The coronavirus pandemic has forced many businesses and entire industries to move their operations remotely in the interest of employee and customer safety, and this has caused these businesses to change the way they think about their operations. During this time, businesses have had to quickly adapt and implement new technology and processes in order to meet customer and employee demands that did not exist previously. These disruptions can be a source of headache or opportunity for businesses who choose to embrace the virtual business model.
One process that is in the limelight more than ever is virtual outsourced accounting. Virtual outsourced accounting simply means working with an accounting firm that provides services virtually through cloud-based platforms. While many businesses have already made the move the cloud-based accounting platforms, some have resisted or have kept operations in-house due to the lack of incentive to change. However, the pandemic has created an incentive and highlights many of the reasons why a business would want to consider a virtual outsourced accounting option.
The benefits of virtual outsourced accounting
Safety – First and foremost is the safety of yourself and your employees. Virtual outsourced accounting allows you to conduct these financial operations remotely keeping you and your employees safe. When we return to our workplaces and safety is less of an issue, you continue to receive the other benefits of virtual accounting.
Security – Virtual accounting allows for heavy encryption of your sensitive and confidential data and frequent backups of information across multiple locations, keeping your records safe in the event of any number of physical or digital threats. Physical filing cabinets or local servers are at increased risk of physical or digital hacking because they often do not have the heavy encryption necessary for protection, nor the multiple back-ups in case of a data breach or natural disaster.
Consistency – Businesses are likely in this for the long-haul with many industries not anticipating a return to workplaces for several more months. When you outsource your accounting to a firm with virtual capabilities, you never have to worry about lost time due to illness or employee turnover. Accounting firms have adapted their workplaces to virtual as well, providing as uninterrupted service as possible.
Knowledge – Outsourcing your accounting provides you with greater access to a deeper bench of highly-skilled and knowledgeable accounting teams to help you bust through roadblocks or troubleshoot issues you are likely facing during the pandemic. When you’re encountering especially difficult and unforeseen challenges, a knowledgeable third-party adviser can help you stay on top of regulatory changes, financing opportunities, and provide guidance on forecasting and budgeting during unpredictable times.
Flexibility – As the pandemic increasingly throws new challenges at businesses, having access to virtual outsourced accountants allows you the flexibility to bring in help where and when you need it. Outsourced accounting teams can serve as a fill-in for your in-house accounting staff where needed due to illness, long-term leave, furloughs/layoffs, or employee turnover.
Remote Access – Working with a virtual accounting team that operates in the cloud allows you greater flexibility to perform tasks and access your numbers. Because data is updated in real time between you and your accountant, you can get a more accurate picture of your business’s financials – crucial during a turbulent time like the pandemic.
Cost Savings – Outsourcing your accounting to a firm that conducts operations virtually provides you with significant cost savings including salary/compensation, employee benefits, and overhead that you would experience by hiring and in-house employee. Furthermore, you never have to worry about turnover costs such as recruiting, hiring, and training a new staff member.
If you haven’t considered virtual accounting, now is the time. You do not have to face these pandemic challenges alone, and your financial processes shouldn’t be stifled due to inadequate operations that fail to consider the virtual world to which we’ve been forced to adapt. Contact us for more information on virtual accounting.
With all of the curveballs 2020 has thrown at the nation, the economy, and businesses, there’s never been a better time to get an early jump on year-end planning for your business. While all the usual year-end tasks are still on the docket, you’ll want to consider implications related to the Paycheck Protection Program (PPP), any disaster loan assistance you received, and changes made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
We’ve put together a checklist of what you need to do now to prepare for a great year-end that includes annual tasks as well as 2020-specific tasks. Keep reading for assistance getting your financials organized, reviewing your tax strategy, and preparing for next year.
1. Bring order to your books – Now is the time to collect, organize, and file all of your receipts for the year if you haven’t been staying on top of it. Get with your CPA to ensure everything is clean and in order before the end of the year to help avoid surprises come tax time.
2. Examine your finances – This includes having your balance sheet, income statement, and cash-flow statements prepared and up to date. Reviewing this information allows you to see where your money went for the year so you can properly prepare for next year.
