Are Your Social Security Payments Taxable?
Are your social security payments taxable? They may be. The IRS’s rules for taxing Social Security benefits could require some studying on your part.
If you’ve received Social Security benefits for more than a year, you probably already know the answer to this question. But if you started receiving those government-issued checks or direct deposits in the last year, now’s the time to find out.
As you know, many IRS rules are absolutely cut-and-dried. But there are many others with exceptions, and this is one of them. Numerous factors are involved in determining whether your Social Security benefits are taxable.
Here’s some of what the IRS considers. (To get the whole picture and find out how these regulations apply to you, contact us.)
This worksheet displays the formula you can use to determine whether your Social Security Benefits may be taxable. It doesn’t tell the whole story, though. You may owe tax on only part of your payments.
By now, you should have received a Form SSA-1099, the Social Security Benefit Statement. Using the information reported there, you can use the IRS formula that helps determine whether your benefits may be taxable (it’s possible that they won’t be). The worksheet above illustrates this.
If it looks like your benefits are taxable, you’ll have to determine how much of your distributions are affected. The IRS looks at the combination of your Social Security benefits and your other income. The higher that number is, the more likely it is that you’ll have to pay taxes on a larger percentage of your benefits.
Complex Calculations
In most cases, the maximum taxable portion of your Social Security benefit distributions is 50 percent. You could, though, be taxed on up to 85 percent in one of two scenarios:
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- You add one half of your benefits to the total of all your other income and come up with more than $34,000 ($44,000 if married filing jointly).
- Your return will report that your status will be married filing separately and you lived with your spouse for any length of time during the year.
Now comes the tricky part: calculating exactly what percentage of your Social Security benefits is taxable. Your 1040 or 1040A instructions should contain a very complex worksheet that can help you. But this, like any other element of your income tax return, must be absolutely correct, or you’ll be receiving post-filing correspondence from the IRS.
It’s no small task to do the calculations and reporting required to find out what–if any–percentage of your Social Security benefits are taxable.
There are many exceptions to the rules and formulas we’ve discussed here. And you must fully understand them to come up with the right answer. This will involve poring over IRS instructions that may be difficult for you to decipher.
Start Now
If you know that you’ll start receiving Social Security benefits in 2018, it would be a good idea to start thinking soon about how this will affect your overall income tax obligation. We always advise year-round tax planning. Such an approach not only helps you avoid unpleasant surprises at filing time – it may also help you take action before the end of the year to minimize what you owe. We’d be happy to meet with you and get you started on better, smarter preparation for taxes.
Be Proactive when it Comes to Business Issues
Your manager broke her leg playing softball and will be out for a month. Your receptionist’s husband landed his dream job, but it’s in a neighboring state so they’ll be moving. When you own a small business, learning to expect the unexpected comes with the territory. With one important exception: You don’t have to stand idly by and wait for something to disrupt your finances. You can be proactive with these troubleshooting tips.
Watch Your Numbers
You can monitor your company’s financial health, spot developing problems, and improve performance by reviewing key ratios derived from the numbers on your financial statements. Taken together, these ratios help paint a picture of your company’s financial well-being.
At times, you might dwell on problems in one particular aspect of your business. But don’t ignore the rest. If you’re not seeing the big picture, you might not spot trouble in other areas. For example, if your profit margin is falling, you could become so focused on trying to find a solution that you fail to notice that several of your biggest customers haven’t sent a payment lately and a cash flow problem is brewing.
Watch Your Assets
Always try to make the most of your assets. If you carry inventory, keep your eye on turnover rates. Slow inventory turnover can strain your cash flow. Figure out how many days’ worth of product you’d ideally like to have on hand, and adapt your purchasing to meet that goal. Also, check your fixed assets. If you have equipment that’s not being fully utilized, you may be able to repurpose it. If not, it may be time to sell or donate it.
Watch Your Debt
It’s practically impossible to operate a business without taking on at least some debt. Debt itself isn’t a problem, as long as you keep it under control. A high level of debt can eat up your cash, cut into your profits, and reduce the return you’re getting on your investment in the company — and that’s definitely trouble.
Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.
How to Follow the Rules when Writing off Bad Debts
In any economic environment, businesses typically have a percentage of customers who don’t pay their invoices. Here are some tax guidelines.
