Category: Helpful Articles

Categories
Helpful Articles

How to report discontinued operations today

Did your company undergo a major strategic shift in 2016? If so, management may need to comply with the updated rules for reporting discontinued operations that went into effect in 2015 for most companies. Discontinued operations typically don’t happen every year, so it’s important to review the basics before preparing your year-end financial statements.

Narrower definition of discontinued operations

Under Accounting Standards Update (ASU) No. 2014-08, disposal of a component (including business activities) must be reported in discontinued operations only if the disposal represents a “strategic shift” that has or will have a major effect on the company’s operations and financial results. A component comprises operations and cash flows that can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the company. It could be a reportable segment or an operating segment, a reporting unit, a subsidiary or an asset group.

Examples of a qualifying strategic major shift include disposal of a major geographic area, a line of business or an equity method investment. When such a strategic shift occurs, a company must present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections of the balance sheet.

Expanded disclosures

To provide financial statement users with more information about the assets, liabilities, revenue and expenses of discontinued operations, the new guidance also requires expanded disclosures. The following expanded disclosures must be made for the periods in which the operating results of the discontinued operation are presented in the income statement:

The major classes of line items constituting the pretax profit or loss of the discontinued operation. Examples of major line-item classes include revenue, cost of sales, depreciation and amortization, and interest expense.

One of the following: Either 1) the total operating and investing cash flows of the discontinued operation, or 2) the depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operations.

The pretax profit or loss attributable to the parent. This applies if the discontinued operation includes a noncontrolling interest.

Management also must provide various disclosures and reconciliations of items held for sale for the period in which the discontinued operation is so classified and for all prior periods presented in the statement of financial position. Additional disclosures may be required if the company plans significant continuing involvement with a discontinued operation — or if a disposal doesn’t qualify for discontinued operations reporting.

Which rules to apply?

Unsure whether a disposal qualifies as a discontinued operation under the updated rules? Reporting disposals can be confusing and time-consuming. We can help you understand the new, simpler discontinued operations guidance, which, if applicable, could streamline your reporting process.

© 2016

Categories
Helpful Articles News

Cybersecurity takes the spotlight

Abstract: Federal and state regulators are increasingly scrutinizing banks’ information security efforts. This article points out that, in light of this heightened scrutiny, banks should review, and if necessary, update their cybersecurity programs. The article explains what examiners look for, including risk identification, risk measurement and risk mitigation. A sidebar discusses increased state regulation of cybersecurity.

Cybersecurity takes the spotlight

Cybersecurity is a key issue for banks today, so it’s no surprise that federal and state regulators have been scrutinizing banks’ information security (IS) efforts. Recently, several federal and state regulatory agencies have taken some new steps in the ongoing effort to protect sensitive account information. In light of the heightened scrutiny — and the significant risks involved — it’s a good idea for all banks to review and, if necessary, update their cybersecurity programs.

Recent developments
In September 2016, the Federal Financial Institutions Examination Council (FFIEC) updated its Information Security booklet, part of its Information Technology Examination Handbook. The booklet provides banks with an excellent framework for evaluating and strengthening their cybersecurity programs.
Also in September, the New York State Department of Financial Services proposed comprehensive cybersecurity requirements for banks and other financial institutions. (See “State regulation of cybersecurity: A burgeoning trend?”) Finally, in October 2016, the OCC, FDIC and Federal Reserve issued a joint proposal to develop enhanced cyber risk management standards for the largest financial institutions (those with total consolidated assets of $50 billion or more).

What examiners look for
According to the FFIEC booklet, an effective IS program should cover four key areas: 1) risk identification, 2) risk measurement, 3) risk mitigation, and 4) risk monitoring and reporting. The 95-page publication contains detailed guidance on identifying threats, measuring risk, defining IS requirements and implementing appropriate controls.
An appendix contains updated examination procedures, providing valuable insights into examiners’ cybersecurity expectations. The procedures are designed to meet a number of examination objectives, including determining whether management:
• Promotes effective governance of the IS program through a strong IS culture, defined responsibilities and accountability, and adequate resources,
• Has designed and implemented the program so that it supports the bank’s IT risk management process, integrates with its lines of business and support functions, and is responsive to the cybersecurity concerns associated with the activities of technology service providers and other third parties,
• Has established risk identification processes,
• Measures risk to help guide the development of mitigating controls,
• Effectively implements controls to mitigate identified risk, and
• Has effective risk monitoring and reporting processes.
In addition, it’s important to ascertain whether security operations encompass necessary security-related functions, are guided by defined processes, are integrated with lines of business and activities outsourced to third-party service providers, and have adequate resources. Implementing assurance and testing activities to provide confidence that the program is operating as expected and reaching its goals is also necessary.
Although the guidance applies to all types of institutions, the booklet emphasizes that banks should develop and maintain risk-based IS programs commensurate with their size and operational complexity.

