As year end approaches, many individuals are in the charitable giving mood. With that in mind, I offer one additional suggestion.
Recently, Congress has changed the nature of charitable giving, by allowing contributions to be made directly from retirement accounts to charitable organizations.
Here is one example of how it works:
Bill an IRA owner whom is 71 has Required Minimum Distributions from his IRA account. He also is very charitable by nature and customarily gives a significant amount to his church as well as other organizations. Now, Bill can schedule to make direct payments from his retirement account to the charitable organizations of his choice. These amounts are considered to be required minimum distributions for purposes of "testing" for the IRA at year end. But, the nice part is that these amounts are not taxable income to Bill. Since, he did not constructively receive these amounts, this is not taxable income to Bill even if he does not itemize (if Bill did itemize then this exercise would be kind of pointless because he would end up in virtually the same place anyway).
Please remember two things about these types of contributions. First, make sure the money is sent directly from the IRA account to the charity of your choice. Second, these amounts are not includable as "Schedule A" itemized deductions because they are amounts sent directly to the charity itself, and are therefore not included in income when they are sent.
As always, there may be specially circumstances surrounding your particular tax situation. Please consult a tax professional regarding tax consequences before making significant changes to your individual tax situation.
Thursday, December 30, 2010
Wednesday, December 29, 2010
Smart Year End Tax Moves Part 3
I have focused a lot of attention in the last week on retirement plans. In this post I will change gears a bit to focus on stock sales.
Recently there has been a lot of focus on stock sales as the bush tax cuts were set to expire, fortunately for most taxpayers, Congress extended the bush tax cuts to all individuals for two years. However, this doesn't mean there aren't things that people should be doing to put themselves in the best tax position.
Two smart year end tax moves that could really pay.
First, if you are planning to gift stock you should consider the best way to gift that stock.
If you are planning to give the stock to a charity, consider this. If the stock has lost money since you bought the stock, you should strongly consider selling the stock and giving the money to the charity. It is important to note that if you were to give the stock directly to the charity, your deductible contribution would be the fair market value on the date of contribution. So the only way to capture the loss, while you held the stock, would be to sell the stock, capturing the loss, and subsequently giving the money to your charitable organization.
The same rules apply when you give stock to family members (as gifts). So it only makes sense to sell the shares and give them the cash. If they choose they can take that money and buy the exact shares you just sold and their basis would equal the cash they received.
Recently there has been a lot of focus on stock sales as the bush tax cuts were set to expire, fortunately for most taxpayers, Congress extended the bush tax cuts to all individuals for two years. However, this doesn't mean there aren't things that people should be doing to put themselves in the best tax position.
Two smart year end tax moves that could really pay.
First, if you are planning to gift stock you should consider the best way to gift that stock.
If you are planning to give the stock to a charity, consider this. If the stock has lost money since you bought the stock, you should strongly consider selling the stock and giving the money to the charity. It is important to note that if you were to give the stock directly to the charity, your deductible contribution would be the fair market value on the date of contribution. So the only way to capture the loss, while you held the stock, would be to sell the stock, capturing the loss, and subsequently giving the money to your charitable organization.
The same rules apply when you give stock to family members (as gifts). So it only makes sense to sell the shares and give them the cash. If they choose they can take that money and buy the exact shares you just sold and their basis would equal the cash they received.
Smart Year End Tax Moves Part 2
In my previous post I focused on retirement plans businesses can setup before year-end to capture tax savings. In this post I will focus on personal retirement plans and smart moves that can be made before year end to capture additional tax savings.
As you all may know IRA accounts are the primary vehicle for personal retirement.
Here are two things you should keep in mind coming into year end.
First, even if you currently contribute to a retirement plan such as a 401(k) plan, you could still potentially participate in either a traditional IRA, a Roth IRA or both. Certain income limitations apply to deductible contributions.
Second, if you plan on making contributions to an IRA account in 2010, you have until April 15th of 2011 to make tax deductible contributions to your IRA account. This may be a smart tax move since the maximum individual contribution is $5,000 with an additional $1,000 catch up available to individuals 50 years and older. Just as an example, if you are in the 25% tax bracket and are 52, you could potentially make a $6,000 contribution to a Traditional IRA. In this circumstance, if you maximized your contribution, you would also reduce your tax bill by $1,500, a very smart tax move indeed.
