Special Section Advertising | Tax Strategy Q&A
Who doesn’t want to minimize the amount of taxes they pay? There are strategies that enable both businesses and individuals to cut the taxes they owe and keep more money in their pocket, but making use of such strategies requires planning.
The key to reducing your tax burden is to first be aware that tax-saving strategies exist. Then you must understand how to implement those strategies properly. Tax-saving strategies often have to be put in place by certain deadlines, or you won’t gain the benefit you had intended. That’s why it’s best to consult with a qualified tax professional.
Experienced tax experts can guide you through the tax maze. They also stay up to date on the latest tax code changes. Whether you’re trying to minimize the impact of taxes on your company’s cash flow or you want to leave a larger inheritance for your heirs, a tax specialist can advise you on how you can accomplish your objectives.
Q: How do I minimize gift and estate taxes?
A: Individuals are often looking for ways to reduce gift and estate taxes. There are four “tools” to minimize these taxes:
• Make annual exclusion gifts.
• Make gifts that use the gift tax exemption.
• Take advantage of discounts by restructuring the ownership of your assets.
• Give to charity, either during life or upon death.
If these are your objectives, now’s the time to put your estate plan in place. A properly created and funded estate plan, including a well-drafted Irrevocable Life Insurance Trust (ILIT), can:
• Provide an income-tax and estate-tax-free inheritance for your beneficiaries.
• Benefit charity. • Pay no gift, estate, or generation-skipping tax.
• Maintain ownership and control of all assets, other than those given to the trust.
Assets owned by an ILIT, in most cases, aren’t subject to estate taxes such as appreciated assets (e.g., real estate, stocks, business interests) and life insurance proceeds. This arrangement often increases the amount of wealth available to your family and other beneficiaries.
Consult with your financial team to maximize your estate tax planning opportunities.
901 Wilshire Dr., Ste. 300
Troy, MI 48084-5611
Q: What are some tax strategies that could be advantageous to fast-growing businesses?
A: If your company is quickly accumulating capital expenditure needs (equipment, buildouts, technology, etc.), it’s frequently better to maximize write-offs versus depreciating the assets. You can also set up retirement accounts for both the company’s owners and staff, which can help keep your employees happy — and, from a cash flow standpoint, you can often write off the contributions before you have to spend the cash.
It’s wise to be proactive and discuss tax strategies with your CPA as your company is moving into growth mode in order to protect cash flow, plan for taxes throughout the year, and position your company for long-term success.
Maria Montie, CPA, MST, CVA, MAFF
28100 Cabot Dr., Ste. 102
Novi, MI 48377
Q: What are the tax implications of the new revenue recognition standard?
A: Here are a few ways the new standard may affect taxes:
• Acceleration of taxable income: The new standard’s “transfer-of-control” model may require you to accelerate revenue from advance payments into the year they’re received. If this happens, taxable income related to those payments could similarly be accelerated.
• Book versus tax differences: A change for financial reporting purposes may not result in a change for tax reporting purposes, requiring you to start tracking the book versus tax income differences.
• Change in tax accounting method: If the new standard requires you to change an accounting method for financial reporting purposes, you may have a corresponding tax change in the accounting method.
• System changes: You’ll need to be sure that you update systems, policies, processes, and controls to gather the necessary data for financial and tax reporting purposes.
Liesl Morelli, CPA, MST
Senior Tax Manager
Q: How should I report funds given to a crowdfunding website? How should I report funds I received from a crowdfunding website?
A: Unfortunately, this is an area of the tax law that the Department of Treasury and Internal Revenue Service haven’t provided a lot of guidance about. That being said, you’ll need to analyze the facts of the transaction and your role (payor or recipient) to determine your responsibilities. There are some standard tax rules that will apply, and these may answer your question quite quickly.
If the contribution was made to assist a person in need (e.g., funeral expenses, emergency relief ), it would most likely be considered a nondeductible gift. A charitable deduction would be specifically denied because such contributions are only deductible when made to a qualified 501(c)(3) organization. The contributor, however, should be mindful of the potential gift tax consequences, as those rules clearly would apply and qualifying under the annual exclusion (the 2016 limit was $14,000) is the only relief available absent further guidance from the IRS (i.e., exclusions of gifts made directly to a medical and educational provider to cover those expenses).
For the recipient, the receipt of those funds would determine the tax consequences. If the crowdfund was established to cover the costs of a life event (e.g., funeral or medical expenses), those amounts would be excluded from the recipient’s gross income. If, however, the crowdfund was established for some sort of business event (e.g., covering the costs to make a movie or develop an invention), those amounts would have to be included in the recipient’s gross income under section 61(a) of the Internal Revenue Code.
Most crowdfunding sites are keenly aware of the tax rules and provide as much tax reporting assistance as they can, such as issuing Form 1099-K to crowdfund organizers. Nevertheless, the ultimate responsibility falls upon the taxpayer to properly report their gross income and avoid unauthorized deductions.
Daniel S. Hoops, B.M.A., J.D., LL.M.
DeVos Graduate School of Management
1500 W. Big Beaver Rd., Ste. 103
Troy, MI 48084
Affiliations: Michigan Bar Association, The Florida Bar