2016 Tax Form Changes – Part 2

The IRS has released a number of draft tax forms and instructions for the 2016 tax year. The previous post, Part 1, looked at the Form 1040 itself.  This post, Part 2, covers related draft forms and schedules.

–Form 1040—Schedule A, Itemized Deductions

*Line 29. Limit on itemized deductions.

Itemized deductions for taxpayers with adjusted gross incomes in excess of the “applicable amount” ($311,300 for joint filers or a surviving spouse, $285,350 for a head of household, $259,400 for a single individual who isn’t a surviving spouse, and $155,650 for marrieds filing separately) may be reduced.

–Form 1040—Schedule B, Interest and Ordinary Dividends

*The exclusion for education-related savings bond interest phases out at higher income levels. The phase out begins at modified AGI above $77,550 ($116,300 on a joint return).

–Form 1040—Schedule C, Profit Or Loss From Business

*Line D. Employer ID number.

The Line D instructions provide that the sole owner of a limited liability company that is not treated as a separate entity for federal income tax purposes, and that has an Employer ID Number issued in the LLC’s legal name because it is required to file employment tax returns, should enter the LLC’s EIN here.

*Part II. Expenses. Line 27a. Other expenses.

Taxpayers can also elect to deduct the costs of certain qualified live theatrical productions that have their first public performance for a paying audience.

–Form 4562, Depreciation and Amortization

*Part I. Election to expense certain tangible property under Sec. 179.

The maximum section 179 expense deduction is $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,010,000.

*Part V. Listed property.

First-year luxury auto limits for vehicles first placed in service in 2016 are $3,160 for autos and $3,560 for light trucks or vans.

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Minimum Wage to Increase January 1st

An amendment to the Colorado constitution has passed that will raise the state minimum wage to $9.30 per hour effective January 1st. The tipped minimum wage will be $6.28.

The minimum wage will continue to increases 90 cents each January 1st until the rate reaches $12.00 on January 1, 2020.

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IRS Changes W-2 1099 Filing Deadlines

Beginning with forms for tax year 2016, the filing deadline for all federal W-2s is January 31 whether filing paper or electronic returns.

Until now, employers had two dates to keep in mind when remitting W-2’s:
-January 31, to provide employee copies
-February 28, for paper filings submitted to the Social Security Administration (March 31 for electronic filings)

The new January 31 deadline applies to certain types of 1099s.  If you’re filing Form 1099-Misc and reporting amounts in Box 7: Nonemployee Compensation, then you will need to observe the new filing deadline of January 31.

If you don’t have amounts in Box 7, then the deadline remains February 28 for paper filings or March 31 for electronic filings.

If you need to make corrections after sending your file to the Social Security Administration, you can do so by filing Form W-2c, Corrected Wage and Tax Statement.

Colorado has also adopted the new deadline of January 31, beginning with the upcoming filings for 2016 Form W-2.

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Charitable Donations

As tax season approaches, taxpayers who give money or goods to a charity by Dec. 31, 2016 may be able to claim a deduction on their 2016 federal income tax return and reduce their taxes.

Only donations to eligible organizations are tax-deductible.

Only taxpayers who itemize using Schedule A can claim deductions for charitable contributions. Charitable deductions are not available to individuals who choose the standard deduction or file Form 1040A or 1040EZ.

A bank record or a written statement from the charity is needed to prove the amount of any donation of money. Bank records include canceled checks, and bank, credit union and credit card statements. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

For donations of clothing and other household items, the deduction amount is normally limited to the item’s fair market value. Clothing and household items must be in good or better condition to be tax-deductible.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include a description of the items contributed. Special rules apply to cars, boats and other types of property donations.

Donors who get something in return for their donation may have to reduce their deduction. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

IRA owners, age 70½ or older, can transfer up to $100,000 per year to an eligible charity tax-free. Funds must be transferred directly by the IRA trustee to the eligible charity.

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New FLSA Requirements Suspended

The new FLSA overtime regulations which were set to increase the exempt salary threshold to $47,476 on December 1, 2016, have been temporarily suspended by Judge Amos L. Mazzant, III.

Their implementation has been suspended until their legality can be determined. The court will hold hearings to determine whether or not the DOL had the authority to make the new rules. At the conclusion of the hearings, the new overtime rules will either be discarded or take effect.

For now, you can proceed as if the rule is on hold pending judicial review.

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2016 Tax Form Changes – Part 1

The IRS has released on its website a number of draft tax forms and instructions for the 2016 tax year.
Here are some key changes made on the 2016 Form 1040 return:

*Due date.
Form 1040’s due date is April 18, 2017.

*Electronic Filing PIN.
To validate the signature on self-prepared, electronic tax return, taxpayers must use prior-year adjusted gross income or prior-year self-select PIN.

