The Famous and Quirky 45 Foot Steel Clothes Pin Created by Sculptor Claes Oldenburg Across from City Hall
The City of Philadelphia has reduced the City Wage Tax rate effective July 1, 2016.
- The new Wage Tax rate for residents of Philadelphia is 3.9004% (.039004).
- The new Wage Tax rate for non-residents of Philadelphia who are subject to the Philadelphia City Wage Tax is 3.4741% (.034741).
What does this mean to you?
Any paycheck that you issue with a pay date after June 30, 2016 must have Philadelphia City Wage Tax withheld at the new rate.
Each year, the IRS mails millions of notices and letters to taxpayers for a variety of reasons. This can be extremely upsetting when receiving this form of communication, whether it is from the IRS or any other taxing authority. The following tips are presented to reduce your anxiety and to provide a specific action plan for any correspondence received from the IRS (or from your state or local taxing authority):
- Don’t Panic: You can usually deal with a notice simply by responding to it. You should immediately contact your tax attorney, CPA or tax adviser to discuss this matter in more detail.
- Tip: Waiting can only compound and complicate your tax problems.
- Most IRS notices are about federal tax returns or tax accounts: Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do. Follow the instructions very carefully. The goal here is to give a specific and detailed response to the tax issue in question.
- Tip: Only respond to the particular issue and do not provide or discuss issues that are not being raised by the IRS.
- Taxes You Owe or Payment Request: Your notice will likely be about changes to your account, taxes you owe or a payment request. However, your notice may ask you for more information about a specific issue.
- Tip: Do not assume that the taxes owed are correct. In many cases, the IRS calculates taxes without all the relevant facts.
The Internal Revenue Service on December 18, 2015 issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 54 cents per mile for business miles driven, down from 57.5 cents for 2015
• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015 Continue reading
On Friday, July 31, 2015, President Barack Obama signed HR 3236, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (the “Act”). Not sure how this name relates to taxes but in any event the following tax law changes and provisions became law under this Act:
- Changes to the due dates for various returns. The Act sets new due dates for partnership returns, C corporation returns.
- Foreign Bank Account Reporting: New due dates for the important and often overlooked foreign bank account reporting (FBAR) forms, known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts have been implemented.
- Changing the six year statute of limitations to apply to understatements of income that resulted from taxpayers overstating tax basis when calculating sales. This change overturns the Home Concrete case where the Supreme Court ruled that understatements of income as a result of basis miscalculations would not trigger the extended six-year statute of limitations applicable to understatements of income.
- Requiring consistent basis reporting for estates and estate beneficiaries.
- Requiring additional information to be included in mortgage information statements.
- Other Information Returns: The new act imposes new filing requirements for several other IRS information returns.
Posted in Basis, Basis Reporting For Estates and Beneficiaries, C Corporation Tax Returns, Estate Administration, Estate Planning, FBAR, Hidden Bank Accounts, Home Concrete Supreme Court Case, HR 3236, Partnership tax returns, Six Year Statute of Limitations, Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Taxes
Tagged Basis Reporting, C Corporation Reporting Due Dates, FBAR, FIN Cen Form 114, income tax, information returns, Mortgage Information Returns, Partnership Reporting Due Dates, Statute of Limitations, tax law, Taxes
My very own Philadelphia Estate and Tax Attorney Blog has just won as the Best Tax Blog In America for 2015!
I am most appreciative of all of you who took the time to vote for my blog. You can see the final voting results by going to: http://wallethub.com/blog/best-tax-blog/10470/?user=sjfpc.
Thanks so much to everyone who voted!
Business Year-End Tax Planning
The arrival of year-end presents special opportunities for most small businesses to take steps in lowering their tax liability. The starting point is to run projections to determine the income and tax bracket for this year and what it may be next year. Once this is known, decisions can be made as to whether any of the following planning tools should be employed to cut taxes before the tax year closes.
Last second tax law changes also must be considered. It is also important to know that on December 19, 2014, the President passed the Tax Increase Prevention Act that extended many expired tax provisions some of which are discussed in more detail below. Note that these tax breaks are only available through the end of 2014. If any of these tax breaks are available to you, it would be prudent to take advantage of them before they expire.
Also keep in mind ordinary income tax rates for individuals can be as high as 35% to 39.6% so members of flow through entities such as partnerships, limited liability companies (LLCs) and S Corporations need to recognize this and other tax changes and plan accordingly.
The following presents some year-end tax strategies that may prove helpful to businesses of all shapes and sizes:
1. Accelerating or Deferring Income and Deductions as Part of a Year-end Tax Strategy
A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. The idea is to keep income even from year to year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between current and later year(s). (Historical note: For those of you old enough to remember, there was an income averaging rule built into the tax code that actually corrected for the inequity that can result in big shifts in income from year to year. That provision has long been abolished.)
