• Important Tax Changes for Small Businesses

    17 January 2017
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    Are you a small business owner, or work within a small business’s accounting department? We have your rundown of some changes that need to be considered when preparing your 2016 and 2017 returns. As of December 2015, legislation passed the “Protecting Americans from Tax Hikes” Act which extended a number of business provisions and made some permanent changes. As you start to file 2016’s taxes, please be aware of these provisions, as they can have a significant impact on you business’s taxes:

    Section 179 Expensing – The Internal Revenue Code, Sec. 179, allows businesses to expense, rather than depreciate, personal tangible property other than buildings or their structural components used in a trade or business in the year the property is placed into business service. The annual limit is inflation-adjusted, and for 2017, that limit is $510,000, which is unchanged from 2016. The limit is reduced by one dollar for each dollar when the total cost of the qualifying property placed in service in any given year exceeds the investment limit, which is $2,030,000 for 2017, a $20,000 increase from the 2016 amount.

    In addition to personal tangible property, the following are included in the definition of qualifying property for the purposes of Sec. 179 expensing:

    • Off-the-Shelf Computer Software
    • Qualified Real Property – The term “qualified real property” means property acquired by purchase for use in the active conduct of a trade or business, which is normally depreciated and is generally not property used for lodging except for hotels or motels. Qualified retail property includes:
    • Qualified leasehold improvement property,
    • Qualified restaurant property, and
    • Qualified retail improvement property.

     

    Bonus Depreciation – Bonus depreciation is extended through 2019 and allows first-year depreciation of 50% of the cost of qualifying business assets placed in service through 2017. After 2017, the bonus depreciation will be phased out, with the bonus rate 40% in 2018 and 30% in 2019. After 2019, the bonus depreciation will no longer apply. Qualifying business assets generally include personal tangible property other than real property with a depreciable life of 20 years or fewer, although there are some special exceptions that include qualified leasehold property. Generally, qualified leasehold improvements include interior improvements to non-residential property made after the building was originally placed in service, but expenditures attributable to the enlargement of the building, any elevator or escalator, and the internal structural framework of the building do not qualify.

    In addition, the bonus depreciation will apply to certain trees, vines and plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

     

    Vehicle Depreciation – The first-year depreciation for cars and light trucks used in business is limited by the so-called luxury-auto rules that apply to highway vehicles with an unloaded gross weight of 6,000 pounds or less. The first-year depreciation amounts for cars and small trucks change slightly from time to time; they are currently set at $3,160 for cars and $3,560 for light trucks. However, a taxpayer can elect to apply the bonus depreciation amounts to these amounts. The bonus-depreciation addition to the luxury-auto limits is $8,000 through 2017, after which it will be phased out by dropping it to $6,400 in 2018 and $4,800 in 2019. After 2019, the bonus depreciation will no longer apply.

    New Filing Due Dates – There are some big changes with regard to filing due dates for a variety of returns. Many of these changes have been made to combat tax-filing fraud. The new due dates are effective for tax years beginning after December 31, 2015. That means the returns coming due in 2017.

    Partnerships

    • Calendar Year: The due date for 1065 returns for the 2016 calendar year will be March 15, 2017 (the previous due date was April 15).
    • Fiscal Year: Due the 15th day of the 3rd month after the close of the year.
    • Extension: 6 months (September 15 for calendar-year partnerships).

    S Corporations

    • Calendar Year: 2016 calendar year 1120-S returns will be due March 15, 2017 (unchanged).
    • Fiscal Year: Due the 15th day of the 3rd month after the close of the year.
    • Extension: 6 months (September 15 for calendar-year S Corps).

    C Corporations

    • Calendar Year: The due date for Form 1120 returns for the 2016 calendar year will be April 18, 2017 (the previous due date was March 15). Normally, calendar-year returns will be due on April 15, but because of the Emancipation Day holiday that is observed in Washington, D.C., the 2017 due date is the 18th.
    • Fiscal Year: Due the 15th day of the 4th month after the close of the year, a month later than in the past (exception: if fiscal year-end is June 30, the change in due date does not apply until returns for tax years beginning after December 31, 2025).
    • Extension: 6 months. (Exceptions: [1] 5 months for any calendar-year C corporation beginning before January 1, 2026, and [2] 7 months for June 30 year-end C corps through 2025.) Thus, the extended due date for a 2016 Form 1120 for a calendar-year C Corp will be September 15, 2017.

    W-2s, W-3s and 1099-MISC reporting non-employee compensation

    • Due Date: For 2016 W-2s, W-3s, and Forms 1099-MISC reporting non-employee compensation, the due date for filing the government’s copy is January 31, 2017 (the previous due date was February 28 or March 31 if filed electronically). The due date for providing a copy to the employee or independent contractor remains January 31.
    • Extension – The 30-day automatic extension to file W-2s is no longer automatic. The IRS anticipates that it will grant the non-automatic extension of time to file only in limited cases in which the filer or transmitter’s explanation demonstrates that an extension of time to file is needed as a result of extraordinary circumstances

     

    Work Opportunity Tax Credit (WOTC) – Employers may elect to claim a WOTC for a percentage of first-year wages, generally up to $6,000 of wages per employee, for hiring workers from a targeted group. First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date the target-group member begins work for the employer.

