Linkenheimer LLP CPAs & Advisors

4 New Law Changes That May Affect Your Retirement Plan

If you save for retirement with an IRA or other plan, you’ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these four changes.

Change #1: The maximum age for making traditional IRA contributions is repealed. Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. Starting in 2020, an individual of any age can make contributions to a traditional IRA, as long he or she has compensation, which generally means earned income from wages or self-employment.

Change #2: The required minimum distribution (RMD) age was raised from 70½ to 72. Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the early […]

By Linkenheimer LLP|February 4th, 2020|ira, New Tax Laws, retirement|0 Comments

3 Last-Minute Tips That May Help Trim Your Tax Bill

If you’re starting to fret about your 2019 tax bill, there’s good news — you may still have time to reduce your liability. Three strategies are available that may help you cut your taxes before year-end, including:

1. Accelerate deductions/defer income. Certain tax deductions are claimed for the year of payment, such as the mortgage interest deduction. So, if you make your January 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize).

Pushing income into the new year also will reduce your taxable income. If you’re expecting a bonus at work, for example, and you don’t want the income this year, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay your invoices until late in December to divert the revenue to 2020.

You shouldn’t pursue this approach if you expect to land in a higher tax […]

By Linkenheimer LLP|December 11th, 2019|deduction, deductions, investment, retirement, tax planning|0 Comments

Setting Up a Health Savings Account for Your Small Business

Given the escalating cost of employee health care benefits, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:

Contributions that participants make to an HSA are deductible, within limits.
Contributions that employers make aren’t taxed to participants.
Earnings on the funds within an HSA aren’t taxed, so the money can accumulate year after year tax free.
HSA distributions to cover qualified medical expenses aren’t taxed.
Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Who is eligible?

To be eligible for an HSA, an individual must be covered by a “high deductible health plan.” For 2019, a “high deductible health plan” is one with an annual deductible of at least $1,350 for self-only coverage, or at least $2,700 for family coverage. For self-only coverage, the 2019 limit on deductible contributions is $3,500. For family coverage, the 2019 limit on deductible contributions is $7,000. Additionally, annual out-of-pocket expenses required to […]

By Linkenheimer LLP|October 14th, 2019|business, Health care, hsa|0 Comments

There’s Still Time for Small Business Owners to Set Up a SEP Retirement Plan for Last Year

If you own a business and don’t have a tax-advantaged retirement plan, it’s not too late to establish one and reduce your 2018 tax bill. A Simplified Employee Pension (SEP) can still be set up for 2018, and you can make contributions to it that you can deduct on your 2018 income tax return.

Contribution deadlines

A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP is to first apply. That means you can establish a SEP for 2018 in 2019 as long as you do it before your 2018 return filing deadline. You have until the same deadline to make 2018 contributions and still claim a potentially substantial deduction on your 2018 return.

Generally, other types of retirement plans would have to have been established by December 31, 2018, in order for 2018 contributions to be made (though many of these plans do allow 2018 contributions to be made in 2019).

Discretionary contributions

With a SEP, you can decide how much to contribute each year. You aren’t obligated to make any certain minimum contributions annually.

But, if your business […]

By Linkenheimer LLP|March 11th, 2019|business, contributions, investment, ira, tax planning, year-end|0 Comments

Many Tax-Related Limits Affecting Businesses Increase for 2019

A variety of tax-related limits affecting businesses are annually indexed for inflation, and many have gone up for 2019. Here’s a look at some that may affect you and your business.

Deductions

Section 179 expensing:
- Limit: $1.02 million (up from $1 million)
- Phaseout: $2.55 million (up from $2.5 million)
Income-based phase-ins for certain limits on the Sec. 199A qualified business income deduction:
- Married filing jointly: $321,400-$421,400 (up from $315,000-$415,000)
- Married filing separately: $160,725-$210,725 (up from $157,500-$207,500)
- Other filers: $160,700-$210,700 (up from $157,500-$207,500)

Retirement plans

Employee contributions to 401(k) plans: $19,000 (up from $18,500)
Catch-up contributions to 401(k) plans: $6,000 (no change)
Employee contributions to SIMPLEs: $13,000 (up from $12,500)
Catch-up contributions to SIMPLEs: $3,000 (no change)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $56,000 (up from $55,000)
Maximum compensation used to determine contributions: $280,000 (up from $275,000)
Annual benefit for defined benefit plans: $225,000 (up from $220,000)
Compensation defining “highly compensated employee”: $125,000 (up from $120,000)
Compensation defining “key employee”: $180,000 (up from $175,000)

Other employee benefits

Qualified transportation fringe-benefits employee income exclusion: $265 per month (up from $260)
Health Savings Account contributions:
- Individual coverage: $3,500 (up from $3,450)
- Family coverage: $7,000 (up from $6,900)
- Catch-up contribution: $1,000 (no change)
Flexible Spending Account contributions:
- Health care: $2,700 (up from $2,650)
- Dependent care: $5,000 (no change)

Additional rules apply to these […]

By Linkenheimer LLP|January 22nd, 2019|business, deduction, deductions, retirement, tax planning|0 Comments

Catch-Up Retirement Plan Contributions Can be Particularly Advantageous Post-TCJA

Will you be age 50 or older on December 31? Are you still working? Are you already contributing to your 401(k) plan or Savings Incentive Match Plan for Employees (SIMPLE) up to the regular annual limit? Then you may want to make “catch-up” contributions by the end of the year. Increasing your retirement plan contributions can be particularly advantageous if your itemized deductions for 2018 will be smaller than in the past because of changes under the Tax Cuts and Jobs Act (TCJA).