*Line 23 Educator expenses.
The up-to-$250 per educator deduction can include certain expenses for professional development courses related to the curriculum or to the students that the educator teaches.

*Line 26 Moving expenses.
The 2016 standard mileage rate for moving expenses is 19¢ per mile.

*Line 32 IRA deduction.
The statutory dollar limit is $5,500, plus an additional $1,000 for those age 50 or older.
If the taxpayer is an active plan participant, the deduction phases out over a specified dollar range of modified AGI.

*Line 40 Itemized deductions or standard deduction.
The standard deduction is $6,300 for single filers and for married filing separately, $12,600 for joint filers and qualifying widow(er)s, and $9,300 for head of household.

*Line 42 Exemptions.
The amount of each exemption for 2016 is $4,050. (Exemptions are reduced for taxpayers with AGIs in excess of the “applicable amount”.)

*Line 45 Alternative minimum tax.
The alternative minimum tax exemption amount for 2016 is $53,900 ($83,800 if married filing jointly or a qualifying widow(er); $41,900 if married filing separately). The AMT exemption amount is reduced if alternative minimum taxable income is above statutorily defined amounts.

*Line 54 Other credits.
The maximum adoption credit is $13,460 per eligible child. The amount begins to phase out if modified adjusted gross income (MAGI) is in excess certain amounts.

*Line 57 Self-employment tax.
The maximum amount of self-employment income subject to FICA tax is $118,500. There is no ceiling on Medicare wage base.

*Line 61 Health care.
As was the case in 2015, a taxpayer must either:

• Indicate that he, his spouse (if filing jointly) and his dependents had health care coverage throughout 2016
• Claim an exemption from the health care coverage requirement for some or all of 2016 and attach Form 8965
OR
• Make a “shared responsibility payment” if, for any month in 2016, he, his spouse (if filing jointly) or his dependents did not have coverage and do not qualify for a coverage exemption.

The monthly penalty amount is equal to 1/12 of the greater of $695 per family member (up to a ceiling of $2,085) or 2.5% of the amount by which the taxpayer’s household income exceeds the filing threshold.

*Line 66 Earned income tax credit (EITC).
The maximum credit is higher, and the AGI-based phase-out figures are revised.

*Lines 74-77 Refund.
The IRS can’t issue refunds before February 15 (thus, before Feb. 15, 2017 for 2016 returns) for returns that claim the earned income credit and/or the additional child tax credit. This rule applies to the entire refund.

*Line 78 Amount you owe.
Cash is a new payment option for individuals. This option is provided through retail partners of the IRS and has a maximum of $1,000/day per transaction. To make a cash payment, a taxpayer must first be registered online at officialpayments.com/fed. There is a fee associated with this payment method.

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New FLSA Requirements

New overtime regulations under FLSA will go into effect on December 1, 2016.   The salary floor for FLSA exemptions will be raised to $913 per week or $47,476 annually.  In order to still be considered exempt, employees will need to earn a salary above $47,476.  Salaries below the $47,476 will be reclassified as non-exempt and then be subject to the overtime, meal and rest breaks, and other protections in the FLSA.
 
The exempt vs. non-exempt status refers to an employee’s eligibility for overtime pay.
Non-exempt employees are typically paid hourly and are expected to be paid overtime wages.
Exempt employees are generally paid a salary and do not receive overtime pay
 
In other words, exempt employees who do not meet the new salary threshold of $47,760/year will become non-exempt and entitled to overtime. While exempt employees are not required to keep track of their hours, non-exempt employees must track their “hours worked” and be paid overtime for all hours worked in excess of 40 in a workweek.
 
Once an exempt employee is re-classified as non-exempt, all of his/her work time must be reported and paid, including overtime. Employers who re-classify exempt employees must ensure that the employees are accurately recording and being paid for their time and not working “off the clock.”
 
This new FLSA ruling applies only to for-profit employers whose annual sales total $500,000 or more or who are engaged in interstate commerce.  You might think that this would restrict the FLSA to covering only employees in large companies, but, in reality, the law covers nearly all workplaces. This is because the courts have interpreted the term “interstate commerce” very broadly. For example, courts have ruled that companies that regularly use the U.S. mail to send or receive letters to and from other states are engaged in interstate commerce. Even the fact that employees use company telephones or computers to place or accept interstate business calls or take orders has subjected an employer to the FLSA.
 
If you have any questions or concerns regarding these new requirements, please let us know!

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Big Business

“If you can build a business up big enough, it’s respectable.”

Will Rogers

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Worth

“If you want an accounting of your worth, count your friends.” Merry Browne

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Wrapping Up A Client Meeting

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