2017 e of y - financial planning...

2017

END OF YEAR

PLANNING IDEAS

BY

SCOTT HENSLEY

[email protected]

NOVEMBER 2017

STANCIL & COMPANY

CERTIFIED PUBLIC ACCOUNTANTS 4909 WINDY HILL DRIVE

RALEIGH, NC 27609

919-872-1260

© 2017 Stancil & Company Certified Public

Accountants

All Rights Reserved

mailto:[email protected]





2017 END OF YEAR PLANNING IDEAS

WELCOME!

BEFORE WE BEGIN JUST A REMINDER TO TURN OFF

CELL PHONES OR TURN TO AIRPLANE MODE.

THANK YOU!

© 2017 Stancil & Company Certified Public Accountants

All Rights Reserved


Accountants

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TOPICS TO BE COVERED TODAY

POTENTIAL IMPACT OF CURRENT TAX PROPOSAL

- THE TAX CUTS AND JOBS ACT

WHAT IS TAX PLANNING

THE DIRTY DOZEN NEW POSSIBILITIES IN NON TAX DEDUCTIBLE

RETIREMENT FUNDING


Potential Impact of The Tax Cuts and Jobs Act


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How will the current tax proposal impact me?

Potential tax law changes that could be approved in 2017 and be

effective in 2017 or 2018:

Top corporate tax rate to drop to 20% (25% for Personal Service

Co.)

Bifurcation of Individual Tax Rates:

Ordinary Income brackets - 12%, 25%, 35% & 39.6% (over

1m)

Capital Gain brackets – same as 2017

Passive activity income capped at 25%

30% of Business income (self employed or pass-through)

capped at 25% rate

Ends the Alternative Minimum Tax (AMT) (or partially codifies it)

Standard Deduction set at $24,400 for MFJ (3/4 for HOH & ½ for

Single or MFS)

Estate tax exclusion goes from $5m to $10m and repealed

starting in 2024



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How will the current tax proposal impact me? (cont.)

Other Potential Tax Changes: Larger Child Tax Credit – increases from $1,000 to $1,600 per

child

Mortgage Interest is limited to $500,000 loans and only 1 house No Home Equity Interest deduction allowed on anything but

principal residence

Charitable Deductions and Property tax deduction still allowed Property Tax Deduction capped at $10,000

Exclusion for Gain on Sale of Primary Home will require occupancy of 5 of previous 8 years

Bonus Depreciation goes from $50,000 to $100,000 and includes “used” property now

179 expense is expanded from $500,000 to $5,000,000 and phase out starts at $20,000,000 of total purchases.

NOL’s are limited to 90% of Taxable income



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Other Potential Tax Changes:

Items Eliminated: Student Loan Interest Deduction Medical Deduction Charitable Contributions to College Athletic Booster Clubs Itemized Deduction phase out Alimony Deduction or Income (on new agreements) Moving Expense Adoption credit Ability to Undo a Roth IRA conversion Entertainment expenses Deferred Compensation plans are severely curtailed to be

income when there is no longer a substantial risk of forfeiture



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So . . . what should I do this year? Should I defer income to next year to take advantage of

potentially lower tax brackets by delaying billing or changing the payment schedule on an installment sale?

Should I defer payment of items not allowed under AMT to next year, such as state taxes & property taxes?

Should I convert my business to a C corporation?


What

is

Tax

Planning?


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What is Tax Planning?

Tax planning requires an approach that utilizes the tax laws to

reduce your taxes as much as possible while recognizing that

sound financial decisions should be the driving force.

A taxpayer when planning should consider the income activity

for the current year and the coming year

Weigh the tax situation of both years to determine when

to recognize income and when to incur expenses

Look at your marginal tax rate for both years to make a

sound decision



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The Dirty Dozen!


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#1 - Contribute to your retirement plan.

Saving for your future and you get the benefit of a tax deduction to boot! THIS IS THE BEST OPTION!

401k

SEP IRA

Traditional IRA

Simple IRA

The Dirty Dozen!



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#2 - Maximize your HSA contribution (if you participate in one)

Single plan - $3,400

Family plan - $6,750

If the holder of the HSA is 55 or over then you can

contribute an additional $1,000

You have until April 15th to contribute to your HSA

The Dirty Dozen!



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#3 - Take advantage of employer benefits that offer pre-tax deductions in order to be able to deduct expenses that otherwise would not have been allowed. For example:

Participate in an FSA plan to fund either of the following:

Payments for medical expenses that would not have

been deductible due to income thresholds

Pay for Dependent Care costs that would have been

limited as a credit

If you choose to participate in an FSA, understand

that you must spend all the funds in the account by

the end of the year. This is a use it or lose it account

so have a good idea of what your expenses will be in

deciding how much to put in.

The Dirty Dozen!



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#4 – Use your income tax brackets as a guide – know what bracket you fall in, to aid in developing your tax strategy.

