Tax Tips

Here are some tax tips to help you with your upcoming tax returns. If you don’t see the answer to your question here, or you have more questions, call us at Daniel W. Polachek, P.C. 413-584-5809
We’ll be adding tips periodically, so check back now and then.

Click on the tax tip to get your answer .

Tax Tip #1
Spend last year’s FSA funds

Tax Tip #2
Avoid underpayment penalties

Tax Tip #3
New Form 1099 due date

Tax Tip #4
Check the wash sale rule before you sell

Tax Tip #5
FICA wage base increases for 2017

Tax Tip #6
No change to Affordable Care Act surtaxes

Tax Tip #7
Do you have to file a return?

Tax Tip #8
Charitable deductions require paperwork

Tax Tip #9
Educate yourself about education benefits

Tax Tip #10
Section 179 has limits

Tax Tip #11
ABLE account benefits

Tax Tip #12
Boost savings with catch-up contributions

Tax Tip #13
Claim a healthy deduction

Tax Tip #14
What’s the tax benefit of a donation?

Tax Tip #15
Changing jobs? Keep your retirement money tax-free

Tax Tip #16
Save taxes with these three capital gain rules

Tax Tip #17
What’s a capital asset?

Tax Tip #18
Investment income and your taxes

Tax Tip #19
New partnership return due date

Tax Tip #20
Take your RMD and avoid a big penalty

Tax Tip #21
April due date for calendar-year C corporations

Tax Tip #22
Changes to foreign account reporting

Tax Tip #23
Itemized deductions limited for some

Tax Tip #24
Are you familiar with the gift tax exclusion?

Tax Tip #25
Personal exemptions may be reduced

Tax Tip #26
Pay as you go

Tax Tip #27
Take another look at an HSA

Tax Tip #28
Keep records for vehicle deductions

Tax Tip #29
Can’t file on time? Request an extension

Tax Tip #30
Make changes to reflect your current tax situation


#1 – Spend last year’s FSA funds
Does your employer offer a carryover of your unused health flexible spending account (FSA) funds from last year? Or do you need to use up last year’s funds within 2½ months after December 31? Either way, you’ll want to take advantage of this tax break. Need more information? Contact our office.


#2 – Avoid underpayment penalties
You may owe an underpayment penalty if your withholding and/or estimated tax payments are less than the amount you’re required to pay. Generally, you won’t face a penalty if you pay at least 100% of your prior-year taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you’ll owe for the current year. Payments are due quarterly, in January (for the prior year), April, June, and September.


#3 – New Form 1099 due date
The due date for sending 2016 Forms 1099 to vendors and others who performed work for your business is January 31, 2017. That’s also the due date for payers who report nonemployee compensation in Box 7 of Form 1099-MISC to file these forms with the IRS. The January 31 due date applies to both paper and electronic filing. Call us for details and filing assistance.

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#4 – Check the wash sale rule before you sell
Before you sell a stock, bond, or mutual fund to take a tax loss, review the wash sale rule. If you sell a security at a loss and then buy the same or a substantially identical security within 30 days before or after the sale, the wash sale rule bars you from deducting the loss on your current-year return. The rule also applies to transactions that straddle different years, as well as taxable and tax-deferred accounts.


#5 – FICA wage base increases for 2017
Employer Alert: Be sure to adjust payroll calculations for 2017 wages. While the rate for social security tax is still 6.2%, the wage base for withholding the tax has increased to $127,200. That means you need to deduct 6.2% from the first $127,200 of an employee’s wages. Remember there’s no wage base for the basic Medicare portion of the FICA tax. You’ll withhold that on all wages.


#6 – NNo change to Affordable Care Act surtaxes
Two Affordable Care Act surtax rates, and the thresholds that trigger the taxes, remain unchanged for 2017. Married couples filing jointly will owe the 0.9% Additional Medicare Tax when wages, compensation, and self-employment income exceeds $250,000 ($200,000 for singles). The 3.8% net investment income tax applies to married couples filing jointly with modified adjusted gross income of $250,000 ($200,000 for singles).

