Reduce your 2017 tax bill by buying business assets
Two valuable depreciation-related tax breaks can potentially reduce your 2017 taxes if you acquire and place in service qualifying assets by the end of the tax year. Tax reform could enhance these breaks, so you’ll want to keep an eye on legislative developments as you plan your asset purchases.
Section 179 expensing
Sec. 179 expensing allows businesses to deduct up to 100% of the cost of qualifying assets (new or used) in Year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and real property improvements.
The Sec. 179 expensing limit for 2017 is $510,000. The break begins to phase out dollar-for-dollar for 2017 when total asset acquisitions for the tax year exceed $2.03 million. Under current law, both limits are indexed for inflation annually.
Under the initial version of the House bill, the limit on Sec. 179 expensing would rise to $5 million, with the phaseout threshold increasing to $20 million. These higher amounts would be adjusted for inflation, and the definition of qualifying assets would be expanded slightly. The higher limits generally would apply for 2018 through 2022.
The initial version of the Senate bill also would increase the Sec. 179 expensing limit, but only to $1 million, and would increase the phaseout threshold, but only to $2.5 million. The higher limits would be indexed for inflation and generally apply beginning in 2018. Significantly, unlike under the House bill, the higher limits would be permanent under the Senate bill. There would also be some small differences in which assets would qualify under the Senate bill vs. the House bill.
First-year bonus depreciation
For qualified new assets (including software) that your business places in service in 2017, you can claim 50% first-year bonus depreciation. Examples of qualifying assets include computer systems, software, machinery, equipment, office furniture and qualified improvement property. Currently, bonus depreciation is scheduled to drop to 40% for 2018 and 30% for 2019 and then disappear for 2020.
The initial House bill would boost bonus depreciation to 100% for qualifying assets (which would be expanded to include certain used assets) acquired and placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for certain property with a longer production period).
The initial Senate bill would allow 100% bonus depreciation for qualifying assets acquired and placed in service during the same period as under the House bill, though there would be some differences in which assets would qualify.
Year-end planning
If you’ve been thinking about buying business assets, consider doing it before year end to reduce your 2017 tax bill. If, however, you could save more taxes under tax reform legislation, for now you might want to limit your asset investments to the maximum Sec.179 expense election currently available to you, and then consider additional investments depending on what happens with tax reform. It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. Contact us to discuss the best strategy for your particular situation.
© 2017
Tax Implications of Moving
People move for various reasons: to be close to loved ones, amenities and nightlife, to pursue lower living costs, or just because you always wanted to live in a certain place. Proximity to work is the most common reason for moving, and you may be eligible for tax incentives if you just got that offer for a dream job hundreds of miles away. Or, if moving to the city of your dreams is the only viable place where you can start a business, chances are that you can deduct your moving expenses.Read more
Tax Tips for Expats, Digital Nomads, and Other US Citizens Who Live Abroad
Expats, dual citizens, digital nomads: all people who may retain American citizenship but don't spend much time in the US which can lead to serious headaches at tax time. Here are some tips to help you understand your dual citizen and expat taxes.
Why Do I Need to File a Tax Return if I Don't Live in the US Anymore?
The United States and Eritrea are the only countries in the world that tax you based on your citizenship, not your residency. If you haven't turned in your passport, you still need to file a federal tax return even if you didn't have any US-sourced income. Even if you have to file a tax return in the country(ies) you've lived in most of the year, it doesn't relieve you of being obligated to file a tax return.
However, while you still have to file a return it may not mean you'll need to pay taxes. Whether you have to pay taxes depends on your sources of your income as well as how long you've lived outside the US during theyear. The income must be reported but may not necessarily be taxed.
You also may or may not need to file state income tax returns. If you own interest in a business as an investor or participating in it from around the world as digital nomads are wont to do, you need to worry about this more than an expat with a job. State taxes may also be a concern for you if you own rental real estate.
US Income Tax Relief if You Live Abroad
Your US-sourced income will still be subject to income tax regardless of the amount. For your foreign-source income, the two most common tax relief measures available to most expats are the foreign earned income exclusion and foreign tax credit.
The foreign earned income exclusion (FEI) for the 2015 tax year is $100,800. You can exclude up to $100,800 USD of foreign-sourced income from federal taxation while any income over that amount is not exempt. There are also certain residency and physical presence tests you must meet to qualify for FEI.
Self-employed expats can use FEI for US-sourced clients and gigs, but are still subject to self-employment tax unless you are a resident of a country that has a totalization agreement with the US.
