Mark: Welcome to unsuitable on Rea Radio, the award winning financial services and business advisory show that challenges your old school business practices and the traditional business suit culture. On this show you will hear from industry professionals who will challenge you to think beyond the suit and tie by offering you meaningful modern solutions to help you enhance your company’s growth.
I’m your host Mark Van Benschoten. The last time today’s guest was on the podcast she talked about how business owners could implement a tax strategy that could help them end their year with a bang regarding taxes. Today Melane Howell who is a manager here at Rea will tell us what? It’s actually a great time today to start preparing for the 2017 tax season for your 2016 taxes. I know this seems like this timeframe is a long way off, or a long way from issuing their W-2s, but welcome back to unsuitable, Melane.
Melane: Great to be here, thanks Mark.
Mark: You been enjoying your summer?
Melane: I have. Who doesn’t enjoy the sunshine?
Mark: Who doesn’t? Dracula, he doesn’t.
Melane: Oh, I guess so, right.
Mark: I’m sure some other curmudgeons don’t. Have you been fishing?
Melane: I’ve only been fishing a couple times. We had that weird weather late in the spring, and the fish just didn’t come in like they normally do, so we’re going to try and shoot for better fishing in the fall.
Mark: Shoot? You shoot your fish?
Melane: No, well, actually my son does have one of those bows, like the bow where you shoot the arrow and spear the fish, but …
Mark: How do they get the bait to stay on?
Melane: No, they aren’t fishing with bait, but it’s tough to use in Ohio since the water’s not that clear. Anyway, so, it’s back to bait.
Mark: Have you been on the water much?
Melane: I have been, so I also enjoy power boating, water skiing, tubing.
Mark: Sounds like fun.
Melane: Yeah, so we’ve been doing that a little bit this year. Our first outing was somewhat of a disaster.
Mark: That’s not good.
Melane: No, and we had all the kids on the boat, pulled the boat in the water, and the boat would not start. It would have been nice to be prepared for that.
Mark: Well, much like our topic, planning, right, maybe you should of thought about that.
Melane: Yeah, absolutely. We ended up going to the pool that day, later on.
Mark: Kind of like tax when you always got an extension. I see a lot of parallels here.
Melane: Right, but if I had prepared properly, we all would of had a great day, so lesson learned, even for me.
Mark: I’m sure you were with family, so I am sure it was still tremendous.
Melane: Absolutely.
Mark: To get started talking about our topic here, somebody mentioned to me that there are some new deadlines, filing deadlines. I’m not sure what they are. Is there a resource out there? Do you have any knowledge on that?
Melane: Actually we put out in one of our publications last month a summary that has a list of all the changes that can be found on our website.
Mark: It’s on the web. It’s www.reacpa.com.
Melane: Correct. Yep. It’s right there on the website, but I’ll go ahead and go over some of the more important ones. As you know the IRS always likes to switch things up and sometimes it’s the last minute, so we are trying to get the word out there as fast as possible. It is to inform everyone that some of the due dates for business tax returns and some of the foreign tax returns have changed. To go over a few, partnerships and the C-Corp returns have flipped flopped, meaning C-Corp returns used to be due March 15th, and now partnership returns are due then.
Mark: OK, does that mean that C-Corp returns are due April 15?
Melane: Correct. They flip-flopped. Individual returns stay the same.
Mark: What about S-Corps?
Melane: S-Corps stay the same as well.
Mark: Why do they do that?
Melane: I have no idea.
Mark: Is this part of the substantive tax reform? We’ll change some due dates and keep everybody quiet?
Melane: I know. Then this is kind of a nice one. The FINSEN, or the Foreign Bank Account reporting, mirrors now the due date of your individual tax return. It used to be June 30, and now they’ve moved it up to April 15, but we usually prepare them at the same time anyway.
Mark: Is that if you have interest in a foreign bank account?
Melane: Correct. There’s some limitations to that, but you may not have to file, but we always ask those questions for those who do have to file.
Mark: Is that the same as the F-bar or is that because …
Melane: Yes. It is the F-bar, correct.
Mark: Now it’s due at the same time as your return, not the June 30. I assume, does that get covered by extension?
