Tax Alerts
Tax Briefing(s)

(UPDATED 12/26/17)

Congress has passed the 2017 Tax Cuts and Jobs Act. There are many significant changes to the tax laws that are very complex in its implications and will affect all taxpayers. As the year 2017 comes to a close, there are a few tax planning ideas you could consider.

The House and Senate have each passed different versions of the Tax Cuts and Jobs Act. Both bills have a lot in common, including cuts in the corporate tax rates, elimination of a number of tax deductions and changes to the estate tax. Both bills lower the US corporate tax rates and move the United States to a “territorial” dividend exemption rather than a “worldwide” system of international taxation. The House bill replaces the current seven tax brackets with four brackets (highest bracket of 39.6%) while the Senate bill keeps the seven brackets but changes the tax rate in each bracket (highest bracket of 38.5%). Both bills (a) provide a reduced tax rate for pass through entities (partnerships and S corporations) under limited circumstances, (b) increase the individual standard deduction, (c) change the state and local tax deduction, and (d) increase the child tax credit. The House and Senate have to reconcile the two versions of the bills in a conference committee and then pass the final version of the bill in both the House and the Senate. 

As the US Congress is working on tax reform, below are some of the tax planning strategies that are worth considering. The goal is to minimize tax liability both for 2017 and 2018.

Please remember that everyone’s tax situation is different and we would encourage you to call us to determine whether any of these or other tax planning strategies would be right under your circumstances.

Retirement Plans

The maximum IRA contribution is $5,500 (plus $1,000 if you are over 50 before the end of 2017). Consider making non-deductible contributions if you are not eligible to make a contribution to a Roth IRA or a deductible IRA.

Maximize your contributions to 401(k), 403(b) or 457 plans. Participants are permitted to defer up to $18,000 in 2017 and $18,500 in 2018 (plus an additional $6,000 if eligible for catch-up contributions). Your employer may match some of your contributions.

For owners of small businesses, a Defined Contribution Retirement Plan with a 401(k) could be set up so that the key people get a large percentage of the total contribution. The maximum annual addition is $53,000 for 2017 ($59,000 if you are eligible for catch-up contributions). If a similar plan is not set up for your business, please call us to review the options.

Roth Contributions/Conversions

If you are not eligible to contribute to a Roth IRA, you should consider contributing to a nondeductible IRA and then convert the amount to a Roth IRA. However, if you have other IRA accounts, this conversion may be partially taxable. Please call us to discuss if this would apply in your tax situation.

Medicare Taxes

An additional 0.9% Medicare Hospital Insurance tax may apply to wages/self-employment income of individuals and an additional 3.8% Medicare tax on net investment income including interest, dividends, annuities, royalties, rents, capital gains, etc. for adjusted gross income in excess of specified thresholds.  This tax is not applicable to income from self-owned property rented to your trade or business.

For owners of S corporations there is a tax planning opportunity of splitting the income between wages, which are subject to Medicare tax and distributions which are not subject to this tax.

Rental Income Exclusion

Rental income from your primary or second home for less than 15 days is tax-free.

Income Deferral and Accelerate Deductions

In general, it is advantageous to defer income to a subsequent year and accelerate deductions into the current year. However, if you expect to be in a higher tax bracket in 2018, it may be beneficial to accelerate income to 2017 and delay deductions to next year.

Section 179 Depreciation and Bonus Depreciation

The Section 179 deduction of $510,000 can be used to expense new or used business assets purchased and placed in service in 2017. This deduction has some limited application for an SUV (Sports Utility Vehicle) weighing between 6,000 and 14,000 pounds and used more than 50% for business.

50% bonus depreciation for new business assets is effective for tax year 2017 but phases down to 40% in 2018.

Business Vehicles

In case of a trade-in of a business vehicle at the time of buying a new vehicle, IRS rules dictate that the “tax basis” of the old vehicle should be rolled into the cost of the new vehicle. No gain or loss is recognized at the time of purchase. However, in situations where the tax basis is in excess of the trade-in value, it may be beneficial to sell the old vehicle so as to recognize the loss.

Kiddie Tax

A dependent child’s income may be subject to tax at the parent’s marginal tax rate on the child’s unearned income in excess of $2,100.  The kiddie tax includes dependents under 18 years of age or under 24 years of age if a full time student.

If not subject to kiddie tax, consider taking advantage of the 0% capital gains tax rate by transferring appreciated property to your children. Consideration would have to be given to gift and estate tax consequences.

Health Savings Accounts (HSA)

Discuss with health insurance providers to see if they offer a high deductible policy that qualifies for an HSA. The 2017 contributions limits are $6,750 for a family policy and $3,400 for a single policy. Each spouse can contribute an additional $1,000 if they are at least age 55. Contributions to these accounts can be used as a vehicle for long term tax-free growth and the withdrawals will not be taxable if they are used to pay medical expenses. However, HSA distributions used for other purposes may be subject to additional taxes.

