Real Estate Cost Segregation is More Valuable in 2016

It may have been one of the most hotly contested, controversial campaigns in living memory, but there can be no denying the result of the US 2016 election is generally friendly for business. President Donald Trump and the Republican Party both agree that tax reform is a top priority to help stimulate the economy. An effort of this magnitude is no simple task and requires significant consideration of which areas of the tax code should be modified. While it's still not clear exactly which tax laws will be repealed or replaced, the most probable change will be a lowering of business and individual tax rates.

Deductions are more valuable when tax rates are higher, so carefully planning the timing of deductions can create significant permanent tax savings. Accelerating deductions into the 2016 tax year lowers current tax liabilities while effectively shifting income into future years when tax rates drop. Taxpayers should consider all opportunities to accelerate deductions into the 2016 tax year.

Cost segregation is one of the most common tax planning tools for taxpayers that own real estate. IRS rules allow taxpayers to apply a cost segregation study any time after the building is placed in service, providing a unique opportunity to plan which tax year depreciation deductions are realized. Taxpayers who have opted to not perform a cost segregation study in the past because it only represented a timing difference in cash flow, should reconsider for 2016, so they do not miss permanent tax savings realized when rates fall.

Case Study: ABC, LLC owns a building that was purchased in 2014 for $1 million. This year, ABC has a cost segregation study performed on their building and applies it to their 2016 tax return. The cost segregation study accelerates $100,000 of future depreciation deductions into the 2016 tax year where Federal income tax rates are 39%, creating an immediate tax savings of $39,000. Assuming tax rates drop in 2017 to 30%, ABC now realizes a $9,000 permanent tax savings ($39,000 - $30,000) on top of the traditional benefits of accelerated cash flow generated by a cost segregation study.

How much will it cost to do your own taxes? A look at five major tax prep services

FROM  Washington Post

It’s that time of year again. Your W-2, 1099s and other forms probably have landed in your mailbox. Now all you have to do is figure out the best way to file.

There are many tax-software companies out there trying to win your business and take the intimidation out of the filing process. We compiled the fees for five major online tax-preparation services. Here’s a look at what you might pay to file your taxes online, based on the complexity of your tax return. Prices are as of Feb. 2.

Basic federal return (1040)

Cost: Free, most of the time.

If you have a straightforward return in which you only have to file a 1040 and are claiming the standard deduction, you may be able to file your federal taxes free. The Internal Revenue Service’s Free File program is for taxpayers earning $64,000 or less. Financially savvy taxpayers who want to work the math out themselves without software can do so and enter the results into the free fileable forms the IRS offers online.

Many of the major tax-software providers also offer free options for people with simple tax needs. But those taxpayers who want an extra service, such as the ability to store returns online for several years or to import data from a previous tax year, may need to pay a fee. (Some companies will import tax data from a competitor free.)

TurboTax: Lets customers import W-2 forms free. Customers who want to import last year’s tax return from TurboTax need to pay $34.99 for the deluxe version.

H&R Block: Taxpayers can file free federal returns including the 1040EZ, 1040A and 1040 with a Schedule A, meaning they are itemizing their deductions.

Jackson Hewitt: Customers can file free federal returns if they have simple tax needs and a free state return for most states. People who want to file the earned income tax credit or the student loan interest deduction have to pay $19.95 for the basic edition. Jackson Hewitt lets customers import W-2 forms and from last year’s tax returns free.

TaxAct: Taxpayers can import W-2 forms free, but returning customers looking to import TaxAct returns from last year will need to pay $10.

TaxSlayer: Taxpayers can file a 1040EZ and one free state tax return free. Those who want to update W-2 data or last year’s tax data may need to pay $17 for the classic edition.

State return

Cost: Zero to $37 per state on top of cost for basic software.

Taxpayers who are able to file their federal tax returns free also may qualify for a free state tax return. These fees generally are charged per state on top of whatever package the company requires for the rest of the tax return, although some companies include the service for their more expensive packages.

TurboTax: Offers free state returns for people who qualify for free federal returns, but all other customers will pay $36.99 per state.

H&R Block: Customers who qualify for free federal returns can receive one free state return. All other customers are charged $36.99 per state return.

Jackson Hewitt: No charge for people using the free edition. All other users pay $36.95 for each state return.

TaxAct: No cost for people using the free version. Charges $33 for customers using the plus and premium software.

