Another week, another round of updates to the Paycheck Protection Program. This week’s revision comes in the form of an entirely new (albeit brief) piece of legislation called the Paycheck Protection Program Flexibility Act of 2020.
The Act is mostly good news for business owners. This post covers what you need to know about the changes, and what the current opportunities are.
We’re now about six weeks into the CARES Act and in round two of the Paycheck Protection Program. The $310 billion allotted to the program in round two is beginning to dwindle, but has lasted longer than most bankers expected.
There could be another round of stimulus that replenishes the program over the next few months, of course. There seems to be widespread effort in Washington to ensure that businesses that need PPP funds are able to get them. Who knows whether that will eventually happen.
For many of the businesses the most pressing question is no longer how they can access the program & obtain funds to keep their operations going. It’s what must I do to have this loan forgiven? This post will cover what we know so far.
Happy holidays!
It’s now December, and if you blink hard enough (or drink enough egg nog) you’ll wake up & find yourself in January of a new year. For many people, holiday office parties & Christmas shopping comes hand in hand with a few year end financial chores.
There are plenty of these financial “chores” you could occupy yourself with if you chose. But since December 31st coincides with the end of the tax year, today’s post will cover my 5 favorite year end tax planning tips. These are five of the most common year-end opportunities I see to reduce your long term tax liability.
Even though we don’t currently prepare tax returns for clients at my financial planning firm, tax is a topic that comes up a lot. Many of our clients own businesses, and most of them share two opinions:
Alongside that there are several tax related questions that come up fairly frequently with our clients. One of them is the home office deduction. How can you take it? Are you even eligible? What can do to take a larger home office deduction this year? What are your options?
Whereas employees and small business owners alike were eligible to take the deduction prior to 2018, the Tax Cut & Jobs Act eliminated home office expenses as a miscellaneous itemized deduction. That means that rather than deducting home office expenses on Schedule A as an itemized deduction, they’re now claimed on Schedule C. And since Schedule C only contains information related to self-employment, the tax law change essentially means that employees are no longer eligible to take the deduction.
For business owners still eligible to take the home office deduction, there are two options for calculating the amount: the simplified method and the actual expense method. This post will cover both in detail, and explain what you need to know to take the deduction yourself.
Good investing includes minimizing taxes wherever possible. If you’ve followed me or the blog for long you’ve probably picked up on the fact that I’m a big fan of the Roth IRA for this exact reason. You pay income tax on the dollars you contribute to the account, but you never pay them afterward.
I’ve written about Roth IRAs quite a bit. Musings here on the blog have covered how to execute a back door Roth IRA conversion, a mega back door Roth IRA conversion, and when & how to convert your tax deferred savings during your retirement gap years.
Roth IRAs aren’t perfect though, and they’re not for everyone. So what other options are out there for investors trying to avoid taxes? This post will cover five.
The concept of acquiring rental properties as a means to build passive income has become exceptionally popular recently. In fact, it’s difficult to peruse the internet for content on personal finance without bumping into videos/podcasts/blogs/courses on how to build passive income through real estate investing.
My take on real estate investing is that it can indeed be a wonderful complement to your investment portfolio. But the conditions need to be just right. And given how quickly housing prices have risen since the depths of the financial crisis in 2009, the circumstances today are rarely compelling.
As you can imagine, this is a conversation I have with clients frequently. Some have an existing property we need to evaluate. Others fall in love with the idea of putting in sweat equity now & building an empire of properties that kick off income over time. This sounds nice in theory, but in my experience rarely pencils out. (At least of the opportunities I’ve seen recently in California & Oregon).
This post will explore how to evaluate real estate investing opportunities. We’ll cover cash flow, return on investment, and go through a real life scenario of a property I pulled from Zillow.com.
What’s the most common piece of retirement advice you’ve ever heard? I bet it has something to do with tax advantaged retirement savings. Most people are inundated with voices telling them to start saving early and take advantage of tax deferrals. It’s solid advice. Saving tax deferred money through IRAs, 401(k) plans, and other retirement vehicles is a wonderful way to grow your wealth over time.
The downside? Those pesky withdrawal penalties. The IRS will typically ding you 10% if you withdraw from these accounts before turning 59 1/2. This can pose a problem if you’re considering an early retirement. Fortunately there are a few loopholes. eight of them, in fact:
For those of you interested in an early retirement, the final loophole is likely the most interesting to you.
According to rule 72t, you may take withdrawals from your qualified retirement accounts and IRAs free of penalty, IF you take them in “substantially equal period payments”.
