Author: Jennifer Konvalin

KT Insights
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Top 10 Tax Questions

10. I contributed money to my kids’ 529 education plans. What is the deduction for that?

A: Federally, none. The money grows tax free and comes out tax free as long as it’s used for qualified educational expenses. In certain states with a state income tax, there are possible deductions on the state return.

9. I am an employee for an organization and receive a W2. I also work from home and have some work expenses I pay for. Where do I deduct those?

A: Unfortunately, under the current tax law, there is no deduction for these items. The goal of congress was for employees to not have to pay for expenses that should be covered by the employer.

8. I have a home office as a self-employed person or business owner. How do I deduct that?

A: First, the home office must be considered your primary place of business. Secondly, your home office must be used exclusively as a home office and not be doing double or triple duty as a dining room table and home school area as well for example. There are many other items to consider and discuss around home offices with your tax advisor.

7. I donated my time to a charity. What is my deduction for that?

A: Unfortunately, there is no deduction for time. You can only deduct actual costs of dollars spent.

6. If I take a distribution from my business, how is that taxed?

A: In general terms, it is not taxed directly, unless it is a dividend from a C-Corp. If you have basis in your Company’s equity, there won’t be a tax consequence from the distribution. This is because you pay tax on the net income from the business in the year in which it’s earned. If you have retained cash in the Company’s bank accounts, you have already paid tax on that, so taking it out as a distribution doesn’t affect the tax situation.

5. I gifted money this year to my kids or a family member. What is my tax deduction for that?

A: There is no tax deduction for gifting money to family members. Nor is it income to the recipient. However, there is an informational filing requirement (Form 709) if such gift is over the annual exclusion amount of $18,000 for 2024.

4. I donated money to someone’s GoFundMe campaign. That counts towards my charitable donations, right?

A: No. This is not considered a charitable contribution by the IRS. A qualified charitable deduction must be a donation to a 501(c)(3) organization, a qualified not for profit organization, a charitable fund, or donor advised fund.

3. Do I really have to make estimated tax payments?

A: No, you don’t have to. I always say no one in dark sunglasses and a black suit will show up at your door if you don’t. However, you may be subject to penalties if you haven’t paid enough tax, and those penalties really sting with the IRS penalty rates at approximately 8%. To avoid penalty, the rules require you to pay tax throughout the year as you earn the income. Or you can use a “safe harbor” that requires you to pay between 100-110% of your prior year tax liability. You can pay the tax by withholding paychecks, retirement payments, etc. And if withholding is not enough, you will need to make quarterly estimated tax payments.

2. I don’t want to or can’t pay my full tax liability right now. Can we extend my return so I can pay it later?

A: An extension of your tax return only extends the time to file the return and not the time to pay any estimated tax liability. If you don’t pay what you think you may owe with your extension, you may be subject to much higher additional penalties and interest when you file.

1. I don’t want to extend my tax return because I fear it could cause me to be audited.

A: Statistically, there is no connection between extended returns and returns being audited. Returns filed both before the deadline and during the extension period are just as likely to be audited based on the contents of the return versus the timing of the return.

As for extending, there are direct benefits. First, it allows you more time to make sure you have accounted for all income and deductions possible. Second, it gives us more time to see how the current year is going. This might give us more reasons to accelerate or hold back on depreciation write-offs. Third, it allows us more time with you, our clients, to be sure we have addressed everything with you that can be considered for your tax return and planning needs.

These answers don’t cover everything. Be sure to consult with your KT tax advisor as everyone’s tax situation is unique.

January 22, 2024
| Jennifer Konvalin
KT Insights
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IRS Penalties & Interest

I often have clients ask things like, “What if I don’t pay my estimated tax payments,” “Can I make payments to the IRS on my bill,” or “I can’t pay my taxes now, can we extend?” My answer is usually you can do what you want regarding paying the IRS, just know that you may pay interest and/or penalties for not paying in enough or when you should. The next question is always, “How much are those?” The answer is there are several different types of penalties the IRS may charge.

