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Navigating Health Insurance as an S Corporation: Important Things You Might Not Know

Posted by Admin Posted on June 05 2019

Navigating Health Insurance as an S Corporation

Navigating Health Insurance as an S Corporation: Important Things You Might Not Know

 

When you own an S Corporation there are several important rules to follow. One of the biggest and most confusing concerns health insurance for owners. Here are some basic principles:

  • Any individual who owns 2% or more of an S Corp’s stock must include their health insurance benefit as part of their salary. In other words, they must pay tax on their health insurance premiums. 

  • Most owners of S Corps are considered employees and hold more than 2% of the S Corp’s stock.

  • The health insurance premiums aren’t subject to Social Security, Medicare, or Unemployment tax and need to be coded properly on payroll.

  • These principles do not apply if an S Corp owner has health insurance coverage through a spouse or other employer. 

 

Health Insurance Options for an S Corporation

As owner of an S Corp:

  • You can allow the S Corp to pay your health insurance premiums. While you have to pay income tax on this premium amount, you are eligible to deduct your health insurance premium on your personal taxes. This is because the IRS considers you a self-employed person. 

  • You can pay your health insurance premium out-of-pocket yourself. (The caveat in doing this is that if the S Corp reimburses you for your health insurance premium, you must pay tax on this premium amount. If the S Corp does NOT reimburse you, then technically the S Corp did not make a medical plan for you and you do not qualify for the self-employed health insurance deduction.)

 

Important Things to Note:

  • If you are 2% or more owner and also have Medicare coverage, Medicare premiums paid out-of-pocket should be reimbursed by the S Corp. Those reimbursed premiums need to be included in your taxable income. This is a complicated area, if this applies to you contact us with questions. 

  • You cannot take this deduction if you or your spouse qualify for employer-subsidized health insurance. (In other words, if your spouse qualifies for health insurance at an unrelated place of employment, you may not deduct your S Corp premiums, even if your spouse turns down this employer-sponsored insurance.)

  • When sending W-2s, an S Corp must include health insurance as wages not subject to FICA. This also applies to any payments to an employee’s Health Savings Account, as long as that employee is a 2% or more stock holder in the S Corp.

  • Some S Corp owners may try to circumvent the health insurance tax law by employing a spouse and granting them health insurance that also covers you as the owner. Even if the spouse may not technically be a shareholder, the IRS sees them as such because they are your spouse. 

Health insurance taxes can be complicated. If you’re uncertain of how to navigate the legalities according to the IRS and the Affordable Care Act, let us help guide you through the process.

Navigating Form 5500

Posted by Admin Posted on May 15 2019

Navigating Form 5500

Navigating Form 5500

 

What is Form 5500?

Are you a business owner who offers a 401(k) plan? If so, you need to be aware of the reporting requirements. Form 5500 was created by a joint effort between the Internal Revenue Service (IRS), the Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC). It was created to meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

The ERISA Law sets the minimum standard for most voluntarily established retirement and health plans in private industry and serves to provide protection for individuals and their beneficiaries in these plans. In other words, Form 5500 protects 401(k) participants and their beneficiaries from any mismanagement.

 

Who files Form 5500?

You must file form 5500 if your 401(k) plan has more than $250,000 or has more participants than you and your spouse. Form 5500 is actually part of a series of 3 forms: the 5500-EZ, the 5500-SF, and the 5500, and each has different filing requirements. ALL are filed by the employer who originates the 401(k) plan. 

 

Form 5500-EZ

Form 5500-EZ is for one-participant 401(k) plans. This is a 401(k) plan that only covers the business owner and their spouse. The only exception to filing this form is if you have less than $250,000 in plan assets as of the last day of the plan year. If this describes you, you do not need to file any version of Form 5500.

 

Form 5500-SF

Form 5500-SF is set apart for small 401(k) plans. This short form is for plans that cover fewer than 100 participants as of the first day of the plan year. According to the IRS, an annual return must be filed even if the plan is not “tax qualified,” benefits no longer accrue, contributions were not made during the plan year, or contributions are no longer made. This includes profit-sharing plans, stock bonus plans, and money purchase plans. 

