How the Tax Cuts and Jobs Act Affects Year-End Business Tax Planning

With the learning curve of the first tax filing season in the TCJA era behind us, year-end tax planning is a perfect time to incorporate those lessons learned. Here is a general overview of some steps business owners can take in their year-end tax planning.

Depreciation-related Deductions

If your business has acquired a fixed asset or property (one that you don’t intend to sell for at least one year and will be used to earn long-term income), and it’s placed in service before the end of the year, you can typically write off the cost in 2019. Thanks to changes made by the TCJA, this now applies to both new and used assets. The TCJA boosted the deduction limit to $1.02 million with a phase-out threshold of $2.55 million for 2019. It also increased bonus depreciation to 100% for property placed in service after September 27, 2017 and before January 1, 2023.

Travel Expenses

The IRS recently clarified that food and beverage costs are deductible by 50% in certain circumstances and when those costs are stated separately from entertainment on invoices or receipts.

QBI Deductions

One of the most significant changes made by the TCJA affects owners of pass-through entities (partnerships, S corporations, and LLCs) as it authorized a deduction of up to 20% of the owner’s qualified business income (QBI) for the tax years 2018 through 2025. The QBI deduction is reduced for some taxpayers based on the amount of their income, so some individuals may need to consider reducing their taxable income so it falls under the $157,500 threshold ($315,000 for married filing jointly), whether by making contributions to retirement plans or health savings accounts, or even through charitable contributions. Something to keep in mind is that specified service business owners, which includes most personal-service providers, are not eligible for the deduction if their taxable income is above a certain threshold.

Business Repairs

It isn’t a bad idea to complete minor repairs by the end of the year because the deductions can offset taxable business income. However, costs of improvements to business property must be written off over time. If you’re unsure whether a specific renovation or upgrade falls under a repair or an improvement, the IRS recently issued regulations that clarify the distinctions.

Estimated Tax Payments

If your corporation is anticipating a small net operating loss for 2019 but a substantial net income in 2020, you might think about accelerating just enough of the corporation’s 2020 income to create a small amount of net income for 2019. You could also choose to defer some 2019 deductions. This way, rather than having to pay estimated taxes based on 100% of your 2020 taxable income, you will be able to base your estimated tax installments on the comparatively small amount of income shown on your 2019 return.

How to Claim Social Security Survivor Benefits

The Social Security Administration sends survivor benefits to about 6 million Americans every month, directed to widows, widowers, and children who have experienced the loss of someone who has paid into the social security program. Read on to find out who is eligible to receive survivor benefits and how to collect them.

Who is Eligible to Receive Survivor Benefits?

If you were married to your spouse for at least nine months before their death, you are eligible for social security survivor benefits. (The one exception to this length-of-marriage stipulation is if you are caring for a child of the deceased who is under 16 years old). Children of the deceased who are under 18 years old may also receive survivor benefits, as can disabled children under the age of 22. Finally, parents, stepparents, or adoptive parents who are at least age 62 and were dependent upon the deceased could potentially qualify for survivor benefits.

When Can You Begin Social Security Survivor Benefits?

Surviving spouses can begin collecting survivor benefits as early as age 60, but this will result in only about 70% of the amount the survivor could get if they wait until their survivor full retirement age, which is 66 for people born between 1945-1956 and gradually increases to age 67 for those born in 1962 or later. There are some exceptions to this as well: if you are disabled, you may begin collecting survivor benefits at age 50; any surviving spouse can collect a one-time death benefit payment of $255 at any age; and as noted above, survivors who are caring for a child of the deceased who is under age 16 can collect at any age.

How to Claim Social Security Widow and Widower Benefits

First, the death needs to be reported, which is a task that most funeral homes include as part of their service as long as the social security number of the deceased is provided. Documents needed to apply for Social Security survivor benefits include:

  • Proof of death for the deceased in the form of a death certificate
  • Social Security number of the deceased
  • Social Security numbers of the survivor and any dependent children
  • Your birth certificate
  • Your marriage certificate
  • Most current W-2 forms of the deceased
  • Bank information for direct deposit

Once everything is submitted, you’ll be notified of your eligibility to receive survivor benefits.

How Much Will You Receive?