3. Work with your CPA on your PPP loan forgiveness application – We are currently awaiting further guidance on the PPP’s impact to taxes, but it’s important to work with your CPA on your PPP loan forgiveness application. Knowing where your PPP loan lies can help determine how to spread out your cash flow for the remainder of the year.
4. Organize all disaster loan assistance documentation – This includes your Economic Injury Disaster Loan (EIDL) documentation if you received an advance grant. EIDL advances must be added to your taxable income (unless different guidance is released), but you’ll be able to deduct any expenses paid with this grant.
Review your tax strategy
5. Review your taxes with your CPA – Do not put off your tax planning meeting with your CPA. Especially after the year you’ve had and any potential federal state aid your business received, your tax plan needs a review. Getting a jump on this early, well before the new year, can help you plan for what’s to come on Tax Day. It’s even more imperative to plan early for any tax obligations you may have at tax time as it’s likely the COVID-19 pandemic will continue to create a volatile environment for many industries’ revenue projections.
6. Execute on year-end tax strategy adjustments such as:
- Accelerating AMT refunds – The CARES Act has accelerated the alternative minimum tax following changes made by the Tax Cuts & Jobs Act. Corporations can claim all remaining credits in 2018 or 2019 thus allowing for filing of quick refunds.
- Using current losses for quick refunds – The CARES Act allows businesses to claim immediate refunds by using current losses against past income, for example.
- Submitting a retroactive refund for bonus depreciation – Businesses can now deduct qualified improvements dating back to Jan. 1, 2018, thanks to a fix made by the CARES Act. This could offer a quick refund.
- Claiming quick disaster loss refunds – Nearly every U.S. business is eligible for disaster-related refunds from losses in 2020 on an amended 2019 return for a quicker refund.
- Timing out your payroll tax deduction – While the CARES Act allows employers to defer paying their share of Social Security taxes, you should review the best strategy with your accountant. In some cases, it’s better to pay on time to take a loss. In others, it provides a liquidity benefit.
- Cash in on generous Section 179 deduction rules – For qualifying property placed in service in tax years beginning in 2020, the maximum Section 179 deduction is $1.04 million. The Section 179 deduction phase-out threshold amount is $2.59 million.
7. Prepare your tax documents – Once you’ve met with your CPA, it’s time to line up all the info you need to prepare your final tax documents or have your CPA take care of it. Be sure not to put this off to the last minute as it will be a complicated year for everyone.
8. Automate your tax function – Instead of spending valuable time and energy on manual tasks and repetitive processes this year, consider investing in data analytics and automation tools to optimize and streamline your in-house accounting and tax functions. There’s never been a better time to invest in technology that will help you become more efficient and accurate.
Plan for the future
9. Evaluate your goals – There’s no doubt that 2020 likely threw a wrench in many of your goals for the year. However, you should still review the goals you set last year and see if you’ve met or made progress on any of them. This will help with 2021 business planning.
10. Set goals for the new year – No one knows how 2021 will play out, and it’s unlikely the market or business will return to normal in the first part of the year. Take into consideration the challenges you’ve faced so far in the pandemic as you plan for 2021. Work with your trusted advisor to determine several back-up plans for what if scenarios in case of any state or national lockdowns.
In a year like no other, it’s crucial to prepare like no other so you’re not met with any surprises or devastating fees. Contact us today to set up your tax and business planning appointment.
If a relative needs financial help, offering an intrafamily loan might seem like a good idea because they allow you to take advantage of low interest rates for wealth transfer purposes. But if not properly executed, such loans can carry negative tax consequences — such as unexpected taxable income, gift tax or both. Here are five tips to help avoid any unwelcome tax surprises:
1. Create a paper trail. In general, to avoid undesirable tax consequences, you need to be able to show that the loan was bona fide. To do so, document evidence of:
- The amount and terms of the debt,
- Interest charged,
- Fixed repayment schedules,
- Demands for repayment, and
- The borrower’s solvency at the time of the loan.
Be sure to make your intentions clear — and help avoid loan-related misunderstandings — by also documenting the loan payments received.
