• Marketplace providers and sellers will be subject to NM Gross Receipts Tax.
• NM will now use destination sourcing for CRS reporting purposes.
• A 10% increase in the Working Families Tax Credit.
• The Motor Vehicle Excise Tax will increase to 4.2%, up from 3%.
Please contact us if you’d like to learn more about how these changes will impact you and your business.
Clarke is an Audit Director with over 20 years of experience providing assurance and advisory services. His primary responsibility is to conduct the more technical aspects of each engagement and to coordinate the work of the staff members on the team.
The College Board reports that the average published charges for tuition, fees, room, and board at private, nonprofit, four-year schools were over $45,000 in the 2016–17 academic year. At public universities, the average charge was around $20,000 for state residents. Both numbers are the highest on record.
Such expenses for higher education are daunting, but the reality may be less onerous. Many collegians receive some form of financial aid that brings down the actual cost. The College Board also reports “net” prices, estimating the true cost of a year in college after recognizing financial aid and the savings from certain education-related tax benefits.
Such expenses for higher education are daunting, but the reality may be less onerous.
For the 2006–07 academic year to 2010–11, net prices declined in constant 2016 dollars. Even as published prices continued to rise, the average net price at private colleges fell from $24,580 to $23,620.
Since then, however, net prices have begun to move up. In 2016–17, the average figure at four-year private colleges reached $26,080. In-state students at public universities saw average net prices hold steady in the $11,000–$12,000 range from 2006–07 to 2010–11, but shoot up to $14,210 in 2016–17. In recent years, increases in grants have not kept up with rising published prices, creating more expensive net prices for higher education.
For parents of collegians and younger students, the message is that they may have to put more effort into competing for college grants.
We understand that the last thing you want to be worrying about during the holiday season is your tax planning, but now is the time for us to really start working on how to best serve you in the coming tax year.
Retirement Planning - If your company sponsors a 401(k) plan, your employer may offer a match. Make certain that you’re contributing at least enough in 2017 to get the full match, which is essentially free money. The same is true when you’re setting up your 2018 contributions late this year.
Example 1: Jill Myers earns $100,000 a year working for a company that offers a 50% match on 6% of pay. For Jill, 6% of pay is $6,000, so Jill must be sure that she has contributed at least $6,000 to her 401(k) in 2017 to get a $3,000 match, and that she’ll contribute at least that much in 2018. That’s an assured 50% return on her money.
Employees in higher brackets may opt for the traditional 401(k) for upfront tax reduction. That’s especially true for those who expect to be in a lower tax bracket after retirement. On the other hand, even plan participants with high income might choose the Roth side if they wish to have a source of tax-free cash flow in retirement and they already have ample pretax funds in the traditional 401(k). Note that all matches to a Roth 401(k) contribution will go into the participant’s traditional 401(k) account.
In 2017, the maximum you can contribute to a 401(k) as a plan participant is $18,000, or $24,000 if you will be at least age 50 at year-end. As of this writing, the 2018 limits haven’t been released, but some estimates indicate they could be $18,500 and $25,000. When you’re finalizing your 2017 contributions and setting the amounts of income you’ll place in the plan in 2018, should you choose the maximum amounts? That could be a savvy selection, but you should consider the alternatives.
Instead of maxing your 401(k), you may prefer to pay down any credit card balances. Credit card interest is not tax deductible, so paying off a card with a 15% interest rate is the equivalent of earning 15%, after tax, with no investment risk. It’s possible you’ll earn that much or more with an unmatched 401(k) contribution, which offers tax deferral, but that’s not a sure thing.
Example 2: Jill Myers has a mortgage with a 4% interest rate. In her 25% tax bracket, Jill’s return on paying down the mortgage would be 3%, and after tax, 75% of 4%. Jill believes she could earn more than that in her 401(k), so she increases her 2017 contributions to her 401(k) at year-end and raises her contributions for 2018, rather than planning on sending extra amounts to reduce her mortgage balance.
If her company does not offer a Roth 401(k), Jill may have to make another choice. She could reduce the amount she’ll specify for unmatched 401(k) contributions and plan to contribute to a Roth IRA instead. As is the case with a Roth 401(k), Roth IRAs are funded with after-tax dollars but may deliver untaxed cash flow in the future. Roth IRA contributions in 2017 can be up to $5,500, or $6,500 for those 50 or older.
