Agranovich Accounting

As fall approaches, the election cycle seems to be putting a freeze on any new tax legislation. This is good news for 2016 tax planning. Included this month is estimated tax information for 2017 based upon the Consumer Price Index. There are also articles on recovering from identity theft and how to save money from long-time suppliers of services. Ideas for small businesses to deduct the cost of event tickets rounds out this month's newsletter.

Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Preview of Some Key 2017 Tax Figures

While official numbers for 2017 are not yet released by the Internal Revenue Service (IRS), many figures are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of recent CPI figures, a number of sources are projecting key figures for 2017.

Tax Brackets: While the actual income brackets for tax rates are not set for 2017, the rate of inflation impacting the income levels for each rate is anticipated to raise the income brackets by approximately 0.6 - 0.8%.

Personal Exemption: $4,050 in 2017 (unchanged from 2016)

Standard Deductions:

Deduction	Tax Year 2017	Tax Year 2016
Single	$6,350	$6,300
Head of Household	$9,350	$9,300
Married Filing Jointly	$12,700	$12,600
Married Filing Separately	$6,350	$6,300
Dependents (kiddie tax)	$1,050	$1,050
65 or Blind: Married	Add $1,250	Add $1,250
Single	Add $1,550	Add $1,550

Other Key figures:

Estate & Gift Tax Exclusion	$5.49 million	$5.45 million
Annual Gift Tax Exclusion	$14,000	$14,000
Roth and Traditional IRA Contribution Limit	$5,500	$5,500

Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later in the year.

Recovering from Identity Theft

There are now millions of victims of the identity theft epidemic. From stolen credit cards to fraudulently filed tax returns, a vast swath of the U.S. is trying to figure out how to repair the damage. To help, the Federal Trade Commission has created a nice tool to work through the recovery process.

The site: IdentityTheft.gov

Caution: Do not confuse this site with IdentityTheft.com or .org

The Process: The site will walk you through a step-by-step approach to report and repair your damage. There are different paths depending on the type of identity theft you have been subjected to.

Here is a snapshot of the Federal Trade Commission's recovery process.

Everyone should review the site. Even if you are not currently a victim of identity theft, spend a few minutes reviewing the site. A review now can help you become more aware of the problem and help you understand what immediate steps you should take if this happens to you.

Stop Price Creep

Review your household vendors

One simple idea could save you hundreds in your monthly expenses. It has to do with the tendency for inertia. When you are looking for a supplier of basic services, you tend to shop alternative companies, ask friends for recommendations, and get quotes from alternate choices. After completing this often exhausting work, you sit back and enjoy your new supplier.

The problem. Once a supplier is chosen, review of the service is often not redone. Unfortunately, things change and what was once a good deal can become a very expensive proposition.

Example, talk about trash. A young couple move into a new home. They shop and hire a trash collector. Over the years, the trash collector is purchased by a new hauler and the new hauler merges with another hauler a couple of years later. One day their supplier-provided trash can disappears. When looking online for the phone number to request a replacement, the couple discovers a listed price for their service much lower than what they are paying. Their $28 per month fee is offered to new customers for $10 per month.

What to do. Every two or three years conduct a review of your suppliers. To keep the process manageable, rotate a few vendors each year for this review exercise. The longer you use a supplier without a review, the more important the review becomes. Here are some common culprits for price creep:

	Cell phone providers
	Cable services
	Internet services
	Auto insurance
	Health insurance
	Trash collectors
	Homeowner insurance
	Cleaning services

It is not only price. Remember, just because your supplier is not the lowest price, there may be other reasons to continue your service. Trust and quality of service should also be considered in your decision making process.

Want to Deduct an Event Ticket?

Things to consider

As an employee, can you ever deduct the cost of a sporting event or other ticket on your expense report? Surprisingly, the answer can be yes, but only if you know and abide by the rules.

The accountable plan

If your employer uses accountable plan rules for reimbursing expenses, the IRS will not only provide the ability for you to be reimbursed by your employer for your qualified expenses, it will also allow your employer to deduct the expense on their corporate tax return. To be a qualified expense, three rules must be met:

	Expenses must be related to the duties and responsibilities of the employee for their employer.
	The expenses must be properly substantiated in a timely manner. This is usually within 30 to 60 days.
	Any excess reimbursements to the employee must be returned to the employer.

Applying the rules

To apply these expense deduction rules to a sporting event:

	There must be a business purpose for attending the event and
	an employee must accompany a prospective customer, a current customer or supplier to the event.

If you apply these rules, your employer can usually deduct 50% of the ticket cost and related expenses.