The foreign tax credit is less strict than FEI when it comes to residency, in that you can claim a credit for foreign income taxes regardless of if you hold citizenship in that country or lived there most of the year. But you can't take both the credit and deduction, only one.
What Records Do I Need to Keep?
Keep track of dates you enter and leave the US as you must report how many days you lived abroad to claim FEI. Digital nomads need to be particularly careful with the "substantial presence" test, as hopping countries and states may mean just missing the 330 day mark of being able to claim FEI.
Carefully note how much you pay in foreign income taxes. If self-employed, make sure to keep track of where you performed services and for whom.
Dukhon Tax is available to assist dual citizens, expats, digital nomads, and other taxpayers living abroad with their federal and state tax concerns.
Sources:
https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion
https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit
Is Living in a State with No Income Tax Really Easier on Your Wallet?
All Americans are obligated to pay federal tax income taxes, and most states (and some counties and cities) will also make their residents pay a separate income tax with a few exceptions. The following states don't have an income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
Sometimes, people include New Hampshire and Tennessee on that list because earned income (wages and income from self-employment) isn't taxed but those states do tax investment income like interest and dividends. The above seven states have zero state income tax.
There are some tradeoffs that can come with having no tax on your wages and other income. Tennessee doesn't tax wages but has the highest sales tax rates in the nation, at a 7% base rate with local rates making total average 9.45% which is even higher than New York City's 8.875% sales tax. Texas and Nevada also have very high sales tax rates, which heavily compounds cost of living regardless of how much you earn.
States with High Property Taxes
While states with high income taxes like New York and New Jersey are also home to high property taxes, Florida gathers most of its revenue from sales tax but also has very high property taxes as does Texas. New Hampshire homeowners pay among the highest property taxes in the nation and have the highest in-state tuition at public colleges of any other state. Like sales tax, mounting effective property taxes can make basic living expenses tougher to shoulder and harder to stay in your home if your income falls because of illness, job loss, or the birth of a child.
States that rely predominantly on regressive taxes like sales tax (where the tax takes up more of the taxpayer's income as their income decreases) may also be more devious in other non-tax government fees such as traffic tickets, driver license fees, business licenses, and other public services and necessities. This is a form of taxation that doesn't seem as blatant as having to file a state income tax return alongside your federal one every spring, but it is how state and local governments make up for the shortfall.
High Natural Resources can Offset State Taxes
Contrary to the states that rely on sales tax, Alaska and Wyoming receive massive tax revenue from their natural resources that enables them to have lower costs of living than other states. Alaska is a notable exception in that being so remote and having to rely on imports makes basic expenses like food more expensive, but the state also grants a basic income to its residents through the Alaska Permanent Fund so all the residents can share in the natural resource royalties the state receives as its primary revenue source.
When pondering whether to move to a different state, tax policy alone usually isn't the deciding factor.
Moving for a job, the ease of setting up a business, or to be near loved ones may trump the economic reasons for moving to a low or no tax state. If you've lived in a high-tax state in your prime working years and having more money in your pocket sounds appealing, you should take a look at the state's general approach to public policy and see if it aligns with your budget and values. You might not care about high traffic ticket prices if you don't drive and high costs of getting a business license if you don't want to start a business, but no income tax could still mean some hidden financial pitfalls elsewhere.
How Olympic Medals are Taxed
Olympians are definitely stuck contending with tax bills resulting from their victories. Most prizes and awards are taxable whether you win $100 at a fishing competition or a dishwasher worth $2,000 on a gameshow. The Olympic committee awards $25,000 to gold medalists, $15,000 to silver, and $10,000 for bronze but what makes Olympic medals an interesting phenomenon is that the winners must pay taxes not just on those cash awards but the actual value of the medal itself.
The gold medals are made mostly of silver with gold plating and worth between $500-600 based on current commodity prices and the fact that Rio's medals are some of the largest and heaviest Olympic medals ever crafted. Silver medals are worth about $300 and because the bronze medals are made mostly from copper and only worth about $4, their value isn't taxed.
The US is one of the few countries that does not lend financial support to Olympians so the athletes must look for endorsement deals, sponsoring from local businesses, stipends from schools or the Olympic Committee, or a day job. Because many Olympians struggle to make it to the competition just to find themselves facing tax burdens as a result of winning, a bill was passed by the Senate to make Olympic and Paralympics medals and prize money federally tax-exempt and is currently being considered by the House.
Unless the bill is passed, Olympic medals and prizes are not tax-exempt.
