704-636-1040 www.dgcpa.com Y E A R E N D 2 0 1 6 N E W S L E T T E R About Us - Davis Group, PA, Certified Public Accountants was founded with the idea of providing big firm expertise with the care and personal attention that only a small firm can provide. We have highly experienced CPAs, with more than 60 years combined experience in serving businesses of all sizes. Whether you re a business owner seeking financial guidance or need a professional to expertly prepare your income taxes, Davis Group is a leading tax and accounting firm in Rowan County. Our clients need a trusted advisor that can provide practical advice to complex issues. We take every client s business personally, because we believe your success is critical to our own. In today s competitive, technology driven business environment our services have grown with the needs of our clients. Our services include much more than the traditional tax planning and preparation. For More Information, Our 2016 Tax Guide can be downloaded on our home page https://www.dgcpa.com/home/ 5 Key Areas You Should Review Before Year End We re well in to the fourth quarter of the year, which means year end is fast approaching. Here are five important areas of your business to review before the calendar turns to 2017. 1. Tax planning opportunities. November and December are prime time for tax planning, which can pay big dividends when filing time arrives. Touch base with our firm now to reduce your tax obligations as much as possible. 2. Payroll. Make sure you have all information updated, employees are properly classified, and that you are in compliance with all payroll regulations. Plus, you ll want to ensure that all employee information is securely stored. 3. Cash flow. As you well know, cash flow is the lifeblood of your business, so if you re having trouble controlling it, now is the time to analyze why and ask for assistance if needed. 4. Estimated tax payments. If you've paid estimated taxes throughout the year, review your totals so that you have the information on-hand for tax season and you can make up any shortfall before the end of the year. 5. Your overall progress. Take a step back and consider if you have met your annual projections for profitability and growth. If you ve gotten off-track it s time to make a plan to rectify the situation. If you re satisfied with where you are, take time to lay out next year s plan. By reviewing these five areas now, you ll be able to lower your taxes, reduce potential payroll-related penalties, and have a good handle on how to move your business forward in the coming year. If you need any help in the process, please contact our firm. SPECIAL POINTS OF INTEREST: Engagement Letter: Be on the lookout for engagement letters, these will be going out soon. Organizers: If you did not receive a tax organizer last year and would like to receive one this year, please contact the office. Web Portals: For our goal of going paperless, we will continue our web portals to all individual clients this tax season. In addition to saving paper, portals are safe, secure, and allow instant access, 24/7 to your tax records. Tax Planning Can Help You Save Money This newsletter will give you a brief tax overview to help you prepare for the end of the year, as well as give insight to topics clients have inquired about. Tax laws and legislation are constantly changing, we can develop tax strategies that best suit your goals. We take a progressive, holistic approach to tax planning opportunities that reduce your current and future tax liabilities. If you have not already scheduled your tax planning appointment, please call the office @ 704-636-1040 to make your year end planning appointment. www.dgcpa.com
New FLSA Overtime Rules - Are You Ready? Beginning December 1st, all employers will be required to comply with changes made the Fair Labor Standards Act (FLSA). It is estimated over 4 million employees will be impacted by the new overtime rules. Employees who were previously exempt from overtime pay, may now be non-exempt. This will require employers to pay time and half for any hours worked over the 40 hour workweek threshold to any non-exempt employees. Which employees are exempt? In order to be exempt from overtime, employees (with a few exceptions) must meet BOTH the Salary Basis Test AND the Job Duties Test. Salary Basis Test- Salaried employees that make $913/week. Note, testing is done on a weekly basis, not pay period. So if an employee works 60 hours one week and 20 hours the next, a non-exempt employee is entitled to 20 hours of overtime. Job Duties Test - Employees that meet the $913/week may also be exempt if they perform any of the following jobs: Executive/Administrative Professional/Creative Computer Professional Outside Sales Other exemptions may apply if employees do not meet both tests, most notable to the agriculture and trucking industries. Other factors such as bonuses, per diems, commissions, and seasonal work may also need to be considered. If you have any questions on how the new overtime rules may apply, call our office. New W-2 & 1099 Filing Deadline & IRS Warns of Refund Delays Beginning this filing season all W-2s and 1099s are required to be filed with the IRS by January 31st. In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. In addition, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available and this extension is not automatic. If an extension is necessary, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by January 31. The new accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past. Some Refunds Delayed Until at Least Feb. 15 Due to the PATH Act change, some people will get their refunds a little later. The new law requires the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund, not just the portion related to the EITC or ACTC. The new accelerated deadline will require us and employers to start gathering information much earlier than in previous years. We recommend to start the process now, if you have any questions or concerns do not hesitate to reach out to our office.