What can go wrong?

As you can imagine, the IRS looks closely at those who deduct entertainment as a qualified business expense. Here are some things to watch for:

	No customer or supplier is in attendance. Make sure you attend the event with your customer or the tickets are deemed a gift.
	The environment does not provide for a quiet place to conduct business. Do not try to deduct concert tickets or sporting events if you do not first meet in a quiet place prior to or after the event to conduct your business affairs.
	Over-charging the ticket price. You may only deduct the price of a ticket that is generally available to the public.
	Bringing friends. Generally you can include a spouse in the event, but other family members or unrelated guests can raise red flags.

As you can imagine, this area of expense deductibility is often the focus for the IRS during a review. If in doubt, please ask for help and clarification on the deductibility of this type of entertainment expense.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Classrooms are now filling up as our summer days draw to a close. The IRS recently warned incoming students and their parents of a new scam targeting them. A review of this scam is outlined here. Also included is an article with ideas to consider if you want to prepare for a possible early retirement. An article on the disturbing trend of some taxing authorities targeting revenue from people and businesses that have no voting authority rounds out this month's newsletter.

Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

In the News: The Student Tax Scam

IMPORTANT: Please pass this information on to each of your children and any family with kids in school. Your best defense is awareness.

With school just around the corner, the IRS has reminded us to pay attention to a new scam that is targeting students and their parents. Here is what you need to know.

	The scam. Callers will contact your student and demand payment of an unpaid Student Tax. This tax does not exist. The contact is typically via phone call, but can take the form of a realistic looking email.
	It will seem real. The caller will say they are from the IRS. They will have your student's name and some of their personal information stolen from another source. There may be a caller ID displaying IRS. They will often call multiple times and may even threaten arrest.
	Their goal. To get your unwary parent or student to provide them with payment through a prepaid debit card, credit card, or other type of gift card.

What to do. If this happens to you, hang up. If they call back, do not answer. Students should inform parents of the call. Remember, the IRS NEVER initiates a tax question with a phone call or email. You can also report the scam to the Treasury Inspector General for Tax Administration: IRS Impersonation Scam Reporting Form

Your data must be stolen

Should this scam occur, one thing is certain. Personal data has been stolen. If you receive this scam call, you may be targeted for other scams. So be alert and consider reviewing your credit reports to ensure someone is not trying to access your identity in other ways.

Tips for Early Retirement

When would you like to retire? Even if the answer is later versus sooner, most of us would like the freedom to decide. To do this, consider what it would take to create financial independence in retirement. Here are some ideas to help plan for an early retirement.

	Start early. Establish your desire to retire early as soon as possible. Have a discussion with your spouse and loved ones to ensure you have the same retirement date goal. With this stated goal, meeting savings targets and establishing spending priorities get much easier.
	Know what you want to do. Have you always wanted to visit national parks? Do you have a passion for art? If you have a dream that can be fulfilled in retirement, it makes any hardships to get there more tolerable. Once you set retirement goals, creating a plan to get there will have more meaning.

	Pay yourself first. People who retire early have higher savings rates than most of us. Consider saving in excess of 10% of your earnings. To do this might mean holding off on a big vacation once in a while or delaying a major home improvement or purchase. While a hardship, knowing the long-term dividend makes it worthwhile. The larger your savings become, the more flexible you are in acquiring assets that generate more wealth for you.
	No debt and credit cards paid in full. It's hard to retire early if you are making large loan payments. Having a mindset to save money before you buy something versus taking out loans is the way to go for prospective early retirees. Why pay the credit card company interest when you could use that money during your non-working days?
	Financial independence mindset. Save enough to not have to worry about Social Security or other government programs to take care of you. Said another way, never over-spend your own resources as you will need to depend on yourself and not others for your financial independence.
	Use common sense when investing. Many investment alternatives may no longer make financial sense when compared to the income potential of the underlying asset or property. For example, if you own rental property, determine if the cash flows create a reasonable rate of return for the price you paid for the property. If you use common sense, more of your investments may help generate income in retirement.
	Other resources. Go through a retirement planning process with a qualified expert. This exercise can help you understand what your projected financial needs will be during your retirement years. Project your potential savings. Look into other sources of projected income from pension plans and retirement savings accounts. Create an estimate of possible Social Security benefits. Understand what other resources will be available to you during retirement.

While this list is not meant to be all-inclusive, it should help start the conversation toward your early retirement dream. Remember to ask for help to understand your situation and to develop your own personal plan.

