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Tax Tip of the Week | No. 383 | Traps in Tax Harvesting for Short Sellers November 30, 2016

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Tax Tip of the Week | November 30, 2016 | No. 383 | Traps in Tax Harvesting for Short Sellers

It’s the time of year when investors examine their portfolio and seek to harvest built-in tax losses. But short sellers who wish to harvest their losses should keep a close eye on the calendar.

“Investors looking to sell securities by year end should be aware of the trade date rules,” according to John Kaufmann, of counsel at Greenberg Traurig, a leading authority on the tax aspects of financial instruments.

The trade date rule governs whether the gain or loss from the disposition of a security is taken into account on the trade date – when the seller clicks “sell” or the buyer clicks “buy” – or on the settlement date. For securities traded on U.S. equity exchanges, the settlement date is usually three business days after the trade date, while for bonds, the settlement date is usually one business day after the trade date, explained Kaufmann. Although gain or loss is locked in as of the trade date, the transaction does not close until the settlement date.

While money and property do not exchange hands immediately when you click “buy” or “sell,” the Internal Revenue Service has taken the position that for regular trades placed on an exchange, the securities are treated as being disposed of and a gain or loss is recognized on the trade date, rather than the settlement date.

However, that general rule does not apply to short sales, warned Kaufmann. “Since a short seller’s obligation to deliver shares to a securities lender is not extinguished until the shares are actually delivered, a short position is not closed until the settlement date of the covering trade,” he said. “This means that in contrast to the treatment of long sales, gain or loss from a short sale is generally not recognized until the settlement date.”

Congress changed the rule in 1997 and, as a result, a gain on a short sale is recognized on the trade date, whereas a loss on a short sale is recognized on the settlement date, explained Kaufmann. With January 1 quickly approaching, he cautioned, it behooves investors with short positions seeking to harvest a loss to watch the calendar closely.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 382 | Social Security Administration Announces Large Increase in 2017 Wage Base November 23, 2016

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Tax Tip of the Week | November 23, 2016 | No. 382 | Social Security Administration Announces Large Increase in 2017 Wage Base

The Social Security Administration (SSA) announced that the maximum amount of wages in 2017 subject to the 6.2% Social Security tax (old age, survivor, and disability insurance) will rise from $118,500 to $127,200, an increase of more than 7%. By comparison, the 2016 wage base was unchanged from 2015.

The maximum amount of Social Security tax a taxpayer could pay will therefore increase from $7,347 in 2016 to $7,886.40 in 2017, an increase of $539.40.

The SSA also announced that Social Security beneficiaries will get a 0.3% increase in benefits in 2017, after receiving no increase in 2016. The average retiree will receive an increase of $5 a month.

Among the other increases is the amount a worker under full retirement age can earn before he or she has Social Security benefits reduced. The limit increases from $15,720 a year to $16,920 for 2017, after which $1 in benefits is withheld for every $2 earned above the limit. Last year, this limit also did not increase because of low inflation.

There is no limit on the amount of wages subject to the other portion of the FICA tax, the 1.45% Medicare tax.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 381 | New W-2 Reporting Requirements November 16, 2016

Posted by bradstreetblogger in : General, tax changes, Tax Deadlines, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | November 16, 2016 | No. 381 | New W-2 Reporting Requirements

New W-2 and 1099-MISC Filing Deadlines to Have a Significant Impact on Businesses

This change adds an extensive amount of work for filers in January.

Every tax year brings a variety of changes, whether forms are updated or regulations have changed. This year marks a particularly important year for filers, as the deadline for submitting Form W-2 to the SSA and Form 1099-MISC to the IRS has changed significantly.

Beginning in 2017, for the 2016 reporting year, filers must send W-2 and 1099-MISC recipient copies and submit to the SSA/IRSIRS/SSA by January 31, regardless of method (paper or e-file). In many cases, this is months earlier, increasing workload and stress for filers.

To further complicate matters, the new filing deadline, as it relates to Form 1099-MISC, only impacts filers reporting nonemployee compensation payments in box 7. Although the overwhelming majority of 1099-MISC filers will report information in box 7, there is bound to be some confusion.

Historically, filers were required to provide W-2 and 1099-MISC forms to recipients by January 31; however, they were not required to submit the forms to the SSA/IRS until February 28 (paper) or March 31 (e-file).

With three months of work being condensed into 30 days, this change adds an extensive amount of work for filers in January. In addition, Forms 1095-B and 1095-C filing deadlines also fall at the end of January for recipient delivery. This schedule means businesses will face a huge time crunch when planning for wage, income, and ACA reporting for the 2016 year.

In the past, some businesses would file W-2 and 1099-MISC recipient copies first and wait to find out if any changes were needed prior to filing to the SSA/IRS, which lessened the risk for possible corrections. Due to the earlier deadline in 2017, businesses may need to abandon this strategy and consider filing to recipients and the SSA/IRS concurrently.

