No major changes for the year, but keep these thoughts in mind as we near the end of 2015.
- Congress is expected to revive key breaks including bonus depreciation to allow writing off 50% of cost of qualifying assets put in service this year. The higher ceiling on expensing assets is likely to be reinstated. Companies can expense up to $25,000 of business assets put in use in 2015, subject a $200,000 phase-out. We feel it’s a good bet that the 2015 cap will be $500,000 and start the phase-out at $2,000,000.
- Need to purchase a company vehicle? New heavy SUVs will keep privileged tax status for 2015. Up to $25,000 of the cost for a new SUV with a gross vehicle weight over 6,000 pounds can be expensed, while half of the remaining costs gets bonus depreciation, remainder gets 5 year depreciation. Remember, this only applies to NEW SUVs, not used models. If your organization needs an even bigger vehicle, large pickup trucks with gross vehicle weight over 6,000 pounds can be fully expensed as long as the cargo bed is six feet long and
not accessible from the cab.
- Mo’ Money, Mo’ problems – If you think you’ll have to pay the 0.9% Medicare surtax on earned income, you might need to increase your withholding before the end of the year. Single and HOH taxpayers with earnings in excess of $200,000 and Married-Joint taxpayers with earnings over $250,000 are subject to the surtax. Employers must begin to withhold the tax from paychecks in the pay period when wages first exceed $200,000, regardless of marital status. This can lead to under-withholding in situations where each spouse earns less than $200,000 but combined wages are more than $250,000.
- A popular tax planning tool is to shift income and expenses between years to save tax. If your Year-to-Date earnings are higher than you expected, delay invoicing until January and prepay as many bills as you can before December 31, 2015 to help bring your taxable income number down.
- Want to use your IRA distribution as a charitable donation? You still can for 2015, even though the tax rule is in limbo (as of this posting). Most IRA custodians will pay IRA funds directly to a charitable organization of your choosing. If the tax break is extended retroactively to January 1, then the transfer will receive favorable tax treatment. If the break is not extended, you’ll be treated as having taken a taxable distribution, and receive a write-off for the offsetting donation amount if you itemize deductions.
- Health Coverage Reimbursements: Businesses that reimburse employees for premiums paid for individual health policies could be penalized with an excise tax of $100 per day per employee. The IRS waived the tax through June 30, 2015 for employers with fewer than 50 full-time employees, but don’t expect any more waivers. However, S Corporations are in the clear. They are permitted to reimburse health insurance premiums for more than 2% owners without fear of the excise tax…for now.
- Social Security Wage Base: No increase to the wage base for 2016. It will stay at $118,500. People who turn 66 in 2016 will not lose any benefits if they earn $41,880 or less before they reach that age. Individuals aged 62 through 65 by the end of 2016 can make up to $15,720 before losing benefits.
- No change for dollar ceilings on retirement plan contributions either. The 401(k) contribution limit stays at $18,000, but taxpayers born before 1967 can contribute an additional $6,000. The 2016 SIMPLE IRA contribution cap stays at $12,500 and for taxpayers age 50 or older the contribution cap jumps to $15,500 when you add the $3,000 catch-up contribution. IRAs and Roth IRAs stay at $5,500, plus a $1,000 additional catch-up contribution for individuals age 50 and over.
- Deduction phase outs for traditional IRAs start at the same levels in 2016 from Adjusted Gross Incomes of $98,000 to $118,000 for couples and $61,000 to $71,000 for singles. However the income caps for Roth contributions will increase. The phase out begins at Adjusted Gross Incomes of $184,000 to $194,000 for couples and $117,000 to $132,000 for singles.
- Changed jobs during the year? If your pay from two or more employers exceeds this year’s $118,500 wage base, you can claim a credit on your Form 1040 for the excess Social Security tax withheld.
- Real Estate Professionals can bypass the passive loss rules and deduct rental losses, but they must meet the materially participating real estate professional rules. They must spend over 50% of their working hours and more than 750 hours per year materially participating in real estate as a broker, landlord, builder, etc. Also, over 500 hours must be spent materially participating in the rental activity, or only 100 hours, as long as no one else puts in more time.
- Mortgage payments on a former marital home can be deductible alimony. From the Federal court case Trojanowski, D.C., N.C.: the divorce agreement provided for the ex-wife to live in the house co-owned by them and to be fully responsible for the mortgage payments. However, the ex-husband made the mortgage payments on her behalf. They credited these amounts against his required alimony payments to her for the year.
- 2016 Presidential Election. If the other Donald (“Trump” as opposed to “Franty”) gets elected, he has some tax reform plans. He wants to cut the individual tax rates to 0%, 10%, 20% and 25%. The top rate applies for MFJ taxpayers at $300,001 and for single filers at $150,001. MFJ taxpayers earning $50,000 or less and single taxpayers earning $25,000 or less would pay no income tax. Trump proposes that corporations would pay a flat 15% tax rate, and extend this to pass-through income from partnerships, LLCs and sole proprietorships. He would get rid of the Estate Tax and the Alternative Minimum Tax (AMT) as well. Mr. Trump doesn’t provide many details about which write-offs would be on the chopping block.