7 last-minute tax-saving tips

The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2017 tax liability — you just must act by December 31:

  1. Pay your 2017 property tax bill that’s due in early 2018.
  2. Make your January 1 mortgage payment.
  3. Incur deductible medical expenses (if your deductible medical expenses for the year already exceed the 10% of adjusted gross income floor).
  4. Pay tuition for academic periods that will begin in January, February or March of 2018 (if it will make you eligible for a tax credit on your 2017 return).
  5. Donate to your favorite charities.
  6. Sell investments at a loss to offset capital gains you’ve recognized this year.
  7. Ask your employer if your bonus can be deferred until January.

Many of these strategies could be particularly beneficial if tax reform is signed into law this year that, beginning in 2018, reduces tax rates and limits or eliminates certain deductions (such as property tax, mortgage interest and medical expense deductions — though the Senate bill would actually reduce the medical expense deduction AGI floor to 7.5% for 2017 and 2018, potentially allowing more taxpayers to qualify for the deduction in these years and to enjoy a larger deduction).

Keep in mind, however, that in certain situations these strategies might not make sense. For example, if you’ll be subject to the alternative minimum tax this year or be in a higher tax bracket next year, taking some of these steps could have undesirable results. (Even with tax reform legislation, some taxpayers might find themselves in higher brackets next year.)

If you’re unsure whether these steps are right for you, consult us before taking action.

© 2017


2018 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.Read more


Why you may want to accelerate your property tax payment into 2017

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

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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 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


Life Milestones and Their Effect on Your Taxes

The breadth of our life experiences and changes that occur as we mature always have wider tax implications. The major milestones of our lives bring both tax benefits and liabilities. Almost every milestone we reach, whether it includes the excitement of change or the sadness of loss, directly or indirectly affects our status as a taxpayer.

For example:

Getting married

Whether you file separately or jointly, your filing status will change when you marry. You will be able to claim a new tax exemption and adjust your paycheck deductions. Also, working couples have an advantage over single taxpayers, whose earnings reach the higher tax brackets sooner.

Having children

new baby tax benefitsYour little bundle of joy becomes a tax exemption for the entire tax year. With the 2 AM feedings come advantages like child tax credits and other benefits. For example, when both spouses return to work, there is the Child and Dependent Care Tax Credit to pay a babysitter during the workday. Also there are tax credits and other breaks when the child goes off to college.

Losing your job

Lose your job and you immediately enter a lower tax bracket. Worse news is that you will be taxed on unemployment benefits and will be liable for taxes on severance pay and vacation time your former employer bought back. Make sure your former employer sends you that W-2. Keep track of job search expenses- they could be tax deductible.

Divorcing or Legally Separating

You are considered unmarried at the end of the tax year when separated under a divorce decree or a separate maintenance agreement. Alimony you receive or pay is either taxed or can be deducted, depending on whether you are the receiver or the donor.

Likewise, whichever divorced parent has custody of a child for the greater part of the calendar year will be eligible for dependency deductions and other tax benefits accruing from having a child. Although alimony can be tax deductible, child support is not.

Moving to another state

moving to another state tax savingsHeading out for that new job and fresh start? You can deduct some of your moving expenses for which your employer will not reimburse you . You will need to deal with the tax rules of both your former and your new state and might end up filing two state tax returns. Also, resist the temptation to cash in your former employer's retirement plan. Otherwise, you could be looking at a high income tax rate on the proceeds.

Saving for retirement

Most likely, your Social Security benefits will not be enough to assure a comfortable retirement. Whether you participate in a 401(k) or traditional IRA, your contributions will reduce your yearly income tax bite. Your retirement years will also be taxed as the government takes back some of that Social Security money for income tax and Medicare coverage. You will also need to plan those traditional IRA withdrawals beginning at age 70 years six months.

Meanwhile, in between milestones…

Life happens in between all of these milestones. We get busy and sometimes forget the tax implications of our happiest and saddest moments. Reach out to us at Dukhon Tax and Accounting if there is any way we can help you focus on these milestones without worrying about your taxes.


