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

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Year-End Tax Planning Moves for Individuals

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Trump vs. Clinton Tax Plan

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Defined Benefit Plan Participants

Defined Benefit Plan Participants Can Receive Lump Sum and Annuity Under New Rules

By Sally P. Schreiber, J.D.
September 9, 2016

Defined benefit plan participants will have greater flexibility in choosing how to receive their pension benefits under final regulations issued by the IRS (T.D. 9783 ( 21393.pdf)). The regulations finalized proposed rules issued in 2012 that permit participants to elect to receive split benefits of monthly annuity payments together with a lump-sum payout without disqualifying the plan. The IRS believes plan participants are better served against the possibility that they will outlive their retirement benefits when they can choose to bifurcate their benefits between the two options.

The rules are designed to enable participants to receive a portion of the plan benefit as a stream of monthly payments while taking the remainder in a single, lump-sum cash payment. The regulations encourage these split options by changing the minimum present value requirements for defined benefit plan distributions to permit plans to simplify the treatment of certain optional forms of benefits that are paid partly in the form of an annuity and partly in a more accelerated form. Defined benefit plans are allowed to apply actuarial assumptions on interest rates and mortality benefits only to the portion of the distribution being paid as a lump sum. The partial annuity portion of the benefit is determined using the plan’s regular conversion factors.

The final regulations adopt the proposed rules (REG-110980-10 ( with a few changes in response to comments. One change was to the approaches to bifurcating the benefits so the minimum present value requirements applied only to a portion of the accrued benefit. The proposed rules outlined three methods, which some commenters criticized as unclear. Under the final rules, there are two options.

Under the first option, a plan is permitted to bifurcate the accrued benefit so that the plan provides that the requirements of Regs. Sec. 1.417(e) 1(d) apply to a specified portion of a participant’s accrued benefit as if that portion were the participant’s entire accrued benefit. This rule does not impose any requirements on the distribution options for the remaining portion of the accrued benefit.

An alternative rule permits a plan that distributes a specified single-sum amount to a participant to be treated as satisfying the requirements under Regs. Sec. 1.417(e)–1(d) for that payment, provided the remaining portion of the participant’s accrued benefit satisfies a minimum requirement. Under that minimum requirement, the portion of the participant’s accrued benefit, expressed in the normal form of benefit under the plan and commencing at normal retirement age (or at the current date), must be no less than the excess of (1) the participant’s total accrued benefit in that form over (2) the annuity payable in that form that is actuarially equivalent to the single-sum payment, determined using the applicable interest rate and the applicable mortality table.

The changes under these regulations apply to distributions with annuity starting dates in plan years beginning
on or after Jan. 1, 2017, but taxpayers may apply the rules to earlier periods.

Sally P. Schreiber ( ( is a Tax Adviser senior editor.

© 2016 American Institute of CPAs

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Changes to FAFSA

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Tax Tips for Newlyweds

Looking for a gift to give after all those June weddings? How about some solid tax tips for the newlyweds?

Taxes may not be top-of-mind for most new couples, but there are some important tax issues they should be aware of, so the IRS put together the following set of tips..

  • New names? Whether one of the spouses takes the other’s name or not, the names and Social Securities on their tax return must match their Social Security Administration records – so if any names are changed, they’ll need to report it to the SSA with Form SS-5, Application for a Social Security Card. The form is available on, or by calling (800) 772-1213.
  • Congratulations – you’re in a new bracket! The spouses’ new marital status needs to be reported to their employers on a new Form W-4, Employee’s Withholding Allowance Certificate. And the IRS was quick to point out that the new couple’s combined income may move them into a higher tax bracket.
  • Yes, there’s an Obamacare angle. If either spouse bought a Health Insurance Marketplace plan got an Advanced Premium Tax Credit this year, they need to report any changes in circumstance, like income or family size. They should also alert their Marketplace is they moved out of its area.
  • Crossing the threshold. If either of the newlyweds is moving, they’ll want to let the IRS know, with Form 8822, Change of Address. (They should probably also let the Post Office know, too.) Don’t make them come looking.
  • Married? Filing jointly? If the couple is married as of December 31, that’s their marital status for the whole year for tax purposes – and that means they need to decide whether to file jointly or separately. Which one is better depends on the couple’s individual circumstances, so they’ll want to check out both possibilities.
  • New forms. Combined financial lives may mean a higher tax bracket, but they can also mean more benefits from itemizing – which would mean claiming those deductions on a Form 1040, as opposed to a 1040A or 1040EZ. This would be a good area for a friendly tax advisor to offer some advice …
  • More IRS resources. The tax services offers a host of resources for new couples, including videos (like this one on “Getting Married”) and more. No need to send them a thank-you card.

