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Recent blog posts

Is a Pension Plan Right for Your Small Business?

Posted on in Healthcare

Traditional defined benefit plans, structured to provide a lifelong pension, have become rare in the private sector. They’re still the norm for public sector employers; some large companies continue to offer plans.
Ironically, these plans might be a good fit for extremely small companies. A possible prospect could be a business or professional practice with one or two principals who are perhaps 5–10 years from retirement, with a few employees who are younger and modestly compensated.

Last modified on

Expensive Custodial Care Alternatives

Posted on in Tax

If you or a loved one ever need help with daily living activities, you will discover that custodial care can be expensive. That’s true whether the care is provided at home, in an assisted living facility, or in a nursing home, and it’s especially true if care is needed for many years. Long-term care (LTC) insurance is available, but insurance companies have learned that these costs can be steep. Premium increases for LTC insurance are in the news (for example, some press reports tell of cases where premiums have tripled in the last three years), and some insurance companies have dropped out of this business. Consumers face the prospect of paying thousands of dollars a year, every year, and never getting any benefit at all if it turns out that custodial care is not needed.

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After-Tax Dollars in Traditional IRAs

Posted on in Tax

Workers under age 70½ can deduct contributions to a traditional IRA, as long as they are not covered by an employer’s retirement plan. The same is true for those workers’ spouses. If these taxpayers are covered by an employer plan, they may or may not be able to deduct IRA contributions, depending on the taxpayer’s income. However, all eligible workers and spouses can make nondeductible contributions to a traditional IRA, regardless of income. Inside a traditional IRA, any investment earnings will be untaxed.

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Be Cautious With Hard-To-Value IRAs

Posted on in Tax

A new year begins with celebrations, resolutions, and dual IRA opportunities. Most workers and their spouses have until April 18, 2017 (April 19 in some states), to contribute to an IRA for 2016. At the same time, contributions to 2017 IRAs are now permitted; the earlier money goes into the account, the more time for tax-deferred investment buildup.

Last modified on

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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