“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein, author
Year-end planning for 2018 takes place against the backdrop of a new tax law-the Tax Cuts and Jobs Act-that made major changes in the tax rules for individuals and businesses. For individuals, there are new, lower income tax rates, a substantially increased standard deduction, severely limited itemized deductions and no personal exemptions, an increased child tax credit, and a watered-down alternative minimum tax (AMT), among many other changes. For businesses, there are new limits on business interest deductions, and significantly liberalized expensing and depreciation rules. And there's a new deduction for non-corporate taxpayers with qualified business income from pass-through entities.
Your accounting and tax team stays up-to-date on all of the ways we can overcome challenges and maximize opportunities to save you tax dollars. We are currently working diligently to make sure the proper tax planning is in place to help lower your tax bill. We want you to be aware of the current tax landscape and all of the things we are considering on your behalf. Bigger Bolder Vision 2020 has created some unique planning strategies for McDonald’s Owner Operators. Read below for some highlights on tax planning moves that will help you to lower your tax bill for this year and possibly next.
Year-End Tax-Planning Moves for Businesses, Business Owners & McDonald’s Owner Operators
Taxpayers may be able to achieve significant savings by deferring income or accelerating deductions to come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2018. Depending on their business model, taxpayers also may be able increase the new deduction by increasing/decreasing W-2 wages before year-end.
The rules are quite complex, so don't make a move in this area without consulting your tax advisor.
Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2018, the §179 expensing limit is $1,000,000, and the investment ceiling limit is $2,500,000. Expensing is generally available for most depreciable property (other than buildings), and off-the-shelf computer software. For property placed in service in tax years beginning after Dec. 31, 2017, expensing also is available for qualified improvement property (generally, any interior improvement to a building's interior, but not for enlargement of a building, elevators or escalators, or the internal structural framework), for roofs, and for HVAC, fire protection, alarm, and security systems.
Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment-bought used (with some exceptions) or new-if purchased and placed in service this year. For a McDonald’s Owner Operator, this is a huge benefit when purchasing restaurants as you will be able to take 100% first year depreciation on the purchase of old equipment. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2018.
Businesses may be able to take advantage of the de minimis safe harbor election (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don't have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. Generally, the cost of the unit of property can’t exceed $2,500 (without an applicable financial statement), and it would not be subject to depreciation recapture if there is a plan in place to sell your business
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Although a de minimis expense would fall above PAC, these expenses would not be subject to depreciation recapture when selling a business. If the sale of your business is on the horizon, you must contact your LAL tax advisor for proper guidance on how to properly plan for such an event.
Year-End Tax Planning Moves for Individuals
Beginning in 2018, many taxpayers who claimed itemized deductions year after year will no longer be able to do so. That's because the basic standard deduction has been increased (to $24,000 for joint filers, $12,000 for singles, and many itemized deductions have been cut back or abolished. No more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e.g., tax preparation fees) and unreimbursed employee expenses are no longer deductible. Some taxpayers may be able to work around the new reality by applying a "bunching strategy" to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good.
If a taxpayer knows he or she will be able to itemize this year but not next year, the taxpayer may be able to make two years' worth of charitable contributions this year, instead of spreading out donations over 2018 and 2019. Donor-advised funds are excellent vessels used to accomplish said “bunching”. When donating appreciated long-term securities (held longer than one year), you can deduct the full market value of the asset as an itemized deduction without the burden of paying capital gains tax. So, consider donating investments that you perceive to be close to their highest value before making a cash donation to take advantage of this benefit.
Review above-the-line tax ideas to lower your taxable income. They include retirement plan contributions and withdrawals, student loan interest deductions, teacher classroom expenses and health savings account contributions.
Since individuals are taxed on a cash basis, any income you can shift into next year or deductible payments you can make this calendar year can help reduce your taxable income. So delaying receipt of bonuses or prepaying some eligible deductions before the end of the year are workable ways to help manage your taxable income.
You can also reduce some of your tax by shifting income among family members. You could consider making gifts of income-producing property to family members in lower tax brackets. Up to $2,100 of unearned income is usually taxed at a rate lower than yours. Though you can't take a tax deduction for gifts, up to $15,000 can be given to a person each year ($30,000 when you're married) and avoid any gift tax complications.
Consider increasing the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year.
If you become eligible in December of 2018 to make health savings account (HSA) contributions, you can make a full year's worth of deductible HSA contributions for 2018.
If you were in an area affected by Hurricane Florence or any other federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them on either the return for the year the loss occurred (in this instance, the 2018 return normally filed next year), or the return for the prior year (2017).
If you were in an area affected by Hurricane Florence or any other federally declared disaster area, you may want to settle an insurance or damage claim in 2018 in order to maximize your casualty loss deduction this year.
Summary
These are just some of the year-end steps that can be taken to save taxes. Your team at Landau Arnold Laufer is staying on top of all of these considerations and many more. As always, we welcome any questions you may have and will be happy to discuss the plans we have in place that will work best for you. Feel free to reach out to us by calling (631) 226-9600 and be sure to follow us on
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