Six tax tips for the holidays

As you enjoy the holiday season and your traditions, don’t forget to set aside time for a little tax planning before New Year’s Eve. While tax planning might make you feel more like the scrooge, it can save you money in the long run by minimizing your overall tax liability.  Some tax moves will take some planning, others however, are easy to accomplish. But all are worth checking out to see if they can reduce your tax bill. 

Tip No. 1:Defer income

Be aware of your tax bracket. The general rule is to defer income to next year when possible as long as your tax rate for 2015 is the same or higher than what it is projected to be in 2016. The rates are graduated with the top tax rate as high as 43 percent. If your remaining income will push you into a higher tax bracket, postpone receiving money wherever you can. For example, ask your boss to pay your bonus in January; put more money into your tax-deferred retirement plan; or hold off on selling assets that will produce a capital gain. If you're self-employed, send invoices for year-end jobs in January 2016.

Tip No. 2: Add to your retirement

Put as much money as you can into your 401(k) or similar workplace retirement savings plan.  Traditionally, plan contributions are made on a pre-tax basis, so you'll have less taxable income on which you will pay income taxes. The maximum amount employees can put into a 401(k) plan this year is $18,000, but any amount you contribute will help. If you are age 50 or older as of Dec. 31, you can contribute an extra $6,000.  If you aren’t contributing the maximum to your retirement plan, you should see if you are able to increase your 401(k) contributions for 2016.  The end of the year is a great time to make adjustments for the next year. If you aren’t contributing enough to receive the full company match you are leaving money on the table.

Tip No. 3: Review flexible spending accounts

If you contribute to a medical flexible spending account (FSA) through your employer, be sure you don’t waste it. As part of the Affordable Care Act the maximum contribution amount was set at $2,500 with annual adjustments for inflation. Like 401(k) plans, money goes into an FSA on a pre-tax basis, reducing your tax liability. But any money you leave in your FSA at the end of the year is forfeited by you.  Some companies allow a grace period into the next year to use the remaining FSA funds, but are not required to provide this option.  Make sure you check with your employer to ensure you don’t lose any FSA funds.

Tip No. 4: Use capital losses to offset capital gains

If you have investment assets that have lost value, use these losses to reduce your overall income. Capital losses can be used to offset any capital gains. This is a good time to review your portfolio, and if you have more capital gains than losses, recognize capital losses to offset the excess gains.  You can also use up to $3,000 of capital losses in excess of gains to reduce your ordinary income that is taxed. Capital losses in excess of $3,000 can be carried forward indefinitely to future tax years.

Tip No. 5: Take advantage of owning a home

Home ownership provides a variety of tax breaks, some of which you can utilize by year-end to reduce your current year's tax bill. For example, you can make your January mortgage payment by Dec. 31 and deduct the mortgage interest on your 2015 return. You may also benefit by paying your property tax payment due in early 2016 in December.

Tip No. 6: Pay college costs early

The American Opportunity credit is a wonderful way to let Uncle Sam help subsidize college costs if you qualify. The maximum annual credit is $2,500, with up to 40 percent of this credit refundable. That means you could get as much as $1,000 back as a tax refund even if you don't owe any taxes.  If the spring semester bill isn't due until January, it might be beneficial to pay it before the end of the year. Doing so may allow you to maximize the American Opportunity Tax Credit on this year's tax return.

How the New Federal Budget and Tax Bill Could Lower Your College Costs

More money for low- and middle-income students and relaxed rules on spending your 529 funds.


Congress passed a $1.1 trillion spending bill and $700 billion in tax breaks on Friday that may directly affect how you pay, save for, and deduct college expenses. Included in the bill, which covers fiscal year 2016 (starting back in October 2015), is more money for some student aid programs and tuition tax credits. President Obama signed it into law later that day.

Here’s a rundown of what it could mean for your college budget:

1. 529 savings plans can be used for more expenses

Before the new law, you could use the money in a 529 college savings plan only to pay for tuition, room and board, and supplies such as books. Now the list of qualified expenses includes computers, software, and Internet costs. Need guidance on why and how to open a 529? Read here and here.

