Every year is an election year when it comes to making decisions on your annual income tax return. Here are four common examples that can create tax savings opportunities if you elect the correct option.
Tax filing status. Typically, filing a joint tax return instead of filing separately is beneficial to a married couple, but not always! For instance, if one spouse has a high amount of medical expenses and the other doesn’t, your total medical deduction may be greater filing separately due to the 7.5% of adjusted gross income (AGI) threshold before you can deduct these expenses.
Higher education expenses. Thanks to new legislation, many parents of college students again face a decision: Whether to take one of the two credits for higher education expenses or the tuition and fees deduction. The tuition and fees deduction, once expired, is now extended through 2020. To complicate matters, the credits and the deduction are all phased out based on different modified adjusted gross income (AGI) levels. Before you elect which tax benefit makes the most sense, you will need to evaluate all options.
Investment interest. Investment interest expenses can be deducted up to the amount of net investment income for the year. This income does not usually include capital gains, because of favorable tax treatment of this type of gain. However, you can elect to include capital gains to help you deduct your interest expense. You can even cherry-pick which capital gains to use for this deduction. If you take this election you forego the favorable tax rate for long-term gains.
Installment sales. If you sell real estate or other assets in installments over two or more years, the tax liability is spread over the years that payments are received. Thus, you may be able to postpone the tax due. This technique can reduce the total tax paid depending on your effective tax rate each year. However, you can also elect out of installment sale treatment by paying the entire tax in the year of the sale. You may wish to take this election if your income is lower in the year of the sale.
Thankfully there is help navigating these key tax elections. Simply call with any questions.
If you have employees, you know how important health insurance is for your benefits package. It also takes a big bite out of your budget. Selecting the right insurance for your company is extremely important for employee retention and maintaining your bottom line. Here are tips to help you find the best health insurance for your business:
Know the size of the network. A popular way to lower insurance costs is opting for a smaller network of health care providers. Known as narrow provider networks, coverage is limited to a much smaller group of clinics and hospitals than traditional plans. But while the cost savings are nice, employee satisfaction is likely to decline as some of them will have to change doctors to stay in network. When researching insurance options, be sure to compare the network size to industry averages.
Watch for coverage limits. Lifetime and annual dollar limits for essential health benefits were banned in 2014, but limits still appear in other ways. Dental services, for example, are exempt from the dollar limits and often have annual and lifetime coverage limits. Another way insurance providers hedge their risk is by limiting the number of a certain type of visits, like for chiropractic care or physical therapy.
Don’t forget prescription coverage. Many health insurance programs don’t include full coverage for prescription drugs, so you may need to add supplemental insurance. Pay special attention to the coverage differences between brand name and generic drugs. Also review any deductibles and other limits. Another type of coverage available is a prescription discount program. Discount plans simply charge you a subscription cost that allows you to use a contracted discount.
Understand what isn’t covered. When trying to sell you on their plan, insurance providers do a good job showing you what they cover. What can be harder to figure out is what they don’t cover. Some of the types of services that may not be covered are vision care, nursing home care, cosmetic surgery, alternative therapies like massage therapy or acupuncture, and weight-loss procedures.
Be prepared to provide employee data. The process of obtaining a quote for health insurance can be an overwhelming task. Health insurance companies will want, at a minimum, a list of employees with some pertinent details like age, sex, coverage details (self, spouse and other dependents), and home zip code. They will want the forms filled out by all employees, even those that are opting out of insurance coverage. If you are working with a benefits broker, they can help you prepare what will be needed in advance to speed up the process.
Shopping for health insurance for your business is complicated. Taking the appropriate time to understand each coverage option and the associated costs will benefit both your business and your employees’ wellbeing.
According to a recent Deloitte survey, 91 percent of people agree to terms and conditions without reading the legal agreement. While reading through the legally complex language may be slow and painful, it’s more important than you think. Here are four reasons why reading entire legal agreements make sense:
You miss a major technicality. Many agreements have an exit penalty that requires you to pay for a period of time after you terminate an agreement. Others automatically renew your agreement for a year with exit penalties unless you tell them in writing you do not wish to renew prior to a key date. In a recent example of missing a legal technicality, eight teachers claimed the Department of Education (DOE) mishandled a debt forgiveness program that promised to reduce student loans after 10 years of public service. In most of the cases, the teacher’s application was denied because, according to the DOE, they were in the wrong type of loan or payment program.
You give something away. With extensive agreement documents (PayPal’s user agreement is over 50 pages long!), it’s easy for a company to add language that grants itself rights to something that’s yours. Here are some examples:
Your identity. Companies like Facebook grant itself rights to use your likeness and personal information for targeted advertising unless you catch the clause and take action.