Don't Want to Buy Health Insurance? Look Into Market Place Hardship Exemptions

If you can afford health insurance but you don't wish to buy it expect a higher federal income tax bill for 2015. Under the Affordable Care Act, unless you have a health coverage exemption, the IRS will assess an additional penalty, using the higher result of the following two criteria:

  • 2% of your yearly earnings: The amount of income above about $10,150, the tax-filing threshold, is what you use to calculate the penalty. The amount is capped according to what the IRS figures is the "average bronze plan premium."
  • $325 per person for 2015--$162.50 per child under age 18: The maximum family penalty per family using this method is $975.

health tax exemptions

What qualifies as health coverage--and what does not

Most health plans, including any Marketplace plan, or individual insurance plan you already have qualifies as coverage. Any job-based or retirement plans, Medicare Parts A or C, and TRICARE plans for military retirees also qualify.

Not all plans offered outside the Marketplace will qualify for minimum essential coverage, though.

Plans that would not qualify include:

  • health plans that cover a fixed, limited term
  • health plans that have fixed benefit restrictions
  • Medicare supplemental plans only, like Part D and Medigap
  • certain Medicaid schemes covering only specific benefits
  • limited-benefit plans, e.g., vision only, dental only

Exemptions and how to get them

For tax year 2015, you can apply for an exemption to avoid paying the tax penalty. The exemptions are income, health, and group membership related. They also cover anyone serving a prison sentence, U.S. citizens living abroad, and certain non-citizens.

Income-related

You could qualify for an income-related exemption if:

  • the least expensive health coverage available (Marketplace or job-based) would amount to more than 8.05 percent of your household income
  • you do not earn enough to be required to file an income tax return

Health coverage related

These apply when:

    • your lack of health insurance coverage was for no more than two consecutive months
    • your home state failed to expand its Medicaid program to meet the requirements of the Affordable Care Act, but if it had, you would have qualified

Group membership related

Certain groups are exempted:

    • members of a federally recognized Native American tribes
    • members of a recognized health care sharing ministry
    • religious sects that object to health insurance, Medicare and Social Security

Hardship exemptions

Some life situations can prevent you from getting health insurance. Examples of hardships that qualify include homelessness, eviction or foreclosure, domestic violence, natural disaster, family tragedy, etc.

To qualify for a hardship exemption, you must complete a paper application and mail it to the Marketplace. For a list of qualifying hardships and instructions on how to apply, go to the Healthcare.gov webpage.

Loss of previous coverage

Likewise, if your insurance company canceled your plan, and you believe other Marketplace plans are unaffordable, you can apply for an exemption. The above-mentioned 8.05 percent of the household income criteria applies.

You can apply for this exemption either on your 2015 income tax return or completing a separate Marketplace exemption application. Download the application forms and instructions from the Marketplace.cms.gov website.

Need some help?

Your health coverage now affects your 2015 federal income tax return. The fees for not having health insurance could be another unexpected financial hit. Need some help or advice on addressing tax implications on yourself, your family or your employees? Dukhon Tax and Accounting has the expertise and experience to help you through tax year 2015 and beyond with the plans and strategies you need for the best tax planning.


Estimated Taxes: Who Has to Pay Them and How?

The majority of taxpayers pay their taxes due annually when filing their tax return for the year. In some circumstances, however, taxes must be paid to the IRS on a quarterly basis. These tax payments are called estimated taxes because they are based on the amount of income that an individual or business expects to make for the year.
Read more


Lower your Tax Liability with Deductions and Credits

Tax deductions and credits help taxpayers reduce their tax liability. The differences between the two are in their definitions:

  • A tax deduction reduces your gross income and arises from a deductible expense. Taxpayers can take a standard deduction up front or itemize expenses.
  • A tax credit is an amount of money applied directly to the tax liability. Tax credits are far less common.

About Tax Deductions

Say your adjusted gross income for 2014 was $75,000. If you filed jointly with a spouse and were born before January 2, 1950, your standard deduction would have been $14,800. You figure your income tax bill based on a reduced income of $60,200.

