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Expensing Change, Social Security Strategy, Required Distributions

Berdon Tax Team 12.01.2015 | eVisor

FEDERAL TAX

Limit on Expensing Tangible Property Costs Increased for 2016

On November 24, the IRS issued Notice 2015-82 which increased the de minimis safe harbor for tangible property costs from $500 per item to $2,500 per item. This change generally goes into effect for tax years beginning on or after 2016, but could be retroactive in certain cases.

The final tangible property cost regulations that were issued in 2013, allowed taxpayers to make an annual election to expense certain de minimis costs of acquiring, producing or improving tangible property.  For taxpayers with an audited financial statement, the limit was $5,000 per item.  For other taxpayers, the limit was $500 per item.

rdon Tax TeamNotice 2015-82 increases the per item limitation for taxpayers without an audited financial statement from $500 to $2,500. The change generally applies to taxable years beginning on or after January 1, 2016. Taxpayers who wish to take advantage of this change will need to adopt (or change) their accounting procedures to treat amounts paid for property costing $2,500 or less as an expense for purposes of non-tax books and records. The accounting procedure does not have to be in writing but it does need to be in effect at the beginning of the 2016 taxable year. Note that companies with audited financial statements can still deduct costs of up to $5,000 per item.

For prior taxable years, the IRS will not raise upon examination a taxpayer position that the de minimis safe harbor election applied to per item amounts of $2,500 or less.  As a result, the change appears to apply to the 2015 taxable year if the taxpayer satisfies the requirements of Treasury Regulation 1.263(a)-1(f)(1)(ii) and has therefore adopted an accounting procedure (as of the beginning of the 2015 taxable year) that required items of $2,500 or less to be expensed.

Questions? Contact your Berdon advisor.


Two Social Security Strategies Are Going to Disappear

The recently passed Bipartisan Budget Act of 2015 established rules that place an end date on two popular Social Security strategies - File-and-Suspend and Restricted Application for Spousal Benefit. Here is how they work:

File-and-Suspend

File-and-Suspend increases the Social Security claiming options for married couples by allowing them to take advantage of spousal benefits and delayed retirement credits simultaneously.

Under the current law, a spouse cannot claim a spousal benefit unless the main beneficiary claims benefits first. However, once full retirement age (FRA) is reached (Age 66 for those born between 1943 and 1954), a beneficiary can file for benefits, but then immediately suspend receipt of those benefits until some future date. By doing this, his or her spouse can claim a spousal benefit and the main beneficiary can let his or her own retirement benefit grow at 8% per year.

In addition, if both spouses have reached FRA, it is possible for the spouse's own benefit to grow due to delayed requirement credits if he or she elects to receive free spousal benefits - also known as the Restricted Application option. The rule change applies to benefits suspensions submitted beginning in May 2016.

Restricted Application for Spousal Benefit

This strategy allows you to apply for Social Security benefits based on your spouse's record while delaying your own Social Security benefit.  In this way, you will get 50% of your spouse's benefit amount while continuing to earn delayed retirement credits of 8% a year up to age 70. You must meet the following criteria:

  • You have reached FRA;
  • You have not filed for your own retirement benefit before; and
  • Your spouse has filed for his/her own retirement benefit.  This can even be done in conjunction with the File-and-Suspend strategy.

[UPDATE] Note: If you are 62 or older at the end of 2015, you can continue to have the option of restricting an application to spousal benefits only. However, those turning 62 in 2016 or later will have to claim all their benefits when they file.

Questions? Contact your Berdon advisor or Saul Brenner, CPA, J.D., LL.M. at 212.331.7630 | sbrenner@berdonllp.com.


Reminder:
Deadline Approaching for Required Minimum Distributions

Generally, individuals born before July 1, 1945, must begin receiving required minimum distributions from their traditional IRAs and workplace retirement plans by December 31, 2015.

The required distribution rules apply to traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs - but not Roth IRAs - while the original owner is alive. The rules also apply to participants in various workplace retirement plans, among them 401(k), 403(b) and 457(b) plans.

If you are a first-year recipient, you may wait as late as April 1, 2016, to take your first payments.

Questions? Contact your Berdon advisor or Saul Brenner, CPA, J.D., LL.M.  at 212.331.7630 | sbrenner@berdonllp.com.


IRS May Remove Excise Tax on Frequent Flyer Miles

The IRS is mulling over excluding frequent flyer miles redeemed for awards, other than domestic travel, from the excise tax it applies to airfares.

This action would mean that miles redeemed for international flights, free hotel stays, and magazine subscriptions could be exempted from the excise tax.  Currently, taxpayers pay an excise tax for all frequent flyer miles purchased and then must file a refund claim for the tax on the miles used for non-U.S. travel.

Questions? Contact your Berdon advisor or Saul Brenner, CPA, J.D., LL.M. at 212.331.7630 | sbrenner@berdonllp.com.