Friday, February 21, 2014

Five things every small business owner needs to know about filing taxes this year / A free version of Deductr, a web-based service and mobile app that helps small businesses owners track their business expenses, is coming on March 1,

PHYLLIS FURMAN / NEW YORK DAILY NEWS for the New York daily news writes:  It's no picnic being a small business owner this time of the year. Yes, it's tax season for small firms, too - time to gather up those receipts and bank statements to make sure you get all the deductions you are entitled to.


Here are five things small business owners need to know:

1 Your home office deduction's way easier now. Forget the complicated calculation you used to do. This year small business owners have the option to deduct a standard amount: $5 per square foot of the space in their home allocated to their business up to 300 square feet, for as much as $1,500. That means if your home office is 200 square feet, you can deduct $1,000.
"It's a major, major benefit for small businesses," Keith Hall, national tax advisor for the National Association for the Self-Employed, a nonprofit that represents microbusinesses with five employees or less, told the Daily News. You still have the option of using the more complicated calculation to see if you are entitled to a bigger deduction.

2 You can deduct more of your mileage. The standard mileage rate was upped slightly to 56.5 cents per mile for 2013 from 55 cents in 2012.
"It's one of those deductions that is easy for small business owners to miss," Hall said.

3 Tax rates are going up for big earners. Those in high income brackets will see higher rates for federal income tax, Social Security tax, capital gains tax, self- employment tax, as well as a new tax on net investment income.

4 You can sock away more in your retirement account to get a tax deduction for 2013 and you still have time to do so. The limits for contributions to qualified retirement plans such as 401(k)s, IRAs and SEPs (Simplified Employee Pension Plans) have been increased for most taxpayers. "Make sure you review your options," Hall said. "Put away as much as you can."
If you have a SEP, you can deduct up to 20% of the net earnings of your business, up to $51,000 for 2013.

5 Free help for tracking business expenses is on the way. A free version of Deductr, a web-based service and mobile app that helps small businesses owners track their business expenses, is coming on March 1, the company's CEO John Thomas told the News.
In addition to tracking expenses, the app also shows business owners how much they are saving on their taxes. "Deductr builds a profile," Thomas said. "As you provide it with your tax information, it will give you feedback on your tax savings."

Posted on 10:14 AM | Categories:

An Updated Marriage Bonus & Penalty Tax Calculator

The Tax Policy Center writes: A couple suffers a “marriage penalty” if its partners pay more income tax as a married couple than they would have as two single individuals. Conversely, the couple receives a “marriage bonus” if its partners pay less income tax as a married couple than they would have as two single individuals. This calculator lets you see whether couples in particular situations receive tax penalties or bonuses from marriage. For more information on marriage penalties and bonuses, see this TPC Tax Topic.

Posted on 10:14 AM | Categories:

Is Roth and 401k enough to retire on?

Over at Bogleheads we came across the following discussion: Is Roth and 401k enough to retire on?

is Roth and 401k enough to retire on?by des999 » Tue Feb 18, 2014 10:45 pm

My situation:
I have 2 Roths (wife and I) and am maxing them both out. Both currently at $10,000


I have a work 401k plan (3% match) which I am hoping to start maxing out soon, currently doing 11% (need to get to 18% for max). currently at $59,000
I also have $37,000 in a rollover ira from my last employer, which I have no plans to contribute to.
My question is, most likely this is enough for me to retire on in 15 - 20 years. If I did, I'm 34, I'll need to get to some of my money prior to 59 1/2, would you suggest using Roth contributions for the 5-10 years? or should I start a taxable investment of some sort to fund the years prior to me turning 59 1/2? Curious what others are doing.


current situation if interested. We have no debt minus house (owe $75,000 worth roughly $150,000). 1 child who is 3. We live pretty far below our means. household income is $95,000. We plan to live on around 35k per year in retirement.
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Re: is Roth and 401k enough to retire on?by The Wizard » Tue Feb 18, 2014 10:50 pm

If contribs to the Roth and 401(k) account are 20% or more of your gross income, you should be good...
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Re: is Roth and 401k enough to retire on?by grap0013 » Tue Feb 18, 2014 10:57 pm

Any human being is really good at certain things. Most people are pretty modest instead of an arrogant S.O.B. like me, what comes naturally, you don’t see as a special skill.
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Re: is Roth and 401k enough to retire on?by des999 » Tue Feb 18, 2014 11:00 pm

