Berdon Blogs

TAX TALK: Can you Benefit from the State & Local Sales Tax Deduction?

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 23, 2017 7:00:00 AM

Currently, you are allowed an income tax deduction for the greater of your state and local income taxes and your state and local sales taxes.  A little over a year ago, the PATH Act made “permanent” the break allowing taxpayers to deduct state and local sales taxes as an itemized deduction in lieu of state and local income taxes. For many taxpayers their income taxes will substantially exceed their sales taxes, and therefore, not provide any benefit. However, if you reside in a state with no or low income taxes or you purchase major items, such as a car or boat, this break can be valuable.

2016 Tax Return

You do not have to document all of the sales tax you actually paid during the year. You can use the IRS sales tax calculator to determine your deduction based on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation). Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax and deduct the greater.

If you are in the Alternative Minimum Tax (“AMT”), it does not matter, since neither is deductible for AMT purposes.

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TAX TALK: Help Prevent Tax Identity Theft by Filing Early

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 17, 2017 12:50:00 PM

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why Early Filing Helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But, if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

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Topics: TAX TALK

TAX TALK: 2017 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 9, 2017 11:00:00 AM

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.

  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.

  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.

  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
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TAX TALK: Retirement Plan Contributions Remain Largely Unchanged

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 3, 2017 11:00:00 AM

Since the 2017 inflation rate remained low, most of the retirement plan contribution limits are unchanged. Only the limit for contributions to defined contribution plans has increased by $1,000.

Type of limit

2017 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans


Contributions to defined contribution plans


Contributions to SIMPLEs


Contributions to IRAs


Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans


Catch-up contributions to SIMPLEs


Catch-up contributions to IRAs


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Topics: TAX TALK

TAX TALK: IRS Reduces the Optional Standard Mileage Rate for 2017

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 19, 2016 12:50:00 PM

Due to lower gas prices, the IRS has lowered the optional standard mileage rates for 2017. The IRS has issued the 2017 optional standard mileage rates to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

Beginning January 1, 2017 standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016;
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016;
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.

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TAX TALK: Deducting Year-end Bonuses

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 12, 2016 11:00:00 AM

Accrual-basis taxpayers may be allowed to deduct bonuses employees have earned during a tax year if the bonuses are paid within 2½ months after the end of that year (by March 15 for a calendar-year company). Cash-basis taxpayers must deduct bonuses in the year they’re paid, regardless of when they’re earned. Even for accrual-basis taxpayers, however, the 2½ month rule isn’t automatic. Employers can deduct bonuses in the year they’re earned only if the employer’s bonus liability is fixed by the end of the year.

The all-events test

For accrual-basis taxpayers, the IRS determines when a liability (such as a bonus) has been incurred — and, therefore, is deductible — by applying the “all-events test.” Under this test, a liability is deductible when:

  1. All events have occurred that establish the taxpayer’s liability,
  2. The amount of the liability can be determined with reasonable accuracy, and
  3. Economic performance has occurred.

Generally, the third requirement isn’t an issue; it’s satisfied when an employee performs the services required to earn a bonus. But the first two requirements can delay your tax deduction until the year of payment, depending on how you design your bonus plan.

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Topics: TAX TALK

TAX TALK: Buy Business Assets Now for 2016 Tax Benefits

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 5, 2016 12:50:00 PM

You still have time to benefit from two valuable tax breaks for purchasing equipment. It is important that you act quickly, however, because the benefits require that you place the assets in service by the end of the year.

Section 179 deduction

Normally, the IRS requires you to depreciate capital expenditures for equipment over a five- to seven- year period (for some equipment, a longer life may be required). For qualified assets, the Sec. 179 deduction allows businesses to deduct as depreciation up to 100% of the cost of the assets in the year purchased. Sec. 179 can be used for fixed assets, such as equipment, software and leasehold improvements. Beginning in 2016, air conditioning and heating units were added to the list.

The maximum Sec. 179 deduction for 2016 is $500,000. The deduction begins to phase-out dollar-for-dollar for 2016 when total asset acquisitions for the tax year exceed $2,010,000.

Starting in 2010, qualified real property improvements were included as eligible Sec. 179 property, and in 2016, that provision was made permanent. You can claim a Sec. 179 deduction of up to $500,000 for certain qualified real property improvement costs.

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Topics: TAX TALK

TAX TALK: Basic Rules of Deferred Compensation under Nonqualified Plans

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 28, 2016 7:00:00 AM

Nonqualified deferred compensation (NQDC) plans are unsecured promises by the employer to pay executives at a specific time or upon a specific event in the future for services currently performed. Unlike qualified plans, such as 401(k) s, NQDC plans:

  • Can discriminate in favor of highly compensated employees;
  • Have no limit on the amount of compensation that the executive can defer;
  • Defer the employer’s compensation deduction to the year the employee is taxed on the income; and
  • Allow the employer’s general creditors to reach any amounts set-aside to fund the future payments.

Failure to understand the complex rules applicable to NQDC plans can cause substantial tax consequences.

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TAX TALK: Highlights of Trump’s Tax Proposals for Individuals

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 21, 2016 12:50:00 PM

With the election of Donald Trump as President of the United States and the Republicans retaining control of both chambers of Congress, an overhaul of the U.S. tax code next year is likely. President-elect Trump’s comprehensive tax reform plan, released earlier this year, would greatly affect many individuals. The plan proposes to:

  • Reduce the number of income tax brackets from seven to three, with rates on ordinary income of 12%, 25%, and 33%. (These new brackets reduce rates for many taxpayers but result in a tax hike for certain single filers.)
  • Align the 0%, 15%, and 20% long-term capital gains and qualified dividends rates with the new brackets.
  • Eliminate the head of household filing status (which could cause rates to go up for some of these filers, who would have to file as singles).
  • Repeal the net investment income tax.
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Topics: TAX TALK

TAX TALK: Beware of Income-Based Limits on Itemized Deductions and Personal Exemptions

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 14, 2016 7:00:00 AM

Many tax breaks are reduced or eliminated for higher-income taxpayers. Two of particular note are the itemized deduction reduction and the personal exemption phaseout.

Income thresholds
If your adjusted gross income (AGI) exceeds the applicable threshold, most of your itemized deductions will be reduced by 3% of the AGI amount that exceeds the threshold (not to exceed 80% of otherwise allowable deductions). For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (married filing jointly) and $155,650 (married filing separately). The limitation doesn’t apply to deductions for medical expenses, investment interest, or casualty, theft or wagering losses.

Exceeding the applicable AGI threshold also could cause your personal exemptions to be reduced or even eliminated. The personal exemption phaseout reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s AGI exceeds the applicable threshold (2% for each $1,250 for married taxpayers filing separately).

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Topics: TAX TALK

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