Catching up

Catch-up contributions are additional contributions beyond the regular annual limits that can be made to certain retirement accounts. They were designed to help taxpayers who didn’t save much for retirement earlier in their careers to “catch up.” But there’s no rule that limits catch-up contributions to such taxpayers.

So catch-up contributions can be a great option for anyone who is old enough to be eligible, has been maxing out their regular contribution limit and has sufficient earned income […]

By Linkenheimer LLP|November 27th, 2018|contributions, New Tax Laws, retirement, tax planning, year-end|0 Comments

It’s Not Too Late: You Can Still Set Up a Retirement Plan for 2018

If most of your money is tied up in your business, retirement can be a challenge. So if you haven’t already set up a tax-advantaged retirement plan, consider doing so this year. There’s still time to set one up and make contributions that will be deductible on your 2018 tax return!

More benefits

Not only are contributions tax deductible, but retirement plan funds can grow tax-deferred. If you might be subject to the 3.8% net investment income tax (NIIT), setting up and contributing to a retirement plan may be particularly beneficial because retirement plan contributions can reduce your modified adjusted gross income and thus help you reduce or avoid the NIIT.

If you have employees, they generally must be allowed to participate in the plan, provided they meet the qualification requirements. But this can help you attract and retain good employees.

And if you have 100 or fewer employees, you may be eligible for a credit […]

By Linkenheimer LLP|November 27th, 2018|retirement, tax planning|0 Comments

The TCJA Prohibits Undoing 2018 Roth IRA Conversions, but 2017 Conversions are Still Eligible

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

Before the Tax Cuts and Jobs Act (TCJA), you could undo a Roth IRA conversion using a “re-characterization.” Effective with 2018 conversions, the TCJA prohibits re-characterizations — permanently. But if you executed a conversion in 2017, you may still be able to undo it.

Reasons to recharacterize

Generally, if you converted to a Roth IRA in 2017, you have until October 15, 2018, to undo it and avoid the tax hit.

Here are some reasons you might want to recharacterize a 2017 Roth IRA conversion:

The conversion combined with your other income pushed you into a higher tax bracket in 2017.
Your marginal income tax rate will be lower in 2018 than it was in 2017.
The value of your account has declined since the conversion, so you owe taxes partially on money you no longer have.

If you re-characterize your 2017 conversion but would still like to convert your traditional IRA […]

By Linkenheimer LLP|August 14th, 2018|contributions, New Tax Laws, roth ira|0 Comments

Finding a 401(k) That’s Right for Your Business

By and large, today’s employees expect employers to offer a tax-advantaged retirement plan. A 401(k) is an obvious choice to consider, but you may not be aware that there are a variety of types to choose from. Let’s check out some of the most popular options:

Traditional. Employees contribute on a pretax basis, with the employer matching all or a percentage of their contributions if it so chooses. Traditional 401(k)s are subject to rigorous testing requirements to ensure the plan is offered equitably to all employees and doesn’t favor highly compensated employees (HCEs).

In 2018, employees can defer a total amount of $18,500 through salary reductions. Those age 50 or older by year end can defer an additional $6,000.

Roth. Employees contribute after-tax dollars but take tax-free withdrawals (subject to certain limitations). Other rules apply, including that employer contributions can go into only traditional 401(k) accounts, not Roth 401(k)s. Usually a […]

By Linkenheimer LLP|June 27th, 2018|401k, roth ira|0 Comments

Charitable Contribution Deduction Limitation Increased

The deduction for an individual’s charitable contribution is limited to prescribed percentages of the taxpayer’s “contribution base.” Under pre-Act law, the applicable percentages were 50%, 30%, or 20%, and depended on the type of organization to which the contribution was made, whether the contribution was made “to” or merely “for the use of” the donee organization, and whether the contribution consisted of capital gain property. The 50% limitation applied to public charities and certain private foundations.

No charitable deduction is allowed for contributions of $250 or more unless the donor substantiates the contribution by a contemporaneous written acknowledgment (CWA) from the donee organization. Under Code Sec. 170(f)(8)(D), IRS is authorized to issue regs that exempt donors from this substantiation requirement if the donee organization files a return that contains the same required information; however, IRS has decided not to issue such donee reporting regs.

New law. For contributions made in tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the 50% limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60%. (Code Sec. 170(b)(1)(G), as added by Act Sec. 11023) Contributions exceeding the 60% limitation are generally allowed to be carried forward and […]

By Linkenheimer LLP|January 12th, 2018|charity, Community, contributions, deduction, deductions, New Tax Laws|0 Comments

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