Melane: Yes, it does, so you can extend for the same term that you can for an individual tax return. Then for the partnership returns, if you don’t have a calendar year, you have a fiscal year, it is now due the 3rd month and 15th day following the close of your business instead of the 4th month, and corporation of course then revert back to what the partnerships used to be which is the 15th, yeah, the 4th month, 15th day after you close your business month, and that includes extensions.
There’s a few other items, meaning a C-Corp with your tax years that end on June 30, they will still have the same filing deadline that they’ve had in the past until 2026, so at the end of 2025, again …
Mark: If it was May it goes to the …
Melane: New date, yes.
Mark: It’s July it goes to the new date.
Melane: Correct.
Mark: What if it’s June 30.
Melane: Yes. It stays the old date.
Mark: Until 2026?
Melane: Yes.
Mark: Let’s hope you and I are still not practicing, and somebody else can … It seems to be crazy that they would do that.
Melane: Yes. I know. We don’t try to understand it, but we just try and follow the rules.
Mark: You have to try and explain it to somebody.
Melane: I know. I know.
Mark: Oh why is that?
Melane: There also is a new rule that usually the IRS has 3 years to audit you. They’ve changed that in that that increases to 6 years if you understate your income by 25%. In understating of income isn’t technically gross income, they include all kinds of things in there.
Mark: If you overstated expenses?
Melane: Correct, or understated your income, yeah. It’s going to be a … You have a 6 year window to be audited instead of 3, so again, we …
Mark: Is that on a go-for-it basis? This is 2016? Does this go back to 2010 or does it …
Melane: You know what, I don’t know. I would have to look at that. I just know that the change …
Mark: If it doesn’t go back we might have to end this podcast early.
Melane: Right. That I’m not sure, but I’m sure it’s up on our website.
Mark: Great. We’re here in the summer of 2016, and just got done with busy season, right, and last thing some people want to think about is tax planning for the end of the year, but I assume that there are some things that we should be considering.
Melane: Sometimes it takes a little bit of time if you’re going to make some changes due to planning to get the …
Mark: You can’t just call on December 30 and make it happen?
Melane: Exactly, so I always like to say, as I learned the hard way, here with my boat earlier, you can never be too prepared. It’s nice to be prepared early. I’m speaking now about individuals. Let’s say you get a bonus or you know you’re going to be getting a bonus. You usually get a bonus at work. If that bumps you into a higher tax bracket or if you think it’s going to bump you into a higher tax bracket, you may want to talk to your employer about possibly paying that bonus in January of next year instead of towards the end of this year. Sometimes those bonuses are very significant. You don’t always plan for the tax consequences of that, so that’s one way of planning that may be …
Mark: Just deferring some income?
Melane: Correct. Just as easy as a request. You can also put more in your 401(k) if your employer has a 401(k). It’s always a good idea to save for retirement and putting a little bit more in is a good idea. The $18,000 max for this year, or an additional $6,000 if you’re 50 or older is usually not reached by a lot of people. If you think you’re going to have more income this year, it’s a great way to put some away.
Mark: That’s a great way to increase your deferrals there.
Melane: Correct.
Mark: For some people that are over 50. We talked about deferring income. Any benefit to accelerating expenses?
Melane: You could. There’s a couple ways to do that. If you have an investment advisor you can talk to him about possibly harvesting some tax losses. Sometimes that helps. You can net them against any gains, so if you’ve had some gains throughout the year, that maybe you weren’t planning on, maybe you can have your investment advisor look at your portfolio and kind of unload some of those investments that typically and historically have not been doing well. It doesn’t look like they are going to do any well, any better.
Mark: Looking at that now gives you the benefit of time. You’re not there in December saying, “All right, will this thing go solvent.” Let’s look at this as we move into September in the 4th quarter of the year we might have an opportunity, because we’ve already harvested some gains we can take some losses.
Melane: Absolutely. You can start to plan for that and kind of keep your eye on it throughout the rest of the year. The other thing you can do is, you can … Sorry I’m smiling. Smiling for the camera.
Mark: I didn’t know we had cameras in here. What?
Melane: Cheese. The other thing you can do is, is pay your January mortgage payment in December, and take advantage of the extra interest that you’ve paid for the year. It’ll obviously be a deduction on your tax return.
