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Are you thinking about turning a business trip into a family vacation this summer? This can be a great way to fund a portion of your vacation costs. But if you’re not careful, you could lose the tax benefits of business travel.

Reasonable and necessary

Generally, if the primary purpose of your trip is business, expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:

• Air, taxi and rail fares,
• Baggage handling,
• Car use or rental,
• Lodging,
• Meals, and
• Tips.

Expenses associated with taking extra days for sightseeing, relaxation or other personal activities generally aren’t deductible. Nor is the cost of your spouse or children traveling with you.

Business vs. pleasure

How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. But some days that you might think are “pleasure” days might actually be “business” days for tax purposes. “Standby days,” for example, may be considered business days, even if you’re not engaged in business-related activities. You also may be able to deduct certain expenses on personal days if tacking the days onto your trip reduces the overall cost.

During your trip it’s critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses.

Maximize your tax savings

For more information on how to maximize your tax savings when combining business travel with a vacation, please contact us. In some cases you may be able to deduct expenses that you might not think would be deductible.

It seems like a simple question: How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number

Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.

Under the law, an ALE:

• Is subject to the employer shared responsibility provisions with their potential penalties, and
• Must comply with certain information reporting requirements.

Calculating full-timers

A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers

If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help

Contact us for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.

Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?

The power of tax credits

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 28% tax bracket, $1 of deduction saves you only $0.28 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Rules to be aware of

A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Eligible costs for care must be work-related, which means that the child care is needed so that you can work or, if you’re currently unemployed, look for work. However, if your employer offers a child and dependent care Flexible Spending Account (FSA) that you participate in, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

Are you eligible?

These are only some of the rules that apply to the child and dependent care credit. So please contact us to determine whether you’re eligible.

Understand the Tax Consequences of a Sale

As the school year draws to a close and the days lengthen, you may be one of the many homeowners who are getting ready to put their home on the market. After all, in many locales, summer is the best time of year to sell a home. But it’s important to think not only about the potential profit (or loss) from a sale, but also about the tax consequences.

Gains

If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use. Keep in mind that gain that’s allocable to a period of “nonqualified” use generally isn’t excludable.

Losses

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

Second homes

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

Learn more

If you’re considering putting your home on the market, please contact us to learn more about the potential tax consequences of a sale.

Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. For maximum tax savings, now is the time to start tax planning for 2016.

More opportunities

A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

More certainty

In recent years, planning early has been a challenge because there were a lot of expired tax breaks where it was uncertain whether they’d be extended for the year. But the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks through 2016, or, in some cases, later. It also made many breaks permanent.

For example, the PATH Act made permanent the deduction for state and local sales taxes in lieu of state and local income taxes and tax-free IRA distributions to charities for account holders age 70½ or older. So you don’t have to wait and see whether these breaks will be available for the year like you did in 2014 and 2015.

Getting started

To get started on your 2016 tax planning, contact us. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

The short answer is: none. You need to hold on to all of your 2015 tax records for now. But this is a great time to take a look at your records for previous tax years and determine what you can purge.

The 3-year rule

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss most records related to tax returns for 2012 and earlier years.

What to keep longer

You’ll need to hang on to certain records beyond the statute of limitations:

• Keep tax returns themselves forever, so you can prove to the IRS that you actually filed. (There’s no statute of limitations for an audit if you didn’t file a return.)
• For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
• For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.

Just a starting point

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

Tax Day is right around the corner. Have you filed your federal tax return yet? The filing deadline to submit 2015 individual federal income tax returns is Monday, April 18, 2016, rather than the traditional April 15 date. Washington, D.C., will celebrate Emancipation Day on Friday, April 15, which pushes the deadline to the following Monday for most of the nation. The deadline will be Tuesday, April 19, in Maine and Massachusetts, due to Patriots' Day.

Fortunately, there's still time to take steps to reduce your 2015 federal tax liability. Here are five last-minute ideas for individuals and small businesses.

1. Individuals Can Choose to Deduct State and Local Sales Taxes

Congress recently made permanent the option to claim a federal income tax deduction for general state and local sales taxes as opposed to deducting state and local income taxes. The option is now available for 2015 and beyond. This is good news for individuals who live in states with low or no personal income taxes, as well as for those who owe little or no state taxes.

If you choose the sales tax option, you can use a table provided by the IRS to calculate your sales tax deduction. Your deduction will vary based on your state of residence, income, and personal and dependent exemptions.

If you use the IRS table, you can also add on actual sales tax amounts from major purchases, such as:

• Motor vehicles, including motorcycles, off-road vehicles, and RVs,
• Boats,
• Aircraft, and
• Home improvements.

In other words, you can deduct actual sales taxes for these major purchases on top of the predetermined amount from the IRS table. Alternately, if you saved receipts from your 2015 purchases, you can add up the actual sales tax amounts and deduct the total if that gives you a bigger write-off.

2. Qualified Individuals Can Make Deductible IRA Contributions

If you haven't made the maximum deductible traditional IRA contribution for the 2015 tax year, you can still make a contribution between now and the tax filing deadline and claim the resulting write-off on your 2015 return. The maximum deductible contribution for 2015 was $5,500 per taxpayer — or $6,500 if you or your spouse was age 50 or older as of December 31, 2015.

