Tax tips
It is now that time of year to do your tax planning for your 2019 Business and Individual returns. It is very smart to set up an appointment as soon as you can before December 31, 2019. No one can help reduce your tax burden for 2019 after the end of the year!
Your first step should be to make an appointment with your CPA and get him all the information regarding your 2019 income and tax deductions to date. He can then prepare a tax projection for 2019 and this will give you the ability to do some strategy planning together to take advantage of the tax law to save you taxes. This article gives you some tips and ideas for planning and reducing your tax burden. It is not comprehensive of all the tax areas and tax planning tips and not intended to substitute for a visit to your CPA, but may be a helpful guide to some credits about which you might to be aware.
Businesses:
Inventory Accounting
The Tax Cuts and Jobs Act (TCJA) exempts certain taxpayers from the requirement to keep inventories. Specifically, taxpayers, other than tax shelters, meeting the $25 million gross receipts test of §448(c) are not required to account for inventories under §471, but rather may use a method of accounting for inventories that either 1) treats inventories as non-incidental materials and supplies, or 2) conforms to the taxpayer’s treatment of inventories on the taxpayer’s “Applicable Financial Statement” or if the taxpayer does not have an “Applicable Financial Statement,” the method of accounting used in the taxpayer’s books and records prepared in accordance with the taxpayer’s accounting procedures. ‘Consistent with prior and present law, a deduction is generally permitted for the cost of non-incidental materials and supplies in the taxable year in which they are first used or are consumed in the taxpayer’s operations. See Treas. Reg. sec. 1.162-3(a)(1). As the provision allows a taxpayer to treat inventories as non-incidental materials and supplies, a taxpayer may also be able to elect to deduct such non-incidental materials and supplies in the taxable year the amount is paid under the de minimis safe harbor election of Treas. Reg. sec. 1.263(a)-1(f). Under such election, a taxpayer with an applicable financial statement that has written accounting procedures in place that treat as an expense amounts paid for property costing less than a specified dollar amount may deduct amounts paid for non-incidental materials and supplies at the time of payment if the amount paid for the property does not exceed $5,000 per invoice. See Treas. Reg. sec. 1.263(a)-1(f)(1)(i)(C) and (ii)(C). If a taxpayer elects to apply the de minimis safe harbor, the taxpayer must apply such safe harbor to all materials and supplies that otherwise meet the requirements of Treas. Reg. sec. 1.263(a)-1(f).
Cash Balance Plan
Develop a Cash Balance Plan stand alone or add as an element of your 401(k) and profit sharing plan. Reduce your business taxes and/or personal taxes and increase your personal savings. A Cash Balance Plan can be a good retirement savings vehicle for owners of successful businesses with steady revenue. It is an IRS-qualified Defined Benefit retirement plan that can help businesses and owners realize more tax deductions and savings as much as 4x greater than a 401(k) plan. A Cash Balance Plan works best when combined with both a 401(k) and a Profit Sharing Plan to allow business owners and employees to save more toward retirement. Cash Balance Plans will typically allow for substantially higher contributions than 401(k) plans. These higher contributions are tax deductible by the business, no matter the size of the business or number of owners. The Cash Balance Contribution is based on age and requires an actuarial computation. Unlike 401(k), which is a percentage of salaries, elective deferrals and have a small limit to the contributions. Business owners enjoy some flexibility under a Cash Balance Plan. The owner has some control over which employees they can contribute for and how much (subject to IRS non-discrimination rules). Consult with your CPA or retirement plan representative to discuss this option.
Individuals:
Charitable Donations
Tax deductible donations are contributions of money or goods to a tax-exempt organization such as a charity. Tax deductible donations can reduce taxable income. To claim tax deductible donations on your taxes, you must itemize on your tax return by filing Schedule A of IRS Form 1040. In general, you can deduct up to 50% of your adjusted gross income via charitable donations, but you may be limited to 20% or 30% depending on the type of contribution and the organization (contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations come with a lower limit, for instance). The limit applies to all donations you make throughout the year, no matter how many organizations to which you donate. Contributions that exceed the limit can often be deducted on your tax returns over the next five years, or until they’re gone, through a process called a carryover.
Your charitable giving will only qualify for a tax deduction if it goes to a tax-exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code. Examples of qualified institutions include religious organizations, the Red Cross, nonprofit educational agencies, museums, volunteer fire companies and organizations that maintain public parks. The IRS website has a list of all the qualifying organizations. Check it before you donate.
