Summary of Protecting Americans from Tax Hikes just passed by Congress.

Just a week before Christmas Congress passed a tax gift to many Americans.  Surprisingly many temporary tax breaks, the so called extenders, were made permanent.  Made permanent include, educator expenses, deductions for sales tax, and most interestingly not only was the American Opportunity tax credit was made permanent, the Hope education credit was increased and indexed for inflation. 

Very good news for small business owners. Section 179 expenses were made permanent. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement
property) also are permanently extended.

Professional Education Services has compiled a summary of the law. We have posted a link below.


Click here to read the pdf file Summary of the Protecting Americans from Tax Hike Act.

Some Tax Extenders are now Permanent.

From Accounting Today.



"Congressional leaders unveiled a wide-ranging deal on tax extenders, making some items permanent.

The Protecting Americans from Tax Hikes Act of 2015 is a culmination of recent work done in both chambers of Congress and renews and makes permanent important tax incentives that support both individuals and job creators. Among the provisions that would be made permanent are the enhanced Child Tax Credit, the enhanced American Opportunity Tax Credit, the enhanced Earned Income Tax Credit, the above-the-line deduction for teachers who buy school supplies, the charitable deduction of contributions of real property for conservation purposes, along with the Research & Development Tax Credit and Section 179 expensing.

The permanent R&D Tax Credit provision permanently extends the research & development tax credit and, for the first time, allows for eligible small businesses to claim the credit against the alternative minimum tax liability or against the employer’s payroll tax liability. The Section 179 provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; and sets a new threshold at $500,000 and $2 million, respectively, from the current amounts of $25,000 and $200,000, respectively. 


Also made permanent by the legislation are the tax break for mass transit and parking benefits, and the option to claim an itemized deduction for state and local general sales taxes in lieu of a deduction for state and local income taxes.
In addition, the legislation suspends the 2.3 percent excise tax on medical devices through 2017 and delays for two years the so-called "Cadillac tax" on high-priced health insurance plans that was supposed to begin in 2018. It also phases out bonus depreciation. Another provision permanently extends the exception from subpart F income for active financing income. The legislation also permanently extends the rule reducing to five years (rather than 10 years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.
Another provision permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) of up to $100,000 per taxpayer in any tax year."


Read more by clicking on this link.

The basics of year end tax planning. Did you know that it is estimated that Small Businesses pay up to $160 Billion in excess taxes each year?

Version 33 of the same story.

Sally Smith, was a smart businessperson, she knew the basics of year-end tax planning.

1.  Postpone income to next year.

2.  Pay as many expenses as possible this year.

3.  Keep inventory level low.

4.  If you are going to make a capital investment, do so before the end of the year.

5.  Double check for missing deductions.

6.  Invest in an IRA for similar type account.

Sally owns a retail store and faced the year end with her eyes wide open.  Sally knew that a few strategies would pay big dividends on April 15th.  Here is what she did to reduce her tax liability:

Since Sally was operating her business on a cash basis and relied upon cash sales through her cash register, she did not have the opportunity to postpone much income.  She followed a policy based on our firm’s standard practice for clients for many years, to close her books on December 28th, which gave her opportunity to defer three days of sales to next year.

Sally then reviewed her bills.  She started to write out checks for her expenses. She wrote checks for all expenses due, even if some expenses were due in January.  She dated her checks for December 28, 2015 to be sure that the expenses were recorded for this year on December's bookkeeping.  Her checks written totaled to almost $10,000.  Her one simple strategy, accelerating expenses meant that Sally saved over $4,000.00 in income tax this year.

Since you pay tax on your inventory at the end of the year, Sally knew that reducing her inventory to the lowest amount possible was important for her. First, she decided to review her inventory to see if she had things that have been gathering dust.  She found items that in fact had been sitting around for more than three years.  She decided to mark those items down and immediately started an inventory reduction sale for those items.  She knew that the value of  her inventory was based upon her costs of the items, not the selling price.  She also knew that items that were partially used, or supplies not for resale, did not count as part of her inventory.

Sally had been debating whether to purchase a new computer for her business. The local computer store was offering a "six-months same as cash" financing offer for the purchase of new computers.  Sally decided to purchase the computer now, electing to take advantage of the special financing offer.  She knew that she could deduct the full purchase price of the computer on her tax return, even though she did not pay for it right away.  When you purchase something using a credit card or borrow the money, as Sally did, you get to deduct the amount when you purchase the item.  The $3,000 computer saved Sally $1,200 in income tax.

As part of her year-end review Sally took a minute to see if perhaps she has recorded all her business expenses as part of her monthly record keeping.  She knew that the credit card that she had been using exclusively for business had some interest payments that were not included. She made a note to record her year-end statement from her credit card company to make sure that it was included as interest paid on her year-end documents to her accountant.  In addition, she decided to review her automobile mileage and other receipts for expenses that she might not have had for her business and had a chance to record in her monthly record keeping.

Surprisingly, Sally read a previous newsletter to and decided to take her business’ accounting online. She took our advice and subscribed to Wave app accounting.  She took advantage of downloading her bank account and discovered how easy it was to enter her data.  She really liked it and is recommending it to other small business owners she knows.

Sally also knew that she had time to make her annual IRA contribution until April 15 of next year.  She decided not to make it till next April.  She also made a note to talk to us about Roth IRA accounts and analyze the different options available to her.  One of her options was a self-employed Pension Plan commonly called a SEP. IRA's.  SEP. IRA's do not have to be opened or funded until the due date of your return.  That means that Sally doesn't have to open or make a contribution to a SEP IRA for the 2014 tax year until April 15, 2015.  She can also contribute a larger amount to her SEP IRA than she could to her regular IRA.  However, she was reluctant to open one because she also knew that she would have to contribute an amount to her full time employees.  She made a note to ask her tax guy what that contribution would be and what her resultant tax savings would equal.  She also thought her accountant might have ideas on how to "cushion" the employee's contribution issue.

