425,800 for any other individual (other than an estate or trust).

Important: These new individual income tax rates will not affect your tax on the return you will soon file for 2017, however they will almost immediately affect the amount of your wage withholding and the amount, if any, of estimated tax that you may need to pay.

A related change is that the future annual indexing of the rate brackets (and many other tax amounts) for inflation, which helps to prevent “bracket creep” and the erosion of the value of a variety of deductions and credits due solely to inflation, will be done in a way that generally will recognize less inflation than the current method does.

Corporate income tax rate drop. C corporations Beginning with the 2018 tax year, the Act makes the corporate tax rate a flat 21%. It also eliminates the corporate alternative minimum tax.

Pass-thru changes – should provide a substantial tax benefit to individuals with “qualified business income” from a partnership, S corporation, LLC, or sole proprietorship. This income is sometimes referred to as “pass-through” income.

The deduction is 20% of your “qualified business income (QBI)” from a partnership, S corporation, or sole proprietorship, defined as the net amount of items of income, gain, deduction, and loss with respect to your trade or business.

The business must be conducted within the U.S. to qualify, and specified investment-related items are not included, e.g., capital gains or losses, dividends, and interest income (unless the interest is properly allocable to the business). The trade or business of being an employee does not qualify. Also, QBI does not include reasonable compensation received from an S corporation, or a guaranteed payment received from a partnership for services provided to a partnership’s business.

The deduction is taken “below the line,” i.e., it reduces your taxable income but not your adjusted gross income. But it is available regardless of whether you itemize deductions or take the standard deduction. In general, the deduction cannot exceed 20% of the excess of your taxable income over net capital gain. If QBI is less than zero it is treated as a loss from a qualified business in the following year.

Rules are in place (discussed below) to deter high-income taxpayers from attempting to convert wages or other compensation for personal services into income eligible for the deduction.

For taxpayers with taxable income above $157,500 ($315,000 for joint filers), an exclusion from QBI of income from “specified service” trades or businesses is phased in. These are trades or businesses involving the performance of services in the fields of health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

Here’s how the phase-in works: If your taxable income is at least $50,000 above the threshold, i.e., $207,500 ($157,500 + $50,000), all of the net income from the specified service trade or business is excluded from QBI. (Joint filers would use an amount $100,000 above the $315,000 threshold, viz., $415,000.) If your taxable income is between $157,500 and $207,500, you would exclude only that percentage of income derived from a fraction the numerator of which is the excess of taxable income over $157,500 and the denominator of which is $50,000. So, for example, if taxable income is $167,500 ($10,000 above $157,500), only 20% of the specified service income would be excluded from QBI ($10,000/$50,000). (For joint filers, the same operation would apply using the $315,000 threshold, and a $100,000 phase-out range.)

Additionally, for taxpayers with taxable income more than the above thresholds, a limitation on the amount of the deduction is phased in based either on wages paid or wages paid plus a capital element. Here’s how it works: If your taxable income is at least $50,000 above the threshold, i.e., $207,500 ($157,500 + $50,000), your deduction for QBI cannot exceed the greater of (1) 50% of your allocable share of the W-2 wages paid with respect to the qualified trade or business, or (2) the sum of 25% of such wages plus 2.5% of the unadjusted basis immediately after acquisition of tangible depreciable property used in the business (including real estate). So if your QBI were $100,000, leading to a deduction of $20,000 (20% of $100,000), but the greater of (1) or (2) above were only $16,000, your deduction would be limited to $16,000, i.e., it would be reduced by $4,000. And if your taxable income were between $157,500 and $207,500, you would only incur a percentage of the $4,000 reduction, with the percentage worked out via the fraction discussed in the preceding paragraph. (For joint filers, the same operations would apply using the $315,000 threshold, and a $100,000 phase-out range.)

Other limitations may apply in certain circumstances, e.g., for taxpayers with qualified cooperative dividends, qualified real estate investment trust (REIT) dividends, or income from publicly traded partnerships.

Obviously, the complexities surrounding this substantial new deduction can be formidable, especially if your taxable income exceeds the thresholds discussed above. If you wish to work through the mechanics of the deduction with me, with particular attention to the impact it can have on your specific situation, please give me a call.

