Prepay Your Property Taxes? It Depends

You’ve probably seen or heard news reports about prepaying 2018 state and local real estate taxes in reaction to the recently-passed Tax Cuts and Jobs Act.

With this new legislation, beginning in 2018, taxpayers will be allowed to deduct up to $10,000 of state and local taxes paid, including property taxes and either income taxes or sales taxes. The bill will preserve the deduction for existing home mortgages and cap it at $750,000 for newly purchased homes starting January 1, 2018. The plan will also end the deduction for interest on home equity loans.

So, can you prepay your 2018 real estate taxes in 2017? Yes, and no. If you live in Montgomery or Bucks counties in Pennsylvania, the answer is “No.” Montgomery County has posted the following statement on their website:

The county has received a number of inquiries from individuals seeking to prepay their 2018 county real estate taxes. While the county understands and supports these efforts, Montgomery County is not permitted under Pennsylvania Law to accept such prepayments. Unlike Philadelphia, Delaware, and Allegheny counties, which are governed by Home Rule charters and thus permitted to allow the prepayment of taxes, Montgomery County, as well as Bucks, Chester, and other counties which are not Home Rule, must work within the confines of the tax collection requirements imposed by the Commonwealth. As these requirements explicitly prohibit the prepayment of real estate taxes, Montgomery County is prohibited from accepting 2018 real estate taxes until after the first of the year.

If you pay property taxes in a region where prepayment is permitted, you may only do so if you’ve received your 2018 tax assessment, as this article from Yahoo Finance explains:

But many residents trying to avoid that deduction limit on their state and local taxes will be disappointed: the IRS on Wednesday announced that taxpayers can prepay their 2018 property taxes only if they have already received a tax assessment from their local government and they make payment by the end of the year.

As always, we are here to help. If you have any questions, or would like to discuss your tax plan for 2018, please contact us online or call 215-723-4881.

The Tax Cuts and Jobs Act Has Passed: What You Need to Know

The Tax Cuts & Jobs Act Bill (H.R. 1) has now passed the House and Senate and is on its way to the White House for the President’s signature to become law.

Here is a summary of some of the major provisions that will affect both Individuals and Businesses after this Bill becomes law. Most changes will be effective January 1, 2018; however, there are certain specific changes which will take effect before 2018.

Changes for Individuals

Individual Rates: The top individual rate will be 37 percent for individuals earning $500,000 and above and joint filers earning at least $600,000. There will be seven tax brackets: 10, 12, 22, 24, 32, 35, and 37 percent. The tax bill will nearly double the standard deduction, increasing it to $24,000 for a couple filing jointly and to $12,000 for single taxpayers. The tax rates and standard deduction expansion will expire in 2026.

Mortgage Interest Deduction: The bill will preserve the deduction for existing home mortgages and cap it at $750,000 for newly purchased homes starting January 1, 2018. The plan will also end the deduction for interest on home equity loans.

State and Local Tax Deduction: Taxpayers will be allowed to deduct up to $10,000 of state and local taxes paid, including property taxes and either income taxes or sales taxes.

Child Tax Credit: The child tax credit will be increased to $2,000 from the current $1,000 per child credit, with up to $1,400 of it being refundable.

Medical Expense Deduction: The bill will allow taxpayers to deduct medical expenses exceeding 7.5 percent of adjusted gross income for 2017 and 2018.

Individual Mandate: The plan would zero out the penalties for not obtaining health coverage for individuals and families.

529 College Accounts: 529 Accounts can now be used for elementary, secondary, and higher education.

Individual Alternative Minimum Tax: The individual AMT will increase to apply to individual filers earning more than $500,000 or joint filers earning $1 million or more.

Changes for Businesses

Corporate Rate: The corporate rate will be reduced to 21 percent starting January 1, 2018.

Pass-through Taxation: Pass-through entity owners that meet certain conditions will be eligible for a 20 percent deduction on their business income.

Business Expensing: Full expensing of new and used capital investments will be permitted for five years. After 2022, the 100 percent allowance will be phased down by 20 percent each year. Section 179 expensing, which doubles the amount eligible for the special small business investment write-offs, will also be made permanent.