2. The American Opportunity Tax Credit is sticking around

Also known as the AOTC, this credit reimburses families up to $2,500 for tuition, fees, and other educational expenses when they file their taxes. The credit was set to expire in 2017, but the tax bill passed Friday makes it permanent. Want to get an early start on preparing for tax season? Brush up on how to make the most of college tax breaks here.

3. Pell Grant awards grow 2%

Federal Pell Grants are awarded to low- and middle-income students and don’t have to be repaid. At a total of $31.4 billion in fiscal year 2015, Pell Grants represent the government’s single largest education program. The spending bill for fiscal year 2016 increases the maximum individual Pell Grant award by $140, to $5,915. Other programs aimed at helping needy students go to and succeed in college (such as TRIO and GEAR UP) also saw budget increases, though that money won’t go directly to students.

4. Perkins loans are back from the dead

Congress had let its oldest student loan program expire earlier this fall, but with last week’s budget deal, lawmakers extended the program’s lifespan by two years. Perkins Loans are reserved for needy students. They have a set 5% interest rate, and interest doesn’t start accruing until the repayment period begins nine months after the borrower graduates. Congress hasn’t doled out new money for the program in many years, but instead, colleges have paid for it through a revolving fund, where repayments from previous borrowers finance new loans. If Congress hadn’t restored the program, colleges might have had to repay the initial loan money to the federal government, and no new loans would have been issued. Now the program is back, but with some limitations. For one, new loans are only available to undergraduate students. And colleges will be required to make sure students have used all other available federal direct loans before issuing Perkins Loans. Undergraduate students can receive as much as $5,500 in Perkins funds per year, up to a total of $27,500.

5. Customer service for borrowers might improve

We’ve written about how student loan servicers, the middlemen who process your loan payments, don’t always act in borrowers’ best interest or provide satisfactory customer service, sometimes resulting in higher interest payments and longer overall repayment periods. Language in the budget deal could improve the loan servicing industry, as the Washington Post explains. That’s because the Department of Education would be required to award servicing contracts based on which companies do the best job of keeping borrowers from falling behind on their loan payments.

Making the Most of Your Year-End Charitable Donations

FROM BROOKFIELDNOW.COM

Your primary motivation for making a charitable donation is your generous spirit, but it is also important to know that your charitable giving may create tax benefits that make philanthropy even more appealing. Of course, there are tax rules and procedures that must be followed to maximize the tax savings of your charitable donations. Here are some general guidelines to consider: 
• You will receive an income tax deduction in the year you make a gift to a qualified charitable organization, but you must itemize your deductions in order to claim a charitable deduction. 
• Only gifts to qualified charitable organizations are deductible. Churches, synagogues and other religious organizations are considered de facto charitable organizations and are eligible to receive tax deductible donations. 
• Donating appreciated securities is among the more tax-effective ways to make a charitable gift. If you have held the appreciated security for more than one-year, you can deduct the fair market value of the donated asset and avoid the capital gain on the appreciation. Charities pay no capital gain on the sale of appreciated securities. 
• You can only deduct as much as 50 percent of your adjusted gross income (AGI) for cash donations, or as much as 30 percent of AGI for donations of appreciated securities to charity. Any donations above these limits may be carried forward for up to five years. 
• Individuals who are 70½ or older may have the option of making a direct transfer of up to $100,000 from a traditional IRA to a qualified charitable organization, tax free. The amount transferred to charity will not be considered a taxable IRA distribution and will satisfy required minimum distributions. Most observers expect Congress to extend this popular rule for 2015 before the end of the calendar year. 
• IRA owners may also name a qualified charity as designated beneficiary of some or all of a traditional IRA account, thus completely avoiding taxes on distributions from the tax-deferred account. 
• Owners of life insurance (term, whole life, universal, etc.) may name a charity as beneficiary of a life insurance policy. 
• Finally, all gifts made to charity are permanently removed from the donor’s estate and may reduce estate taxes. 

So, as the year-end approaches and we reflect on the gifts we have received in our own lives, making a charitable donation to your favorite charity may be a great way to give back to the greater good, while also lowering your tax bill. 

