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Want to retire someday? Here’s how to save more now

Need to save more for retirement? Here are some questions to ask yourself to help you get started and stay on track:

  • How much money you need? The number of years you have before retirement will help determine how much you will need to invest each month to reach your financial goal.
  • Is your retirement savings goal realistic? Make sure that your savings goal is realistic. If your goal works out to 10 percent to 15 percent of your monthly income, it should be achievable. But you may need to cut expenses to free up savings.
  • Are you saving enough from each paycheck for your own retirement? Try to treat your savings as your most important monthly bill. Write a check to savings first, or have your savings automatically deducted from your checking account or paycheck.
  • Are you tracking your expenses? Another way to maximize savings is to track your expenses for a few months. This is a great way to spot unnecessary or wasteful spending; it doesn’t take much work to see potential cutbacks.
  • Do you feel in control of your savings? When it comes to saving, think “control.” For example, control the use of your credit cards. The amount you pay each month in finance charges could go to savings instead. Also, control the use of your ATM card. Get in the habit of giving yourself a regular cash allowance, and try to live with it.

The key to having enough money for a comfortable retirement is to become a serious saver. Start saving early, commit to saving regularly and save as much as you can.



C-Corporation vs S-Corporation – What’s best for you?

Like any business owner, you’re always looking for ways to cut costs and increase the bottom line. With the passing of the 2017 Tax Cuts and Jobs Act, now is the time to revisit the advantages and disadvantages for each tax entity. From differences in tax rates to differences in ways to take money out of the company, there are numerous topics to study when analyzing the benefits of each corporation type. A few brief notes on each entity type are:

   

S-Corporations

 

C-Corporations

Where is the Business Income Taxed? Business income or losses are passed through to the owner(s), and taxed at their personal level. The business income or losses stay within the company, and are taxed at the company level.
Qualifies for the 20% Qualified Business Income Deduction? Yes No
Tax Rate on Earnings Individual owner’s personal tax rate 21% flat Corporate rate
Tax Rate on Dividends or Distributions Distributions are non-deductible at the corporate level and non-taxable at the individual level. Dividends are non-deductible at the corporate level and are taxed at a 0%, 15% or 20% capital gains rate at the individual level.

 

Important questions to ask yourself are how much money do you need to take out of the company each year and how are you going to get that money out? From a C-Corporation, shareholders can withdraw funds as wages, and pay the applicable payroll taxes, and/or as dividends, which are subject to double taxation. From an S-Corporation, shareholders can withdraw funds as wages and pay the related payroll taxes, and/or take distributions which are tax-free (subject to basis limitations). However, the IRS will still require S-Corporation owners to pay themselves a reasonable wage each year.

If you prefer to keep money inside of the company, structuring your business as a C-Corporation to utilize the new flat 21% rate may be advantageous. However, if you are thinking of selling your business or desire to take distributions out of the company, it may make more sense for you to hold an S-Corporation. This avoids double taxation from dividends and paying additional payroll taxes.

Another item to consider is the Qualified Business Income Deduction (QBID). This deduction is available to S-Corporation shareholders but not C-Corporation shareholders. For more information on the QBID, please see last month’s article: https://willispc.com/tax-cuts-jobs-act-qualified-business-income-deduction/

A last, but often overlooked aspect of tax entity type considerations, are state taxes. In Michigan, for example, a separate Corporate Income Tax (CIT) return is required for most C-Corporations. This imposes a 6% tax on taxable income. On the other hand, Michigan based S-Corporations do not have a separate state tax return. Rather, income is reported by the shareholders on their personal state tax return which is taxed at the Michigan individual tax of 4.25%.

If you would like a complete analysis of the S-Corporation vs C-Corporation tax entity type that best suits your company, please contact our Jackson or Grand Rapids office.

Disclaimer: The information in this article is not tax advice. Each company is different and requires a complete analysis to make educated decisions. This article is intended to be informational only.



Switching jobs this summer? Don’t forget about your taxes

As you look forward to starting your new job, it’s important to keep in mind how your employment change will affect your taxes.  Here are three tax-smart tips that’ll put you in the best position come tax season:

  • Roll over your retirement plan. You may be tempted to cash out the balance in an employer-sponsored plan such as a 401(k). But remember that distributions from these plans are generally taxable.

Instead, ask your plan administrator to make a direct rollover to your IRA or another qualified plan. This avoids the additional 10 percent penalty on early distributions you would face if you’re under age 59½. Your retirement money will continue to grow tax-deferred.

  • Adjust your withholding. Assess your overall tax situation before you complete a Form W-4 for your new employer. Did you receive severance pay, unemployment compensation or other taxable income? You might need to increase your withholding to avoid an unexpected tax bill when you file your return.
  • Don’t expect to deduct job-related moving expenses. Unless you are a member of the U.S. Armed Forces, you can no longer deduct moving expenses related to your employment.