Corporate Alternative Minimum Tax: The corporate AMT will be repealed.

Other Changes

Estate Tax: The exemption is doubled for estates worth approximately $11 million for individuals and $22 million for couples. The exemptions will revert to current levels after 2025.

International Business: Eliminates incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad. These incentives will prevent American jobs, headquarters, and research from moving overseas.

For even more information, here is a summary of the policy highlights as provided by the Joint House and Senate Conference Committee for your review.

If you have any questions about how this tax bill will affect your specific tax situation, please contact us online or call 215-723-4881 to set up a time to review the effects of these changes with you.

Disclaimer: This communication contains general tax information and should not be construed as specific tax advice for your situation.

 

Canon Capital Wealth Management Names Senior Investment Advisor Chuck Porter, Jr. to the Firm as Unitholder

We are proud to announce the admission of senior investment advisor Chuck Porter, Jr. to the firm as a unitholder. Porter serves as a Senior Investment Advisor specializing in serving high-net-worth individuals and families.

Porter, who joined Canon Capital Wealth Management in 2006, earned his degree in Economics with an emphasis in Personal Financial Service from Widener University.  An Accredited Investment Fiduciary, Porter has also earned a Certificate in Financial Management for the Family Office from Pepperdine University’s Graziadio School of Business and Management.

“Chuck has a proven track record of client service,” said Dr. Peter Roland, managing director of Canon Capital Wealth Management and one of the founders of Canon Capital Management Group. “He exemplifies our values of acting as a trusted advisor, taking the time to learn about the needs of our clients and then developing a comprehensive service plan that acutely reflects those needs. We are pleased to welcome him as a fellow unitholder.”

Part of Porter’s success is his commitment to the community, where he makes the time to coach Souderton Area Youth Football (SAYFA), Souderton-Harleysville Youth Basketball Association (SHYBA), and baseball; as well as serve as a member of the Calvary Church Count Team.

“When I joined Canon Capital eleven years ago, I knew that this was a special company. The leadership team genuinely cares about their employees, and there is a firmwide commitment to serve our clients well and put their interests first,” said Porter. “I am extremely humbled by and grateful for this unitholder designation and the opportunity to contribute to the Canon Capital legacy of willingly investing in the things that matter. When I think about how many lives Canon Capital has touched since its founding thirty years ago, I can’t help but smile in knowing that I might be able to help carry that torch for the next thirty years.”

Canon Capital Wealth Management is a business unit of Canon Capital Management Group, celebrating 30 years of providing a single source of financial and business services.

Tax Reform Update: Year-end Moves

As you might be aware, tax reform bills have passed in both the House and Senate.  Both of these bills have some differences and are currently in the process called “reconciliation” to bring one bill to the President for his signature. We will have to wait and see what the final bill includes, but as 2017 is coming to a close rather quickly, there are some year-end “moves” you might want to consider in anticipation of the coming changes for 2018.  Most items included in a new tax law will be effective January 1 of 2018, so this year-end’s planning becomes important to obtain the maximum tax benefits.  Otherwise, certain deductions may be lost forever.

Here are some planning points for you to consider in light of the anticipated tax law changes:

State and Local Taxes

Currently, real estate taxes are deductible for all property owned by a taxpayer, and all state and local income taxes are deductible.

Under the House and Senate plans, there would be a cap of $10,000 for state and local property taxes  ($5,000 for married taxpayers filing separately). The deduction for state and local income taxes potentially might be eliminated altogether.

Therefore, if you are an itemizer, you may want to pay your property tax payments for 2018 ahead of time to include the deduction in your 2017 return. You may also want to consider paying any state and local estimated income taxes in 2017, since the deduction may be lost if you wait until 2018.

Charitable Donations

Since the tax bills are both doubling the standard deduction for all taxpayers (married filing joint to $24,000 and single to $12,000), many taxpayers will no longer be able to itemize deductions, but will instead just take the increased standard deductions.   As a result, this may be the last year many taxpayers obtain a tax benefit for charitable contributions.

Therefore, you may want to consider accelerating any planned donations from 2018 into 2017.  This will also make the ability for taxpayers who are taking required minimum distributions from IRA’s to make their charitable contributions directly from an IRA account.