2. Demonstrate an intention to collect. Even if you think you may eventually forgive the loan, ensure the borrower makes at least a few payments. By having some repayment history, you’ll make it harder for the IRS to argue that the loan was really an outright gift. And if a would-be borrower has no realistic chance of repaying a loan, don’t make it. If you’re audited, the IRS is sure to treat such a loan as a gift.
3. Charge interest if the loan exceeds $10,000. If you lend more than $10,000 to a relative, charge at least the applicable federal interest rate (AFR). Be aware that interest on the loan will be taxable income to you. If no or below-AFR interest is charged, taxable interest is calculated under the complicated below-market-rate loan rules. In addition, all of the forgone interest over the term of the loan may have to be treated as a gift in the year the loan is made. This will increase your chances of having to use some of your lifetime exemption.
4. Use the annual gift tax exclusion. If you want to, say, help your daughter buy a house but don’t want to use up any of your lifetime gift and estate tax exemption, you can make the loan and charge interest and then forgive the interest, the principal payments or both each year under the annual gift tax exclusion. For 2020, you can forgive up to $15,000 per borrower ($30,000 if your spouse joins in the gift) without paying gift taxes or using any of your lifetime exemption. But you will still have interest income in the year of forgiveness.
Here is an example of how an intrafamily loan can save on taxes:
A $2 million interest-only loan is made from parent to child at an interest rate of 0.38%. If the loan proceeds are invested and grow at a rate of 5%, after repayment of interest and principal in year 5, the child is left with approximately $510,000 estate and gift tax-free. This arrangement also offers the flexibility to utilize the gift tax exemption at any time.
5. Forgive or file suit. If an intrafamily loan that you intended to collect is in default, don’t let it sit too long. To prove this was a legitimate loan that soured, you’ll need to take appropriate legal steps toward collection. If you know you’ll never collect and don’t want to file suit, begin forgiving the loan using the annual gift tax exclusion, if possible.
If you haven’t converted to cloud-based accounting, it’s likely that COVID-19 may prompt you to make the switch. With more and more businesses and industries operating virtually, cloud access and real-time data has become more important than ever for making the best business decisions possible in uncertain times. With so much up in the air, you don’t want to be caught with a static accounting system that cannot keep up and provide the answers you need.
If you’re on the fence, we’ve put together the top 11 benefits of cloud-based accounting and the real-time data it provides.
1. Drill down on business performance – Real-time data through cloud-based accounting allows you to drill down on the key components of your business’s performance. You can get global or granular on factors such as location, project, customer, vendor, or department and see how each part is impacting your business in real-time. Additionally, you can use snapshots of your cash flow, revenue, expenses, and more to see how they compare year-over-year and how they are measuring up to your goals for this year.
2. Make better data-driven, real-time decisions – You’ve likely experience that last year’s or even last month’s data is irrelevant during these uncertain times. With real-time data, you can see clearly what’s holding you back now, or what’s working, and adjust accordingly. Without the real, hard data, these decisions can feel like a guessing game with a wait-and-see outcome, which is something most businesses cannot afford right now.
3. Make accurate predictions and forecasts – This accurate, up-to-date data allows you to feel more confident in the forecasting for the future your business. You have the facts in front of you to make more strategic predictions over the course of the year. Through the real-time data and historical facts, you can assess past performance, identify trends, and set goals and plans, making adjustments as needed along the way.
4. Automate processes – More and more, businesses are focused on automation, and there’s no better place to start than with your accounting. With cloud-based solutions, you can create automated workflows that handle much of the busy work for you like invoicing and paying vendors. This all funnels back into your real-time data so you can stay on top of your revenue and expenses.
5. Mitigate fraud and reduce errors – Mistakes and fraudulent activity can be more quickly and easily identified when you can see the transactions in real-time. The simplification of the software means less memorization of accounting practices, formulas, and Excel shortcuts – all of which can contribute to errors. And, the automatic reconciliation can help you detect fraud early. Being able to take timely action on errors and fraud can save your business big in the long run.
6. Simplify your reporting and EOY – Have you ever scrambled when a stakeholder asked for an up-to-date report on your business? Cloud-based accounting allows you to present an accurate, timely report in no time, simplifying the process for you and your stakeholders. Additionally, you avoid the end-of-year rush because you’ve been entering your information and tracking all year long, so tax bills aren’t as much of a surprise.
