CHARM -- A pair of accountants from Rea & Associates were the featured speakers at the monthly Chamber of Commerce meeting Tuesday, Feb. 7, at Keim Lumber in Charm.
Jordan Miller and Brian Kempf, both certified public accountants (CPAs), shared their knowledge of changes to tax laws and provided updates to the Chamber of Commerce members.
"We're going to give a brief update on tax laws and changes for 2016 returns we're going to be filing in the next few months," Miller said. "We'll be the first to admit, there's a lot of information here, so we won't go into a lot of detail.
"We'll start with some federal tax updates, new laws and reminders," he continued. "Then we'll move to state and local and some AFA (Affordable Care Act) updates and what changes in 2016."
The IRS has given individuals the heads-up that there may be some delays in refunds early, specifically people taking the Earned Income Credit and the Additional Child Tax credit. In general, the IRS is implementing more verification procedures, trying to match up numbers, names and addresses, so it might take a little longer in general to process.
April 18 is the deadline for filing this year, as the traditional April 15 falls on a weekend and Monday is Emancipation Day.
Miller offered a couple of reminders to limits on IRA deductions, which is $5,500. If you're older than 50 years old, you can donate an additional $1,000.
The self-employment tax ceiling stayed the same at $118,500.
There is no ceiling on Medicare.
Another reminder is, if your AGI exceeds certain limits, you could be phased out of your deductions.
There are two different filings required if you hold foreign assets, according to Kempf. "If you have business outside the states or a checking account that exceeds certain limits, you do need to be disclosing that to the IRS. There is up to a $60,000 penalty," Kempf said.
Something new for 2016 is the ABLE accounts. They allow you to put money away for someone who is permanently disabled. It's a tax-free savings tool someone can use to pay medical bills. If you meet certain limits, it does not count against you for Medicaid, Medicare or SSI income.
Kempf noted that if you have someone in your family you are taking care of, or are caretaker of their accounts, this is something you should be addressing. This will interplay with special needs trusts for people who were permanently disabled.
Kempf continued: "Not a whole lot has changed just yet in the state. The limit per person if $5.45 million, so a married couple can get close to $11 million of exemption for a state tax. Once you exceed that, your tax rate is 40 percent. There is a good chance this will be changing in some manner. There have been a number of different proposals, but nothing has been solidified at this point."
In business updates, the Path Act extended some of the tax deductions that were extended on a year-by-year basis.
One of the big changes is limits for bonus depreciation. This is similar to depreciation. It talks about how quickly you can depreciate an asset when you purchase it. You can depreciate 50 percent of an asset in the first year you buy it; 2018, it goes down to 40 percent; 2019 it goes to 30 percent; and then bonus depreciation is eliminated in 2020.
"You will still have section 179 depreciation; it's one other way to write off new assets," Kempf said
Qualified Improvement Property is a new class of property tax that has to do with improvements with buildings.
The big thing for this is, it qualifies for bonus depreciation.
If you re-did the interior of your building, it used to be that it was going to get depreciated over 39 years, significantly extending the life of it. Now, it may still be depreciated over 39 years, but you can take half of the write-off up front. This is a big deal for quite a few people. This is another possible way to write off new improvements to buildings.
He said this applies to restaurants or retail, or improving the interior of your building with a chance of getting a faster depreciation write-off.
Kempf also talked about late filing fees.
Miller addressed changes in state taxes. He said the business income deduction that has been in place for a few years and was called a few different things has changed again. In 2015, that deduction was 75 percent of your business income with a max of $187,500 for married, filing jointly. This year that deduction is up to $250,000 and 100 percent of that business income.
"If you have a small business, this is definitely something you want to look at taking," he said. "Anything over that $250,000 business income threshold will be taxed at a special rate of 3 percent. The state is encouraging small businesses to operate here in Ohio."
Kempf added that this deduction alone could save an individual up to $1,250. "It is a substantial tax savings the state has passed down," he said.
Ohio also has a sales tax holiday, sometime in August. The sales tax exemption, if it is similar to years past, is less than $75 for clothing and school supplies that are $20 or less.
The biggest change on the state and local front is House Bill 5, which applies to municipal tax, city and village taxing and how they do that. "This went into effect on Jan. 1, of 2016, and they are trying to make it less of a burden on taxpayers," Miller said. "If you have local tax, it is best to get a preparer who knows what they're doing."
With regards to the new administration, they discussed changes to the Affordable Care Act (ACA), including Health Reimbursement Accounts, which help pay for medical costs; not premiums, but actual costs. "Basically this would allow a person to go out and get high-deductible health care insurance and then the employer can help meet that deductible.
"It gives small businesses options; you can't provide health insurance, but you can reimburse employees for their medical costs," Kempf said. "There's caps on how much you can reimburse someone, but it does give the option to help employees offset their medical costs. One thing, though, this may not allow you to get a premium subsidy if you have a marketplace plan. They're still trying to figure out all the regulations on this."
Kempf says there will be a change in the ACA and there's likely to be a change in tax rates as well.
There are chances the new administration will replace pieces of it or replace the entire thing. There are several plans being discussed.
Trump is big on self-insurance, according to Kempf. There is a chance that pre-existing conditions are going to be coming back. Whether you liked Obamacare or not, the elimination of pre-existing conditions and the elimination of lifetime limits, if you lost your insurance, it made it very difficult to find insurance through anyone other than an employer.
Reporter Kevin Lynch can be reached at 330-674-5676 or email@example.com.