Although Bert does not need the money for living expenses, he must take the distribution to avoid the penalty. That $43,668 is added to Bert’s other income, so the effective tax on that distribution can be steep.
Some surveys indicate that more than 30% of all charitable giving occurs in December, and that over 10% of donations are made in the last three days of the year. The year-end holiday spirit may be a factor in the early winter philanthropy, but taxes probably play a role, as well. A check you write to your favorite charity in December gives you a tax deduction the following April, but if you wait until New Year’s, you’ll have to wait a full year for the tax benefit.
The tax strategy followed by Wendy can be effective if you wish to make one or two charitable gifts of appreciated securities. However, if you want to make many gifts to various charities, the process can get cumbersome. (See the Trusted Advice box on page 1.) In these situations, you might want to contribute via a donor-advised fund.
Note that people who itemize deductions can’t deduct QCDs. Even so, there may be tax advantages from using QCDs because making RMDs to charity, rather than to IRA owners, will reduce adjusted gross income (AGI). A lower AGI, in turn, may deliver benefits elsewhere on the IRA owner’s tax return.
I RS data indicates that fewer than 1% of all individual income tax returns are audited each year. That’s true, but some taxpayers are more vulnerable than others. For starters, the IRS is more likely to audit taxpayers who report high incomes because that’s where larger amounts of underpaid taxes might be found.
individuals generally, those who file Schedule C, Profit or Loss From a Business—may be audited more than other taxpayers. The same is true for professionals and business owners, who could see their business as well as their individual tax returns examined. The bottom line is that taxpayers with relatively high incomes as well as those who have control over their workplace bookkeeping can expect to face IRS queries at some point.
Correspondence audit. These audits are the most common. Generally, they relate to a relatively minor discrepancy, such as faulty paperwork. You often can respond by mail to verify an item on your tax return and never have to meet anyone from the IRS.
Office audit. These examinations involve a visit to an IRS office, where you’ll meet with someone from the agency. In a typical situation, you’ll be informed of the issue involved and instructed to bring documents to support what you reported on your tax return. If you’ve deducted substantial charitable contributions, for example, you could be asked to bring canceled checks, acknowledgment letters from the recipients, and other required materials.
Field audit. Here, the IRS will visit your home or office for the audit. These audits might be more far-reaching, or the examiner might want to check on something specific, such as home office deductions you’ve claimed.
at an office or a field audit. In such a situation, it may be possible for the audit to take place at your CPA’s office.
with the professional preparing your tax return and carefully consider extremely aggressive positions. Keep in mind that the IRS communicates first by U.S. mail. If you receive an email or phone call purporting to be from the IRS, or a phone call demanding immediate payment, it’s a fake.
In 2017, if a company sponsors a profit-sharing plan, the company could make a contribution on behalf of the business owner of as much as $54,000. With a SIMPLE IRA, the maximum amount this year is $31,000. If that’s the case, why would you consider the latter choice?
start-up and operating costs, compared with many other types of retirement plans. As long as your company is eligible (it must have no more than 100 employees and must not sponsor another retirement plan), you can set up the plan by filling out IRS Form 5304-SIMPLE or 5305-SIMPLE.
Subsequently, there is no annual filing requirement and no testing for discrimination in favor of highly-compensated employees. The only other requirement is annual notification, which you can meet by sending each employee a copy of the original 5304-SIMPLE or 5305-SIMPLE. A SIMPLE IRA can also work if you are just starting a company and have no employees. With other retirement plans, adding workers may require some extensive paperwork. With a SIMPLE IRA, the company just sets up an IRA for each employee who joins the plan. A SIMPLE IRA must be offered to all employees who were paid at least $5,000 in any prior two years and who are expected to earn that much in the current year.
Another popular approach for married couples— filing restricted applications for spousal benefits—is still viable, but only for those who reached age 62 on or before January 1, 2016. The people who were grandfathered for this tactic have age 66 as their full retirement age (FRA). At FRA, someone in this age group can apply for Social Security retirement benefits, restricting the claim to a benefit that’s based on the other spouse’s work record.