Cut Your Loss
If a customer or client owes your business money you can’t collect, you might be able to claim a bad debt deduction on your business return. You must be able to show the debt is partially or totally worthless. This may be the case if you have taken reasonable steps to collect a debt and there is no longer any possibility you will receive payment. Business bad debts typically arise from credit sales to customers.
Timing Is Critical
The tax law doesn’t allow a deduction for any part of a debt after the year in which it becomes totally worthless. To ensure you don’t miss out on bad debt deductions this year, review your records carefully to pinpoint any potentially worthless receivables you may still be carrying on the books. Make sure you carefully document your failed collection efforts in case the IRS challenges the bad debt deduction.
Note that bad debt deductions generally aren’t available to businesses that use the cash method of accounting. To deduct a bad debt, you must have previously included the amount in your income. Since cash-method taxpayers don’t report income until payment is received, no deduction is allowed for uncollectible amounts, even if the money is owed to you for services you performed.
To learn more about tax rules and regulations, give us a call today. Our knowledgeable and trained staff is here to help.
Exemptions from the Penalty for Not Having Health Insurance
People who do not have qualifying health insurance are subject to a penalty under the Affordable Care Act. The individual mandate was repealed by the Tax Cuts & Jobs Act; however, the repeal does not take effect until after December 31, 2018. It still applies to the 2017 tax year for which tax returns will be filed in the next few months. Fortunately, a number of exemptions exist that protect individuals from being subject to the penalty. These exemptions include:
- Members of religious sects recognized by the Social Security Administration who have a religious conscience exemption
- Members of health care sharing ministries
- Incarcerated individuals, other than those who are incarcerated pending the disposition of charges
- Members of federally recognized Indian tribes
- Individuals qualifying for services through an Indian health care provider or the Indian Health Service
- Individuals with short coverage gaps of two months or less. An individual is treated as having coverage for a full month if she is covered for at least one day during a month.
- Individuals whose household or gross income is below the threshold for having to file an income tax return
- Citizens living abroad and certain noncitizens
- Individuals who are ineligible for Medicaid solely because the state in which they reside did not participate in Medicaid expansion
- Individuals with household income below 138% of the applicable year federal poverty line for their family size who reside in a state that did not expand Medicaid coverage
- Individuals enrolled in certain Medicaid programs that are not Minimum Essential Coverage
- Individuals who could not afford coverage based on their actual household income
- Individuals who could not afford coverage based on their projected household income.
- Individuals in families where the aggregate cost of self-only coverage for two or more employed individuals is unaffordable and the cost of employer-sponsored coverage for the entire family is unaffordable
The General Hardship Exemption
In addition, individuals who qualify for a general hardship exemption will be exempt from the penalty. Federally facilitated and federal partnership marketplaces may consider the following circumstances as keeping an individual from obtaining coverage under a qualified health plan:
- Becoming homeless.
- Being evicted or facing eviction or foreclosure.
- Receiving a shut-off notice from a utility company.
- Recently experiencing domestic violence.
- Experiencing the death of a close family member.
- Experiencing a fire, flood, or other natural or human-caused disaster that results in substantial damage to the individual’s property.
- Filing for bankruptcy.
- Incurring unreimbursed medical expenses that resulted in substantial debt.
- Experiencing unexpected increases in essential expenses due to caring for an ill, disabled, or aging family member.
- Claiming a child as a tax dependent when that child has been denied coverage in Medicaid and CHIP, and another person is required by court order to provide medical support to the child.
- As a result of a marketplace appeals decision, being determined eligible for (1) enrollment in a QHP, (2) lower costs on monthly premiums, or (3) cost-sharing reductions for a period of time during which the individual was not enrolled in a QHP through the state marketplace.
State-based marketplaces can use the same criteria, but have the flexibility to develop their own criteria, as long as they meet the requirements in the HHS regulations.
Get Your Business Costs Under Control Today
Increasing your profits requires selling more and/or spending less. While building up your sales may require an extended effort, business costs are often very ripe for a quick trimming. Here are some possibilities.
Supplies and Other Purchases
Usually in any business, relatively few items represent a very large share of all outlays. The first step in cutting expenses is, therefore, to identify your highest costs. You may be able to trim many of these costs by making sure you always bid out significant purchases or by more actively seeking less expensive alternatives.
For many companies, inventory carrying costs are a very significant expense. Focusing on matching your inventory quantities more closely to your short-term needs could result in significant savings.
Telecommunications and Other Services
The ongoing services you buy may also offer the potential for cost savings. Revisit your choice of telecommunications vendor and your usage.
