FAQ's - Tax
What are the Social Security Limits for 2016?
For 2016, the FICA rate is 6.2% and the wage base is $118,500. The medicare rate is 1.45% and there is no wage base limit.
What are the Social Security Limits for 2017?
For 2017, the FICA rate is 6.2% and the wage base is $127,200. The medicare rate is 1.45% and there is no wage base limit.
What is the Social Security Earnings Limit for 2016?If you are under age 65, the limit for 2016 is $15,720. If you are over age 65 there is no earnings limit.
What is the Social Security Earnings Limit for 2017?If you are under age 65, the limit for 2017 is $16,9220. If you are over age 65 there is no earnings limit.
What is the Maximum Section 179 Expense you can take in 2016?The maximum section 179 expense for 2016 is $500,000.
What is the Maximum Section 179 Expense you can take in 2017?The maximum section 179 expense you can take in 2017 is $510,000.
What are the 2016 Individual Income Tax Rates?Click "Show More" to see answer. [Show More]
|Tax Rate||Taxable Income|
|10%||$ 1 - 9,275|
|15%||9,276 - 37,650|
|25%||37,651 - 91,150|
|28%||91,151 - 190,150|
|33%||190,151 - 413,350|
413,351 - 415,050
Married Filing Jointly Standard Deduction - $12,600
|Tax Rate||Taxable Income|
|10%||$ 1 - 18,550|
|15%||18,551 - 75,300|
|25%||75,301 - 151,900|
|28%||151,901 - 231,450|
|33%||231,451 - 413,350|
|35%||413,351 - 466,950|
Married Filing Separately Standard Deduction - $6,300
|Tax Rate||Taxable Income|
|10%||$ 1 - 9,275|
|15%||9,276 - 37,650|
|25%||37,651 - 75,950|
|28%||75,951 - 115,725|
|33%||115,726 - 206,675|
|35%||206,676 - 233,475|
Head of Household Standard Deduction - $9,300
|Tax Rate||Taxable Income|
|10%||$ 1 - 13,250|
|15%||13,251 - 50,400|
|25%||50,401 - 130,150|
|28%||130,151 - 210,800|
|33%||210,801 - 413,350|
|35%||413,351 - 441,000|
What is the Standard Mileage Rate for 2016?
For miles driven in 2016 the standard mileage rate is 54 cents per mile. The medical / moving expense rate is 19 cents per mile and the charitable work rate is 14 cents per mile.
What is the Standard Mileage Rate for 2017?
For miles driven in 2017 the standard mileage rate is 53.5 cents per mile. The medical / moving expense rate is 17 cents per mile and the charitable work rate is still at 14 cents per mile.
What is the Percentage of Prior Year's Federal Tax Liability for Protective Estimates?If your adjusted gross income was $150,000 or less in the prior year, the applicable percentage is 100% of the prior year tax. If your adjusted gross income exceeded $150,000 in the prior year, the applicable percentage is 110%
What is the Unified Gift and Estate Tax Credit Equivalent?Click "Show More" to see answer. [Show More]
|For Transfers Made In||The Credit is||Taxable Estate Equivalent||Gift Tax Exemption|
|1987 - 1997||$192,800||$600,000||$600,000|
|2000 - 2001||$220,550||$675,000||$675,000|
|2002 - 2003||$345,800||$1,000,000||$1,000,000|
|2003 - 2005||$555,800||$1,500,000||$1,000,000|
|2006 - 2008||$780,800||$2,000,000||$1,000,000|
|2012 - 2015||$1,772,800||$5,120,000||$1,000,000|
What Tax and Accounting Records does your Business Need to Keep and for How Long?First consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records to support almost every item of income and expense that you claim. That means you must be able to produce receipts, invoices, canceled checks or banking records supporting all expense items. Similarly, you should keep sales slip, invoices, or bank records to support items. [Show More]
Good recordkeeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or almost seven years after the tax year). For that reason, you should keep most income tax records for seven years. Keep real estate records indefinitely. The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.
|Accounts Payable||7 Years|
|Accounts Receivable||7 Years|
|Chart of Accounts||Indefinitely|
|Expense Records||7 Years|
|Financial Statements (annual)||Indefinitely|
|Fixed Asset Purchases||Indefinitely|
|Inventory Records||7 Years (Indefinitely for LIFO system)|
|Loan Payment Schedules||7 Years|
|Sales Records||7 Years|
|Bank Statements||7 Years|
|Canceled Checks||7 Years (Indefinitely for R.E. Purchases)|
|Loan Records||7 Years (From the date of last payment)|
|Electronic Payment Records||7 Years|
Real Property Records:
|Lease Payment Records||Life + 4 Years|
|Real Estate Purchases||Indefinitely|
What Corporate Records does your Business Need to Keep and for How Long?Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also keep copies of all contracts and leases. Finally, don't forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely. [Show More]
|Contracts - Major||Indefinitely|
|Contracts - Minor||Life + 4 Years|
|Insurance Policies||Life + 3 Years|
|Leases / Mortgages||Indefinitely|
|Patents / Trademarks||Indefinitely|
|Employee Files (ex-employees)||7 Years / Employee lawsuits statute of limitations|
|Employment Applications||3 Years|
|Employment Taxes||7 Years|
|Payroll Records||7 Years|
|Pension / Profit Sharing Plans||Indefinitely|
What Computer Records does your Business Need to Keep and for How Long?These days, more and more business records are stored electronically. While this saves time and space, it also increases the risk of accidental loss or damage. A hard disk in a personal computer can crash at any time, perhaps erasing months of data. Make sure your computer system is backed up regularly, and keep the backup copy in a fireproof location, preferably offsite.