Underpayment Penalty

If you have not paid in enough withholding throughout the year or in estimated payments on the scheduled due dates, you will be charged an underpayment penalty. The IRS deems withholding to be evenly through the year regardless of when it is withheld. If you are self-employed or have other sources of income in which you do not have withholding but would owe tax, then you should be paying estimated tax payments, depending on the safe harbor rules. The IRS says you are required to pay tax as the income is earned and not necessarily all at the end of the year.

That is how the estimated tax payment schedule was derived. Currently, as the rate changes each quarter potentially, the rate you will pay for an underpayment penalty is 7% annually so far for the year 2023. We do not know if this will change for the 4th quarter or not yet, so stay tuned.

Failure to Pay Penalty

If you get to the point of filing your tax return, but you do not have the ability currently to pay what may be due with the return, the IRS will charge a failure to pay penalty. That penalty is calculated at 0.5% for each month or part of a month you are late, up to a maximum of 25%. This is calculated on the amount of tax that remains unpaid from the due date of the return (and payment) until the tax is paid in full.

Interest

The IRS will also charge interest on any unpaid tax from the due date of the return and the amount of payment due until the tax is paid in full. The interest rate charged is determined quarterly and varies based on the federal short-term rate plus 3%. Interest will compound daily until all tax due is paid. As of the writing of this article, the announced interest rates charged for 2023 are 7% annually for underpayment of taxes for individuals.

Failure to File Penalty

Finally, the failure to file penalty. This is charged if you have tax due, and you have not filed your return on time. Extending your return only extends your time to file, not your time to pay. While you may have to pay an underpayment penalty and interest, you do not have to pay the failure to file penalty if your return has been properly extended by the filing due dates. KT (Ketel Thorstenson,) tries to make sure our clients never pay this because a failure to file penalty is expensive. It is 5% of the tax owed for each month or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there is also a minimum penalty incurred which is the lessor of $450 for returns filed in 2023 or 100% of the tax owed.

As you can see, there are several reasons to be sure you have paid and filed your taxes on time, including extensions. With interest rates on the rise this has become a much bigger topic than when rates were low. Now, these charges are accruing much more quickly.

Remember, every situation is different, so be sure to contact your KT tax advisor if you have any questions.

June 20, 2023
| Jennifer Konvalin
KT Insights
 |

Paying Taxes – The Electronic Way

When it is time to make a tax payment, who would you trust more to get the payment to your account: the United States Postal Services (USPS) or the Internal Revenue Service (IRS)? If you’re like me, my response would be is there a third option?

In the past two years, we have seen various issues with the USPS not delivering items properly or on time. The IRS has not been any better, as they are more behind than ever with truckloads of mail that remain unopened since the pandemic began. Due to all these issues, we are fielding more questions, unnecessary IRS notices, and frustrations all around. The good news is that there are three electronic options to make tax payments that are secure and easy to complete.

The first option, which I personally use and recommend to clients, is the Direct Pay option with the IRS. Go to www.IRS.gov, find the “Make a Payment” button, and select “Pay Now with Direct Pay” on the next screen. This no-fee option will easily guide you through identifying your information and entering your bank information to have the IRS directly debit your account for payment. You can schedule the date you want the payment to be made, and pre-schedule payments for up to one year ahead of time. You also have until 11:45 pm ET to schedule a same day payment. You can change or cancel any of these payments up to two business days prior to the scheduled payment date. You can also choose to pay by credit card or digital wallet, but there is a processing fee for selecting these options.

The second option is setting up a direct debit when we file your tax return. We can set this up for your tax payment due, and any estimated tax payments, by entering your bank information before sending your return to the IRS. The payments will then be automatically scheduled to come out of an account of your choosing on their respective due dates. All you need to do is make sure there are sufficient funds in your account to cover the scheduled payments. There will be a penalty charged if funds are insufficient. There is a way to cancel these payments after signing up for them if needed, due to changing circumstances, bank accounts, or any other reason. At that point, you will need to make your payments another way.