Nick and Paula Robinson are married. Nick worked for more years than Paula, earning higher pay, so Nick has the larger Social Security benefit.
would eventually receive her own, larger benefit.
age requirement for a restricted benefit, our office can help you calculate the method that will likely have the greater payout.
Steve and Vicki Baker are married, with both reaching age 61 this year. They can’t use the restricted application strategy, as explained previously. Suppose both Steve and Vicki have substantial work histories, so they’ll both receive sizable Social Security benefits, but Vicki’s benefit would be larger. One plan is for Steve to begin his own benefits at age 62, the earliest date possible, while Vicki waits until age 70. Assuming Steve is retired (so he won’t have earnings that reduce his Social Security benefits), Steve’s benefits would provide eight years of cash flow while the couple is in their 60s. This would make it easier for the Bakers to wait until Vicki reaches age 70 to start benefits; her larger benefit would increase by approximately 8% a year while she waits to start. Moreover, if Vicki is the first spouse to die, Steve would receive the amount Vicki was receiving, as a surviving spouse. If Steve dies first, Vicki would continue to receive her larger benefit.
Jim Lawson has contributed much more to Social Security than his wife, Marie. Therefore, Jim will be entitled to a $2,600 monthly benefit at his FRA, but Marie’s FRA benefit will be only $800 a month. One approach is for Jim to claim benefits at his FRA and begin receiving $2,600 a month. Marie, who is the same age as Jim, also could claim at her FRA. If so, Marie would receive a spousal benefit that’s 50% of Jim’s benefit—$1,300 a month, in this example—which would be larger than her own. Here, Marie will get a large increase in benefits if she’s the surviving spouse.
reduced benefit because she started so early, but she’d still obtain some cash flow.
predeceases her. Deciding when to start Social Security will depend on many factors, such as health and the need for income. Our office can crunch the numbers for you to help you proceed.
(Special rules apply to IRA money left to a surviving spouse, but those dollars eventually may pass to younger relatives.) If the IRA beneficiaries inherit while in their prime working years, the tax on those distributions could be especially steep.
The bottom line is that you might want to use some IRA money as well as money from taxable accounts to cover living expenses in retirement. This approach may be helpful before you reach age 701⁄2, when RMDs from your IRA begin. Withdrawing applies only to new equipment while the first-year IRC Section 179 deduction applies to new and used equipment.
some money from your IRA before 701⁄2 may help you hold down taxable RMDs in the future.
Regardless of where the money will come from, you should have a plan for drawing down your portfolio in retirement. Your special circumstances will influence your decisions, but one approach is to start retirement with a sizable “cash bucket.” This money can be used for living expenses, regardless of what happens in the financial markets.
cover three years’ outlays, or $144,000. Therefore, in advance of her retirement, Joy puts together $144,000 in bank CDs and money market funds. This money can go into her checking account to help pay her bills.
From time to time, Joy will liquidate other assets to replenish her cash bucket. There are many ways to do so, so Joy should have a plan. For instance, she may check her asset allocation every year to see whether it’s still in keeping with her current wishes. Suppose Joy wishes to keep a 50-50 asset allocation between stocks and bonds, but a stock market slide has tilted her portfolio towards bonds, which have been stable. Then, Joy might sell some bonds and bond funds, putting the proceeds into her cash bucket while bringing her portfolio into a better balance.
No portfolio draw-down plan will work for everyone, but you should approach retirement with a well-reasoned plan and attempt to stick with it. Having a substantial amount of cash may enable you to ride out any market downturns, while having a thoughtful mix of equities and fixed income can provide income and growth potential throughout your retirement.
The new due date for partnerships with tax years ending on December 31 to le federal income tax returns is March 15. For partnerships with fiscal year ends, tax returns are due the 15th day of the third month after the close of the tax year. Under prior law, returns for calendar-year partnerships were due April 15, and returns for fiscal-year partnerships were due the 15th day of the fourth month after the close of the fiscal tax year.
C corporations with tax years ending on June 30, however, aren’t subject to the new due dates until tax years beginning after December 31, 2025.
The revised due dates are generally effective for tax years beginning after December 31, 2015. In other words, they generally apply to the tax returns for 2016 that are due in 2017.