TaxSlayer: For people using the free-file service, the first state return is free and additional state returns cost $22. People using the classic edition may be charged $22 per state return, although final fees are set at the time of filing.

Schedule A for itemized deductions

Cost: Zero to $35.

Taxpayers who want to take common deductions for medical expenses, charitable contributions and mortgage interest will need to itemize those deductions on the Schedule A tax form instead of taking the standard deduction. But most of the companies require those taxpayers to upgrade and pay a little more for more-comprehensive software offered in the “deluxe edition.”

TurboTax: Included in deluxe edition, $34.99

H&R Block: Some taxpayers with simple federal returns can itemize free. Service also included starting with the deluxe version, $34.99.

Jackson Hewitt: Included in deluxe edition, $34.95

TaxAct: Included in the plus edition, $27

TaxSlayer: Included in the classic edition, $17

Schedule C for business and self-employment deductions.

Cost: $35 to $90

Online costs generally will be highest for taxpayers claiming business-related deductions.

TurboTax: Included in home and business package for online software, $89.99.

H&R Block: Sole proprietors and others filing the Schedule C-EZ can use the deluxe service, costing $34.99. Others filing the Schedule C can use the premium package, $54.99.

Jackson Hewitt: Sole proprietors and others filing the Schedule C-EZ can use the basic service starting at $19.95. Other self-employed people and business owners may need to buy the premium package for $54.95.

TaxAct: Included in the premium package, $37.

TaxSlayer: Included in the classic edition, $17

Schedule D for capital gains and losses

Cost: $27 to $55.

Taxpayers who sold real estate, stocks, mutual funds or other investments may need to file this form.

TurboTax: Included in premier package for online software, $54.99.

H&R Block: Included in deluxe edition, $54.99.

Jackson Hewitt: Included in deluxe edition, $34.95.

TaxAct: Included starting with plus software, $27.

TaxSlayer: Included in the classic edition, $17.

TurboTax is not happy Americans are dragging their feet filing taxes

FROM http://www.usatoday.com

Americans are apparently dragging their feet on tax filing this year.

A sluggish start to tax season undermined TurboTax owner Intuit's earnings. The online filing software company warned Wednesday morning that "tax season is forming more slowly than usual," which will translate into a worse-than-expected performance for the fiscal second quarter ended Jan. 31.

Whether it's unseasonably warm weather that's encouraging people to get out of the house or a national hangover from a dreadfully polarizing election, the reasoning isn't clear.

But the impact on Intuit is concrete: The company lowered its outlook for quarterly revenue, operating income and earnings. In the long run, the company expects full-year earnings to achieve its targets.

"Data points to the tax category forming slowly for all prep methods," said Dan Wernikoff, executive vice president and general manager of Intuit’s TurboTax business, in a statement. "We believe we have a strong and winning hand that combines innovation across the end-to-end experience, an effective go-to-market campaign and great value for taxpayers. One thing we know about the tax business is that everyone needs to file by April 18. We are looking forward to a strong finish to the season."

Revenue is now expected to range from $1.01 billion to $1.02 billion, down from a previous projection of $1.05 billion to $1.07 billion. Operating income is projected at $15 million to $20 million, down from a previous prediction of $60 million to $70 million.

And the company is now expected to barely eek out a profit for the quarter, with earnings of 4 to 5 cents per share, down from an earlier expectation of 12 to 15 cents.


The good news for Intuit is it still expects to meet its goals for the full year, suggesting that customer spending is simply shifting to the next fiscal quarter.

The company declined to comment beyond Wednesday's statement.

Intuit shares fell several percentage points in early trading but pared those losses and was down only 0.7% at 12:46 p.m.

The revision stems from the IRS reporting that total returns processed through Jan. 27 tumbled 33%, compared to a year earlier.

Intuit said it had processed 29% fewer consumer returns during that period.

TurboTax controlled 65% of the do-it-yourself market for tax software, according to UBS analysts, after three years of market share gains.

Several competitors have popped up in recent years, potentially presenting a threat. But the company has gained momentum with a free option that "converts" into paid subscriptions over time, UBS analyst Brent Thill said in a recent analyst report.

One wild card for the company is the possibility of a dramatically simplified tax code, which President Trump and Republicans have identified as a key priority.

