Management / Strategy
Tax Preparation – Business & Personal
By Paul Impellicceiri
A.F. McGervey & Co., LLC
Year-end tax planning is often a ‘coordination’ between current year tax law and future tax rates. (At the end of 2015 for example, Congress extended certain tax provisions and made others permanent.) Adding another level of uncertainty for 2016 tax preparation however, is the election of Donald Trump. Some of the changes proposed during the recent election campaign may give taxpayers reason to re-evaluate.
Business provisions that were made permanent or extended into 2016 include:
- 50% bonus depreciation was extended through 2016 and 2017, and steps down to 40% in 2018 and 30% in 2019 before expiring.
- Section 179 expensing has been made permanent with an expensing limit of $500,000 with an overall investment limit of $2.01 million for 2016. The overall investment limit will be indexed for inflation in future years.
- The provisions of the Affordable Care Act (ACA) continue to be implemented and will impact more businesses in 2016. Most of the provisions will now affect those businesses with 50 or more employees. There are reporting requirements for affected companies and some potential credits available for smaller companies to help offset the costs.
The tangible property and repair regulations continue to be implemented and updated. The deminimis safe harbor amount has been increased from $500 to $2,500 in 2016 for taxpayers without an applicable financial statement. This change allows some business owners to expense more purchases, versus being required to capitalize them.
Individual provisions that were made permanent or extended include:
- The ability to make a charitable contribution directly from an IRA and exclude the distribution from income.
- The state and local sales tax deduction, particularly important for taxpayers in states with no income tax, was made permanent.
- The American Opportunity Tax Credit, available in conjunction with the payment of qualified tuition and related expenses, has been made permanent.
- The Teacher's classroom expense deduction of up to $250 has also been made permanent.
Along the campaign trail, President-elect Trump made a number of proposals as part of his tax plan. These include compressing the number of tax brackets, reducing the individual and business tax rates, limiting some deductions, and repealing all or most of the provisions of the Affordable Care Act. These changes could potentially have a significant impact on taxpayers in 2017. In particular, if the 3.8 net investment tax, as part of the ACA, were to be repealed, waiting until 2017 to recognize gains within an investment portfolio or on the sale of a business may make sense.
Bottom Line: Business owners and taxpayers who have some control over their income may want to defer income until 2017 and the potential for more favorable rates.
Paul Impellicceiri is a partner at Pittsburgh-based accounting/auditing firm, A. F. McGervey & Company, LLC and can be reached for comment at (412) 653-6101 or firstname.lastname@example.org