Year-End Strategies to Reduce Taxes on Your Investments
Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability.
News & Tech Tips
Client Alert: IRS Raises Tangible Property Safe Harbor Threshold to $2,500
The IRS recently announced that it will raise the de minimis safe harbor threshold for tangible property to $2,500 per item for small business taxpayers who do not maintain an applicable financial statement (AFS).
This increased threshold will continue to apply to “small dollar expenditures for the acquisition or production of new property or for the improvement of existing property, which otherwise must be capitalized,” according to a statement from the IRS.
This tangible property threshold, previously $500 per item for taxpayers without an AFS, was raised to $2,500 by the IRS to reduce administrative burden on small business owners. The de minimis safe harbor threshold for taxpayers with an AFS remains at $5,000 per item.
How Will The Increased Threshold Affect My Business?
- Qualifying capital expenses below the $2,500 per item threshold can be deducted immediately, rather than deducted over years through annual depreciation.
- This will not affect your ability to deduct other repair/maintenance expenses that exceed the safe harbor threshold.
- Written expense policies should be updated to reflect this change.
- The change in the de minimis safe harbor threshold will affect financial statement reporting, so business owners should consider how use of the higher threshold could affect loan covenants.
When Can I Use the New Threshold?
- The new threshold of $2,500 will be applicable for expenses in tax years beginning on or after Jan. 1, 2016. The IRS says it will offer audit protection by not challenging the use of this threshold when auditing tax years preceding 2016.
We hope this information has been helpful to you. If you have questions about how this de minimis safe harbor threshold change will affect your business, please contact your Whalen & Company representative.
More Information:
2015 Year-End Tax Planning Tips
For most of the last decade, year-end tax planning has been complicated by a great deal of uncertainty. This year is no different.
As things now stand, dozens of favorable tax-law provisions that technically expired after 2014 are in limbo. Some or all of those provisions may be reinstated, even retroactive to the beginning of the year, if Congress enacts new legislation. But there are no guarantees that the nation’s lawmakers will come to an agreement before 2016. Furthermore, even if changes are enacted, they may occur too late for taxpayers to take any meaningful tax action. Stay tuned to our blog for developments on these tax extenders.
We know that taxpayers must contend with a continuing stream of new cases, rulings and regulations on various issues that could affect year-end tax-planning decisions.
With this in mind, Whalen & Company has prepared 2015 Year-End Tax Planning tips for your convenience! Click here to download our 2015 Year-End Tax Planning Letter, which include guidelines for:
- Individual Tax Planning
- Business Tax Planning
- Financial Tax Planning
Be aware that the tax-planning concepts outlined in the attached are only intended to provide an overview. It is recommended that you review your situation with your Whalen & Company, CPAs tax professional.
Client Alert: Another FUTA Surcharge for Ohio Employers
For the fifth year in a row, Ohio employers will be subject to additional federal unemployment tax act (FUTA) surcharges for 2015 tax filings.
The FUTA charge for employers is 6% of the first $7,000 wages paid to each employee, per year. Generally, employers receive a credit of 5.4% against this rate if they also pay unemployment taxes to their state. This results in a net unemployment tax to the federal government of .6% of the first $7,000 in wages.
However, if a state has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid those loans within the specified time frame, then all employers paying wages in those states are subject to additional unemployment insurance tax at the federal level beginning after the 2nd year of balance due.
This additional tax is referred to as a “credit reduction.” The 5.4% credit is reduced by .3% each year that the loans are not repaid to the federal government by November 10th. Unfortunately, Ohio is one of only 3 remaining states, and one jurisdiction, that still have outstanding loans to the federal government. The other locations subject to credit reductions are California, Connecticut and the Virgin Islands.
Since this is the 6th year that Ohio has loans outstanding, the credit reduction for Ohio employers for 2015 will be 1.5%.
- For employees earning more than $7,000 during the year, the maximum tax increases from $42 to $147.
- Employees earning less than the $7,000 limit will have the additional 1.5% tax due on all earnings for 2015.
Generally, federal unemployment taxes are deposited with the federal government quarterly at the rate of .6% of the first $7,000 wages paid per employee. The additional tax due for the credit reduction will be payable with the 4th quarter deposit and annual filing of Form 940. So, this additional payment will be due by January 31, 2016.
For cash planning purposes, multiply your YTD Federal unemployment tax payments by 2.5 for an estimate of the additional liability that will be due in January.
We hope this information has been helpful to you; if you have questions about the FUTA tax for your business, please contact your Whalen & Company representative.
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