You can also what we call bunch expenses, meaning if you own a home you’re going to be paying real estate tax, and if you put, if you pay that early, and put some of those, pay some of that tax for a future year in and pay it earlier in 2016, you can obviously pay, or deduct, that whatever you paid, in the year that you paid it. We all pay in arrears, but anyway, for real estate tax …
Mark: It’s not really payment early, you’re timing the payments maybe in your example of you’re having a bonus, your employer won’t defer it to January, you can accelerate some expenses by picking up another real estate tax payment.
Melane: Correct. Then the following year you wouldn’t have any payment.
Mark: Correct. You can relax at work and not get a bonus and you’ll be equal.
Melane: Absolutely.
Mark: That’s not a good idea.
Melane: No. You can also clean out your closets, donate your items that you haven’t used or they’re not needed items, go ahead and be charitable. We always like to see that. That’s a great way to …
Mark: We should make our kids listen to this.
Melane: Oh, absolutely. You know what, I would have a …
Mark: Clean out your closet.
Melane: Yeah. I would have a lot less stuff in my house if that were the case. That’s very true. Then another one that I did not mention last year, that’s pretty important is that a lot of people are, a lot of parents especially, are paying for their kids’ college. Sometimes, of course there are income limitations, but sometimes those tuition payments are eligible for certain either tax deductions or tax credits.
Mark: As the parent?
Melane: Yes. If the parent pays them, and they can go ahead and they claim the child on their tax return, then they can go ahead and possibly be eligible to take the American opportunity tax credit. What that is it’s a tax credit of up to $2,500, 40% of that being refundable, and with tuition payments, a lot of times your fall tuition isn’t due until January, but if you pay that bill in December, you’ll get a 1098 for the payment, and you may be able to qualify for that really, really nice tax credit. That’s another thing to look at.
Mark: Can we hold on that one?
Melane: Sure.
Mark: This speaks to me personally.
Melane: Okay. Sure.
Mark: If I paid January’s tuition before the end of the year, in December, I might be able to deduct that under all the limitations, so again if I get a bonus from my employer you want referred.
Melane: Turn around and write.
Mark: Turn around and write … Pay my real estate taxes, pay my tuition, clean out my closet.
Melane: Correct.
Mark: Then I can take next year off. Okay. All right.
Melane: Call me. We’ll go on a vacation or something.
Mark: All right. We won’t take your boat, we’ll take somebody else’s boat.
Melane: Right.
Mark: What about looking at your estimates?
Melane: That’s always a good idea, and sometimes paying an estimate early, can be a great way to bunch your expenses, meaning if you’re not subject to the alternative minimum tax (ALTMIN), if you pay your state and local tax in December versus the estimate that’s due in January, then you can go ahead and deduct that in the year that you pay it, which is of course in December. That’s a good way to bunch your expenses, but it’s nice to actually look and see if you’re going to have an estimate due.
Mark: So you’re not surprised.
Melane: Right. And that’s where a projection comes into play, meaning in the fall it’s always nice to have a tax projection prepared just so there’s no surprises come April. We do provide that service meaning you bring in a few pieces of paper, we ask you a few questions, and we come up with a scenario of what your tax return may look like in April so that we can make some educated decisions now in order to make sure that you’re getting the most tax benefits.
Mark: It’s better to know if there’s a bullet out there, better to know that in September than in December or even better than in January.
Melane: Right. Right.
Mark: You always get those questions like oh … It’s generally what can I do? Not much besides write a check.
Melane: Right, and usually around the holidays we’re all spending a whole bunch of money anyway, so it’s kind of nice to think and address that earlier in the year, before you’ve already spent all your money on holiday items.
Mark: You’re a party pooper. You mentioned ALTMIN. Any movement on that? They always talk about there have been some tax changes, but no one’s ever really addressed ALTMIN.
Melane: Right. That is very confusing to a lot of taxpayers. To sum that up without getting too technical, for someone that has a lot of deductions and yet still makes a fair amount of money, it makes sure that you pay a certain amount of tax. We really like to look at that at tax planning time in that we don’t want you to pay certain expenses any sooner if you’re not going to be provided the benefit because you fall into that category. The alternative minimum tax exemption has gone up a little bit this year, but it’s not a whole lot. Sometimes people are surprised that they fall into that bucket.
