by Pete McAllister | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Retirement, Tax, Tax Planning
With additional guidance and regulations released consistently since President Trump signed the Tax Cuts and Jobs Act of 2017 into law, one thing remains clear: strategic tax planning is key to lowering a business’s total tax liability. Read on for some moves on lowering your 2019 business tax bill.
Establish Tax-Favored Retirement Plan
Current tax rules allow for significant deductible contributions, so if your business doesn’t already have a retirement plan in place, it’s worth considering. Small business retirement plan options include 401(k), SEP-IRA, SIMPLE-IRA, and the defined benefit pension plan. Some of these plans can be established up until December 31 and allow for a deductible contribution for the 2019 tax year, except for the SEP-IRA and SIMPLE-IRA, which mandate a set-up deadline of October in order to make a contribution for the same year.
Review Your Reports
The end of the year is typically a time for businesses to begin goal setting for the next year, so it’s crucial to have a firm grasp on how your business performed financially this year. Make sure your books are up to date and accurate so you have a clear picture before diving into next year’s plan.
Defer Income If It Makes Sense
Depending on where your income level is, you can potentially cut your tax bill by postponing any end-of-the-year income until January 1 or later. Ask your accountant if shifting receivable income to the new year makes sense for your business.
Purchase Business Essentials to Take Advantage of Deductions
Upgrade equipment and furniture, stock up on office supplies, take care of repairs, and make vendor payments in advance in order to maximize deductions. And thanks to the TCJA, you can claim 100% bonus depreciation for qualified asset additions that were acquired and put in place in 2019.
Make Charitable Contributions
Tis the season for giving…and claiming a deduction for the fair market value of your donations. In addition to money, think outside the box and contact a program that sponsors families for the holidays. They often need food, bedding, toys, cookware, and clothing. It’s a great way for employees to feel like they’re making a difference too. Just don’t forget to get the necessary documentation and receipts to keep with your records.
Start Preparing for Next Year
If you put these tips into action, you’ll be better prepared at this time next year. For instance, you’ll already have a retirement plan in place. By going through the process of tax preparation this year, you have the opportunity to create systems for organization that will expedite the process next year.
by Pete McAllister | Accounting News, IRS, News, Retirement, Tax, Tax Planning - Individual
Depending on where you are in life, trying to anticipate your financial needs in retirement and determining how exactly to get to that point could feel like a daunting task, or even a task that doesn’t need tackling yet. In fact, according to a study completed by The Alliance for Lifetime Income, only 28% of non-retired Americans have attempted to estimate their retirement income. Not as intimidating as it sounds, read on to learn how to estimate those needs.
Start with Your Current Income
If you’re living within your means and not depending on credit cards to maintain your lifestyle, using your paycheck as a benchmark is a sufficient starting point. This, of course, excludes contributions to a traditional 401(k) account as well as health insurance premiums that are deducted from your gross pay. A common and simple approach, then, is to set your desired annual retirement income at 60% to 90% of your current income. However, it doesn’t take a financial expert to note potential flaws with this approach. What if, for example, you plan to travel extensively during retirement? Planning for 60% to 90% of your current income might not be enough to fulfill your jet setting goals.
Forecast Retirement Expenses
Your annual retirement income should be more than enough to meet your daily living expenses. Keep in mind that the cost of living will increase over time, and insurance and health care could fluctuate. Having said that, some common retirement expenses to estimate include:
- Food and clothing
- Housing (mortgage, homeowners insurance, rent, property updates, repairs, etc.)
- Utilities
- Transportation (car payments, insurance, maintenance, gas, repairs, public transportation)
- Insurance (medical, dental, life, etc.)
- Health care costs not covered by insurance (deductibles, copayments, etc.)
- Taxes
- Debts and loans
- Recreation such as travel, hobbies, and dining out
What to Do with Your Projected Retirement Income Needs?
A standard rule of thumb when talking about estimating retirement income needs is to have 25 times your anticipated annual expenses saved up by the time you retire. This is assuming you’re planning for a 30-year retirement. Theoretically, you could then withdraw 3% to 4% of your nest egg each year.