The amount you receive is determined by the deceased’s earnings and whether or not the deceased was collecting benefits (either full or reduced) at the time of death. The basic breakdown looks like this:

  • For couples who hadn’t started receiving benefits: it’s recommended for the highest earner of the two to wait until age 70 to begin Social Security benefits. This generates a larger monthly benefit amount that becomes the survivor benefit if and when the first spouse passes away.
  • If both spouses had already started claiming: the higher benefit amount becomes the survivor benefit while the lesser of the two benefit amounts will stop.
  • If the deceased spouse had already begun benefits, but the survivor had not:

The surviving spouse will need to decide when they will claim survivor benefits in a way that is likely to give them more lifetime income.

In addition to whether or not either spouse was already receiving Social Security benefits at the time of death, the actual dollar amount a survivor receives will depend on how much money the deceased spouse paid into Social Security over their lifetime.

The Best Apps and Platforms for Controlling Business Expenses

As a small business owner, the more you can stay organized, improve daily operations, control business expenses, and generally make life as an entrepreneur run a little more smoothly, the more proficient and prolific your business will become. Below are some top-rated apps and programs available to help you manage your business’s financial situation.

Mint

Though it’s intended mainly for individual users, this financial tracking app is effective for businesses too. Aside from tracking bills and cash flow, Mint also has Quicken MyBusiness, a tool for small businesses that helps categorize expenses, and gives you up-front information for tax filing.

QuickBooks

With the ability to connect to your bank account, PayPal, Square, credit cards, and more, you can use QuickBooks to track sales and expenses, view financial statements, pay employees and vendors, track unpaid invoices, maximize tax deductions, and more. With QuickBooks Online, you can access QuickBooks on both iOS and Android phones and tablets.

FreshBooks

For businesses and freelancers alike, cloud-based FreshBooks helps you create personalized invoices, with an option to automatically bill clients for recurring invoices, and generate customizable business reports, such as profit and loss statements. You can also automate tasks like organizing expenses and receipts, tracking your time, and following up with clients.

Wave

Created for businesses with nine or fewer employees, Wave is an accounting software platform that has the ability to track sales and expenses; manage invoices, customer payments, and payroll; scan receipts; and generate accounting reports. With Wave’s free apps for iOS and Android, you can send invoices on the go, and get notified when an invoice is viewed, becomes due, or gets paid. Also available through the platform is a free personal finance software to help small-business owners manage their finances in one place.

Truebill

Once you connect your accounts to the Truebill app, it will generate a report of where your money is going, categorizing and charting subscriptions and expenses. An added bonus with Truebill is a feature that compares your bills and subscriptions to average service levels, and with your initiation, will call providers and negotiate on your behalf.

Xero

Intended for small and mid-sized businesses, this accounting app (accessible by both desktop and mobile platforms) can handle payments and expenses, asset management, bank account reconciliation, invoicing and purchase orders, sales tax calculations, and multi-currency accounting.

PlanGuru

If you’re looking for a forecasting program to help with strategic planning and analysis, PlanGuru might be a good fit. It’s pricey, with business plans starting at $99 per month, but with an analytics dashboard, Excel add-on, a budget and forecasting platform, and training, it might be worth the cost to keep business spending in check.

Expensify

This simple expense tracker uses multiple platforms to keep tabs on expenses and mileage by reading and importing expenses from linked bank accounts and credit cards. And with the ability to scan and upload receipts, expenses can easily be submitted to employers.

InDinero

This bookkeeping service halts the need to invest in big bookkeepers and implements tax services for small businesses. It also helps with forecasting by syncing with bank accounts and credit cards to predict future cash flow determined by current trends and previous expenses.

How the SECURE Act Could Affect Your Retirement

The House of Representatives recently voted to approve the Setting Every Community Up for Retirement Enhancement or SECURE Act, which would expand access to retirement savings programs for part-time workers and people employed by small business owners.

If the SECURE Act Passes…

If the bill passes the Senate, which it’s expected to do, it will be placed on President Trump’s desk. If signed into law, the SECURE Act would implement the most significant changes to retirement plans since 2006.