So every year, businesses can take advantage of the traditional planning technique that involves alternatively deferring income or accelerating deductions. For example, business taxpayers such as pass-through entities (limited liability companies, partnerships, S corporations, sole proprietorship) should consider accelerating business income into the current year and deferring deductions until 2015 (and perhaps beyond) if they expect income to rise next year. Continue reading
Posted in Bonus Depreciation, Business, Business Planning, Corporations, income tax planning, Income Taxes, IRS, Repair Regulations, Retirement Plan Drafting, Section 179, Small Business, Start Up Expenses, Taxes, Year End Tax Planning, Year-End Business Tax Planning
Tagged Business, corporate tax planning, income tax, income tax deductions, income tax deferral, Small Business, Small Business Year-End Tax Planning, tax law, tax strategies, Taxes
“Son, I am sick and getting old, so fill out a deed to transfer my house into your name now.”
With the increase of the federal estate tax exemption to $5,340,000 in 2014, most taxpayers are not subject to federal estate taxes. The focus for many now has shifted to the income tax implications that arise when wealth passes to the next generation. With no regard to the income tax implications, many times elderly people get the idea that the transfer of real estate to children during their lifetime is a good idea in trying to avoid probate and to make things easier for loved ones. Even uninformed realtors, attorneys and other financial advisers sometime make such a recommendation without knowing the tax impact. However well-meaning, this uninformed strategy can have disastrous income tax results for the children recipients of such ill-conceived lifetime gifts.
It is important to understand the following income tax basis rules for calculating gain or loss:
- Lifetime Gifts: Children who receive lifetime gifts take a carryover basis in the property received. The carryover basis is determined by what the maker of the gift originally paid for the asset plus any improvements made to the property.
- Bequest At Death: Beneficiaries who receive assets at the decedent’s death get a step up in basis to the date of death value of such assets received.
Basis Rules: Illustrating How These Rules Operate
Example: DIY Dad wants to avoid probate and to transfer during his lifetime his real estate to his son, Sad Son. DIY Dad bought his house in the 1970s for $17,000 and made improvements during the years of $23,000. As a result his adjusted basis is $40,000. The house is now worth $540,000. To save lawyer fees, DIY Dad asks Sad Son to draft a deed to transfer the property. Sad Son does so and DIY Dad signs the deed and has it recorded with the recorder of deeds.
- Since this was a lifetime gift, Sad Son takes a carryover basis for the house of $40,000. Sad Son sells the house for $540,000 shortly afterwards and has a capital gain of $500,000 which he surprisingly and shockingly learns from his accountant will cost him $100,000 (20% x $500,000) in federal taxes alone. His accountant tells him there will also be state income taxes on this gain. Since Sad Son is a Pennsylvania resident, he will pay an extra $15,350 in Pennsylvania income taxes. Total Taxes: $115,350.
- Form 709: Any lifetime gifts of over $14,000 require the filing of a Form 709, United States Gift Tax Return, in the year of the gift. It should also be noted the IRS now checks recorded deeds. For more on the IRS policing this area please see IRS Checking Real Estate Transfers For Unreported Gifts.
- Alternate Universe: DIY Dad consults with his tax/estate attorney who drafts a will that provides for the transfer of his house at death to Sad Son. Sad Son (who now legally changes his name to Happy) Son, has a basis of $540,000 upon his receipt of the house from the estate. Happy Son, now sells the house and has zero, yes, zero capital gain (Sale Price $540,000 less basis of $540,000 = 0)!
- Note: Certain states have inheritance taxes. For example, in Pennsylvania there would be a 4.5% inheritance tax on the real estate, but this is a smaller cost than the capital gains tax that results from taking a carryover basis via a lifetime gift.
- Fall Back Solutions:
- If Sad Son stays in the house long enough to qualify the house as his primary residence and all statutory requirements for exclusion are met, he may then exclude $250,000 of the gain on the sale of the house once he sells the house. If married and all statutory requirements are satisfied, Sad Sam may be entitled to a $500,000 exclusion. Continue reading
Posted in Basis, D.I.Y. Estate Planning, Do It Yourself Estate Planning, Estate and Gift Tax Planning, Estate Planning, Gift Taxes, Gifts of Real Estate, income tax planning, Income Taxes, IRS, IRS Form 709, IRS Real Estate Audits, Real Estate Transfers, Taxes
Tagged estate and gift taxation, Estate Planning, income tax, income tax planning, tax law, Taxes