There are, however, other “above-the-line” deductions you can claim to lower the aforementioned $75,000 adjusted gross income. For tax year 2014, those deductions are listed on lines 16 through 21 on Form 1040A and lines 23 through 37 on Form 1040. Deductions common to both forms are:

  • Educator expenses
  • IRA deductions
  • student loan interest payments
  • tuition and fees

Taxpayers wanting to take advantage of business, health savings, moving, self-employment, alimony payments and other expenses, need to file Form 1040, fill out the additional IRS forms and hope for the best -- the “best” being avoidance of an IRS audit trigger.

small business accountant tax savingsThe alternative to taking the standard deduction is to fully itemize your expenses for the tax year. To be worth the trouble, your itemized expenses must exceed the standard deduction. Attach Schedule A to Form 1040 to document the following:

  • Medical and dental expenses that exceed 7.5% for seniors’ and 10% of younger taxpayers’ adjusted gross income
  • State and local taxes
  • Interest payments on home mortgages, etc.
  • Charitable gifts of at least $250 in cash or $500 in other than cash
  • Casualty or theft losses
  • Unreimbursed job expenses
  • Other miscellaneous deductions specified in the Schedule A instructions

If your adjusted gross income was not over $152,525 for 2014, your deduction was not limited. Wealthier taxpayers must use a worksheet that reduces the overall deduction that can be claimed.

About Tax Credits

If you can claim a tax credit (lines 31 through 38 on form 1040A and lines 48 through 54 on Form 1040), you can subtract that amount from the taxes you owe. It is a 100 percent, dollar-for-dollar tax relief, regardless of your taxable income. Tax credits for individual taxpayers are far less common and generally apply to the following:

  • earned income tax credit
  • education credits
  • child and dependent care credits
  • child adoption credits
  • saver’s credits

Business tax credits, on the other hand, run the gamut from general business, investment, electric vehicle and other energy credits to mine rescue team training. The credits are designed, among other things, as incentives for community development, research and energy savings.

The Bottom Line:

For the average taxpayer, tax deductions lower the amount of income subject to federal income tax. Unless you have had large deductible expenses during the tax year, taking the standard deduction is the easiest way to complete your tax return. If you can qualify for a tax credit, which will apply dollar-for-dollar to reduce your tax bill, you can offset your tax liability.

Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.


Plan Ahead for Your 2015 Tax Filing

Experience can be a good teacher, but we shouldn’t learn everything through our mistakes. For example, if the IRS penalized you last April because you underpaid your taxes, you can fix that for this tax year. Consider having your employer deduct more from your wages, or at least going the estimated tax payment route.

assistance with filing taxesWe may be halfway through 2015 but there is still time for you to map out a strategy for this year. Here are 3 things you can start doing right now:

  1. Get organized.Getting organized might not cut your taxes, but good record keeping avoids the number 1 and number 2 hassles of tax preparation: 1) Bad records keeping makes it impossible to do a thorough and timely job on your tax return; and 2) The IRS requires documentation if you get audited.To get organized, at a minimum you should:
    • keep last year’s tax return handy
    • use personal finance software to keep track of tax-related income and expenditures
    • throughout the year collect and group receipts and papers that affect your taxes and keep everything in a separate file
    • safeguard the W-2s, 1099s, bank interest, mortgage statements, etc., that typically arrive in January
    • plan to store your files for at least 3 years (7 years is optimum, since IRS audits can go back that far.)

     

  2. Itemize your tax deductions.
  3. Visit the IRS website and see Topic 500 - Itemized Deductions. You will need Form 1040, Schedule A and its accompanying instructions. Before you get to Schedule A, however, there are deductions like IRA contributions that don’t need to be itemized and can reduce your taxable income. You’ll find them in items 31 through 38 on IRS Form 1040A and 48 through 54 on Form 1040. For each deduction you’ll need to attach a corresponding IRS Form.Don’t forget to look into tax credits, which can also reduce your tax bill dollar-for-dollar. They are, however, less common than tax deductions.
  4. Gather the tax forms you need.
  5. Go right to the source on this one. The IRS has a complete catalog of forms and publications on its website. While there’s still time, it won’t hurt to review the forms and instructions for changes or additional documentation. Make a list of the forms you need; download them and shake your head in wonderment at the enormously complex tax code we live under.Above all, be on time.The end result of all that planning is that you have a complete and accurate tax return ready for submission on or before the tax-filing deadline. Even if unforeseen circumstances keep you from meeting the due date, you still must make a reasonable estimate of your tax liability and pay any balance due with your extension request. Even though the IRS holds all the cards, your ace in the hole will be your preparation and planning.…And Get Help.If after reading all the advice above, you’d rather leave tax planning to experts so that you can get on with your life and business, consider working with a knowledgeable tax advisor. Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.