To further complicate January’s filing deadlines, the IRS recently eliminated the automatic 30-day extension of time to file W-2 forms. Previously, filers could obtain an automatic 30-day extension by submitting Form 8809 to the IRS on or before January 31. Filers could also request an additional 30-day extension, pushing their e-file deadline to the end of May. These automatic extensions will no longer be available when filing W-2 forms for tax year 2016.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 380 | Cadillac Tax: What You Need to Know Now November 9, 2016

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Tax Tip of the Week | November 9, 2016 | No. 380 | Cadillac Tax:  What You Need to Know Now

Here is a recent article from Tax Pro Today……

The Cadillac tax is a 40 percent excise tax on “high cost” health plans set in place by the Affordable Care Act. However, despite the familiarity of the term, the details surrounding the Cadillac tax can be complicated and confusing, according to Brad Knox, vice president of federal relations at Aflac.

“Employers, especially those running small businesses, have many questions. For starters, who is responsible for the Cadillac tax?” he asked.

“For businesses that are fully insured, meaning the insurance provider assumes the coverage risk and sets the premiums, the insurance provider—not the employer or employee—will be responsible for paying the tax,” Knox said.

“But if an employer is self-insured, meaning the employer retains its coverage risk, or if account-based benefits are offered through a flexible spending account, a health savings account or an Archer medical savings account, the employer or the plan administrator will generally be responsible for paying the tax,” he said. “And if employers have both types of arrangements, the responsibility for paying any tax will be proportional, based on the value of the various coverages or account-based plan benefits offered.”

All businesses providing excess benefits to employees can expect to be taxed, Knox cautioned. “The 40 percent tax will be applied to the value of an employer’s plan that exceeds certain thresholds,” he explained. “The thresholds are currently set to $10,200 for individual coverage and $27,500 for coverage other than individuals, but these limits will be increased for inflation and change before the tax is finally implemented in 2020.”

Voluntary insurance products generally do not count toward the Cadillac tax calculation, Knox noted. “But oddly, specified disease and hospital indemnity policies are included in the calculation, but only if they’re paid for with pretax dollars, such as through a cafeteria plan or with excludable employer contributions,” he said. “In other words, as long as an employer offers these two products after tax, they don’t count toward the tax calculation.”

That raises the question as to whether employers should move their pretax voluntary insurance products to after tax. “It’s important to understand that employers and their workers receive significant tax advantages for retaining pretax voluntary products,” said Knox. “Only employers with benefit plans that are considered to be high cost should contemplate after-tax strategies. Most voluntary insurance benefits won’t trigger the Cadillac tax, regardless of whether they’re offered before or after taxes. And there is no reason for employers to make any changes to their voluntary benefits offerings at this point, since implementation of the tax is several years away.”

“The bottom line is that the anticipation of the Cadillac tax may have made it seem scarier than it really is,” Knox suggested. “Considering that the implementation of the tax is several years away and regulations will likely evolve, employers can wait before making changes to the benefits they make available to employees. With the cost of health care continuing to rise and employees sharing more of the burden, the coverage that voluntary insurance provides is more important than ever before.”

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 379 | Are You Familiar With The Latest Estate Planning Rules? November 2, 2016

Posted by bradstreetblogger in : General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | November 2, 2016 | No. 379 | Are You Familiar With The Latest Estate Planning Rules?

This year marks the 100th anniversary of federal estate tax laws. As you might expect, the rules have changed a bit over the past century. Here’s an overview of current provisions.

Exemption amount. The estate tax exemption is the amount of assets you can transfer, estate tax-free, to your heirs via your estate plan or through gifts during your lifetime. The basic federal estate tax exemption is $5 million, and is adjusted annually for inflation. For 2016, the exemption is $5,450,000.

Portability. Portability is an election you make as an executor to apply the unused portion of one spouse’s basic exemption to the second spouse’s estate. As a permanent part of estate tax rules, portability makes it possible to transfer all or part of an unused exclusion between spouses. You do that on Form 706, the federal estate tax return. The catch: Normally, you have to file the return and the election by the nine-months-after-death due date, even if the total value of the estate is less than the exclusion.

Basis reporting. Estate tax rules require consistent reporting of property values between an estate and the beneficiaries. As an executor, you’ll have to file a statement with the beneficiaries and the IRS notifying both of the value of the property as reported on the estate return. Unless an exception applies, the beneficiaries, in turn, can claim no more than that value when the property is later sold or disposed of. The statement is due within 30 days after the estate return is filed or 30 days after the due date of the estate return, whichever is earlier. Penalties apply for failure to file the statement and for inconsistent reporting of the values.

Contact us to schedule an appointment to update your estate plan. We can help you understand planning documents, such as wills, trusts, and beneficiary designations, as well as your exposure to federal and state taxes.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.