Flexible Spending Accounts (FSA)

Employer-sponsored Flexible Spending Accounts permit you to pay qualified medical expenses on a pretax basis thus reducing your taxable income. Please discuss with your employer to see if this option is available to you.

Family Members as Employees

Consider shifting income to a child or other family member in a lower tax bracket by employing them in your business. Employing your spouse in the business also provides an opportunity to deduct business travel costs, increase contributions to retirement plans and claim child care credit. For unincorporated businesses where the children are working in the business, payroll payments to children (under age 18) of the taxpayer may not be subject to FICA tax.  In addition to a standard deduction, a child with earned income can contribute up to $5,500 of earned income into a traditional or Roth IRA.

Household Employees

If you hire individuals for various household work you would need to determine from a tax perspective whether these individuals are considered independent contractors or employees. If you pay a household employee more than $2,000 in 2017, you could be liable to pay Social Security and Medicare taxes for that individual when you file your personal 2017 income tax returns.

Capital Gains and Losses

Review your taxable investment portfolio for potential gains and losses in 2017. Consider offsetting capital losses with capital gains in your taxable investment portfolio. Capital losses are fully deductible against capital gains and an additional $3,000 only against ordinary income. Any excess capital losses are carried forward and offset against future income.

If you are in the 10% or 15% income tax brackets, long term capital gains may be tax-free subject to certain limits.

Required Minimum Distributions (RMD)

For those who turned 70 ½ in 2017 you should consider taking this year’s distribution before December 31, 2017. Alternatively you could wait until April 1, 2018, but that would require you to take two distributions in 2018. The combined tax liability of 2017 and 2018 should be reviewed when making this decision.


In case you have paid business expenses from your personal account, claim reimbursement from your business account. Please make sure to keep supporting documents with your business records.

Charges on a credit card in 2017 are deductible on the 2017 tax return even though the payment to the credit card company will be made in 2018.

Automobile and entertainment expenses

The Tax Court has repeatedly held that vehicle expenses will be disallowed in full unless the taxpayer satisfies strict substantiation requirements which include a contemporaneously completed daily mileage log, with notation regarding person visited and the business purpose of the visit.

Meal and entertainment expenses need to be documented by noting who the taxpayer was with, where and when the event took place and what business purpose was served.

Alternative Minimum Tax (AMT) Triggers

Although expenses paid/deemed paid during the year reduce your regular income tax, they could still result in the payment of alternative minimum tax (AMT), a separate tax system. A few of the expenses that could trigger AMT are (1) large deduction for state income taxes and real estate taxes (2) large deduction for unreimbursed employee business expenses (3) interest on mortgage not used to buy, build or improve your home.


Increase your deductible charitable contributions for the year by using a credit card to make a tax-deductible donation in 2017 that you can pay in 2018.

Instead of donating cash, consider appreciated publicly traded securities held for more than one year. You would be entitled to a charitable deduction for the market value of the securities and not have to pay tax on the capital gains.

Section 529 Qualified Tuition Program

Consider funding a Section 529 Qualified Tuition Program (QTP). Contributions to the QTP are not tax deductible but distributions are tax free if they are used to pay qualified education expenses at most post-secondary educational institutions.

Mutual Funds

Invest cautiously in mutual funds in your taxable accounts at the end of the year. Many funds make distributions towards the end of the year which would be taxable to the investor, unless the investment is held in a tax-sheltered account.

Estate and Gift Tax

If gifting is part of your estate and income tax planning, utilize the 2017 annual exclusion of $14,000 by making the gift before December 31, 2017. Any tuition costs paid directly to the school for a child’s or grandchild’s tuition, and amounts paid to the provider for medical expenses, do not count towards the annual exclusion. If you are paying graduate school costs for a child by selling stocks in a taxable portfolio, gifting the stocks instead to the child may save taxes.

Establishing a Roth IRA for young children/grandchildren has many advantageous if they have earned income. If the children do not want to invest their own money, consider gifting them the amount they are eligible to contribute to the Roth IRA.

It is advisable that your estate plan be reviewed periodically. Please call us if you would like us to assist in setting up or updating your estate plan.

Foreign Income, Foreign Investments and Bank accounts

All US taxpayers are subject to tax on their worldwide income. Also foreign direct investments held by the taxpayers require additional reporting and compliance. These require two common forms: (1) FinCen Form 114 – Report of Foreign Bank and Financial Accounts (FBAR), and (2) Form 8938 – Statement of Specified Foreign Financial Assets. The definition of foreign assets is very broad and includes ownership in foreign entities, brokerage accounts etc. Since the penalties, both civil and criminal, for not complying with these disclosure requirements are very steep, please make sure to compile the necessary information as required to comply with this requirement.