But Intuit CEO Brad Smith has identified a simplified tax code as an advantage to TurboTax because it would theoretically encourage more people to relinquish professional tax preparers in favor of do-it-yourself software.

Read This Before You Do Your Taxes

FROM http://www.foxbusiness.com

Many Americans look to get an early start on their taxes in order to get their refunds as quickly as possible. But if you try to get your tax returns prepared and filed without knowing some key information, you can end up wasting time and going through the burdensome task of amending your taxes later on. Here are a few questions to ask yourself before you do your taxes.




1. Do you have all the forms you'll need?
By now, you should have gotten your W-2 forms from your employer, and most 1099s should be available by late January to mid-February. Yet some forms come later than that, and in some situations, the companies responsible for sending you your tax forms aren't as on the ball as you are. If that's the case, jumping the gun can result in your making difficult corrections, or even starting all over if you get an unanticipated tax form in the mail during or after you've prepared your return.

You can avoid trouble by looking at all the tax forms you got last year and seeing if you're missing any relating to this year's tax season. In some cases, you won't get the same form because the tax issue involved a one-time event. Also, if you've changed jobs or financial providers, you might get multiple forms, or alternatively, not receive a form you got last year. If you can't account for a form you expected to get, then be careful in starting your preparation, and definitely think twice before you file.

2. Are you aware of any major tax law changes?
It's critical to know about any big changes in the tax laws that have taken effect over the past year. Otherwise, you won't understand when your taxes don't work out the same way they have in the past, or you'll miss out on key tax breaks that could have reduced your tax bill.

For 2016, the biggest potential tax law change affects those who claim the Earned Income Tax Credit or the Additional Child Tax Credit. Beginning this year, the IRS isn't allowed to send out a refund to taxpayers who claim either of these two credits until Feb. 15. That shouldn't stop you from filing your return whenever it's ready, but it does mean that you might not get your refund as quickly as those who don't claim those credits. Given how important the credits are for taxpayers who claim them, it's not worth it for most people to give them up just to avoid any possible refund delay.

3. Will you need help with your taxes?
Many people choose not to try to prepare their taxes on their own, and there's a variety of help available. You can always pay a professional accountant or tax preparer, but there are also some free resources, such as the Volunteer Income Tax Assistance program Opens a New Window.  offered through the IRS.

If you want help, the key is not to wait to get things lined up. You should make sure you have all the necessary documents you'll need to get the help you're seeking, but keep in mind that the VITA program is very popular and typically has fixed dates on which volunteers are willing to help. Similarly, tax professionals often have their schedules fill up, especially as the tax filing deadline approaches. Get an appointment lined up and know how you'll get your taxes done, and that will put you on schedule for a successful tax season.

4. Do you want to file electronically?
Closely related to the question of getting help on your taxes is whether you expect to file your returns electronically. The benefits of e-filing include faster processing, more accurate information on your return, and quicker refunds. Some preparers, including volunteers with the VITA program, offer electronic filing as part of their tax preparation packages. However, others charge additional fees for e-filing, so it pays to know upfront what your provider's terms are.

Even if you prepare your taxes yourself, there are sources to help you file electronically. IRS Free File Opens a New Window. is a service that lets many taxpayers use convenient e-filing. Most tax preparation software offers electronic filing options, as well.

It's smart to get an early start on your taxes. But before you file, make sure you've done everything correctly so you won't get an unpleasant late surprise from the IRS. By asking these four questions, you'll be in better shape to get through your tax preparation as painlessly as possible.

What Are the 2017 Tax Brackets?

FROM FOOL.COM

Every year, the IRS lets you know well in advance what the tax brackets will be when you file your taxes. However, 2017 is an unusual case, because some believe that tax reform could change the tax structure between now and the end of the year.

Nevertheless, the 2017 tax brackets are available as defined under current law, and especially because many think that any changes to taxes will apply only in 2018 or later, using these brackets as a starting point is a good move. So, without further ado, here are the 2017 tax brackets for planning purposes.