The third and final option is to set up an account with the IRS. This method allows you to see the history of your account, make payments, get transcripts and several other options. Setting up an account with the IRS can also be found on www.IRS.gov. However, it is a tedious process to set up an account and authenticate your identity, but that should only be a one-time issue.

On a related note, we have received information that when scheduling payments for a Married Filing Jointly tax return, you should still use the “primary taxpayer’s” information when entering identity information and scheduling payments. If you use the “spouse” information, there is a chance the IRS will not match up payments with your filed return. We will then have to tell them where to move the payments they have unallocated to the filed return. This simple practice will help avoid headaches in the future.

For more information or help on this or any of your tax needs, don’t hesitate to contact your KTLLP Tax Advisor.

January 19, 2023
| Jennifer Konvalin
KT Insights
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Payroll Tax Deferral Q&A

Continuing from my earlier blog post (Presidential Order on Payroll Tax Deferral) about the payroll tax deferral that was mentioned in the Executive Order on August 8, 2020 we have some updated (although not yet fully written in law) Q&A guidance from the IRS as of September 3, 2020.

Some of the things we still had questions about have been answered in an IRS payroll industry telephone conference as follows:

Q:  Is Postponement optional:

A:  The IRS clearly stated that postponement was optional for the employer, yes.  They also indicated they can permit employees to elect to opt in or opt out as well, if the employer elects to take the postponement.

Q:  Is the Employer going to be held liable for the employee share of social security tax deferred regardless of collection of such tax from the employee?

A:  The IRS clarified the “Affected Taxpayer” is the employer.  They stated that if the employer is unable to withhold the postponed taxes from an employee during the January 1, 2021 and April 30, 2021 time frame, the employer remains liable for the employee’s tax still and must remit by April 30, 2021 to avoid penalties and interest.

Q: How will this get reported on the Form 941?

A:  The IRS said this would get reported similarly to how employers currently report the deferral of the employer’s share of Social Security tax.  It would go on line 13b with the postponed employee portion broken out on line 24 in Part 3 of the form.  The IRS anticipates the final version of the Form 941 to be available late September in time to file in October.

Q:  How will the repayment of the postponed taxes be made?

A:  The IRS is working on guidance on this issue still.  Rather than a tax deposit, it sounds like a notice may be received instead?

Q: Is an Employer required to “opt in” if an employee requests it?

A:  The IRS emphasized the postponement is optional and an employer is able to consider employee input, but the employer remains the “Affected Taxpayer” and is not required to use the relief even upon an employee’s request.

Q:  If an employee already has YTD wages of $104,000 (the limit defined eligible for the deferral), do they still qualify?
A:  The IRS reiterated that they applicable wages are determined on a pay period basis and the YTD wages would not be considered, so possibly yes.

Q:  If an employer elects NOT to opt in on the postponement, and Congress later passes legislation that makes this forgiven what happens?
A:  The IRS said it could not comment on the future impact of future legislation.  No idea if this is then refunded to employees or not yet.

Q:  What about a one-off bonus?  Does that qualify?

A:  The IRS stated supplemental wages were not addressed in the Notice, but some questions that may be guiding are whether the bonus has a separate pay period and what the equivalent pay amount is.  (They don’t make this real clear at all?  Maybe it means if it is a separate pay period and was under the $4,000 or equivalent for that pay period it does still qualify?)

Q: Can you postpone payment if you did not postpone the withholding of such tax?
A:  The IRS explained the relief was for the withholding and payment of taxes.  They then went on to say that it would seem if relief is not taken for the withholding of the taxes, then it would not be available for the payment of them.

Q:  How do we report liability on the Form 941 if the postponement is taken?

A:  The liability arises when wages are paid.  Therefore reporting on the Form 941 should include all wages paid and total liability even if not yet due.

Q:  Will we report this in 2021 anywhere on Form 941?

A:  No.  Currently the IRS says there would be no reporting of this on any 2021 941 or other return.

Q:  How will the postponement be reported on W2’s if taken?