If you’re lacking additional sources of protected lifetime income, such as pensions or annuities, you may need to tap into savings in order to bridge the gap between social security checks and what you’ll need to live on. You could also buy a simple income annuity to cover part of that funding gap. These payments continue for life, thereby removing some of the guesswork of estimating retirement income needs and providing peace of mind.
by Daniel Kittell | Bookkeeping, IRS, News, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The dust has ultimately settled from the somewhat turbulent Presidential Election of 2016 and preparations are fully underway for our new President’s January 20th inauguration. The transition period from President Obama to President Trump is in full swing with staff being nominated and confirmed and policies taking shape. One such plan that taxpayers would do well to pay notice to is the President-Elect’s tax plan. Trump’s plans for both businesses and individuals may involve some considerable shifts and could impact your early 2017 filing decisions. Although tax laws and regulations are in almost constant flux, Trump’s proposals could trigger some significant changes.
One major alteration Trump has proposed is to shift from seven tax brackets to only three tax brackets at 12%, 25% and 33% respectively. While this would present a cutting of taxes for some higher income brackets who had seen rates as high as 43.4% under President Obama, some lower income brackets could actually see their tax rates raised from 10% to 12%. Joint filers without children could also see definitive benefits from Trump’s plan, though large families or single parent filers may not. The President-Elect has also proposed to remove the 3.8% net investment income tax enacted under Obamacare. Thus, the top tax rate would be capped at 33%, and the top capital gains and dividends rate would not exceed 20%. Another proposal of Trump’s plan for individuals would include capping itemized deductions for married couples at $200,000.
On a business level, Trump’s proposals seem even more drastic. The President-Elect has suggested that he would cut all business tax rates to 15%, a drastic shift from the average 35% tax rate for most major corporations. Under President Obama, corporations have been paying a 35% tax rate, and those owning LLC’s, partnerships and S corporations are taxed for their flow-through business income at their respective income rate, though not exceeding 43.4%. Trump’s plan would prove especially beneficial for sole proprietors who had previously fit into the highest tax bracket; these entities could see their tax rates drop by almost 30%.
However, Trump’s tax plan is not presenting significant changes for many IRS tax rules, including the constructive receipt doctrine, which affects both businesses and individuals. Essentially, the IRS can tax you on any income or payment you have the legal right to in 2016, even if you don’t actually receive it until 2017. This includes sales made but not officially received until January, or bonus checks sent out but not cashed until January, something to keep in mind when filing in 2017. In addition to tax cuts, Trump’s plans have the potential to affect the housing market as well. To read more about the President-Elect and the housing market, check out our blog here. Of course, some of Trump’s proposals may not occur, but with a Republican majority in both the House and Senate, some level of tax cuts are likely. However, no matter what changes eventually come into effect, these prospective tax revisions could have significant impacts on 2017 and the years beyond.
by Tiffany Evans | Accounting News, Audit and Accounting, Business Consulting, Financial Statement Reporting, IRS, News, QuickBooks, Resources, Retail & Distribution, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The Financial Accounting Standards Board (FASB) has issued for public comment a proposed Accounting Standards Update (ASU) that is intended to improve the presentation of reclassifications out of accumulated other comprehensive income. The proposed amendments balance the benefits to users of financial statements without imposing significant additional costs to preparers, according to FASB’s In Focus documents. The proposed update would apply to all public and private organizations that issue financial statements in conformity with US GAAP and that report other comprehensive income.
The ASU Comprehensive Income (Topic 220), Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income, would require a tabular disclosure of the effect of items reclassified, which presents, in one place, information about the amounts reclassified and a road map to related financial disclosures. This information is currently presented throughout the financial statements under US GAAP.
Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income.
Some items of other comprehensive income that are reclassified after a reporting period, and which FASB uses in its presentation examples, include cash flow hedges, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. US GAAP disclosure requirements already require this information to be disclosed, the Exposure Draft (ED) of the amendments states.
The ED provides examples of tabular formats and addresses the needs of life insurers. It also refers to US GAAP requirements for defined benefit pension costs.
“Stakeholders raised concerns that certain requirements about the reclassification of items out of accumulated other comprehensive income would be costly for preparers and add unnecessary complexity to financial statements,” said FASB Chairman Leslie F. Seidman. “Based on this new feedback, the Board is proposing a revised approach that will present information about other comprehensive information in a useful way that is more cost-effective.”