Your work. If you create a presentation using some online tools, the agreement might allow the site to use the presentation without your permission.
Your location. Most navigation software tracks your location even when not using their application. The same is true with most newer vehicles. The only way to catch these tracking rights is to read the clause in the agreement.
You’re not comfortable with the risks. Data breaches are occurring more often and are hard to prevent. To reduce their exposure to litigation, businesses are continuing to add language to agreements to protect themselves. Your job, as the consumer, is to know these risks when signing up for a new service. The more personal information you provide, the more important it is to understand your legal recourse if the supplier of your service is hacked.
You miss something good. Reading an agreement to the end may pay off. A woman in Georgia won $10,000 just by reading her travel insurance agreement. The company, Squaremouth, had a Pays to Read program that awarded a cash prize to the first person to read the clause with a cash prize. For most people, it’s more likely you’ll find additional benefits that come with the agreement or laugh at some humor injected by the company. Here is an example from social media company, Tumblr: “You have to be at least 13 years old to use Tumblr. We’re serious: it’s a hard rule, based on U.S. federal and state legislation. “But I’m, like, 12.9 years old!” you plead. Nope, sorry. If you’re younger than 13, don’t use Tumblr. Ask your parents for a PlayStation 4, or try books.”
Maybe you’re behind on paying your bills because of circumstances outside of your control. Or perhaps there’s been an error in billing. Either way, these scenarios may lead to a run-in with a debt collector. Fortunately, there are strict rules in place that forbid any kind of collector harassment in the U.S. If you know your rights, you can deal with debt collection with minimal hassle. Here’s what to remember:
You have a right to details — without harassment. When a debt collector calls, they must be transparent about who they are. They need to tell you: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.”
In addition, debt collectors cannot use abusive language, or threaten you with fines or jail time. The most a debt collector can truthfully threaten you with is that failure to pay will harm your credit rating, or that they may sue you in a civil court to extract payment.
You don’t have to put up with 24/7 calls. Debt collectors may not contact you outside of “normal” hours, which are between 8 a.m. and 9 p.m. local time. They may try to call you at work, but they must stop if you tell them that you cannot receive calls there.
Keep in mind that debt collectors may not talk to anyone else about your debt (other than your attorney, if you have one). They may try contacting other people, such as relatives, neighbors or employers, but it must be solely for the purpose of trying to find out your phone number, address or where you work.
You can tell them to stop. Whether you dispute the debt or not, at any time you can send a “cease letter” to the collection agency telling them to stop making contact. You don’t need to provide a specific reason. They will have to stop contact after this point, though they may still decide to pursue legal options in civil court.
You can dispute collection. If you believe the debt is in error in whole or in part, you can send a dispute letter to the collection agency within 30 days of first contact. Ask the collector for their mailing address and let them know you are filing a dispute. They will have to cease all collection activities until they send you legal documentation verifying the debt.
If a debt collection agency is not following these rules, report them. Start with your state’s attorney general office, and consider filing a complaint with the U.S. Federal Trade Commission and the Consumer Financial Protection Bureau, as well.
Is a payroll provider right for you and your business? While it is an added expense, there are good reasons to add a partner to help with this service. Here are five things to consider:
Allows full attention on growing the business. If a portion of employees is focused on managing and processing payroll, business growth opportunity may be stifled. This is especially true if a key employee or owner is the one processing payroll. By outsourcing payroll responsibilities, the full workforce can concentrate on growing the business.
Improves accuracy and compliance. Most entrepreneurs didn’t go into business to tabulate hourly time cards, calculate tax withholdings, or stay current with the constantly changing government filing requirements. Thankfully there are those who specialize in monitoring labor regulations, compliance updates and the number-crunching that payroll requires. This will invariably improve the payroll accuracy a business needs.
Lowers audit risk and increases peace of mind. Federal taxes, state taxes, local taxes, Social Security, Medicare, unemployment taxes and overtime requirements are long (and growing). Payroll services reduce audit risk on the front end and provide audit assistance on the back end.
Enhances internal controls. Separation of duties is an important internal control for all businesses. This is tough to do in a small company. Businesses with one or two-person payroll departments are susceptible to fraud or embezzlement. Adding an outside payroll service can provide the checks and balances a company needs to stay protected.
Save money. One of the key methods of reducing business costs is adding efficiency. Outsourcing payroll increases efficiencies because payroll professionals need fewer hours to get the job done. These time improvements, coupled with potential savings in penalties and interest, can have a positive effect on net income.
When laying out and understanding all aspects of using a payroll service, it may be time to review your situation.
If you or your business sells product on Amazon using the Fulfillment by Amazon (FBA) service, you are well into the multi-state sales tax mess … even if you are not aware of it. You may be asking yourself:
Do I now need to register my business with every state and collect tax on their behalf?
