10 Tax-Saving Strategies for 2016

2016 has been an interesting year. We suspect for many of us it has or will invoke much change. As the end of 2016 nears, it’s time to consider the impact tax will have on your business and life. As your tax advisor, we want to share these essential tax saving strategies with you.

The “Trump Effect”

In light of the November election and highly likely changes to the tax code in 2017, there are a few additional tax strategies to consider in addition to some of the normal “tried and true” methods. We won’t know the full impact of the pending political influence but until we do, here are ten essential tax saving strategies for you to consider.

Accelerate deductions

Traditional tax planning has always focused on accelerating deductions to obtain a current tax benefit. This strategy takes on even more significance as tax rates are expected to go down for many individuals and businesses based on the Congressional proposals being floated around. For taxpayers in the top tax bracket of 39.6%, we are looking at a maximum rate of 33% in 2017 and beyond. Additionally, limitations or caps on itemized deductions are being proposed. Moving deductions forward to 2016 from 2017 could result in a nearly 7% savings over waiting until 2017, or more. Read more

IRS Issues Proposed Reg 1.83-2 on the IRC 83(b) Election

The IRS has issued proposed regulation 1.83-2 on 7/16/15 which eliminates the requirement to submit an original copy of the approved 83(b) election with a taxpayer’s originally filed income tax return beginning with the 2015 tax year.

Internal Revenue Code Section 83(b) requires the taxpayer to submit an election to the IRS within 30 days of the receipt of property received in exchange for services that is subject to a substantial risk of forfeiture. The election is made to include the excess of the fair market value of property received over the amount paid, if any, into income in the year of receipt. Absent a valid election the taxpayer is required to include the value of the property in income at the time the risk of forfeiture is lifted. For most taxpayers, especially in Silicon Valley, 83(b) elections are common when founder’s stock or other early stage company stock is received in exchange for services being performed. At grant the shares are typically worth very little and there is no downside to making the 83(b) election as all future gains are capital gain after the date of receipt with a valid election. Without the election, under a normal four year vesting cycle, for instance, the taxpayer would be required to report income each month as the stock vested at the then current market value or 409A valuation amount, possibly triggering large ordinary income amounts to be recognized and substantial tax liabilities to be incurred.

This is a welcome move as the IRS and many tax software providers have no mechanism in place to submit an original stamped copy of the 83(b) election with a taxpayer’s return without resorting to paper filing. There has been debate in the tax preparer community in the past whether an election “statement” included in the electronically filed return is considered meeting this requirement rather than submitting an actual copy of the election with a paper filing. This move appears to support the notion that a simple statement with the electronically filed return is adequate. The original requirement is redundant as the taxpayer is already required to submit an 83(b) election to the IRS within 30 days of the receipt of qualifying property. The proposed regulation is effective for property received after 1/1/16 but taxpayers can rely on the new proposed regulation for the 2015 tax year. Keep in mind the regulation does not relieve the taxpayer of any other record keeping responsibilities related to the receipt of 83(b) property, but nonetheless it appears the IRS has got this one right at least!

Tax Related Identity Theft – A Growing Problem

In the past several years there have been a proliferation of high profile incidents involving theft of personal information at major businesses (and government!) in the US. A recent NPR story pegs the estimated number of people who have had their Social Security Number (SSN) stolen at up to 60-80 percent of all Americans! In other words, unless you are a hermit or recluse or wear a tin foil hat then chances are good your personal information is out there and exposed. This is big business for criminal enterprises and an ever increasing problem. The Government Accountability Office (GAO) recently released a report for tax year 2013 indicating approximately $30 Billion in ID theft related fraud was attempted with $24.2 Billion being “prevented or recovered”, leaving $5.8 Billion actually paid out to fraudsters. Read more

LMGW has Named Matthew O. Wheeler as Managing Partner

In his new role, Matthew O. Wheeler will oversee client, talent, quality, regulatory and community initiatives for the firm, which includes 23 individuals. Additionally, he will continue to service LMGW clients focusing on individual and small business tax planning, compliance, and tax dispute resolution services.

“I am humbled and honored to succeed to Keith Plottel’s role and serve LMGW’s professionals and clients,” said Wheeler. “I look forward to building upon the hard work Keith has done in growing our firm and continue to focus our efforts on providing outstanding quality service.”

Plottel will remain a partner at LMGW, serving his diverse client base and  assisting in the transition of managing partner duties to Wheeler.

Wheeler joined LMGW in 2007 as a tax partner and has served some of the largest and most complex clients in the firm.

Active in the community, Wheeler serves on the boards of the Cupertino Chamber of Commerce and the David Andrew “Pooh” Maddan Foundation, a 501(c)(3) non-profit focused on providing financial assistance for living expenses not covered by insurance or otherwise to young adults diagnosed with cancer. The Foundation also recently provided a $100,000 research grant to fund an innovative phase II clinical trial focusing on treating sarcoma patients with minimal side effects. Wheeler received his bachelor’s degree from UC Santa Barbara and a Masters in Taxation from Golden Gate University. He is a member of the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants and is a licensed CPA in California.

Remedies for resolving Taxpayer disputes with the Internal Revenue Service

The Internal Revenue Service was created in 1862 as the federal agency responsible for collection of tax and interpretation and enforcement of the Internal Revenue Code. As with any collection of laws and regulations the Internal Revenue Code is open to varying levels of interpretation. Congress and the IRS have developed, over time, an effective set of tools and remedies for taxpayer disputes with the IRS arising out of the varying interpretations of the complex set of laws and regulations that compromise the Internal Revenue Code.

The remedies provided to taxpayers and the IRS in resolving disputes can be divided into four major categories:

1. Determination Letters and Rulings – These are letters or rulings with varying degrees of binding effect to transactions. The transactions can be proposed or contemplated transactions, or completed transactions that have not been subject to the examination process
2. Examination Process – During the examination process discussions are opened with the IRS and the taxpayer is afforded the opportunity to explain the stance taken under the laws and regulations for specific transactions. The examination process is a period for both finding of fact as well as discussing application of law to specific transactions. Audit determinations, if agreed to, are final and binding.
3. Appeals Process and Tax Court – The Appeals Process and the US Tax Court afford the taxpayer an additional avenue for dispute resolution when the taxpayer disagrees with the finding at the examination level. Appeals are an informal process that focuses on determining rule of law to the transactions that were considered in examination. New issues are generally not raised at Appeals. The US Tax Court is the taxpayer’s last step after appeals (before Appellate Courts or the US Supreme Court) to litigate issues under examination.
4. Taxpayer Advocate Service – The Taxpayer Advocate Service is available to taxpayers as an independent source within the IRS to help resolve taxpayer disputes. This function is mostly related to resolving issues with communication between the taxpayer and IRS personnel.  Read more