Tax deduction cuts. For tax years 2018 through 2025, the Act limits deductions for taxes paid by individual taxpayers in the following ways:

. . . It limits the aggregate deduction for state and local real property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). Important exception: The limit doesn’t apply to: (i) foreign income, war profits, excess profits taxes; (ii) state and local, and foreign, real property taxes; and (iii) state and local personal property taxes if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income.

. . . It completely eliminates the deduction for foreign real property taxes unless they are paid or accrued in carrying on a trade or business or in an activity engaged in for profit.

To prevent avoidance of the $10,000 deduction limit by prepayment in 2017 of future taxes, the Act treats any amount paid in 2017 for a state or local income tax imposed for a tax year beginning in 2018 as paid on the last day of the 2018 tax year. So an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the $10,000 aggregate limitation.

Under the pre-Act rules, you could deduct interest on up to a total of $1 million of mortgage debt used to acquire your principal residence and a second home, i.e., acquisition debt.

Under the Act, starting in 2018, the limit on qualifying acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). However, for acquisition debt incurred before Dec. 15, 2017, the higher pre-Act limit applies. The higher pre-Act limit also applies to debt arising from refinancing pre-Dec. 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount. This means you can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt in the future and not be subject to the reduced limitation.

And, importantly, starting in 2018, there is no longer a deduction for interest on home equity debt. This applies regardless of when the home equity debt was incurred. Accordingly, if you are considering incurring home equity debt in the future, you should take this factor into consideration. And if you currently have outstanding home equity debt, be prepared to lose the interest deduction for it, starting in 2018. (You will still be able to deduct it on your 2017 tax return, filed in 2018.)

Lastly, both of these changes last for eight years, through 2025. (But will likely be extended, as others have been) through 2025. In 2026, the pre-Act rules are scheduled to come back into effect. So beginning in 2026, interest on home equity loans will be deductible again, and the limit on qualifying acquisition debt will be raised back to $1 million ($500,000 for married separate filers).

Alimony

New rules. Under the Act rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony-paying spouse won’t be able to deduct the payments, and the alimony-receiving spouse doesn’t include them in gross income or pay federal income tax on them.

New rules don’t apply to existing divorces and separations. It’s important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019.

Some taxpayers may want the Act rules to apply to their existing divorce or separation. CAUTION!-Under a special rule, if taxpayers have an existing (pre-2019) divorce or separation decree, and they have that agreement legally modified, then the new rules don’t apply to that modified decree, unless the modification expressly provides that the Act rules are to apply. There may be situations where applying the Act rules voluntarily is beneficial for the taxpayers, such as a change in the income levels of the alimony payer or the alimony recipient.
I hope this clarifies at least some of the clutter being talked about everywhere. Questions? We’ll see you on your tax appointment or later in the year for planning. You can email or call the office anytime as well!

Regards,

Henry

Checkpoint Source: New Law Special Study: Highlights of the Tax Cuts and Jobs Act

NOVEMBER, 2017 FALL/WINTER TAX NEWSLETTER

For clients of: HENRY C KULIK, JR CPA LLC

November, 2017

As the end of year 2017 approaches, it’s time to think of planning moves that will help lower your tax bill for this year, and possibly the next. In many cases this will involve the usual year end planning ideas we have asked everyone to consider in the past:

• Deferring income to the 2018 tax year, where we expect taxes to be lower (at some point)
• Accelerating deductions into this year to reduce 2017 taxable income.

The tax code and tax rates are now some at of the highest in history. They have increased, in some form, almost every year over the last 7 years. Many new “phase-outs” and high sur-tax rates were tied directly to the ACA (affordable care act). When that wasn’t enough, every year the words came forth… “it’s time for the “rich” to pay their fair share.” What was not mentioned that “rich” included couples earning about $140,000 and singles about $70,000! These weren’t the $ millionaires and $ billionaires that were the supposed target shown on television.