Mortgage Interest and Home Equity Loans

Currently, mortgage interest is deductible for mortgages on a first or second home. The acquisition debt – that is, mortgages obtained to acquire the property – is capped at $1M and home equity indebtedness – defined as debt secured by the home in excess of acquisition debt – is capped at $100K.

The House plan would reduce the mortgage interest deduction limitation to $500K of debt and limit it to the taxpayer’s primary residence only. It would eliminate the interest deduction on home equity indebtedness altogether.

The Senate plan would keep the limitation of $1M on acquisition debt, but would also limit the deduction on home equity indebtedness.

Therefore, you may want to consider paying down any loans where the interest deduction would be eliminated next year.

Medical Expenses

Currently, medical expenses in excess of 10% of adjusted gross income (7.5% for ages 65 or older) are deductible as an itemized deduction.

Under the House Bill, medical expense deductions would be eliminated. Under the Senate Bill, the deduction is preserved, and the threshold is reduced to 7.5% of adjusted gross income for 2018.

Between the potential for the elimination of the deduction altogether and the increase in the standard deduction, if you currently are near or are close to the 10% limit for 2017, you may want to consider accelerating payments for medical expenses prior to year-end. You may also want to consider scheduling any elective procedures before year-end for you or your dependents.

Other Items to Consider

You will still have the usual decisions to delay or accelerate income and expenses – such as increasing or decreasing 401k or retirement plan contributions, Health Savings Accounts, etc. Investment and capital gain planning will take on a new wrinkle as both bills will now require the use of the FIFO method, instead of the taxpayer having options of methods to recognize gains. If you’re in business, should you buy new assets this year by December 31 when the tax rates are higher, or wait until the rates potentially drop next year?

Both the House and Senate Bills are extremely comprehensive and touch on many other areas, including Alternative Minimum Tax, elimination of other itemized deductions, Alimony, Child Tax Credits, Education Credits, and so on.

Of course, we cannot touch on all topics and scenarios here.  Therefore, we would encourage you to reach out to us with any specific questions you may have on your own situation.  As these two Bills are reconciled and potentially become law, we will continue to keep you informed. Please contact us with any questions. We are happy to be of service.

Beware Bad Rabbit Ransomware

We have been researching the latest ransomware threat, “Bad Rabbit.” According to cybersecurity experts, this malware is being distributed through compromised websites and is executed when the user clicks on a prompt to install the latest Adobe Flash update.

According to Wired.com:

If a person does click on the malicious installer – and given the number of Flash updates issued this is highly probable – their computer locks. The ransom note and payment page demands around $280 in Bitcoin and gives a 40-hour deadline for payments to be made. The DiskCryptor software is being used to encrypt hard-drives.

While this threat has primarily affected users in Russia, Ukraine, Turkey, and Germany, please be very careful if prompted to install an Adobe Flash update you did not initiate. Close your browser immediately without clicking on any other prompts. As always, contact us for assistance by calling 215-723-4881.

New Tax Laws Affecting All Partnerships Starting January 1, 2018

While much of the recent news has focused on the proposed tax reform currently making its way through Congress, there are new mandatory laws affecting all partnerships starting in January 2018.

What is changing?

As you are aware, a partnership is a “flow-through” entity. In other words, the income from a partnership flows through to the individual partners, and they pay tax on the income.  Therefore, there is no tax assessed at the partner level. Under current (soon-to-be-old) law, in an examination, the IRS is required to keep each partner’s liability for partnership operations separate. This most often resulted in many, if not all, of the individual partner’s returns being examined as well.

In these new laws, Congress intended to make a streamlined, efficient system to examine partnerships and collect accessed deficiencies from them. As a result, the IRS may now collect tax at the partnership level as a result of an audit. The IRS will no longer need to keep track of individual partner’s tax liability.

While this sounds like an administrative home run, unfortunately, there are a few hidden issues with the new law.

