Taxpayer Elections to Consider Prior to Year End

Accounting Taxes Andrew Kyriacou

As a reminder, certain elections and/or company policies must be in place prior to December 31, 2018, in order to be applicable to calendar year tax returns and financials. Taxpayers should consider if they have the appropriate elections/policies in place or need to revise prior to December 31, 2018. Below are some elections/policies that are relevant to many of our clients that they may want to consider.

GILTI Accounting Policy Elections

ASC 740 does not currently directly address the accounting for GILTI. As a result, the FASB staff concluded in FASB Staff Q&A #5 that companies can make an accounting policy election to either:

  1. Treat GILTI as a period cost if and when incurred, or
  2. Recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years.

If a company elects to treat GILTI as a period cost, there is a supplemental accounting method election to make in determining if a valuation allowance is required for some or all of the company’s NOL carryforwards as companies in a loss position will not be allowed a Sec. 250 deduction or foreign tax credit (FTC) on GILTI inclusions and instead will be utilizing NOL carryforwards to offset any GILTI inclusion. FASB allows a company to take one of two approaches in assessing a valuation allowance on NOLs:

  1. Incremental Cash Tax Savings Approach – The Company compares what it expects the incremental cash taxes to be with and without the NOL. The difference would be the realizable benefit of the deferred tax asset.
  2. Tax Law Ordering – The Company looks to tax law ordering to determine whether the existing NOL deferred tax asset is expected to be realized. Under this approach, the fact the company will not be able to utilize the Sec. 250 deduction and FTC is irrelevant.

Companies will need to disclose their policy elections in their audited financial statements and the accounting policy elections must be in place by December 31, 2018, for calendar year companies, in order to be effective for 2018 and future years. 

De Minimis Safe Harbor Expensing Elections

As part of the final tangible property regulations, taxpayers are required to make annual elections related to their expensing policies. The de minimis safe harbor election requires a written policy to be in place by the beginning of the taxable year. This means that the written policy must be in place by December 31, 2018, for calendar year taxpayers planning to make the de minimis safe harbor election on a 2019 tax return. 

In addition to taxpayers with audited financial statements, this also applies to taxpayers without audited financial statements, taxpayers with Schedule C business activity and taxpayers with rental real estate activity. 

Deductibility of Accrued Bonuses

In order for accrual basis taxpayers to take an income deduction for bonuses as of the end of its tax year, the bonuses must be fixed and determinable as of the end of the tax year and paid within 2 ½ months. Many taxpayers require employees to be employed on the payment date of the bonus or do not determine the amount of the bonus or bonus pool until after year end. As such, the bonus is not fixed as of the end of the tax year.

Taxpayers should review their current bonus policies to see if they meet the requirements to be deducted as of the end of the tax year. If they do not, then the taxpayer may need to have a Board resolution in place by the end of the year (December 31, 2018 for calendar year taxpayers).

All the best

Andrew

Andersen Tax LLC

Andrew Kyriacou - Andersen Tax

125 High Street, 16th Floor Oliver St Tower, Boston, MA 02110

Andrew.Kyriacou@AndersenTax.com

(Tel) 617-292-8402,  (EFax) 617-517-7502

Looks Like Santa Stayed Home This Christmas And The Bear Came Out For The Holidays

Santa - Andrew Kyriacou Tips

I know all of you are tired of hearing that this market correction is due to the geopolitical issues around China and trade, interest rate concerns with an anticipated slowdown in the economy for the future, and most recently a US government shut down. However, to put this recent decline in historical perspective the average intra-year decline from peak to trough is about 14.2% over the last 35 years. Corrections are expected, normal, and even healthy. That statement may feel like cold comfort while in the midst of one, but we have been in a bull market for over 8 years before this correction. It reminds us how difficult it is to time the market and how important it is to be diversified and understand the liquidity needs of each of our clients.

I Cautioned in October

As mentioned in an email to all of my clients in the beginning of October, we were cautious and due for a correction. This decline was primarily driven by the uncertainty around tariffs, the Fed rate hike as well as weaker than expected economic growth in China.  As stated in October for all of our clients we are well diversified and our portfolios have not felt the full brunt of the selloff.  However, with that people should still be concerned and cautious. 

Prepare For The Coming Year

I would like to reiterate that apart from the cash flow that you know of in each of your portfolios, if you do have a need for additional cash within the next twelve to eighteen months you should have your financial advisor hold this amount in a money market account.  Many of my clients have taken advantage of raising cash before the sell off for the additional cash needs. The only thing certain we can predict is uncertainty and therefore, if you have a need for a large cash expenditure in the next twelve to eighteen months let your financial advisor know.  

Heightened Volatility

In times of heightened volatility it is important to keep in mind the following:

  • Stay focused on your long-term objectives. 
  • Daily fluctuations will be smoothed out over time. 
  • Diversification is the key to superior risk-adjusted returns. While high-quality bonds have not kept up with the returns of the stock markets over the last few years they are an integral component in your portfolio because they provide protection against market declines. They have not only retained principal but they have earned a positive return over the last few weeks.
  • The U.S. economy is still expanding, driven by strong job growth and positive earnings from corporations.

Contact Your Financial Advisor

Make sure your financial advisor is continually monitoring your portfolio and confident that you are positioned well in terms of allocation and quality.  Don’t hesitate to let your financial advisor know if you have any questions or concerns.

Happy Holidays

We wish you a very Happy Holiday season and a peaceful and prosperous New Year.

All the best,

Andrew

Andersen Tax LLC

Andrew Kyriacou - Andersen Tax

125 High Street, 16th Floor Oliver St Tower, Boston, MA 02110

Andrew.Kyriacou@AndersenTax.com

(Tel) 617-292-8402,  (EFax) 617-517-7502

Andrew Kyriacou Tax Strategies to Save You Money

Andrew Kyriacou - 100 Dollar Puzzle

Every person needs a plan related to income tax, and to develop this plan you need an expert advice. Andrew Kyriacou is a financial expert who has over 22 years of experience as a financial advisor focusing on tax situations.

Since he joined Andresen Tax, he has been working as an expert for handling the high-level tax issues that are founded in the income tax strategies. He also develops tax strategies to help his clients. If you are looking for help from an expert, then check out the Andrew Kyriacou TaxStrategies.

Andrew Kyriacou Tax Strategies

These strategies can be used to for resolving tax-related issues for anyone who is suffering from large income tax payments. As you may know, it becomes a time of depression income tax needs to be paid each year. Here are some tips to keep more money in your pocket.

1. Try to Maximize Your Savings.

If you have the financial means you should put as much money as you can into your personal retirement accounts… Roth IRAs, 401(k)s, etc. Any amount you can save is smart, but if you have the means, contribute the maximum that is allowed by your account.

2. Try Deferring Some Income.

If you might be entering a higher tax bracket, then you’re probably concerned about the ramifications. You should consider deferring one or two paychecks until next year, or defer other income to minimize your current liability.

3. Accelerate Deductions.

Along with deferring income, you can pay some deductible expenses this year instead of next year. This will temporarily lower your income and income taxes.

If you are self-employed you can prepay the balance of your state tax this year rather than waiting for January. This will secure the deduction for this current tax year.

4. Donating Appreciated Securities to Charity.

Most publicly traded securities with unrealized long‐term gains can be donated to a public charity (501(c)(3). To do this you can claim the fair market value as an itemized deduction on your federal tax return — up to 30% of your adjusted gross income. You won’t owe capital gains taxes because the securities were donated, not sold.