No decision has been made regarding an effective date. Stakeholders are asked to provide their written comments on the proposed ASU by October 15, 2012.
Full article: http://www.accountingweb.com/article/fasb-proposes-changes-presentation-reclassified-income/219733
by Amanda O'Brien | Accounting News, Bookkeeping, CPA, Tax Consulting, Tax Planning, Tax Planning - Individual
Many American families are struggling to make ends meet and save for their future needs, according to a report from the Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards, Inc. (CFP Board), but those with a financial plan do better and are more confident about meeting their goals.
But only 36 percent of the 1,508 household financial decision makers who participated in the CFA/CFP Board 2012 Household Financial Planning Survey have ever prepared a comprehensive financial plan. Respondents with higher annual incomes and older respondents were more likely than middle-income families to have a financial plan.
Survey responses reflected the effects of the recession that began in 2008. Nearly 38 percent of households said they live paycheck to paycheck. Less than 30 percent indicated they felt comfortable financially, and only 34 percent think they can afford to retire by age 65. The survey was conducted by Princeton Survey Research Associates International (PSRAI).
Regardless of income, decision makers with a financial plan, whether it is one they have prepared on their own or with a professional, are more likely to feel they are on pace to meet all of their financial goals by a margin of 50 percent to 32 percent. By an even larger margin (52 percent to 30 percent), and across all income brackets, families with a financial plan are more likely to feel “very confident” about managing money, savings and investments.
What Is a Comprehensive Financial Plan?
The survey assumes that a comprehensive financial plan will identify a family’s financial goals, and a plan for savings and investments that will help them meet those goals. For most families, those goals will be income in retirement, college education for children, insurance needs, emergencies, and other expenses (e.g., assisting parents). The plan should include paying off credit card debt.
Most Americans have spending plans, the report says, but few have savings plans except for employer-sponsored retirement plans. Many respondents say that they do not earn enough money to save. “Advances in technology have made accessing and analyzing financial information much easier, but a lack of understanding about savings and investment options and how to best manage household finances remains a serious obstacle to Americans’ financial preparedness,” the survey reported.
Comparison with 1997 Survey
The CFA/CFP Board survey utilized a number of questions asked by a 1997 CFA-NationsBank survey, also developed with and administered by PSRAI. This made possible a comparison of consumer attitudes and habits in the more optimistic, low unemployment year of 1997, with attitudes and habits in 2012, in the aftermath of the recent severe recession.
The number of Americans who reported living paycheck to paycheck rose from 31 percent to 38 percent from 1997 to 2012, and the percentage who indicated they felt comfortable financially fell from 38 percent in 1997 to 30 percent in 2012.
Other comparisons include:
- In 1997, only 38 percent felt [they were] behind in saving for retirement compared to 51 percent this year.
- In 1997, half (50 percent) said they thought they could retire by age 65 compared to only 34 percent this year.
- In 1997, more families with college-bound children were saving for higher education (56 percent) compared to this year (48 percent).
- However, the proportion of those who say they have a retirement investment plan in place is about the same (51 percent in 1997 and 49 percent this year).
Getting Help When Preparing a Financial Plan
The 2012 survey revealed that slightly more than half of respondents said “it’s hard for me to know who to trust for financial advice” (55 percent); “to me, investing seems complicated” (52 percent); and “I’m worried about losing my money if I invest it” (55 percent), a significant increase from the 45 percent who expressed this worry in 1997.
Kevin R. Keller, CEO of CFP Board said, “Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation, and abuse of clients. This doesn’t mean that people shouldn’t create a financial plan and be prepared. We encourage consumers to do their homework and find a financial professional who always puts the clients’ best interests first and abides by a fiduciary standard of care.”
Both the CFA and CFP Board recommend that consumers begin by assessing their own financial condition and develop a plan. One useful tool is the website LetsMakeaPlan.org, where interested consumers can learn more about preparing a financial plan. The site also lists questions an individual might ask of a financial planner and some red flags.
CFA executive director Stephen Brobeck said that financial planning is an important component of financial literacy. Financial planners need to get the message out.
Full Article: http://www.accountingweb.com/article/personal-financial-plans-saving-future/219569