originally written BY DANIEL HOOD for

Tax Savings from a Home Office

With more and more people expected to be self-employed and working from home, knowing the ins and outs of the home office deduction can make all the difference between a refund – or an audit.

Following are a number of helpful tips to help home-business-owners (and their advisors) be sure they’re getting everything back that they can.

One of the most important things to be sure of before you try to claim the deduction is that some part of the home has to be exclusively and regularly used as the principal place of business. A mixed-use area, like a kitchen, won’t qualify.

The simplified option
Self-employed folks with an office in their home don’t need to do a lot of calculations and add up all their home-office-related expenses – the IRS now offers a simplified option based on the size of the office: You take a standard deduction of $5 per square foot of workspace, up to 300 square feet.

You can go with individual expenses or the simplified option, whichever is larger, and you can change from year to year.

Common deductions
Some of the business owner’s heating, electric and utility bills can be deducted, and phone, Internet and other information services may qualify, too. Note that separate Internet connections and phone numbers can help keep track of expenses.

An office isn’t an office without office supplies — which is why computers, printers, toner, paper, paper clips, staplers, staples, staple removers and other critical equipment may also qualify.

Furniture and upgrades to the home itself, if related to the office, may also be deductible.

Leaving home
Many of those with home offices will find themselves travelling for business purposes – even if it’s just driving across town to a client. Parking, tolls and mileage (at 54 cents a mile for business-related travel) may all be deductible, to say nothing of airfare and hotel rooms.

The IRS recommends keeping expense records for at least three years after filing. Among the records home-business-owners should be holding onto are cancelled checks, bank statements, vendor invoices, bills, receipts and mileage logs.

More information on having a home office is available in IRS Publication 587.

originally written BY DANIEL HOOD for

Summer Tax Tips for You and Your Children

The summer has started and summer camp bills have been paid. Summer camp is a great way to keep our children busy and looked after while we are working. But it comes at a steep price.
Summer camp costs are, on average, about $300 per week. And for our children who are graduating from high school, we are looking at college tuition fees coming due this August ranging from an average of $9,139 (for state residents at public colleges) to $31,231 (private college). There are some tax advantaged ways, though, to help pay these expenses.

The Child and Dependent Care Credit might be useful if a parent pays for camp for his or her children while working or looking for work. As the IRS points out in its Special Edition Tax Tip 2016-10, for the expenses to qualify, certain conditions must be met:

1. Care for qualifying persons. The expenses must be for the care of one or more qualifying persons. A dependent child or children under age 13 usually qualify. Publication 503, Child and Dependent Care Expenses, contains more information.

2. Work-related expenses. The expenses for care must be work-related. This means taxpayers must pay for the care so they can work or look for work. This rule also applies to the taxpayer’s spouse if they file a joint return. Spouses meet this rule during any month they are full-time students. Spouses also meet it if they are physically or mentally incapable of self-care.

3. Earned income required. The taxpayers must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. A taxpayer’s spouse must also have earned income if they file jointly. Spouses are treated as having earned income for any month they are full-time students or incapable of self-care. This rule also applies to the taxpayer if they file a joint return. Refer to Publication 503 for more details.

4. Joint return if married. Generally, married couples must file a joint return. A parent can still take the credit, however, if the parents are legally separated or living apart.

5. Type of care. Expenses may qualify for the credit whether the care takes place at home, at a daycare facility or at a day camp.