 

Form 5500

Form 5500 is required for plans that cover more than 100 participants and small plans that don’t meet the requirements for the 5500-EZ or 5500-SF. 

 

When is Form 5500 due?

Any version of Form 5500 is due by the last day of the seventh month following your plan’s year-end date. (This is July 31 if you have a calendar year plan.) You can file for a 2.5 month extension.

 

Are there penalties for not filing Form 5500?

There are steep penalties if you do not file Form 5500. 

     • The IRS charges $25 per day with a $15,000 maximum penalty.

     • The DOL charges up to $1,100 per day with no maximum.

Fortunately, if you discover you’ve forgotten to file Form 5500, the DOL allows you to file a late return as part of their Delinquent Filer Voluntary Compliance Program (DFVCP). This reduces your fine to a lower, flat penalty amount.

 

If you have questions about navigating Form 5500, let us help. Forgetting this filing is one of the most common mistakes for employers offering a 401(k) program. 

Quarterly Taxes: What to Pay When

Posted by Admin Posted on Mar 08 2019

Quarterly Taxes: What to Pay When

Quarterly Tax Planning Strategies from Taylor & Corder

As the owner of your business, part of your job is staying ahead of the curve and keeping your business on track for continued success. You probably find yourself continually navigating the twists and turns of supply and demand, the ups and downs of profitability, and anticipating what will be coming so you can successfully avoid any potential pitfalls. The daily obligations, the long-term objectives, and employee needs take much of your time. Add the responsibility of tax paperwork and reconciling your books, and you have the potential for overwhelm. We understand, which is why we have some quick tips for you in regard to managing your tax paperwork and filing deadlines.

 

2019 Quarterly Estimated Tax Deadlines

Take just a few moments to add the following quarterly estimated tax deadlines to your calendar. In addition, create a reminder with enough buffer to ensure all financials are in order and delivered to your tax preparer so you can file your estimated and payroll taxes each quarter without a scramble. 

    • April 15
    • June 17
    • September 16
    • December 16

You may ask what sort of timeline is needed to meet these deadlines without a last-minute rush. Business owners often underestimate the type of detail that’s necessary to file taxes accurately. As a result, the week before quarterlies are due can be stressful. This stress can affect other important decisions and limit your leadership effectiveness. Here are a few ways to relieve that burden:

 

Helpful Strategies to Employ

Planning Correct Dates 

Double check your quarterly tax due dates with your tax preparer and identify what type of timeline is necessary for adequate preparation. 

 

Maintain accurate payroll records.

It’s important to keep up to date on your employees. Addresses, marital status, and salary can all change throughout the year. Paying attention and keeping your records accurate will help you immensely when you’re working through payroll tax obligations.

 

Understand your tax obligations. 

Most businesses must juggle various tax rates on the federal, state, and local level. These each require their own forms. Start early and be diligent. 

 

Make accurate estimations.

Each quarter you'll make payments based on that quarter's operations. While this may be laborious every three months, it helps you avoid the burden of a one-lump sum on March or April 15. (We also have another post filled with tips on your business’s year-end tax obligations and deadlines.)

If you find yourself buried in all the responsibilities that business ownership brings and have questions about assembling your quarterly taxes, contact us. We’re here to help you navigate the nuances of your particular business in regard to your federal, state, and local tax obligations. 

 

4 Ways to Capitalize on Your Tax Extension

Posted by Admin Posted on Feb 06 2019

4 Ways to Capitalize on Your Tax Extension

Tax day looms large for many. Even though we know it comes on the same date every single year, it can still be difficult to pull all the necessary paperwork together for a multitude of reasons. Fortunately, there is always the option to file a tax extension. This gives you an additional five or six months to complete your tax paperwork. Before you choose to file an extension, it’s helpful to understand the pros and cons of such a decision.

 

Why File a Tax Extension

Filing for a tax extension might be necessary. 