7. Simplify GST compliance – If you have general sales tax to track and monitor, you know it can be a challenge to assemble and file your GST returns. Cloud-based accounting tracks and applies GST automatically for you and allows you to pull a quick report when you’re ready to file.
8. Get access from anywhere – One of the best benefits of cloud-based accounting is that you can access your data from anywhere at any time. In the age of COVID-19 and working from home, this is especially beneficial for you and your team so everyone can stay on track and on task.
9. Collaborate with your accountant – Cloud-based accounting has simplified the transfer process of client information to accountant and saved both sides time and energy in equal measure. Gone are the days of having to download everything to a CD or flash drive and delivering it to your accountant. Now, you can collaborate together virtually and trust you’re both on the same page.
10. Simplify your technology – Cloud-based accounting eliminates hard downloads across multiple computers and saves your IT department (or you) the headache of making sure everyone is up-to-date across the company. Thanks to online hosting, IT doesn’t have to worry about updating the software either, so they can focus on other projects.
11. Get the tech support you need – Most cloud-based accounting platforms offer regular tech support to help you any hour of the day. You’ll also have access to forums of thousands of other users so you can discuss issues and share best practices. Keeping your program up and running and optimized contributes to better real-time data.
For assistance with choosing the right cloud-based accounting platform for your business, contact us today.
The unprecedented global pandemic and record unemployment has resulted in a dramatic drop in interest rates. Many people focus on the Fed rate and mortgage rates, and rightfully so, but for some, the focal point should be on the historically low IRS interest rates.
The IRS posts various interest rates, generally on a monthly basis. The Applicable Federal Rate (“AFR”) and the Internal Revenue Code Section 7520 Rate (“7520 Rate”) are among the most important. Many tax strategies are a function of calculations driven by the AFR and 7520 rates. Some strategies work best in high rate environments while other work best in low rate environments. Accordingly, any time the IRS rates dramatically rise or fall, we should take notice and consider tax planning.
The May 2020 IRS Rates include:
Short-Term AFR: 0.25%
Mid-Term AFR: 0.58%
Long-Term AFR: 1.15%
7520 Rate: 0.80%
These rates are exceptionally low. To provide some context for comparison, the May 2019 Rates were: Short-Term AFR 2.39%, Mid-Term AFR 2.37%, and Long Term AFR 2.74%. Viewing this from a historical perspective, the May 2019 rates were low in their own right, but clearly the rates today, just one year later, are materially lower.
The remainder of this paper outlines three strategies that work particularly well in low interest rate environments. Although we have elected to highlight three strategies specifically, low interest rate tax strategies are not limited to just these three. Accordingly, we encourage you to contact our office to discuss your specific set of circumstances.
Charitable Lead Trusts
A Charitable Lead Trust (“CLT”) is a split interest trust, meaning there are two categories of beneficiaries: (1) a current beneficiary and (2) a remainder beneficiary. The current beneficiary receives distributions from the CLT for a period of time (the “Term”) and must be a charitable organization, such as a public charity, a church, most schools and universities, and even a private foundation operated by the donor. The remainder beneficiary receives all the assets remaining in the CLT after the Term expires and is generally the donor or the donor’s children. Depending on the design of the CLT, the donor may receive an income tax deduction in the tax year the CLT is established in an amount equal to the present value of all payments that will go to charity during the CLT’s term. Accordingly, it can generate a substantial income tax deduction for gifts that have not yet gone to the charity. This gives the donor the ability to continue investing and growing the CLT assets, thereby ultimately benefiting the donor who will receive the assets back upon expiration of the CLT term.
Why CLTs during low interest rates?
The donor’s income tax deduction is a present-value calculation. We take the sum of all scheduled future charitable distributions and discount that number to present value using a calculation based on the 7520 Rate. The lower the 7520 Rate, the lower the discount. The lower the discount, the greater the deduction. Accordingly, in today’s environment, all other factors being exactly the same (i.e. same growth rate, same amount to charity, etc.), a CLT today will generate a significantly higher income tax deduction, than the same CLT when interest rates are higher.