Look carefully at your costs for financial services. If you borrow or maintain a line of credit, always compare the rates from more than one financing source before you commit. Make sure you are not paying higher-than-necessary fees for your company’s checking and deposit services.
Cash Management
To control cash outlays, take advantage of discounts for early payment whenever possible. And look to delay payments for as long as you can without giving up discounts.
On the receiving side, deposit all receipts daily. And always actively pursue collection of any invoices that are past due. To help control your working capital needs and, therefore, your credit costs, try to match any new liabilities to your anticipated cash flow.
Fixed Expenses
One other category worth examining is fixed expenses that are long-term commitments. While you usually can’t change these quickly, be aware of when a window for change will open and prepare well in advance by considering lower cost alternatives.
To learn more ways to control your business costs give us a call today. Our trained staff of professionals are always available to answer any questions you may have.
Why a Succession Plan is Important for Your Business
You’ve devoted time and money and poured heart and soul into building a successful family business. But do you have a succession plan? If not, you should. Without a plan for transferring your business to the next generation, anything could happen.
Deciding on Your New Role
Start by deciding how much or how little you want to be involved in the business after the transfer is complete. Are you picturing a clean break? Or a period of shared responsibilities and gradual transfer? This is an important decision because it will likely influence other decisions, particularly financial ones.
Choosing a Successor
This can get tricky, especially if there are several family members who may have an interest in — or expectation of — taking over the business. If there’s one clear candidate, that makes it easier. But don’t just assume someone (e.g., your oldest son) is the right successor. Do what’s best for the business. The best choice may be a grandchild, a niece, or even a relative paired with a trusted employee.
Estate planning is an important sidebar to a family business succession plan. There may be children who have no interest in being involved in running the business and are happy to let their siblings take over. However, they probably expect equal treatment when it comes to inheritances. If this is a likely scenario, make sure everyone communicates as clearly as possible and develop a plan you think is fair.
Grooming a Successor
Spend time grooming your successor, even if it’s a son or daughter who knows the business. He or she should understand how every part of the business operates. Before your successor starts representing your business publicly, make sure he or she meets your business contacts (clients, vendors, financial partners, etc.).
Figuring Out the Money
You probably don’t want to give your business away, even to your own offspring. Figure out how much you’re going to need to finance your next venture (retirement, a new business, etc.), and come up with an arrangement that meets your needs.
Take charge of your financial future. Give us a call, today, to find out how we can assist you and your business.
Have an S Corporation? Be sure to Give Yourself a Paycheck
If your company is organized as an S corporation, you may wonder whether it is better to take income from the company as salary or as cash distributions. Of the two options, distributions carry the least tax cost because they are not subject to employment taxes. But that doesn’t mean you shouldn’t take a paycheck from your firm.
IRS Warning
Over the years, the IRS has made a point of warning S corporations not to attempt to avoid federal employment taxes by having corporate officer/shareholders treat their compensation as cash distributions, payments of personal expenses, or loans instead of as wages. According to the IRS, distributions must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.
What Is a “Reasonable” Salary?
To avoid problems with the IRS, you should be sure to take a reasonable amount of salary if you receive any direct or indirect payments from your company. However, the tax law has no hard-and-fast guidelines regarding what is considered “reasonable.” When the issue has come up in court, the determination has been based on the facts and circumstances of the particular case. Various factors have come into play, including:
- Duties and responsibilities
- Time and effort devoted to the business
- Training and experience
- What comparable businesses pay for similar services
- Timing and manner of paying bonuses to key people
- Payments to employees who are not shareholders
- The corporation’s dividend-paying history
- Compensation agreements
- The use of a formula to determine compensation
An Exception
What about an S corporation officer who doesn’t perform any services for the corporation — or whose services are very minor? In this relatively unusual situation, assuming the officer receives no direct or indirect pay, he or she would not be considered an employee.
For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.
Find and Keep the Best Talent for Your Business
Finding the best candidate to hire is often costly and time consuming. But, if your new hire turns into a loyal, hardworking, long-term employee, your investment may be worth every cent and minute.
Locate Candidates
How do you find good people? In the past, people who were job hunting would look in the “help wanted” section of the newspaper or go from store to store filling out applications. Today, most people use a computer and a mouse and search the Internet for jobs. So if you’re not posting your openings on online job boards and industry blogs and websites, you may be missing talented candidates. Note: Running classified ads may still be a good way to reach out (especially to fill jobs requiring local candidates) since many local newspapers also have an online job board for posting classifieds.