If you are still in the 15% marginal tax bracket, take advantage of the 0% capital gain rate

Taxable income must be less than $75,900 for MFJ and $37,950 for Single

This applies to Qualified Dividends and Net Long Term Capital Gains

The Dirty Dozen!



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#5 – Know your marginal tax rate - accelerate or defer income or expenses to the most beneficial year by:

Delaying billing

Setting up payments on an installment schedule to be paid in the most advantageous tax year

Timing when contributions are made

Bunching medical expenses in the year that they will cumulatively exceed 10% of AGI

Timing of mortgage interest payment

The Dirty Dozen!



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#6 – Reduce business pass-through income by purchasing equipment:

Bonus Depreciation – 50% in 2017

For those in Commercial Rental, take advantage of the new Qualified Improvement property rules. This replaces the old Qualified Leasehold Improvement property rules

• This is generally an improvement to an interior portion of an existing commercial building.

• Improvement does not have to be made pursuant to a lease.

• The improvement can be in a building that is not more than 3 years old.

• No exclusion for structural components of building benefitting a common area.

• The improvement may be made pursuant to a lease between related parties.

• Still applies to Qualified Restaurant Property and Qualified Retail Improvement Property.

The Dirty Dozen!



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#6 – Reduce business pass-through income by purchasing

equipment (cont.):

179 Expense Election - $500,000 limit (with $2m cost limit)

Qualified Improvement Property not allowed

Still applies to Qualified Leasehold Improvements, Qualified Restaurant property & Qualified Retail Improvement Property

• If the election is made to treat any of the improvement as 179 expense then the entire cost of the improvement is considered in asset cost limitation

• No longer limited to $250,000

The Dirty Dozen!



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#7 – Contribute IRA distribution directly to a charity.

If you are 70 ½ or older, you may have your IRA directly contribute your required distribution to a charity. This will reduce your AGI which could affect the following:

Itemized Deduction limitation

Net Investment Income Tax calculation

Medicare premiums calculation

The Dirty Dozen!



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#8 – Pay your state taxes timely.

If you are not in AMT, pay your state taxes and property taxes before year end. These are not deductible for AMT.

For years that you are in AMT, defer payment of these amounts until the beginning of the new year.

The Dirty Dozen!



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#9 – Donate appreciated assets.

You get a deduction for the FMV of the asset without picking up capital gain.

If you sell and donate cash then you must pick up the capital gain and then take the deduction for cash.

The Dirty Dozen!



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#10 – Don’t get caught having to pay back your Premium Tax Credit

If you receive a premium tax credit for health insurance premiums paid during the year, make sure you don’t go over the allowed limits for income or you may have to pay the entire credit back.

The Dirty Dozen!



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#11 – Plan around the Net Investment Income Tax

The Net Investment Income Tax is a 3.8% surtax on investment income to the extent your AGI exceeds $250,000 (for married persons) or $200,000 (for single persons). Some possible solutions:

Review your portfolio and look for possible capital loss harvesting

Reduce your AGI below $250,000 through HSA contributions, retirement contributions, rental expenses or self employed business expenses

Allocate a portion of your investment expenses for managing income to reduce the passive income

Allocate a portion of state income tax expense to reduce the passive income

The Dirty Dozen!



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#12 – Rollovers by surviving spouses of IRA’s or Qualified Plans

If a decedent is 70 ½ and the surviving spouse is

older than 59 ½, then need to roll over the

decedents accounts to the surviving spouse by

December 31st.

If this is done, then the surviving spouse is not

required to take minimum distributions on the

account in 2017.

The Dirty Dozen!



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Planning for Retirement with Non-Tax Deductible Contributions:

A Roth has been a primary means to plan for retirement with funds that

are not currently tax deductible but grow tax free and are tax free when

withdrawn

Two types of Roth IRAs

• Roth IRA – limited contribution based on current year income

• Roth 401k – provided by employer and has same contribution

rules as a regular 401k In the past, we have evaluated the benefit of doing a Roth conversion or

making a contribution to a Roth based on your current tax rates

A new perspective from those who are using their Roth IRAs in

retirement ---- according to many clients, they recommend a Roth

contribution no matter what tax bracket you are in • Main reason – ease of living and not worrying about taxes in

retirement



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Planning for Retirement with Non-tax Deductible Contributions

(cont): A new way to get money into a Roth:

If you have a 401k plan, then you are only allowed to make tax

deductible contributions of $18,000 ($24,000 if 50 and over) However, you can put up to $52,000 back for retirement

All contributions in excess of the tax deductible portion would be

considered non deductible

You would then convert the non deductible portion of the 401k to

a Roth IRA upon termination and avoid picking up taxable income

except to the extent these contributions have earned income • Better than an IRA conversion to a Roth because an IRA

conversion could possibly tax a portion of your deductible

contributions


THANK YOU FOR ATTENDING BY

SCOTT HENSLEY

[email protected]

NOVEMBER 2017

STANCIL & COMPANY

CERTIFIED PUBLIC ACCOUNTANTS 4909 WINDY HILL DRIVE

RALEIGH, NC 27609

919-872-1260



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