Worker Classification

IRS is continuing its ongoing reviews of worker’s classification between independent contractor and employee status. Both Federal and Massachusetts state law have a very broad definition of “employee” and you should review the current independent contractors in your business to ensure proper classification. Any independent contractor who feels that he/she was misclassified by the taxpayer could file Form 8919 with their federal income tax return to report such misclassification. This could result in a potential audit by the IRS on this issue and could prove to be expensive for your business. In certain instances the IRS has pursued criminal liability against the “employer” business owners.

President Trump on March 27 signed the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The House approved the historically large emergency relief measure by voice vote just hours before Trump’s signature. The CARES Act cleared the Senate unanimously on March 25, by a 96-to-0 vote.

Lawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic. To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.

The IRS announced on March 30 that distribution of economic impact payments in response to the coronavirus (COVID-19) pandemic would begin in the next three weeks. On April 1, the Treasury Department clarified that Social Security and Railroad Retirement benefit recipients who are not required to file a federal tax return will not have to file a return in order to receive their economic impact payment.

The Treasury Department and IRS have provided a notice with additional relief for taxpayers, postponing until July 15, 2020, a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020. Additional time to perform certain time-sensitive actions during this period is also provided. The notice also postpones due dates with respect to certain government acts and postpones the application date to participate in the Annual Filing Season Program. This notice expands upon the relief provided in Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16, 660.

synopsisThe Treasury Department and the IRS have released the "Get My Payment" tool to assist Americans in receiving their “economic impact payments” issued under the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The free tool went live on April 15, and is located at

As a result of the retroactive assignment of a 15-year recovery period to qualified improvement property (QIP) placed in service after 2017, QIP generally qualifies for bonus depreciation, and typically at a 100 percent rate. IRS guidance requires taxpayers who previously filed two or more returns using what is now an "incorrect" depreciation period (usually 39 years) to file an accounting method change on Form 3115, Application for Change in Accounting Method, to claim bonus depreciation and/or depreciation based on the 15-year recovery period. The automatic consent procedures apply. If only one return has been filed, a taxpayer may either file Form 3115 or an amended return. No alternatives to filing Form 3115 or an amended return are provided.

The IRS has issued guidance providing administrative relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act ( P.L. 116-136) for taxpayers with net operating losses (NOLs).

The IRS is allowing taxpayers to file by fax Form 1139, Corporation Application for Tentative Refund, and Form 1045, Application for Tentative Refund, for certain coronavirus relief, a senior IRS official said on April 13. On the same day, the IRS unveiled related procedures for claiming quick refunds of the credit for prior year minimum tax liability of corporations and net operating loss (NOL) deductions (

The IRS has released guidance on making the following elections for the business interest deduction limitation:

The IRS has set forth rules for BBA partnerships to file amended returns to immediately get benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). "BBA partnerships" are those subject to the centralized partnership audit regime established by the Bipartisan Budget Act of 2015 (BBA) ( P.L. 114-74). The procedure allows BBA partnerships the option to file an amended return instead of an Administrative Adjustment Request (AAR) under Code Sec. 6227.

The IRS has announced that the employment tax credits for paid qualified sick leave and family leave wages required by the Families First Coronavirus Response Act ( P.L. 116-127) will apply to wages and compensation paid for periods beginning on April 1, 2020, and ending on December 31, 2020. Additionally, days beginning on April 1, 2020, and ending on December 31, 2020, will be taken into account for the credits for paid qualified sick leave and family leave equivalents for certain self-employed individuals as provided by the Act.

The IRS has provided penalty relief for failure to deposit employment taxes under Code Sec. 6656 to employers entitled to the new refundable tax credits provided under the Families First Coronavirus Response Act (Families First Act) ( P.L. 116-127), and the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The relief is provided the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the Families First Act and the CARES Act.

Everybody knows that tax deductions aren't allowed without proof in the form of documentation. What records are needed to "prove it" to the IRS vary depending upon the type of deduction that you may want to claim. Some documentation cannot be collected "after the fact," whether it takes place a few months after an expense is incurred or later, when you are audited by the IRS. This article reviews some of those deductions for which the IRS requires you to generate certain records either contemporaneously as the expense is being incurred, or at least no later than when you file your return. We also highlight several deductions for which contemporaneous documentation, although not strictly required, is extremely helpful in making your case before the IRS on an audit.

The number of tax return-related identity theft incidents has almost doubled in the past three years to well over half a million reported during 2011, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA). Identity theft in the context of tax administration generally involves the fraudulent use of someone else’s identity in order to claim a tax refund. In other cases an identity thief might steal a person’s information to obtain a job, and the thief’s employer may report income to the IRS using the legitimate taxpayer’s Social Security Number, thus making it appear that the taxpayer did not report all of his or her income.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires certain U.S. taxpayers to report their interests in specified foreign financial assets.  The reporting requirement may apply if the assets have an aggregate value exceeding certain thresholds. The IRS has released Form 8938, Statement of Specified Foreign Financial Assets, for this reporting requirement under FATCA.

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