For some business owners, it’s difficult to get your business tax return complete before your April 15 personal tax deadline. Here’s an example: Mutual funds send out their distributions reports to shareholders on form 1099-DIV, which doesn’t have to be postmarked until January 31. A complete 1099 earnings report can’t be accurately prepared without this mutual fund earnings report. Factor in any type of amendment, and you aren’t getting the nuts and bolts needed for a personal tax return until mid-March. That late in the game it may be difficult to find a tax preparer who has space on his or her calendar to meet your need.

 

Taking your time can reduce the risk of errors. 

If you’re feeling rushed, it can be easy to miss details or make math errors. 

 

You can take advantage of any amended tax laws. 

When you file on April 15, any tax law currently in place must be adhered to. If you file for a tax extension, any changes to tax law or tax code between April 15 and your actual filing date will be applied. Occasionally, this postponement can be to your benefit.

 

You can strategize IRA contributions.

A tax extension could potentially save you thousands of dollars on your personal taxes. This also gives you additional time to gather documents and manage cash flow if you would like to contribute to your SEP IRA through your tax extension deadline.

 

How to File a Tax Extension

Filing a tax extension is a simple process, but you must file this extension with the IRS on or before your due date. When you choose to file a tax extension, it’s important to note that you still pay your taxes on the initial due date, not when you file your paperwork. A tax extension simply gives you up to six months to complete your paperwork. According to the IRS, a good rule to follow is to pay 90% of your total expected tax for the year or 100% of the total tax shown on last year’s return, whichever is the lower amount. Any amount not paid on the due date will be charged a monthly penalty. (Over the course of the 5 or 6-month extension [extension lengths vary depending on your business type], interest can add a significant penalty.)

  •  Personal Taxes. For personal taxes, use Form 4868. This form must be filed by April 15. (If you live outside the U.S. or your place of business is outside the U.S., you have until June 15 to file your extension.) You will have until October 15 to file your tax return. 

  •  S Corps. Taxes are generally due by March 15. Your extension due date is September 15. Use Form 7004.

  •  Corporations. Taxes are generally due by April 15. Your extension gives you 5 months, making your due date October 15. Use Form 7004.

  •  Partnerships, or Multiple-Member Limited Liability Companies filings as partnerships. Taxes are typically due March 15. The tax extension gives you 6 months, making your new due date September 15. Use Form 7004.

  •  Sole Proprietorships and Single-member LLCs filing on Form 1040. Use Form 4868. (This is the same form used for personal taxes but includes information from your Schedule C-Sole Proprietorship income.)

 

Let us know if you need help navigating your tax extension. There are many benefits, but they vary depending on your goals and your specific tax situation. We’d love to talk, and it’s easier for everyone when we are able to make decisions before it’s crunch time.  

 

SEP IRA: What It Is and Why You Should Open One

Posted by Admin Posted on Jan 03 2019

SEP IRA: What It Is and Why You Should Open One

As a self-employed individual, small business owner, or even as a contract worker, it’s easy to get caught up in the day-to-day operations of your business and not think about retirement. That’s where a SEP IRA comes in. SEP stands for Simplified Employee Pension, and IRA stands for Individual Retirement Account. 

A self-employed individual, a business owner with one or more employees, and a person with a freelance income can open a SEP IRA to invest in their retirement. Let’s cover a few frequently asked questions regarding SEP IRAs below.

 

Who benefits from a SEP IRA?

The name Simplified Employee Pension is just what it means: simplified. Specifically, this means a SEP IRA is a basic retirement account. It’s best suited for self-employed individuals due to the compensation rules. In sum, if you have eligible employees (more on eligibility below), any contribution you make to your own SEP IRA must also be made to your employees. For example, if you choose to contribute 10% of your net business income to your SEP IRA, you must also contribute 10% of all qualified employees’ wage income from your business to their SEP IRAs.

 

Are all employees eligible for a SEP IRA?

No, but most probably are. If you offer a SEP IRA, an employee who is 21 or older and has worked for you for at least 3 of the past 5 years and has earned $600 or more from you in 2018 is eligible. Each of these employees or contract workers, unless covered by a union contract, can participate in a SEP IRA. If offered, all eligible employees or contract workers must participate.

 

Is a SEP IRA difficult to set up?

