Background Overlay

VantagePoint
Newsletter

Considering Expired Tax Breaks in Your Year-End Tax Planning

Year-end tax planning this year may present some challenges this year due to the uncertainty surrounding many expired tax breaks for individuals and businesses. Tax legislation signed into law last December extended several expired breaks, but only through the end of 2014.

 

While Congress continues to review legislation that will further extend (or even make permanent) some expired tax provisions, it’s difficult to predict what will be included in the final bill. Fortunately, although there are some year-end tax planning strategies that can’t be implemented until after tax legislation is signed into law, there are still many that can be implemented right now.

 

Take Planning Strategies for Individuals

Individuals can often minimize their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. One way to defer income, for example, is to ask your employer to pay your year-end bonus in early 2016 rather than in 2015.

To accelerate deductions, you might pay certain property taxes early or increase your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2015 contributions to IRAs, and certain other retirement plans, after the end of the year.

Remember that when you use a credit card to pay expenses or make charitable contributions this year, you can deduct them on your 2015 return even if you don’t pay your bill until 2016.

Other year-end tax planning strategies to consider include:

Offsetting capital gains.

If you’ve sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss. 

Reducing capital gains is particularly important if you’re subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of either your net income from capital gains, dividends, taxable interest and certain other sources or the amount by which your MAGI exceeds the threshold. 

In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.

Charitable giving.

If you plan to make charitable donations, consider donating highly appreciated stock or other assets as opposed to cash. This strategy is particularly effective if you own appreciated stock you’d like to sell but you don’t have any losses to offset the gains.

Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes while still claiming a charitable deduction. You can then take the cash you’d planned to donate and reinvest it in other securities.

Monitoring expired tax breaks.

Keep an eye on Congress. If certain expired tax breaks are extended before the end of the year, you may have some last-minute planning opportunities. Expired provisions include tax-free IRA distributions to charity for taxpayers age 70½ and older, the deduction for state and local sales taxes, and the above-the-line deduction for qualified tuition and related expenses.

 

Accounting for the Possible Revival of Expired Business Tax Breaks

Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, the following breaks were among those that expired on December 31, 2014:

Enhanced Section 179 expensing election.

Before 2015, Sec. 179 permitted businesses to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress failed to extend the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.

50% bonus depreciation.

Also expiring at the end of 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it’s unavailable for 2015 (with limited exceptions).

Lawmakers may restore enhanced expensing and bonus depreciation retroactively to the beginning of 2015, but they probably won’t take any action until late in the year. In the meantime, you can handle qualified asset purchases in these ways:

  • If you need equipment or other assets to run your business, acquire them regardless of the availability of tax breaks.
  • For less urgent asset needs, consider spending up to $25,000 — the amount you’ll be able to expense regardless of whether Congress extends the expired breaks.
  • For additional planned asset purchases, consider taking a wait-and-see approach and be prepared to act quickly if and when “tax extenders” legislation is signed into law.

Keep in mind that, to take advantage of depreciation tax breaks on your 2015 tax return, you’ll need to place assets in service by the end of the year. Paying for them this year isn’t enough.

Other expired tax provisions to keep an eye on include the research credit, the Work Opportunity credit, Empowerment Zone incentives, and a variety of energy-related tax breaks.

 

Follow Traditional Year-end Business Tax Strategies

As always, consider traditional year-end planning strategies, such as deferring income to 2016 and accelerating deductible expenses into 2015. If your business uses the cash method of accounting, you may be able to defer income by delaying invoices until late in the year or accelerate deductions by paying certain expenses in advance.

If your business uses the accrual method of accounting, you may be able to defer the tax on certain advance payments you receive this year. You may also be able to deduct year-end bonuses accrued in 2015 even if they aren’t paid until 2016 (provided they’re paid within 2½ months after the end of the tax year).

But deferring income and accelerating deductions isn’t the best strategy in all circumstances. If you expect your business’ marginal tax rate to be higher next year, you may be better off accelerating income into 2015 and deferring deductions to 2016. This strategy will increase your 2015 tax bill, but it can reduce your overall tax liability for the two-year period.

