by Daniel Kittell | Accounting News, News, Newsletter
Investing in a 529 plan – typically regarded as the best way to save for a child’s college education – has become a more attractive savings vehicle thanks to a new federal law going into effect this year. Read on to learn more about the change affecting 529 plans.
What is a 529 Plan?
A 529 college savings plan is a state-sponsored investment account that enables you to save money for a beneficiary and pay for education expenses. These plans offer tax-free earnings and withdrawals for tuition and other qualified higher education expenses (QHEEs) such as tuition, supplies, and room and board. Additionally, due to the 2017 Tax Cuts and Jobs Act, the funds in a 529 plan can also be used for elementary or high school tuition for private or religious schools (with QHEEs capped at $10,000 per year).
However, 529 plans have always had a limitation worth considering: the money in a 529 plan could only be used for education. Withdrawing the funds for other purposes would draw penalties, so if you set up a 529 plan and your child ends up not needing it – whether they attend public school, get a full scholarship to college, or decide against a college path – accessing the funds without accruing penalties typically necessitated changing the beneficiary on the plan to someone else, until now.
How are 529s Changing?
Previously, withdrawals from a 529 plan for non-QHEEs incurred a 10% federal tax on the earnings portion of the withdrawal, in addition to potential state taxes. However, as of January 1 of this year, unused funds from a 529 plan can be rolled over into a Roth IRA account tax-free.
Rules for Rollovers
There are still some rules and restrictions that are important to know.
- Rollovers are not allowed until a 529 plan has been open for at least 15 years
- Funds converted from a 529 plan to a Roth IRA must have been in the account for at least five years
- A maximum amount of $35,000 can be rolled over from a 529 plan to a beneficiary’s Roth IRA
- Annual Roth IRA contribution limits apply to rollovers (the contribution limit in 2024 is $7,000)
- Conversions are limited to the beneficiary’s Roth IRA, meaning parents cannot convert the unused funds of a 529 plan in their child’s name back into their own retirement account
No Additional IRA Investments During Transfer Years
Because the annual contribution limit is restricted to $7,000, if you transfer the full $7,000 from a 529 plan to a Roth IRA, the account holder will be unable to contribute additional funds through another traditional IRA or Roth IRA within that year because the annual limits are already being monopolized by the 529 to Roth IRA conversions each year. Ideally, the beneficiary also has a tax-advantaged retirement account like a 401(k) through an employer.
Keep in mind that the 15-year minimum for an account means that you’ll need to think about the long game. If you’re interested in starting a 529 plan for your child, you might think about establishing it with a small amount even before you’re ready to begin contributing to it.
by Daniel Kittell | Accounting News, Industry - Professional Services, News, Newsletter, Professional Services
Business productivity extends beyond the mere appearance of busyness or ticking off tasks, which is why companies are shifting their focus away from optics and toward identifying efficient tools and strategies to achieve tangible outcomes. So, how can professional services firms enhance productivity? In this article, we’ll explore how firms are boosting improvements in productivity through strategic technological investments.
Strategic Investments for Optimizing Business Efficiency
Technology investments play a crucial role in bolstering the long-term objectives of organizations. They go beyond tools and gadgets. These investments are designed to empower businesses to anticipate future needs, pivot in response to unexpected challenges, and seamlessly adapt to the relentless pace of change.
Communication and Collaboration
Smart investments in communication tools, such as unified communication platforms and video conferencing solutions help to foster communication among professional services teams by breaking down geographical barriers and enabling real-time collaboration. This improves internal operations and strengthens client relationships within an environment of teamwork and innovation.
Cloud Solutions
Cloud computing is a game changer for professional services firms. By investing in cloud solutions, organizations gain the flexibility to access data and applications from anywhere, enabling remote collaboration and the possibility of teams to work coherently across geographies. In an era where remote work is increasingly becoming more prevalent, the flexibility provided by cloud solutions is particularly valuable.