Focus on security operations
The updated publication contains a new section on security operations that emphasizes:

Threat identification. A bank should go beyond risk identification to pinpoint specific threat sources and vulnerabilities and analyze the potential for exploitation. Management can use this information to develop strategies and tactics for protecting the bank’s IT system and detecting attacks.

Threat monitoring. Threat monitoring — both continual and ad hoc — is critical. And management should clearly delineate the responsibilities of security personnel and system administrators as well as review and approve monitoring tools and the conditions under which they’re used. Monitoring should focus not only on incoming network traffic, but also on outgoing traffic to identify malicious activity and data exfiltration.

Incident identification and assessment. Management needs a process that will identify compromise indicators — for example, antivirus alerts or unexpected file changes or logins — and rapidly report them for investigation.

Incident response. A bank’s incident response plan should include defined protocols for containing an incident, coordinating with law enforcement and third parties, restoring systems, preserving data and evidence, and providing customer assistance.

Third-party oversight

Banks often outsource services, such as data and transaction processing, cloud computing and even information security. But management remains responsible for ensuring the bank’s system and information security.
Oversight of outsourced activities includes due diligence in selecting and managing third-party service providers. In addition, management should obtain contractual assurances for security, controls and reporting; get nondisclosure agreements regarding the bank’s data and systems; and arrange for independent auditing and testing of third-party security.

Get with the program
Given the level of regulatory activity related to cybersecurity and the serious consequences of a data breach, banks can expect scrutiny of IS programs to intensify. Now’s the time to review your program to ensure that your institution is protected.

Sidebar: State regulation of cybersecurity: A burgeoning trend?
In September 2016, the New York State Department of Financial Services (DFS) proposed comprehensive cybersecurity requirements for banks and other financial institutions under its jurisdiction. Among other things, the proposal would require banks to undertake the following steps:
• Establish and maintain a cybersecurity program — reviewed by the board of directors and approved by a senior officer — designed to ensure the confidentiality, integrity and availability of its information systems.
• Incorporate certain mandatory functions into the program, designed to identify risks, implement defensive infrastructure and policies, detect and respond to cybersecurity events, and fulfill regulatory reporting obligations.
• Appoint a chief information security officer with specified responsibilities, including providing the board with biannual written assessments of the program.
• Adopt written cybersecurity and third-party information security policies addressing specified areas.
• File annual certifications of compliance with the DFS and report material cybersecurity events to the agency within 72 hours.
If finalized, the proposed regulations likely would affect not only New York banks, but also banks that do business in New York. This also could mark the beginning of a trend toward increased state regulation of cybersecurity.
© 2016

Categories
Helpful Articles

Don’t compare apples to oranges

Abstract: Borrowers’ accounting practices can vary widely. An accounting tool called “normalizing” can help adjust income statements and balance sheets to compensate for companies’ different accounting methods. Failing to normalize financial statements may result in faulty lending decisions. This article uses some examples to illustrate how normalizing works and the difference it can make in helping a lender who is evaluating a borrower accurately compare its practices to those of a competitor or to industry benchmarks.

Don’t compare apples to oranges
Evaluate borrowers accurately by normalizing financial statements

In evaluating their borrowers, lenders need to use all the tools at their disposal — including an accounting tactic called “normalizing.” Normalizing involves adjustments to income statements and balance sheets to compensate for companies’ differing accounting methods. Because borrowers’ accounting practices vary widely, comparing them without adjusting their financial statements is like comparing apples to oranges. Ultimately, failing to normalize financial statements may result in faulty lending decisions.

No two are alike

Even within the broad confines of Generally Accepted Accounting Principles (GAAP), it’s rare for two companies to follow exactly the same accounting practices. When you compare a borrower’s practices to those of a competitor or to industry benchmarks, it’s important to understand how they report transactions.
A small firm, for example, might report earnings when cash is received (cash basis accounting), but its competitor might record a sale when it sends out the invoice (accrual basis accounting). Differences in inventory reporting, pension reserves, depreciation methods and cost capitalization vs. expensing policies also are common.
Additionally, some tax accounting practices — expanded Section 179 and bonus depreciation deductions, for example — may temporarily defer income taxes. So, consider the tax implications when reconciling different tax accounting methods.