Finally, consider switching your tax accounting method from accrual to cash or vice versa if your business is eligible and doing so will lower your tax bill.

 

Be Aware of the Affordable Care Act’s Information Reporting Deadlines

Something else to think about on the tax front as we approach year-end is the upcoming deadline for the Affordable Care Act’s information reporting provisions for applicable large employers (ALEs). ALEs — generally those with at least 50 full-time employees or the equivalent — must report to the IRS information about what health care coverage, if any, they offered to full-time employees.

The reporting deadline is February 28 (March 31, if filed electronically) of the year following the calendar year to which the reporting relates. Smaller employers that are self-insured or part of a “controlled group” ALE will also have reporting obligations.

With the deadline approaching, now is the time for affected employers to begin assembling the necessary information. The compliance obligation will likely require a joint effort by the payroll, HR, and benefits departments to collect the relevant data.

The IRS has developed new forms for this type of information reporting: Form 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns,” and Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” (A non-ALE self-insured employer should file Forms 1094-B and 1095-B.)

Contact your Untracht Early representative about how to best implement the tax strategies available today so that you are poised to act quickly when tax legislation is signed into law.

PLEASE READ THESE TERMS AND CONDITIONS OF USE CAREFULLY. THIS IS A LEGAL CONTRACT.

Acceptance of Terms of Use

The Untracht Early LLC (UE) client portal is offered to you on the condition of your acceptance of the terms, conditions and notices contained herein. By using the portal you agree to these terms and conditions. If you are not a client or authorized employee of UE, any use by you of the portal is prohibited.

Description of Service

The portal provides UE’s clients with access to information displayed on the portal for inquiries and deliveries of documents and communications for their account only. The information, documents and communications on the portal are provided as a convenient resource to clients, their attorneys, agents and other designated representatives (collectively, “Agents”) and may be used for informational purposes only for their account. To the extent you wish to authorize any Agents to access your account, you must sign and return the form of Authorization set forth below.

User Password and Security

Using the portal and its related services requires the use of a password and a user name. The confidentiality of your password and account is your responsibility. Any activities that occur under your account either by you or your Agents are your responsibility. You agree to notify us immediately of any unauthorized use of your account or any other breach of security. It is prohibited to use anyone else’s account without the express permission of that account holder.

Accuracy of Content and Liability Disclaimer

UE will strive to use reasonable efforts to include accurate and updated information on the portal; HOWEVER, YOU UNDERSTAND AND AGREE THAT UE IS UNDER NO OBLIGATION TO DO SO AND NEITHER UE NOR ITS SUPPLIERS, AGENTS OR REPRESENTATIVES MAKE ANY REPRESENTATION OR WARRANTY ABOUT THE SUSTAINABILITY, RELIABILITY, AVAILABILITY, TIMELINESS, AND ACCURACY OF THE INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS CONTAINED ON THE PORTAL FOR ANY PURPOSE TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW. ALL SUCH INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS ARE PROVIDED “AS IS” WITHOUT WARRANTY OR CONDITION OF ANY KIND. UE, AND ITS SUPPLIERS, AGENTS AND REPRESENTATIVES HEREBY DISCLAIM ALL WARRANTIES AND CONDITIONS WITH REGARD TO SUCH INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS, INCLUDING WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL UE, OR ITS SUPPLIERS, AGENTS OR REPRESENTATIVES BE LIABILE FOR ANY DIRECT, INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR ANY OTHER DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF USE, DATA OR PROFITS, ARISING OUT OF OR IN ANY WAY CONNECTED WITH YOUR OR YOUR AGENTS’ USE OR THE PERFORMANCE OF THE PORTAL, WITH THE DELAY OR INABILITY TO USE THE PORTAL OR RELATED SERVICES, WHETHER BASED IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EVEN IF UE OR ITS SUPPLIERS, AGENTS AND REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF DAMAGES. CERTAIN STATES DO NOT PERMIT TYPES OF THESE LIMITATIONS, SO THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU. IF YOU ARE DISSATISFIED WITH ANY PORTION OF THE PORTAL INFORMATION, DOCUMENTS OR COMMUNICATIONS ON THE PORTAL, OR WITH ANY OF THESE TERMS AND CONDITIONS OF USE, YOUR SOLE AND EXCLUSIVE REMEDY IS TO CEASE USING THE PORTAL AND THE INFORMATION, DOCUMENTS OR COMMUNICATIONS YOU OBTAINED FROM THE PORTAL.