Grantor Retained Annuity Trusts
Grantor Retained Annuity Trusts (“GRATs”) are estate planning trusts that provide a tremendous opportunity to transfer wealth from one generation (“Generation 1”) to the next (“Generation 2”), often without incurring gift or estate taxes. GRATs are established with Generation 1 assets for a period of time (the “Term”). During the Term, the GRAT makes distributions to Generation 1. At the end of the Term, if designed properly, the assets remaining in the GRAT transfer to Generation 2 free of gift, estate, or transfer taxes. Many individuals will establish a series of GRATs in order to provide necessary lifetime cash flow to Generation 1.
Why GRATs during low interest rates?
Payments made from the GRAT to Generation 1 are based on the IRS rates. The donor makes the “bet” that the assets inside the GRAT will grow at a rate higher than the IRS rates. Lower rates mean a lower hurdle, a lower hurdle means more wealth can transfer to Generation 2 tax-free.
Sales to Intentionally Defective Grantor Trusts
Intentionally Defective Grantor Trusts (“IDGTs”), are irrevocable estate planning trusts that are generally utilized by high net worth business owners and those with assets likely to significantly increase in value (such as stock and real estate). The IDGT will purchase the asset from the individual primarily in exchange for a promissory note (there are no income taxes due on the sale because the IDGT is disregarded for income tax purposes). The IDGT will make installment payments to the individual for the term of the promissory note. The assets in the IDGT are outside of the individual’s estate, therefore any growth in the asset from the time it is sold remains outside of the individual’s estate for estate tax purposes.
Why IDGTs during low interest rates?
Similar to any traditional lending arrangement, the IDGT promissory note must yield interest. Because this is a related-party transaction, the IRS mandates a certain minimum interest rate, which is based on the AFR. The lower the AFR, the lower the required monthly payments, and thus more taxable wealth remains outside of the Grantor’s estate.
Don’t let this exceptionally low interest rate environment get away. Please contact your Heritage financial advisor, CPA, or attorney to schedule a planning session.
This article has been edited by Hamilton Tharp LLP. This article originally appeared on the HWM newsletter.
When the Tax Cut and Jobs Act went into effect in January 2018, many taxpayers stopped itemizing their returns. The reality, however, is that unique tax situations require a unique approach, and there may be some room for improvement in yours. Now that 2020 is in full focus, it is a great time to look at your giving strategy. If you are not sure you made the most of your charitable deductions in 2019, consider these incentives when setting your charitable contribution plan in 2020.
Although taxpayers that fall just below the standard threshold no longer need to itemize, those who hover around a higher tax bracket or well-exceed the standard deduction threshold should consider their situation with a professional to determine if they could benefit from a better plan. Consider the following incentives,
- Tax Reform removed the Pease limitation for itemized
deductions and increased the amount of cash that can be contributed to public
charities from 50% to 60% of adjusted gross income (AGI). For the tax years January
1, 2018, through December 31, 2025, taxpayers can claim 100% of their allowable
- Taxpayers whose income falls short of the
standard deduction threshold one year but exceeds it in other years could
consider a bunching strategy. This allows those who fall below the deduction
threshold to maximize the tax benefits of giving every other or every third
- Donor-Advised Funds (DAF) are another excellent
way for taxpayers to claim a larger deduction. It works like this; the itemized
donor gives an initial, more substantial gift to a donor-advised fund and
receives the allowable tax deduction. The contribution grows tax-free and
serves as a charitable fund from which the taxpayer can recommend gifts to
charity in subsequent years. These recommendations do not qualify as additional
deductions, leaving the taxpayer to take the standard deduction in those years.
- Under the new tax law, donors can still take an
income tax deduction on the full fair market value of appreciated assets they
gift to charity. This scenario is a win-win for taxpayers and charities.
- Taxpayers 70.5 years of age and older can
request a distribution of up to $100,000 per year directly from their IRAs to
charity. This gift helps satisfy annual required distributions and is removed from the
donor’s taxable income.
Deciding which charity to support in 2020?
The key to making your donations count is ensuring the organization you choose is an eligible charity. The Tax-Exempt Organization Search engine and the Interactive Tax Assistant on IRS.gov can help you choose organizations eligible to receive tax-deductible charitable contributions.
