Planning for the Yearend
With Paul Ryan being elected as the new House Speaker on October 29, 2015, many are looking ahead
to the possible “once-in-a-generation” tax overhaul. Ryan is considered by many as one of Congress’
most distinguished and ardent tax experts. Before becoming House Speaker, Ryan served as the chair of
the House Ways and Means Committee where he spent time laying the foundation for an ambitious
rewrite of the tax code. Although many of Ryan’s ideas have fallen short in the past, he now carries the
weight to push a new tax reform to the next level. With time running out in 2015 and the presidential
election happening at the end of 2016, the likeliness of a major tax overhaul could occur in the early
stages of the next presidency.
While it’s fun to entertain the idea of a new tax code, we all know how difficult it is for the government
to pass any bill these days. With that being said, it’s imperative that you, the taxpayer, remain in the
present and focus on tax planning for the current year. Even without the major tax legislation headlines
for 2015, it’s still a good idea to know the changes that may take place. If Congress moves as they did
last year, the decision on which tax provisions are extended could occur as late as the last week of
December. Luckily, most of the major tax changes occurred in 2013, so any last minute decisions to
extend some of the current provisions shouldn’t cause a major “sticker-shock” for 2015.
An important part of planning each year is to make sure the tax strategies used in the prior years are still
effective. Taxpayers saw as much as 14-18% increase in tax, even with consistent income, since the 2013
laws were enacted. A majority of the increase was related to the increase in tax rates, increase in capital
gains tax, phase outs of deductions and addition of the 3.8% Medicare surtax on net investment income.
There are strategies such as grouping related passive activities, deferring income and accelerating
expenses, shifting income to children – especially if you own your own business, examining the entity
structure of your business and minimizing the effects of Alternative Minimum Tax that can help reduce
your tax liability. If these strategies are not already in place, it’s important for you to bring some of these
ideas to your CPA.
Being that healthcare insurance is an item that affects each and every one of us, it’s important to
understand a few of the tax law changes that affect this topic. These changes won’t necessarily have a
large impact on reducing your tax liability for the upcoming filing season, but they can affect planning
and eliminate penalties. While you may or may not understand the thoughts behind Obamacare, it’s
important to know the penalties being enforced for not having health insurance. The penalties last year
were fairly insignificant – greater of $95 per person or 1% of household income. Moving forward the
penalties are becoming more substantial. The penalties for 2015 and 2016 are the greater of $325 per
person or 2% of household income and $695 or 2.5% of household income, respectively. There may not
be a way out of paying the penalty for 2015, but it’s advised to look into the exchange market if
necessary for 2016. Another area you may be familiar with is a Flexible Spending Account. These
accounts allow taxpayers to contribute pre-tax dollars to pay for health care expenses. Traditionally
these accounts were “use it or lose it plans”. As of 2013, these plans allowed you to roll over $500 to the
next year. Starting in 2015, the laws have changed again in regards to these accounts. If you have an FSA
and decide to roll over an amount, you will be ineligible to participate in a Health Savings Account (HSA)
for the year into which the amount was rolled over. Many employers offer both a FSA and HSA plans if
you elect a high-deductible insurance plan. Be mindful of this new change so you can maximize the pretax savings gained from contributing to an HSA.
The tax changes and strategies mentioned above are just a few of the important items you should be
aware of when looking at year-end tax strategies. With every taxpayer being unique, tax planning should
be done on an individual basis. We encourage our clients to schedule an appointment with their CPA
each November or December to review their projection. There may still be strategies available that can
save 2015 taxes and need implementation by December 31st. For our clients who prepare their own
returns, DWM would be happy to help them with this before year-end. It’s always a good financial plan
to know what to expect when April 15th rolls around.
P.S. Please join us in welcoming Sam Winkler, CPA, to our DWM team. Sam joined us last week from
Dixon Hughes Goodman LLP, in Charleston. Sam, wife Lauren and their twelve-week old son, Will, live in
Mt. Pleasant. Sam will be heading up our tax and estate planning area for all DWM clients as well as
adding value in all aspects of our wealth management services. Welcome aboard, Sam!