Timothy W. Tuttle &
Volume 14 Edition 4
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Major Tax Deadlines:
For April 2018
Individual income tax returns for 2017 are due.
2017 calendar-year C corporation income tax returns are due.
2017 annual gift tax returns are due.
Deadline for making 2017 IRA contributions.
First installment of 2018 individual estimated tax is due.
Businesses are required to make federal tax deposits on dates determined by
various factors that differ from business to business.
Employers generally must deposit Form 941 payroll taxes (income tax withheld
from employees' pay and both the employer's and employees' share of FICA taxes)
on either a monthly or semiweekly deposit schedule. There are exceptions if you
owe $100,000 or more on any day during a deposit period, if you owe $2,500 or
less for the calendar quarter, or if your estimated annual liability is $1,000
Monthly depositors are required to deposit payroll taxes accumulated within a
calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or
Fridays, depending on when wages are paid.
information on tax deadlines that apply to you or your business, contact our
When an Extension Makes Sense
While most people should file a
tax return by April 17, you have the option of delaying your filing date until
Oct. 15 with a tax extension.
When to file an extension
Missing or incorrect information. If one of the forms you need to file
your return has an error on it, it is often better to receive a corrected form
Recharacterizing Roth IRA rollover amounts. If you've rolled funds from
a traditional IRA into a Roth IRA, you may want to reverse it later if the
investments lose value. This so-called recharacterization process can be done
up to the extended tax-filing date of Oct. 15, and in many cases it makes
sense to wait until then. Note that 2017 is the last tax year you can use the
recharacterization process, which was eliminated for future years by the Tax
Cuts and Jobs Act.
For self-employed retirement donations. The self-employed can use an
extension to buy time to fund an SEP IRA. This extended time frame does not
apply to traditional IRAs and Roth IRAs.
Avoid late filing penalty. If you fail to file a tax return, two tax
penalties come into play: a late filing penalty and a late payment penalty. By
filing an extension, you can push out the potential late-filing penalty for
another six months even if you cannot yet pay the tax.
the IRS's "Dirty Dozen" Tax Scams
Every year the IRS releases its
"Dirty Dozen" list of the year's most prevalent tax scams. They include ploys to
steal personal information, talk people out of money, or engage in questionable
tax activity. Here are some of the top scams:
Phishing. Fake emails or websites claiming to represent the IRS, for
the purpose of stealing personal information. The IRS will never try to
contact you via email about a bill or refund.
Phone scams. Scammers impersonating IRS agents over the phone. These
impersonators may threaten you with arrest if you don't make immediate payment
for fake tax bills. Don't fall for it – the real IRS makes contact via a
letter, and never threatens or demands immediate payment.
Identity theft. Using a stolen Social Security number to file a
fraudulent return and claim a refund. The IRS said it is making great progress
on reducing this scam as identity theft reports are down 40 percent from a
Fake charities. Some fraudsters use the mask of charitable activity to
get you to donate funds to fake organizations. Only donate to legitimate
charities, which are listed in the IRS
Inflated refund claims. Many taxpayers are wooed by tax-refund services
offering payouts that seem too good to be true. Cheap tax-preparation services
that promise unrealistic refunds are illegal and often get taxpayers in
Padded deductions. The IRS is focusing on identifying tax returns that
try to reduce tax by overstating deductions such as charitable deductions or
Falsifying income to claim credits. Improper use of the Earned Income
Tax Credit (EITC), meant for eligible low-income taxpayers. The IRS has been
cracking down on EITC fraud in recent years.
Abusive tax shelters. Some fraudsters peddle complex tax avoidance
schemes known as tax shelters that they portray as legal tax strategies. Make
sure you get an independent opinion on any complex tax schemes.
Frivolous tax arguments. Frivolous arguments to avoid paying taxes (for
example, arguing a personal vacation is a business expense) can be penalized
by up to $5,000 per tax return.
Offshore tax avoidance. Using offshore bank accounts and complex
international tax structures to avoid paying taxes is still a common scam on
the radar of IRS auditors.