More tax issues to consider when you change jobs include stock options, employment-related educational expenses and the sale of your home. Give us a call. We’ll be happy to help you with your new employment tax updates.



Rent out your home and you may get a tax break

If you are going to be out of town this summer, consider renting your home while you’re gone. The IRS allows you to receive up to 14 days of rental income per year completely tax-free. There are other rental property/personal use rules that you’ll want to make sure to follow, especially if you plan on renting out a vacation home that you don’t live in for most of the year. Give us a call for details on how you can take advantage of this deduction.



Summertime is a favorite season for scammers

Keep your eyes open for phishing emails and telephone scams during the summer months. Scammers are known to take advantage of the post-tax season months when taxpayers may be awaiting communication from the IRS.

If you receive a pre-recorded message asking you to call back or else you will be issued a warrant for your arrest, ignore it. Do the same if you receive an email from what appears to be the IRS asking for your Social Security number and account information.

Keep in mind that the IRS will not initiate contact with you by email to request personal information. To report an IRS impersonation scam, go to the IRS Impersonation Scam Reporting website.



New divorce laws to consider

The taxation of alimony for divorces signed after Dec. 31, 2018 will change drastically. It will no longer be tax-deductible for the payer, nor taxed as income for the recipient. That means it will get much less affordable for those paying it, with less money available for recipients. Take these updated laws into consideration if divorce is inevitable.



2018 Uncle Phil’s BBQ Cookout

The Annual Uncle Phil’s BBQ Cookout will take place on Thursday, June 21 at 2545 Spring Arbor Road from 11:30am-1:30pm. The charity event will raise money for Junior Achievement of the Michigan Edge, Jackson School of the Arts, The Wendy’s Charity Classic & The Dave Thomas Foundation for Adoption, and The Lily Missions Center.

The Junior Achievement is a partnership between the business community, educators and volunteers – all working together to inspire young people to dream big and reach their potential. JA’s hands-on, experiential programs teach the key concepts of work readiness, entrepreneurship and financial literacy to young people all over the world.

Since 2001, Jackson School of Arts mission is to make the arts accessible to Jackson County youth, regardless of their financial means. The work of including, finding and providing programs to students not served anywhere else is at the center of the Jackson School or Arts efforts.

The Dave Thomas Foundation for Adoption believes that they have a responsibility to be the voice of foster care adoption, so that every child finds a family. They exist to find homes for children who are waiting to be adopted from foster care in North America.

Missions Center is a non-profit organization who helps over 1,000 families and children annually. The Center offers reading literacy, tutoring, youth scholarship assistance, teen transition programs, financial management classes, mentoring and a host of other activities beneficial to productive life skills.

The event is sponsored by Willis & Jurasek, PC, Wendys Restaurants and Knights Steakhouse. For $10/person (all proceeds to charity) stop by for some chicken, kielbasa, salads, drinks, chips and cookies.



Tax Cuts and Jobs Act – Qualified Business Income Deduction

On December 22, 2017 the Tax Cuts and Jobs Act was approved by Congress which meant that major tax reform was going to hit us like a ton of bricks, and very soon. Meanwhile, here we are six months later without final regulations that will greatly impact many individuals and businesses in relation to this “reform”. One of these new provisions without final signed regulations is the “Qualified Business Income Deduction” (QBID) or Section 199A for us tax geeks. In general the QBID is a 20% deduction available to an individual, estate, or trust that has domestic qualified business income that flows through to them at a personal or trust level. However, the 20% deduction isn’t so cut and dry as limitations and qualifications will come into play, as well as those long awaited final regulations that are still unknown. So the following is a list of what we know and a list of what we still need guidance on to help address this major tax change:

What we know:

  • The QBID is available to individual taxpayers, estates, and trusts that have domestic qualified business income flow through to them from S Corporations, Partnerships or LLC’s, or sole proprietorships.
  • The 20% QBID is calculated for each entity that may flow through to an individual, estate, or trust.
  • The deduction is also available to farmers (Schedule F) and certain real estate businesses (Schedule E).
  • The QBID is available for taxable years beginning after December 31, 2017 and before January 1, 2026.
  • The 20% deduction on qualified business income is available to “ALL” taxpayers that have total taxable income of $315,000 or less for married filing joint filers, and $157,500 or less for single filers. Taxpayers with taxable income over these thresholds may still qualify for the deduction; however additional tests and potential phase-outs will need to be considered.
  • A phase out of the QBID begins for “certain” service trade businesses such as health, law, accounting, consulting, financial, brokerage, investing, performing arts, athletics, etc. However engineers and architects are specifically excluded. The phase out range for married filing joint filers in these industries is  $315,000 – $415,000 and $157,500 – $207,500 for single filers. Taxpayers in these industries that reach the top of these thresholds are completely excluded from the QBID.
  • There is also a W-2 wage limitation to all taxpayers that meet the bottom level thresholds mentioned above. Once these thresholds are met, the maximum QBID that a taxpayer can claim is the greater of (i) 50% of the taxpayers W-2 wages paid in each entity, or (ii) the sum of 25% of the W-2 wages paid in each entity plus 2.5% of the unadjusted basis in all qualified tangible property (usually the cost of depreciable assets).
  • The QBID is derived from “net” amounts of income, gain, deduction, and loss items. It does not include dividends, publicly traded partnership income, foreign source income, carryforward of losses, or investment income items.