Do I really have physical nexus? What about economic nexus? What is nexus?
Background
The old sales tax standard required you to collect and remit sales tax only in states that you have a physical presence (also known as physical nexus). The recent South Dakota vs. Wayfair, Inc. decision by the Supreme Court then legitimized the concept of economic nexus. This means your business could be required to collect and remit sales tax based on where you ship a product and not whether you ever set foot in a particular state (economic nexus).
The bigger mess
States were quick to jump on the bandwagon and actively identify Amazon, Ebay and Walmart sellers to demand sales tax for website sales. Some states, like California, got even more aggressive and decided that FBA sellers actually have physical presence because Amazon may put your product in a warehouse in their state. They got seller lists from Amazon and sent out threatening letters to small sellers demanding back sales tax, even though businesses have no way to retroactively collect the tax because the customers are Amazon customers.
Marketplace facilitator to the rescue?
To help address this mess and alleviate the need for small businesses to collect and remit sales tax forms to 50 states, many states acknowledged the problem and have passed what is called Marketplace Facilitator laws.
In short, it’s on the facilitator, NOT you. States with these laws require Amazon, Ebay and similar companies that facilitate sales for resellers to collect and remit sales tax on reseller Amazon activity. There are more than 30 states that have adapted these laws.
You DO NOT need to register your business to collect sales tax in states that have Market Facilitator legislation unless you are otherwise required to do so.
What you need to know
Know the states. Know which states have Marketplace Facilitator laws. If you don’t, you could unwittingly register your business with a state when you do not have to do so.
Some states deploy deceptive tactics. For example, California passed a Marketplace Facilitator law effective October 2019. Despite this law, the California Department of Tax and Fee Administration (CDTFA) is actively soliciting (threatening?) small businesses who sell on Amazon to register and remit sales taxes for a time period prior to this date without disclosing the new law. To make matters worse, their sales tax registration form could make you personally liable for business-related sales tax and disclose your confidential supplier list. It may also be filled with other legal entrapments.
Know the minimums. Even states without Marketplace Facilitator laws typically have minimum thresholds before they require you to collect and remit sales tax. Every state is different, but the typical limit is 200 transactions or $20,000 in sales.
Check out streamline states. Collecting and remitting sales tax is a daunting task for any small business. Using a third party sales tax administrator is very expensive. There is some help, albeit still complicated, for registering with 23 states that are part of a streamline sales tax agreement.Sales tax collection in multiple states is not for the faint of heart. Streamline Sales Tax and Bill Track 50 are a few of the popular sites that can help.
Many people dream of making more money, but cutting expenses can have the same effect. Identify unnecessary expenses with these six money-saving ideas and help free up some cash:
Eliminate late fees. Most late fees are the result of being too busy, traveling or simply forgetting. Fortunately, late fees are almost entirely avoidable if you have a plan. A lot of people only think of credit card late fees, but they can also show up in many places including utility bills, subscriptions and registration fees.Take a look at your bills and identify the kinds of charges you’re getting. Scheduling automatic payments should help you avoid late fees going forward. And if you get one, call and try to get it canceled. It just might work!
Cancel unnecessary subscriptions. Subscriptions are popping up everywhere. They include everything from weekly shaving products to video and music streaming services. With so many options, it’s easy to double up on services or forget to cancel one that you were planning to use for just a short time. Review all your monthly subscriptions and cancel the ones that are no longer providing value.
Minimize interest expense. Paying for day-to-day expenses with a credit card to rack up points to use for airfare or other perks is a great cash management tool, but the interest that builds up if you don’t pay it off every month negates the perks and creates an extra expense. If you find yourself in a situation with multiple credit card balances, consider a consolidation loan with a lower interest rate.
Be selective with protection plans. With virtually every purchase, the store or website offers to sell you insurance in the form of a protection plan. And for good reason — they’re profitable to them and not you! Insurance should be reserved for things you can’t live without like your health and your home. Pass on the protection plan for your toaster.
Review your deductibles. A deductible is a set amount you pay before your insurance kicks in to cover the cost of a claim. The higher the deductible, the lower your monthly premium. If you have enough in savings to cover a higher deductible when disaster strikes, raising the deductible may save you some money on a month-to-month basis.
Try a little DIY. If you own a house, you know it’s just a matter of time before something breaks or stops working. When it happens, don’t instantly reach for the phone to call a repairman. Repair videos are in endless supply online. Often, an easy fix will do the job. Simple fixes can lead to big savings, especially since repair services charge minimums and fuel surcharges.
