The document provides an overview of helpful tax tips and savings opportunities for the 2016 tax season, presented by Monica Silwanowicz. It discusses limitations on itemized deductions, personal exemptions, and the alternative minimum tax. It also covers opportunities like donating appreciated assets to charity, qualified charitable distributions from IRAs, and potential impacts of tax reform proposals on businesses, individuals, itemized deductions, and estate taxes. The document aims to help taxpayers maximize deductions and plan effectively for the upcoming tax year.

1. 2016 Tax Season Review
Helpful Tips & Savings Opportunities
PRESENTED BY SHINDELROCK

2. MONICA SILWANOWICZ, CPA
Manager
T 248-855-8833
msilwanowicz@shindelrock.com

3. PEASE Limitation
 Reduction in total itemized deductions by the lesser of:
 3% of adjusted gross income (AGI) over the threshold amounts OR
 80% of itemized deductions
If someone has high AGI and little deductions, they won’t get as much of a benefit from
their deductions as you may think
 Example: Single filer taxpayer AGI = $1,000,000 and total itemized deductions =
$15,000
 Reduction = $12,000 (80% of $15,000)
 If they were advised to donate, and they gave an additional $5,000 to charity, they would
only receive a true write-off of $1,000 (80% of $5,000)
 Threshold = $311,300 ($259,400 for single filers)
If they are bordering on the limit, try postponing income to a future year in order to
maximize itemized deductions.

4. PEP
Limitation
 Personal exemptions = $4,050 per individual ($4,000
in 2015)
 Below limits are based on AGI (similar to PEASE
thresholds)
Be careful when reviewing phase-outs and thresholds.
Are they based on taxable income or AGI?

5. The Dreaded AMT
 2 tax systems – highest tax “wins”
 Steps:
 Calculate “alternative minimum taxable income” (AMTI)
before exemptions
 Deduct exemption allowed (these also phase out)
 26% on amounts up to $186,300 ($93,150 MFS)
 28% on amounts above $186,300
So, those far into the top tax bracket of 39.6% aren’t in AMT.
Is this really a good thing??

6. Alternative Minimum Tax (AMT)
 Certain deductions eliminated
 Personal exemptions
 Taxes (real estate taxes, state/local taxes, license plate tabs, for example)
 Miscellaneous itemized deductions
 Investment advisory fees
 Tax preparation fees
How much are related to a business? Those are 100% deductible.
 Certain legal fees
 Unreimbursed employee expenses
Note the difference between self-employed and employee
 Interest from Private Activity Bonds (PAB) is taxable if the bond was issued
after August 7, 1986

7. AMT – Things to Watch Out For
 If a client is bordering on paying AMT, don’t increase their income
significantly with large capital gains which could throw them into an AMT
position
 Capital gains are taxed the same way for AMT and regular tax purposes,
however, if their capital gains eat up the AMT exemption allowed, you could
essentially be transforming capital gain income into ordinary income for AMT
purposes (taxed at 28% instead of 20%).
Example: Joint filers with taxable income under $159,700 (where the AMT
exemption starts to phase out)

8. Donations of Appreciated Capital Gain
Property
 Taxpayer donates appreciated stock directly to a qualified charitable
organization (assuming stock held for more than 1 year and is “capital gain
property”)
 No capital gains reported AND taxpayer can still deduct the FMV of the stock
 Deduction is limited to 30% of AGI, but excess can be carried forward 5 years
 The taxpayer may elect to apply a 50% AGI limitation if the basis (and not the
FMV) of the stock is deducted instead
No income to report plus deduction = double tax benefit
Disclaimer: This area of the Code can be very complex. Consult with your tax advisor before finalizing
any plans in order to make sure all requirements are met.

9. Qualified Charitable Distribution (QCD)
 Taxpayer over age 70 ½ can exclude up to $100,000 per person per year
for IRA distributions which are given directly to qualified charitable
organizations
 These distributions still count towards your RMD
 Contribution cannot go to a donor-advised fund, supporting organization,
or private foundation
 Cannot be made from SEPs or SIMPLE plans if an employer contribution
is made that year
Disclaimer: This area of the Code can be very complex. Consult with your tax advisor before
finalizing any plans in order to make sure all requirements are met.

10. So why would you ever choose a QCD?
 To avoid the 50% or 30% AGI limitation when donating appreciated stock
 To avoid taking an RMD (and therefore increasing AGI)
 Several tax calculations and phase-outs of benefits are based on AGI. In
general, the lower your AGI, the more benefits are available to you.
 Medical expense itemized deduction
 Miscellaneous itemized deduction
 PEP phase-outs
 Social security benefits increase in taxability as AGI increases (up to 85%)
 3.8% NIIT applied only after AGI goes above certain thresholds
 To minimize administrative, legal, and tax compliance costs
 Takeaway: there’s no right answer for everyone. An analysis of both
scenarios is a must!

11. Little Known Laws with Big Consequences
 Employer Owned Life Insurance (EOLI) – Code §101(j)
Potential of life insurance proceeds being TAXABLE
 Foreign owned assets
Foreign owned vacation properties
Signature authority over a foreign asset could trigger
reporting requirements

12. EOLI Contracts
 Definition: a contract owned by a person (business entity) engaged in a trade or business
under which that person is directly or indirectly a beneficiary under the contract and that
covers the life of an insured employee at the time the contract is issued
 If the EOLI fails to conform with the notice and consent procedures under §101(j)(4), the life
insurance proceeds will become taxable (total proceeds less premiums paid)
 Requirements – employee must:
 Be notified in writing that the policyholder intends to insure the employee’s life and the maximum value
of such policy
 Provide written consent to being insured under such contract and that the coverage may continue
after the insured’s employment is terminated
 Be informed in writing that the policyholder will be the beneficiary of any proceeds upon the death of
the insured
 IRS Form 8925 must be filed with each tax return after the policy is “issued”
 Exception – requirements don’t apply to contracts issued before August 17, 2006
However, if there has been a change in the death benefit or any other material change to
the policy, it is considered a new policy and no longer “grandfathered” in.