Often-overlooked R&D Tax Credit
Tax credits are one of the best
tax-reduction tools for your business because they directly decrease your tax
bill dollar for dollar. The business research and experimentation credit, also
called the "R&D credit" could be one opportunity worth looking at this year.
The R&D credit basics
The R&D credit allows business owners to reduce their tax relative to their
spending on research and development of new products. It's often used by large
businesses and corporations, but it can be used by small businesses as well.
The downside of the R&D credit is
that you will need to keep careful documentation over several years. The
calculation to determine business expenses that qualify for the credit can also
be quite complex. That can be daunting, especially for a small business, but the
benefits may still outweigh the cost and hassle.
Is the R&D credit right for you?
Here are answers to some common questions about the R&D credit to help you
determine if it's right for your business:
What qualifies as R&D? This is not a comprehensive list, but if
your business applies for patents, develops prototypes, develops software or
builds manufacturing facilities, you may be eligible for the credit.
How much could I get? There are two methodologies to calculate
the credit. One is a complex formula offering up to a 20 percent credit on
qualified expenses, and the second is a more simplified calculation offering a
maximum 14 percent credit.
How are qualified research expenses determined? The IRS uses
several criteria to judge whether something qualifies as a research activity,
including whether it is technological in nature, is used to eliminate
uncertainty, and whether it is part of the experimentation process. Once you
have a research activity that qualifies, you have to link it with qualified
business expenses. This could be something as simple as timesheets that show
which employees worked on the research and what activities they performed.
What do I need? Having a disciplined system for organizing
documentation over several years is essential to support your costs in the
event of an IRS audit. The IRS uses information about what you've spent in the
past on research and development. For the first year claiming a credit, the
qualified research expenditures must be calculated for up to four prior years.
Can the credit be carried forward? Yes, if you don't have enough
income in one year to offset the credit, your company can carry forward unused
credit dollars to next fiscal year, or even apply the tax credit to your
employer share of Social Security payroll taxes.
How should I get started?
A consultation with an R&D credit expert can help to assess your situation and
guide your efforts. It will help you understand how to document research
activity, calculate costs and apply the credit to ensure you take advantage of
the tax savings.
Stay Prepared to
Sell Your Business
If you enjoy running your own
business, selling it may be the furthest thing from your mind. But the reality
is that eventually an opportunity to sell will come, whether due to your own
life changes or a perfect buyer walking in the door. Planning, often years in
advance of the sale date, is necessary to get the most value for the love, sweat
and tears you've invested. Here are some tips to stay prepared:
Assemble a great team. Selling a business is a complex process,
especially as you grow larger. You're likely to need three kinds of
professionals to help: an accountant, to help review and produce clean and
easy-to-understand financial statements; a lawyer, to create the necessary
legal documents and help you negotiate terms; and a trusted business broker,
to evaluate the worth of your business and find buyers.
Develop your exit strategy. With the help of your advisory team, create
a clear picture of what selling your business might look like. Outline the
risks and opportunities that could affect the valuation of your business.
Planning out an ideal scenario as well as a plan B will help you avoid getting
backed into a corner and selling at a discount.
Clean up your financials. As you get closer to selling, go over your
business financial statements as well as your tax returns from the last three
years. A broker will like to present a clear and compelling financial picture
to a client, and that will include a year-to-date financial report.
Have a plan to improve sales. The worst time to sell is when sales are
declining, even if it's just a temporary or seasonal dip. Part of your
planning should include some tactics to boost your sales and cash flow, such
as increasing marketing and promotion, liquidating bloated inventories or
collecting on accounts receivables.
Be prepared to evaluate buyers. Be prepared to take a calm approach to
any offers you get. You don't want to jump at the first offer, and many offers
that seem too good to be true often are. Lack of solid financing is often an
issue, so work with your business broker to find buyers who have been
prequalified by a lender.
Have your after-sale plan down. Often a buyer will want to include a
clause that the previous owner stay on awhile as an advisor. Make sure that
the advisory period lined out in the contract isn't longer than is comfortable
for you. Finally, work with your accountant on a tax-efficient plan for the
proceeds of your sale.
