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Are You Making The Most Of Your Self-Employment Deductions?

You’ve undoubtedly heard the popular joke that those who are self-employed will work 100 hours a week for themselves just to keep from working 40 hours a week for someone else. And self-employment definitely has numerous benefits but because of the way tax laws are structured you need to ensure that you’re making the most of your self-employment deductions.

SEP Health Insurance Deduction

If you’re self-employed and covering your own health insurance, you can deduct 100% of your premiums, and that includes dental and long-term care. And if you’re covering your spouse and dependents those are deductible as well. Note if you’re eligible to participate in your spouse’s employer’s plan you can’t take this deduction.

Self-Employment Tax Deduction

One of the bigger costs of self-employment is that you don’t have an employer who automatically withholds 7.5% of your paycheck and pays FICA – it’s completely up to you to hold back 15.3% of your earnings to pay for Self-Employment Contributions Tax (SECA). However, you can deduct SECA on line 27 – the part that would normally be paid for by a traditional employer. (It’s one of the deductions that self-employed workers miss the most.)

Retirement Savings

Here are some options you have as a self-employed worker to establish a retirement savings plan and deduct it from your income taxes:

SIMPLE IRA: You can contribute up to $12,500 per year (more after age 50), and it’s relatively easy to process the paperwork each year. If you have employees (only up to 100 though), any matching contributions are deductible.

SEP IRA: Also easy to set up but doesn’t require yearly reporting to the IRS. Contribution limits are generous – up to $54,000 in 2017. You can start to take money out when you’re 59 1/2 years old. If you have employees however you have to include all of them in the plan.

Solo 401(k): You can contribute up to $18,000 per year (more after age 50) with pre-tax dollars. As the employer, you can also contribute up to 25% of your business earnings up to $53,000. You can’t have employees other than a spouse though.

If you’re self-employed and would like to know more about how to maximize your tax deductions, please don’t hesitate to contact us – we understand what a headache tax planning can be whether you’re a large corporation or the smallest of startups – we cover it all.

Moving Expenses – Know What’s Deductible

For most people, moving is a stressful process. Some studies and health websites even claim it is one of the top ten stressful life events. Not only is moving a major life disruption for you and your family, it often comes with a high price tag as well. So when tax time rolls around, hopefully you can relieve some of the financial stress associated with your move by writing off many of the expenses you have incurred. To ensure you meet the criteria for a tax write off and that you maximize the allowable expenses, use the following guidelines to fill out Form 3903 along with your 1040.

Before you claim your expenses, you must first make sure your move meets certain government guidelines.

Your move qualifies if the following applies:

  • relocation due to your main source of employment
  • you moved more than 50 miles
  • expenses were incurred within one year of reporting to the new job
  • you worked at least 39 weeks in the first twelve months of your new job

Allowable Expenses

  • Transportation- One trip per person. Airfare, ground travel (including parking , tolls, mileage, etc)
  • Lodging (no meals!)
  • Shipping/transporting pets
  • Storing household goods (30 consecutive days prior to or after move)
  • Packing and shipping household goods
  • Connecting/disconnecting utilities

Not Allowable Expenses

  • Car license/tags
  • Real estate or home sale-related expenses
  • Home improvements or furnishings

Special Circumstances

Aside from these general rules, there are many circumstances that are case specific. See Publication 521 for many more specific guidelines, including those for military and international moves.

Other Important Considerations

When it’s time to prepare your taxes, there are three other important considerations as you fill out Form 3903.

  1. You can write off moving expenses even if you don’t itemize deductions. All it takes is the preparation of Form 3903.
  2. You cannot “double dip” by claiming expenses as both business expenses and moving expenses.
  3. You must deduct the amount of any employer reimbursement for your moving expenses.

Being able to claim your moving expenses can reduce your moving-related stress and we are here to help alleviate the stress of filing your taxes.

IRA Deductions – Must Knows For 2017

If you recently filed your taxes, you are well aware that line item 32 on the 1040 tax form is “IRA Deductions”. Stay ahead of next year’s deadline by keeping up with new rules and guidelines.

Let’s first take a look at the two most common IRA types, the Traditional IRA and Roth IRA.

What is a Traditional IRA?

IRA stands for individual retirement arrangement and the traditional IRA was established in the U.S. by the 1974 Employee Retirement Income Security Act. One great feature of the traditional IRA and the reason it is a popular choice among those investing in a retirement fund is the ability to make tax deductible contributions. Not only that, but the contributions won’t be taxed until the money is withdrawn, sometimes many years later.

What is a Roth IRA?

