Tax & Estate Planning Publications & Newsletters

Publications and Newsletters

Tax News

The 2016 PATH Act made permanent for businesses the 50% bonus first-year depreciation for most new machinery and equipment; and the Section 179 $500,000 expensing limitation.

We have compiled a checklist of additional actions below 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. 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:

Year-End Tax Planning Moves for Individuals, if you are or have the following:

  • Employer's health flexible spending account (FSA).
  • Health savings account (HSA) contributions in 2016.
  • Potential losses on stock investments.
  • Conversion of Traditional IRA to a Roth IRA:  Planning may be available for holdings of stock or other assets that have declined in value.
  • Have potential deductions that you can prepay, consider using a credit card. President-Elect Trump proposes using a $30,000 standard deduction for Married Filing Jointly and $15,000 for single filers. It may be more difficult to get the value of your deduction next year. Approximately 32% of filers itemized their deductions in 2015 and the average itemized deduction across all income ranges was approximately $26,000. President-elect Trump’s proposal would make it unnecessary for a large number of filers to itemize.
  • Consider making your state estimated tax payments due in January in December instead in order to maximize the deductions this year.
  • Big ticket purchases in 2016:  Claim a state and local general sales tax deduction instead of a state and local income tax deduction.
  • Energy saving improvements to the residence in 2016, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner. These credits have only been extended through 2016.
  • Qualified higher education expenses; consider prepaying eligible expenses.
  • Age 70-1/2 or older: (1) if you're thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee; or (2) take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan).
  • Gifts to make in 2016:  They can be sheltered by the annual gift tax exclusion ($14,000 in 2016) before the end of the year and thereby save gift and estate taxes. You can give to each of an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.

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

  • Businesses should consider making expenditures that qualify for the Section 179 business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000.
  • Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year.
  • If you are self-employed and haven't done so yet, set up a self-employed retirement plan.
  • If you own an interest in a partnership or S Corporation you may 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.

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Social Security Earned Income Limitations and Retirement Benefit Calculations

Social Security is a federal insurance program that provides benefits to retired and disabled workers, their surviving spouses and certain dependents. The amount of Social Security Benefits that a person is entitled to receive is based on a combination of several factors. In order to qualify for Social Security a person must work during enough periods. The amount of the Social Security benefits are calculated based on the highest 35 years of earnings for an individual. Social Security benefits may be reduced if a person retires before the person’s full retirement age.

Workers do not automatically qualify for Social Security retirement benefits. A worker must work and pay a minimum level of Social Security taxes for at least 40 quarters during their working lives. These 40 quarters do not have to be consecutive.

The biggest factor in how much a worker will receive in Social Security benefits is how much they earned while they were working. For Social Security purposes, what matters is the average amount a worker earned during their highest-earning 35 years.

The SSA determines the total amount a worker earned in the 35 years during which they made the most money, up to a maximum amount per year. In 2016, the maximum earning limit is $118,500. If a worker has less than 35 years of earnings the Social Security Administration will average in zeros for any years less than 35.

A worker’s benefit is based on a three-tiered percentage of their average indexed monthly earnings (AIME). The formula is based on the year when a worker first became eligible for Social Security. For those who first become eligible for Social Security in 2016, the benefit is calculated as follows: (90% of your first $856 of AIME) + (32% of AIME above $856 and through $5,157) + (15% of AIME above $5,157). The sum is their estimated monthly retirement benefit at their full retirement age.

A worker can begin to collect Social Security retirement benefits as early as age 62 but cannot begin to receive full retirement benefits until full retirement age. Full retirement age is between ages 65 and 67, depending on the worker’s date of birth. Workers born after 1960 do not attain full retirement age until 67. If a worker starts collecting benefits before their full retirement age their benefits will be reduced by the following percentages: 30% at age 62, 25% at age 63, 20% at age 64, 13.3% at age 65 and 6.7% at age 66.

A worker can receive Social Security retirement benefits and work at the same time. However, if a worker is younger than full retirement age and earns more than the yearly earnings limit, Social Security will reduce the benefit received. Starting with the month a worker reaches full retirement age, Social Security will not reduce their benefits no matter how much they earn.

If a worker is under the full retirement age for the entire year, Social Security deducts $1 from their benefit payments for every $2 they earn above the annual limit. For 2016, the annual limit is $15,720. In the year a worker reaches full retirement Social Security deducts $1 from their benefit payments for every $3 they earn above $41,880. Only earned income triggers a reduction in Social Security benefits. Pensions, annuities, investment income and interest are unearned income and do not cause a reduction in Social Security benefits.

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Charitable Donations
to Nonprofit Employers

Summary

When employees of charitable organizations have made donations to their employer, they have traditionally done so in a manner that is inefficient for tax purposes. In the traditional structure, the employee receives salary or wages from the employer, which triggers payroll taxes to both employer and employee as well as income tax to the employee (at the federal and often state and local levels). The employee then reconveys money to the employer, sometimes generating an offsetting income tax charitable deduction, but never recovering either the employer or the employee share of payroll taxes. The Article explores two alternative planned giving strategies that mimic the impact of an income tax charitable deduction while avoiding the trigger of payroll taxes for employer and employee. The first strategy is Voluntary Salary Reduction, or VSR, where an employee chooses to take a lower salary intending that the charity keep the balance for its charitable mission. The second strategy is Deliberate Overfunding of Flexible Spending Accounts, or DOFSA, where an employee willingly succumbs to the “use-it-or-lose-it” provisions of a health care flexible spending account and allows the balance remaining in the account to revert to the charitable employer. Either strategy avoids triggering payroll taxes on the funds remaining with the charitable employer and allows the employee to reallocate funds that would otherwise be taxes paid to government to either the employer or the employee. The Article discusses the risks of the strategies and the income ranges of employees for which each strategy provides the maximum benefit.

From Fall 2016 volume – Real Property, Trust and Estate Law Journal

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Estate Administration Checklist for Surviving Family Members

Actions to be Taken Immediately Following a Death

/documents/filelibrary/presentations_jan/ESTATE_ADMINISTRATION_CHECKLIST_C208EFA66BEFE.pdf

 

If we can help with any of these matters, please call 563.264.6840.

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Presentations and Publications authored by James A. Nepple

www.nepplelaw.com/documents/filelibrary/Charitable_PlanningISBA10102013_DC7EBB99C376B.pdf -- October 2013

www.nepplelaw.com/documents/filelibrary/Estate_Planning__Tax_Issues_for_LLC_F3C0DE382738C.pdf -- October 2013

The Road Ahead for Medicare Contributions Tax - May 2012

Starting Points Workshop: Basic Entity Documentation -- December 2011

Limited Liability Companies v S Corporations - Illinois Institute for Continuing Legal Education -- June 2011

Disguised Partner Sales Memorandum - ACTEC -- October 2010

Tax & Estate Planning for LLCs & S Corporations -- May 2010

Property: Is Your Title in the Donut or the Donut Hole? - Illowa Partnership for Philanthropic Planning -- May 2010

Private Foundations - Illinois State Bar Association presentation -- February 2010

Distribution & Compensation Issues in Starting a Business - Illinois State Bar Association presentation -- May 2007

 

 

 

 

 

 

 

 

 

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