retirement

Numerous Tax Limits Affecting Businesses Have Increased For 2020

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An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

Deductions

  • Section 179 expensing:
    • Limit: $1.04 million (up from $1.02 million for 2019)
    • Phaseout: $2.59 million (up from $2.55 million)
  • Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
    • Married filing jointly: $326,600 (up from $321,400)
    • Married filing separately: $163,300 (up from $160,725)
    • Other filers: $163,300 (up from $160,700)

Retirement plans

  • Employee contributions to 401(k) plans: $19,500 (up from $19,000)
  • Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)
  • Employee contributions to SIMPLEs: $13,500 (up from $13,000)
  • Catch-up contributions to SIMPLEs: $3,000 (no change)
  • Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)
  • Maximum compensation used to determine contributions: $285,000 (up from $280,000)
  • Annual benefit for defined benefit plans: $230,000 (up from $225,000)
  • Compensation defining a highly compensated employee: $130,000 (up from $125,000)
  • Compensation defining a “key” employee: $185,000 (up from $180,000)

Other employee benefits

  • Qualified transportation fringe-benefits employee income exclusion: $270 per month (up […]

4 New Law Changes That May Affect Your Retirement Plan

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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Change #1: The maximum age for making traditional IRA contributions is repealed.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 |February 4th, 2020|ira, New Tax Laws, retirement|0 Comments

New Law Helps Businesses Make Their Employees’ Retirement Secure

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A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

  1. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
  2. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new […]
By |February 4th, 2020|New Tax Laws, retirement|0 Comments

What Lenders Look for in a Succession Plan

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Business owners are urged to create succession plans for the good of their families and their employees. But there’s someone else who holds a key interest in the longevity of your company: Your lender.

If you want to maintain a clear path to acquiring the working capital your business may need after you’ve stepped down, it’s important to keep your lender apprised of your progress in putting a carefully considered succession plan in place.

A viable successor

One key operational issue that lenders look for in a succession plan to address is, simply, who will lead the enterprise after you? For family-owned businesses, finding a successor can be difficult. Children or other relatives may be qualified but have no interest in taking the reins. Or they may want to be involved but have insufficient experience.

To reassure your lender about issues such as these, take the time to identify and nurture future leaders. […]

By |January 13th, 2020|succession planning|0 Comments

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

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

Using Your 401(k) Plan to Save This Year and Next

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You can reduce taxes and save for retirement by contributing to a tax-advantaged retirement plan. If your employer offers a 401(k) or Roth 401(k) plan, contributing to it is a taxwise way to build a nest egg.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate between now and year end. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

With a 401(k), an employee elects to have a certain amount of pay deferred and contributed by an employer on his or her behalf to the plan. The contribution limit for 2019 is $19,000. Employees age 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,000, for a total limit of $25,000 in 2019.

The IRS just announced that the 401(k) contribution limit for 2020 will increase to $19,500 (plus the $6,500 catch-up contribution).

A traditional 401(k)

A traditional 401(k) offers many benefits, including these:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure […]
By |November 13th, 2019|401k, retirement|0 Comments

IRA Charitable Donations are an Alternative to Taxable Required Distributions

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Are you charitably minded and have a significant amount of money in an IRA? If you’re age 70½ or older, and don’t need the money from required minimum distributions, you may benefit by giving these amounts to charity.

IRA distribution basics

A popular way to transfer IRA assets to charity is through a tax provision that allows IRA owners who are 70½ or older to give up to $100,000 per year of their IRA distributions to charity. These distributions are called qualified charitable distributions, or QCDs. The money given to charity counts toward the donor’s required minimum distributions (RMDs), but doesn’t increase the donor’s adjusted gross income or generate a tax bill.

So while QCDs are exempt from federal income taxes, other traditional IRA distributions are taxable (either wholly or partially depending on whether you’ve made any nondeductible contributions over the years).

Unlike regular charitable donations, QCDs can’t be claimed as itemized deductions.

Keeping the donation out of your AGI may be important because doing so can:

  1. Help the donor qualify for other tax breaks (for example, a lower AGI can reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed […]
By |November 5th, 2019|charity, ira, retirement|0 Comments

Selling Securities by Year End? Avoid the Wash Sale Rule

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If you’re planning to sell assets at a loss to offset gains that have been realized during the year, it’s important to be aware of the “wash sale” rule.

How the rule works

Under this rule, if you sell stock or securities for a loss and buy substantially identical stock or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes. The rule is designed to prevent taxpayers from using the tax benefit of a loss without parting with ownership in any significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent “buying the stock back” before it’s even sold. (If you participate in any dividend reinvestment plans, the wash sale rules may be inadvertently triggered when dividends are reinvested under the plan, if you’ve separately sold some of the same stock at a loss within the 30-day period.)

Keep in […]

By |October 22nd, 2019|income tax, individuals, investment, retirement, roth ira|0 Comments

Putting Together the Succession Planning and Retirement Planning Puzzle

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Everyone needs to plan for retirement. But as a business owner, you face a distinctive challenge in that you must save for your golden years while also creating, updating and eventually executing a succession plan. This is no easy task, but you can put the puzzle pieces together by answering some fundamental questions:

When do I want to retire? This may be the most important question regarding your succession plan, because it’s at this time that your successor will take over. Think about a date by which you’ll be ready to let go and will have the financial resources to support yourself for your post-retirement life expectancy.

How much will I need to retire? To maintain your current lifestyle, you’ll likely need a substantial percentage of your current annual income. You may initially receive an influx of cash from perhaps either the sale of your company or a payout from […]

By |September 11th, 2019|retirement, succession planning|0 Comments

The Key to Retirement Security is Picking the Right Plan for Your Business

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If you’re a small business owner or you’re involved in a start-up, you may want to set up a tax-favored retirement plan for yourself and any employees. Several types of plans are eligible for tax advantages.

401(k) plan

One of the best-known retirement plan options is the 401(k) plan. It provides for employer contributions made at the direction of employees. Specifically, the employee elects to have a certain amount of pay deferred and contributed by the employer on his or her behalf to an individual account. Employee contributions can be made on a pretax basis, saving employees current income tax on the amount contributed.

Employers may, or may not, provide matching contributions on behalf of employees who make elective deferrals to 401(k) plans. Establishing and operating a 401(k) plan means some up-front paperwork and ongoing administrative effort. Matching contributions may be subject to a vesting schedule. 401(k) plans are subject to testing requirements, so that highly compensated employees don’t contribute […]

By |September 5th, 2019|401k, retirement|0 Comments