A Roth IRA is an individual retirement arrangement retirement plan. It is not taxable if guidelines are followed. A Roth retirement plan may contain many types of investments including investments in security, stocks bonds, mutual funds, certificates of deposit and more. People who choose a Roth IRA often do so because of its tax structure advantage and the flexibility on the investments you can make.

What is the Difference? 

A traditional IRA is tax deductible for both federal and state returns and the deduction is applicable for the year you contribute. If you make a withdrawal during the year on a traditional IRA however, you must pay taxes on it. The Roth IRA is just the opposite. There are no tax breaks for your yearly contributions, however earnings and withdrawals are often tax-free.

New Deduction Limits for 2017

The 2017 contribution limit information and full information about changes for both Roth IRAs and traditional IRAs can be found in IRS Publication 590-A. Here are some major changes for 2017:

  • Modified AGI limit for traditional IRA contribution increased. For married couples filing jointly or a qualifying widow(er), the deduction is reduced or phased out if you make more than 99,000 but less than $119,000; for a single individual or head of household more than $62,000 but less than $72,000. If your modified AGI is $196,000 or more you cannot take a deduction for contributions.
  • Modified AGI limit for Roth IRA contributions increased. The Roth IRA contribution is reduced (phased out) for married joint filers or a qualifying widow(er) and the modified AGI is at least $186,000. If you modified AGI if $196,000 or more, you cannot make a Roth IRA contribution. The same applies to single filers, heads or household, or a married individual filing separately, who did not live with a spouse at any time in 2017 and has a modified AGI of at least $118,000. If the modified AGI is $133,000 or more you cannot make a Roth IRA contribution.

From the IRS website, you can track any legislative changes related to Pub. 590-A here.

Repeal Or Rework: Obamacare And Taxes

The Affordable Care Act (ACA) better known as Obamacare got overturned last week as a majority of Republicans passed a new measure. Obamacare was intended as a way for all Americans to have health insurance; but it quickly become controversial and unpopular, not to mention top heavy. Any successful insurance pool needs a massive number of healthy to offset the numbers of sick and Obamacare never had them.

Senate Republicans are divided on the type of replacement to work up. Any 2017 federal tax cuts or increased spending will have to wait until a plan for health care is on the books. The main point of contention is one of scale, how much of the original law gets scrapped and how much stays in the final version?

Currently the penalties for not having insurance in 2016 are assessed in 2 different ways:

  • Flat fee of $695 for Adults and $347.50 per child under 18 (max $2085)
  • 2.5% of household income

Some exemptions do apply. Economic hardship and income related conditions are the most common. Being without coverage for less than 2 months also qualifies. Any questions about exemptions to the law, use Form 8965.

The House version of the new bill adds an extra $8 billion as a backstop for those with ‘pre-existing’ conditions. Both parties have agreed to do something to take care of them. The pre-existing coverage requirement of Obamacare was the most popular part and the portion likely to stay in the final version in some form.

Everyone hates fines and penalties especially after filing taxes. For that reason any prior Obamacare penalty for not holding coverage will likely disappear in the final framework. The recent passage of the bill in the House represents the first phase toward crafting a new health law.

Income tax questions? Want to know how the current law affects you?

Get in touch with us.

2017 Tax Reform For Economic Growth And American Jobs

The U.S. tax code is overcomplicated and fails to create enough jobs, or provide relief to middle class families.

  • Since 2001, the U.S. tax code has faced nearly 6,000 changes, more than one per day.
  • Taxpayers spend nearly 7 billion hours and over $250 billion annually on compliance costs.
  • The U.S. has the highest statutory tax rate in the developed world, discouraging business investment and job creation.

President Trump is proposing the largest tax cut for individuals and businesses in U.S. history.

  • It will simplify the tax code, incentivize investment and growth and create jobs.
  • It will provide historic tax relief for middle-income families and small business owners.

The Need For Comprehensive Tax Reform

An overly complex tax code is confusing and burdensome on American taxpayers.

  • The last major effort to successfully reform the U.S. tax code was over 30 years ago under President Reagan.
  • Today, according to the IRS’ National Taxpayer Advocate, the federal tax code is nearly four million words long.
  • Congress has made more than 5,900 changes to the federal tax code since 2001 alone, averaging more than one change a day.
  • The National Taxpayers Union estimates that Americans spend 6.989 billion hours at a cost of more than $262 billion on compliance and record keeping costs.
  • Instead of a single tax form, the IRS now 199 individual income tax forms and 235 business tax return forms.
  • Approximately 90% of taxpayers need help doing their taxes.

Today, with a corporate tax rate of 35%, U.S. businesses face the highest statutory tax rate in the developed world, and fourth highest effective tax rate, which discourages job creation or investment.

