Calvetti Ferguson

2016 Year-End Tax Planning and Update on Due Date Changes

-Sandra Schieffer, CPA

Although tax planning is a year round activity, year-end is traditionally the time to review tax strategies and to look at what’s changed within the tax law itself for the year. Here are a few of the many considerations that taxpayers should review as year-end 2016 approaches.

Investments
Taxpayers holding investments whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling (or like-kind exchanging). Balancing the existing tax rates within those considerations is part of that challenge: the ordinary income tax rates, the capital gain rates, the net investment income tax rate, and the alternative minimum tax (AMT), all play a role.

Retirement strategies
Taxpayers may want to take a look at a number of different provisions in anticipation of retirement, at the point of retirement, or after retirement. Many of these provisions have opportunities with year-end deadlines. These include setting up employer plans, strategic use of IRAs and “required minimum distributions,” and timing Roth IRA conversions and reconversions to maximize your retirement nest egg. In addition, consider giving qualified charitable donations directly from your IRA before year-end.

PATH Act “extenders” and more

Thanks to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), the uncertainty around the life of the tax “extenders” provisions is minimized.  For the first time in many years, the taxpayers have been provided with more clarity as to whether these incentives will be extended either retroactively for the current year or prospectively into the coming year. Here’s a list of the major changes made by the PATH Act that typically impacted year-end transactions and their status after the law was enacted.

Provisions made permanent
• American Opportunity Tax Credit
• Teachers’ $250 “classroom” expense deduction
• State and local sales tax deduction election, in lieu of state income taxes
• Exclusion for direct qualified charitable donation of IRA funds of up to $100,000
• 100-percent gain exclusion on qualified small business stock
• Conservation contributions benefits

Provisions extended thru 2016
• Non-business energy property credit through 2016
• Fuel cell motor vehicle credit through 2016
• Mortgage insurance premium deduction through 2016
• Tuition and fees deduction through 2016

2015 Surface Transportation Act due date changes for 2017 filing season
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (2015 Surface Transportation Act) changes the filing deadlines of certain returns. For tax years beginning after December 31, 2015, the due date for a partnership to file Form 1065 is changed to the 15th day of the third month after the close of the tax year (March 15 for a calendar-year partnership).

The act also changes the filing deadline for regular C corporations from March 15 (or the 15th day of the 3rd month after the end of its tax year) to April 15 (or the 15th day of the 4th month after the end of its tax year). There is one exception. For C corporations with tax years ending on June 30, the filing deadline will remain at September 15 until tax years beginning after December 31, 2025, when the deadline will become October 15.

In addition to changes in the initial filing due dates, an automatic six-month extension will be available for C corporations, except for calendar-year C corporations which have a five-month automatic extension (until September 15) through 2025. The 2015 Surface Transportation Act also instructs the IRS to modify regulations to provide for a variety of extensions-to-file rules, including, among others, a 6-month extension of Form 1065 to September 15 for calendar-year partnerships; and 5½ months ending September 30 for calendar-year trusts filing Form 1041.

Another welcome change relates to the due date for FinCEN Report 114, Report of Foreign Bank and Financial Accounts. The 2015 Surface Transportation Act aligns the FBAR due date with the due date for individual returns, moving it from June 30 to April 15 and allows for a maximum extension of 6-months ending on October 15.

Note the changes to the filing deadlines are generally applicable to returns for tax years beginning after December 31, 2015. For calendar-year taxpayers, that means the new deadlines will first apply to returns filed in 2017.

A New Administration
When the new Administration moves into Washington in January 2017, it is clear that changes will follow. How these changes will impact your long-term tax situation remains to be determined. Coupling that with a push for tax reform, makes the future more difficult to read than in prior years. Nevertheless, in looking toward the future, you should not lose sight of the short term tax dollars to be saved immediately through 2016 year-end strategies.

If you have questions or a need for year-end planning, please contact the office.