Cautionary tale

Our reports show that IRS audits are pointing to form 1065 Partnerships, and form W-2 wages vs/ 1099-MISC where agents are finding companies misclassifying employees as subcontractors. A finding can result in severe interest and penalties, plus the employer gets to pay the income tax that should have been withheld along with FICA and Medicare. Then the State wants their piece of the pie. 3+ years of this, nicely wrapped under the tree. Fewer agents, but higher audit tax findings along with collection revenues from past due taxes are helping the treasury.$$$$$

New tax plans

It appears that all of the tax plans being talked about would take effect 1/1/18. (The bill even shows 2018 start date) Depending on the specific rules passed, most everyone will pay less in tax. Corporate taxes, including pass-throughs such as S-Corporations, and Schedule Cs could see the largest breaks in an effort to help businesses create new jobs through growth. The confusing part is what will the great sausage machine in D.C. finally turn out in the wrapper? Below I have illustrated just a few of the differences in the 3 plans: a) the original Trump plan (found at www.whitehouse.gov), b) the House of representatives plan (www.house.org)  and  c) the Senate plan (www.senate/gov)

*Married Filed Jointly* examples

Notes:  NO AMT; Charity and mortgage interest remains; No Estate Tax
Business tax changes to promote bringing offshore cash and jobs back to USA

Notes: NO AMT; $10K limit on Home taxes; no adoption credits, no itemized for medical; mortgage interest won’t affect most people; debt cannot exceed $500K.Child Credit $1,600 Capital gain exclusion on personal residence limited/reduced;5/8 years instead of 2/5 removes moving expenses, form 2106, student loan interest. Any/all employer benefits taxable on W2.

Notes: NO AMT; Child Credit $1,650;$500 non-child dependent. Same itemized deduction as the House plan; NO Misc itemized. NO moving expense, NO casualty losses (same as House); business $2M Sect 179,) New business pass-thru deduction of 17.4% of business income (Phase-out $150K AGI)

NO business losses allowed; carryover instead. NO Professional tax rates (1120

Of course, all of this is just proposals and what, if anything, actually gets passed could be very different.  Much like other recent years if they fail to pass something very soon it could delay the start of the 2018 filing season and refunds being issued while the IRS updates their software, forms and instructions. So stay tuned and I promised to keep you posted!

Economic Outlook

There are a few predictions about the economy that could impact your taxable income. The stock market has been booming and is on track to close out 2017 with record highs. This could mean higher interest and dividend income on your investments plus a greater potential for capital gains on any stock sales. Check those year-end investment statements so you aren’t surprised when April rolls around.

The predicted 2.2% total economic growth for 2017 is making 2018 look really good at this point, with expected growth of at least 2.6%. Even if our friends in Washington fail to pass any kind of tax reform the 2.2% growth from 2017 is expected to continue.

Tax planning – Individuals

The Obamacare surtax of 3.8% is still in effect for 2017 on higher-income earners. If you estimate your modified adjusted gross income to be $250,000 MFJ, $125,000 MFS or $200,000 single or HOH or more you might want to look at deferring some of your income at the end of the year to reduce the impact of the NII tax.

A similar strategy could be used by those same earners with respect to year end wages or bonuses which could/would be subject to the 0.9% additional Medicare tax.

Consider increasing your deductible expenses by prepaying them or paying them with a credit card before year end. If you think you’ll owe state income taxes when you file in 2018 consider paying them ahead before the end of the year. This strategy could be most beneficial if the deduction(s) go away for 2018 as some of the tax reform models are suggesting. Do watch out for AMT though. If you are subject to AMT this strategy won’t help you.

If you have a pending insurance or damage claim, try to get it settled in 2017 to maximize your casualty loss deduction.

Avoid penalties by being sure to take your Required Minimum Distribution (RMD) from your IRA or 401K. If you turn 70 ½ in 2017 you need to take your first RMD by April 1, 2018. However, you’ll still need to take your RMD for 2018 before the end of 2018 so unless you will be in a much lower tax bracket in 2018 it could be most beneficial not to defer the RMD.

Tax Planning- businesses

If your business has done well in 2017 and you need new equipment or to invest in infrastructure it would be a good idea to get that in place before the end of 2017 to maximize your business deductions and minimize taxable income.  The expensing limit for 2017 is $510,000 and applies to most purchases that are depreciable (computers, off the shelf software, A/C and heat units, etc.) in addition qualified leasehold improvement, restaurant or retail improvement property are also eligible. Better still this deduction is NOT pro-rated which means that you can wait till December to make your purchase and still take the full deduction.

You can also take advantage of the 50% bonus depreciation on purchased assets (also not pro-rated) and the bonus drops to 40% in 2018.

If Congress manages to get tax reform through without too many changes Corporations may want to consider deferring some year-end income until 2018 if they will likely in a lower tax bracket.

If you aren’t sure about what your best strategy is you can always contact the office and I would be happy to discuss your particular situation. Now is also the best time for a face-to-face review of everything before the end of the year is here!

