10 Tax Moves

Business owners and individual taxpayers can benefit from an extension of some tax breaks.

Last December, Congress remporarily extended more than 50 tax breaks via the Tax Increase Prevention Act. As this year comes to a close, tax planners are watching closely to see whether lawmakers will extend them again.

The tax breaks involved deductions for things like research and development, private mortgage insurance, tuition and educational expenses, home improvements that save energy and sales tax (in states like Florida with no income tax).

“This is important for almost every taxpayer,” says Stam Stathis, past president of the Florida Institute of Certified Public Accountants.

In recent years, the tax breaks have been extended piecemeal – one or two years at a time – because many lawmakers have said they wanted a more broad revamp of the tax code. So far, that hasn’t happened, and, with a presidential campaign under way, tax professionals don’t believe an overhaul of the tax code is likely.

Stathis says it is likely Congress will extend some of the tax breaks another year and make other permanent. “Keep an eye on Washington, go through any changes in the tax law and plan accordingly,” he advises. “If the tax breaks are extended, it could be huge planning opportunity.”

Meanwhile, consider other tax planning moves…

1. 401(k) Contributions

If you don’t contribute enough to earn your employer’s maximum match (a percentage that varies from company to company), you’re passing up free money, says Mari Adam, founder and president of Adam Financial Associates in Boca Raton. At many companies, you need to contribute 6% of your salary to earn the full match. To truly be prepared for retirement, you need to contribute from 10% to 15%, she says. “When you get the full employer match, you’re earning up to a 100% return on your own dollars,” she says. Because the money you contribute to your 401(k) retirement account is not included in your taxable income, your tax bill is reduced. Contribution limits for 2015 are $18,000 or $24,000 if you are 50 or older.

2. Same-Sex Filers

Same-sex couples who are legally married are now required to file taxes as married filing jointly or married filing separately. For federal estate and gift tax purposes, couples can take advantage of certain marital benefits, such as the unlimited marital deduction, “gift-splitting” and “portability” of the estate tax exemption.

Scott Goldberger, an estate and trust principal with Kaufman Rossin’s Boca Raton office, says same-sex married couples should explore whether amending their state returns from prior years could yield refunds and should consider whether it is necessary to revise wills or trusts to take advantage of marital benefits for estate and gift tax purposes.

3. Sales Tax

Business owners need to review their sales tax procedures. James H. Sutton, a tax attorney with Moffa, Gainor, & Sutton in Tampa, says the Florida Department of Revenue has been increasing audits and penalties and getting more aggressive with sales tax collection. Owners should be aware of what it takes for a sale to be exempt and what documentation is necessary.

In addition, business owners may owe sales tax on rent for a related party, even if rent wasn’t paid. “This catches a lot of business owners off guard,” Sutton says. About 10% of the annual sales tax collected statewide – more than $2 billion a year – comes from commercial rent, he says.

Owners who overcollect sales tax, thinking the state will view it favorably, may end up facing class-action lawsuits from consumers. Sutton advises getting all paperwork in order, including shipping records for out-of-state sales, sales tax exemption certificates and documentation for property improvements. Business owners with periods of under-reported sales tax should clean up their accounts with a voluntary disclosure.

4. Property

Despite government efforts to repeal or limit the use of 1031 exchanges (also known as like-kind exchanges), a robust real estate market is driving demand for this tax-planning tool. Individuals may defer taxes on the sale of certain assets or investment property when they reinvest the proceeds into similar property of equal or greater value, says John G. Ebenger, director of real estate tax services with Berkowitz Pollack Brant Advisors and Accountants in Boca Raton.

Property holders can benefit by selling a long-held, low-tax-basis investment property that has appreciated in value without incurring significant federal and state income taxes.

For example, Ebenger says, “If I owned an apartment complex, I could sell it and buy a piece of raw land that I would own as an investment. That would allow my original dollars invested to continue to grow tax-free.” Taking advantage of 1031 exchanges requires careful planning and understanding of a complex set of rules, says Ebenger, who advises consulting a tax adviser.

5. Family Limited Partnerships

For many years, family limited partnerships (FLPs) have been used to transfer property to family members at significant discounts, saving estate and gift taxes. For example, if the owner of a $10-million shopping center transfers his ownership into a partnership and then gifts 10% to a child, that gift would be valued at $1 million. But because of current rules, that gift could be valued using a discount of as much as 40%. However, those discounts may soon be going away. IRS and Treasury officials have indicated they will issue proposed regulations to substantially reduce or eliminate discounts when valuing family limited partnerships and other non-operating businesses for estate, gift tax and generation-skipping transfer tax purposes.

If you don’t already have a family limited partnership, you may still have enough time to create one and then gift or sell an interest in it prior to the new regulations going into effect, says John R. Anzivino, CPA and a principal in Kaufman Rossin’s Miami office, where he leads the firm’s estate, trust and exempt organization practice.

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