A:  The IRS is currently working on guidance for this.

Q:  If an employer has to pay in the postponed taxes for an employee they were not able to withhold it from, how does that get reported?
A:  The IRS noted that if this were to happen, regular employment tax law would kick in.  Meaning a gross-up of those amounts should happen and would qualify as wages.

Q:  When can we expect further guidance?

A:  The IRS is looking into ways to get the information out as quickly as possible.  You may be able to call the Notice 2020-65 Hotline at (202) 317-5436 for more information and possibly some FAQ’s.

September 4, 2020
| Jennifer Konvalin
KT Insights
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Presidential Order on Payroll Tax Deferral

On August 8, 2020, President Trump issued an executive order which directed the Department of the Treasury to enact a payroll tax deferral for some employees.  This applied to payroll taxes on wages from September 1 through December 31, 2020.  We are now left picking up the pieces of determining as an employer, what does this mean to you?  Unfortunately the list is longer of what we don’t know about this than what we do know about it.

The general premise of this part of the memorandum was a deferral of the social security tax for employees making generally $4,000 or less per bi-weekly payroll (or a total of $104,000 annually on any different payroll cycle) for the qualifying wages paid from September 1 until December 31, 2020.  IRS Notice 2020-65 does clarify that the qualifying wages should be looked at on a payroll by payroll basis, and not in total.  So that means, you may have an employee who qualifies on one pay period, but not another as well.

Some key takeaways that we know or understand as of August 31, 2020 are:

  • This is only a deferral of the social security tax for the employees, not forgiveness at this point.
    • We don’t know how or who will be responsible for paying this back in after January 1, 2021 if Congress doesn’t take action to make this forgiven rather than deferred.
    • Late on August 28, 2020, the IRS issued Notice 2020-65 which stated that the employer should withhold and pay in the total applicable taxes that the affected taxpayer deferred ratably from wages and compensation paid between January 1, 2021 and April 30, 2021.  Interest, penalties and additions to tax will begin to accrue on May 1, 2021 with respect to any unpaid applicable taxes.
    • As this is currently only a deferral, the payroll taxes will still be owed.  There is much concern over the hardship this could cause employees next year when this is due to be paid in at that time.
  • It appears, although isn’t clear, that the employee should request this to the employer.  The AICPA has sent a letter to Treasury asking for guidance on this piece along with several other items related to this.
  • On August 12th, Treasury Secretary, Steven Mnuchin, informally remarked that employers would not be required to implement this and could continue to withhold and remit the payroll taxes as usual.
  • We have no idea how long it may take payroll software’s to implement this reduction in withholding on employees paychecks when and if we do get guidance from the Department of the Treasury.
  • This has the potential to cause some great difficulties to employers if they end up being required to somehow pay this back in later and employees are no longer with that Company, or if the Company is not able to withhold enough due to Department of Labor laws to recover these amounts back in full.
    • See updated bullet point 1 about the IRS Notice 2020-65.  This makes it appear to be the employer’s responsibility to deal with this.  The IRS went so far as to say the employer can, if necessary, “….make arrangements to otherwise collect the total Applicable Taxes from the employee.”  This seems to be an overall terrible plan for many employers who could get stuck with this ‘tax bill’ or stuck trying to collect it from possibly prior employees.

As of now, we are a mere day away from the “start” of this deferral on September 1, and we still don’t have any clear guidance from the Department of the Treasury on this.  Currently, our recommendation until we have better and more clear guidance would be that as an employer, you continue to withhold and remit all traditionally required payroll taxes for your employees.  Our goal is to keep you in compliance and out of any penalty situations.  Contact your KT representative if you have further questions or discussions around this.

August 31, 2020
| Jennifer Konvalin
KT Insights
 |

Did the IRS Pay You Unexpectedly?

This summer, we have seen an increase in the number of clients who have received small checks from the IRS that they weren’t necessarily expecting.  Why is this?  Should you cash the check?  Are they going to bill you next? 