I also mention this because the IRS now allows for income tax refunds to be direct deposited into IRA accounts, a major benefit for taxpayers whom might not save that money otherwise.
Please note that certain taxpayers are not eligible to make deductible contributions to IRAs, please check with your tax professional before you make your decision.
As you all may know IRA accounts are the primary vehicle for personal retirement.
Here are two things you should keep in mind coming into year end.
First, even if you currently contribute to a retirement plan such as a 401(k) plan, you could still potentially participate in either a traditional IRA, a Roth IRA or both. Certain income limitations apply to deductible contributions.
Second, if you plan on making contributions to an IRA account in 2010, you have until April 15th of 2011 to make tax deductible contributions to your IRA account. This may be a smart tax move since the maximum individual contribution is $5,000 with an additional $1,000 catch up available to individuals 50 years and older. Just as an example, if you are in the 25% tax bracket and are 52, you could potentially make a $6,000 contribution to a Traditional IRA. In this circumstance, if you maximized your contribution, you would also reduce your tax bill by $1,500, a very smart tax move indeed.
I also mention this because the IRS now allows for income tax refunds to be direct deposited into IRA accounts, a major benefit for taxpayers whom might not save that money otherwise.
Please note that certain taxpayers are not eligible to make deductible contributions to IRAs, please check with your tax professional before you make your decision.
Sunday, December 26, 2010
Good marketing book
Normally, I spend less time talking about running a business than about the tax topics that effect businesses.
But even tax nerds like me can change. With that in mind. Recently I picked up a book called "Duct Tape Marketing" by John Jantsch. It is a great book with the premise that every business owner should be a good sales person, whom offers the same attributes as duct tape. Those attributes are versatility, dependability and a good all around resource for "clients". It also talks about many other subjects including creating sticky relationships with your best clients.
I would recommend this book to all small business owners who are looking to make more money, because I guess in the end, that is what marketing is all about.
Beyond marketing, this book does a good job of helping business owners analyze their business in order to improve all the facets of the business and begin to create a cohesive business strategy.
I picked it up on amazon for around $10, so it is also pretty cheap, which I also really enjoyed.
But even tax nerds like me can change. With that in mind. Recently I picked up a book called "Duct Tape Marketing" by John Jantsch. It is a great book with the premise that every business owner should be a good sales person, whom offers the same attributes as duct tape. Those attributes are versatility, dependability and a good all around resource for "clients". It also talks about many other subjects including creating sticky relationships with your best clients.
I would recommend this book to all small business owners who are looking to make more money, because I guess in the end, that is what marketing is all about.
Beyond marketing, this book does a good job of helping business owners analyze their business in order to improve all the facets of the business and begin to create a cohesive business strategy.
I picked it up on amazon for around $10, so it is also pretty cheap, which I also really enjoyed.
Friday, December 24, 2010
Wednesday, December 22, 2010
Smart year end tax moves part 1
One of the fastest ways to lower your tax bill and potentially pay yourself is through contributions to a retirement plan.
The reason I bring this up now is that most employer sponsored plans must be in place before December 31, of the year qualifying retirement plan contributions are to start, even if funding is allowed after the end of the year.
Every year I receive at least three phone calls in the last weeks of the year wanting to know more about retirement planning.
My best piece of advice for clients is to do your homework. As a business owner there may be multiple types of retirement plans available to you. If you are a small business, and want to keep costs low, options include traditional IRA accounts for employees, SIMPLE-IRA plans and SEP-IRA plans. I will cover these three types in this posting and focus on the other more costly, but maybe more flexible plan types in a subsequent post.
First I will cover traditional IRAs. This is one of the simplest types of employee benefits you can offer. If you decide to offer this plan, you offer it as an additional salary reduction item, so as you withhold amounts from the individual's paycheck you are required to remit that amount to their IRA account directly. Any size business can participate in this type of plan. This option is nice, because it is treated similar to other payroll deductions; limited record retention is required and employees can change their withholding amount at any time. The maximum contribution for 2010 is $5,000 with additional $1,000 available for persons over 50 years of age.
Next are SIMPLE IRA Plans. This plan requires minimal initial paperwork (see my previous post SIMPLE IRA Plans, mind the details and everything will be OK). This is also a salary reduction type of plan, however only businesses that have fewer than 100 employees can participate. There is also a limited amount of required matching by the employer, but the employer only is required to match a low percentage of contributions for participating employees. Employee deferals are limited to $11,500 per employee with an additional $2,500 available for employees over 50 years of age. Certain time of service and earnings restrictions may apply to employees pursuant to limitations detailed in the plan document.
