Kathleen Hargrove, Author at Whalen & Company, CPAs

When should you start tax planning?

Kathleen Hargrove on April 21, 2016

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When should you start tax planning Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. For maximum tax savings, now is the time to start tax planning for 2016.

More opportunities

A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

More certainty

In recent years, planning early has been a challenge because there were a lot of expired tax breaks where it was uncertain whether they’d be extended for the year. But the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks through 2016, or, in some cases, later. It also made many breaks permanent.

For example, the PATH Act made permanent the deduction for state and local sales taxes in lieu of state and local income taxes and tax-free IRA distributions to charities for account holders age 70½ or older. So you don’t have to wait and see whether these breaks will be available for the year like you did in 2014 and 2015.

Getting started

To get started on your 2016 tax planning, contact Whalen & Company. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

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What 2015 tax records can you toss once you’ve filed your return?

Kathleen Hargrove on April 14, 2016

The short answer is: none.

You need to hold on to all of your 2015 tax records for now. But this is a great time to take a look at your records for previous tax years and determine what you can purge.

The 3-Year Minimum Rule

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss most records related to tax returns for 2012 and earlier years. Note: Three years is the minimum amount of time you should retain these documents; Whalen & Company recommends keeping records related to tax returns for seven years as a rule of thumb.

What to Keep Longer

You’ll need to hang on to certain records beyond the statute of limitations:

Keep tax returns themselves forever, so you can prove to the IRS that you actually filed. (There’s no statute of limitations for an audit if you didn’t file a return.)
For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.

Just a Starting Point

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact Whalen & Company.

Filing for an extension isn’t without pitfalls

Kathleen Hargrove on April 8, 2016

Yes, the federal income tax filing deadline is slightly later than usual this year — April 18 — but it’s now nearly upon us. So, if you haven’t filed your return yet, you may be thinking about an extension.

Extension Deadlines

Filing for an extension allows you to delay filing your return until the applicable extension deadline:

Individuals — October 17, 2016
Trusts and estates — September 15, 2016

Potential Pitfalls

While filing for an extension can provide relief from April 18 deadline stress, it’s important to consider the potential pitfalls:

If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 18.
If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

A Tax-Smart Move?

Filing for an extension can still be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact Whalen & Company if you need help or have questions about avoiding interest and penalties.

Copyright 2016 Thomson Reuters
Image courtesy of freeimpages.com/maximeperrioncaissy

Do you need to file a 2015 gift tax return by April 18?

Kathleen Hargrove on April 7, 2016

You generally need to file a gift tax return for 2015 if, during the tax year, you made gifts:

That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse)
That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions, or
Of future interests – such as remainder interests in a trust – regardless of the amount.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return – or where you won’t need to file one even though a gift exceeds your annual exclusion. Please contact your Whalen & Company representative for details.

Deduction Guidelines for Entrepreneurs

Kathleen Hargrove on March 30, 2016

Starting a new business is an exciting time. But before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away.

How expenses are handled on your tax return

When planning a new enterprise, remember these key points:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Organizational costs include the costs of creating a corporation or partnership.
Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs. The $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts will generally ask: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

An important decision

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact Whalen & Company about your business start-up plans. We can help with the tax and other aspects of your new venture.

Author: Kathleen Hargrove

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