Cleaning Out Your Financial Trunk – Year-End Tips

While investors were recently fretting over post-Fed rate hike volatility, I recently opened my car trunk, and it wasn’t a pretty picture. I discovered towels, jumper cables, soccer ball, beach chair, research reports, and even a box of Kleenex. The hodge-podge of items had been accumulating for months, but the path of least resistance to solving this problem was procrastination. It didn’t take much effort, but eventually I transformed my portable dumpster into a clean, useful space of organizational Zen.

Many investors have a similar problem with their scattered finances…an IRA here, 401(k) there, trust account, savings account, bank CD, insurance policy, and not to mention a slew of other spouse accounts. Is there any cohesive strategy behind these accounts? Generally, the answer is a resounding “no”. Like a messy car trunk, a sloppy controlled investment portfolio with no objective, time horizon, or defined risk tolerance could drive your retirement off-road into a ditch.

With the year coming to a close, and a finish to this season’s holiday parties and gift opening, often times there is a brief calm before the New Year’s storm. This is a perfect time to clean out your cluttered financial trunk to make sure you are on track to meet your retirement goals.

The first step in de-cluttering your financial mess is determining what is your targeted retirement number (see Getting to Your Number). Doing so requires you to calculate the following:

Your annual budget
Annual income
Planned retirement date
Life expectancy

Combining this data with your risk tolerance and expected return should help you ascertain whether your retirement goals are realistic or overly optimistic.

After you find a reasonable dollar figure target for retirement you can give yourself a pat on the back, but the financial organizing game is not over yet. You still need to incorporate various important facets of financial planning when arranging your fiscal affairs. Here are some financial planning priorities on which to focus:



Estate Planning: Rich or poor, it doesn’t matter…you still need to have an estate plan in place. A suitable estate plan includes important documents, like a living trust, will, financial power of attorney, and advanced healthcare directive. Without these critical documents, heirs could be left spending thousands of dollars, and fighting years with courts and family members over rightful transfers of assets.

Tax Planning: When optimizing your finances, one cannot forget about the IRS. One does not need to be Al Capone to lower your tax bill – there are plenty of ways to legally lower your tax liability. Contributing to your 401(k)/IRA accounts and recognizing various deductions (e.g., charitable contributions, business write-offs) are some low hanging fruit strategies to keeping more of your money. Consult a tax professional for more specific guidance.

Insurance: Building your nest egg requires a lot of effort, so protecting it should be a key priority. Medical bills are the number one cause of personal bankruptcies, so mitigating these risks is paramount. Life insurance products mixed with investments generally are over-priced and overly complex. Term life insurance is often a much more cost effective and simplified approach.

Home Management: Given the home is the single largest personal asset for most families, home insurance is an essential, and researching an umbrella policy that protects your nest egg against unexpected potential litigation is not a bad idea either. With interest rates near generational lows, it behooves you to explore mortgage refinance possibilities as well.


Financial market volatility may continue through year-end into next year, but sitting on your hands and doing nothing will not advance you towards financial prosperity. Cleaning up your messy financial trunk with comprehensive investment and financial planning (not procrastination) is the correct path to reaching your Zen-like retirement goals.

Year-end tax planning tips for businesses

Before the year comes to a close, business owners should be looking for ways to minimize their 2015 tax bills while keeping an eye toward planning opportunities and obligations that will present themselves soon with little time to react.

Here are five things businesses should add to their to-do lists, and in some cases, be prepared to act upon before the New Year begins.

1.    Assemble team, compile information to comply with ACA reporting requirements

Large employers will, for the first time, be required to report information in 2016 as mandated by the Affordable Care Act. That information will be reflective of 2015, and the IRS will use it to determine whether individuals are entitled to premium assistance and, if necessary, enforce a penalty.

These reporting requirements are not applicable to all employers, however. Generally, those who have employed at least 50 full-time employees or equivalents are required to file two new forms in 2016 for the 2015 calendar year (find out how employees are classified under the ACA by clicking here).

Those forms are:

• Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns

• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage

Before completing those forms, businesses should determine whether they fall under the ACA’s applicable large employer designation, including whether they are part of a controlled group,  and whether their health care coverage provides minimum essential, minimum value, and is affordable.

Additionally, the information needed to complete those forms will likely come from different personnel or departments within a company, in addition to the controller. Therefore, businesses will need to thoroughly research where the information originates -- health plan administrators, human resources departments, payroll processors, etc. -- before deciding which employee(s) will be chiefly responsible for completing these forms.

