Accounting & Tax

Article Dean Dorton

Due dates for certain tax returns for the 2017 tax filing season (returns for 2016) and beyond have been changed. The changes, based on the tax year being the calendar year, are highlighted in the chart below.

Due Date Extended Deadline
Return Type Form Number Former New Former New
Partnership 1065 April 15 March 15 Sept. 15 Sept. 15
S Corporation 1120-S March 15 March 15 Sept. 15 Sept. 15
Trust and Estate 1041 April 15 April 15 Sept. 15 Sept. 30
C Corporation 1120 March 15 April 15 Sept. 15 Sept. 15
Individual 1040 April 15 April 15 Oct. 15 Oct. 15
Foreign Account Reporting FinCen114 June 30 April 15 None Oct. 15
Exempt Organization 990 May 15 May 15 Nov. 15 Nov. 15

Note that the dates shown do not reflect what the due dates were or will be in cases where these dates fall on weekends or holidays. In these cases, the due dates fall back to the next business day.

The due dates for certain wage information forms also have changed. Forms W-2 and Forms 1099-MISC with amounts reported in box 7 for nonemployee compensation must be submitted to the IRS by January 31. The extended due date for electronically filing these forms is no longer available. The forms are due to be sent to the recipients by January 31, as well.

If you have any questions, contact your Dean Dorton advisor or Natalie Schuler at nschuler@deandorton.com.

Article Dean Dorton

Most assets of which we are the sole owner pass at death according to the terms of our will and beneficiary designations of retirement plans and life insurance.

In a real example from a dispute that went all the way to the U.S. Supreme Court, a daughter had an “unpleasant” outcome when her father passed way. Her father’s ex-wife was awarded $400,000 from his retirement plan even though she had waived any interest in the plan in the divorce and property settlement agreement.

What happened? The father failed to update his beneficiary designation form to name his daughter as beneficiary. When he died seven years after the divorce, his former wife was still named as the beneficiary upon his death. The employer’s plan document stated that beneficiaries could only be changed by submitting the required form. The Court held that the administrator of an ERISA-covered benefit plan need only look to the governing plan documents to determine the proper plan beneficiary.

This case reminds us of some very important points:

  • Do not rely on documents such as a divorce decree, property settlement agreement, or a will to name beneficiaries of life insurance policies, retirement plans, 529 college savings plans, and annuities. Determine the currently named beneficiary for all such assets and, if you want the designation to be changed, obtain the proper forms to change your beneficiary designation and complete and properly submit the forms. Keep copies of the completed forms with your will and other testamentary documents.
  • Divorce is not the only situation where failing to update your beneficiaries can cause problems for intended heirs. You may want certain benefits to go to specific children. Their financial or medical situations may have changed. Remind yourself to do an annual “check-up” to review beneficiaries. This should include primary and contingent beneficiaries. It is important to include a secondary beneficiary in case the primary beneficiary predeceases you.
Please contact Missy DeArk at mdeark@deandorton.com if you have questions about this important topic.

Article Dean Dorton

With the upcoming changes in the political arena, interest on municipal bonds is at risk of becoming subject to federal income taxation. Under the current U.S. tax code, when investors lend money to local or state governments to finance infrastructure — in other words, buy municipal bonds — the investor in-turn receives interest throughout the term of the loan that is exempt from federal income taxation.

However, as President-elect Donald Trump and a Republican-controlled Congress are mapping out their plans to finance massive infrastructure spending, they’re looking more to having governmental infrastructures financed in part by tax credits, private equity investments, and taxable municipal bonds to offset the credits or tax cuts.

Trump economic advisors, private-equity investor Wilbur Ross (Trump’s choice to lead the Department of Commerce), and University of California at Irvine business professor Peter Navarro question why interest should be exempt from federal taxation when the debt was issued by the state and local governments. The advisors additionally argue that municipal bonds aren’t an efficient way to pay for public projects because a percentage of the tax savings goes to the bondholder. Instead, federal tax credits and private investments are considered a more ideal supplement to existing financial programs, along with taxable municipal bonds.

Click the botton below to read the full article from Navarro and Ross discussing the potential changes to the municipal market by the Trump infrastructure plan.

Read the Article

If you would like to discuss this article or learn more, please contact Lashanda Stewart, Specialist in Tax Services, at lstewart@deandorton.com.