2017 tax brackets for singles

Any unmarried person can file as single, and it's the only permissible option if you don't qualify for the more beneficial filing statuses as a head of household or a qualifying widow or widower. The brackets are as follows:

Bracket	Tax is this amount plus this percentage	Of the amount over
$0 to $9,325	$0 plus 10%	$0
$9,325 to $37,950	$932.50 plus 15%	$9,325
$37,950 to $91,900	$5,226.25 plus 25%	$37,950
$91,900 to $191,650	$18,713.75 plus 28%	$91,900
$191,650 to $416,700	$46,643.75 plus 33%	$191,650
$416,700 to $418,400	$120,910.25 plus 35%	$416,700
above $418,400	$121,505.25 plus 39.6%	$418,400

DATA SOURCE: IRS.

2017 tax brackets for heads of household

If you're single but support a child, parent, or other relative who meets certain qualifications, then you're allowed to file as a head of household. Qualifying persons have to live with you more than half the year, and it's often necessary that you be able to claim them as dependents. As you can see below, the brackets are higher and wider than for single filers, resulting in tax savings.

Bracket	Tax is this amount plus this percentage	Of the amount over
$0 to $13,350	$0 plus 10%	$0
$13,350 to $50,800	$1,335 plus 15%	$13,350
$50,800 to $131,200	$6,952.50 plus 25%	$50,800
$131,200 to $212,500	$27,052.50 plus 28%	$131,200
$212,500 to $416,700	$49,816.50 plus 33%	$212,500
$416,700 to $444,550	$117,202.50 plus 35%	$416,700
above $444,550	$126,950 plus 39.6%	$444,550

DATA SOURCE: IRS.

2017 tax brackets for married joint filers

The vast majority of those who are married file jointly. The brackets below apply to them, as well as to qualifying widows and widowers.

Bracket	Tax is this amount plus this percentage	Of the amount over
$0 to $18,650	$0 plus 10%	$0
$18,650 to $75,900	$1,865 plus 15%	$18,650
$75,900 to $153,100	$10,452.50 plus 25%	$75,900
$153,100 to $233,350	$29,752.50 plus 28%	$153,100
$233,350 to $416,700	$52,222.50 plus 33%	$233,350
$416,700 to $470,700	$112,728 plus 35%	$416,700
above $470,700	$131,628 plus 39.6%	$470,700

DATA SOURCE: IRS.

2017 tax brackets for married separate filers

Married couples can choose to file separately, but it typically results in more tax. However, for some, there are special factors that make filing separately a smarter move. The brackets are below.

Bracket	Tax is this amount plus this percentage	Of the amount over
$0 to $9,325	$0 plus 10%	$0
$9,325 to $37,950	$932.50 plus 15%	$9,325
$37,950 to $76,550	$5,226.25 plus 25%	$37,950
$76,550 to $116,675	$14,876.25 plus 28%	$76,550
$116,675 to $208,350	$26,111.25 plus 33%	$116,675
$208,350 to $235,350	$56,364 plus 35%	$208,350
above $235,350	$65,814 plus 39.6%	$235,350

DATA SOURCE: IRS.

2 things to keep in mind about tax brackets

These are a couple of areas in which people get confused with tax brackets. First, the tax bracket that you're in doesn't necessarily apply to all of your income. For instance, if you're single with taxable income of $40,000, you're in the 25% bracket. But you only paid tax at a 25% rate on the last $2,050 you earned. The rest got taxed at lower rates of 10% or 15%.

Also, keep in mind that the starting point for these brackets is taxable income, and that's typically much different from your gross income from all sources. In particular, taxable income takes your personal exemptions into account, as well as either the standard deduction or your itemized deductions.

Still, knowing your tax bracket can give you valuable information for your tax planning. Because your tax bracket also applies to any additional income you would earn -- until you move into the next higher bracket, of course -- then you can judge how much you could boost your take-home pay by working harder and earning more money. Moreover, if tax reform does come sooner rather than later, then you'll have a better idea of whether new laws will leave you better off, worse off, or in roughly the same position as before.

How to Minimize Pricey Medicare Surcharges on your taxes

FROM THINKADVISOR.COM

Adjusted gross income (AGI) plays a powerful role in any client’s tax planning—deductions and credits phase out as income rises. Moderate- to high-income clients face the cost of Medicare surcharges that adds to the client’s Medicare bill. Moderate income clients can lose out on valuable tax benefits without planning to reduce AGI if possible.

AGI Reduction Strategies

Medicare income-based surcharges are determined based on a sliding scale that uses the recipient's modified AGI to determine liability for Medicare premium costs. Five tiers of income levels currently exist, and the amount of an individual's income-based surcharge is determined based upon the tier in which his or her income falls—beginning in 2018, a change in the rules will mean that more moderate income clients will find themselves in the tier that imposes the largest surcharge.