Because of the sheer amount of time and effort required to comply with these new reporting requirements, it is recommended that business owners start as soon as possible. Forms 1094 and 1095 must be filed with IRS no later than February 28 of each year (March 31 if filed electronically). Due date for 2015 forms are Feb. 29, 2016 (or March 31, 2016, if filing electronically). Employers issuing at least 250 Form W-2s must file electronically. There is an automatic 30 day extension of time to file the B or C series of forms, available by completing Form 8809. Employers must furnish Form 1095 to individuals listed in relevant Forms 1094 and 1095 by Jan. 31 of each year (or, by next business day if Jan. 31 falls on Saturday or Sunday). Electronic distribution is permitted as long as the IRS rules are followed, including obtaining the individual’s consent to receive Form 1095 electronically.

2.    Upgrade assets

If your business has been contemplating purchasing a new piece of equipment or machine, there is an incentive to do so before January.

Businesses looking to realize additional depreciation deductions or deduct the entire asset using the expensing election can do so by upgrading their assets in December. However, the asset must not only have been purchased this year, but it also needs to be placed into service before Jan. 1 in order to capture depreciation or write-offs for 2015.

3.    Pay executive bonus accruals

As discussed in a recent blog post, businesses that want to pay year-end bonuses before March 15 but deduct the accrued bonuses in the previous year need to take additional steps to protect the deduction of bonus payments made between Jan. 1 and March 15.

Businesses that want to deduct bonuses earned in 2015 that are paid out in early 2016, should take heed of these four tips to maximize accrued bonuses deductions to capture the maximum deduction and avoid any issues.

4.    Act immediately if extenders package is passed

Last year, Congress waited until December 16 to pass a tax extenders package, and we believe the 2015 extenders package will also be passed at the eleventh hour.

Because an extenders package, if passed, will likely have some benefits for small businesses, it’s imperative that business owners be prepared to act once news of a deal is announced. Otherwise, they could lose out on some important tax reduction opportunities.

Some of the tax provisions that expired in 2014 that could be making a short-lived comeback in December include: research and experimentation (R&D) credit; $500,000 equipment expensing election; the work opportunity tax credit; bonus depreciation and special rules for qualified small business stock.

5. Prepare for 2018

Though we’re about to enter 2016, there are several impending changes that will go into effect in 2018 that require a business owner’s attention now.

First, the new partnership audit rules, part of the Bipartisan Budget Act of 2015, replace TEFRA and Electing Large Partnership rules. The new rules are intended to streamline partnership audits. Partnerships with 100 or fewer qualifying partners would be permitted to opt out of the new rules, electing instead to be subject to audits on the level of each individual partner.

Businesses that have 101 or more qualifying partners should prepare now by reviewing their partnership or operating agreements to make sure that the individuals with decision making authority are going to act in the best interest of the former and current partners. Refer to our special alert on the partnership audit rule changes here for more information.

The second change that will come about in 2018 concerns the Cadillac Tax, which is associated with the ACA. It is a nondeductible 40 percent excise tax levied on health plans whose cost exceeds certain limits. It generally includes all health coverage but not excepted benefits. 

Regarding the Cadillac Tax, there are a lot of things that could change between now and 2018. Your preparation, at this point, should simply consist of educating yourself about the changes that could come about. Check out this article I wrote with fellow CBIZ blogger Zack Pace that answers some common questions about Cadillac Tax-related concerns.

In between wrapping gifts, enjoying holiday treats and hanging lights outside, be sure to follow the tips above before the end of the year to ensure your business starts 2016 off on the right foot!

What does it mean to offset gains with losses for my taxes?

Once again we find ourselves at year-end with yet another opportunity to make some last-minute tax planning moves in an effort to lower the bite next April.

One such tactic is to take a look at opportunities to offset possible capital losses against capital gains already realized in your investment portfolio.

This is sometimes referred to as “tax loss harvesting.”

 IRS regulations allow taxpayers to offset capital losses dollar-for-dollar against capital gains.