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#7 – Do you have to file a return?
Typically, you’re required to file a federal individual income tax return when your income is less than the sum of the standard deduction amount plus one exemption. For 2016, personal exemptions are $4,050. The standard deduction depends on your filing status and age. Exceptions apply, and you may need to file for other reasons. Contact us.


#8 – Charitable deductions require paperwork
Donations you made via cash, check, charge card, or payroll deduction to qualified charities by December 31, 2016, can be claimed as an itemized deduction on your 2016 return – as long as you have the right paperwork. Cash contributions under $250 require a cancelled check, credit card record, or receipt from the charity. For larger donations, special rules apply and you may need additional forms.


#9 – Educate yourself about education benefits
Federal tax benefits for education include credits, deductions, tax-deferred accounts, and exclusions from income. Each dollar of a credit reduces your tax bill by a dollar. Deductions reduce your taxable income. Tax-deferred accounts let savings grow with no tax due until distributions are taken. Income exclusions provide benefits without increasing your taxable income. Contact us for details about these benefits.

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#10 – Section 179 has limits
Instead of taking depreciation deductions for assets used in your business, you can use Section 179 expensing to write off the cost in the year of purchase. Section 179 has a dollar limit of $500,000 for 2016. That amount is reduced when the total cost of Section 179 assets placed in service exceeds $2,010,000 (for 2016). Finally, the write-off is limited to the taxable income of your trade or business. The limits apply on a per-taxpayer basis, not per business.


#11 – ABLE account benefits
ABLE accounts, named for the law that created them (the Achieving a Better Life Experience Act), are savings accounts established for people with disabilities. Contributions to the accounts are not deductible on your federal income tax return, but the earnings in the account grow tax-free and distributions can be tax-free when the withdrawals are used for qualified disability expenses. ABLE accounts also have non-tax benefits. Age, annual contribution, and maximum lifetime limits apply.


#12 – Boost savings with catch-up contributions
When you reach a certain age, you can make additional elective deferral contributions, more commonly called catch-up contributions, to various tax-beneficial savings accounts. IRAs, 401(k)s, SIMPLE plans, and Health Savings Accounts (HSAs) all allow you to make account deposits that exceed the normal limits when you reach the specified age at any time during a calendar year. Contact us for the current amounts.

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#13 – Claim a healthy deduction
If you’re 65 or older, 2016 is the last tax year you can use the 7.5% of adjusted gross income (AGI) deduction floor for medical expenses. Starting in 2017, the floor rises to 10% of your AGI. Allowable expenses include long-term care premiums, mileage or transportation costs, and home improvements that accommodate a disability or medical condition. Nondeductible items include funeral expenses, nutritional supplements, and nonprescription drugs. Contact us for a complete list.


#14 – What’s the tax benefit of a donation?
The amount you can deduct for charitable donations depends on the type of donation. Securities you’ve owned a year or less are deductible at fair market value or your basis, whichever is less. Securities you’ve owned more than a year that you could sell at a gain can be deducted at the fair market value at the time of the donation. Miles driven for charitable purposes are deductible at 14¢ per mile.


#15 – Changing jobs? Keep your retirement money tax-free
Avoid cashing out your retirement plan when you change jobs. Otherwise you may owe federal income tax as well as a penalty. Alternatives include leaving the money in your former employer’s plan, or a direct rollover to your new employer’s plan or an IRA.

#16 – Save taxes with these three capital gain rules
Here are three tax rules to keep in mind when you sell investments. 1) For stocks, the date of sale is the trade date. 2) Reinvested mutual fund dividends can increase your basis. 3) When capital losses exceed capital gains, you can use up to $3,000 of the excess to offset other income. If your losses are greater than $3,000, you can use the extra amount to reduce your taxable income in future years.

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#17 – What’s a capital asset?
Capital assets include almost everything you own and use for personal or investment purposes, and gains on sales of those assets are generally taxable. The taxable amount is the difference between the sales price and your basis, which is usually your cost. When you own a capital asset for more than one year, your gain or loss is long-term, and the tax rate you will pay depends on your income.