Conservation Easements
If you need a large donation deduction, you might want to consider the option of donating land for conservation easements. Land donations, particularly for conservation, can offer positive returns. In 2015, Congress enacted one of the most powerful conservation measures in decades: the enhanced federal tax incentive for conservation easement donations. In the late 1970s, Congress added section 170(h) allowing landowners to claim a tax deduction of conservation easements to a Qualified Land Trust. In 2006, Congress extended the deduction, and in 2015, Congress made the law enhanced and permanent. This bipartisan enhancement in the law was for the purpose of encouraging landowners to use this large tax deduction as an incentive to promote greater private funding for conservation. The law allows landowners, partnerships, and Limited Liability Companies (LLCs) to take a Charitable Donation Deduction for the value of the donated conservation easement. The taxpayer can offset up to 50 percent (100 percent for farmers and ranchers) of their adjusted gross income as a charitable deduction. The remainder of the deduction can be carried over for 15 years, or until it is consumed, whichever is sooner. Coastal CPAs, LLC has many years of experience regarding conservation easements. We can give you further information if you’re interested.
Tax Credits
Be aware of tax credits you might be eligible for or can get qualified for before year end. The lists that follows is probably not all of the possible tax credits for Federal and State, but does list most of them.
Federal:
Tax Credits for Energy Efficiency
Tax Credits for Solar
Tax Credits for all electric and plug-in hybrid vehicles
Child and Dependent Care Tax Credit
Child Tax Credit
Earned Income Tax Credit
Lifetime Learning Credit
American Opportunities Tax Credit
Abortion Tax Credit
Foreign Tax Credit
Medical Tax Credits – “Premium Tax Credit”
Retirement Tax Credits
Tax Credits for American Citizens
Living, Working Abroad
Georgia:
Employer’s Credit for Basic Skills Education
Employer’s Credit for Approved Employee Retraining
Employer’s Jobs Tax Credit
Employer’s Credit for Purchasing Child Care Property
Employer’s Credit for Providing or Sponsoring Child Care for Employees
Manufacturer’s Investment Tax Credit. Based on the same Tier Ranking as the Job Tax Credit program
Optional Investment Tax Credit
Qualified Transportation Credit
Low Income Housing Credit
Business Enterprise Vehicle Credit
Research Tax Credit
Headquarters Tax Credit
Port Activity Tax Credit (*Use 114J for Port Activity Job Tax Credit and 114M for Port Activity Investment Tax Credit)
Bank Tax Credit
Low Emission Vehicle Credit
Zero Emission Vehicle Credit
New Facilities Jobs Credit
Electric Vehicle Charger Credit
New Manufacturing Facilities Property Credit
Historic Rehabilitation Credit for Historic Homes
Film Tax Credit (use code 133 if the credit is for a Qualified Interactive Entertainment Production Company)
Land Conservation Credit
Qualified Education Expense Credit
Seed-Capital Fund Credit
Clean Energy Property Credit
Wood Residuals Credit
Qualified Health Insurance Expense Credit
Quality Jobs Credit
Alternate Port Activity Tax Credit
Qualified Investor Tax Credit
Film Tax Credit for A Qualified Interactive Entertainment Production Company
Alternative Fuel Heavy-Duty Vehicle and Alternative Fuel Medium-Duty Vehicle Tax Credits
Historic Rehabilitation Tax Credit for any Other Certified Structure (not a historic home)
Qualified Rural Hospital Organization Expense Tax Credit
Qualified Parolee Jobs Tax Credit
Postproduction Film Tax Credit
Small Postproduction Film Tax Credit
Qualified Education Donation Tax Credit
Musical Tax Credit
Rural Zone Tax Credits
Agribusiness And Rural Jobs Tax Credit
Post-Consumer Waste Materials Tax Credit
Timber Tax Credit
Railroad Track Maintenance Tax Credit
Ben Lee, Coastal CPAs LLC
Coastal CPAs, LLC can assist you with any matters related to your tax planning or any information discussed in this article.
“Coastal CPAs is at Your Service, to Guide You Through the Waves of New Tax Laws, Accounting & Auditing Standards, Fraud Risk, and Rough Waters That Challenge Your Financial Prosperity.”
Ben P. Lee, CPA, CFE, CFF, CGMA, CGFM, CGFO
100 Main Street • 912.638.1010