A SEP IRA doesn’t have to be difficult to set up. According to the IRS website, 4 things are needed to make it happen:

     • A trustee for the plan (this could be a bank, credit union, mutual fund family, or an investment brokerage)

     • A written agreement to provide benefits to all eligible employees

     • A method to give employees information about the agreement

     • Setting up an IRA account for each employee

 

What are the caps on contributions?

You can contribute up to 25% of your net income (net income up to a maximum of $275,000 annually) to your SEP IRA. This means that up to $55,000 can go into this IRA account each year. (If you’re catching up older employees, you can contribute up to $61,000.) Doing the math, you’ll realize that the only difficult thing to navigate is the fact that 25% of $275,000 is $68,750, which is more than the contribution cap. The IRS allows you to walk around this by deducting the amount of the contribution before you calculate your income.

 

How effective is the SEP IRA for retirement savings?

If you max out your contributions each year, your plan could potentially reach $1,000,000 (based on an assumed rate of return of 7%) in only 12 years. This is the long-term benefit. The shorter-term benefit is that this contribution lowers your taxable income.  A SEP IRA contribution could save you thousands of dollars each year.  Think about this – if you fall in the 24% bracket a contribution of $10,000 could save you $2,400 on your federal return. 

 

How should I time my contributions?

You have until the due date of the tax return (including extensions) to make a SEP contribution.  This means that if you are a sole proprietor and extended your return from the standard April 15th deadline you could have up until October 15th to make a contribution for the prior year return. 

Overall, if you’re a self-employed individual, small business owner, or contract worker, the benefits of contributing to an SEP IRA are definitely worth considering.

 

Is there a downside to a SEP IRA?

The only thing to be aware of is that there are penalties for early withdrawal, as with any IRA. If you remove funds before you’re 59 ½, you’ll be subject to an additional 10% tax. When you reach 70 ½, required minimum distributions (RMDs) must be taken annually, as with any traditional IRA.

 

Does a SEP IRA complicate my tax filings?

Not at all! One of the best features of a SEP IRA is that contributions can be funded after the end of the year and before your tax deadline. In summary? Contributions are flexible throughout the year, so you can contribute in line with your particular cash flow. 

The IRS provides simple checklists and tips to ensure your SEP is operating within the proper bounds of the law. If for some reason you get off track, tax benefits could be lost. Fortunately, any errors can be corrected by using one of the IRS correction programs or by following their SEP Plan Fit-It Guide. If you’d like to understand more, let’s have that retirement planning conversation so you and any employees can benefit.

Make Tax Day a Breeze for Your Business

Posted by Admin Posted on Nov 29 2018

Make Tax Day a Breeze for Your Business 

Tax deadlines tend to loom large and gathering all the things you need can seem daunting, especially as a business owner. Don’t wait until the final weeks before your tax return is due. Here are a few things you can do now to make filing your return easier.

 

Collect All Your Records

Document all of your expenses by collecting and organizing your receipts. Make sure to specify the purpose of each expenditure. This is especially true if you’re looking for any kind of meal deductions. (See this article for more details on what’s deductible and what’s not according to 2018’s new entertainment deduction rules.)

We recommend you gather the following:

- Balanced books (your bookkeeper can help with this)

- Receipts (meal deductions must note topic discussed and parties present to qualify)

- Bank and credit card statements

- Expense records, including out-of-pocket expenses

- Business Insurance

- Computer and internet expenses

- Health Insurance Premiums, etc.

- Mileage records, detailed as to where and when

- Office Supplies

- Phones, including landline and business cell phones

- Professional fees, including lawyers, accountants, consultants, etc.

- Rent

- Travel (airfare, hotel, meals, taxis, etc.)

- Wages

- 1099s

- Payroll records including a copy of all W2 and W3 reports.

 

Avoid Leaving Out Other Tax Obligations

Don’t forget your other tax obligations. Property tax, local taxes, excise tax, self-employment tax, payroll records, etc. These are all expenses that need to be tracked and noted when you file your taxes. If you want to avoid IRS penalties, take your time on payroll tax compliance. 