Article Dean Dorton

FICA base — Annual compensation to which Social Security tax applies is $127,200 for 2017 (up from $118,500 for 2016).

Social Security benefits — Individuals who are drawing Social Security benefits prior to attaining full retirement age will begin to suffer reductions in payments if they have earned income exceeding $16,920 in 2017, up from $15,720 in 2016.

Adjustments for retirement accounts — The maximum annual addition to a defined contribution plan is increased to $54,000 for 2017 (up from $53,000 in 2016). The maximum amounts that individuals can elect to contribute to employer-sponsored plans and IRAs for 2017, as shown below, are unchanged from 2016:

Year IRAs SIMPLE IRA Plans Other Employer Plans
Annual Contribution Catch-Up Contribution Elective Deferral Catch-Up Contribution Elective Deferral Catch-Up Contribution
2017 $5,500 $1,000 $12,500 $3,000 $18,000 $6,000

The maximum amount of compensation that can be considered as the base for retirement plan contributions is $270,000 for 2017 (up from $265,000 for 2016).

Health savings accounts — The limits on contribution deductions for 2017 are $3,400 for self-only coverage (up $50) and $6,750 for family coverage (no change). The additional “catch-up” contribution allowable for those age 55 or older remains $1,000.

Health flexible spending arrangements — The maximum voluntary employee salary reduction for employer-adopted FSAs (flexible spending arrangements) is $2,600 for 2017 (up $50).

Section 179 deduction — The maximum Section 179 deduction for 2017 is $500,000, subject to a dollar-for-dollar phase-out range of $2,000,000 to $2,500,000 of qualifying property purchases in the year.

Estate tax — Federal estate and gift taxes apply to cumulative taxable transfers exceeding $5,490,000 in 2017, up from $5,450,000 in 2016.

Gift taxes — The annual exclusion for gifts per donee remains $14,000 for 2017.

Nanny tax — Cash wages paid for domestic service in the employer’s home of less than $2,000 remain not subject to FICA in 2017.

Article Dean Dorton

An ITIN — Individual Taxpayer Identification Number — is used by non-residents of the U.S. who are not entitled to work in the U.S. (and therefore cannot obtain a social security number) to satisfy their U.S. tax filing and payment obligations. All ITINs not used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return as of January 1, 2017.

Additionally, all ITINs issued before 2013 will begin expiring this year, starting with those with middle digits of 78 and 79 (Example: (9XX-78-XXXX). All expired ITINs must be renewed before being used on a U.S. tax return. No action is needed by ITIN holders who don’t need to file a tax return next year. Find more information in the ITIN Expiration Frequently Asked Questions at www.irs.gov/individuals/itin-expiration-faqs.

If you have any questions, contact your Dean Dorton advisor or Lola Causholli at lcausholli@deandorton.com.

Article Dean Dorton

The IRS is placing increased scrutiny on the use of tax exempt bonds by 501(c)(3) organizations. Since interest earned on the revenue bonds issued by state and local governmental organizations is exempt from federal income taxation, bonds are subject to compliance with federal tax law requirements.

One important requirement under the Internal Revenue Code is that not more than 5% (or 10% in the case of a governmental unit) of the net proceeds of the bonds, before issuance costs, may be used for private business use.

Private business use means the use of the bond financed facility, both actual or beneficial use, by a person other than a 501(c)(3) organization or a state or local government or by a 501(c)(3) in an activity that is an unrelated trade or business.

If the property is used both for a related purpose and an unrelated purpose, the property is still considered used in a private use, but the private business use may be allocated. If the organization fails the private use test, then the interest on the bonds can become taxable.

It is common for private business use to arise in connection with management and rental contracts at colleges and universities with management of cafeterias, concession stands, bookstores, retail facilities, parking garages, summer camps, other rental activities, or research contracts. If you have contracts with these types of activities, it is recommended that you review the contracts and make sure they meet an exclusion or the safe harbor requirements under the Code based on your facts and circumstances. The Code does provide for exceptions to private business use, such as use by the general public, incidental use, and short term use, but you must meet the requirements under each exception.

If you would like more information on private business use or help with review of your current or potential contracts, please contact your Dean Dorton advisor or Allison Carter at alcarter@deandorton.com.