    This credit originally sunset in 2014, but the PATH Act retroactively extended the credit for five years through 2019.

    • Generally, the credit is 40% of first-year wages (not exceeding $6,000), for a maximum credit of $2,400 (0.4 x $6,000).
    • The credit is reduced to 25% for employees who have completed at least 120 hours but fewer than 400 hours of service for the employer. No credit is allowed for an employee who has worked fewer than 120 hours.
    • The legislation also added qualified long-term unemployment recipients to the list of targeted groups, effective for employees beginning work after December 31, 2015.

    Research Credit – After 21 consecutive years of extending the research credit year by year, the PATH Act made it permanent and made the following modifications to the research credit:

    • For years after December 31, 2015, small businesses (average of $50 million or less in gross receipts in the prior three years) can claim the credit against the alternative minimum tax.
    • For years after December 31, 2015, small businesses (less than $5 million in gross receipts for the year the credit is being claimed and no gross receipts in the prior five years) can claim up to $250,000 per year of the credit against their employer FICA tax liability. Effectively, this provision is for start-ups.

    What is in the future?

    With the election of a Republican president and with a Republican majority in both the House and Senate, we can expect to see significant tax changes in the near future. President-elect Trump has indicated that he would like to see the Sec. 179 limit significantly increased and the top corporate rate dropped to 15%. Watch for future legislation once President-elect Trump takes office this Friday.

    Contact us at Dagley & Co. if you have any questions or concerns regarding your 2016’s tax returns.

     

     

     

     

     

     

     

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  • Have a Worthless Stock You Want to Write Off for 2016? Take Action ASAP

    15 December 2016
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    Like most people realize, taking ownership of a stock comes with its ups and downs. Occasionally, you might pick one that unfortunately declines in value. There’s nothing really we can do about this. Sometimes even, when the issuing company goes out of business, a security can become worthless.  Dagley & Co. advises you to take notice of all stock shares you own before the end of the year.

    Gains and losses for securities are not recognized for tax purposes until the securities are sold or become worthless. If the security is sold for a loss, the date of loss is easily determined since it is the sale date. However, for worthless stocks, it is not that easy to determine the date of loss, and taxpayers cannot just pick the year they want to take the loss.

    The IRS says a stock is worthless when a taxpayer can show that the security had value at the end of the year preceding the deduction year and that an identifiable event caused a loss in the deduction year. Just because an issuing company has filed bankruptcy does not necessarily mean its stock is worthless in that year. The company could be in reorganization, or the stocks might not be worthless until a later year.

    Whatever you do, don’t wait until it’s too late to take your loss. If the IRS challenges the loss and the security is found to have become worthless in an earlier year, the current year’s loss will be denied. Your only recourse at that point is to amend your prior year’s returns to claim your loss, provided the three-year statute of limitation has not expired. If the loss is claimed too early, the IRS will also deny it (making you wait until a subsequent year when the stock actually becomes worthless).

    Talk to your broker before the end of the year if you have holdings that have lost all, or nearly all, of their value and you want to be able to claim your investment in them as a loss on your 2016 return. Most brokerage firms will purchase worthless stock for a nominal amount (one cent) just to provide closure for their clients. This is probably the best solution for tax purposes. The sale will appear on Form 1099-B issued by the broker, and then you won’t have to debate with the IRS over when the stock became worthless.

    As a reminder, losses from sales of capital assets such as stock are first used to offset any capital gains on the return for the year of the sale. If the amount of the gain isn’t enough to absorb all of the losses, up to $3,000 ($1,500 if married filing separate) can be used to offset other types of income. If there is still capital loss remaining, it is carried forward to the next tax year and, if necessary, to future years, until it is used up.

    If you have questions related to the tax treatment of stock sales, please contact Dagley & Co. at (202) 417-6640.

     

     

     

     

     

     

     

     

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  • December 2016 Individual Due Dates

    1 December 2016
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    Happy Decemeber! The busiest and most wonderful time of year has finally begun. With this, means your end of year planning must start ASAP. Before you get overwhelmed, plan out your Decemeber month calander TODAY. We’ve provided some indiviudal dute dates to make it a smoother process. As always, contact Dagley & Co. with any year-end questions regarding tax, business, or individual planning.

    December 1 – Time for Year-End Tax Planning

    December is the month to take final actions that can affect your tax result for 2016. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2016 should call for a tax planning consultation appointment.

    December 12 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 12. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2016. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2016

    Last day to pay deductible expenses for the 2016 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2016). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 –  Last Day of the Year

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

     

     

     

     

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  • December 2015 Tax Due Dates for Individuals

    8 December 2015
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    Have a merry month – and not a stressful month – with these December tax deadline tips from Dagley & Co! Image via public domain.

    December  – Time for Year-End Tax Planning

    December is the month to take final actions to affect your 2015 taxes. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2015 should get in touch with us at Dagley & Company for a tax planning consultation appointment. In case you need more reasons, do read our special post from Black Friday about why we may be the perfect accounting firm for you!

    December 10 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2015. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2015

    Last day to pay deductible expenses for the 2015 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2015). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 – Where did the time go?! Last Day of the Year!

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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