As we approach the end of 2017, we wanted to share with you some year-end planning opportunities and tips. Additionally, P&N is closely following the current federal tax reform in Congress. For more resources and information regarding tax reform and how it could affect you or your business, please visit our tax reform page.
R.C. § 179 Expensing
If you intend to purchase a depreciable asset in the near future, whether personally or through an entity, and if it is appropriate to consider for 2017, you may have the benefit of Section 179 immediate write off. For tax year 2017, the yearly expense limit is $510,000 while the dollar-for-dollar phase-out begins when total asset acquisitions for the tax year exceed $2,030,000.
- With respect to charitable contributions, contributions of appreciated assets, such as marketable securities, typically provide a charitable deduction based on fair market value and if such value exceeds your tax basis in that asset, then that differential escapes income taxation to you.
- It is important to request proper documentation of your gift from the donee. Specifically, cash donations of $250 or more require contemporaneous written documentation along with a disclaimer that no goods or services were received from the charity. Furthermore, if you claim a deduction of over $5,000 for a non-cash charitable contribution of one item or a group of similar items, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser. Case law has indicated that non-cash contributions also require a certification that no goods or services were received in exchange for the donation.
- Recent cases have added further complexity to the substantiation requirements noted above. For example, if your charitable donation was in the form of expenses incurred on behalf of the charity, the charity should acknowledge those expenses as they would any other charitable donation to ensure deductibility. Finally, and perhaps most importantly, donors should ensure that the required donation receipts thoroughly and accurately describe the property donated in order to ensure deductibility.
Estimated Tax Payments
Consider whether or not you have made sufficient estimated tax payments, including withholding, to avoid underpayment penalties for the final estimate period for federal and state purposes. If additional amounts are due, estimated payments can be made through January 15, 2017.
- Taxpayers may wish to consider planning with regard to capital gains and losses.
- The maximum federal tax rate for capital gains is 20% in 2016 for high income taxpayers. (23.8% for those subject to the 3.8% net investment tax). If you have net capital gains, you may want to consider closing some transactions on loss securities to minimize the tax for 2017.
- However, taxpayers must avoid the “wash sale” rules if they intend to sell a security at a loss and wish to buy it back. The repurchase would have to be made after 30 days from the sale in order to not taint the original sale at a loss in 2017.
Taxpayers may also wish to consider whether or not they have any loans that could be considered worthless. If you do, then you may be able to take a bad debt deduction. In order to substantiate this deduction, you may wish to compile proper documentation prior to year-end with respect to those loans.
If you have an asset that you wish to sell, but do not want to currently recognize the gain, remember that you may be able to avail yourself of the installment sale rules. You may also be able to enter into an option transaction to provide a purchaser the option to purchase the particular asset, which option would close after 2017.
- Review your family estate gifting transactions for 2017 to determine if there are remaining annual exclusion gifts you would like to do. For 2017, the first $14,000 of gifts of a present interest made by a donor (husband and wife are each a donor) during the calendar year to each donee is not a taxable gift. Gifts in excess of that amount reduce the lifetime exclusion.
- Qualified transfers on behalf of any individual are excluded in determining the total amount of gifts. “Qualified transfer” means any amount paid on behalf of an individual as tuition directly to a qualifying educational organization for the education or training of that individual, or to any person who provides medical care with respect to that individual as payment for the qualifying medical expenses arising from such medical care.
- You may also want to consider the use of some of your remaining life time exclusions or generation skipping exclusion with additional gifts.
Taxpayers over the age of 70 1/2 should ensure that any retirement plan required minimum distribution is paid by December 31, 2017.
This is intended as a summary of potential year-end planning opportunities and strategies. If you have any questions about how any of these items specifically apply to you, please contact a P&N tax advisor for consultation before year end.