2019 Year End Tax Planning

As 2019 winds down, it is important to consider some significant year-end tax savings opportunities for individuals and businesses, as well as new accounting standards businesses need to incorporate into year-end reporting. We have compiled a few of each of these items below to help you start thinking about opportunities and challenges as we finish out the year.  This list is just a sample of some of the more impactful tax planning strategies designed to help you end the year with more cash and less tax. We will send a more comprehensive list in the coming weeks.

Please contact your Scott and Company Advisor with any questions and to set up a year-end tax planning review to ensure you are taking advantage of all of the tax incentives available.

*Also, through our membership in the BDO Alliance USA we have access to some excellent webinars regarding year-end tax planning strategies for you and your business. Please click the following links for upcoming webinar opportunities:

Year-End Tax Planning Considerations for Individuals: https://www.bdo.com/77613?alliance=1
Year-End Planning Opportunities for Businesses: https://www.bdo.com/77645?alliance=1

Year-End Tax Tips for Individuals & Businesses

Individuals:

Maximize your Personal Deductions – With the almost doubling of the standard deduction last year it is important to take a look and see how you can maximize your personal deductions. If your itemized deductions (mortgage interest, charity, state & local tax, medical) are typically much less than the standard amounts of $24,400 for married filing joint or $12.200 for single filers, then you are probably fine to just go with those amounts since they are the best deduction you can get. If your itemized deductions are just under these thresholds, though, then you might benefit from something called a bunching strategy where you maximize your deductions over the course of two or more years using careful planning of the timing of deductible expenditures.

Double check your Exemptions and Credits– Beginning in 2018 and running through the 2025 tax year, no personal exemptions are allowed for individual taxpayers. The 2017 Tax Act did, however, provide an enhanced tax credit for children and other dependents. Now is a good time to do two things. First, check your 2018 returns to be sure you took the maximum credit to which you were entitled. Second, take a look at your dependent situation now to be sure you maximize your credits going forward. Credits for children are fairly straightforward but you might be overlooking a credit for other dependents such as parents, grandparents, grandchildren, or others who live with you and who you support financially.

Businesses:

Take Advantage of Immediate Deductions for Capital Expenditures. – Many businesses assess their property & equipment needs for the new year during the last quarter so they can plan out purchases and financing. Don’t forget to factor in the tax consequences of these capital expenditures. With a revived bonus depreciation in place for several years and increased limits on Sec 179 immediate expensing of capital purchases it’s important to think about tax implications so you can maximize your immediate deductions for these acquisitions.

Get the Full Benefit of Employee Credits & Potential Tax Credits Available for New Hires – For businesses that have employees, now is a good time to take a look at all the potential tax credits available for new hires. Some federal credits, like the Work Opportunity Tax Credit, require an application at the time of hiring new employees. Others, such as the FICA Tip Credit for restaurants with tipped employees, can be calculated at tax time. Also, don’t forget about state credits available to many businesses that hire new employees or meet other employment criteria.

New Accounting Standards Businesses Need to Consider

Revenue Recognition

On May 28, 2014, the FASB completed its Revenue Recognition project by issuing Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance establishes the principles to report useful information to users of financial statements about the nature, timing, and uncertainty of revenue from contracts with customers.

To that end, the new guidance:

• Removes inconsistencies and weaknesses in existing revenue requirements
• Removes inconsistencies and weaknesses in existing revenue requirements
• Provides a more robust framework for addressing revenue issues
• Improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
• Provides more useful information to users of financial statements through improved disclosure requirements
• Simplifies the preparation of financial statements by reducing the number of requirements to which an organization must refer.

The new guidance affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).

Leases

The new standard will require organizations that lease assets— referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.

Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.

Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.

However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet— the new ASU will require both types of leases to be recognized on the balance sheet.

Accounting for Hedging

The new standard will:

Expand hedge accounting for nonfinancial and financial risk components to allow institutions to qualify for hedge accounting for more of their risk management activities

Decrease the complexity of preparing and understanding hedge results by eliminating the separate measurement and reporting of hedge ineffectiveness

Enhance transparency, comparability, and understandability of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item, and

Reduce the cost and complexity of applying hedge accounting by simplifying the way assessments of hedge effectiveness may be performed.

Non-Employee Share Based Payments

On June 20, 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). 

Stranded Income Tax Effects Related to New Tax Law

FASB issued an Accounting Standards Update that is designed to help organizations address certain stranded income tax effects in accumulated other comprehensive income resulting from P.L. 115-97, known as the Tax Cuts and Jobs Act.

Under the new FASB rules, financial statement preparers are provided an option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.