Happy Thanksgiving

Merry Christmas

May everyone have a blessed warm Holiday season!

Henry C. Kulik, Jr., CPA LLC

Tax Overhaul Is Planned for 2018, Leaving Just a Few Weeks to Prepare
Most provisions in the House and Senate GOP tax bills would take effect in 2018, meaning people could have little time to do crucial year-end tax planning

Most provisions in the Republican tax bills would take effect in 2018, assuming a bill passes.

By Laura Saunders

Nov. 10, 2017 7:00 a.m. Fewer tax breaks for homeowners. No deduction for state income taxes. A higher bar for charitable write-offs. No “personal” exemption. No alternative minimum tax.

Republican leaders in the House and Senate have proposed different bills to overhaul the tax code, but both sweep away or limit many tax breaks for individuals in a bid to boost economic growth and simplify the system.
Both bills also expand credits for children. They increase the “standard deduction” greatly, so that perhaps 30 million filers wouldn’t need to break out deductions separately. Many business owners would get a tax break and owe less than wage earners with similar income. The estate-tax exemption would double, to $10 million a person.
There are so many differences between the two bills that exact outcomes are hard to predict, assuming a bill passes. What is clear is that people could have little time to do crucial year-end tax planning. Most provisions would take effect in 2018.
Here are tax moves to consider, based on current proposals.
Home Buyers and Sellers
The Senate bill preserves current law allowing deductions on a total of $1 million of mortgage debt on up to two homes.
The House bill would allow home buyers taking out mortgages after Nov. 2 to deduct interest only on $500,000 of debt, and only on one home. It appears to prohibit mortgage-interest deductions for all second homes. Both bills end interest deductions for home-equity loans.
If the House version prevails, the Nov. 2 cutoff might be extended in a nod to the Senate. But there are no guarantees, so buyers should beware.
Both bills also restrict the popular exemption of $500,000 of profit on the sale of a first home ($250,000 for singles). The new rules would require sellers to live in a house for five of the prior eight years, rather than two out of five years, to get the benefit.
The House bill reduces the exemption for sellers whose income exceeds $500,000 ($250,000 for singles). Affected home sellers should complete sales before year-end.
Pass-Through Income

Both bills cut taxes on some income earned by so-called pass-through firms such as partnerships and S corporations, but the rates and categories of business owners who would benefit differ.
Stay tuned as the final provision becomes clear. Business owners who would benefit from a lower rate may want to defer income into 2018, says Chris Hesse, a certified public accountant with CliftonLarsonAllen.
State Taxes
The House bill repeals the deduction for state and local income and sales taxes and caps the deduction for property taxes at $10,000. The Senate bill repeals deductions for property taxes, in addition to repealing the others. Exceptions apply for property-sales taxes paid by owners of pass-through firms.
Individuals who won’t owe alternative minimum tax this year may want to prepay 2018 state and local taxes that could be disallowed next year. This move requires careful analysis, as high state and local tax deductions could trigger the AMT in 2017 and eliminate much of the benefit.
Charitable Donations
If the standard deduction greatly increases as proposed, only 10% of filers will need to list write-offs separately compared with 30% now. Taxpayers donating a small percentage of income may want to accelerate donations into 2017 to get a deduction.
These givers should also consider so-called donor-advised funds. Such accounts enable donors to “bunch” several years of smaller gifts into one large amount. A donor can designate charitable recipients later, and meanwhile the assets can be invested and grow tax-free.
Plug-In Cars
Get your Tesla, Chevy Bolt, or similar plug-in vehicles before year-end. The House bill repeals a credit of up to $7,500.

Medical-Expense Deductions
The House bill repeals the deduction for medical expenses, which is highly important for people paying large bills for home health aides and nursing-home care. The Senate bill retains it.
Tax professionals caution against prepaying 2018 medical expenses in 2017. The law allows the IRS to disallow such write-offs entirely, and courts have ruled against the taxpayer on this issue.
There is an exception for some people entering retirement homes. Under current law, part of the entrance fee to such facilities could be deductible for 2017 even if the person doesn’t enter until 2018, says Andy Mattson, a CPA with Moss Adams. This is a complex area, and taxpayers should seek professional help.
Employee Stock Options
Workers who have Incentive Stock Options (ISOs) may benefit if they wait to exercise them until 2018, says Scott Kaplowitch, a CPA with Edelstein & Co. ISOs can trigger the alternative minimum tax, which both bills would repeal.
Alimony
Sign divorce or separation agreements that include alimony before the end of 2017. In the House bill, alimony ceases to be deductible by the payer in 2018.
Carlyn McCaffrey, an attorney with McDermott, Will & Emery, says that for a top-bracket spouse required to provide $250,000 of tax-free income to a bottom-bracket spouse, the tax savings from signing an agreement in 2017 compared with 2018 would be about $43,000.
Write to Laura Saunders at laura.saunders@wsj.com