Great Uses for
Your Tax Refund
Most Americans get a refund every
year, with the average check weighing in at $2,895 last year. Even though it's
really money that they earned, many people are tempted to treat it like a
windfall and splurge. If you can resist that temptation, here are some of the
best ways to put your refund to good use:
Pay off debt. If you have debt, part of your refund could be used to
reduce or eliminate it. Paying off high-interest credit card or auto loan debt
means freeing up the money you had been paying in interest for other uses. And
making extra payments on your mortgage can put more money in your pocket over
the long haul.
Save for retirement. Saving for retirement allows the power of compound
interest to work for you. Consider depositing some of your refund check into a
traditional or Roth IRA. You can contribute a total of $5,500 every year, plus
an extra $1,000 if you are at least 50 years old.
Save for a home. Home ownership can be a source of wealth and stability
for many people. If you dream of owning a home, consider adding your refund to
a down payment fund.
Invest in yourself. Sometimes the best investment isn't financial, it's
personal. A course of study or conference that improves your skills or
knowledge could be the best use of your money.
Give to charity. Giving your refund to a charity helps others and
gives you a deduction for your next tax return.
Don't give to scammers! Scammers are using a new tactic to separate
people from their tax refunds. First, they file fraudulent refunds on behalf
of their victims. Then, after a refund check arrives at the taxpayer's
address, they impersonate an IRS agent over the phone and demand to be sent
the refund because it was sent in error. Remember, real IRS agents will never
call over the phone and demand immediate payment for any reason.
If you use some of your refund for
one of the ideas here, you can also feel good about setting a little aside for
yourself to have some fun!
Win the Battle
Against Retirement Health Care Costs
When you think about how much
money you'll need in retirement, you may consider your living costs, travel
expenses and hobbies you'd like to enjoy. But you may be overlooking one of the
largest costs for most retirees: health care. A recently retired couple will
need an average of $275,000 to cover medical costs even after Medicare coverage,
according to research by broker Fidelity Investments. Medical prices have nearly
doubled in the past twenty years, according to statistics kept by the U.S.
Department of Labor.
Here are some tips to meet the challenge of rising health care costs without
compromising your other retirement goals:
Save more now. The best way to manage rising health care costs is to
save more money before you retire. Consider maximizing your annual
contributions to your tax-advantaged employer 401(k) plan and your IRAs.
Use health savings accounts. If you're eligible, save money in health
savings accounts (HSAs). HSAs allow you to contribute pre-tax money to an
account that can be invested like a 401(k) or IRA. HSA funds are not taxed as
long as the funds are used to pay for qualified medical, dental or vision
expenses. If you are eligible, you can contribute up to $6,900 a year in a
family plan, or $7,900 if you are age 55 or older.
Reduce costs by being network-smart. Out-of-pocket health care costs
rise considerably if you use doctors or facilities out of your insurer
network. Even if your primary doctor and clinic is in your insurer's network,
a specialist or testing center may fall outside of it. Be sure to check your
insurer's network rules before each visit to a new doctor or location.
Use alternative providers. Consider avoiding hospital visits and
emergency rooms when practical. If you have the option to go to a clinic or
urgent care center, out-of-pocket costs are often a fraction of out-of-pocket
costs at a hospital.
Reduce Medicare premiums. A large portion of the cost of retiree health
care comes from Medicare premiums, which rise according to several tiers of
income brackets. To pay the lowest rate, keep your adjusted gross income below
$85,000 if you are single, or $170,000 if you are married filing jointly.
There are various tax-planning strategies you can use to stay below the
threshold, including managing required minimum distributions from retirement
accounts and Social Security payments with your other sources of income.
Planning that takes into account
rising health care costs can save you the added financial burden upon
retirement, leaving more funds for the things you look forward to doing during
your golden years.
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The information contained in this newsletter is of a general nature and should
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or for assistance with any of your tax, business, or financial strategy concerns,
contact our office.
Timothy W. Tuttle & Associates