Who is Considered an Independent Contractor?A major tax planning issue for many new and existing businesses to consider involves either the hiring of employees or utilizing independent contractors. When utilizing an independent contractor, the employer can realize significant cost savings in both federal and state employment taxes including FICA, Medicare, and unemployment taxes. This action has forced the IRS to set guidelines to distinguish between an employee and an independent contractor. The IRS has set up a list of 20 points which will help clarify which individuals are classified as employees and which are classified as independent contractors: [Show More]
- Working requirements - If a person is required to comply with instructions involving where and when to perform a job, he can be construed to be an employee.
- Training - If members of the business instruct an individual how to perform certain work or adopt certain methods, this can be construed as grounds for being an employee.
- Integration of services - If the services provided by an individual are an integral part of the employer's business and are subject to direction and control, this can be grounds for that person to be considered an employee.
- Hiring, supervising and payment - If a worker is contracted to perform a task for the company and has the ability to hire, supervise, and pay other workers, he is to be considered an independent contractor.
- Right to terminate service - An independent contractor cannot be dismissed as long as he is performing the desired work.
- Set hours - If a person is obligated to be at the place of business during a set time frame, he can be considered an employee.
- Payment by hour, week or month - Independent contractors are normally paid by the job, whereas an employee is paid consistently over time.
- Continuing relationship - If a person performs similar tasks at regular intervals he can be thought of as an employee.
- Working tools and equipment - A person who has substantially all of his own tools is more likely to be considered an independent contractor.
- Place of business - A person consistently performing work from the employer's place of business can be considered an employee.
- Services available to public - If a worker can hold himself out to the public by advertising, holding a business license among other things, he can be considered an independent contractor.
- Realization of profit or loss - If a person can profit or take a loss on the work her performs, he can be thought of as an independent contractor.
- Business and travel expense - If business and travel expenses are paid by the employer, the worker can be considered an employee.
- Reports - If a worker is required to submit reports on a regular basis, he can be thought of as an employee.
- Services rendered personally - The employer who is not only looking for the results of a person's work but also the method is considered to be hiring an employee.
- Right to discontinue a relationship - If an employer can discontinue a working relationship without incurring liability, the worker can be considered an employee.
- Work pattern - If a worker is required to follow a set of orders or patterns and not have his own work schedule, he is considered to be an employee.
- Outside services for other businesses - A worker who performs similar or larger jobs for businesses other than the employer is considered to be an independent contractor.
- Full time - If a person devotes substantially all of his time to one business, he can be considered an employee.
- Facilities - If a substantial amount of money is spent on a worker's own facilities, that person can be thought of as an independent contractor.
What are Deductible Business Expenses?Click "Show More" to see answer. [Show More]
Deductible travel expenses include any ordinary and necessary expenses incurred while commuting from work place to another work place. An ordinary expense includes any cost assumed while engaged in doing business in one's profession. A necessary expense is a cost which is needed to complete business activities. If a vehicle is used for business travel, one is eligible to deduct certain costs for business use. There are two methods to be aware of when reimbursing the employer or employees for travel in a vehicle. The first method involves reimbursement of actual expenses and the other involves the use of per diem mileage rates set up by the federal government. Regardless of the method used, it is imperative for tax purposes to keep accurate and descriptive records showing dates, miles, costs and purpose of travel.
If using actual expenses for business travel, one is eligible to deduct the following items on the tax return:
- Lease fees
- Rental fees
- Oil and Gas
- Carport storage
Standard Mileage Rate (Per Diem)
This method is used in lieu of taking the actual expenses incurred. The standard mileage rate set forth each year by the federal government is based on depreciation amounts, oil and gas usage, licenses, insurance and other factors. This rate gives an amount to deduct from the tax return without figuring all of the specifics of auto expenses. This method does not mean that a mileage log can be ignored. It is a requirement to have documentation explaining all business miles driven. In addition to taking this per diem rate deduction for expenses, one may also separately include the costs of tolls, car storage and parking fees. Again, it is important to keep track of these expenses in a log with the relevant receipts. The rules and methods for deducting automobile expense and various other travel expenses can be confusing. It would be beneficial to sit down with an accountant to discuss whether appropriate records are being kept and how to properly deduct this expense.
One may be able to deduct business related expenses for entertaining a client, customer or employee. Again, to be a deductible expense, that expense must be both ordinary and necessary for doing business. In general, no deduction is allowed for the travel, meal and entertainment expenditures unless it can be established that the expense is directly related to or associated with the active conduct of a business. As with all deductible items, it is also a requirement to keep records of entertainment expenses incurred. These records should include the following detail:
- To whom was the expense provided?