Even if the Olympic medalists donate their prize money and/or medals to qualified charities, they can take an itemized deduction but it doesn't exempt them from being taxed on the money in the first place. That exclusion only applies to specific educational, artistic, literary, civic, and scientific awards such as donating the award money for winning a Nobel Prize in chemistry.
Why Hire A Portable CFO?
Why Hire a Portable CFO?
Let’s be honest: Entrepreneurs and small business owners wear many hats. During the regular course of a day, you may find yourself handling customer tasks or orders, interfacing with vendors, or dealing with couriers and shipping companies. More often than not, business owners find there is little time left to cope with the financial aspects of the company. If this sounds familiar, it may be time to explore the Dukhon’s Portable CFO services.
Portable CFO – An À La Carte Menu of Services
Small businesses typically do not require a full-time or even part-time Chief Financial Officer. As an alternative to this traditional role, companies are now outsourcing their financial needs to accounting firms like Dukhon.
In working with our clients, the team at Dukhon realized there was a demand for an à la carte menu of services. Our Portable CFO offerings ensure we are working on what you need, when you need it. And as your company grows, so can the level of support. In essence, as your Portable CFO – we can design a plan of customized services just right for you.
Portable CFO Duties
The duties of a Portable CFO can range from banking and analysis, to policies, procedures and business strategy. Specific tasks can include cash flow monitoring, financial planning and reporting, advice on resources and capital structure, risk assessments, relationship management with creditors and banks, in addition to a full range of accounting and advisory services.
Supporting Your Business Growth
At Dukhon Tax and Accounting, we want to ensure business owners have the support they need to efficiently run and grow their business. To learn more about the Dukhon Portable CFO services or to discuss how we can can help oversee your financial activities, contact our Allston, Massachusetts office at 617.651.0531 or email [email protected]
Brexit's Impact on US Taxes
The United Kingdom's vote to leave the European Union (EU) is going to have a lot of impact on international trade, not to mention the American economy and tax policy. Americans with UK-sourced income and businesses looking to enter the UK market should take heed of the impending changes and how they will affect their tax liabilities. Here's an overview of Brexit's impact on American businesses and American expats who live and work abroad in the UK.
Brexit Impact on Income Taxes
For taxpayers who have UK-sourced income, you may see a reduction in your tax bill because the exchange rate between the US dollar and pound sterling (GBP) is already down about 8% from 2015. Analysts expect that GBP could fall by 10% by 2017. You will receive fewer dollars back from GBP as it will be the closest in parity to the dollar that it's been in over 30 years. If you have business expenses in the UK this will also reduce them but your UK-sourced income will also fall.
If you have investment income that is UK-sourced, DIRT (dividend and interest retention tax) rates may change. You may have more taxes withheld from your investments which reduces the amount you receive but grant you a larger foreign tax credit or deduction. However, the EU treaties that have prevented double taxation of investment income have been nullified.
For business taxpayers with substantial income and presence in the UK, the loss of the EU's Parent-Subsidiary Directive can exponentially raise business tax bills. There is also speculation that the Capital Duties Directive will return which is a tax levied on capital raised.
Tax Treaties and Potential Further Secession
Brexit is causing treaties that relied on the massive bargaining power of the EU to be renegotiated from the ground up. The US-UK tax treaty isn't currently facing any major changes for Americans who have UK-sourced income and no substantial presence there or non-residents with UK residency and US-sourced income. The tax treaty may still be renegotiated in the face of international trade and workforce shifts and the fact that the UK has been the most major economic and political touchstone for America's dealings with the EU.
In addition to other countries discussing leaving the EU, policy analysts in Scotland and Northern Ireland have brought up seceding from the UK in order to preserve the powers and protections they receive from the EU. If your company is establishing presence in these countries or plans to earn a significant amount of income from them, now would be a good time to consider restructuring. If Scotland and Northern Ireland leave the UK, they'll also have to draft their own tax treaties.
Americans Working Abroad
Brexit's impact on expat taxes is largely tied to the currency shift and immigration laws. Because the UK uses a point system for expats who are not from EU countries which has normally allowed these residents to easily come and go, Americans working abroad won't see an immediate impact since EU status never affected them. If additional visa restrictions and work requirements are enacted now that the EU resident category doesn't exist in the UK, Americans working abroad who don't meet the new requirements may fail the substantial presence test when it comes to the foreign earned income exclusion.
To book a consultation to learn more about Brexit's potential impact on your personal taxes or business, please contact Dukhon Tax by calling 617 651 0531 or by emailing [email protected].
