tax return

Small business owners: A SEP may give you one last 2017 tax and retirement saving opportunity

Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) may be just what you need, and now may be a great time to establish one. A SEP has high contribution limits and is simple to set up. Best of all, there’s still time to establish a SEP for 2017 and make contributions to it that you can deduct on your 2017 income tax return.

2018 deadlines for 2017

A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP is to first apply. That means you can establish a SEP for 2017 in 2018 as long as you do it before your 2017 return filing deadline. You have until the same deadline to make 2017 contributions and still claim a potentially hefty deduction on your 2017 return.

Generally, other types of retirement plans would have to have been established by December 31, 2017, in order for 2017 contributions to be made (though many of these plans do allow 2017 contributions to be made in 2018).

High contribution limits

Contributions to SEPs are discretionary. You can decide how much to contribute each year. But be aware that, if your business has employees other than yourself: 1) Contributions must be made for all eligible employees using the same percentage of compensation as for yourself, and 2) employee accounts are immediately 100% vested. The contributions go into SEP-IRAs established for each eligible employee.

For 2017, the maximum contribution that can be made to a SEP-IRA is 25% of compensation (or 20% of self-employed income net of the self-employment tax deduction) of up to $270,000, subject to a contribution cap of $54,000. (The 2018 limits are $275,000 and $55,000, respectively.)

Simple to set up

A SEP is established by completing and signing the very simple Form 5305-SEP (“Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement”). Form 5305-SEP is not filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.

Additional rules and limits do apply to SEPs, but they’re generally much less onerous than those for other retirement plans. Contact us to learn more about SEPs and how they might reduce your tax bill for 2017 and beyond.

© 2018

Claiming bonus depreciation on your 2017 tax return may be particularly beneficial

With bonus depreciation, a business can recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Tax Cuts and Jobs Act (TCJA), signed into law in December, enhances bonus depreciation.

Typically, taking this break is beneficial. But in certain situations, your business might save more tax long-term by skipping it. That said, claiming bonus depreciation on your 2017 tax return may be particularly beneficial.

Pre- and post-TCJA

Before TCJA, bonus depreciation was 50% and qualified property included new tangible property with a recovery period of 20 years or less (such as office furniture and equipment), off-the-shelf computer software, water utility property and qualified improvement property.

The TCJA significantly expands bonus depreciation: For qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100%. In addition, the 100% deduction is allowed for not just new but also used qualifying property.

But be aware that, under the TCJA, beginning in 2018 certain types of businesses may no longer be eligible for bonus depreciation. Examples include real estate businesses and auto dealerships, depending on the specific circumstances.

A good tax strategy • or not?

Generally, if you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation is likely a good tax strategy (though you should also factor in available Section 179 expensing). It will defer tax, which generally is beneficial.

On the other hand, if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax this year, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re paying a higher tax rate.

What to do on your 2017 return

The greater tax-saving power of deductions when rates are higher is why 2017 may be a particularly good year to take bonus depreciation. As you’re probably aware, the TCJA permanently replaces the graduated corporate tax rates of 15% to 35% with a flat corporate rate of 21% beginning with the 2018 tax year. It also reduces most individual rates, which benefits owners of pass-through entities such as S corporations, partnerships and, typically, limited liability companies, for tax years beginning in 2018 through 2025.

If your rate will be lower in 2018, there’s a greater likelihood that taking bonus depreciation for 2017 would save you more tax than taking all of your deduction under normal depreciation schedules over a period of years, especially if the asset meets the deadlines for 100% bonus depreciation.

If you’re unsure whether you should take bonus depreciation on your 2017 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.

© 2018

DOES YOUR PARTNERSHIP OR LLC AGREEMENT NEED TO BE AMENDED BY DECEMBER 31, 2017?

by Harold F. Ingersoll, CPA/ABV/CFF, CVA, CM&AA

Partner at Atchley & Associates, LLP

 

Partnerships and many LLCs file partnership income tax returns.  As a result of the Bipartisan Budget Act of 2015 (“BBA”), the IRS has new audit rules for entities that file partnership income tax returns beginning January 1, 2018.  These audit rules significantly change the regime that currently governs partnership tax audits, assessments and collections.

The condensed version of the changes is, in the past when a partnership was audited, the IRS pushed the adjustments through to the partners of the partnership who were partners in the year under audit.  The new rules allow the IRS to charge the tax, due to audit adjustments, directly to the partnership and the current partners.

Your first thought may be, why could this be a problem?  Well, let’s assume you bought into a partnership in 2017, and shortly thereafter the partnership is audited by the IRS for 2015 and there is an adjustment that causes there to be more taxes paid.  Under the new rules you would likely be paying the tax for the partners that were owners in 2015.

To solve this problem, you can make changes to your partnership or LLC member agreement.  Partnerships with 100 or fewer partners that meet certain other requirements may be eligible to elect to opt out of these rules.  For partnerships or LLCs that qualify for this “opt out”, the partnership agreements could be modified to make the “opt out” mandatory.

Another change with the BBA is the term of “Tax Matters Partner” is eliminated.  The new term is “Partnership Representative”.  The partnership or LLC agreement could be changed to reflect how the Partnership Representative will be selected, removed or replaced.  You may also consider limiting the Partnership Representative’s authority over certain tax matters, such as extending a statute of limitations or settling the dispute.