This can be done through your accounting software, but you’ll want to keep original receipts as well. These receipts can all be stored in folders, one for each month. Before they’re filed, make sure they’re documented accurately — some need the who, what, when, and why written on them. (You can read more about the rules here.)

 

Keep Track of Deadlines

We are here to help, but it’s always good to track your own deadlines so you aren’t caught off guard. 

- If you’re an S-Corp, this is usually March 15

- If you’re a partnership this is usually March 15

- If you’re a Sole Proprietor, this is usually April 15

- If you’re a C-Corp, this is usually April 15

 

If the above dates don’t give you enough time, reach out to us as soon as possible so we can help you request an extension of time. Don’t forget: extensions do not give you additional time to pay, but they do give you additional time to file your return.

 

Get Your Paperwork in Early

The sooner you get your paperwork in, the sooner your accountant can start working on your taxes. Not only can this give you great peace of mind, it also removes the last-minute scramble to find any paperwork you may have forgotten. For most businesses, the fiscal year ends December 31. If you’ve been keeping track of your paperwork throughout the year, consider submitting your paperwork to your accountant in January. 

Keep an eye out on your emails.  Beginning in early January, we will be sending out emails to let you know that your Tax Organizer is available on our secure portal here.  (Don’t forget that you can also upload documents to your portal at any time!) Once you have all of your documents uploaded, call us and let us know you are ready for us to start.

If it all sounds overwhelming, call us. We’ll answer any questions you have, help you come up with an organizational plan for your taxes and business finances, and get you on track to make Tax Day a breeze.

 

The Tax Ins and Outs For Using Contract Workers and Strategies to Help You Plan Ahead

Posted by Admin Posted on Nov 07 2018

The Tax Ins and Outs For Using Contract Workers and Strategies to Help You Plan Ahead

In recent years, trends are showing that more companies are using contract workers.

It used to be that most employees had fixed hours and stayed at a company for 40+ years. This trend has been decreasing as more companies hire contract workers. Not only does this practice provide more flexibility to the hiring company, it also provides these contract workers greater flexibility in the work they pursue. In fact, according to survey research conducted by Lawrence Katz of Harvard and Alan Krueger of Princeton from 2005 to 2015, 94% of job growth was in the alternative work category, and over 60% was due to the rise of independent contractors, freelancers, and contract company workers. This constitutes nearly 10 million jobs!

 

If you decide to use contract workers in your business, you need to know the tax rules that apply, and how they differ from employee tax rules. 

If you cross the line between contractor and employee designation — even unknowingly — the Department of Labor (DOL) and Internal Revenue Service (IRS) can penalize you with some steep fines. Here are some basic tips regarding contract workers:

 

Classify Your Independent Contractors Correctly

Make sure that you correctly classify your contract workers. You need to understand that:

  • Contract workers control their own work hours and the way they complete their tasks. Only the result of the work is under the hiring company’s control.
  • While you can supply tools or equipment, significant investments in the equipment used are generally incurred by the contract worker. In addition, contract workers invest in their own training and licensing. 
  • Contract workers are typically hired on a short-term basis for a specific task. If there is a perception that the relationship is permanent, it can be seen as evidence that the relationship is more of an employee / employer arrangement.

Sometimes it is difficult to determine where the line falls between contract worker and employee. If you have questions, let’s talk. You can also review the IRS definitions here.

 

Get Everything in Writing

When hiring a contract worker, you’ll want your agreement in writing. Specific language in your contract should state that the worker is an independent contractor. Additionally, specify the beginning and end date of the agreement. (Please note that even with all these precautions, a written contract may not be sufficient evidence to prove that your worker is a contractor rather than an employee.)

 

Limit Supervision and Control

When hiring a contract worker, you must limit supervision. Typically, expectations are clearly outlined and a general timeline is given, but the contract worker is free to determine their own hours as long as the project is done within the time frame. In sum, contract workers:

  • Set their own hours
  • Determine their own work process
  • Require performance issues to be addressed through contract terms and not as disciplinary issues

 

Do Not Require Exclusivity

Contract workers should not be limited to providing services for your business alone. You can write in a non-compete and you should have a signed privacy policy in place, but anything more could be considered too restrictive. 