If you’re worried that making a large gift this year will harm your estate after 2025, you can rest assured. In November 2019, the Treasury Department and IRS issued final regulations confirming that taxpayers who make significant contributions between 2018 and 2025 can take advantage of the increased gift and estate tax exclusion amounts without concern over losing the benefit in 2026 and beyond.
The professionals in our office are well-versed in charitable contribution strategies, call us today to discuss how to make sure your donations count in 2020.
The Internal Revenue Service (IRS) recently debuted a new Form W-4 to the public. The new design aims to simplify the withholding system, replacing complicated worksheets with questions designed for the layman. The hope is that the form will help employees report more accurate amounts, allowing the IRS a better assessment of taxes paid.
One thing you might notice on the new Form is the absence of the word, allowance. The title of Form W-4 is now the Employee’s Withholding Certificate.
To help further your understanding of the redesign and its
impact on employers, we have provided clarification around frequently asked questions
regarding Form W-4 below.
- Current employees are not required to submit a
new Form W-4. Employers will continue to compute withholding based on the
information from the employee’s most recently submitted Form W-4. However,
employees that wish to adjust their withholding must use the redesigned form.
- Employees hired after 2019 that fail to submit a
Form W-4 will be treated as a single filer with no other adjustments. Beginning
in 2020, all new employees must use the redesigned form.
- Employers will not necessarily need two systems
to compute payroll. The same set of withholding tables will be used for both
sets of forms. If employers prefer to use a single system based on the new 2020
Form, they can enter zero or leave blank information that does not translate
between the two forms.
- Employers that wish to ask their employees to
convert to the newly designed Form can make the request, but they cannot
require them to submit a new Form or penalize them for not conforming.
As a reminder, the new forms go into effect in tax year 2020. Additional guidance is expected regarding payroll calculations needed based on the data fields on the new and old forms, as well as guidance surrounding employees that fail to submit a Form W-4 after 2019. If you have any questions about the new form, please give the professionals in our office a call today.
View the new Form W-4.
The United States saw some of the most sweeping changes in
December 2017 with the passing of the Tax Cuts and Jobs Act (TCJA). Many of the amendments to the Internal
Revenue Code are temporary in nature, set to expire at the end of 2025. For
example, the basic exclusion amount (BEA), which doubled from $5 million to $10
million prior to being adjusted for inflation, will return to pre-2018 levels when
the TCJA is set to expire. One major concern, raised by public comments, is
what will happen to individuals taking advantage of the increased gift and
estate tax exclusion amounts when the exclusion amounts drop to pre-2018
levels? Will they be adversely impacted?
For example, what would happen if a taxpayer chose to gift
their entire $11.4 million (adjusted for inflation) lifetime exclusion amount
during the TCJA? Rather than using up their basic exclusion amount at their
time of death, a taxpayer may choose to use their basic exclusion amount during
their lifetime by making large gifts.
Any unused portion would be used to offset or possibly eliminate estate
taxes when a taxpayer perishes.
Those concerns were laid to rest last month when the Treasury Department and the Internal Revenue Service issued final regulations confirming that individuals who plan to take advantage of the TCJA-increased basic exclusion amount will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. The final regulations also provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.
For 2019, the inflation-adjusted BEA is $11.4 million. If you
are considering making a large gift within the next few years it is important
to understand how these changes will impact your personal or business
operations. The professionals in our office can answer your questions, call us
Americans share at least one dilemma when it comes to
retirement planning. From the worker to the employer to the policymaker,
everyone is living longer. On May 23, 2019, the House passed the Setting
Every Community Up for Retirement Enhancement (SECURE) Act. This legislation,
receiving almost unanimous bipartisan support, offers the most significant
shift to retirement plans and opportunities since the Pension Protection Act of
2006. In the bill, there are over 25 changes and provisions that expressly aim
to encourage retirement savings among all workers. This bill, along with the
Senate’s Retirement Enhancement Securities Act (RESA), addresses the apparent
need for a worker’s wealth to run (and finish) the race with them. These
documents may face modification before being signed into law, but one thing is
clear: change is coming. Below we have prepared a synopsis of the changes that
present the most opportunity.
