If you have children (or grandchildren) you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it’s never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:
Preschool – Start by using bills and coins to teach them what the value of each is worth. Even if you don’t get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can’t buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison-shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
Middle school – Start connecting work with earning money. Start simple with babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds to make larger purchases. If you have not already done so, it is a good time to introduce the importance of donating money to church or charity.
High school – Explain the job application and interview process. Work with them to get a part-time job to start building work experience. Add additional expense responsibility by transferring direct responsibility for things like gas, lunches and expenses for going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen – try to use some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions.
College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn of the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like buying a house. Talk about retirement savings and the importance of building their retirement account.
Knowing about money – how to earn it, use it, invest it and share it – is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.
Mileage rates for travel are now set for 2019. The standard business mileage rate increases by 3.5 cents to 58 cents per mile. The medical and moving mileage rates also increase by 2 cents to 20 cents per mile. Charitable mileage rates remain unchanged at 14 cents per mile.
2019 Standard Mileage Rates
Standard Mileage Rates
Mileage
Rate/Mile
Business Travel
58 cents
Medical/Moving
20 cents
Charitable Work
14 cents
Here are 2018 rates for your reference, as well.
2018 Standard Mileage Rates
Standard Mileage Rates
Mileage
Rate/Mile
Business Travel
54.5 cents
Medical/Moving
18 cents
Charitable Work
14 cents
Remember to properly document your mileage to receive full credit for your miles driven.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
A new deduction is available to businesses with qualified business income (QBI). While that’s great news, new deductions (especially ones with lots of rules) can bring anxiety and confusion. Never fear! Ensuring you receive a maximum deduction will come down to providing the proper information. Here is some knowledge to help you cut through the confusion:
What is the QBI deduction?
In short, it’s a 20 percent deduction against ordinary income, taken on your personal tax return, that reduces qualified business income earned for most pass-through businesses (sole proprietorships, partnerships and S-corporations). It’s not an itemized deduction, so you can take it in addition to the standard deduction. To qualify without limitations, your total taxable income needs to be below $157,500 ($315,000 for married couples) for 2018. If your income exceeds the threshold, it gets complicated.
What you need to know:
If your total taxable income is above the income threshold, your deduction may be limited or nullified. If your income is below the threshold, the calculation is pretty straightforward. If not, additional phaseouts, limitations and calculations come into play. The first limitation to consider is whether or not your business is qualified. Certain specified service trades or businesses (SSTBs) are excluded from the deduction altogether if taxable income is over the threshold. If your business is not an SSTB, other calculations related to W-2 wages and basis in qualified business property may be required.
Schedule K-1s for S-corporations and partnerships have new codes. Businesses with partners and shareholders are now required to report information related to the QBI deduction on each Schedule K-1 they issue. Based on the draft versions of the forms, the new codes will be in Box 17 for S-corporations (V through Z) and Box 20 for partnerships (Z through AD). If you receive a Schedule K-1, check to see if the new codes have values associated with them. If not, contact the issuing business to correct the mistake. Schedule K-1s without the required data will delay your tax-return filing.
Certain data needs to be collected. For the most part, the data required to calculate your deduction will be included on the normal forms needed to file your taxes. Here is list of common documentation to watch for that may be required to calculate your QBI deduction:
Business financial statements
Forms W-2 and W-3 issued by your business
Purchase information related to business assets
Schedule K-1s
Forms 1099-B with cost/basis information
The sooner you close your books, the better. The new deduction means more work. Knowing your final business net income as soon as possible gives you extra time to work through the additional necessary calculations. If your business is required to issue Schedule K-1s, even more time may be required.
More guidance is expected from the IRS. In August, the IRS published guidance to clear up some of the confusion regarding the deduction, but it didn’t cover everything. The American Institute of CPAs (AICPA) responded with 11 specific items that still need to be addressed.
With proper planning and preparation, you can rest easy knowing that obtaining your shiny, new QBI deduction is in good hands.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
There are many factors that can cause an unfavorable tax swing leaving you with a surprising tax bill in the spring. Here are six warning signs that you might have some unexpected taxes waiting for you.