 

Be Transparent with Third Parties

There should be a clear line between employees and contract workers. In other words, you can’t lead third parties to believe that your contract workers are your employees by assigning them work email addresses, ID badges, etc. This blurring of the line outwardly can pose a problem when it comes to tax classifications.

 

Get All Paperwork in Order Prior to Hiring a Contractor 

In addition to a contract, a non-compete agreement, and a signed privacy policy, be sure to get a completed W9. You can download the Form W9 directly from the IRS website here. Having this form completed will help you in January as you are preparing to issue 1099s.  Any contract worker to whom you pay over $600.00 and any attorney to whom you pay any amount needs to be issued a 1099. 

 

The Penalties for Misclassifying

As you can see, the line between contract worker and employee can be difficult to navigate at times. (Here’s a chart from the DOL that outlines the difference visually.) If any of these lines are crossed, the DOL and the IRS will be more likely to lean towards identifying your contract worker as an employee. Consequently, you’ll be responsible for paying back taxes, penalties for income taxes, wage and overtime compensations, Social Security and Medicare funds, and unemployment taxes. You may even need to provide the newly designated employee with benefits. 

We want to help you avoid any such penalties. If you have questions regarding your worker classification, let us help you

 

5 Ways to Manage the New Entertainment Deduction Rules in 2018

Posted by Admin Posted on Oct 09 2018

5 Ways to Manage the New Entertainment Deduction Rules in 2018

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2018 brought changes to the entertainment deduction rules. We want to ensure that you’re not scrambling to meet these new standards. Before you find yourself stuck financially, let’s review these new rules for 2018. 

 

Meals

You know the drill: You’re out to dinner with a client or co-worker discussing work and you file away your receipt to pass on to your accountant for a tax deduction. 50% of these business-related meals — as long as they’re truly business-related meals — are still deductible, as well as transportation to and from restaurants for work-related meals. But the new law states that these meals can no longer take place at nightclubs, cocktail lounges, country clubs, sporting events, or on fishing trips. So keep your clubs secure and your fishing rods stowed if you want those deductions in 2018.

What about the meals employers provide to their employees during an employee’s shift? What about coffee, water, and snack services? These used to be 100% deductible, but as of January 1, 2018, they’re only 50% deductible. (And after 2025, you won’t be able to write them off at all.) 

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Tips for Best Practice: On your receipt, write the business topic discussed and the individuals who were present at the meal. It’s important to do this because in the event of an audit, the auditor may disqualify any meal expenses that aren’t properly documented. 

 

Events

Event tickets and club memberships are great gifts to your favorite clients, or perks for your employees. Half of these expenses used to be eligible for a write-off, but with the new laws in place this is no longer possible. And yes, this even applies to tickets to qualified charitable events. So say goodbye to the skybox unless you can spring for it without the deduction perk. 

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Tips for Best Practice: We realize that club memberships are often a great way to socialize on behalf of your business. Under the new rules, it may be more financially beneficial to become a sponsor for an event instead. Often, these types of sponsorship expenses can be written off as advertising. If this is something you’d like to consider, let’s talk about the options available to you.

 

Employee Perks

There are many employee perks that can also benefit your taxes. We’re only covering parking and incentive payouts here, but if you’re looking for additional options, give us a call.

In 2017, employers were allowed to write off all the parking permits and transit passes they handed out to employees. The new law states that employees can exclude the perk from their income, but companies can no longer write off the expense.

2018 brought changes to employee incentive payouts as well. In 2017, each award was deductible if it was under $400 cash and an employee was awarded no more than $1,600 per year. Awards can still be granted, but you can no longer award with cash or gift cards. 2018 laws say these items must be tangible personal property instead. 

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Tips for Best Practice: If you’re a company paying for employee parking downtown, you need to be aware of all that is involved so both you and your employees are coming out ahead. Contact us and we’ll help you evaluate these costs.

