16 Dec 2016 Year-end Client Letter
With a new President coming to office early next year we can expect a number of tax changes to occur. This is a good time to get your income tax “house” in order for 2016. We are once again making our tax organizers available, for free, to anyone who requests one-if you have not used one in the past please call the office to request one for 2016, as it is our attempt to be as thorough as possible in the preparation of your return. If you received an organizer last year we will mail this year’s organizer to the same address. The tax organizer may not be enough however, and we wanted to bring some special items to your attention below.
Affordable Care Act
All Americans will be affected in some manner by the Affordable Care Act from 2010 (Some people call it Obamacare). One of the requirement is that all taxpayers must be covered by health insurance or pay a penalty, and this is proven through the release of Form 1095. If you received a Form 1095 from any issuer or agency we MUST have all copies to prepare your tax return.
Health Care Deductions
2013’s tax bill reduced your deduction for medical costs, including health insurance, for 2016. We will see very few deductions available for medical costs now unless you have substantial bills. The amount of your medical expenses in most cases must now be more than 10% of your income (7.5% for our older clients) before we can deduct anything, so weigh carefully whether to go to the trouble of summarizing these costs. If you are self-employed we still need to know how much you paid for health insurance.
ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution.Remember if you charge a charitable contribution to a credit card by 12/31/2016 we are able to deduct it in 2016!
If you have read any news in the last year you know that the IRS is looking closely for offshore accounts. If you have an account, retirement account, or business interest with a value over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund) please let us know as some special rules will apply to you. There are substantial penalties for failure to disclose these items.
We must obtain Form 1098 from you when you pay mortgage interest. Additionally, we must obtain refinancing closing statements, and if you drew money out on a home mortgage or refinancing we must have general information on the use of the money according to the IRS.
If you own rental property, this year the IRS has demanded substantially more information. We now need, FOR EACH PROPERTY SEPARATELY, the physical location, the type of property (single-family, duplex, etc), and Forms 1099-K received, and a record, by property of the number of days rented and the number of days used for personal purposes.
Roth IRA Conversions
You will continue to hear from lots of “experts” this year that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there are an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts in 2016 without coming in to see us for an appointment to discuss both the positives and negatives. All conversions for 2016 must be completed by December 31, 2016.
If you have any income from AirBNB, Turo, Etsy, EBay or similar consumer to consumer programs, please let us know because many income tax rules are affected and few of these sites provide you with adequate tax information. Our engagement letter also discusses this concern.
The simplest and most effective tax planning tool for all Americans of all income levels is full participation in retirement plans. Make sure you maximize your 401-k deferral if available, contribute to tax-deductible IRAs, and if over 70 and ½ pay all charitable contributions through direct transfer from your IRA to the charity.
Check your employee handbook and see what other fringe benefits are available at work and call us if you aren’t sure if it will benefit you. Some of the best fringe benefits provided by employers include cafeteria (or 125) plans, as well as child care plans and wellness programs.
There is still time to setup an appointment for year end tax planning by December 31. We recommend a meeting if you have had any major changes during 2016 or are expecting major financial changes in 2016 or 2017 such as retirement, inheritances, etc.
Future Income Tax Rates & Other
We highly recommend that when you are getting your information to us for your 2016 Federal tax return that you set an appointment for an after tax season “Tax Tune Up” to examine tax and estate planning strategies. If your income is over $200,000 it is almost mandatory that we meet for future tax planning because of surtaxes.
There are literally hundreds of other changes, extensions and deletions that we will consider this year while preparing your return. Because of these changes we are requesting everyone to try to have their tax information in to us at least two weeks earlier than normal, and no later than March 21, 2017. Please rest assured that we will utilize our best resources to once again provide you with timely, complete and accurate service while keeping your tax burden to the lowest legal amount. Thank you again for your continued support.
Brad, Eric, Scott and the rest of the Smith, Kunz Staff