Finally, a SEP IRA Plan is a third option. This plan type is different than SIMPLE IRA plans and traditional IRA plans. This plan allows for employer contributions to employee accounts from the profits of the business. The plans are very easy to set up with a simple form available on the IRS website, and some additional record keeping required. Once the plan is set up the business owner may decide on a yearly basis whether to make a contribution to the plan or not (and the amount as long as the contribution is not discriminatory). Beyond that, the employer may exclude certain employees based upon age, years of service, and earnings. The allowable contribution to these plans is much larger. The maximum contribution to each individual is $49,000 limited to a maximum of 25% of payroll for the year.
I will cover more about year end planning with contributions, especially as it relates to S-Corporations in a subsequent post.
The reason I bring this up now is that most employer sponsored plans must be in place before December 31, of the year qualifying retirement plan contributions are to start, even if funding is allowed after the end of the year.
Every year I receive at least three phone calls in the last weeks of the year wanting to know more about retirement planning.
My best piece of advice for clients is to do your homework. As a business owner there may be multiple types of retirement plans available to you. If you are a small business, and want to keep costs low, options include traditional IRA accounts for employees, SIMPLE-IRA plans and SEP-IRA plans. I will cover these three types in this posting and focus on the other more costly, but maybe more flexible plan types in a subsequent post.
First I will cover traditional IRAs. This is one of the simplest types of employee benefits you can offer. If you decide to offer this plan, you offer it as an additional salary reduction item, so as you withhold amounts from the individual's paycheck you are required to remit that amount to their IRA account directly. Any size business can participate in this type of plan. This option is nice, because it is treated similar to other payroll deductions; limited record retention is required and employees can change their withholding amount at any time. The maximum contribution for 2010 is $5,000 with additional $1,000 available for persons over 50 years of age.
Next are SIMPLE IRA Plans. This plan requires minimal initial paperwork (see my previous post SIMPLE IRA Plans, mind the details and everything will be OK). This is also a salary reduction type of plan, however only businesses that have fewer than 100 employees can participate. There is also a limited amount of required matching by the employer, but the employer only is required to match a low percentage of contributions for participating employees. Employee deferals are limited to $11,500 per employee with an additional $2,500 available for employees over 50 years of age. Certain time of service and earnings restrictions may apply to employees pursuant to limitations detailed in the plan document.
Finally, a SEP IRA Plan is a third option. This plan type is different than SIMPLE IRA plans and traditional IRA plans. This plan allows for employer contributions to employee accounts from the profits of the business. The plans are very easy to set up with a simple form available on the IRS website, and some additional record keeping required. Once the plan is set up the business owner may decide on a yearly basis whether to make a contribution to the plan or not (and the amount as long as the contribution is not discriminatory). Beyond that, the employer may exclude certain employees based upon age, years of service, and earnings. The allowable contribution to these plans is much larger. The maximum contribution to each individual is $49,000 limited to a maximum of 25% of payroll for the year.
I will cover more about year end planning with contributions, especially as it relates to S-Corporations in a subsequent post.
Friday, December 17, 2010
Tax Deal Effects Paychecks
A portion of the "bush tax cut" extension bill, recently signed, will have a significant effect on payroll checks in 2011. Normally employees have social security taxes of 6.2% on the first $106,800 of W-2 wages. Now, employees will have a withholding rate of only 4.2% on the first 106,800 of wages for 2011 only.
Employers should prepare for this change, and adjust their withholding accordingly.
Also, note that many large payroll providers have given notice to the IRS that they will need some time to change their software. For this reason, some employees will not receive the updated withholding amount on their first check, but the amount will be adjusted in a subsequent check when the issue has been resolved.
If you have a large payroll provider, we suggest you contact your representative to verify how they plan on handling this change.
Employers should prepare for this change, and adjust their withholding accordingly.
Also, note that many large payroll providers have given notice to the IRS that they will need some time to change their software. For this reason, some employees will not receive the updated withholding amount on their first check, but the amount will be adjusted in a subsequent check when the issue has been resolved.
If you have a large payroll provider, we suggest you contact your representative to verify how they plan on handling this change.
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