Resources

resources
Hochschild, Bloom and Company professionals have drawn from decades of experience helping all manner of clients from business start-ups to Fortune 500 companies. In the process of gaining this wealth of knowledge, our team has created several resources that we have made available for general use. Below are valuable articles written by our team. Also feel free to explore our additional resources such as our e-organizer, guidebooks and presentations.

Client Tip for June 2017: DIFFERENCE BETWEEN TIPS AND SERVICE CHARGES

DIFFERENCE BETWEEN TIPS AND SERVICE CHARGES

The IRS is reminding employers about the difference in reporting of tips and service charges. Tips are amounts that a customer voluntarily pays to an employee. The payment must be discretionary and can be paid in the form of cash, credit, or debit card. A service charge is a fee that is added to a customer’s bill that the customer is required to pay. Service charges can be for items such as delivery charges, a required charge (e.g., 18%) for tables of six or more, room service, etc. Service charges are typically mandatory. Tips must be reported by the employee to the employer who then must withhold taxes (e.g., FICA and Medicare) for this income from their standard pay. Service charges are reported by the employer as regular wages.

 

HBC SUMMER OFFICE HOURS

As we have for the last several years, our offices will be closing at 4:00 p.m. on Fridays from Memorial Day through Labor Day. We hope this can allow our employees to spend more time with their families after the long hours during our busy season. We wish our clients and friends a safe and enjoyable summer. 

 

 

“Plans are nothing; Planning is everything.”
Dwight D. Eisenhower – 34th President of the
United States from 1953 – 1961

 

 

 

“Your Partner In Success”

Client Tip for May 2017: ASSET OWNERSHIP

ASSET OWNERSHIP

Many people recommend setting up trusts to protect an individual’s assets and assist in the transfer of their assets upon their death, but are they really necessary in all cases? Trusts are a great tax planning tool for individuals wanting complex asset dispositions, individuals who own assets in their name only (i.e., a business), or those for whom this is a second or third marriage in which there are children from a prior marriage.  These are some of the main reasons an individual would want to setup a trust.

Another simple and easy way to transfer ownership upon someone’s death is to have all of their assets in joint name or transfer on death (TOD). Immediately upon their death the assets become the property of the other person.  Neither joint nor TOD ownership eliminates the need for other estate and financial planning such as the creation of a durable power of attorney in the event of the owner’s disability and planning for qualified retirement accounts.

You need to discuss this with your attorney and/or CPA to determine which type of ownership is best for your personal situation.

 

“As powerful as our memories are,
our dreams must be even stronger.
For when our memories outweigh
our dreams, we become old.”

William (Bill) J. Clinton – 42nd President
of the United States from 1993 – 2001

Client Tip for April 2017: INDIVIDUAL INCOME TAX REFUND STATUS

INDIVIDUAL INCOME TAX REFUND STATUS

The following are the websites to check on the status of your individual income tax refund:

Then click on “Where’s My Refund” or “Check My Income Tax Return or Refund” and answer the appropriate questions.

 
“It is amazing what you can accomplish
if you do not care who gets the credit.”
Harry S. Truman – 33rd President of the United States from 1945 – 1953

 

“Your Partner In Success”

Client Tip for March 2017: MEDICARE PART B COST

march medicare part b cost

MEDICARE PART B COST

Most individuals who are enrolled in Medicare Part B pay approximately $109 on average per month. You may have to pay more than that in a few situations.  There are five situations in which you will be billed a higher monthly charge, starting at $134 per month.

  1. You first enroll in Part B in 2017
  2. You do not get Social Security benefits
  3. You have both Medicare and Medicaid and Medicaid pays your premium
  4. You pay your Part B premiums directly
  5. Your modified adjust gross income from 2 years ago (2015 income for 2017 premiums) is above a certain level

The following chart shows the amount you will pay based upon your income level.

