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Recent blog posts

How Medical Expenses Before Year End May Pay Off

Posted on in Tax

The PATH Act of 2015 is not the only recent tax law affecting year-end planning this year. One provision of the Affordable Care Act, passed back in 2010, comes into play now. For taxpayers age 65 or older, it may pay to incur optional medical expenses by December 31, 2016.
Under the Affordable Care Act, the threshold for deducting unreimbursed medical and dental outlays was raised in 2013 from 7.5% to 10% of AGI. However, the 7.5% hurdle was kept in place for four years for taxpayers 65 or older --only unreimbursed medical bills greater than the threshold can be deducted.

Last modified on

Year End Business Tax Planning

Posted on in Finance

The PATH Act’s many provisions also include a permanent increase in the amounts allowed under IRC Section 179, which permits rapid deduction (expensing) of funds spent for business equipment. For 2015, expensing up to $500,000 of equipment was allowed with no phaseout beginning at $2 million of purchases. For 2016, the inflation adjusted amount is $2,010,000. In addition, the PATH Act makes permanent the treatment of off-the-shelf computer software as Sec. 179 property.

The bottom line is that small companies can confidently purchase equipment and software this year. As long as total outlays don’t top $2.01 million, expenses up to $500,000 can be deducted for 2016 rather than spread over several years. To qualify for the IRC Section 179 tax break, the equipment or software must be purchased, financed or leased, and placed into service by December 31. The deduction will equal the full purchase price.
For companies that spend more on equipment than the IRC Section 179 deduction allows, the PATH Act’s extension of “bonus depreciation” may help. For 2016 as well as 2017, a taxpayer may generally deduct 50% of qualifying equipment’s cost (reduced by the amount of any Sec. 179 expense deduction taken for the cost of the equipment). However, bonus depreciation applies only to new equipment while the first-year IRC Section 179 deduction applies to new and used equipment.

Paperwork now, payment later

The end of the year is also a good time to review your company’s retirement plan situation. If you have one, should you make a change? If you don’t have a company-sponsored retirement plan, do you want to establish one? Such a plan not only will benefit your employees, it will enable you to put aside funds for your own retirement on a tax-favored basis.
Today, a 401(k) can be considered the “standard” company plan. Many prospective employees expect to have a 401(k) at work, so offering such a plan may enable you to attract good people and retain valued workers. Contributions generally are funded by the employees themselves, but many companies provide matching contributions in some form.
December 31 is the deadline for establishing a 401(k) plan for 2016, assuming your company uses a calendar year. Employee contributions for 2016 must be withheld from 2016 paychecks and must be sent to the relevant financial firm as soon as possible. Employer contributions, deductible for 2016, can be made up to the company’s tax return due date, including extensions.
A variation of the basic 401(k) is often known as the solo 401(k) or the individual 401(k). Other names may apply. However the plan is titled by the financial firm involved, it is open only to business owners and their spouses who are employed by the company. For 2016, the maximum contribution to a solo 401(k) is $53,000 per participant, if certain conditions are met, or $59,000 for those age 50 or older. Basic 401(k) plans have contribution limits of $18,000 or $24,000 before any employer match.
Again, the deadline for establishing a solo 401(k) in 2016 is December 31 of this year. Some tax deductible contributions may be made up to the tax return deadline, including extensions, in 2017.

Beyond 401(k)s

Other retirement plans for small businesses also have a December 31 deadline for signing the forms to receive tax benefits in 2016. These plans also have an extended due date for making contributions. They include profit sharing plans, which are funded by the employer. Profit sharing plans may motivate employees to help the company’s earnings grow. Annual employer contributions are discretionary, so companies aren’t locked in.
Yet another option is a defined benefit plan, which can provide a traditional life-long pension. These plans are offered mainly by public employers and some large companies, but small firms also may benefit. The best prospects might be companies where the principal is, say, 50 or older, with few employees. In such situations, the business may make extremely large, tax-deductible contributions to the principal’s retirement account. Again, the plan must be established by December 31 for 2016 tax benefits.
Our office can help you choose among various retirement plans for your business and let you know about any year-end deadlines.

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Savvy Planning Minimizes IRA Withdrawal Bite

Posted on in Finance

Many people save money for retirement in a traditional IRA. The funds might have come from annual IRA contributions, or from rolling over an employer sponsored retirement account such as a 401(k). Either way, the dollars in your traditional IRA are probably pretax, so they’ll be taxed on withdrawal.
You can leave the money in your traditional IRA for ongoing tax deferral. However, you might need cash now, especially if you’re retired or have had unexpected expenses. In another scenario, you may expect your traditional IRA to be extremely large by the time you reach age 70½ and RMDs begin. Those RMDs might be so large that they’ll be heavily taxed in a high bracket. Therefore, you might want to take withdrawals from your traditional IRA before year-end 2016, so they’ll count in this year’s taxable income. With savvy planning, you can minimize the tax bite by staying within your current tax bracket.

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The Benefits of Employee Wellness Programs

Posted on in Finance

A 2016 report from the Society for Human Resource Management found that 78% of surveyed businesses offered wellness benefits to their employees. It’s true that wellness programs are most common in large corporations, but small companies also can offer these benefits and reap the advantages. Generally, wellness programs may improve worker morale and perhaps lead to greater retention of key employees. Direct results might include fewer health-related absences, greater energy, and more on-the-job productivity. Cost reduction also may result, if the company winds up paying less for health insurance and workers’ compensation.

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Investing in Gold Can Be Taxing

Posted on in Finance

Investment asset classes include precious metals, especially gold. Enthusiasts cite several reasons for including gold in a diversified portfolio. If governments print money to cover increasing obligations, gold may act as an inflation hedge. Moreover, gold can offer a safe haven in times of geopolitical upheaval: in mid-2016, for example, when Great Britain voted to leave the European Union (Brexit) and financial markets were unsettled, the price of gold reached a two-year high. If you decide to allocate some investment dollars to gold, there are many options to choose. The tax treatment can vary, depending on how you invest, and you might be unpleasantly surprised.

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Financial Planning Tips for Expecting Families

Posted on in Finance

The arrival of a newborn is a joyous occasion! Even while emotions are at their peak, though, you shouldn’t neglect the practical aspects. Several steps should be taken to protect the family’s finances, and the sooner the better. If you or someone you know is expecting, these are important factors to keep in mind: 

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