With the holiday season right around the corner, another tax year is quickly coming to an end. But you may not yet be aware of what’s in store for 2016 tax filing—for one, new tax return due dates for some entities. This article outlines who is affected by these changes and what forms are required.
Once again, Congress soon will decide if any of the expiring tax breaks will be extended. The decision for some may come late in 2016 or early 2017. Not knowing which tax breaks will be extended can make planning a difficult task; however, it is believed most are likely to be extended, as has been done historically. As now is the ideal time for taxpayers to seize opportunities to ensure their current and even future tax liability, this article also offers some year-end tax planning strategies.
New Due Dates
The American Institute of Certified Public Accountants (AICPA) has been urging the government to modify tax return due dates to provide a more logical flow and timeliness in return preparation. In response, the government passed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, which implemented a new law that changes due dates beginning with the 2017 filing season for 2016 tax returns.
This new law essentially flips the filing due dates of partnerships and C corporations to enhance the tax return filing process altogether. It also aims to improve the accuracy of information by allowing taxpayers to file returns with current pass-through data rather than relying on estimates. As a result, businesses and tax practitioners hopefully will experience a smooth and efficient 2017 filing season.
Specifically, the government addressed the timely reporting of pass-through entities that file Form 1065 and report income and losses via a K-1 to partners’ or members’ respective personal income tax returns. In the past, partners and members had to wait for completed pass-through returns to file an accurate personal return. As such, the new law moves the due dates for pass-through entities filing Form 1065 from April 15 to March 15. The extended due date for Form 1065 filers remains September 15, a month before the personal income tax return extended due date of October 15.
Historically, calendar year C corporations’ tax returns were due March 15. The short due dates after year’s end required calendar year C corporations to rush completion of audited financial statements and/or extend their income tax returns. Moving the C corporations’ due date to April 15 provides extra time for these entities to properly file a return after the completion of their financial audits.
The chart below outlines the significant due date changes effective for tax years beginning after December 31, 2015. The dates changed by the new law are displayed in bold.
Additionally, the new law moves the filing of the annual foreign bank account reporting (FBAR) on Form FinCen 114 from June 30 to coincide with the due date for filing individual returns, April 15.
Planning Strategies for Individuals
Each individual’s financial situation may be unique, but the common goal is to reduce overall tax liability. Understanding your current and future financial situation significantly can help your strategy. Here are some ideas to get started:
- Consider postponing income to 2017 to lower your 2016 tax bill. Taxpayers anticipating a lower tax bracket next year should defer income to be taxed at a more desirable rate. For example, it may be advantageous to push an expected bonus to 2017. In addition, deferring income would lower your adjusted gross income (AGI) and enable larger deductions, credits, and other tax breaks that are phased out at various AGI levels.
- Accelerating income into 2016 may be beneficial. Taxpayers anticipating a higher tax bracket next year should accelerate income, if possible, into 2016 for a more favorable tax rate.
- If you are considering installing energy-saving improvements to your home, such as certain high-efficiency insulation, windows, doors, and roofs, do so before the end of the year. The improvements may qualify for the “nonbusiness energy property credit” unavailable after this year, unless extended by Congress.
- By applying a “bunching” strategy to charitable contributions, miscellaneous itemized deductions, and medical expenses, you may be able to lower your taxes. This means piling on your itemized deductions every other year, giving yourself the maximum itemized deduction for that year.
Planning Strategies for Businesses
Business owners should consider which deductions and elections apply to their business and take advantage of those tax benefit opportunities that align with their business plan. Business owners should keep the following in mind for year-end tax planning:
- For tax years beginning in 2016, the Section 179 expense limitation is $500,000 with a ceiling of $2,010,000. Expensing is generally available for most depreciable property (other than buildings). Because the deduction is not prorated for the time the asset is in service during the year, timely machinery and equipment purchases can give your business the chance to deduct the entire cost.
- Taking advantage of the “de minimis safe harbor” election to expense lower-cost assets, materials, and supplies may lower your tax liability substantially. If you have an applicable financial statement (AFS), use the safe harbor to deduct amounts paid for tangible property up to $5,000 per invoice or item. If no AFS, deduct amounts up to $2,500 per invoice or item.
- Unused losses from passive activities (generally rent, royalties, and pass-through income) are suspended and carried over to offset future passive income. To decrease your 2016 taxable income, dispose of a passive activity in 2016 to allow for an immediate deduction of any suspended passive activity losses.
- Businesses anticipating a higher tax bracket next year should consider accelerating income to 2016. Conversely, businesses anticipating a higher tax bracket this year should consider deferring income until 2017, if possible.
If you have questions about tax planning, or would like to request a speaker on this topic for your organization or event, contact one of our executives below, (800) 270-9629.