Icons, Logos and Other Proprietary Material

The trademarks, logos, and service marks (collectively the “Trademarks”) displayed on the portal are registered and common law trademarks of this firm. Nothing contained on the portal should be construed as granting, by implication, or otherwise, any license or right to use any of the Trademarks displayed on the portal without the written permission of this firm. Your use of any of the Trademarks displayed on the portal or displayed on any content on the portal is strictly prohibited. You should assume that everything you see or read on the portal is copyrighted and is a trade secret and may not be used except as provided in these terms and conditions of use or in the text on the portal without the written permission of this firm or its suppliers.

Changes to Terms and Conditions of Use

UE may at any time modify the terms, conditions and notices under which the portal is offered by updating this posting. You are bound to any such modifications and should therefore periodically visit this page to review the then-current terms and conditions to which you are bound.

Confidentiality, Information Protection, and Protection Data

Notwithstanding any existing legal or contractual obligations regarding confidentiality between you and UE, you undertake to treat all knowledge relating to business secrets, which come into your possession, as confidential. You shall assure that any protected data, which comes into your possession through the use of the portal, is not transmitted to any unauthorized person. In partial consideration of the opportunity to access the resources of the portal concerning your account, you agree to maintain the strict confidentiality of access of the portal and its data to you and your authorized Agents and to indemnify and hold harmless UE and its officers, shareholders and employees and their heirs, successors and assigns from and against any and all claims, actions, demands, losses, damages, judgments, costs and expenses, including without limitation, reasonable attorneys’ fees and liabilities of every kind which may arise from your or your employees’ or agents’ use of the portal or because of violation of these terms and conditions of use.

No Unlawful or Prohibited Use

You are prohibited from using the portal to damage, disable, or overburden UE’s servers or network or impair the portal or interfere with any other party’s use of the portal. Hacking, password mining or any other means to gain unauthorized access to the portal, portal accounts, computers or network is prohibited. Posting or transmitting any unlawful, threatening, libelous, defamatory, obscene, scandalous, inflammatory, pornographic, or profane material or any material that could constitute or encourage conduct that would be considered a criminal offense, give rise to a civil liability, or otherwise violate any law is also prohibited. UE will fully cooperate with any law enforcement authorities or court order requesting or directing this firm to disclose the identity of anyone posting any such information and materials. This firm is an equal opportunity employer and values the diversity of its people.

RELEASE AND INDEMNITY. IN AGREEING TO USE, AND BY USING, THE UNTRACHT EARLY PORTAL, YOU ALSO AGREE TO, AND HEREBY DO, RELEASE AND DISCHARGE UNTRACHT EARLY FROM ANY AND ALL CLAIMS OF EVERY NATURE AND DESCRIPTION ARISING OUT OF OR RELATING TO THE POSTING OF INFORMATION ON THE PORTAL, YOUR OR YOUR AGENTS’ USE OF THE PORTAL, AND/OR ANY BREACH OF SECURITY INVOLVING THE PORTAL. YOU HEREBY AGREE TO INDEMNIFY AND DEFEND UNTRACHT EARLY, ITS AGENTS, REPRESENTATIVES AND EMPLOYEES AGAINST ANY CLAIMS, DEMANDS, LAWSUITS AND OTHER PROCEEDINGS MADE ABOUT YOU, MADE BY THOSE IN PRIVITY WITH YOU OR MADE BY THOSE ACTING IN CONCERT WITH YOU, IN ANY WAY, WITH REFERENCE TO YOU OR YOUR INFORMATION OR BY ANY THIRD PARTIES ON YOUR BEHALF (INCLUDING AGENTS) RELATING IN ANY WAY TO THE UNTRACHT EARLY PORTAL.