There is also a new election labeled the “Push Out Election”.  As it sounds this allows the partnership or LLC to push out any audit adjustments to prior year partners.  This election is not automatic and must be elected within 45 days of receiving the final notice of partnership adjustment.  The requirement to make this election can be documented in the partnership or LLC agreement.

The IRS has put us on notice that we can expect to see more partnership and LLC audits than in the past.  Consulting your advisors about the issues raised in the BBA will leave you prepared for any audit in which your partnership may be involved.

 

 

 

2017 Q4 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 fourth quarter of 2017. 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.

October 16

  • If a calendar-year C corporation that filed an automatic six-month extension:
    • File a 2016 income tax return (Form 1120) and pay any tax, interest and penalties due.
    • Make contributions for 2016 to certain employer-sponsored retirement plans.

October 31

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941) and pay any tax due. (See exception below.)

November 13

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 15

  • If a calendar-year C corporation, pay the fourth installment of 2017 estimated income taxes.

© 2017

Tax planning critical when buying a business

If you acquire a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, if you neglect tax issues during the negotiation process, the negative consequences can be serious. To improve the odds of a successful acquisition, it’s important to devote resources to tax planning before your deal closes.

Complacency can be costly

During deal negotiations, you and the seller should discuss such issues as whether and how much each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa. So it’s common for the parties to wrangle over taxes at this stage.

Just because you seem to have successfully resolved tax issues at the negotiation stage doesn’t mean you can become complacent. With adequate planning, you can spare your company from costly tax-related surprises after the transaction closes and you begin to integrate the acquired business. Tax management during integration can also help your company capture synergies more quickly and efficiently.

You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via postmerger synergies. However, if your taxation projections are flawed or you fail to follow through on earlier tax assumptions, you may not realize such synergies.

Merging accounting functions

One of the most important tax-related tasks is the integration of your seller’s and your own company’s accounting departments. There’s no time to waste: You generally must file federal and state income tax returns — either as a combined entity or as two separate sets — after the first full quarter following your transaction’s close. You also must account for any short-term tax obligations arising from your acquisition.

To ensure the two departments integrate quickly and are ready to prepare the required tax documents, decide well in advance of closing which accounting personnel you’ll retain. If you and your seller use different tax processing software or follow different accounting methods, choose between them as soon as feasible. Understand that, if your acquisition has been using a different accounting method, you’ll need to revise the company’s previous tax filings to align them with your own accounting system.

The tax consequences of M&A decisions may be costly and could haunt your company for years. We can help you ensure you plan properly and minimize any potentially negative tax consequences.

© 2017

2017 Q2 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 second quarter of 2017. 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.

April 18

  • If a calendar-year C corporation, file a 2016 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.
  • If a calendar-year C corporation, pay the first installment of 2017 estimated income taxes.

May 1

  • Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), and pay any tax due. (See exception below.)

May 10

  • Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

June 15

  • If a calendar-year C corporation, pay the second installment of 2017 estimated income taxes.

© 2017

2017 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 2017. 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.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28

File 2016 Forms 1099-MISC with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting nonemployee compensation in Box 7 must be filed by January 31, beginning with 2016 forms filed in 2017.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2016 tax return. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.

© 2016

Tax Return Due Dates Change in 2017

by Nicole Oeltjen

Tax Senior at Atchley & Associates, LLP

Federal due dates for the 2016 tax returns are changing for the 2017 filing season. Don’t worry, your individual income tax return is still due April 15th and the extended due date is still on October 15th. Changes were made to business returns and other tax forms.

The new due dates apply to tax years beginning after December 31, 2015. This also applies to a business that that may have a short year return during 2016. For business that have a fiscal year end other than a calendar year end the due dates may differ slightly.

New federal due dates for a calendar year taxpayer are below:

Form                             Type                                                Due Date             Extended Due Date


1065                                 Partnership                                    March 15               September 15

1120S                               S corporation                                March 15               September 15

1040                                 Individual                                        April 15                  October 15

1041                                 Trust & Estate                                 April 15                 September 30

1120                                 C corporation                                April 15                 September 15

FinCEN Form 114        Foreign Accounts                         April 15                  October 15

990 & 990T                    Tax Exempt                                     May 15                  November 15

5500                                 Employee Benefit Plans             July 31                   October 15

 

States that have income filing requirements will be working to enact legislation to change their due dates to coincide with the federal deadlines for 2017.

 

Why the change?

Over the years more and more businesses were formed as a flow through entity-such as a partnership or S corporation-rather than a C corporation due to the tax implications. As tax law and the complexities of a partnership structure increased, additional time was needed in order for information to be gathered, prepared, and properly reviewed before filing a business tax return. Individual taxpayers were finding it difficult to file on time due to receiving a late Schedule K-1. A Schedule K-1 is the form one receives as being a partner or shareholder of a business structured as a flow through entity. The AICPA, tax professionals and business owners voiced their concerns and opinions and advocated for a change in the federal due dates. Congress passed the new legislation in 2015 to take effect for the 2017 filing season.