At the most basic level, clients should take advantage of tax-preferred retirement accounts in order to reduce AGI and avoid these surcharges—contributing to a 401(k) plan can reduce AGI by at least $18,000 in 2017 (clients age 50 and older can contribute an additional $6,000 in pre-tax funds to these accounts). 

Clients should also plan to maximize contributions to health savings accounts (HSAs), which can serve to reduce AGI by up to $6,750 per year for a client with family coverage in 2017.  The funds are withdrawn tax-free to cover medical expenses, but upon reaching age sixty-five, the client can withdraw the funds for any purpose without penalty (funds withdrawn for non-medical purposes will increase taxable income in a future year, however). 

Clients who have reached age 70 ½ can reduce AGI by up to $100,000 per year by using their IRA required minimum distribution (RMD) to contribute to charity. The donation must be transferred directly from the IRA to charity in order to qualify.

An Alternative Approach

For some clients, it may actually be better to increase AGI at some point before retirement in order to reduce taxable income (and take advantage of the benefits a lower income can provide) later in life.  This would subject the client to a larger tax bill in a short period of time in order to plan for tax-free income (and a reduced AGI) at a later time.

Frequently, this can be accomplished by converting retirement funds to a Roth account.  Other clients may choose to sell off assets in a single year, pay taxes on the gain and contribute the profits to a Roth that can be accessed tax-free in the future.  Because the new administration is proposing to reduce ordinary income tax rates for high-income clients, the next few years may be an ideal time to take advantage of this strategy. 

However, while compressing income into a short time span can be a valuable strategy, it is important to remember that Medicare uses a two-year look-back period to determine any income-based surcharges, so that a client’s 2015 AGI will be used in determining the client's liability for income-based surcharges today—meaning that as a client approaches Medicare eligibility, he or she will want to ensure that AGI is at its lowest at least two years ahead of time.

Conclusion

Planning to reduce AGI may seem basic, but it can provide substantial tax savings for clients whose high income could generate substantial costs—both in terms of Medicare premiums and phased out tax benefits.

Beware of These 7 Common Income Tax Blunders

FROM http://www.accountingweb.com/

Come April, the annual rite of passage known as filing your income taxes will be upon us, but this year there is some good news for taxpayers.

Because April 15 falls on a weekend and the following Monday is a federal holiday, taxes are due by midnight on Tuesday, April 18.

Preparing taxes is always challenging, whether taxpayers do it on their own or get information ready for their CPA or tax professional. And while using tax-preparation software can make the process less complicated, even one small error or omission can trigger problems and delays in getting a refund.

To ensure a smooth tax-filing process, the Illinois CPA Society provides seven common mistakes to avoid this tax season.

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1. Math errors. Still the most common mistake made on tax returns. Even if all your calculations are correct, an error in your initial figures can throw everything off.

2. Misspelled or changed names. Sometimes the easiest portions of a tax return can create the biggest hang-ups with a misspelled name or a changed name that’s not correctly listed.

3. Wrong Social Security numbers. An incorrect Social Security number or forgetting to list numbers for you or your dependents can create unexpected problems. Social Security numbers serve as individual tax identification numbers.

4. Incorrect direct deposit information. Having your refund direct deposited into your bank account is convenient, but make sure your account numbers are correct on your return, especially if you’re listing multiple accounts.

5. Changes to your filing status. If you were married, divorced, or your household situation changed, this may need to be reflected in your official filing status. A tax professional can help you determine the correct and most beneficial status for your situation.

The IRS provides five filing status options for all taxpayers:

Single
Married, filing jointly
Married, filing separately
Head of household
Qualifying widow(er) with dependent child

6. Not keeping tabs of charitable contributions. If you donated cash or gifts to qualified charities and not-for-profit organizations in the past year, you may be able to deduct the value of your contribution when itemizing your return. Make sure to list the total amount for all charitable contributions and check the math to see if the overall value is correct.

7. Don’t forget to sign and date your return. After all the time and effort that went into preparing your return, make sure to sign and date on the bottom line.

And don’t forget, all returns are due by midnight on April 18. Filing Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return, can get you a six-month paperwork extension, but any taxes owed are still due on April 18.