If your yearly income in 2015 (for what you pay in 2017) was:
march medicare part b cost
You may want to keep this in mind when your income spikes in a particular year. 

 

“Your Partner In Success”

 
“The most terrifying words in the English language are:
I’m from the government and I’m here to help.”

 

Ronald Reagan – 40th President of the United States from 1981 – 1989

 

Volume 1 – 2017

In Volume 1 of our 2017 Newsletter, we highlight:

  • FIRM NEWS
  • BUSINESS IDENTITY THEFT
  • RESEARCH CREDIT
  • QUALIFIED TUITION PROGRAMS
  • TRANSACTIONS WITH RELATED PARTIES
  • ACCOUNTING METHOD CHANGE FOR TAX PURPOSES
  • LONG-TERM CARE INSURANCE

FIRM NEWS

We are sorry to announce the death of our senior partner John L. Politte.  John joined the Firm in 1961 and became a partner in 1970.  He retired in 1995 but still came into the office on a regular basis.  He passed away on December 14, 2016 after a short illness.  He is survived by his wife, three children, ten grandchildren, and two great-grandchildren.

He spent 30 years in the Army Reserve having achieved the rank of lieutenant colonel. He enjoyed cars, flying and playing music with the Washington Brass Band.

John served on various civic organizations including the Washington Lions Club where he was a recipient of the Lions’ Melvin Jones award. He also belonged to the Washington 353 Redevelopment Corporation, the Civic Industrial Corporation, a former City councilman, the Mercy Hospital Foundation Board, and many other organizations. He will truly be missed.

 

Business Identity Theft

Identify theft is a crime that impacts the lives of millions of individual taxpayers every year and the numbers are rapidly increasing. Individuals are no longer the only ones being targeted by these criminals.  Now business owners have a new kind of threat to be concerned about that can cause a whirlwind of devastation to a victim’s business.

Business identity theft is the newest threat to small businesses all across America. A criminal will seize a company’s identity and use it to acquire credit in the company’s name or file fraudulent tax returns.  A substantial amount of time may be required to correct identity theft and the damage inflicted can cripple a business, prevent it from acquiring any credit, and even threaten its very operation while a victim is trying to clean up and recover from it.

If you receive any correspondence from the Internal Revenue Service (IRS) or a State Department of Revenue (DOR), including a change of address notice that is not correct or you did not initiate, it is best to respond quickly to alert the IRS or State DOR that the information is not correct. Call us if any questions about identity theft arises.

 

Research Credit

The Protecting Americans from Tax Hikes (PATH) Act of 2015 modifies and makes permanent the credit for increasing research activities (research credit). The PATH Act also adds the research credit to the list of credits that may offset alternative minimum tax, (AMT) as well as regular tax, effective for tax years beginning after December 31, 2015.

The credits, prior to 2016, were not always usable to owners of Partnerships and S Corporations. The credit was allowed to reduce the individual’s regular taxes but was not allowed to reduce AMT tax.  For companies with average revenue of less than $50 million the tax credit may now be used to offset the AMT tax.  Credits carried over from years prior to 2016 will still be limited by the AMT tax.

The research credit was provided to encourage taxpayers to increase their research expenditures and is the sum of the following three components:

  • 20% of the excess of qualified research expenses for the current tax year over a base period amount;
  • 20% for basic research payments to a university (or other qualified organization) in excess of a qualified organization base period amount (available only to C corporations); and
  • 20% of the amounts paid or incurred by a taxpayer in carrying on any trade or business to an energy research consortium for qualified energy research.

Taxpayers may elect an alternative method to calculate the research credit amount using an alternative simplified credit. Under the alternative simplified credit method, a taxpayer can claim an amount equal to 14% of the amount by which the qualified research expenses exceed 50% of the average qualified research expenses for the three preceding tax years.  If the taxpayer has no qualified research expenses for any of the preceding three years, then the credit is equal to 6% of the qualified research expenses for the current tax year.  If the taxpayer makes the election to use the alternative simplified credit method, the election is effective for succeeding tax years unless revoked with the consent of the IRS.