 

Documentation

As a reminder, document, document, document. 2018’s entertainment deduction rules on documentation haven’t changed. The rules still require you to document the date of any client meal, who was present, and what business was discussed. If you can’t substantiate your deductions, you won’t be allowed the tax deduction.

 

Company Parties

Company parties are still 100% tax deductible. (Summer picnics, too!) So while your employees might not get there on a tax-deductible transit pass, your end-of-the-year party can still benefit your tax situation. In fact, it may be the last chance of the year to wedge in as many write-offs as possible. 

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Long-Term Tax Planning: Tips and Tricks for Your Kids' Education and Your Retirement

Posted by Admin Posted on June 07 2018

Long-Term Tax Planning: Tips and Tricks for Your Kids' Education and Your Retirement

For most people, long-term tax planning is something they know they need to get to, but it’s not a monthly or even annual habit. And we’ve found that most of the time it’s simply because people just don’t know how. Sound familiar? You want to get a tax plan in place but don’t understand all the options and don’t know how to figure out what would be best for your specific situation. All this likely leaves you stuck. That’s where we come in. We know the plans and programs available, and the ways tax reform is shifting your options. Additionally, we know how to ask the right questions to put you in the driver’s seat when it comes to long-term tax planning.

 

529 Plans

If you have kids, you probably lie in bed at night and think of all the things they’re going to need as they grow up. If you’re a planner, you might think about their college fund and how you’re going to grow it. The cost of education has only increased in recent years. In fact, College Board reports the trends in their 2017 report, where they highlight that college costs went up 3% in just the past year. (Not to mention the astronomical increase in tuition costs since the late 80s, especially at private colleges and universities.) As such, you’re probably searching (along with most parents) the best way to finance your children’s educations. We’re here to help with some simple tax options that you may not know about.

A 529 Plan, a tax-advantaged savings plan, is legally known as a “qualified tuition plan.” What’s that mean? Basically, it’s a savings plan that is tax-deferred. If the money is used for qualified higher education expenses, the money can be used tax-free. Additionally, any capital gains from your investment are tax-free as well. The best thing about these savings plans is that because of tax reforms, now up to $10,000 can be used toward K-12 tuitions. (When using these funds for college education, money can be used not only for tuition, but also room and board, technology items, and books and supplies.) No matter what state 529 Plan you invest in (each state is slightly different and Savingforcollege.com lists the top 10), you can use the funds for any qualified college nationwide. That’s over 6,000 colleges and universities, and even covers more than 400 international colleges and universities. But know that as an Oregon resident, you may get tax benefits when investing in an Oregon 529 Plan. (The same could be true if you’re a resident of another state and open a 529 Plan with that state.) Call us, and we’ll walk you through the 529 Plan that’s best for you, your taxes, and your kids.

 

IRAs and 401(k)s

Once you have your kids’ education plans situated and you’re confident that your right-now and near-future tax benefits are taken care of, it’s time to strategize long-term taxes and think about retirement. The goal in retirement is to keep your taxable income as low as possible. Keep in mind that many of the tax deferments during working years can come back with higher tax rates during retirement. There are things you can do before you’re 54 to qualify your withdrawals and reduce taxes later. Call us and we’ll talk about what these tax benefits might look like for you.

 

Charities

Charitable contributions are a great way to generate tax deductions. Many don’t realize that you can really optimize your tax benefits if you apply a little strategy to your giving. Last year, tax reform changed tax brackets and tax deductions, so you might not realize that shifting some little things can make a huge difference. Think about this: you give a few thousand dollars every year to your favorite charity. Kudos! But what if you’re hitting the standard deduction? You’re missing out on some advantages, and it might behoove you to donate a larger amount every other year instead. We thrive on strategic tax planning — call us and we’ll answer your tax questions.

 

Diversification

Some of the most important tax advice we can give is to look for ways to diversify your retirement income. From Roth accounts to social security, savings accounts to bonds, pensions to rentals, we can strategize ways to keep your income diverse. This is vital, especially if you find yourself in a higher tax bracket.

If you want to explore some long-term tax planning, odds are that we can help strategize a better tax solution for you. Call us — we’re all for tax planning that benefits your financial future.