Illinois Income Tax Update

As you have heard, the Illinois legislators passed an income tax hike earlier this month which is effective July 1, 2017.  What does this mean for you? Illinois income tax rates increased from 3.75 percent to 4.95 percent for individuals, trusts and estates. Beginning with tax year 2017, individuals filing married filing joint returns with income exceeding $500,000 and $250,000 for all other returns may not claim the following: Personal exemption allowance K-12 Education Expense Credit Property Tax Credit Corporate tax rates (excluding S Corporations) increased from 5.25 percent to 7 percent. Beginning with tax year 2018, the Domestic Production Activities Deduction allowed from profitable corporations and partnerships which flow to your federal tax returns must be added back to income on the Illinois tax returns. This income tax rate hike means paying an extra $12 on each $1,000 of income.   However, if you earn at least $501,000 as a married couple, your tax hike is more as you lose the personal allowances and above-mentioned credits. You can minimize your tax liability by saving more in your 401(k)s, IRAs and business retirement accounts.  Retirement income is not taxable in Illinois as of yet.  You can also minimize your tax liability by saving money for your kids’ college education in one of Illinois two 529 college savings plans.  However, another state’s 529 college savings plan is not deductible.  You will not ever pay taxes on monies contributed to Illinois 529 accounts or its earnings if the funds pay for college. If you would like to learn more about this tax strategy, please call Susan at...

2017 Mileage Rates

The Internal Revenue Service has issued its 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is: 53.5 cents per mile for business miles driven, down from 54 cents in 2016. 17 cents per mile driven for medical or moving purposes, down from 19 cents in 2016. 14 cents per mile driven in service of charitable organizations, same rate as in 2016. You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

Deducting Business Education Expenses

The rules for business education deductions are as follows: You must already work in the business the education relates.¹ You must have already met the minimum educational requirements for the work.² If your education meets the above requirements, the rules let you deduct almost all of your related expenses, including³ Tuition, books, supplies, lab fees, and similar items Certain transportation and travel costs; and Other educational expenses, such as the cost of research for papers. If you are an independent contractor or a sole proprietor, you report your qualifying business education expenses on Schedule C which reduces your self-employment, federal and state income taxes. If your business operates as a corporation, making you an employee, the business can directly pay or reimburse you for the costs.  The corporation takes the deduction, and you receive the free education. Another way to take business education expenses is as Start-up Costs. If you take business related course(s) after starting your business, you can claim your education costs as a “start-up” expense.  Start-up expenses are costs related to the investigation, purchase, or creation of a new business that would qualify as deductible expenses if you incurred them for an existing business in the same field.4  You can elect to deduct up to $5,000 of start-up costs in the year your business begins, reduced (but not below zero) by the amount by which the costs exceed $50,000.  You then deduct the remainder of your start-up costs using straight-line amortization over the 15-year period beginning the month your business starts.5 If you close your business before the start-up costs are fully amortized, you deduct any...

Expedited Nonresidential Qualified Leasehold Improvement Tax Deductions

First let’s explain what qualifies as a nonresidential leasehold improvement: A qualified leasehold improvement is any improvement made to the interior portion of a nonresidential building if¹: The improvement is made pursuant to a lease by the lessee, sub lessee or lessor as long as the lease is not made between related parties. Lessee occupies the portion being improved, and Improvement(s) is placed into service more than three years after the date the building was first placed into service. Qualified leasehold improvement expenses exclude any improvements for² Enlarging the building Elevators or escalators Structural components for the common area of the building, or Internal structural framework of the building (load-bearing walls, columns and beams) Qualified leasehold improvements include the following: Utilities Framing Walls Doors Windows Pipes and fittings Fire protection HVAC (heating, ventilation and air conditioning) Permanent interior finishes Permanent floor coverings, and Millwork and trim Qualified leasehold improvements qualify for the following tax deductions: Immediate Section 179 expensing up to $500,000³ Immediate 50 % bonus depreciation until year 2019 4 15-year depreciation on the basis remainder 5 In other words, you spend $600,000 on qualified leasehold improvements.  You use Section 179 expensing to expense $500,000 this year, then apply the 50% bonus depreciation of $50,000 and leaves you with a basis of $50,000 to expense over the 15-year period beginning this year. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880 ¹ IRC Section 168(e)(6)(A) ² IRC Section 168(e)(6)(B) ³ IRC Section 179(f)(2)(A) 4 IRC Section 168(k)(2)(A)(i) 5 IRC Section 168(e)(3)(E) (iv)...

Failed Rental Property Purchase Tax Procedure

When your attempt to purchase rental property fails, two types of costs are considered Capital acquisition costs Start-up expenses Capital acquisition costs are those costs that you capitalize and add to basis.  Two examples of rental capital acquisition costs are Earnest money Inspection and appraisal Because you entered into this capital acquisition to make a profit, you can deduct your failed capital acquisition as a loss on IRS Form 4797¹ for the full amount of the costs. Start-Up expenses are costs incurred to create or acquire a business or rental.  For example, if you incurred travel expenses in pursuit of starting your rental business which failed, your travel costs are in oblivion. If you start another rental business, the failed travel costs will produce tax benefits on the new rental as start-up expenses. If you do not start another rental business, the travel costs are lost when you die. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880 ¹ IRC Section...