Annual Tax Planning Checklist Know your AGI - Because many tax benefits are tied to or limited by adjusted gross income (AGI) IRA deductions, for example a key aspect of tax planning is to estimate both your 2016 and 2017 AGI. Also, when considering whether to accelerate or defer income or deductions, you should be aware of the impact this action may have on your AGI and your ability to maximize itemized deductions that are tied to AGI. Make Charitable Gifts - Contributions to qualified charitable organizations are deductible as an itemized deduction. Keep receipts and your canceled checks, credit card statements, or other bank records for substantiation purposes. Consider Donating Appreciated Property- By donating appreciated property (i.e. stocks) rather than cash, you avoid capital gain tax while receiving the deduction for the full fair market value of the property. Take Your RMD - Those 70 ½ or older are required to take a required minimum distribution, failing to do so can result in a severe penalty. Also, consider withholding from your RMD, instead of quarterly estimates to improve on cash flow. IRA Qualified Charitable Distributions are now permanent law, this can lower AGI which may make your Social Security less taxable and prevent phase-outs on deductions. Max Contributions to 401(k) and Retirement - Reduce your taxable income by deferring the tax until retirement. The 401(k) elective deferral limit is $18,000 for 2016 with a $6,000 catch-up if 50 or older. The SIMPLE plan deferral limit is $12,500 with a $3,000 catch-up. Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA is $5,500 with a $1,000 catch-up. Prepay Property Taxes (If not in AMT or subject to phase-outs) - Pay real estate and personal property taxes before year end. If you are chronically in AMT, hold off paying until next year. Prepay State Taxes (If not in AMT or subject to phase-outs) - If you are going to owe state income tax in April or if your make quarterly estimated payments, making a payment before year end will increase your itemized deductions. This does not apply to those in AMT. Make Annual Exclusion Gifts - An individual can gift $14,000 ($28,000 if married) to an unlimited number of individuals. Bunch Your Deductions - If you don t have enough deductions to itemize consider bunching your deductions. That means put as much of your itemized deductions into one year as possible. Medical expenses are not deductible until they exceed 10% of your AGI, bunching your deductions may get you over the threshold. Installment Sales Are you considering selling a business or real estate? Installment sales not only defer tax, but may also prevent large gains which could land you in the 3.8% net investment income tax or higher 20% capital gains rate. Investment Planning Capital gains on property held one year or less are taxed at an individual s ordinary income tax rate. If held more than one year the max rate is 20% with a 0% rate for individuals in the 10% or 15% marginal rate; 15% for individuals in the 25%, 28%, 33%, and 35% brackets. If you realized taxable capital gains on investment transactions earlier this year, consider taking losses on underperforming investments to offset the gains. Capital losses are deductible against the year s capital gains and up to $3,000 of ordinary income ($1,500 if married filing separately). You can carry forward any capital losses you don t use for 2016 to future tax years.