Potential Pitfalls

First and foremost, the tax assessed to the partnership will be assessed at the highest income tax rate applicable. With the pending House bill, that would retain the 39.6% rate for individual taxpayers with over $1M in taxable income. The current Senate version has a top rate of 38.5% for individual taxpayers with over $1M in taxable income. Obviously, most owners of partnerships do not fall into these tax brackets. Therefore, settling deficiencies in examination at the partnership level will most likely be very costly.

Second, under the new law, any new partners to partnerships could pay tax on additional income assessed for when they were not a partner.  Since the tax deficiency is assessed at the partnership level as it exists at the time of assessment, current partners only will be burdened by that tax.

New Partnership Representative Must Be Designated

In addition to the above, the new law mandates all partnerships must designate a “partnership representative.”  This representative has very broad, and very powerful, responsibilities. A partnership representative does not need to be a partner in the partnership.  While an entity can be assigned as a representative, an individual must still be appointed to act on that entity’s behalf. This representative will have the power to bind the partnership and the individual partners.  Also, neither the IRS nor the partnership representative are required to notify the partners of partnership matters, including an examination. The representative will have ultimate authority with the IRS. If the partnership does not elect a partnership representative, the IRS will have the authority to designate one.

Potential to Elect Out

Certain eligible partnerships can decide annually if they wish to elect out of the new laws. If the partnership elects out of the new treatment, essentially, each partner will be responsible for his or her share of any deficiency assessed. If a partnership does not expressly elect out of the treatment on a timely filed tax return, it is required to conform to the new laws.

The elect out decision, if available, will obviously be made based on individual facts and circumstances. However, as a rule, partnerships with a smaller number of partners will want to strongly consider electing out. For example, a partnership with only four partners may want to elect out and most likely pay less tax on any deficiency assessed. Those four partners may be willing to tolerate the administrative burden.  However, a partnership with 50 partners may find it easier and less costly to pay the tax at the partnership level as opposed to each partner undergoing an audit.

What You Need to Do Immediately

All partnerships need to evaluate and amend their partnership agreement. Questions to be addressed in the agreement include:

  • Who appoints or removes the partnership representative?
  • What procedures should be implemented to limit the partnership representative’s authority within the partnership (i.e., establish a voting committee)?
  • When should the partnership representative give written notice to all of the partners in the case of certain events (audit notices, elections, )?
  • To what extent should the partnership representative exercise due diligence with respect to elections available?
  • Who is responsible for determining whether to elect out annually?
  • Should partners be precluded from transferring their interests in the partnership to ineligible partners?
  • If the partnership unintentionally fails one of the electing out criteria, what is the outcome?
  • Must partners who left the partnership reimburse the partnership for amounts owed for audit years in which they were partners?
  • Should new partners have to pay taxes related to a tax year they were not partners?
  • How to true-up partners when inequities exist among the partners as a result of paying the tax on the partnership level vs. the individual level.
  • How to fund the payment (i.e., partner capital contributions, cash reserve, financing, )
  • Should the Partnership Representative make a “push out” election if available?

As you can see, there are quite a few fiduciary responsibilities and duties of the partnership representative. Without guidance in the partnership agreement, the representative is at risk for a number of potential “self-interest” accusations and lawsuits. Such representatives should carefully consider an indemnification agreement if they decide to serve as a representative.

We encourage you to have a conversation with us as soon as possible to start addressing some of these issues in your partnership agreement. As always, we will help guide you through the implementation of these new regulations and work to put you in the best position possible in the event of an exam. Contact us online or call 215-723-4881.

Canon Capital is Hiring: Staff Accountant

We are currently seeking a Staff Accountant. If you have a minimum of 3 years experience in a CPA firm, have substantial experience with QuickBooks and are a CPA or working towards your CPA designation, this could be the job for you! Learn more and apply here.

Your Priorities Are Our Priorities

“You are not a priority.” As a small business owner who is seeking to grow your customer base and serve your current customers well, we expect you would never dream of saying this to your customers. It is certainly not our practice to respond this way when a client asks for our assistance. And yet, many of us have had an experience in business where that message is communicated, if not by words then through the type of service provided (or not provided).