The bill aims to entice non-savers to participate in workplace retirement programs, such as a 401(k), so some of the provisions include:

  • Raising the age that American workers must start withdrawing from retirement savings, known as the required minimum distribution age, from 70 ½ to 72. This is to reflect the fact that more Americans are working longer, and in this vein, the bill also stipulates more years for people to contribute to retirement accounts.
  • Increasing tax incentives for small business employers to offer retirement plans by increasing the tax credit for new plans from the current cap of $500 to $5,000, or $5,500 for plans that automatically enroll new workers.
  • Allowing part-time workers to participate in 401(k) plans. The current minimum requirement for part-time employees is 1,000 hours in a 12-month period, but the SECURE Act would amend this requirement to 500 hours, effective January 2021. However, this isn’t mandatory, so it would be at the discretion of the employer.

The SECURE Act would also permit parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses. Parents could also withdraw up to $10,000 from 529 plans to repay student loans.

What Does the Federal Reserve Say?

According to the Federal Reserve’s annual study, only 36% of Americans feel that their retirement savings are on track, while 25% of Americans have no retirement savings to speak of. Part of this is due to the fact that, because of the cost and complexity of putting retirement savings plans in place, many small businesses don’t offer such plans to their employees. The SECURE Act aims to incentivize small business owners to offer retirement plans by making it easier for small businesses to implement multi-employer retirement plans—where two or more employers join together to offer a plan. This would potentially give small businesses access to lower cost plans with better investment options, thereby possibly giving millions more workers an opportunity to save at work.

In short, this legislation is important because it would remove some barriers that have kept American workers from saving for retirement, specifically through employer-provided plans and incentives. If you have questions or would like to talk about how the information in this article may impact you personally, please reach out to me at sreed@mkrcpas.com and we’ll schedule a time to talk.

What to Do If You Owe Taxes to the IRS

What happens when you file your taxes and discover that you owe money to the IRS? What are your options? What about when the amount owed is greater than you can afford at the moment? Luckily, there are several options for both scenarios.

Before we get into the different options for making payments to the IRS, remember that your payment has to be received by the IRS no later than the April 15th tax deadline, or be prepared for IRS-issued tax penalties and interest. This deadline applies to those who filed for a tax extension as well.

Below are the different payment options available to pay the IRS.

Automatic Withdraw

If you have the funds available when you file, you can have them automatically withdrawn from your bank account when you e-file and choose the e-pay option. This is available whether you use tax preparation software or an accounting professional to do your taxes.

Direct Pay

The IRS has a “Direct Pay” service through its website, where you can pay from your checking or savings account at no cost. In order to track your payment, use the “Look Up a Payment” tool on the website or enable email notifications.

Credit or Debit

The IRS provides three third-party payment processors on its website through which you can pay your balance using a credit or debit card either online or by phone. They do charge a small service fee, which may be tax-deductible, and your credit card company may charge a fee as well.

Check or Money Order

Make checks payable to the United States Treasury and include your social security number or employer identification number, phone number, related tax form or notice number, and the tax year in the memo field. Send your check with a Form 1040-V, which is a payment voucher found on the IRS website, but don’t paperclip or staple your check to the voucher. You’ll find the correct mailing address for your check on page two of Form 1040-V.

Pay in Person

If you want to be absolutely sure that your payment is getting to the IRS on time, you can pay in person at your local IRS Taxpayer Assistance Center, which can be located on the IRS website. You will need to schedule an appointment before you go.

Wire Service

Check with your bank to see if they offer same-day wire transfer payable to the IRS. Be sure to ask about cut-off times and fees for this service.

What if you don’t have the full amount now? Luckily, the IRS offers two installment plans – a short-term plan and a long-term plan – which you can apply for online with the Installment Agreement Request (Form 9465). Which plan you qualify for depends on how much you owe and your specific tax situation. There is an application fee, and once approved the IRS can void the agreement if you don’t stay on schedule with payments.

Another option is to request a temporary delay from the IRS. You might have to fill out a Collection Information Statement and provide transparent information on your personal finances, and penalties and interest will factor in until the amount is paid in full.

Finally, you can offer to settle for a smaller amount than what’s owed, but the IRS encourages taxpayers to consider all other options before submitting an offer to settle. If you decide to go this route, you will need to be current on your tax filings and not involved in an open bankruptcy proceeding. To determine if you qualify, the IRS will take into account your income, expenses, ability to pay, and asset equity.