“Many say that the tax tail should not wag the investment dog, however, if you are already thinking about selling securities with loss positions, doing so when you have already realized capital gains for the year is going to save you some tax dollars at the same time,”. “In addition, capital losses can be used to offset up to $3,000 of ordinary income ($1,500 for marrieds filing separately) once fully exhausted against realized capital gains.”

Be careful not to fall under the wash sale rules, though, .

Wash sales are triggered when a security is sold at a loss, and within 30 days before or after the sale, a substantially identical security is purchased.

In such cases the loss will be disallowed.

Year-end tax planning: Have you made your list and checked it twice?

With the holiday season here, it's easy to put tax planning at the bottom of your "to do" list.

Who wants to plan for taxes when you can enjoy family, friends and food? But if you ignore it, there's not much you can do to improve your 2015 tax situation after Dec. 31. Here is a short checklist of what to look at before the year ends:

1. Take your 2015 Required Minimum Distribution. If you're older than 70½ with just about any qualified retirement plan except a Roth IRA, IRS rules require you to take out a minimum distribution in 2015 that's income-taxable to you. Failure to withdraw the required amount may result in a 50 percent penalty on the amount not withdrawn by Dec. 31. If you've inherited an IRA from someone besides your spouse, you must take required minimum distributions (even from a Roth IRA) no matter what age you are. Generally speaking, these distributions must begin by Dec. 31 of the year after the year of death of the original owner.

2. Contribute the maximum to qualified plans. If you haven't yet contributed the annual maximum ($18,000 if younger than 50 and $24,000 if over) to your employer's 401(k) or 403(b) plan and can afford to, increase your contribu

tion before Dec. 31. If you can't afford to catch up to the maximum, at least contribute up to any employer match.

3. Set up a new qualified retirement plan. If you're self-employed and want to establish a qualified retirement plan, it must be done by Dec. 31. The exception is a SEP IRA: This deadline is the due date for your tax return, including extensions. The deadline for 2015 traditional IRA contributions is still April 15, 2016, but if you're contributing to another qualified plan, consult your tax adviser to determine if a traditional IRA contribution is even deductible.

4. Consider tax-loss harvesting. Investors who sell assets for less than cost generally recognize capital losses that can be used to offset capital gains. If capital losses exceed gains, up to $3,000 of capital losses are deductible against ordinary income. Consider selling "under water" investments for tax reasons, especially if you have capital gains to offset.

5. Remember your favorite charities. If you are charitably minded and you itemize deductions, complete your donations before Dec. 31. You may contribute and deduct up to 50 percent of your adjusted gross income, but sometimes 20 percent and 30 percent of AGI limits apply. Remember: Donations by check are considered delivered on the day mailed.

6. Donate highly appreciated assets to charity. The best candidates for donation are assets owned more than a year and appreciated substantially above their cost. Why? You may deduct the full fair market value of the asset(s) donated (subject to the limits noted) even though you paid much less. Can't decide which charity to benefit? No problem! Consider establishing a donor-advised fund. It's like a charitable savings account: The donor gets the tax deduction when they contribute. Donors can then make grants out of the fund when they decide who to benefit later on.

7. Defer income and accelerate deductions. If you are a cash-basis taxpayer, any income you can delay receiving until 2016 delays taxes on that income for another year. If you need new equipment next year, buy it in 2015. You can deduct 100 percent of the cost up to $200,000 (via the Section 179 depreciation deduction) this year.

8. Look at conversion to a Roth IRA. Anyone can convert a traditional IRA to a Roth IRA these days. You must, however, pay the income tax on the amount converted. Why convert? Withdrawals from your own Roth IRA (after age 59 1/2) aren't income taxable or subject to RMD rules. If you've had a drop in income this year, consider converting some/all of your traditional IRA to a Roth IRA when your taxes might be lower now than later. Conversion might also make sense if you've made non-deductible traditional IRA contributions. Talk to your tax adviser before taking this step. The deadline for Roth conversions is Dec. 31.

There are many strategies available to help you save taxes in 2015. Talk to your tax adviser now to determine what fits best for you. That way, you may ring in the New Year with more money in your pocket!

Withdrawals from the ROTH account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for five years, whichever is later, may result in a 10 percent IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific issues with a qualified tax adviser.

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