2016 Tax Season Opens January 19

Accountants everywhere, rejoice!  For the first time in years, tax season will open on time!

From the National Assocation of Tax Practitioners:

The IRS states in IR-2015-139 that despite the recent passing of the tax extenders legislation, the IRS will begin accepting individual electronic returns as scheduled on January 19. The IRS will also begin processing paper tax returns at the same time. The IRS states there is no advantage to filing paper returns in early January instead of waiting for e-file to begin.

Although the IRS begins accepting returns on January 19, many tax software companies will begin accepting tax returns earlier in January and submitting them to the IRS when processing systems open.

Take note: the due date for the 2015 Form 1040 is April 18, 2016, due to Washington, D.C.’s observance of Emancipation Day.

I prepare tax returns in the order I receive completed packets, which usually means waiting until the second week of February, at which point most folks will have received their 1099s and W-2s, and businesses will have closed out and reconciled their books.  But it’s nice to know that simple returns can be filed early, and that our software company will already have weeded out any filing issues by the time we begin e-filing.

Source: 2016 Tax Season Opens Jan. 19 for Nation’s Taxpayers

Tax Deal Makes Many Items Permanent – Finally!

Every year it’s the same… I pay a bunch of money to travel to a seminar on annual tax updates, and the instructor starts each topic with, “now, we don’t know whether Congress will extend this or not…”  It’s gotten so bad that I finally started skipping all the November and December classes and signing up for tax updates in January.  That’s right, for the tax laws of the *prior* year.  This helps a great deal in year-end tax planning.  (Sarcasm.)

Congress’ delayed action gets my goat for many reasons, not just my wasted time in seminars.  The main frustration I have is that so many of these tax provisions are meant to be incentives for businesses or individuals to act a particular way — to take the plunge and buy that big piece of equipment, invest in R&D, or take on that big construction project.  If they don’t know whether or not there is a tax incentive to do it — or that “maybe” Congress will renew a tax break — then how on earth does that serve as an incentive?

Well, thankfully, some of these frustrations are going away.  This year, Congress actually made some of the “extenders” permanent, meaning they won’t have to vote year-after-year to extend them — they’ll be written into the IRS tax code.

The best summary of the changes I’ve read so far is by the incomparable Tony Nitti of Forbes, one of the best tax writers out there:
Tax Deal Makes Permanent R&D Credit, Generous Child And College Breaks – Forbes

And the best list of the items extended, made permanent and/or modified in the extender bill I’ve found is by Vern Hoven of Western CPE.  (A complete list is included in the text of H. R. 2029, the “Protecting Americans from Tax Hikes Act of 2015.”)

IRC Individual Provisions NEW Expiration Date
§24(d) Enhanced American Opportunity tax credit is made permanent. Beginning in 2016, the provision requires the taxpayer claiming the American Opportunity credit to report the EIN of the educational institution to which the individual made tuition payments. Provision made permanent
§25A Enhanced child tax credit is made permanent Provision made permanent
§25C(g)(2) $500 credit for non-business energy property is extended toDec. 31, 2016. December 31, 2016
§32(b) Enhanced earned income tax credit is made permanent. Provision made permanent
§62 $250 teacher supply deduction is made permanent. Beginning in 2016, the provision also indexes the $250 cap to inflation and includes professional development expenses. Provision made permanent
§108 Exclusion for personal residence COD income is extended to Dec. 31, 2016. December 31, 2016
§163 Mortgage insurance premium deduction as mortgage interest is extended to Dec. 31, 2016. December 31, 2016
§164 Election for itemizers to deduct sales tax in lieu of income tax is made permanent. Provision made permanent
§170 Contributions of real property for qualified conservation purposes is made permanent. Provision made permanent
§222 Tuition deduction is extended to Dec. 31, 2016. December 31, 2016
§408 IRA transfers to charity in lieu of RMDs is made permanent. Provision made permanent
IRC Business Provisions NEW Expiration Date
§41 R & D tax credit is made permanent. Beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against AMT liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax liability. Provision made permanent
§45P Wage credit for activated military reservists is made permanent. Beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under current law. Provision made permanent
§51 WOTC for employers hiring qualified veterans and employees from other targeted groups is extended to Dec. 31, 2019. Beginning in 2016, the provision also modifies the credit to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40% of the first $6,000 of wages. December 31, 2019
§132 Increased fringe benefit allowance for transit passes is made permanent Provision made permanent
§168 Bonus depreciation for qualified purchases is extended with revisions to Dec. 31, 2019 (50% in 2015 – 2017, 40% in 2018 and 30% in 2019). The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service. December 31, 2019
§168 Election to accelerate AMT credit in lieu of bonus depreciation is extended to Dec. 31, 2019. December 31, 2019
§168 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvements is made permanent. Provision made permanent
§170 Enhanced charitable deductions for food inventory is made permanent. Beginning in 2016, the provision modifies the deduction by increasing the limitation on deductible contributions of food inventory from 10% to 15% of the taxpayer’s AGI (15% of modified taxable income in the case of a C corporation) per year. The provision also modifies the deduction to provide special rules for valuing food inventory. Provision made permanent
§179 $500,000 expensing limit is made permanent. Beginning in 2016, the provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. Provision made permanent
§179 Treatment of certain real property as §179 property is made permanent. Beginning in 2016, the provision modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap. Provision made permanent
§1202 100% gain exclusion for qualified small business stock is made permanent. Provision made permanent
§1367 Basis adjustment to S corporation stock for charitable contributions is made permanent. Provision made permanent
§1374 Reduced built in gains recognition period for S corporations is made permanent at five years. Provision made permanent