You didn’t update your W-4
You may have noticed a change in your tax withholdings earlier this year. These changes are based on withholding tables rolled out by the IRS to employers in early February. Now, according to the U.S. Government Accountability Office (GAO), as many as 30 million taxpayers may not have adequate withholdings for 2018. If you have not already done so, review your withholdings in light of the new tax laws.
You withdraw funds from an IRA before you’re 59½
Situations arise where you need to dip into your retirement savings to address an immediate need. When this happens, it might have major tax implications. This includes:
The withdrawal may be subject to a 10 percent early withdrawal penalty.
The funds withdrawn will be taxed at your highest (marginal) tax rate.
The additional income may push you to a higher tax bracket or bump you over tax-benefit phaseout thresholds.
You receive a large raise early in the year
While the raise means more income for you, it also means more taxes due to the IRS. Depending on how much more income, it might be taxed at a higher rate than your income in previous years. The tax brackets are built-in to the IRS withholding tables, but they don’t take your entire situation into account.
You have a second job
Making some money on the side is a great thing, but can be a major tax problem if you don’t plan properly. In addition to being taxed as ordinary income, it might be subject to self-employment tax of 15.3 percent! Plus, withholding rules start over for each job and do not account for any other income you receive.
Your child turns 17
One of the biggest tax benefits that come by having dependent children is the Child Tax Credit. In the year your child turns 17, they are no longer eligible for this potential $2,000 credit. What’s more, personal exemptions are suspended for the next few years. So you may not only lose an exemption for this child, you now will not receive a Child Tax Credit.
Your standard or itemized deduction is lower
While the standard deduction is nearly double to $12,000 ($24,000 for married filing jointly) for 2018, personal exemptions are suspended. In addition, many itemized deductions are either limited or eliminated! This can create a vastly different amount of taxable income versus last year. While tax rates are generally lower, there will be more than one surprised taxpayer that sees an expected tax refund turn into a tax bill.
So what can you do? If any of these situations apply to you, now is the time forecast your income and deductions for the year and estimate your tax liability. If your withholdings are falling short, there is still a little time to update your paycheck allowances for a pay period or two or make an estimated tax payment.
For the first time since 2013, the IRS is raising the contributions limits for IRAs. The maximum contribution for 401(k) accounts and IRAs is increasing by $500 for 2019. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2019. Check out the tables below for the new contribution limits and Social Security increases:
Retirement Contribution Limits
Retirement Program
2019
2018
Change
Age 50 or older
catch up
401(k), 403(b), 457 plans
$19,000
$18,500
+$500
add: $6,000
IRA: Roth
$6,000
$5,500
+$500
add: $1,000
IRA: SIMPLE
$13,000
$12,500
+$500
add: $3,000
IRA: Traditional
$6,000
$5,500
+$500
add: $1,000
Social Security
Item
2019
2018
Change
Wages subject to Social Security
$132,900
$128,400
+$4,500
Annual Social Security
employee tax:
$8,239.80
Average estimated monthly
retirement benefit
$1,461
$1,422
+$39
Don’t forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.
The IRS continues to focus their audit activities in key small business areas. The wise business owner is well advised to be able to defend the following five areas to keep the IRS at a comfortable distance:
Business or hobby? Be ready to provide proof your business is truly a business and not a hobby. Those who fail in the eyes of the IRS can have their expense deductions severely limited, while still required to report the income. Make sure you can answer and provide documentation for these four questions:
What is your profit motive?
Are you an active participant in the business?
Are you conducting the activity in a business-like manner?
What expertise do you have in the service or products your business provides?
Reasonable shareholder salary. S corporations are in the unique situation where some compensation is excluded from payroll taxes. Many businesses take this too far. The IRS is looking closely at businesses who avoid paying a reasonable salary in order to lower their Social Security and Medicare bills. When determining salaries for shareholders, consider their experience, duties, responsibilities and time devoted to the business. Once you have a picture of their ongoing contributions to the business, research comparable positions and salary ranges to pinpoint a fair salary. Save your findings and calculations as backup to provide in the event of an audit.