1 6 T a x T i p s f o r 2 0 1 6 1. Keep Documentation for Deductions and Business Expenses - If your return is audited, the IRS may require that you show the proper documentation. Canceled checks, credit/debit card account statements, invoices and receipts should be kept. Check out our Records Retention Schedule https://www.dgcpa.com/clientresources for how long these documents should be kept. 2. Check The Holding Period of Your Stocks The market has bounced back, stocks held at least one year and one day before being sold, are taxed a preferential rate (long-term capital gains), instead of ordinary income rates. 3. Watch Out for Wash Sales If you sell a stock at a loss and within 30 days before or after the sale, and directly or indirectly buy the same stock, the loss from the sale is not deductible. 4. Track Those Miles The standard mileage rates for 2016 are as follows: 54 cents/mile for business 19 cents/mile for medical or moving expenses 14 cents/mile for charitable purposes Documentation is key, be sure to document date, start point, end point, distance and purpose of each trip. 5. Check Your Withholdings If you receive a large refund each year, consider changing your withholding allowances through your employer. This will put more money in your pocket each paycheck. 6. Health Insurance The Affordable Care Act requires individuals to have health insurance, if not, you are subject to the penalty (excuse me, I mean tax ). For Business Owners: 7. Write-off Bad debts - Old billings that are lingering in your company s accounts receivable because you can t collect the money owed to you may be deductible as bad debts. 8. Delay Billing. - If you are on the cash method, delay year-end billing to clients so that payments are not received until 2016. 9. Separate 100% deductible M&E Expenses Meals & beverages at the workplace or jobsite are fully deductible compared to the normal 50% deduction. 10. Office in Home Deduction Simplified - The IRS is making a simpler method available for calculating the home office deduction. Taxpayers may claim a standard rate of $5 per square foot (with a maximum of 300 ft.) for the qualified business use of their home. To maximize the deduction, continue to track actual expenses to see which method is most beneficial in your specific circumstance. 11. S-Corp Owners, be Reasonable The IRS has a knack for finding S-Corp owners not taking a salary, but taking distributions. S-Corp be sure you are taking a reasonable wage. 12. Cost Segregation For anyone thinking of purchasing, constructing, or rehabbing a building this year; cost segregation, which breaks out costs to improve your depreciation deduction, can save you money. 13. Employ Your Spouse and Kids Consider paying your spouse a wage in order to take the child care credit or increase retirement contributions. Employ your kids to help save for college. Each kid, in exchange for services provided, can earn up to $6,300 tax-free. 14. Go Big on that Truck & SUV make sure your vehicle is rated at 6,000 pounds in order to maximize your write-off. 15. Machinery, equipment, furniture - In 2016, the Section 179 expensing election is available for as much as $500,000 of asset purchases. If you ll have enough taxable trade or business income to benefit from the 179 election, consider buying qualifying assets and placing them in service before year-end. Or see if you can benefit from the 50% bonus depreciation provision. 16. Inventory - Clear out slow-moving items before the end of the year. Regular C corporations may claim an enhanced deduction for a contribution of inventory to an eligible charitable organization.
NCDOR Makes Change to Previous Sales Tax Changes for 2017 The most significant changes are related to Repair, Maintenance and Installation (RMI) services. Previously, as of March 1, 2016 new rules went into effect on making some RMI services subject to sale taxes. Confusion surrounded the new rules as identical services could be taxable by one company but not another. The new rules starting January 1, 2017 expand who should be charging sales tax on their RMI services. Effective January 1, 2017 The definition of retailer provides the term does not include a real property contractor and now includes a person whose only business activity is providing repair, maintenance, and installation services. The definition of the term repair, maintenance, and installation services as amended applies to tangible personal property, a motor vehicle, digital property, and real property, except tangible personal property or digital property installed or applied by a real property contractor pursuant to a real property contract. Certain RMI services are specifically exempt, these include: cleaning of real property; services on roadways and parking lots; removal of trash, debris, grease and snow; home inspections related to the sale of real property; landscaping and pest control services; self-service car washes and repairs of clothing. Another exemption is for RMI services that are part of new construction, reconstruction, or remolding of a building, structure, or fixture that becomes part of the real property. The new rules are expected to create more tax collectors of sales tax and while there is relief for taxpayers who made a good faith effort to comply, businesses should plan now for these new rules. Gary L. Davis, CPA President Email: gary@dgcpa.com Drew Davis, CPA/ABV Tax Manager Email: drew@dgcpa.com Rita Sigmon, CPA Staff Accountant Email: rita@dgcpa.com Xiomara Villatoro Payroll Manager Email: xiomara@dgcpa.com Tara Trexler, CPA Staff Accountant Email: tara@dgcpa.com Office Hours: Monday-Thursday 8:30-5:30 Friday 8:30-5 Appointments preferred Holly Byerly Receptionist/ Administrative Assistant Email: holly@dgcpa.com 704-636-1040 IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (newsletter) is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.