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We are NOT getting notified when clients upload documents or send in organizers. We only get email notifications from the system when clients use “FILE EXCHANGE.” Kindly  do all uploads to this area of the portal. Other data and organizers will come over, but we are NOT notified. Please email the office if you send something using the methods so we know its on the way!

Our software vendor is working on this issue.

I apologize for any confusion!

Thank You- Henry

Ok- THE ELECTION IS OVER and Donald J Trump is the president-elect. I have summarized his tax plans below. Naturally, not everything is likely to make it all the way to law without any changes, but the bulk of it will likely pass, according to sources. It is very similar to speaker-of-the-house Paul Ryan’s tax plan. This is the most recent information I have, and not all details have been released as it is still November!

INDIVIDUALS

1. Tax rates reduces to only three: 12%, 25%, and 33%
2. 12% rate for income up to $75,000 couples; $37,500 singles
3. 33% rate for $225,001 for couples, $112,501 for singles
4. Eliminates the Head-of Household filing status (Married or Single only)
5. Eliminates all surtaxes that were passed with Obamacare (1%;4%)
6. Eliminates all Obamacare health insurance compliance penalties
7. Eliminates AMT for both individual and corporate (Alternative Minimum Tax)
8. Maximum capital gains tax rate at 20%. Lesser rates still available based on income, supposed to remain similar to the Bush tax cuts that stiull are in effect today.
9. Standard deductions would increase to $15,000 singe; $30,000 couples
10. Itemized deductions would be capped at $100,000 AGI singles; $200,000 AGI couples
11. Expanded Child care/parent care deduction(s): Includes stay-at-home Mothers (does not with current law) up to four children under age 13, and elderly dependents, max deduction is $5,000 above the line (reduces AGI) Higher income taxpayers will not get this deduction (currently, no income limitation applies for the tax credit)

BUSINESS

1. New 15% business tax rate, including not only for “C” Corporations, but also LLCs, S Corps, and Schedule Cs. Now one has any detail on this- or how it would work since pass-thrus and Schedule C currently gets taxed at a person’s individual rate.
2. Only Manufacturing business could fully expense any asset purchases, but would lose the interest deduction if financed.
3. Most business tax credits would be gone, except for the R&D credit.
4. Untaxed income brought in from a foreign country would get a special 10% rate, encouraging large business owners/CEOs to bring the money back to the US- and manufacture here, at home
5. Import tax (if the company used to manufacture here in the U.S.) but now ships the same product into this country, creating loss of jobs. Tax would be of 35% (i.e. like a tariff)

OTHER ITEMS

1. Removing all “executive orders” from President Obama, along with chopping back the infamous Dodd-Frank laws. This should easily encourage business lending for companies to grow. Elimination of all Obamacare penalties would also help this. Pulling back on coal, gas, and hundreds of recent EPA and other agency tough regulations will allow business to operate as they did under Reagan, or at least similarly. (5%-6% economic growth in some of those years)
2. Military upgrades and infrastructure work should create higher-pay full time positions in all parts of the economy. And quickly. That as opposed to most new jobs today are part-time now and seasonal. And annual growth around 1%.
3. JANUARY 2017- (law change) ALL W2s, and 1099s must be issued to both IRS and employees before January 31. Penalties apply if late.
4. The IRS will be very busy writing new regulations to interpret all the tax code changes. I would not expect to see any of these changes take effect until tax year 2017 at the very earliest. (Just my opinion), but one never knows. Trying to implement these changes quickly now would render the IRS into total CHAOS!

RECENT OFFICE NEWS

1. Bookkeeping Division– Many clients have been asking us for some time to do their bookkeeping. Some, for years! So, this year we partnered with an experienced individual that specializes in Bookkeeping, especially QuickBooks. The service can be performed either remotely, done at our office, or at your location. Prices are competitive. Contact Maureen Ehwa, operations director for details if interested! Maureen.ehwa@henrykulikcpa.com All work will be billed and contracted through our office!
2. Tax season: For the upcoming tax season, we will be the strongest in years with more qualified staff and resources than ever before! I feel really good about what is happening here…

Merry Christmas and Happy New Year to everyone! Have a safe, enjoyable holiday season!