6. Credit amount. The credit is worth between 20 and 35 percent of the allowable expenses. The percentage depends on the amount of the taxpayers’ income.

7. Expense limits. The total expense that can be used in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Certain care does not qualify. Expenses do not include the cost of certain types of care, including:
• Overnight camps or summer school tutoring costs.
• Care provided by a spouse or a sibling who is under age 19 at the end of the year.
• Care given by a person whom the taxpayer can claim as a dependent.

Keep records and receipts. Taxpayers should keep all receipts and records for when they file tax returns next year. Taxpayers will need the name, address and taxpayer identification number of the care provider. Taxpayers must report this information when they claim the credit on Form 2441, Child and Dependent Care Expenses.

Dependent care benefits. Special rules apply if taxpayers get dependent care benefits from their employer. See Publication 503 for more on this topic.

Remember, this credit is not just a summer tax benefit. Taxpayers may be able to claim it for qualifying care paid for at any time during the year.

529 Plans
As for college, 529 plans have become very popular. At the end of 2012, over $166 billion was invested in the various state plans. While each state provides different tax benefits for its plan, on the federal level all plans are treated the same. Contributions are made after tax, earnings grow tax-deferred, and distributions are tax free if used for qualifying higher education expenses.
Qualifying higher education expenses include:
1. Tuition and fees as required for enrollment.
2. Books, supplies, computers and other equipment required for enrollment.
3. Expenses for special needs services for a special needs beneficiary (which must be incurred in connection with enrollment or attendance at an eligible educational institution).
4. Expenses for room and board, but only for students who are enrolled at least half-time. The room and board expense qualifies only to the extent that it is not more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

The taxpayer must contact the eligible educational institution for qualified room and board costs.
But distributions not used for qualifying higher education expenses are subject to tax—the previously untaxed portion of the distribution is taxed at the owner’s ordinary income tax rate plus a 10 percent additional tax. The 10 percent penalty is waived if a distribution is made:
1. Due to the death, impending death or long-term disability of the account’s designated beneficiary.
2. After the designated beneficiary receives a tax-free scholarship or fellowship grant; veterans’ educational assistance; employer-provided educational assistance; any other nontaxable payment (other than a gift or inheritance) received as educational assistance.
3. Because the designated beneficiary is attending a U.S. military academy.
4. Only because it is included in income because the qualified education expenses were taken into account in determining the American Opportunity Tax Credit (AOTC) or lifetime learning credit.
The Child and Dependent Care Credit and 529 Plan rules are complex, and this article only provides an outline of the requirements needed to take advantage of them. Both summer camp and college are significant investments. Enjoy the summer and tax clients should speak to their accountant or lawyer to make sure they can enjoy these savings.

Originally written BY MICHAEL SONNENBLICK for

Tax Identity Theft Victims Can Now Get Copies of the Fraudulent Returns

The IRS has begun allowing victims of identity theft to request a redacted copy of a fraudulent return that was filed and accepted by the IRS using the identity theft victim’s name and SSN. [ Editor’s Note: This change is attributable to a request made in a letter dated 5/17/15 from U.S. Senator Kelly Ayotte to IRS Commissioner Koskinen stating that it was “deeply troubling that the IRS does not help victims by providing them with copies of the fraudulent returns so they can determine what information was stolen.”] Due to federal privacy laws, the IRS will disclose the return information only to victims whose name and SSN are listed as either the primary or secondary taxpayer on the fraudulent return and not to any person listed only as a dependent. Instructions for requesting copy of fraudulent returns can be found at

Tax Filing Deadline is Changed in 2016

As you know, the usual tax filing deadline is usually April 15th. However, due to the fact that the District of Columbia will be observing Emancipation Day on April 15th, and April 16th and 17th fall on a weekend, the tax filing deadline is changed 2016 and will be April 18th.  The taxpayers in Maine and Massachusetts will have until April 19th because these states celebrate Patriot’s Day on April 18th.  Thus, we all have a slight reprieve in 2016!  If you have questions, please call Botz Deal & Co. P.C. at (636) 946-2800.