Mark: Sure so maybe that bunching action may be deferring it.
Melane: Correct.
Mark: Bunch it to next year when you might be able to have a better … You might not get the benefit in ’16, with some tax planning you might get the benefit in ’17.
Melane: Absolutely. Absolutely.
Mark: Interesting. It’s an election year, and not to ask you any political questions, in your professional opinion, do you ever think there’ll be any kind of substantive tax reform?
Melane: Oh gosh, that’s a hard question.
Mark: We’re hard hitting here on unsuitable.
Melane: I know, I know. It’s something that obviously is always talked about, especially at election time, make a lot of promises. Is something substantial going to happen during my lifetime? Ah, it’d be hard. It would be tough.
Mark: I agree with you. I think it would be. They’ve been talking about it for years. Something needs to happen, it’s too complex, but I personally don’t see it happening.
Melane: I don’t either. I know that Ohio recently had a lot of changes, and obviously that’s caused a lot of chatter as to what’s been beneficial, what hasn’t been such a good idea. It’s always nice to have change, but if it’s going to … I don’t know. I think it’s just too complicated to push through quickly.
Mark: I agree, and just the political powers, I just don’t see it happening. Too many special interests, too many people in other people’s ear, what are the consequences. I think some people like stability. They don’t like what we currently have, but they’re like well I know what it is I can manage to it. You introduce something different they’re not going to have that. I personally don’t think it’s going to happen, but you never know. Something to talk about.
Melane: Something to talk about.
Mark: I agree. On a boat, sitting in the … Sitting at the dock because it won’t work. You can’t go anywhere. All right next target question. Any update on affordable health care? ACA.
Melane: Oh gosh, so you know, that’s another planning tool meaning what is nice is that you really need to check to see if you have what’s considered minimum health coverage. Sometimes you have health coverage, but it doesn’t fit the minimum requirements, then once you file your tax return, you may be subject to a penalty based on the amount of months you weren’t covered, or the amount of months that you did not have minimum coverage. That can sting a little bit, because you pay that amount directly on your tax return.
Mark: Is there any a … How would you plan for that? How would you know that besides waiting to file on your return.
Melane: We all know, obviously, it’s from now until this podcast releases, how many months you’ve been covered. What’s happened in the past, what’s happened in the past and you’re still going to get dinged let’s say if you didn’t have minimum coverage for January and February and March, but if you look at it now, you’ll be able to make some changes so that you don’t get dinged for the rest of the year of not having minimum coverage.
For those of you that are receiving subsidies, you really need to look at your income, because once it reaches a certain limit then the subsidy may be reduced and you’re going to have to pay some of that premium back.
Mark: Some of that back?
Melane: Yes, and that is really ugly. You really want to make sure that you take a look at that. All the more reason for a projection.
Mark: To be aware of it, and this might be, it might be something that you might be facing. We’re running out of time here, and you know we always ask a question, but we already know what you’re super power would be, so today we’re going to ask you we want to know if you could be someone else for a day, who would it be and why. You can’t say me.
Melane: I … Ah. This is really hard.
Mark: Winston Churchill? Who else?
Melane: I know. I can’t think of anyone famous.
Mark: It doesn’t have to be anybody famous.
Melane: I know, but that’s who people would relate to.
Mark: Oh, that would be …
Melane: Oh, that’s a great one. My dog. Yeah. Get to lay around in the sun all day.
Mark: It would be an interesting perspective, right? What do they keep sending me? I can’t understand.
Melane: They have those pet cams, sometimes I’ve seen on the web to where you can, it’s like a dog’s eye view, but yeah. That’s a great idea. It would be my dog. He’s getting older. He lays around. We build him a little ramp to get up outside the house, because he can’t really make the steps anymore, and we just pet and love on him all day. He’s got the life.
Mark: That’s awesome.
Melane: Yeah.
Mark: If you ever get there let me know how that works out. Thanks again for joining us on unsuitable, Melane, and a big thanks to our listeners for tuning in. For even more information, visit www.reacpa.com/podcast. Until next time, I’m Mark Van Benschoten for unsuitable on Rea Radio encouraging you to loosen up your tie and think outside the box.