13. Opportunities & Planning
 Self-Employed Taxpayers
 Hire your children
 Have them contribute to their own retirement accounts with that earned income
 If child is age 18 or older, consider their wages and how this plays into the Kiddie Tax. Can
they provide more than half of their support? If so, Kiddie Tax no longer applies.
 Gift income-producing assets
 Watch for gift tax rules & filing responsibilities
 Watch out for Kiddie Tax
 Health Savings Accounts (HSA) - TRIPLE TAX BENEFIT
 Put money in pre-tax, growth is pre-tax, and distributions are tax free as long as they are used
for qualified medical expenses
 Run it through payroll to save on SS/Medicare taxes
 Retirement savings tool – distributions are penalty free at age 65 and older
 Watch out for Net Investment Income Tax (NIIT)

14. Net Investment Income Tax (NIIT)
 3.8% of the lesser of:
 Net Investment Income (NII) OR
 Excess of modified adjusted gross income over the threshold amount ($250,000 –
joint filers; $200,000 – single filers)
 Net Investment Income Examples
 Interest, dividends, capital gains from investments
 Annuities from nonqualified plans
 Royalties
 Rental income from passive activities
If someone’s AGI is hovering around the threshold amounts above and they have NII,
consider consulting with their tax advisor in order to avoid triggering the NIIT. The tax
savings could be up to 3.8% on their investment income.

15. Kiddie Tax - Applicable Child Ages
 Children with unearned income greater than $2,100 may be subject to their
parent’s tax rates
 If child is under age 18, the kiddie tax rules apply
 If child is age 18, the kiddie tax rules apply only if the child’s earned income is
less than or equal to 50% of his support. (In other words – if the child doesn’t
make enough to support herself/himself, the Kiddie Tax rules apply.)
 If child is age 19-23, the kiddie tax rules apply if the child is a full-time student
AND earned income is less than or equal to 50% of support.
 Finally, if the child is over age 23, the kiddie tax rules do NOT apply.

16. Kiddie Tax – Tax Rates
 Earned Income Only
 $0 - $6,300 = not taxed (note that self-employment tax still applies)
 Over $6,300 = taxed at child’s rate (in other words – NEVER at parent’s rate)
 Unearned Income Only
 $0 - $1,050 = not taxed
 $1,051 - $2,100 = taxed at child’s rate
 Over $2,100 = taxed at parent’s rate
 Both Earned and Unearned Income
 $0 - $1,050 = not taxed
 $1,051 - $2,100 = taxed at child’s rate
 Over $2,100 = taxed at parent’s rate
* Earned income minus remaining amount of standard deduction is taxed at the child’s rate

17. Family Limited Partnerships
 Proposed regulations disallow discounts used in valuing family limited
partnerships
 The proposed regulations are currently in the hearing and comment stages
 We expect to have final regulations this year
When someone mentions family limited partnerships, know that this
planning tool may be changing soon.

18. TAX REFORM
 Last tax reform was in 1986
 99% estimated probability of
happening in the next couple of
years
 Most experts think the first year
affected will be 2018

19. Tax Reform Proposals – Businesses
 Drop business tax rates down to 15%
 Includes ALL businesses…S and C corporations, partnership, sole-
proprietorships
 We may see a shift in employees wanting to become independent contractors
(income tax could drop as much as 18%)
 Allowance for immediate write-off of assets
 Interest expense deductions – DISALLOWED
 Idea is to discourage dependency on debt
 Proposed elimination of several business tax credits and incentives
 Provide tax benefits for corporations offering on-site childcare and pay part
of employees’ child care costs
 Potential increase of this tax credit cap from $150,000 to $500,000

20. Tax Reform Proposals - Individuals
 Lower tax rates and fewer brackets
 Proposed brackets are 12%, 25%, and 33%
 Capital gain rates would be 0%, 15%, and 20%, respectively
 Elimination of 3.8% Net Investment Income Tax (NIIT)
 Elimination of AMT
May see more Roth conversions under Trump regime
 Does it make sense to hold off until lower tax rates come into play?
 Remember to look at the bigger picture. It’s not all about reduced tax rates.
See if the changes to itemized deductions will affect your client. It may still
make sense to do a Roth conversion before the Tax Reform comes into play.

21. Tax Reform Proposals – Itemized Deductions
 Cap of $200,000 ($100,000 for
single filers)
 Increase in standard deduction
from $12,600 to $30,000
($15,000 for single filers)
 Personal exemptions eliminated
 Note that they are already
phased out due to the PEP
limitations

22. Tax Reform Proposals – “Death Tax”
 Current law
 Estates valued in excess of
$5.45 million are taxed
 Step-up in basis
 Proposed changes
 No estate tax
 No step-up in basis if value of
estate exceeds $10 million

23. Conclusion
 Planning and commitment with
compatible partners for a desired
outcome
 Proactive vs. Reactive

24. QUESTIONS
Monica Silwanowicz, CPA
Manager
T (248) 855-8833
msilwanowicz@shindelrock.com
SHINDELROCK
www.shindelrock.com