Data Insights
Professional services firms can leverage data analytics with technology investments, allowing them to make informed decisions, identify trends, and adapt their strategies in real time. A data-driven approach not only strengthens decision-making but also provides a competitive edge by allowing firms to anticipate client needs and market trends.
Artificial Intelligence (AI)
It’s no secret that AI is transforming industries across the board, and the professional services industry is no different. AI-powered solutions can help organizations achieve smarter and more efficient operations. Whether it’s automating routine administrative tasks or utilizing AI-driven insights for client engagements, the integration of AI elevates the overall efficiency of professional service providers.
Security and Compliance Standards
Strategic technology investments can ensure that professional services firms are meeting rigorous security and compliance standards. Investing in robust cybersecurity measures, encryption technologies, and compliance management systems not only protects sensitive client information but also builds the trustworthiness of your organization.
Professional services firms that strategically embrace technology not only improve their current productivity but also position themselves as leaders prepared to navigate the challenges and opportunities of the evolving business landscape. For organizations that seek long-term success, it’s not a choice but a necessity.
by Daniel Kittell | Accounting News
There are two important filing changes that we want to make all our business owners aware of as we enter 2024. First, is the new Beneficial Ownership Information Report (BOI). Second, is the new Pass-Through Entity Tax (PTET) for the State of Indiana.
The Financial Crimes Enforcement Network (FinCen), an Agency of the US Government tasked with monitoring the offshore ownership of US companies, has developed a new reporting requirement starting January 1, 2024. This is called Beneficial Ownership Information Report (BOI). This is not an income tax-related filing, but actually a legal filing. As such, we are not able to assist in the filing of this report. Both the American Institute of Certified Public Accountants and Indiana CPA Society have stated that firms like ours should not prepare or assist in the filing of the BOI report as it is deemed the practice of law. You can file the report yourself online starting January 1, 2024, at www.fincen.gov/boi. If you are not comfortable filing yourself, please seek legal counsel.
Indiana has joined 31 other states in adopting a Pass-Through Entity Tax (PTET) for S-Corporations and Partnerships. This will include LLCs that file as either an S-Corp or a Partnership. It will allow the entity to pay the shareholder or partner’s Indiana income tax at the business level and take a deduction on the entity’s federal tax return. For business owners, currently, the Indiana tax you pay personally is limited to $10,000 per year and you must itemize to use the taxes paid as a deduction. So, many of our business owners have not received a tax benefit for taxes paid to Indiana. With PTET, it ensures all business owners will receive a tax benefit for the state taxes they owe. This means that if your business has a net profit for 2023, on the Indiana business tax return, there will be a balance due.
We wanted to give you this information now, so when you receive your copies of the tax returns you know to open the package right away. Please don’t file them away immediately, but instead, open them and follow the payment instructions that will be included. We will also be reminding you when we send the electronic filing forms but we wanted to give you a heads up early.
by Daniel Kittell | Accounting News, News, Newsletter, Small Business
The impact of inflation on small businesses is typically significant, often squeezing profit margins and jeopardizing long-term sustainability. Amid this challenge, small businesses are finding innovative ways to navigate these turbulent economic waters. In this article we explore four strategies that are proving instrumental in helping small businesses stay afloat.
Tap into Savings Reserves
One of the primary strategies small businesses are using to endure inflation is tapping into their savings reserves. By building a financial safety net during calmer economic periods, businesses create a cushion that allows them to maintain operational stability, cover increased costs, and avoid making knee-jerk decisions that could have long-term consequences.
However, this move isn’t one to make lightly. Business owners should first assess the severity and duration of inflationary trends before dipping into cash reserves. It’s a delicate balance between preserving the business’s financial health and addressing immediate challenges. Additionally, businesses need to come up with a strong plan for replenishing these reserves once economic conditions balance out.
Raise Prices
According to a recent poll released by the accounts payable software Melio, half of the businesses polled increased their prices to offset the rising costs of labor or supplies. Many of these businesses reported a price increase of 7% in the last six months. To implement a price increase strategy effectively, businesses should conduct thorough market research and competitor analysis. Understanding how similar products or services are priced in the market can provide insights into the best pricing strategy.