The research credit requires good record keeping but the reduction in your taxes should make it well worth the effort.

 

Qualified Tuition Programs

Qualified tuition programs, also known as Section 529 plans, are maintained by a state or an agency of the state and are used to pay for qualified higher education expenses. Qualified expenses include required tuition and fees, books, supplies, and equipment (computer or peripheral equipment, software, and internet access – if used primarily by the student).  Room and board is deductible if the student is at least half-time.

The deductions for room and board is the greater of:

  • The actual amount charged if the student was residing in housing owned and operated by the institution (on-campus room and board cost) or
  • The allowance, as determined by the eligible educational institution that was included in the cost of attendance for financial aid purposes.

It is your responsibility as the taxpayer to maintain the appropriate receipts for proof that the distributions from the plan were for qualified expenses. Any expenses that are used as qualified expenses for a 529 plan cannot also be used for another education benefit, such as the tuition credit. Please give us a call for more assistance with these expenses.

 

Transactions With Related Parties

The tax rules governing loss deductions from relative-to-relative transactions are strict. You cannot deduct losses from the sale of property to a relative.  If the buyer and the seller are considered related, the seller’s loss deduction is denied.  It is irrelevant that the sale was at arm’s-length, bona fide, and made in good faith.  The prohibition is absolute and it has been upheld by the U.S. Supreme Court.  If the property is later sold to an unrelated party, the gain from the second sale is reduced by the nondeductible loss from the original sale.

The IRS defines relative as spouse, parent, grandparent, child, grandchild, brother, or sister. The loss deduction also is not allowed if you sell property to a corporation, partnership and some trusts, in which you may have an interest.  Sales to other relatives, such as your son-in-law, daughter-in-law, aunt, uncle, cousins, and so on, are generally outside of this prohibition.

The rule applies to direct and indirect sales. You cannot circumvent the rule by using a “straw” buyer; that is, a third person who buys the property from you for a short time and then conveys it to the intended buyer, your relative.

Special rules apply in limited circumstances. Divorce situations in which still-related taxpayers may be at odds with each other allow for certain narrow exceptions to the rules.  Leaseback transactions, installment sales to related persons and corporate transactions, too, may pose other problems.  A sale/leaseback between related persons (a sale followed by a lease of the same property back to the seller), may be deemed a sham if the transaction lacks economic substance and is done for tax avoidance.  If the IRS makes this determination, you lose any tax benefits, such as rent deductions.

 

Accounting Method Change For Tax Purposes

Businesses can enhance their cash flow by optimizing their tax accounting methods. This is especially important in times of tight money and inadequate revenues.  More and more businesses are putting their taxes under a microscope and taking a hard look at whether they can improve their cash flow by changing the accounting methods that they have elected either on past returns or during the current year.  A taxpayer who is not on the optimal accounting method is effectively prepaying taxes, an undesirable and unnecessary result.

Every business must adopt a method of accounting to determine when it recognizes items of income and deduction. An accounting method determines when an item is taken into account for taxes, not whether the item is taken into account for book purposes.  The choice of an appropriate method is important because it determines the timing of overall income or loss.

The two most common overall accounting methods are the cash method, in which income and deductions are taken into account when payments are received or made, and the accrual method, in which income and deductions are taken into account when amounts are earned and expenses are incurred. Other accounting methods can apply to specific “material” items, such as the valuation of inventory or the treatment of an installment sale.