Contractors or employees? Make sure consultants and other suppliers are not employees in disguise. The IRS looks at how much control you have over the work being done – the more control you exert the higher likelihood you may have an employee versus a contractor. Penalties can be very steep if the IRS decides your consultant is really your employee. If in doubt, ask for a review.
Expenses for meals and entertainment. The IRS is now disallowing any entertainment deductions, even if there is business conducted before or after the event. That means business meal documentation is now more important than ever and should include receipts, who attended the meal, and the business purpose of the meal. Bringing food in for business lunches rather than going out is a safe way to show business intent. If you have an event with both entertainment and food included, get two receipts – one for the entertainment and one for the food.
File your Forms W-2 and Forms 1099. Don’t forget to file all required 1099s and W-2s. Most of them are due on or before Jan. 31. The IRS is penalty crazy in this area with up to $270 per missing or incorrect form.
Knowing what the IRS is looking for helps you prepare should it turn its focus to your business.
With the recent frequency of hurricanes, earthquakes, tornadoes, floods and wildfires, it’s worth reviewing ideas to ensure your business can survive if it faces its own disaster. Here are some steps you can take to create a disaster plan for your business:
Identify your exposure. The first step is to conduct an evaluation of your business to identify possible threats. Threats will vary by business depending on geography, industry, size and other factors. Once the threats are identified, create lists of risks your business would face under each type of threat.
Mitigate where possible. Once you understand your business risks, brainstorm steps you can take to mitigate your exposure. For example, if loss of data is a common risk, implementing an off-site backup system might be a good idea. The more you can minimize risks on the front end, the quicker you can get back to normal operations after a disaster strikes.
Create a disaster plan. Decide in advance what steps you and the business will take if a disaster happens. This will include things like communication, medical considerations, evacuation routes, stay-in-shelter plans, and equipment protection. The Federal Emergency Management Agency (FEMA) put together a business information booklet to help you consider all factors.
Test your plans. Once your plans are in place, test as many of them as you can. These tests will help you identify potential holes in your plans and serve as a great way to communicate the processes to your employees. Going through the motions in a test environment will increase your chance of success if you experience a real emergency.
Understand tax deductions. If you incur losses from a disaster, there are many factors that go into how the losses are deducted on your taxes. Some of the considerations are insurance proceeds, basis adjustments, disaster classifications and improvement capitalization. Set up a meeting to discuss what is best for your situation.
Disasters are often unavoidable, but having a plan in place before they hit can reduce the impact they have on your business and employees.
The more things change the more they stay the same. This is especially true when it comes to reviewing your tax situation. Mark your calendar to review these essential items each year to ensure you are not missing something that could cause tax trouble when you file your tax return:
Required minimum distributions
If you are 70½ or older, you may need to take required minimum distributions (RMDs) from your retirement accounts. RMDs need to be completed by Dec. 31 every year after you turn the required age. Don’t forget to make all RMDs because the fines are extremely hefty if you don’t – 50 percent of the amount you should have withdrawn.
Your IRS PIN
If you are a victim of IRS identity theft you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive your PIN in the mail sometime in December. Save the PIN as it is required to file your Form 1040. If you would like to sign up for the PIN program, you can do so on the IRS website. Note that once you are enrolled in the program, there is no opt out. A PIN will be required for all future filings with the IRS.
Retirement Contributions
You may wish to make some last-minute contributions to qualified retirement accounts like an IRA. This can be $5,500 for traditional or Roth IRAs plus an additional $1,000 if you are 50 or older. Contributions to traditional IRAs need to happen by April 15, 2019 to be deducted on your 2018 tax return.
Harvest Gains and Losses
Profits and losses on investments have their own tax rates from 0 percent to as high as 37 percent. Knowing this, make plans to conduct an annual tax review of investment moves you wish to make. This includes:
Understanding investments held longer than one year have lower tax rates as long-term capital gains.
Trying to net ordinary income tax investment sales with long-term investment losses.
Making full use of the annual $3,000 loss limit on investment sales
Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.
Last-Minute Tax Moves
While your last-minute tax move opportunities may be limited, here are a few ideas worth considering:
Make donations to your favorite charities to maximize your itemized deductions.
Consider contributions of up to $100,000 from retirement accounts to qualified charities if you are older than 70½.