Article Sources:
http://www.latinotaxpro.org/blog/item/338-what-brexit-is-likely-to-mean-for-taxes-trade-and-more
https://www.dlapiper.com/en/uk/insights/publications/2016/03/brexit-implications-for-tax-law/
Tax considerations for switching jobs or unemployment
If you are about to switch jobs or experience some sort of unemployment, there are certain tax implications you may need to consider.
Accrued money
When switching jobs, you may have a sizeable amount of money accrued coming to you from vacation or sick pay. Any form of severance pay you receive is taxable in the year you receive it, in addition to the vacation or sick pay.
Withholding
When you change jobs, you will have to adjust your withholding on Form W-4. Using the worksheet provided will help you determine the right number of withholdings to avoid over or underpaying.
401(k)
If you had a 401 (k) with your previous company, you will have the opportunity to either cash in your 401(k); switch it to the new employee; or pay a penalty if you choose to take the money. If you have more than $5,000 in the account and are fine with the way it is being handled by your former employer, you may elect to leave your savings in the plan where it will continue to grow.
Job search expenses
You may be able to deduct some of the money you expend while looking for another job, but those costs must meet the requirements outlined by the IRS. These expenses can include employment agency fees, the costs associated with sending out your resume, phone and fax expenses, and in some cases, travel.
Relocation
You may be able to deduct some moving expenses that are not covered by your new employer. If your old job is at least 50 miles from the old one, and you will have full-time employment for a 12-month period, you can deduct items like the cost of packing and shipping your personal possessions, insurance and 30 days of storage. Traveling to the new home, and any expenses dealing with the car, which includes gas and oil, parking and tolls.
It is important to note that when receiving unemployment benefits, if taxes are not withheld, you may be facing a large tax bill the following year.
To find out more about tax considerations for switching jobs, or the tax issues surrounding unemployment, contact us by calling 617 651 0531 or by emailing [email protected], or by filling out this contact form:
Get in Touch with Dukhon Tax
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The IRS Tools of Last Resort: Tax Levies and Liens
April 15th is in most taxpayers' rearview mirrors--except for those with an outstanding tax debt.
There are provisions for extending the deadline date for filing, but the extension must be accompanied by a payment, or the clock starts ticking for accruing of interest and penalties and setting in motion a levy or a lien.
Settle up or face the dreaded L-words
With its power to levy, the IRS can seize and sell off your property or assets. Said property could include your home, car or boat. The IRS could also seize your wages and other financial assets such as:
- retirement, bank and investment accounts
- rent incomes
- cash value of your life insurance policy
There are three basic criteria that must be met before the IRS enforces a tax levy:
- You actually owe taxes and have received a Notice and Demand for Payment in the mail.
- You did not pay the tax owed after receiving the final notice, including a notice of your right to a hearing.
- You had the hearing and appeal, but couldn't prove your case.
The foregoing process occurs over a period of about 60 days. It also includes an opportunity for you to appeal an adverse ruling, which is a lengthy and complicated process where the services of a qualified tax expert would be helpful.
A lien weighs down your property and credit standing.
A lien, on the other hand, is a legal claim against your property because of a tax debt. It differs from a levy in that the government does not actually take your property. Rather, the lien prevents you from liquidating or otherwise disposing of the property.
The criteria the IRS uses for imposing a lien are the same as a levy.
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What a lien does
A lien attaches itself to all your assets--property, vehicles, and securities including future assets you acquire when the lien is in effect. A lien will also significantly handicap your personal credit rating.
If you own a small business, all the property owned by the business may be subject to the lien. Bankruptcy is not an escape, because a federal tax lien continues past the bankruptcy settlement and any debt divestiture.
Relief from levies and liens
The IRS has the option to release a levy if you can prove "immediate economic hardship." Such release won't erase the tax bill, but will give you time to work out a payment plan or find other means to discharge your tax debt.
Likewise, the IRS will remove a tax lien on your property when you pay the outstanding balance in full or satisfy the outstanding balance through a successful offer in compromise, for example. Also, a lien determination can become unenforceable if it is overtaken by the ten-year statute of limitations.
Conclusion
Financial and business setbacks sometimes happen to responsible, honorable people. The IRS has no interest in punishing or impoverishing those who make an honest effort to discharge their tax obligations.
Don't panic and don't procrastinate. You have 30 days to respond to the IRS written notice, and your best course of action is to get professional assistance. Contact us today to find out how we can help.
When You Need to File an Amended Tax Return
Tax season is over and you might think that you can rest easy now that your return has been filed but that's not always the case. Sometimes you need to file an amended tax return, whether you realize it or not. Here are some of the common reasons for filing an amendment.
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