Sally knew that her year end review of her tax situation saved her almost $7,000 this year.  She made a note to review her year end information before we prepared her tax return in 2015.

SAVE TAXES...REMEMBER BEFORE JANUARY 1, 2016

1. Postpone income to next year.
2. Pay as many expenses as possible this year, even if you do not send the checks off till January, be sure to write the checks for the expenses.
3. Keep inventory at a low level.
4. If you are going to make a capital investment, do so before the end of the year.
5. Double check for missing deductions.
6. Invest in an IRA or similar type account.

Do you know someone who having tax issues?  We can help.  According to IRS one in six taxpayers will have some sort of tax liability problem at some point.  Along with my colleague, former Illinois Department of Revenue attorney Jim Chipman, we have helped dozens of clients solve their tax problems, and this is very important, honestly and affordably.  If you know someone who is having problems, please ask them to call us.

Do you know someone who would like a copy of this email newsletter?  If so pass it on or ask them to send us their email at taxpartnerfreereports@gmail.com.

IRS is a Scrooge when it comes to Christmas business gifts.

Uncle Sam is a Scrooge when it comes to Christmas presents and bonuses to your employees.  

No matter what the cost of the gift, whether it is $100.00 or $1,000.00, you can only deduct $25.00 on your tax return.

You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.  

If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use.  

If you and your spouse both give gifts, both of you are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

IRS gives us this example:

Bob Jones sells products to Local Company. He and his wife, Jan, gave Local Company three gourmet gift baskets to thank them for their business. They paid $80 for each gift basket, or $240 total. Three of Local Company's executives took the gift baskets home for their families' use. Bob and Jan have no independent business relationship with any of the executives' other family members. They can deduct a total of $75 ($25 limit × 3) for the gift baskets.

Incidental costs.   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit.   A cost is incidental only if it does not add substantial value to the gift. For example, the cost of gift wrapping is an incidental cost. However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit.

Exceptions.   The following items are not considered gifts for purposes of the $25 limit.

1. An item that costs $4 or less and:
1. Has your name clearly and permanently imprinted on the gift, and
2. Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.
2. Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Are you giving cash in lieu of a gift for Christmas?  If  the amount of the bonus is more than $25.00 then you are required to withhold taxes just like any other paycheck. .

2015 Year End Tax Planning Newsletter

It pays to do a little tax planning this time of year. Wolters Kluwer CCH just emailed me their year end tax planning newsletter.  It is worth a look. 




Click on this link to read the newsletter as pdf file.

Is Obamacare Substainable?

As we enter another enrollment period Richard Epstein writing on the Hoover.org questions the future of the Affordable Care Act.


"But if the legal battle over Obamacare is over, the economic battle over Obamacare has just begun. The issue here is simple enough. Can the plan, which has weathered the legal challenges, survive in today’s highly dynamic economic market? The prospects are uncertain to say the least. Some clear signposts indicate the answer is no. The ACA cannot succeed simply by securing first-time enrollments in its exchanges. Insurance policies are subject to annual renewals. The first year of operations will give information about how the second year will go.


Here are some instructive results. As of early June, some 1.5 million people dropped out of the exchanges by failing to pay premiums, reducing the number covered from a February 2014 high of 11.7 million enrollees to 10.2 million four months later. That figure was still a substantial increase over the 6.3 million people insured at the end of 2014. But in the next three months, the downward trend continued so that by September 2015, the number of enrollees tumbled to 9.9 million, which was still above the administration’s goal of having 9 million on the rolls by the end of this year. But the current negative trend line is all the more striking given that some 8.3 million subscribers receive a subsidy of about $270 per month, which works out to a program wide subsidy of about $224 billion per year.

At this point, most of the gain in coverage, about 71 percent of the total, has come through the expansion of Medicaid, which in general offers inferior care to that provided by private insurance carriers. The decline in enrollees on the exchanges represents a displacement of ordinary people from insurance plans that they chose for those which come with a government stamp of approval.

The second straw in the wind is the looming failure of the private co-op plans that were intended in 2010 to offer some stiff competition to the commercial healthcare plans that were otherwise expected to dominate the overall system. The most recent casualty—the ninth to date out of a total of 23—has been Tennessee’s Community Health Care Alliance, with some 27,000 subscribers now forced once again to find coverage in order to stave off payment under the Obamacare individual mandate. Most, if not all, of the remaining 14 plans are also likely to go belly up.

The recent pattern of events raises two questions. First, how did we get here? Second, where do we go next?"


Read more by clicking on this link.



Listen to John Batchelor interview Epstein by clicking on this link.

IRS Urges Public to Stay Alert for Scam Phone Calls

The IRS has sent a "special edition" email concerning the persistent IRS impersonators scam:


The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:

• Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
• Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
• Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
• Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
• Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

The IRS will not:

• Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
• Demand that you pay taxes and not allow you to question or appeal the amount you owe.
• Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
• Ask for your credit or debit card numbers over the phone.
• Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes, or have no reason to think that you do:

• Do not give out any information. Hang up immediately.
• Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
• Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" in the notes.

If you know you owe, or think you may owe tax:

• Call the IRS at 800-829-1040. IRS workers can help you.

Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.
Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
IRS YouTube Videos:

• Tax Scams – English | Spanish | ASL 

IRS Podcasts:

• Tax Scams – English | Spanish