What to Do With Your Social Security Statement

The Social Security Administration is now doing a better job in sending out earnings reports by mailing paper statements to workers every five years beginning at age 25. The reports are also available online. These reports recap historic earnings and contain an estimate of potential benefits.

When you receive your report, spend a few minutes reviewing the statement. Here are some suggestions on how to do this.

Review your earnings history. Towards the back of the report is a recap of your earnings record. This should accurately reflect reported earnings on your tax return. This number is a summary of all your earnings subject to Social Security as reported by your employer on your W-2 forms. But if you are self-employed or have many employers, you must make sure that the income properly reflects what you earned.

Action:
Employees:	Pull out your W-2s and make sure the totals match
Self-employed:	Pull out your tax return and confirm totals match
Review history:	Review historic figures as well. Your Social Security benefits use your full work history to calculate future benefits.

Review your potential retirement benefits. The Social Security statement will provide you with an estimate of your benefit amount using current dollars and current work history. The value of your benefit will show three benefit amounts. One for the minimum retirement age of 62, one for the maximum amount if you start your benefits at age 70, and one for your full retirement age between the ages of 65 and 67.

Action: Consider these monthly benefit amounts in terms of your retirement plan to help create a realistic picture of what you will have available to you when you retire.

Note other benefits. Remember, Social Security is not just about your retirement benefits. There are also estimates presented for disability and surviving family benefits. Please review these estimates to understand the potential benefits these programs may provide.

Remember current benefits are just estimates. The benefits noted on this statement are estimates. Actual benefit amounts rise with inflation, change with tax laws, and adjust with your future earnings. Your benefit statement will show you the assumptions used in creating your estimated amounts.

Action: Review the assumptions used by the Social Security Administration. Pay special attention to the future earnings used by them to create the benefit amounts. If you do not think they are accurate, you may need to create revised estimates with more accurate assumptions.

Should you find any errors in the statement correct them immediately. The last page of the statement provides a means for doing this.

Taxation Without Representation is Alive and Well

Our forefathers launched the Revolutionary War with the claim "taxation without representation." What few of us realize is that taxing the other guy who has no say in the matter is now a prevalent technique. Here are some examples.

Hotel taxes to fund sports stadiums. New professional sports stadiums across the country are using hotel taxes to fund their construction. This tax is added to every visitors' bill without input on whether they agree to the tax or not. In perhaps the most brazen example, supporters of a potential new NFL stadium referendum in San Diego are promoting getting fans from competing football teams to pay for their new stadium through hotel taxes.

High property tax on vacation property. Own a cabin or other vacation property? The property tax you pay for this property is set by local officials. Temporary residents do not have a vote in electing these people. So out-of-town cabin owners end up footing the bill for local initiatives without a vote.

Taxation Without Representation is Alive and Well

Small business taxes. While the legal system treats corporations as legal entities, they have no voting rights. In addition, millions of small businesses are taxed on individual tax returns as flow-through entities, but the owners have no voting authority to represent their business if they do not live in the same community as their business. This means things like property taxes and sales taxes are set without representation.

Out-of-state taxes despite no physical presence. Many states are taxing non-resident individuals and businesses with new legislation. For example, a consultant working for a California company may be subject to California income tax, even if residing and working in another state. Out-of-state businesses are challenged with newly defined "nexus" rules. As non-residents, these new taxpayers have no voice in the matter.

What's the big deal?

Unfortunately, the pace of targeting taxes towards people and businesses with no voting rights is increasing. This is often due to legislatures taking the path of least resistance. Why not place the tax burden on someone who does not vote? Here are some suggestions on what you can do to manage this problem for you.

	Manage your stay. Know which cities have hotel taxes to support construction projects. Vote with your wallet by selecting your location for business and vacation stays. Sometimes the tax only applies to select counties around a stadium. This is the case with the tax to fund the construction of the Minnesota Twins baseball stadium. So select a nearby county that does not collect the tax.
	Shop wisely. When looking for a new vacation home or cottage, pay attention to the property tax. There are cases where two similarly valued properties on the same lake have different property taxes because the lake is in two different communities.
	Squeak. While you have no vote, you can still try to apply influence. If a community is not business-friendly in their tax proposals, getting the word out is often your only approach. Visit city council meetings and voice your concerns. Support local candidates that understand your plight. Consider challenging property valuations to minimize the impact of tax increases.

Every state, county, and community is different. Know the tax climate before you buy, move, or work in a community that is not your primary residence. It is often your only defense when you are subject to taxation without representation.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Agranovich Accounting

Saturday, October 1, 2016

October 2016 Letter