This year we are celebrating 30 years of striving to provide our customers with excellent service. Our entire team is committed to helping you grow your business and preserve your wealth. This is not to say we are the only perfect business around, no, no one is perfect. Everyone makes mistakes. So, what sets us apart as a service provider? The way we provide our service, with honesty, integrity, and care. We care about our clients and that is evident in how we go about our daily activities.

We listen.
Have you ever contacted a company with a simple question, one that required a “yes” or “no” answer and instead were directed to the FAQ page of their website? We have, and we didn’t like how that felt. We listen to your concerns and do our best to provide the best possible customer experience.

We get answers.
We’ve all been there. You call a company with a question. After waiting on hold for an inordinate amount of time, the person who takes the call doesn’t have the answer you’re seeking. You get bounced to a few more representatives before getting the answer you need. Not here. With four business units to serve you, we will likely have the answer to your question. If we do not, we will take the time to research it and contact you.

We follow up.
You won’t get lost in the shuffle at Canon Capital. When you decide to start a business relationship with us, but perhaps won’t be ready to fully engage right away, that’s fine. We will make a note to follow up within your desired timeframe, at your convenience.

We care.
We’ve built our business on relationships built on mutual trust and respect, qualities that extend to how we treat our clients. This is not a special initiative; this is our normal way of doing business. We treat you the way we would like to be treated. You are our priority.

If you’re in need of accounting, payroll, IT/computer solutions, or wealth management services and are seeking a company that will look out for you, contact us. We’d love to talk about how we can be of service.

The Equifax Data Breach: What Does It Mean for You?

It appears we hear of new data breaches every day. From Arby’s to Saks Fifth Avenue, in 2017 alone there were 27 before the recent breach at Equifax. What differentiates Equifax from the other entities is that Equifax is one of the three largest credit agencies in the U.S. It is unsettling, to say the least, but there are steps you can take to protect your information:

Check to see if your information was compromised.

Equifax has set up a site dedicated to helping consumers determine if the breach has put their information at risk — www.equifaxsecurity2017.com — and is offering all consumers one free year of their TrustedID Premier program. They have also clarified the language in the terms of use that led to confusion regarding consumers’ right to file suit against Equifax with acceptance of this free service:

“The arbitration clause and class action waiver included in the TrustedID Premier Terms of Use apply to the free credit file monitoring and identity theft protection products, and not the cybersecurity incident.”

Always closely monitor your credit card statements.

If your information was compromised, call your credit card companies and inquire as to whether they recommend changing account numbers and/or issuing new cards.

Review your credit report.

AnnualCreditReport.com provides one free credit report per year.

Consider freezing your credit

The Federal Trade Commission has provided these guidelines regarding a credit freeze. A credit freeze does not:

  • Prevent you from getting your free annual credit report.
  • Keep you from opening a new account, applying for a job, renting an apartment, or buying insurance. However, if you are doing any of these, you will need to lift the freeze temporarily, either for a specific time or a specific party, say, a potential landlord or employer. The cost and lead times to lift a freeze vary, so it is best to check with the credit reporting company in advance.
  • Prevent a thief from making charges to your existing accounts. You still need to monitor all bank, credit card and insurance statements for fraudulent transactions.

Equifax is currently waiving their credit freeze fee. Each of the three credit reporting agencies – Equifax, Experian, and TransUnion – charge between $5-$10.

The Nuclear Option

If you do find yourself affected by this data breach to the point of identity theft or other life-altering implications, you can file for a new Social Security Number.

There is nothing pleasant about any of these activities but please take a moment and do your due diligence for your protection. We are also available if you have any questions. Please don’t hesitate to contact us.

 

Lease or Buy? Sell or Trade In? Business Vehicle Wisdom from Canon Capital Accounting Services

car inventory colorful
It’s time. Whether it’s one too many repair bills or the need for updated equipment, if you use your car for your business or have vehicles for specific use in your business the day will come when you’ll need to replace it. Deciding whether to trade it in or to try to sell it for cash will likely be based on the amount you can get on a sale versus a trade-in, not to mention the time you will spend.

There are also important tax factors to consider as you weigh your options. Here’s a quick overview of the complex tax rules that apply to what appears to be a simple transaction, and some pointers on how to achieve the best tax results.