Dear Client:

There is still time to call the office and make a tax planning appointment in 2016, or via mail. Not everybody needs this, but if sales are up, up, up, then you can guess which way your taxes would be heading!

Tax season-2017. As usual my “book” is pretty full for those clients who want to sit with me. We do have slots in January and around deadline. If you don’t owe, many clients last year came in shortly after tax season (we file Henry’s easy-extension for you!) and were delighted to not hear all phones ringing and being pressed for time. Extensions are a good thing, not bad. Come in and relax while we do the work. You can book those anytime also.

Corporations (including LLC/S Corps) can be a great help getting information to us in early January.

Depending on who wins the election, tax rules could change significantly.

Donald Trump was lower taxes, and business success-stimulating less regulations with deep tax-cuts.

Hillary Clinton is just the opposite who wants to increase payroll and other taxes which could slow or stall the growth of business and instead increase government spending on benefits, education and other programs.

The other two no-party candidates have announced little or nothing, so I don’t know. They are not even mentioned in any of my tax resources.

I will only speak generally, since political tax plans released during campaigns are never what appears later to be approved and passed by Congress when the time comes.

NEWS ITEM!  Numerous People (32+) in India and other countries (including 20 from the US)  making calls from call-centers to US citizens pretending to be IRS and other government officials and have arrested and charged. Thousands of individuals in the US have been victimized of hundreds of millions of dollars. (us dept. of justice)

NEW 2017 CHANGES ALREADY PASSED

2017 pay-in for 401(k) remains the same at $18,000. Add $6,000 if 50 and over.

2017 SIMPLE IRA remains the same too. $12,500 max plus now $3,000 if 50 and over

ROTH and regular IRA stay the same too at $5,500 plus $1,000 50 and over. Traditional IRA Phase outs will be at higher income levels- $99,000-$119,000 couples. ROTH phase-outs will be $186,000-$190,000 for couples.

Social Security /Payroll taxes will increase quite a bit. $8,700 increase up to $127,200 will be charged the FICA tax (12.4%). However, for people receiving Social Security, look forward to a whopping 0.3% benefit increase. Wow!

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the planning challenge this year include turbulence in the stock market, overall economic uncertainty, and Congress’s all too familiar failure to act on a number of important tax breaks that will expire at the end of 2016.

PERSONAL/INDIVIDUAL PLANNING

Some of these expiring tax breaks will likely be extended, but perhaps not all, and as in the past, Congress may not decide the fate of these tax breaks until the very end of 2016 (or later). For individuals, these breaks include:

1. the exclusion for discharge of indebtedness on a principal residence,
2. the treatment of mortgage insurance premiums as deductible qualified residence interest,
3. the 7.5% of adjusted gross income floor beneath medical expense deductions for taxpayers age 65 or older, and the deduction for qualified tuition and related expenses. There is also a host of expiring energy provisions, including:
4. the nonbusiness energy property credit,
5. the residential energy property credit,
6. the qualified fuel cell motor vehicle credit,
7. the alternative fuel vehicle refueling property credit,
8. the credit for 2-wheeled plug-in electric vehicles,
9. the new energy efficient homes credit, and
10. the hybrid solar lighting system property credit.

Incomes that exceed $200,000 AGI (modified), $125,000 MFS once again have unique concerns to address from additional Obamacare surtaxes. They must be wary of the 4% surtax on certain unearned, rental and passive income and the additional 1% Medicare (hospital insurance, or HI) tax on earned income. Note-S Corporation taxable income is not subject to these taxes.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Details for Year-End Tax Planning Moves for Individuals

• Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.

• Postpone income until 2017 and accelerate deductions into 2016 to lower your 2016 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2016 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2016. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2017 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.

• If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2016.

• If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by re-characterizing the conversion—that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.

• It may be advantageous to try to arrange with your employer to defer, until early 2017, a bonus that may be coming your way.

• Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2016 deductions even if you don’t pay your credit card bill until after the end of the year.

• If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2016 if you won’t be subject to alternative minimum tax (AMT) in 2016.