Make tax efficient withdrawals from retirement accounts if you are over 59½.
Delay receipt of income or accelerate expenses if you are a small business.
Take advantage of the annual $15,000 gift-giving limit.
Understanding your current situation and having a plan will make for a smooth tax filing process and maximize your tax savings.
If you are like millions of taxpayers trying to make a living running a small business, you know it is tough out there. Here are six ideas to help your business survive and thrive.
Understand your cash flow. One of the biggest causes of business failure is lack of positive cash flow. At the end of the day, you need enough cash to pay your vendors and your employees. If you run a seasonal business you understand this challenge. The high season sales harvest needs to be ample enough to support you during the slow non-seasonal periods.Recommendation: Create a 12-month rolling forecast of revenue and expenses to help understand your cash needs each month.
Know your pressure points. When looking at your business, there are a few categories that drive your business success. Do you know the top four drivers of your financial success or failure? By focusing on the key financial drivers of your business, success will be easier to accomplish.Recommendation: Look at last year’s tax return and identify the key financial drivers of your business. Do the same thing with your day-to-day operations and staffing.
Prioritize your inventory. If your business sells physical product, you need a good inventory management system. This system does not have to be complex, it just needs to help you keep control of your inventory. Cash turned into inventory that becomes stuck as inventory can create a cash flow problem.Recommendation: Develop an inventory system with periodic counts (cycle counting) to help identify when you need to take action to liquidate old inventory or research any discrepancies.
Know your customers. Who are your current customers? Are there enough of them? Where can you get more of them? How loyal are they? Are they happy? A few large customers can drive a business or create tremendous risk should they go to a competitor.Recommendation: Know who your target audience is and then cater your business toward them and what they are looking for in your offerings.
Learn your point of difference. Once you know who your customer is (your target audience), understand why they buy your product or service. What makes you different from others selling a similar item?Recommendation: If you don’t know what makes your business better than others, ask your key customers. They will tell you. Then take advantage of this information to generate new customers.
Create a great support team. Successful small business owners know they cannot do it all themselves. Do you have a good group of support professionals helping you? You will need accounting, tax, legal, insurance, and employment help along with your traditional suppliers.Recommendation: Conduct an annual review of your resources, be prepared to review your suppliers and make improvements where necessary.
While libraries are filled with small business advisory books, sometimes focusing on a few basic ideas can help improve your business’ outlook. Please call if you wish to discuss your situation.
You’ve done your retirement homework. Your assets are reviewed, you know your financial needs, and your retirement tax plan is in place. Are you ready to enjoy retirement? Probably, but not without a plan to address what happens to many after they retire – boredom. Here are some ideas.
Go to school. Many colleges and communities offer classes for retired students. Pick topics of interest and take advantage of this cost-effective way to stay alert through learning. Examples could be local history classes with field trips, photography classes, writing and gardening. As an added benefit, you will meet others with your shared interest while you continue learning.
Pick up part-time work. Consider picking up a few hours at a local retail establishment. The work can be rewarding and provide some additional spending money.
Many retirees volunteer at libraries, museums and parks. Others volunteer at their local church, deliver meals and help young people with literacy. The possibilities are endless.
Schedule physical activity. Staying physically active will keep your body and mind in shape. Create a weekly routine that keeps you moving. Volunteer to take the grandkids to swimming lessons while the parents are working. Bike or walk to do everyday chores.
Look for combinations. With a little creativity, you can combine some of these ideas. For example, if you coached your kids in soccer, why not consider refereeing kids games? You might earn a little pay while staying connected with kids, and getting some physical activity.
Stay Connected. When you retire, many of your social connections will change. This is especially true for work connections and availability of friends that are still working. Look for other ways to make new connections. Participate in community events. Reach out through volunteer efforts to meet new people.
Test out your dreams. If you’ve always dreamed of moving to a new place in retirement, you may want to test-drive it first. A dream move may turn out to be different than you anticipated. You may miss your kids and friends. Services and connections you take for granted may become a problem. By renting a place and staying in the new location prior to committing, you will be prepared with a fallback plan if it does not work.
These are but a few ideas to help transition into a satisfying retirement. There are many resources to provide additional ideas.