Overall, the sale of a business asset yields a gain or loss depending on the net amount you receive from the sale and your basis for it. “Basis” is your “cost” for tax purposes, and, if you bought the asset, it usually equals your cost less the depreciation deductions you claimed for the asset over the years. Under the tax-free swap rules, trading in an old business asset for a new, like-kind asset doesn’t result in a current gain or loss, and the new asset’s basis will equal the old asset’s remaining basis plus any cash you paid to trade up. The rules generally are the same for business vehicles, with a couple of extra twists. So, what’s best for you?

Trade in your old business vehicle if:

  • The vehicle was used exclusively for business driving.
  • The vehicle’s basis has been depreciated down to zero or is very low.

The trade-in process often avoids a current tax. For example, if you sell your business vehicle for $9,000, and your basis in it is only $7,000, you will have a $2,000 taxable gain. If instead, you trade it in, a current tax is avoided. The trade-in means that the basis in the new vehicle will be lower than it would be if you bought it without a trade-in, but that doesn’t necessarily mean lower depreciation deductions on the new vehicle. Thanks to the “luxury auto” annual depreciation dollar caps, when purchasing a car for business your annual depreciation deductions on the new car may be the same whether you sold the old car or traded it in.

Consider selling your old business vehicle for cash if:

  • You used it exclusively for business driving and depreciation on the old vehicle was limited by the annual depreciation dollar caps.

In this situation, your basis in the old vehicle may exceed its value. If you sell the old vehicle, you will recognize a loss for tax purposes. However, if you trade it in, you will not recognize the loss.

Breaking this down, let’s assume a business person bought a $30,000 car several years ago and used it 100% for business driving. Because of the annual depreciation dollar caps, there is still a $16,000 basis in the car, which has a current value of $14,500. When this person wants to buy another $30,000 car, if the old vehicle is sold, a $1,500 loss will be recognized ($16,000 basis less $14,500 sale price). If the old vehicle is traded in for a new one, there will be no current loss. Again, if the old vehicle’s value exceeds its basis, the smart move on the taxation front is to trade it in, avoiding a gain.

  • You used the standard mileage allowance to deduct car-related expenses.

The 2016 allowance is 54¢ per business mile driven; For 2017, the allowance is 53.5¢ per business mile driven. The standard mileage allowance has a built-in allowance for depreciation, which must be reflected in the basis of the car. The deemed depreciation is 24¢ for every business mile traveled during 2016, and 25¢ for every business mile traveled in 2017. When you decide it’s time to make a change, the depreciation allowance may leave you with a higher remaining basis than the vehicle’s value. Under these circumstances, the vehicle should be sold to recognize the loss.

Did you use your vehicle partially for business, partially for personal use?

The rules are more complicated in this situation, which mainly applies to people who are self-employed, or as an employee are required to supply a vehicle for business use. In these instances:

  • If you sell the vehicle, cost and depreciation must be allocated between the business and personal portions. Gain or loss on the business part is recognized; gain, but not loss, is recognized on the personal part.
  • If you choose to trade it in, a special basis rule applies for depreciation purposes only. The basis of the new vehicle as computed under the normal trade-in rules is reduced by any difference between the depreciation that would have been allowable had the vehicle been used 100% for business driving and the depreciation claimed for its actual business use.

Leasing a Business Vehicle

The complex rules that apply to purchased business vehicles are one reason many business owners choose leasing vehicles over buying. When leasing, you simply deduct the business/investment use portion of annual lease costs. If the vehicle is a “luxury” model, for each lease year you add back to income an income inclusion amount derived from an IRS table. According to guidelines for 2016 and 2017, a leased vehicle is deemed “luxury” if the vehicle’s fair market value exceeds $19,000 ($19,500 for certain trucks and vans). There are, however, a few aspects of leasing to be aware of:

  • If you pay an additional sum up-front, it should be amortized over the life of the lease.
  • Any refundable deposit required as part of the lease deal cannot be deducted at all.

If you’re thinking, “This all sounds so very complicated,” you’re right. Before taking that next step with regard to your business vehicle, whether selling, trading in, or leasing, please contact us to set up a meeting to discuss the best path for your specific situation.