• Take an eligible rollover distribution from a qualified retirement plan before the end of 2016 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2016. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2016, but the withheld tax will be applied pro rata over the full 2016 tax year to reduce previous underpayments of estimated tax.

• Estimate the effect of any year-end planning moves on the AMT for 2016, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2016, or suspect you might be, these types of deductions should not be accelerated.

• You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.

• For 2016, the “floor” beneath medical expense deductions for those age 65 or older is 7.5% of adjusted gross income (AGI). Unless Congress changes the rules, this floor will rise to 10% of AGI next year. Taxpayers age 65 or older who can claim itemized deductions this year, but won’t be able to next year because of the higher floor, should consider accelerating discretionary or elective medical procedures or expenses (e.g., dental implants or expensive eyewear).

• You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.

• You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.

• Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70-½. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Although RMDs must begin no later than April 1 following the year in which the IRA owner attains age 70 ½, the first distribution calendar year is the year in which the IRA owner attains age 70½. Thus, if you turn age 70-½ in 2016, you can delay the first required distribution to 2017, but if you do, you will have to take a double distribution in 2017—the amount required for 2016 plus the amount required for 2017. Think twice before delaying 2016 distributions to 2017, as bunching income into 2017 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2017 if you will be in a substantially lower bracket that year.

• Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year. (maximum $2,500)

• If you become eligible in December of 2016 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2016.

• If you are thinking of installing energy saving improvements to your home, such as certain high-efficiency insulation materials, do so before the close of 2016. You may qualify for a “nonbusiness energy property credit” that won’t be available after this year, unless Congress reinstates it.

• Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2016 and 2017 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Details for Year-End Tax-Planning Moves for Businesses & Business Owners

Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, and qualified real property—qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.

Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 50% first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2016.

• Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $2,500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2016.

• A corporation should consider accelerating income from 2017 to 2016 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2017 if it will be in a higher bracket this year.

• A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation AMT exemption for 2016. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.

• A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2016 (and substantial net income in 2017) may find it worthwhile to accelerate just enough of its 2017 income (or to defer just enough of its 2016 deductions) to create a small amount of net income for 2016. This will permit the corporation to base its 2017 estimated tax installments on the relatively small amount of income shown on its 2016 return, rather than having to pay estimated taxes based on 100% of its much larger 2017 taxable income.

• If your business qualifies for the domestic production activities deduction (DPAD) for its 2016 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2016 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2016, even if the business has a fiscal year.

• To reduce 2016 taxable income, consider deferring a debt-cancellation event until 2017.

• To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses.

• If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Have a great after-election party and safe Holidays!

Happy Thanksgiving

IRS Warns of Latest Scam Variation Involving Bogus “Federal Student Tax”

WASHINGTON — The Internal Revenue Service today issued a warning to taxpayers about bogus phone calls from IRS impersonators demanding payment for a non-existent tax, the “Federal Student Tax.”

Even though the tax deadline has come and gone, scammers continue to use varied strategies to trick people, in this case students. In this newest twist, they try to convince people to wire money immediately to the scammer. If the victim does not fall quickly enough for this fake “federal student tax”, the scammer threatens to report the student to the police.

“These scams and schemes continue to evolve nationwide, and now they’re trying to trick students,” said IRS Commissioner John Koskinen. “Taxpayers should remain vigilant and not fall prey to these aggressive calls demanding immediate payment of a tax supposedly owed.”

Scam artists frequently masquerade as being from the IRS, a tax company and sometimes even a state revenue department. Many scammers use threats to intimidate and bully people into paying a tax bill. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Some examples of the varied tactics seen this year are:
•Demanding immediate tax payment for taxes owed on an iTunes gift card.
•Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
•“Verifying” tax return information over the phone–IR-2016-40
•Pretending to be from the tax preparation industry–IR-2016-28

The IRS urges taxpayers to stay vigilant against these calls and to know the telltale signs of a scam demanding payment.

The IRS Will Never:
•Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
•Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
•Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
•Require you to use a specific payment method for your taxes, such as a prepaid debit card.
•Ask for credit or debit card numbers over the phone.

If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:
•Do not give out any information. Hang up immediately.
•Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.
•Report it to the Federal Trade Commission by visiting FTC.gov and clicking on “File a Consumer Complaint.” Please add “IRS Telephone Scam” in the notes.
•If you think you might owe taxes, call the IRS directly at 1-800-829-1040.