Past vs. future

Lenders need to distinguish between historic performance results that represent potential ongoing earning power and those historic results that don’t. If a one-time revenue (or expense) or gain (or loss) will temporarily distort the company’s future earnings potential, you would add back expenses and losses (or subtract the revenues and gains) if they’re not expected to recur.
If a borrower’s plant was devastated by a hurricane or a borrower experienced a $1 million equipment theft, for instance, you’d add back the extraordinary losses to get a clearer picture of normal operating performance. Or if the borrower won a $5 million lawsuit, you’d subtract the gain. Other nonrecurring items might include discontinued lines or expenses incurred in an acquisition.
But go beyond just adjusting these charges. One-time charges — insurance claims and fraud losses are examples — could shed light on future risk factors. Ask about the nature of these charges and any preventive measures the borrower has taken or will be taking to minimize the risk of recurrence.

At arm’s length

Some closely held business owners are paid based on the company’s cash flow or the owner’s personal needs, not on the market value of services they provide. Many closely held businesses also employ family members, conduct business with affiliates and extend loans to company insiders.
Because of this, you, as the lender, should identify all related-party transactions and inquire whether they occur at “arm’s length.” Also consider reconciling for unusual perquisites provided to insiders, such as season tickets to sporting events, college tuition or company vehicles.

On an equal basis

While most normalizing reconciliations are made to the income statement, many flow through to the balance sheet, which is often the lender’s starting point in determining collateral values.
Suppose one manufacturer uses eight-year useful lives for its equipment, but another uses six-year useful lives for the same items. To create an equal basis of comparison, you might reconcile the first company’s earnings downward to reflect its slower depreciation technique. In addition, the net book value of its equipment should be lowered to reflect its relatively inadequate depreciation deductions. These lender-made normalizing adjustments effectively make the first borrower appear less attractive than initially shown on its financial statements when compared to the second borrower.

See your borrowers as they are

Obviously, you need to evaluate each borrower based on its individual circumstances. But in assessing your borrowers’ performances and potential for future growth, you also need to be able to engage in comparisons — whether between industries or over time. To that end, normalizing reconciliations to financial statements can help you see borrowers’ financial situations more clearly, leading to better lending decisions.
© 2016

Categories
Healthcare Helpful Articles

Increasing Patient Engagement in Your Practice

Increasing Patient Engagement in Your Practice

Many patients want to be involved in managing their health care. Empowering patients to schedule their own appointments and manage correspondence, refills, and prior authorizations can lead to higher levels of patient engagement and satisfaction. Patient engagement initiatives have been found to reduce hospital visits, decrease morbidity and mortality rates, improve treatment adherence, and reduce costs. How can your practice attain higher levels of patient engagement? The answer lies in how your practice incorporates technology into its day-to-day operations. Technology can play a major role in helping medical practices improve patient engagement levels.

Technology Is Key

Incorporating a technology-based infrastructure to handle a variety of typically labor-intensive tasks can help increase patient engagement. Not every patient will respond favorably to conducting health care interactions online, but patients who are already comfortable with technology will likely embrace the opportunity. Areas where utilizing technology may be beneficial include:

Online scheduling. Appointment cancellations can impact both a practice’s schedule and its revenues. Giving patients the convenience of scheduling their own appointments online may lead to lower no-show rates.

Check-in. Allowing patients to use kiosks or tablet computers to enter personal information and other relevant data before their scheduled appointment can help expedite and streamline the check-in process and increase efficiency levels throughout the practice.

Online care. Many time-consuming routine interactions, such as data collection, can be performed more efficiently online. Portals designed to allow patients to view test results and ask questions related to their care save time and increase patient satisfaction levels.

Off-site Monitoring

Devices that allow patients to monitor information related to their medical conditions and relay the data electronically can foster greater understanding among patients about how lifestyle decisions impact their health. Engaged patients may be more likely to comply with medical treatments.

Patient engagement initiatives have been found to reduce hospital visits, decrease morbidity and mortality rates, improve treatment adherence, and reduce costs.

Please let us know how we can help with your accounting and essential business service needs.

Categories
Helpful Articles Tax

Tax extenders: 3 credits for businesses on their 2014 returns

Tax extenders: 3 credits for businesses on their 2014 returns

The Tax Increase Prevention Act of 2014 (TIPA) extended through Dec. 31, 2014, a wide variety of tax breaks, including many tax credits — which are particularly valuable because they reduce taxes dollar-for-dollar. Here are three credits that businesses may benefit from when they file their 2014 returns:

1. The research credit. This credit (also commonly referred to as the “research and development” or “research and experimentation” credit) rewards businesses that increase their investments in research. The credit, generally equal to a portion of qualified research expenses, is complicated to calculate, but the tax savings can be substantial.

2. The Work Opportunity credit. This credit is available for hiring from certain disadvantaged groups, such as food stamp recipients, ex-felons and veterans who’ve been unemployed for four weeks or more. The maximum credit ranges from $2,400 for most groups to $9,600 for disabled veterans who’ve been unemployed for six months or more.

