Each year, employers must determine the value of fringe benefits that they provide to their employees.  One common fringe benefit item provided to employees is the personal use of a company car.  Generally, the employer must include in an employee’s wages, the value of the personal use of a company car.

One often overlooked method that can be used to compute an employee’s personal use of a company car is the Commuting Rule.

Under the Commuting Rule, the value of the personal use of a company car is computed by multiplying each one-way commute (from work to home or home to work) by $1.50.  The requirements to use this rule are as follows:

• The vehicle must be provided to an employee for use in the trade or business and for bona fide business reasons, you require the employee to commute in the vehicle
• A written policy is established which states that the employee is not allowed to use the vehicle for personal purposes other than commuting or de minimis personal use
• The employee does not use the vehicle for personal purposes other than commuting and de minimis personal use
• The employee using the vehicle is not a controlled employee
  • A controlled employee includes:
    • A board or shareholder appointed or elected officer who’s pay is $105,000 or more,
    • A director,
    • An employee who’s pay is $210,000 or more,
    • An employee who owns 1% or more equity, capital, or profits interest in the business.
  • A controlled employee can also be defined as any highly compensated employee. They must meet either of the following tests:
    • The employee was a 5% owner at any time during the year or preceding year.
    • The employee received more than $115,000 in pay for the preceding year – This test can be ignored if the employee was not also in the top 20% of employees when ranked by compensation for the preceding year.

When looking at year end planning, and computing fringe benefits for clients, be sure to evaluate the Commuting Rule to see if it would be beneficial to use this method over the other methods such as the Cents-per-Mile Rule or the Lease Value Rule.

Typically, it’s better to defer tax. Here are two timing strategies that can help businesses do this:

1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

But if you think you’ll be in a higher tax bracket next year, consider taking the opposite approach — accelerating income and deferring deductible expenses. This will increase your tax bill this year but can save you tax over the two-year period.

These are only some of the nuances to consider. Please contact us to discuss what timing strategies will work to your tax advantage, based on your specific situation.

A fundamental tax planning strategy is to accelerate deductible expenses into the current year. This typically will defer — and in some cases permanently reduce — your taxes. But there are exceptions. One is if the additional deductions this year trigger the alternative minimum tax (AMT). This is a separate tax system that limits some deductions and doesn’t permit others. Here are some deductions that can be AMT triggers:

• State and local income tax deductions,
• Property tax deductions, and
• Miscellaneous itemized deductions subject to the 2% of adjusted gross income floor, such as investment expenses and unreimbursed employee business expenses.

But deductions aren’t the only things that can trigger the AMT. So can certain income-related items, such as:

• Incentive stock option exercises,
• Tax-exempt interest on certain private activity bonds, and
• Accelerated depreciation adjustments and related gain or loss differences when assets are sold.

Fortunately, with proper planning, you may be able to avoid the AMT, reduce its impact or even take advantage of its lower maxi­mum rate. If you’re concerned about any of these triggers or would like to know what else might trigger the AMT, please contact us. We can help you determine the best strategies for your situation.

If you’re self-employed, you may be able to set up a retirement plan that allows you to make much larger contributions than you could make as an employee. For example, the maximum 2014 employee contribution to a 401(k) plan is $17,500 — $23,000 if you’re age 50 or older. Look at how the limits for these two options available to the self-employed compare:

1. Profit-sharing plan. The 2014 contribution limit is $52,000 — $57,500 if you’re age 50 or older and the plan includes a 401(k) arrangement.
2. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum future annual benefit toward which 2014 contributions can be made is generally $210,000. Depending on your age, you may be able to contribute more than you could to a profit-sharing plan.

You don’t even have to make your 2014 contributions this year. As long as you set up one of these plans by Dec. 31, 2014, you can make deductible 2014 contributions to it until the 2015 due date of your 2014 tax return. Additional rules and limits apply, so contact us to learn which plan would work better for you.

Are you planning to make charitable donations before year end? Do you own appreciated stock that you’d like to sell, but you’re concerned about the tax hit? Then consider donating it to charity rather than making a cash gift.

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it, you can both avoid the capital gains tax you’d pay if you sold the property and deduct its current fair market value.

Let’s say you donate $10,000 of stock that you paid $4,000 for, your ordinary-income tax rate is 33% and your long-term capital gains rate is 15%. If you sold the stock, you’d pay $900 in tax on the $6,000 gain. If you were also subject to the 3.8% net investment income tax (NIIT), you’d pay another $228 in NIIT. By instead donating the stock to charity, you save $4,428 in federal tax ($1,128 in capital gains tax and NIIT plus $3,300 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,300.

If you are charitably inclined or would like to minimize taxes related to your investment portfolio, we can help find the strategies that will best achieve your goals.