  • The U.S. is out of step with its competitors, having the highest corporate income tax rate among the 35 OECD nations and being the only nation that has increased its rate since 1988.
  • A lower business tax rate will discourage corporate inversions and companies from moving jobs overseas.
  • The high corporate tax rate keeps trillions of business assets overseas rather than being reinvested back home.
  • Even President Obama proposed lowering the business tax rate to 28 percent to help spur economic activity.
Tax Reform for Economic Growth and American Jobs: The Biggest Individual And Business Tax Cut In American History

Goals For Tax Reform

  • Grow the economy and create millions of jobs
  • Simplify our burdensome tax code
  • Provide tax relief to American families-especially middle-income families
  • Lower the business tax rate from one of the highest in the world to one of the lowest

Individual Reform

    Tax relief for American families, especially middle-income families:

  • Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%
  • Doubling the standard deduction
  • Providing tax relief for families with child and dependent care expenses

Simplification

  • Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers
  • Protect the home ownership and charitable gift tax deductions
  • Repeal the Alternative Minimum Tax
  • Repeal the death tax

Repeal the 3.8% Obamacare tax that hits small businesses and investment income Business Reform

  • 15% business tax rate
  • Territorial tax system to level the playing field for American companies
  • One-time tax on trillions of dollars held overseas
  • Eliminate tax breaks for special interests

Process

  • Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input.
  • Working with the House and Senate, the Administration will develop the details of a tax plan that provides massive tax relief, creates jobs, and makes America more competitive – and can pass both chambers.

Source: “The White House”

Millennials: Biggest Financial Blunders Made By This Generation And How To Remedy Them

People in their 20’s and 30’s today are faced with great financial decisions, maybe even more so than their parent’s or grandparent’s generations. Millennials often make financial blunders between graduating college and starting their lives as adults. Here we have some of the most common financial mistakes millennials make, and some ways to remedy them.

1. Failing to Save for Retirement: Most millennials are faced with piles of debt from student loans as soon as they step into the real world. Many make the mistake of trying to pay off this debt, but fail to see the importance of saving for retirement. They make think I just started my career, retirement planning can wait. The truth is though, the absolute best time to start saving for retirement is in your 20’s when you first start getting regular paychecks. The solution? Millennials should make payments on their student loans, while also setting aside money from each check toward retirement.

2. Accruing Credit Card Debt: While establishing good credit is an important part of being a young adult, accruing TOO much debt can have an adverse effect on millennials’ financial goals. People in their 20’s should have one or two credit cards to establish their credit history, but should only make small purchases each month (like gas or groceries) on each card. They should then pay the balance in full each month, to avoid high amounts of interest. Credit cards should never be used to finance lavish trips, expensive furniture, or nights out on the town.

3. Competing with Their Friends: One of the biggest problems faced by this generation is feeling peer pressure to accomplish all the goals that their friends are. Millennials see others getting married, buying houses, and having kids and often feel that they are some how behind if they too don’t have these things. The key to avoiding financial blunders as a millennial is acknowledging what you CAN afford. It is fine to have those goals, but millennials shouldn’t rush into huge financial commitments, until their income supports those goals.

While millennials are faced with some tough financial decisions, it is important for them to establish clear goals and always live within their means.

What You Should Hold Your Bookkeeper Accountable For Because Your Business Success Depends On It

Money problems are the universal sleep robber – whether it’s your personal finances or business related, money concerns have affected nearly everyone at some point. And if you are a business owner, the burden is even more cumbersome. That’s why it’s crucial that no matter what the size of your business, you hire an experienced bookkeeper and hold them accountable for the following:

Complete and well-organized financial records

The need for this should be obvious, but to some businesses, unfortunately, it isn’t. There are  many companies that hired an inexperienced bookkeeper (or don’t hire one at all) who failed to keep complete and organized records, and the company either lost money or went out of business as a result. Imagine the day you’re notified of an audit – if your businesses financial records are up to date, well-organized, and complete you’ll rest much easier.

Managing Your Cash Flow

A successful business requires a healthy cash flow. If you don’t have money coming in at the right time you can’t pay your employees, or your suppliers, or upkeep your equipment. An effective bookkeeper will keep the burden of managing incoming and outgoing funds off your shoulders so you can concentrate on more important things.

Payroll Responsibilities

Managing your company payroll can not only be tedious, but it also involves making the proper tax payments on time and to the right place. Requiring your bookkeeper to handle it all is a huge time saver. Remember, a bookkeeper with experience already knows everything that needs to be done, and how it needs to be done, so you don’t have to spend the time and valuable resources to figure all of that out yourself.

Whether you run a big or small business, you can benefit greatly from using a bookkeeping service to help manage your company finances. You’ll save money in the long run, free yourself to concentrate on growing your business, and don’t forget, sleep better.