3. The Sec. 45L energy-efficient new home credit. An eligible construction contractor can claim a credit for each qualified new energy efficient home that the contractor built and that was acquired by a person from the contractor for use as a residence during 2014. The credit equals either $1,000 or $2,000 per unit depending on the projected level of fuel consumption.

Wondering if you qualify for any of these tax credits? Or what other breaks extended by TIPA could reduce your 2014 tax bill? Contact us!

© 2015

Categories
Helpful Articles Tax

How much time is left to make donations for a 2014 charitable donation deduction?

How much time is left to make donations for a 2014 charitable donation deduction?

To take a 2014 charitable donation deduction, the gift must be made by Dec. 31, 2014. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

  • Check. The date you mail it.
  • Credit card. The date you make the charge.
  • Pay-by-phone account. The date the financial institution pays the amount.
  • Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2014 tax bill.

© 2014

Categories
Construction Helpful Articles

Protect Your Business with Corporate Minutes

Protect Your Business with Corporate Minutes

It’s not always necessary to document the every day business decisions you make as a contractor. However, if your construction business is a corporation, it’s important to understand state requirements regarding shareholders’ and directors’ meetings and maintaining corporate minutes.

Corporate minutes not only provide a written history of the decision-making process concerning important business strategies, they can also be important in protecting your limited liability status should your company become involved in legal proceedings or a dispute with the IRS.

What’s Included
Corporate minutes describe how board members arrived at decisions. Essentially, the minutes record:

  • The name of your company
  • The date, time, and location of the meeting
  • The name of the person who called the meeting to order
  • The names and corporate titles of attendees
  • Actions or motions
  • Descriptions of decisions made, votes taken, and any abstentions from voting
  • The time the meeting ended

Certain major business decisions should typically be documented in the corporate minutes. These include:

  • Stock: Note the issuance of shares to new or existing shareholders.
  • Salaries and Bonuses: The board’s reasoning and approval of salaries and bonuses paid out to key employees can be helpful if the IRS ever challenges the reasonableness of the compensation.
  • Purchases and Leases: Significant equipment or real estate purchases and leases should have the board’s approval.
  • Financing: Corporate minutes should document decisions made in relation to loans the company gives or receives. Corporate loans to owners should be approved by the board and be supported by promissory notes.

Observing the Formalities
In the face of a legal challenge, if you’re not following proper protocol, a court may decide your business isn’t being operated as a separate entity from the owner(s) — despite the existence of a corporation. That could lead to a legal decision to “pierce the corporate veil,” a term that means the personal assets of the owner(s) can be used to satisfy business debts and liabilities. Meeting state requirements regarding director and shareholder meetings is one way of keeping a corporation separate from its owner(s).

Corporate minutes can also help map out a plan for action items and help drive activities by executives and employees. You also can use them to review and measure your progress toward achieving certain goals.

As always, we are here to answer any questions you have.

Categories
Helpful Articles Tax

2014 Year-End Tax Planning Suggestions for Businesses & Business Owners

2014 Year-End Tax Planning Suggestions for Businesses & Business Owners

We have compiled a checklist of suggestions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or your business) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax-Planning Moves for Businesses Business Owners

  • Businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions for the first ownership year.
  • Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
  • Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
  • A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until2015 where doing so will prevent the corporation from moving into a higher bracket this year.
  • A corporation should consider deferring income until next year if doing so will preserve the corporation s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
  • If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
  • To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.
  • To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.

Categories
Helpful Articles Tax

2014 Year-End Tax Planning Suggestions for Individuals

2014 Year-End Tax Planning Moves for Individuals

We have compiled a checklist of suggestions based on current tax rules that may help you save tax dollars if you act before year-end. Not all will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax Planning Suggestions for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  • Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014.
  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by re-characterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.
  • It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2015.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won’t create an alternative minimum tax (AMT) problem.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn’t viable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015-the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015-bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1, 2014.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income­ earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.

Categories
Helpful Articles Tax

Accelerating Deductions to Save Taxes

Accelerating deductions to save taxes

Smart timing of deductible expenses can reduce your tax liability, and poor timing can unnecessarily increase it. When you don’t expect to be subject to the alternative minimum tax (AMT) in the current year, accelerating deductible expenses into the current year typically is a good idea. Why? Because it will defer tax, which usually is beneficial.

One deductible expense you may be able to control is your property tax payment. You can prepay (by Dec. 31) property taxes that relate to this year but that are due next year, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to next year and deduct the payment on this year’s return.

Don’t forget that the income-based itemized deduction reduction returned last year. Its impact should be taken into account when considering timing strategies.

Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2014? Contact us. We can help you determine what steps to take before year end to reduce your 2014 tax bill.

© 2014