Another way to attract candidates is to add a recruiting page to your website. In addition to posting job openings, you can use the page to attract qualified candidates by highlighting the benefits of working for your company.
And last, but certainly not least, you can use social media to announce openings and solicit job applicants. There’s no better way to reach a large number of people almost instantaneously.
Make an Attractive Offer
If you’re hoping to hire top talent, you’ll want to make sure the benefits you offer are competitive — or better. According to government analysis of private industry data, 86% of full-time workers had access to employer-provided medical care and 76% had access to a retirement plan.*
Keep Employees on Board
Once you’ve assembled a group of valuable employees, an attractive and competitive benefit package will help ensure they stay. Your financial professional can provide insights and help you review your firm’s benefit package for cost efficiency and competitiveness.
For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.
* Bureau of Labor Statistics, March 2015
Michigan’s New Minimum Wage
A few years ago, Governor Snyder signed a law that annually increased the minimum wage. Under this law, the minimum wage effective January 1, 2018 is $9.25 per hour. Beginning in January 2019, the minimum wage will be indexed for inflation. The minimum wage increase for each year will not take effect if the unemployment rate in Michigan is 8.5% or more in the year prior to the year of the minimum wage increase.
Training Wage is Still Available
As existed under prior law, an employer may pay a new employee who is under age 20 an hourly training wage of $4.25 for the first 90 days of that employee’s employment. After 90 days has passed, the employee must be paid at least minimum wage.
Minor Minimum Wage is Still Available
The minimum wage for an employee who is less than 18 years of age is 85% of the general minimum wage listed above. The training wage for 2018 is $7.86 (85% of $9.25). This is not a new rule.
Minimum Wage for Tipped Employees
The current minimum wage for tipped employees is $3.38 per hour. It will increase to $3.52 per hour in 2018. To qualify for this lower rate, the following must occur:
- the employee receives gratuities in the course of employment
- the tipped minimum wage plus the gratuities received must be at least equal to the general minimum wage (i.e., in 2018 the tips received per hour plus the tipped minimum wage of $3.52 must be at least equal to the general minimum wage of $9.25). If there is a shortfall, the employer must pay the shortfall to the employee.
Overview of Minimum Wage Rates
The schedule of minimum wage increases under the law:
|
Minimum Wage |
Minimum Wage for Tipped Employees | Minimum Wage
for Minors |
Training Wage (first 90 days only) |
|
| Prior to September 1, 2014 |
$7.40 |
$2.65 | $6.29 | $4.25 |
| September 1, 2014 |
$8.15 |
$3.10 |
$6.93 |
$4.25 |
| January 1, 2016 |
$8.50 |
$3.23 |
$7.23 |
$4.25 |
|
January 1, 2017 |
$8.90 | $3.38 | $7.57 |
$4.25 |
| January 1, 2018 |
$9.25 |
$3.52 |
$7.86 |
$4.25 |
If you have any questions on how this applies to you, please feel free to give us a call.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Getting the Most from Your Year-End Donations
During the holiday season, many people look for ways to give to those who are less fortunate. If you plan to give to charity before year-end and want to make the most of the tax benefits, consider the following.
Donate Clothing and Household Items
Any clothing or household items you donate must be in good used condition or better to be deductible. However, you don’t have to meet this standard if the item is worth more than $500 and you include a qualified appraisal with your return. Make sure you receive written acknowledgement from the charity for all gifts worth $250 or more. Among other things, it should include a description of the contributed items.
Give Money
If you donate money, you must have a bank record or a written statement from the charity to deduct the contribution. The record must show the name of the charity, the date and the amount of the contribution.
Donate Appreciated Securities
If you have securities that have appreciated in value, donating the securities directly to a charity generally allows you to deduct the full fair market value of the securities but avoid paying tax on the appreciation.
Time Your Contributions
You can deduct charitable contributions in the year you make them.
Keep These Tax Tips in Mind
You can only deduct gifts you give to qualified charities, including religious organizations. And to deduct charitable contributions, you must itemize your deductions. If you claim the standard deduction, the charitable deduction is not available to you.
Talk with the Professionals
Consult with your financial, legal and tax professionals to learn more about making year-end charitable contributions that coordinate with your estate and tax strategies.
Connect with our team today for all the latest and most current tax rules and regulations.
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