The Wizard wrote:If contribs to the Roth and 401(k) account are 20% or more of your gross income, you should be good...



cool, thanks, they are around 28%, so you would use your Roth to fund your pre 59 1/2 (401k) account?
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Re: is Roth and 401k enough to retire on?by des999 » Tue Feb 18, 2014 11:01 pm

grap0013 wrote:The best kept secret in finance: http://www.irs.gov/Retirement-Plans/Ret ... c-Payments



nice. lots of good info. appreciate the link.
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Re: is Roth and 401k enough to retire on?by grap0013 » Wed Feb 19, 2014 1:27 pm

des999 wrote:
grap0013 wrote:The best kept secret in finance: http://www.irs.gov/Retirement-Plans/Ret ... c-Payments



nice. lots of good info. appreciate the link.



You are welcome. The take home message: "load up tax advantaged accounts now because the 59.5 age rule is a myth." I was on this website a couple of years before I learned about sepp 72t. It should be brought up instantly when questions like yours are asked, but sometimes it is not even mentioned. Not sure why that is.
Any human being is really good at certain things. Most people are pretty modest instead of an arrogant S.O.B. like me, what comes naturally, you don’t see as a special skill.
Posts: 1146
Joined: 18 Mar 2010

Re: is Roth and 401k enough to retire on?by keystone » Wed Feb 19, 2014 1:50 pm

grap0013 wrote:You are welcome. The take home message: "load up tax advantaged accounts now because the 59.5 age rule is a myth." I was on this website a couple of years before I learned about sepp 72t. It should be brought up instantly when questions like yours are asked, but sometimes it is not even mentioned. Not sure why that is.



Good advice to load up on tax advantaged accounts first. You're right that 72t is seldom mentioned in discussions like this, but my guess is that is because most people who are in a position to retire early have built up significant enough balances in their taxable accounts so it is not necessary. My guess is that if the OP is committed to the plan, the same thing will happen and 72t will not be necessary. However, it is certainly good to know the option is there.
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Re: is Roth and 401k enough to retire on?by cherijoh » Wed Feb 19, 2014 2:04 pm

keystone wrote:
grap0013 wrote:You are welcome. The take home message: "load up tax advantaged accounts now because the 59.5 age rule is a myth." I was on this website a couple of years before I learned about sepp 72t. It should be brought up instantly when questions like yours are asked, but sometimes it is not even mentioned. Not sure why that is.



Good advice to load up on tax advantaged accounts first. You're right that 72t is seldom mentioned in discussions like this, but my guess is that is because most people who are in a position to retire early have built up significant enough balances in their taxable accounts so it is not necessary. My guess is that if the OP is committed to the plan, the same thing will happen and 72t will not be necessary. However, it is certainly good to know the option is there.



Another exception is that if your 401k is with your current employer and you retire at 55 or later, you can get access to your entire 401k balance at that time without paying the 10%penalty. However, your employer gets to dictate the terms for your withdrawal options. You may or may not be given options that allow a partial withdrawal of your 401k (in addition to the standard options of full payout or rollover to an IRA).
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Re: is Roth and 401k enough to retire on?by Watty » Wed Feb 19, 2014 9:35 pm

grap0013 wrote:The best kept secret in finance: http://www.irs.gov/Retirement-Plans/Ret ... c-Payments



Also note that the age for a 401K as usually 55, if you are employed at that company on Jan 1 of the year you turn 55.
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Re: is Roth and 401k enough to retire on?by 4nursebee » Thu Feb 20, 2014 6:54 am

I read the consensus opinion as
401k for employer match
Roth
fill out 401K
Taxable.
If you have the ability to do all of the above you will develop a nice egg.
I think that Roth and 401K could be enough. It is for me.
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Location: US

Re: is Roth and 401k enough to retire on?by Hub » Thu Feb 20, 2014 11:25 am

I intend for Roth + 401k to be enough to retire early on, though obviously I aspire to build taxable too.
Keep in mind that if you retire at 50 and your income goes to zero, then doing conversions from an IRA to a Roth IRA are taxed at that new lower income level with no penalty. You have to wait 5 years to access those converted funds penalty free, but I figure you can live on normal Roth contributions in the meantime plus taxable and part-time work if need be.
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Re: is Roth and 401k enough to retire on?by chicago_meatball » Thu Feb 20, 2014 11:31 am

4nursebee wrote:I read the consensus opinion as
401k for employer match
Roth
fill out 401K
Taxable.
If you have the ability to do all of the above you will develop a nice egg.
I think that Roth and 401K could be enough. It is for me.