A change in accounting method can benefit many companies. Before changing an accounting method, the IRS requires that a taxpayer obtain the IRS’s consent.  For some changes, the taxpayer must apply to the IRS for advance consent.  For these changes, the taxpayer cannot switch methods until the IRS agrees.  For other methods, the IRS has streamlined the process and will approve changes automatically.  For these changes, the taxpayer can switch to another method simply by filing the proper information with the IRS, without having to wait for the IRS to grant its consent.  This list of methods highlights the variety of proper accounting methods and is a guideline to the types of permissible changes.  “Automatic consent” also significantly lowers the compliance costs needs to switch to a more advantageous method, enabling many more businesses to realize net savings by running through the new list and identifying yet unclaimed opportunities. There are some limitations for certain businesses and other issues related to these tax accounting changes.

 

Long-term Care Insurance

As the cost of nursing home care continues to go up, the need for long-term care insurance increases. It can be difficult to determine the coverage needed and the type of benefits that would be covered by a policy.  Time must be taken to properly research the terms and provisions of the policies you are considering including the following:

  1. Determine your coverage needs, what are the cost of facilities in your area?
  2. Some policies provide for annual inflation protection. Coverage at current cost may not be sufficient just a few years from now.
  3. Delaying the time after you enter the home and the time your coverage starts can make a large difference in your premiums. How much can you afford to pay before your coverage begins?
  4. Evaluate the types of coverage a policy will cover; in-home care, adult day-care, assisted living facility, etc.

This is only a few of the items you need to research before buying a policy. Long-term care insurance is similar to property and casualty insurance. Hopefully you will never need it, but if you do you are glad you have it.

Client Tip for February 2017: 2017 STANDARD MILEAGE RATES ISSUED BY THE IRS

2017 STANDARD MILEAGE RATES ISSUED BY THE IRS

The Internal Revenue Service has issued its 2017 optional standard mileage rates used to calculate the deduct-ible costs of operating an automobile for business, charitable, medical, or moving purposes. Beginning on January 1, 2017, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be as follows:

  • For business miles driven, rate is now 53.5 cents per mile (down from 54 cents in 2016).
  • For medical or moving purposes, rate is now 17 cents per mile driven (down from 19 cents in 2016).
  • For miles driven in service of charitable organizations, 14 cents per mile driven (same rate as 2016).

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.  Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

In order to be able to substantiate the business use of a vehicle, it is best to maintain a contemporaneous record (log or calendar) documenting the mileage and business purpose.

 

“The basis of our political system is the right of the people
to make and to alter their constitutions of government.”

George Washington – 1st President of the United States from 1789 – 1797

 

 

 

“Your Partner In Success”

 

Client Tip for January 2017: UNEMPLOYMENT TAXABLE WAGE BASE FOR 2017

2017 UNEMPLOYMENT TAXABLE WAGE BASE

The federal wage base for Federal Unemployment Tax purposes remains at $7,000 for 2017. However, many states are increasing their wage base.  The state unemployment taxable wage base ranges from $7,000 to $45,000. The following is the 2017 taxable wage base for several states:

2017 Taxable
                                   Wage Base                  Increase

Missouri                                                         $13,000                         None
Illinois                                                                 12,960                         None
Iowa                                                                    29,300                         $600
Kansas                                                               14,000                         None
Arkansas                                                           12,000                         None
Oklahoma                                                        17,700                          $200

For the complete list of all 50 states and the District of Columbia, click on the following link:
State Unemployment Insurance Taxable Wage Bases 2014-2017

 

“Your Partner In Success”

“Keep your eyes on the stars, and your feet on the ground.”
Theodore Roosevelt – 26th President of the United States from 1901 – 1909
(He became president after the assassination of
William McKinley on September 14, 1901.)

 

Volume 4 – 2016

Hochschild, Bloom & Company LLP – Announcements

Hochschild, Bloom & Company LLP has hired several new employees during 2016. We would like to introduce you to them. We know our clients will welcome them and be as impressed with them as we are.

Reece Ebert, CPA joined the Firm in October 2016 as Director of Tax. He graduated from Southern Illinois University with a Bachelor of Science degree in Accounting, and is a licensed CPA in the State of Missouri. Reece is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. Prior to joining the Firm, Reece had almost thirty years’ experience in public accounting and works with a variety of clients. His specialties include tax services for individuals, small to medium business, and nonprofit organizations. Reece is extremely active in his local community and has volunteered countless hours of his own time toward a variety of causes.