Reduce Production of Goods or Services
Inflation often leads to increased costs of raw materials, labor, and other operational expenses. Because of this, small businesses may choose to reduce the production of goods or services in an effort to maintain profitability. It might seem counterintuitive, but it can be a strategic move to uphold quality and protect the business’s reputation.
Cutting back on production allows businesses to focus on delivering a limited but high-quality offering. This can be particularly effective for businesses with a niche market or those that underscore craftsmanship and exclusivity. By maintaining a respected and high-quality reputation, businesses can weather the storm of inflation without compromising the long-term sustainability of their operations.
Increase Online Presence
A strong online presence will help small businesses mitigate the impact of inflation by opening new avenues for sales, reducing dependence on local economic conditions, and providing opportunities for reaching an international customer base. An effective online strategy – through e-commerce platforms, digital marketing, and social media engagement – allows businesses to connect with a broader audience and provides valuable insights for adapting to changing market conditions.
The four strategies discussed above are all essential components of a comprehensive approach to navigating economic uncertainty. By carefully implementing these strategies, business owners can position their businesses not only to survive but to thrive in the face of inflationary pressures.
by Daniel Kittell | Accounting News, IRS, News, Newsletter, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
In response to soaring inflation, the IRS has released higher tax brackets and standard deductions for tax year 2023 and subsequent returns filed in 2024. This means that more taxpayers’ earnings will remain in lower tax brackets, which should reduce their income taxes.
Higher Tax Brackets for 2023
Tax brackets are the income ranges used to determine how much American’s owe in federal income tax. The IRS adjusts these brackets to reflect the impact of inflation on workers’ earnings with the aim of preventing inflation from pushing individuals into a higher tax bracket and potentially subjecting them to higher tax rates. The IRS is essentially trying to alleviate some of the financial strain caused by inflation.
Here Are the Newly Released Tax Brackets for Year 2023
The change in tax brackets means more taxpayers’ earnings will stay in lower tax brackets next year, which should reduce their income taxes.
Married filing jointly:
10% – $0 to $22,000
12% – $22,001 to $89,450
22% – $89,451 to $190,750
24% – $190,751 to $364,200
32% – $364,201 to $462,500
35% – $462,501 to $693,750
37% – Over $693,750
Single filers:
10% – $0 to $11,000
12% – $11,001 to $44,725
22% – $44,726 to $95,375
24% – $95,376 to $182,100
32% – $182,101 to $231,250
35% – $231,251 to 578,125
37% – Over $578,125
Standard Deductions
In an effort to acknowledge the recent rise of living costs and provide taxpayers with a bit of financial relief, the IRS has also increased the standard deductions for 2023. The standard deduction is a fixed amount that taxpayers can subtract from their taxable income tax.
The standard deduction is increasing for tax year 2023 to $27,700 for married couples filing jointly (up from $25,900 in 2022). Single filers can claim $13,850 (up from $12,950 in 2022).
Additional Deductions
Among the other deductions that will increase in 2024 are the foreign earned income exclusion, which rises from $120,000 to $126,500. This is a tax benefit that allows eligible U.S. citizens working abroad to exclude a certain amount of their foreign earned income from their U.S. federal income tax in order to prevent double taxation. Additionally, the annual exclusion for gifts will increase from $17,000 to $18,000.
Benefits to Taxpayers
These adjustments help to ensure that workers’ wages, which may have risen to keep up with inflation, are not eroded by higher tax rates. This means that individuals will not be penalized for earning more money to combat rising living costs. In fact, the changes can help stimulate the economy by putting more money in the hands of consumers.
Furthermore, the increased standard deductions provide financial relief by lowering the overall tax burden on taxpayers. This extra money can be used to offset the rising costs of everyday expenses, such as housing, transportation, and groceries.