We have been keeping you updated about the change in the tax rates and withholding tables that arose from the 2018 Tax Cuts and Jobs Act (TCJA).  Our previous discussions have been around making sure you are having enough taken out of your paychecks now, because it had been found the “fix” to the withholding tables went too far. 

Generally, the rule is you have to pay 90% of your current year tax liability or 100% (and in many cases 110%) of your prior year tax liability in order to avoid tax penalties.  We operate on a “pay as you go” system, so you cannot always just wait until year end to make payments on your tax bill without the chance of a penalty being imposed. 

In early January of 2019, due to the decreased withholding as previously discussed, the IRS changed the penalty threshold for the first measurement from 90% of current year, to 85% of current year.  This allowed fewer unsuspecting and unknowingly taxpayers to be faced with penalties due to decreased withholdings from the TCJA.  Then near the end of March, 2019, they changed their mind again onthe first test to now be 80% of the current year liability. 

Because it was actually so close to the April 15th deadline, several people had already filed their taxes under the first adjustment to the rule of 85%.  Now, we are finding the IRS is getting returns processed and for those returns completed and transmitted that may have been less than 85% of taxes paid in, but over 80% of tax liability paid in , they are automatically adjusting your returns and refunding the penalty that had been calculated. 

Your KT professional is available to help you interpret any correspondence from the IRS. Several clients have received refund checks, and we have helped verify their accuracy.  In the future, it would make everyone’s life easier if we had a completed, approved, and final tax law before filing tax returns!  If you have received something like this and aren’t fully sure why, please be sure to reach out to your KT team member.

September 30, 2019
| Jennifer Konvalin
KT Insights
 |

What to Expect for Your 2018 Tax Filings

As we quickly approach the 2018 income tax filing season, you may be wondering how the Tax Cuts and Jobs Act (TCJA) may affect your tax return.  Here are some items that will affect the majority of taxpayers this year:

Reduced Tax Rates – Lower individual tax rates – 10%, 12%, 22%, 24%, 32%, 35% and 37% for tax years 2018-2025.  Everyone will benefit from this reduction in our tiered tax system.  The brackets have also expanded so more income will be taxed at lower rates.

Capital Gain Rates – No change to these rates from the prior tax law.  The capital gains rates still range anywhere from 0% to possibly upwards of 23.8% with the most common rate being 15%.  The amount of income that can be taxed at 15% has also increased.  There are still planning opportunities for taxpayers to qualify for the 0% rate.

Deductions

Historically, taxpayers have the option of using the higher of your standard deduction or itemized deductions.  This is still true in 2018.

The standard deduction almost doubled for taxpayers for 2018.  The married filing joint deduction is now $24,000, while the single deduction is now $12,000. The extra deduction for the elderly or blind still exists and are slightly higher than 2017.

Itemized deductions still include things like taxes, mortgage interest, medical deductions and charitable deductions.

Taxes paid for property taxes, state income taxes, and state sales taxes are now capped at a cumulative $10,000 per year.

Charitable donations are still deductible. The limit for charitable donations increased from 50% of AGI (adjusted gross income), to 60% starting in 2018.

Other miscellaneous itemized deductions such as unreimbursed employee expenses, investment expenses and most legal fees were eliminated.

Mortgage interest is still deductible, while line of credit or home equity lines of credit (HELOC) have many more rules placed on them.  In general HELOCs are now required to be used for purchasing, building or improving your first or second home and be secured by that property to be deductible.  We aren’t intentionally being nosey about your exciting life when we ask a lot more questions about your HELOCs. There were also changes to the limit of the mortgage indebtedness that allows the interest to be deductible as well. Those taxpayers with a very high mortgage balance should know this may affect them.

Child Tax Credit – This doubled to $2,000 per child under age 17 and a new $500 credit added for those over age 17.  The phase out income limits on a MFJ return also went from $110,000 AGI up to $400,000, so many more taxpayers will qualify for this credit now.

Moving Expenses – eliminated for all but some armed forces moves.