Melissa Watson joined the Firm in January 2016. She graduated from Fontbonne University with a Master of Science degree in Accounting in December 2015. Prior to joining the Firm, Melissa worked for 12 years in municipal accounting for the City of Hazelwood and the City of Brentwood. She plans to sit for the CPA examination within the next year. Melissa lives with her husband, Joe, in the City of St. Louis.

Tiffany Novak joined the Firm in August 2016 as a staff accountant. She graduated with a Bachelor of Science in Accounting and is currently pursuing a Master of Science in Forensic Accounting, both from Webster University. Prior to joining the Firm, she had 10 years of industry accounting experience. She lives in Arnold, Missouri with her husband and son.

Collin Maune joined the Firm in October 2016. He started as a staff accountant. He graduated from Central Methodist University with a Bachelor of Accounting and Finance. He is currently pursuing his CPA license. Collin lives in Washington, Missouri.

The Firm is very pleased to introduce these individuals to you. They all mainly work out of the Chesterfield office but do help with work in the Washington office also.

* * * * * * * *
Success means we go to sleep at night
knowing that our talents and abilities
were used in a way that served others.
Marianne Williamson

 

Year-End Tax Planning

With the election of Donald Trump as President of the United States, and the Republican majority in the House and Senate, it appears that income tax rates will probably be decreasing in the next year or two. With that in mind people need to be doing some year-end tax planning. The strategy of deferring income and accelerating deductions should probably be looked at a little more closely in 2016.

If you can defer an income item, such as a year-end bonus or other forms of income, taxpayers may want to look at delaying them until next year if possible. If you have a business, you need to consider purchasing addi-tional needed supplies or equipment in 2016 (if you were considering purchasing them after the first of the year). See also the article later in the newsletter concerning capital gains and losses.

Charitable contributions can help lessen your tax burden. Taxpayers may want to make additional contribution to various charities. You can also make advance payments on any charitable pledges that you previously agreed to make. Using long-term appreciated stock rather than cash to make your contributions is an excellent way to receive a deduction and not have to pay taxes on the sale of the stock. The deduction for the stock donation is equal to the fair market value of the stock.

Accelerating your fourth quarter State tax estimate might be another idea to lower your tax liability. State and local tax deductions are a little more complicated than other deductions. These deductions are a tax preference item for alternative minimum tax (AMT) purposes, which means that they are not deductible for AMT purposes. If you are an individual who is subject to the AMT tax it will not be to your advantage to pay your State tax estimate before the end of the year.

An analysis or review of your tax situation at year-end is always advisable. This analysis is also encouraged to address your overall financial status.  With the estate exemption for 2016 at $5.45 million per individual or $10.9 million for married couples (the 2017 exemption is $5.49 million per person), planning to minimize estate taxes may not be necessary for many people. If you do have a potential estate problem, you need to be sure to make gifts of $14,000 per year per person.

 

Family Gifting Discount

For estate planning purposes many individuals make gifts of ownership interests in a closely-held family business to other family members. This allows the donors to lower their overall estate. Significant valuation discounts are commonly utilized through the use of minority and lack of marketability discounts. These discounts are often as much as 30%.  Therefore, a gifted interest of 10% with a market value of $100,000 after the discounts may only be valued at approximately $70,000 for gifting purposes.

The IRS has proposed regulations barring valuation discounts for gifts within a family where the family still has control of the business after the gift. This proposed regulation would apply to closely-held operating businesses as well as family entities that hold only passive assets (e.g., real estate).

This proposed regulation change is in a 90 day public comment period through December 1, 2016. Many feel the regulations will become effective soon after the comment period. Others feel that Congress will override the IRS and continue to allow the discounts on certain types of gifts to family members. Only time will tell, but if you are considering making such a gift, you should discuss the situation with your estate attorney and CPA before the proposed regulations are finalized into law.