- Why was this expense provided (business purpose)?
- Where did the expense occur?
- Receipts pertaining to amounts spent Even if all the requirements for entertainment expenses have been met, the amount which can be deducted is limited to 50% of the reimbursed amount to the employees.
Reimbursement of Employee Expenses
Employers generally can deduct amounts reimbursed to employees for business expenses which they have incurred on behalf of the business. The amount and manner in which one can deduct employee expenses depends on whether reimbursements are recorded under an "accountable" or "non-accountable" plan.
For reimbursement of employee expenses to be an accountable plan, it must meet all three of the followin rules:
- The expenses incurred by the employee must be business related
- The expenses incurred must be turned in to the employer within a reasonable period of time
- An employee must return an excess reimbursement within a reasonable period of time
A non-accountable plan is a reimbursement arrangement that does not meet the three basis rules for accountable plans. Any amount which is an excess reimbursement that an employee fails to return or reimbursements to employees for nondeductible expenses are part of the non-accountable plan. If either of these two situations arise, the employer will need to combine the amounts of over-reimbursements and other nondeductible expense allowance amounts and include them as wages to the employee.
What are Some Individual Tax Planning Tips?Click "Show More" to see answer. [Show More]
- Monitor your estimated payments and withholding to avoid underpayment penalties.
- Be certain that you have social security numbers for all of your dependents and that they are reported properly on the tax return.
- Contribute to a non-working spouses IRA.
- Consider a $2,000 Education IRA for each child under age 18.
- Analyze your borrowings and restructure debt where possible to gain a tax deduction.
- Don't overlook minimum distributions at 70 1/2 and rack up a 50% penalty.
- Don't forget the filing requirements for household employees.
- Consider funding a nondeductible regular or Roth IRA..
- Contribute directors' fees to retirement accounts.
- Make contributions to your working children's IRA's.
- Shift pretax income to low-income parents and grandparents rather than giving them gifts.
- Review your estate plan to determine if you should consider using part or all of the unified credit.
- Even though the estate and gift tax rates are the same the computation of the tax liability is very different. Making a taxable gift can result in paying less taxes.
- If you are self-employed consider employing your under 18 child.
- To calculate exact gains or losses on mutual fund investments, save every statement you receive. Remember that reinvested dividends increase your tax basis.
- When selling shares of stock that you purchased at different prices at different times, inform your broker beforehand that you are selling the shares with the highest basis. This will minimize taxable gain or maximize deductible loss.
- Donate appreciated property to charities to avoid capital gains tax. The amount of your deduction is the value of the property rather than its cost. Special rules can apply.
- Consider paying off your home mortgage if you're subject to the itemized deduction phase-out.
- Use your employer's flexible spending account or cafeteria plan.
- Gift appreciated stock that you have held over 12 months to your child age 14 or older to pay capital gains tax at a lower rate upon sale.
What are Some Business Tax Planning Tips?Click "Show More" to see answer. [Show More]
- Consider whether your current form of business if still best for you.
- Avoid payroll taxes by shifting a portion of compensation from salary to fringe benefits. Unreimbursed medical expenses and payroll-deducted group insurance are ideal benefits to include in a Section 125 cafeteria plan.
- Set up a cafeteria plan to allow employees to pay for their dependent care expenses. This will likely save them more than they would with the child care credit.
- Self-employed taxpayers who employ their spouses in the business may deduct 100% of the health insurance premiums for the spouse and dependents.
- Establish a 401(k) or SIMPLE program to help attract and retain quality employees.
- Time purchases of personal property to maximize depreciation deduction and avoid the mid-quarter convention.
- Switch to an "accountable" plan if you're currently reimbursing employee business expenses under a "nonaccountable" plan.
- Buy business supplies at the end of a profitable year and accelerate other expenditures like repairs and maintenance.
- Review entertainment, club dues, and meal expense accounts to make sure they are correctly classified.
- Review the status of workers as employees or independent contractors.
- Donate excess inventory to qualified charities to receive larger deductions.
- Employ your children if you own your own business to take advantage of several tax benefits.
- Buy equipment before the end of the year to take advantage of the Section 179 expense deduction.
- Review the amount of your estimated tax payments.
- Determine whether you'll be subject to the AMT this year or in the future.
- Shift income into next year by delaying billing and collection activities if a cash method business, or delay shipments of an accrual basis business.
- Consider the corporate accumulated earnings penalty tax before paying dividends.
- Set up a nonqualified deferred compensation plan for your highest paid employees.
- Declare bonuses to qualified corporate employees before year-end, then pay them within the first 2 1/2 months of the next tax year.
- Determine how state and local taxes and year-end strategies will affect your overall plan.
What are the 2016 Corporate Tax Rates?
|Up to $50,000||15%|
|$50,001 - 75,000||25%|
|$75,001 - 100,000||34%|
|$100,001 - 335,000||39%|
|$335,001 - 10,000,000||34%|
|$10,000,000 - 15,000,000||35%|
|$15,000,000 - 18,333,333||38%|