© 2015 Sharon Kreider and Vern Hoven


Restaurant Tipping – How It Works

In recent discussions with clients and friends about this year’s change in Chicago minimum wage for tipped versus non-tipped employees (and how that intersects with minimum wage rules for tipped employees at the Federal level or in other states), as well as conversations about restaurant “service charges”, and how they differ from tips… I realized that many folks — even restaurant owners — don’t understand how tipping works from a business perspective, and may not be reporting their tips — or paying their employees — appropriately.  I found this particular Chicago Tribune article from last year to give an especially good overview explanation:

How Restaurant Tipping Works – Chicago Tribune

Another site, the “Wiser Waitress,” writes from the perspective of employees — who unfortunately, often are misinformed or uninformed about their rights, about tip pools, about tracking and reporting and paying taxes on their tips.  This site is not as well-written, and it’s not an Illinois-specific set of information, but it does cover many of the issues that tend to be sticky points.  I also find it helpful to read from the angle of someone who is being taken advantage of — because, in my business, we’re always looking at the poor restaurant owner, who has to pay their employees more than they pay themselves.  It’s interesting to see how waitstaff see it.

The Wiser Waitress – Wages & Tips

Lastly, but in some ways most importantly, the Illinois Restaurant Association has an excellent FAQ regarding various governmental, tax, and labor requirements that apply to restaurants.  This organization is well-worth a membership if you are a restaurant owner or someone who works with restaurants.  They offer different membership types with different benefits, and their website is quite informative:

Illinois Restaurant Association FAQ

Tipping, service charges, minimum wage, front of house, back of house… it’s all substantially more complex than you’d think.  Make sure to learn the rules, track your tips (employees), tip payouts (employers), and educate others wherever you can.

UPDATE: I came across an excellent, two-part, detailed article from the Restaurant Accounting pro herself, Stacey Byrne, on the topic of “Accounting & Payroll Issues for Restaurant Tips and Service Charges” (Part One & Part Two), and want to share it here for you as well. Must-read resources for anyone doing restaurant accounting!


Last-Minute Tax-Planning Strategies | Accounting Today

Accounting Today just published a nice little article on last-minute tax-planning strategies, and touched on a few other topics as well, such as the flip-flop between partnership and C-Corp tax return due dates.  A short and worthwhile read for accountants.  My favorite excerpt, by Matthew Frooman, a member at the Atlanta office of Top 100 Firm Warren Averett:

“It helps to have a process, a mental or written checklist of how to approach the planning opportunities in that industry,” he said. “So you have a hierarchy of tax planning which starts with a tax-free way to have income. If you can’t figure out a way to have tax-free income, then you go to offsets in terms of deductions from basis or deferral. Then you look at the tax rate itself, the character of the income as to capital gains or ordinary income, and finally you get down to the tax itself. After that, you consider additional offsets in the form of credits.”

“You can approach every engagement with that structure and work through what are the ways of making something tax-free, offsetting income, deferring income, getting a lower tax rate and generating a credit, and then the possibility of buying a credit,” Frooman said. ”Every tax technique should fall into at least one of those categories. For myself, there are too many tools to think through without some sort of structure, so the solution is to prioritize, and decide which tool has the highest impact and is the easiest to apply.”

Read the entire article here: Last-Minute Tax-Planning Strategies | Accounting Today News