529 Plans – funds can now be used for secondary or elementary private schooling up to $10,000 per year.

Roth IRA’s – no longer allowed to do a “re-characterization” of Roth IRA conversions, so be sure that is what you intend to do and you have the potential funds to help pay the tax on the conversion.

Section 1031 Exchanges – in general exchanges of any personal property is not allowed to be reported as an exchange any longer.  Real property still qualifies to be exchanged under the previous Section 1031 rules.

Estate Tax Exclusion – effective January 1, 2019, the exclusion for decedents is $11,400,000.  The FMV date of death basis rules remain in effect.

Qualified Business Income Deduction (QBI) – the TCJA created a new deduction for individual taxpayers who have QBI.  This deduction is generally equivalent to 20% of the taxpayers qualified business income.  See your tax professional for more specific information.

Health Insurance Penalty – The penalty for not having health insurance was eliminated beginning after December 31, 2018.  All other surcharges and penalties related to the ACA remain intact at this point in time.

Entertainment Expenses – Eliminated in the TCJA for 2018 and forward.  Think things like box seats, Professional athletic event tickets, concert tickets, etc.

Meals Deduction – After many questions about the change to this rule in the law, it appears that qualified business meals still qualify as an expense, along with employee appreciation meals, or meals for the convenience of the employer.  The rules stayed the same for the documentation requirements of these meals and they continue to be subject to a 50% limitation.

This is not an all-inclusive list, but a brief reminder of the things that may affect your tax filings for 2018 and items you should discuss with your tax preparer.

January 14, 2019
| Jennifer Konvalin
KT Insights
 |

The New Rules for Mortgage Interest Deductions

On December 22, 2017, the President signed sweeping tax legislation that changed many things.  Over the course of this tax season, some of the most common questions revolved around changes to the mortgage interest deduction rules.

Beginning in 2018 through 2025, the new rules for the mortgage interest deduction are:

1. New mortgage indebtedness is limited to $750,000 for the full interest expense deduction. For any loans originated prior to 2018, we are still allowed to use the old limit of $1.1 million of indebtedness. 

This new $750,000 limit is the total allowed for both your first and second home mortgages combined. As long as the total of your mortgage balances aren’t over this limit, you won’t have to limit the interest deduction. If your total is over this limit, you will have to do a calculation to pro-rate how much of the total interest paid is deductible.

Also, to count as mortgage indebtedness, the loan must have been used to buy, build or improve the home that is the collateral for that loan. Meaning, you can-not get a loan against your primary home and use that money to buy your winter home in Arizona or a new boat, for example, and deduct the interest expense.

Take caution if you decide to refinance a loan that qualified under the “old rules”.  As long as you don’t extend the terms of the loan, or get money back, you can stay grandfathered with the old rules.  If you extend the term of the loan (i.e., your previous mortgage had 23 years left on it, and you now have a new 30 year mortgage), or get any money back, you now are subject to the new rules instead of the old.

2. Home equity lines of credit (HELOC) interest expense is now suspended through 2025.

Under the old law, up to an additional $100,000 of indebtedness interest expense was allowed.

There are two exceptions to this suspension: First, if you borrow on a home equity line of credit and use that money for business, you can still make an election to deduct that interest.

Second if you use a home equity line secured by your primary residence to remodel or improve your primary residence, it is considered mortgage interest and is still deductible under the new rules as long as you don’t go over the new indebtedness limit.

Now for a couple of Q&A items to help clarify some of the most common questions:

Q:  Can I still deduct the mortgage interest I have related to my rental house?

A: Yes, as long as the debt was spent to acquire or improve the rental.

Q:  I borrowed against my primary home to purchase my rental home.  Is that still deductible?

A:  Generally, no, because the collateral was your primary home, not your rental home.  However, there is an election that can be made to ensure deductibility.

Q:  I borrowed against my primary home to purchase a winter home.  Is this still deductible?

A:  No.  Because the winter home is not the collateral for the loan, it is not deductible.