 

Hochschild, Bloom & Company LLP Gives Back

HBC recently had the opportunity to help out with a renovation project for Services by Design d/b/a Caring Solutions. Caring Solutions is a 501(c)(3) nonprofit organization with a 15-year history of designing and providing services and staff support for the unique needs of children and adults with developmental disabilities living in the greater St. Louis community. Valentine Place will be part of their Family Support program.

Our staff had a great time participating in this worthy cause and giving back to the community.

 

New Reporting Rules for Nonemployee Compensation

Businesses, nonprofit organizations, and governments may have paid nonemployee compensation that is required to be reported to the recipient and the IRS using Form 1099-MISC. For calendar year 2016, Forms  1099-MISC are due to the nonemployee payee and the IRS by January 31, 2017. Previously, businesses, nonprofit organizations, and governments had an extra month to send in Form 1099-MISC to the IRS. Failure to timely file Form 1099-MISC could subject you to substantial penalties from the IRS.

The following four conditions would have occurred for nonemployee compensation to be present;

  • Payment was made to someone who is not an employee.
  • Payment was made for services in the normal course of your business.
  • Payment was made to an individual, partnership, LLC, estate, or in some cases a corporation.
  • Total amount paid was at least $600 for the year.

With the new deadline for filing Form 1099-MISC, it is more important than ever to be organized and have the necessary information available by year-end. The best tool for achieving this is to require your vendors to complete an IRS Form W-9, “Request for Taxpayer Identification Number and Certification” and keep this on file. Form W-9, when completed properly, includes the vendor’s name, address, taxpayer ID number, and the federal tax classification. Sole proprietors, partnerships, or LLCs should receive a Form 1099-MISC. Corporations and LLCs that are taxed as a C or S corporation do not require a Form 1099-MISC. If you have any questions regarding when and to whom you are required to issue Form 1099-MISC, or need assistance preparing Form 1099-MISC, please feel free to contact our office.

 

Pet Adoption
By: Ashley Heifner

Protecting Animals. Educating Humans.

The Animal Protective Association of Missouri is a nonprofit organization dedicated to bringing people and pets together, advancing humane education, and creating programs beneficial to the human/animal bond.

Mrs. Ella Megginson gathered a group of her friends in the basement of her Webster Groves home to discuss matters of animal cruelty. From that meeting, the Animal Protective Association of Missouri (originally known as the Humane Society of Saint Louis County) was born.

With the original donation of $500 from Mrs. Harry F. Knight, the women bought the shelter’s first truck and hired a driver. The first office was located in Mrs. Megginson’s basement. The Association eventually moved out of Mrs. Megginson’s home in 1924 and had offices in numerous locations over the next 13 years. In 1937, a shelter was built at 1802 South Hanley – just across the street from the present shelter facility, which was built in 1947.

Originally formed to help prevent cruelty to working animals and stray animals in the “county,” better known now as St. Louis County, the APA now assists and advocates for companion animals in both St. Louis City, St. Louis County, and several surrounding counties.

Ashley Heifner, Staff Accountant at Hochschild, Bloom & Company LLP, is a volunteer at the APA of Missouri. Ashley adopted her lab mix, Nala, from the APA in March 2012. As a volunteer, Ashley spends a few weekend hours washing dishes, doing laundry, shredding newspaper, or helping in the puppy room.

The APA holds annual fundraising events and community outreach programs. Such events include Golf Tournaments, the Canine Carnival, Pet-A-Palooza, Pub Crawls, and Trivia Nights. Since 1983, PetReach has sent APA Adoption Center staff, volunteers, and their pets into senior care facilities, psychiatric units, convalescent centers, and children’s hospitals. PetReach was the first no-fee, pet-assisted activity program in the St. Louis area.