#18 – Investment income and your taxes
How income from your investments is taxed depends on the type of income. Qualified dividends are generally taxed at long-term capital gain rates. Interest earned on bank accounts is taxed at the same rate as wages and other ordinary income. Municipal bond interest can be tax-free for regular income tax, but subject to alternative minimum tax. When your income exceeds certain thresholds, the 3.8% net investment income tax may apply.

#19 – New partnership return due date
The filing deadline for 2016 federal tax returns for calendar-year partnerships is March 15, 2017, a full month earlier than in past years. You can request an automatic six-month extension of time to file, until September 15, 2017. Need help? Contact our office.

#20 – Take your RMD and avoid a big penalty
If you turned 70½ last year and decided to delay taking your first required minimum distribution (RMD) from your IRA, April 3, 2017, is an important deadline for you. You must take your first RMD by that date or face a 50% penalty tax on the amount not taken. If you’re retired, this deadline also applies to other retirement plans, except for Roth IRAs. For details, contact our office.

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#21 – April due date for calendar-year C corporations
The filing deadline for 2016 federal tax returns for calendar-year C corporations is April 18, 2017. You can request an automatic extension of time to file to September 15. However, there’s no extension for paying the tax due with these returns, and you’re required to deposit what you owe by April 18. For assistance, contact our office.

#22 – Changes to foreign account reporting
If you have an interest in a financial account located outside of the U.S., or signature authority over such an account, and the value of your account was greater than $10,000 at any time in 2016, you may have to file a report with the Treasury Department. The 2016 FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is due April 18, 2017. In prior years, this report was due June 30.

#23 – Watch out for stealthy AMT
The alternative minimum tax (AMT) rules recognize income and expenses differently than the rules used for your regular income tax. When your AMT income exceeds an allowable exemption amount, the tax may apply to you. The AMT exemption for 2015 is $83,400 when you’re married filing jointly and $53,600 when you’re single. The exemption is reduced if your income exceeds certain levels. Give us a call for details.

#24 – Itemized deductions limited for some
If your income exceeds certain thresholds, you may not get full benefit from your itemized deductions. Above these income thresholds, itemized deductions begin to phase out. The amount of your itemized deductions won’t be completely eliminated, however. The deductions can’t be reduced by more than 80%, and some deductions aren’t affected (medical expenses and investment interest, for example).

#25 – Personal exemptions may be reduced
The personal exemption you claim for yourself, your spouse, and your dependents will begin to phase-out, or be reduced, if you’re married filing a joint return and your adjusted gross income exceeds $311,300 for 2016 ($259,400 for singles). These thresholds are adjusted for inflation each year.

#26 – Pay as you go
As a general rule, you’re required to pay federal income tax as you earn the related income. You can pay through amounts withheld from wages, social security, pensions, and other income. If those payments are not enough to cover the total you’ll owe for the year, you can make estimated tax payments. Do you need help running the numbers? Give us a call.

#27 – Take another look at an HSA
Health savings accounts (HSAs) allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. Contributions to the accounts are tax deductible even if you don’t itemize. The 2017 contribution limit to an HSA is $3,400 for individuals and $6,750 for families, with a $1,000 catch-up contribution when you’re over age 55.

#28 – Keep records for vehicle deductions
Recordkeeping is a must to claim deductions for business use of your vehicle. To claim actual expenses, keep receipts, as well as a mileage log. A detailed mileage log is necessary to claim the standard mileage rate. Complete the log at or near the time you use your vehicle, and record the date and place of the business travel, the purpose, and the starting and ending odometer readings.

#29 – Can’t file on time? Request an extension
If you can’t file your 2016 federal income tax return by the April 18 deadline, ask for an automatic, no-explanation-necessary six-month extension. That will give you until October 16, 2017, to complete your return. Be aware that getting an extension doesn’t give you more time to pay what you owe for 2016. For help determining your 2016 tax liability so you know how much to send with your extension request, contact our office.

#30 – Make changes to reflect your current tax situation
Once you’ve gone through the work of getting your tax return filed, review what’s changed since December 31. Did you get a promotion or a new job after the end of the year? Did you buy a home? Start a business? Have a child? Make adjustments to accommodate the changes now. For example, you could adjust your withholding or estimated tax, or increase retirement plan contributions. Contact us for more tax-saving suggestions.