However, there are a couple of catches. First, you must have enough 2015 earned income from jobs, self-employment or alimony received to equal or exceed your IRA contributions for the 2015 tax year. If you are married, either spouse (or both) can provide the necessary earned income.

Second, deductible IRA contributions are gradually phased out if your income was too high last year. (See "Ground Rules for Deductible Contributions to Traditional IRAs" at right.) Fortunately, the phaseout ranges are much higher than they were a few years ago.

3. Business Owners Can Establish SEPs

If you work for your own small business and haven't yet set up a tax-favored retirement plan for yourself, you can establish a simplified employee pension (SEP). Unlike other types of small business retirement plans, a SEP can be created this year and still generate a deduction on last year's return.

Important note. If you are self-employed and extend the filing deadline for your 2015 Form 1040 until October 17, you'll have until that late date to take care of the paperwork and make a deductible contribution for 2015.

The deductible contribution to a SEP can be up to 20% of your 2015 self-employment income or up to 25% of your 2015 salary if you work for your own corporation. The absolute maximum amount you can contribute for the 2015 tax year is $53,000. If you have the cash on hand to fund a SEP contribution, the tax savings can be substantial.

For example, if you're self-employed and in the 28% federal income tax bracket, a $30,000 SEP contribution could lower your 2015 federal income tax bill by $8,400 (plus any state income tax savings). In many cases, the tax savings could fund a big chunk of your contribution.

Establishing a SEP is simple. Your bank or financial adviser can help you complete the required paperwork. But don't jump the gun if your business has employees. Your SEP will likely have to cover them and make contributions to their accounts, which could be cost prohibitive. Your tax and financial advisers can help you decide whether establishing a SEP is a smart move for your business.

4. Small Business Owners Can Claim Section 179 Deduction for Real Property Expenditures

Section 179 provides a federal income tax break that allows eligible small businesses to deduct the entire cost of qualifying asset purchases (including software) in the year they're placed in service (rather than depreciating them over their useful lives). Real property improvement costs have traditionally been ineligible for the Sec. 179 deduction. But there's an exception for qualified real property improvements placed in service in tax years beginning in 2015.

You can claim a Sec. 179 deduction for real property expenditures of up to $250,000 for:

• Interiors of leased nonresidential buildings,
• Restaurant buildings, and
• Interiors of retail buildings.

The Sec. 179 allowance for real estate had previously expired at the end of 2014, but recent legislation made it permanent for 2015 (and beyond). Additional rules and restrictions may apply, so consult your tax adviser before claiming Sec. 179.

5. Businesses Can Take Advantage of Favorable Provisions in Tangible Property Regulations

In general, IRS regulations require most tangible property costs to be capitalized and depreciated over their useful lives, rather than deducted in the tax year that they're placed in service. But there are a few taxpayer-friendly exceptions, including:

• Small businesses can elect to immediately deduct items costing up to $2,500 that would otherwise have to be capitalized and depreciated over a number of years. The deduction allowance was increased to the current $2,500-per-item amount by IRS Notice 2015-82. Previously, the allowance was only $500. Larger businesses that have an applicable financial statement for the 2015 tax year (generally, those required to file Form 10-K with the SEC and those with audited financial statements) can deduct items costing up to $5,000. The election to take advantage of these deduction allowances can be made with the 2015 return or form for your business.
• Expenditures for incidental materials and supplies can be deducted in the year they're paid or incurred. These expenditures include noninventory items: 1) worth $200 or less, or 2) with useful economic lives of 12 months or less.

Consult with a Tax Pro

These are some of the more common last-minute tax-saving maneuvers that individuals and small business owners can take before Tax Day. As always, your tax professionals can advise you on the optimal tax-saving strategies for your specific situation.

Yes, the federal income tax filing deadline is slightly later than usual this year — April 18 — but it’s now nearly upon us. So, if you haven’t filed your return yet, you may be thinking about an extension.

Extension deadlines

Filing for an extension allows you to delay filing your return until the applicable extension deadline:

• Individuals — October 17, 2016
• Trusts and estates — September 15, 2016

The perils

While filing for an extension can provide relief from April 18 deadline stress, it’s important to consider the perils:

• If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 18.
• If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

A tax-smart move?

Filing for an extension can still be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you need help or have questions about avoiding interest and penalties.

Starting a new business is an exciting time. But before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away.

How expenses are handled on your tax return

When planning a new enterprise, remember these key points:

• Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Organizational costs include the costs of creating a corporation or partnership.
• Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs. The $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
• No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts will generally ask: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

An important decision

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

Tax-advantaged retirement plans allow your money to grow tax-deferred — or, in
the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years. So it’s a good idea to use up as much of your annual limits as possible. Have you maxed out your 2015 limits?

April 18 deadline

While it’s too late to add to your 2015 401(k) contributions, there’s still time to make 2015 IRA contributions. The deadline is April 18, 2016. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2015).

A traditional IRA contribution also might provide some savings on your 2015 tax bill. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2015 tax return.

Evaluate your options

If you don’t qualify for a deductible traditional IRA contribution, see if you qualify to make a Roth IRA contribution. If you exceed the applicable income-based limits, a nondeductible traditional IRA contribution may even make sense. Neither of these options will reduce your 2015 tax liability, but they still provide valuable opportunities for tax-deferred or tax-free growth.

We can help you determine which type of contributions you’re eligible for and what makes sense for you.