This post explores how.
In my financial planning practice I work with a good number of business owners who want to make aggressive contributions to their tax deferred retirement accounts. This helps put them on strong footing for retirement, but also provides a generous tax deduction. While the 401k plan is the primary retirement plan most business owners are familiar with, a cash balance plans is one I often recommend in addition. In fact, cash balance plans can actually allow for far greater contributions & tax advantages.
A cash balance plan could be a good fit if you’d like to contribute over $50,000 per year to a tax advantaged retirement plan. They don’t come without their nuances though. This guide will explain how cash balance plans work and whether they might be a good fit for you.
Every now and then, lawmakers in Washington make noise about changing various sections of the tax advantaged retirement accounts I’m so fond of recommending to my clients. Now that we’re living substantially longer, and a greater portion of our lives is actually spent in retirement, there’s a good argument that we should increase age limits, mandatory distributions, and other rules governing IRAs, 401(k)s and other types of accounts.
I usually don’t pay much attention to this speculation until there’s a bill on the floor that has a strong chance of becoming law. The majority of the legislation drafted in this area doesn’t get far, and often doesn’t even get out of committee.
Nevertheless, the house and senate have both recently introduced bills that would change how retirement accounts work. I’m no political expert, and don’t have the foggiest idea what the chances are of one of these bills passing. But from what I’m reading there’s more momentum for retirement reform now than there’s been in the last several years. Plus, more than one client asked my thoughts on the subject recently so I felt a summary post would be appropriate. This post will cover what happened & why it might be important to you.
In February the senate introduced a bill called the “Retirement Enhancement and Savings Act” (or RESA), aimed at fixing America’s retirement savings problems – both in the public and private sectors. This isn’t the first bill on retirement reform that’s been introduced recently. Multiple versions containing similar provisions have been introduced since 2016, which speaks to the growing interest in helping Americans save for retirement.
Meanwhile, the house passed the SECURE Retirement bill (Setting Every Community Up for Retirement Enhancement Act) about a week and a half ago in a 417-3 vote. This bill contains many of the same provisions as RESA, and the bipartisan support on both sides of congress could mean one of the bills may actually make it into law sometime soon.
As you’re probably aware, we’re working with some new tax laws as of January 1st, 2018. The tax change that will have the most impact for many business owners out there – particularly owners of pass-through businesses – lies in section 199a.
Section 199a specifies that qualified business income is eligible for a 20% across the board deduction on the owners’ personal tax returns. 20%! This is a big deduction, and falls in line with all the political rhetoric about making the country a more business friendly environment.
Unfortunately, not every business owner will be able to claim it. One of the more controversial aspects of section 199a is that the deduction phases out at certain levels of taxable income, if your business is considered a “specialized service business” (SSTB). In 2019, this phaseout range is $315,000 to $415,000 of taxable income for married people filing jointly, and $157,500 to $207,500 for everyone else.
What exactly is a specialized service business, you ask? It’s one whose principle asset is the skills or experience of one or more professionals. This includes medicine, law, accounting, financial services, athletics, and several others.
With the introduction of section 199a & the QBI deduction, there are a number of tax planning opportunities for business owners. Qualifying for the deduction and maximizing its benefit could easily have a significant impact on business owner’s total tax liabilities. This post will explore three different types of tax planning strategies owners of specialized service businesses may consider to maximize the benefit of the 199a deduction.
The first, most logical way to maximize the QBI deduction is to find ways to reduce your taxable income. The lower you are in the phaseout range, the greater portion of the deduction you’ll qualify for. Note here that the phase out isn’t based on your adjusted gross income or modified adjusted gross income (which is common for most other phaseouts, like IRA/Roth IRA contributions). The QBI deduction phases out based on your taxable income, which is after you take itemized or standard deductions. Here are a couple ideas to consider.
Establishing & funding a qualified retirement plan is usually the low hanging fruit for owners of specialized service businesses. The best plan structure and form for your situation will depend on a number of factors, of course. And if you have employees, chances are you’ll need to make contributions on their behalf as well.
The usual suspects here are SEP-IRAs & solo 401(k) plans for those without employees, and 401(k) & profit sharing plans for those with employees. You can also tack on a cash balance plan or defined benefit plan if you want to be aggressive (and are comfortable with mandatory contributions each year). In either case, every dollar you contribute to a qualified retirement plan, both as an employee deferral or employer contribution, will be deductible. And, of course, every dollar you deduct gets you one dollar closer to the beginning of the phaseout range.