What we still need guidance on:

  • There is still a gray area in certain instances on what is considered a service trade or business. Currently the definition describes them as a business in which the principal asset is its reputation or skill of one or more of its employees or owners.
  • The ability to separate activities for purposes of the QBID rather than grouping at the entity level. Example being such as one activity qualifying versus another that does not.
  • What rental real estate activities will be allowable for the QBID? The law is unclear whether renting to ones-self qualifies and there is no indication on whether an individual who holds them selves out as a real estate professional will qualify.
  • Will the flow through income subject to QBID be allowable for passive shareholders and investors? The law at this point does not suggest they will not qualify nor that a shareholder needs to be active, however regulations are not final.
  • What happens if an individual has a qualified business loss flow through? It is unclear on what the effect of losses will have on the QBID and whether they will be allowed to carryover.

This is an exciting time to say the least in regards to tax reform and will without a doubt have a massive impact on some individuals and businesses. The qualified business income deduction is just one aspect of the 2018 Tax Cuts and Jobs Act and we have barely scratched the surface of Section 199A above.

Here at Willis & Jurasek, P.C we are continually monitoring the release of these final regulations to keep our clients informed and up to date on the potential tax impact. If you have any questions, please feel free to call either our Jackson or Grand Rapids offices to speak with one of our tax department representatives.



Is your business susceptible to payroll fraud?

Unless a small business owner handles all aspects of computing and paying payroll, there is room for fraud. Even if your company has only a few employees — it does not guarantee your funds will be safe.

How payroll fraud happens

Perhaps one of the easiest payroll fraud techniques is the overpayment of withholding or payroll taxes. Your bookkeeper simply overpays the government. When the refund check arrives, the employee deposits it to his or her personal account.

In some cases, the employee will have an account at a different bank but in the company name. Such an account could be used for the fraudulent deposit of other company receipts as well.

The greater the number of employees, the easier it is for someone to pull off a scam. Perhaps the payroll clerk has invented a fictitious employee or falsifies hours or commissions for a cooperating employee who shares the stolen funds. Or perhaps the employee holds the payroll deposit funds in his or her own interest-bearing account until it is time to make the payroll deposit to the government.

How to prevent payroll fraud

Small businesses can be exceptionally susceptible to payroll fraud because they often lack anti-fraud controls that larger organizations have in place. Here’s a few ways you can work toward preventing this type of fraud:

  • Get outside help. A payroll review by an independent accountant may help prevent employee schemes.
  • Divvy up duties. Even in small companies, it is possible to divide office tasks to make employee theft more difficult.
  • Limit payroll access. Figure out who needs to have access to payroll data. That list will likely be very small. Make sure it stays that way.
  • Offer direct deposit. No paper checks means less opportunities for employees to handle funds, meaning greater security all around.


Do you have a household employee? Don’t ignore the nanny tax

As you review your filing requirements for 2018, make sure you don’t overlook the nanny tax related to household employees. If you have a housekeeper or any other household employee, you could be liable to pay state and federal payroll taxes.

 

How to know if you must pay the nanny tax

First, you’ll need to determine whether you have a household employee. Generally, this is someone you hire to work in or around your house. It could be a babysitter, nurse, gardener, etc. It doesn’t matter whether they work part-time or full-time, or whether you pay them hourly, weekly, or by the job.

But not everyone who works around your house is an employee. For example, if a lawn service sends someone to cut your grass each week, that person is not your employee.

As a general rule, workers who bring their own tools, do work for multiple customers and/or control when and how they do the work are not your household employees.

 

Your responsibilities

If you have a household employee, you’ll generally be responsible for 2017 payroll taxes if you paid that individual more than $2,000 last year. However, federal unemployment tax kicks in if you pay more than $1,000 to all domestic employees in any quarter.

It’s not always easy to tell whether you have a household employee, or whether exceptions apply. If in doubt, don’t hesitate to call our office.