Q:  I have a HELOC that is now not deductible under the new law.  If I refinance my first mortgage on my primary residence and use the extra funds to pay off the HELOC to make the interest now deductible again, is that ok?

A:  No.  If the monies from the HELOC were not used for buying or improving your home originally, rolling them into your first mortgage won’t make them deductible.

Q:  My house is paid off, but I have a HELOC for emergencies and other reasons.  If I borrow on that to remodel my kitchen, does that mean it isn’t deductible since HELOC’s are no longer deductible, generally?

A:  No.  The interest in this case would be deductible because the funds were used to improve your primary residence.

As you can see, this can get very complicated and confusing.  Call your KTLLP tax professional today if you have questions about how this may affect your return in the future.

June 1, 2018
| Jennifer Konvalin
KT Insights
 |

Accelerated Deductions for Building Improvements Found in PATH Act

Jennifer-Konvalin-headshotThe PATH Act (Protecting Americans from Tax Hikes Act) of 2015 included a notable change starting in 2016 for bonus depreciation, or possibly the Section 179 expensing election, on a new class of property. Congress created a new category called “Qualified Improvement Property” which consists of types of property that is nonresidential real property that is typically subject to a 39 year recovery period.

There are 2 main requirements for something to be considered Qualified Improvement Property. The property has to be placed into service after 2015 and the improvements are to the interior of any nonresidential real property placed in service after the date the building was first placed in service.

If you enlarge the building, incur expenses for any elevator or escalator, or do any internal structural framework in the building, those expenses do not qualify for this new class of property.

Take note, this is a new class different from what we previously had expanded for Qualified Leasehold Improvements. For Qualified Leasehold Improvements, the expenses had to be incurred to a building that had been in service for more than 3 years, and must have been subject to a third-party lease agreement.

Both the Qualified Leasehold Improvements and the new Qualified Improvement Property allow for 50% bonus deduction meaning that you get the expense in an earlier year, but over time you receive the same write off. Of course, the tax benefits of writing off over half your improvement in the first year likely can help fund these types of construction projects. Definitely it is still something to capitalize on.

This is an exciting new option for anyone who is making improvements to a commercial building which saw little fan-fare when the PATH Act was published. If you think this may apply to a project you are contemplating give us a call and we can help.

September 30, 2016
| Jennifer Konvalin
KT Insights
 |

2015 Tax Extender Legislation

On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes Act (PATH Act) of 2015 into law. I know, it’s hard to resist the comedic out-take on that title…

The specific laws that were extended, beginning for the 2015 tax year, in a permanent fashion (not all inclusive):

  • $1,000 child tax credit – possibly refundable depending on income
  • The American Opportunity Tax Credit – for those with college age kids
  • The $250 above the line deduction for elementary and secondary school teachers. This is now also set to index with inflation beginning in 2016.
  • Itemized deduction for state and local general sales tax – a nice one for South Dakota residents with no state income tax!
  • Tax-free distributions from IRAs direct to charities for up to $100,000 (must be older than 70.5 years old)
  • The Research and Development tax credit, with a few minor changes for the better
  • Section 179 expensing (or the direct write off allowance) for $500,000, also set to index with inflation beginning in 2016. This one still has a few limitations placed on it, so beware of those things as well.

There were also some parts of the tax law that were extended, beginning for the 2015 tax year, for 5 years instead of permanently which include but are not limited to:

  • The work opportunity tax credit
  • Bonus depreciation, on a tiered down system. 50% first year write off on new assets for the first 3 years, 40% in year 4, 30% in year 5.

And a few two year extension items, beginning for the 2015 tax year, include:

  • The exclusion for the discharge of qualified principal residence indebtedness
  • Mortgage insurance premiums being treated as qualified residence interest for those who qualify
  • The above the line deduction for qualified tuition fees for those who qualify
  • The Indian employment tax credit

There are several other items that have a much smaller population effect that we have not included here, but some of these are really good news for you and us alike. Contact your KT representative today for further guidance on how the newest tax law may affect you.

February 3, 2016
| Jennifer Konvalin