If possible you can treat an HSA like a ROTH. 6300 a year for family, 3Kish(for singles i believe)
Posted on 10:13 AM | Categories:

ESOPs: a tax-efficient way to reward employees and provide liquidity for shareholders

Steve Burke, Beth Fowler and John Bentas  for McLane Law and NHBR.com write:  We are in the midst of what may be the biggest transition of business ownership in history. Many business owners become frustrated with the process of marketing and selling their business, often feeling that the challenges of finding a buyer who will understand their business and continue the corporate culture insurmountable. An employee stock ownership plan, or ESOP, can provide a solution.
An ESOP can be a valuable mechanism to reward employees, provide liquidity for shareholders and promote productivity and employee loyalty in your company. And this can be done in a tax-efficient manner.
An ESOP is a retirement plan that invests primarily in the shares of your company. A trust holds the shares for the benefit of the employees. The ESOP operates through a written plan and is administered through a trust. The plan governs the terms of participation, vesting, benefits and other matters.
The trust, through its trustees and agents, holds plan assets and administers the plan. The formation and administration of an ESOP can be complicated, but with proper guidance from professionals, the uses and benefits can far outweigh these complexities.
Studies have shown that ESOP companies provide greater retirement benefits than non-ESOP companies, have greater sales and sales per employee and are more likely to stay in business.
An ESOP can create a market for the shares of your company where one might not already exist, or when the outside market may not be palatable to the current shareholders.
There is some latitude in how an ESOP transaction can be structured, as opposed to more traditional transactions. In particular, the transaction can be structured to provide a gradual transition of the business from current owners to the ESOP trust.
In many traditional transactions, third parties have little interest in acquiring a minority position in a company. As a result, an ESOP can be an excellent tool for succession planning, both for liquidity and transition reasons.
A proper ESOP implementation can also encourage a culture within a company of participation and ownership. An ESOP can reward employees with company ownership whose value ties to company performance. Employees see the benefits of their work through increases in the value of their ESOP accounts as the value of the company shares increase. Owning stock through an ESOP allows employees to share in the growth of their company. This sense of participation and partial ownership promotes productivity and loyalty at all levels of employees.
Not for everyone
In addition to the liquidity and employee-related benefits, an ESOP can have significant tax benefits to the company, selling shareholders and the employee-participants.
An ESOP can use tax-deductible corporate earnings to buy shares from owners. When combined with a leveraged transaction, both interest and principal payments on the loan may be tax-deductible. This ability to partially offset the cost of funding a transaction with tax dollars is not available in most other forms of succession planning and business acquisitions.
In some instances, the selling shareholders may be able to defer taxes on the sale of shares by completing a tax-free exchange of the sale proceeds into other assets.
Because an ESOP is a defined contribution plan, the employee-participants do not recognize any gain on the value of their allocated stock until their employment terminates and they cash out. Even then, they may be able to roll over the account balance into another tax-deferred retirement account.
Moreover, an employee does not pay anything out of his or her pocket to get this benefit.
If an ESOP has all these great benefits and advantages, why do not all closely held companies implement one? The simple answer is that an ESOP is not ideal for all companies.
Because the ESOP will have future obligations to repurchase shares when employees terminate employment for any reason, an ESOP works best for a company with enough free cash flow or a relatively steady or predictable revenue stream to help plan for these future obligations. Businesses with a high degree of employee turnover may not benefit from the pro-employee aspects of an ESOP. The costs to implement and administer an ESOP can also be a factor to consider.
Notwithstanding those concerns, many small and medium-sized businesses, and even some publicly traded companies, have found ESOPs to be a valuable tool. The same may hold true for your company.
But an ESOP should be a consideration for any closely held company considering succession planning or transition of its management and control to executive-level employees, ways to reward employees for their contributions to the company over time, or measures for increasing productivity and loyalty of its workforce.
Studies have shown that ESOP companies provide greater retirement benefits than non-ESOP companies, have greater sales and sales per employee and are more likely to stay in business. ESOPs are a path to personal and business security that deserve your serious consideration.
Posted on 10:13 AM | Categories:
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