While some ideas take a little more analysis to understand the true benefits, many are just the result of paying attention. Taking a proactive approach can provide a big boost to your budget.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
The Internal Revenue Service today just announced the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2020, the standard mileage rates for the use of a car, vans, pickups or panel trucks will be:
57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
14 cents per mile driven in service of charitable organizations.
The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.
Note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see Rev. Proc. 2019-46.
The standard mileage rate for business use is based and set on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Also, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. These plus other limitations are described in section 4.05 of Rev. Proc. 2019-46.
Notice 2020-05, posted on IRS.gov, has the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. To add to that, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).
Take a look at how Social Security benefits have changed. Use this infographic to help you plan for the coming year, and to learn a little more about retirement benefits and taxes.
Your 2020 Social Security Benefits Find out how your benefits have changed
Estimated average Social Security retirement benefits starting January 2020
All retired workers in 2019 $1,479/mo
All retired workers in 2020 $1,503/mo
Did you know? You can increase your Social Security retirement benefits by 5-8% when you delay applying until you’re age 70.
1.6% cost of living adjustment for Social Security retirement benefits and SSI payments begins with the December 2019 benefits (payable in January 2020)
The 2020 maximum Social Security retirement benefits a worker retiring at full retirement age is $3,011/mo.
Did you know…
87% of Baby Boomers are expecting Social Security to be a source of their retirement income.
1-3 people expect it to be their primary source of income.
Social Security pays benefits to more than 67 million people including retirees, children and surviving spouses.
2020 Social Security and Medicare tax rates
If you work for someone else…
your employer pays 7.65%
you pay 7.65%
If you’re self-employed…
you pay 15.3%
Note: The above tax rates are a combination of 6.2% Social Security and 1.45% for Medicare. There is also 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.
Maximum amount you can pay in Social Security taxes
2019: $8,239.80
2020: $8,537.40
165+ million people work and pay Social Security taxes.
Social Security has provided financial protection for Americans since 1935.
Maximum earnings amount Social Security will tax at 6.2%
2019: $132,900
2020: $137,700
How does Social Security work?
When you work, you pay taxes into Social Security.
The Social Security Administration used your tax money to pay benefits to people right now.
Any unused money goes to the Social Security trust funds.
Later on when you retire, you receive benefits.
Social Security payments explained
SS Social Security retirement benefits are for people who have “paid into” the Social Security system through taxable income.
SSD or SSDI Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have “paid into” the Social Security system through taxable income.
SSI Supplemental Security Income (SSI) benefits are for adults and children who have disabilities, plus limited income and resources.
Maximum SSI payments
2019
2020
Individual
$771/mo
$783/mo
Couple
$1,157/mo
$1,175/mo
Here’s how to qualify for your retirement benefits
When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born.
If you were born in 1929 or later, you need 40 credits (10 years of work) to receive Social Security retirement benefits.
The earnings needed for a credit in 2020 is $1,410.
4 credits maximum per year.
Did you know you can check your benefits status before you retire?
You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
If it doesn’t show earnings from a state or local government employer, contact them. The work may not have been covered either by a Section 218 agreement or by federal law.
Sources: SSA.gov, 17th Annual Retirement Survey, Transamerica Center for Retirement Studies®
In 2018, the government attempted to “simplify” the tax-filing process by drastically shortening Form 1040. The result was six new schedules that created a lot of confusion. Now the IRS is attempting to ease some of that pain by revising the form and removing some schedules. Will it help? Here is what you need to know:
More information on the main form. To make it easier for the IRS to match pertinent information across related tax returns, new fields have been added on the main Form 1040. For example, there’s now a spot for your spouse’s name if you choose the married filing separate status. In addition, there’s a separate line for IRA distributions to more clearly differentiate retirement income.
3 schedules are gone. What was your favorite memory of Schedules 4, 5 and 6? Was it the unreported Social Security tax on Schedule 4? Or the credit for federal fuels on Schedule 5? While those schedules will no longer exist, those lines (and many others) have found a new home on one of the first three schedules. Less paperwork, but still the same amount of information.
You can keep your pennies! For the first time, the IRS is eliminating the decimal spaces for all fields. While reporting round numbers has been common practice, it’s now required.
Additional changes on the way. The current versions of Form 1040 and Schedules 1, 2 and 3 are in draft form and awaiting comments on the changes. Because of the importance of the 1040, the IRS is expecting to make at least a few updates in the coming weeks (or months) before they consider it final. Stay tuned for more developments.
How to prepare for the changes
The best way to prepare is to be aware that 1040 changes are coming. The information required to file your taxes will remain the same, but some additional hunting will be necessary to find the shifting lines and fields on the modified form.
Remember, changes bring uncertainty and potential for delays, so getting your tax documents organized as early as possible will be key for a timely tax-filing process.