In addition to adoption services and fundraising events, the APA offers the Domestic Violence Pet Assistance Program. The APA Adoption Center has established St. Louis’ first pet assistance program for victims of domestic violence in 1997. Because concern for the safety of pets is often a barrier to leaving a violent home environment, the APA works with area domestic shelters and anti-violence agencies to provide temporary foster care for pets of domestic violence victims transitioning to safety. To learn more about the APA of Missouri, or to make a donation, please visit https://apamo.org/.

 

New Form I-9

The U.S. Citizenship and Immigration Services (USCIS) started requiring employers to use the Form I-9 to verify the identity and employment authorization of every person they hire. The form has been required to be used since November 16, 1986. A new Form I-9 was issued by the USCIS on November 14, 2016. Some of the new changes include:

  • Asking for “other last names used” verses “other names used”
  • The ability to enter multiple preparers and translators
  • Prompts to insure information is entered correctly
  • A supplemental page for the preparer/translator
  • A dedicated area for including additional information

The instructions are separate from the form and include specific instructions for each line. The new form is also easier to complete online.

Employers are allowed to use the Form I-9 dated March 8, 2013 until January 22, 2017, after which the new form is required to be used. Employers must retain the form for the later of either three years after the employee was hired or one year after the employee was terminated.

 

Individual’s Capital Gains and Losses

Year-end is a good time to engage in planning to save taxes by carefully structuring your capital gains and losses. Suppose you lost money on stocks you sold in 2016 and have other investment assets that have appreciated in value. Before the end of 2016, you should consider the  extent to which you should sell appreciated assets (if you think their value has peaked) and thereby offset gains with pre-existing losses.

Long-term capital losses offset long-term capital gains before they offset short-term capital gains. Similarly, short-term capital losses offset short-term capital gains before they offset long-term capital gains. Remember you may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing your adjusted gross income. Any net losses in excess of the $3,000 must be carried over to future years.

Paper losses or gains on stocks may be worth recognizing this year in some situations. But suppose the stock shows a loss now but is also an attractive investment worth holding for the long term. There is no way to precisely preserve a stock investment position while at the same time gaining the benefit of the tax loss, because the so-called “wash sale” rule precludes recognition of a loss where substantially identical securities are bought and sold within a 61 day period (30 days before or 30 days after the date of sale). Thus, you cannot sell stock to establish a tax loss and simply buy it back the next day.

Careful handling of your capital gains and losses can save you a substantial amount of taxes. 

 

At this time of year, we pause to realize
how important you are to us and we
value our relationship with you. It is a
pleasure and privilege to express our
best holiday wishes to our clients and
other good friends.

Partners and Staff of HB&Co., LLP

Client Tip for December 2016: Forms W-2 and 1099-MISC Filing Deadline

Forms W-2 and 1099-MISC Filing Deadline

In an effort to detect and prevent fraudulent personal income tax returns, the IRS has moved up the filing deadline for Forms W-2. All W-2s filed in 2017 for wages earned in 2016 must be filed with the Social Security Administration (SSA) by January 31.  No extension is available for this filing deadline.  The January 31 deadline has long been in place for providing copies of the W-2s to employees, but the filing with the SSA was the last day of February.  This new law just moves up the date for getting the forms to the SSA.

Only the last four digits of the employee’s Social Security number should go on the W-2 copy sent to the employee. The full Social Security number must still be on the copy that is sent to the SSA.

The new filing deadline also relates to Form 1099-MISC; filers reporting nonemployee compensation payments in Box 7 are required to file by the January 31 deadline. This would be for payments to independent contractors.

“Your Partner In Success”

 

“Change is the law of life. And those who look only to
the past or present are certain to miss the future.”
John F. Kennedy – 35th President of the United States from 1961 – 1963
(Elected in 1960, he is the only Roman Catholic to ever be
elected president; assassinated November 22, 1963.)