Pooled Employer Plans
Many businesses are without affiliation and are too small to
offer a savings retirement plan on their own. The new bill will reduce
fiduciary responsibility and lower the overall costs associated with providing
401(k) plans by expanding the option to run multi-employer plans through a plan
administrator. Sec. 106 goes a step further to incentivize smaller businesses
to offer a retirement savings plan. The Act introduces a $500 tax credit for
automatic enrollment into their retirement plan.
The SECURE Act eases the liability concern over offering
annuities. Most businesses have shied away from annuity providers because of
their inherent risk. Section 204 updates safe harbor provisions, thus opening
the door for employees to take advantage of converting their 401(k) balances to
a pension-like payout plan. Another provision of the bill will allow workers to
transfer a defunct annuity contract to an IRA while maintaining contributions.
The only criticism on this update is the broad guidelines surrounding annuity
providers. Some fear that ambiguity will lead to insurance companies offering
Required Minimum Distribution (RMD) Age
The current law requires that most individuals begin
withdrawing a minimum distribution from their retirement savings at the age of
70.5. Six-months-past-70 has invited an unnecessary amount of confusion since
its inception in the Tax Reform Act of 1986. The SECURE Act seeks to simplify
matters by raising the RMD age to 72. If the RESA Act passes in the Senate, the
age requirement will be raised even higher to 75.
One of the most confounding retirement rules is the age
limitation on IRA contributions, currently set at 70.5. The SECURE Act repeals
the age limitation for traditional IRA contributions.
Benefit to Parents
Section 113 removes the 10 percent penalty tax from qualified
early retirement plan withdrawals. Parents will be able to take an aggregate
amount of $5,000 within one year of the adoption or birth of a child, penalty
free. Section 302 expands section 529 plans by allowing withdrawals of as much
as $10,000 for repayments of some student loans.
Currently, beneficiaries of inherited retirement plans like
401(k), traditional IRAs, and Roth IRAs can spread the distributions until
their dying breath. The new revenue provisions (Section 401) changes the rules,
requiring most beneficiaries to distribute the account over a 10-year period
and pay any taxes due. The tax-generating change will accelerate the depletion
of many inherited accounts but will not affect surviving spouses and minor
Another administrative improvement provided in the Act
requires employers to provide a lifetime income disclosure once every 12
months. The disclosures are meant to show the amount of monthly payments the
participant or beneficiary would receive based on the total accrued benefit.
Under the current law, the unearned income of children would
be taxed at their parent’s marginal tax rate. Section 501 repeals the “kiddie
tax” measures that were added by the 2017 Tax Act. The new provision states
that unearned income of children would not be taxed at trust rates. Taxpayers can
retroactively elect to not pay the taxes. The bill benefits many Americans,
including families of deceased active-duty service members, survivors of first
responders, children who receive certain tribal payments, and college students
Other changes proposed in bill include increased penalties
for failures to file and the portability of lifetime income options. The SECURE
Act is as likely to pass as it is to undergo slight modifications. We will keep
an eye on the state of the bill and keep you abreast of its status. In the
meantime, our professionals are standing by to answer your questions and
address your concerns.
What does your tax return say about your financial situation?
The fact is, the paperwork you file each year offers excellent information
about how you are managing your money—and highlights areas where it might be
wise to make changes in your financial habits. If you have questions about your
financial situation, we can help. Our firm is made up of highly qualified and
educated professionals who serve as trusted business advisors to clients all
Whether you are concerned about budgeting; saving for
college, retirement or another goal; understanding your investments, cutting
your tax bite, starting a business, or managing your debt, you can turn to us
for objective answers to all your tax and financial questions.
Help You Address the Issues that Keep You Up at Night
Where will your business be in five years? Would strategic budget cuts improve your company’s health? Are there ways you can boost revenue? If you are nearing retirement, do you have a buyer or successor in the wings? These are the kinds of questions that keep many business owners up at night. Fortunately, we can help you find financial peace.
Be Confident that You’re Making Tax-Advantageous Decisions
It’s tough to be proactive when tax laws are constantly changing. But it can be done! Our experienced team of CPAs can help you navigate the tax complexities affecting your business.
We review financial situations and develop creative
strategies to minimize tax liabilities so you can meet your financial goals.
Contact one of our professionals today.