The Impact of SECURE Act

Congress recently passed sweeping legislation known as the Setting Up Every Community for Retirement

Enhancement (SECURE) Act. The Act expands opportunities for individuals to increase their savings and modifies many employer requirements as so to incentivize businesses to encourage their employees to save for retirement sooner. Many of the provisions are in effect for 2020, so now is the time to consider how these new rules affect you. Below are some of the more important elements that impact individuals and businesses.

Individuals
 Raises the required minimum distribution age from 70 ½ to 72
 Allows contributions to an IRA after age 70 ½
 Permits tax free distributions from a 529 plan to repay up to $10,000 of student loan debt
 Allows penalty free withdrawals from a 401(k) to help offset costs of having or adopting a child
 Requires distributions from an inherited IRA to most non-spouse beneficiaries be done within 10 years following the IRA owner’s death

Businesses
 Permits unrelated employers to band together to create a single retirement plan
 Increases the credit for small employer pension plan start-up costs
 Creates a new tax credit of up to $500 per year for small employers to offset costs for new 401(k) and SIMPLE IRA plans
 Requires most employers to allow long-term part-time employees to participate in 401(k) plans
 Increases penalties for failure to file retirement plan returns

The government recognizes that most Americans are not prepared for retirement. Thankfully, most of these changes will allow people more time to save for retirement, as well as provide more options for saving.

However, not every provision is favorable to all and some will impact taxpayers more than others. Let us help you identify which parts of the Act can benefit you and assist you in implementing them into your plan for the
future.

Need a Small Business Tax Extension?

Need a Small Business Tax Extension?

With so many other responsibilities and concerns, busy business owners often find it difficult to complete their tax returns on time. Fortunately, if you own a small business, you may be able to qualify for a tax deadline extension. When used properly, this extension will allow you to submit your tax return on a later date without incurring any penalties or interest for late filing from the IRS.

Understanding Tax Return Deadlines. Your business’s tax return filing deadline will depend on the type of business you operate. For the 2019 tax year, S corporations and partnerships must file their tax returns by March 16th, since the 15th falls on a Sunday. C corporations must file their tax returns by the 15th day of the 4th month after the end of their tax year (April 15th for calendar year taxpayers). If you plan to request an extension, the request must be submitted before your designated filing deadline in order to be valid. If you don’t request an extension and you file after the deadline, you’ll owe a penalty. For S corporations and partnerships, the penalty is equal to $195 per month, per partner or shareholder. Even filers who owe no tax are subject to a late file penalty, so assume that you need to request an extension if you plan to miss the deadline.

Filing for an Extension. To request an extension, most businesses can complete and submit Form 7004: Application for Automatic Extension of Time to File. In general, the deadline for filing your tax return will be extended to September 15th or October 15th if your request is approved. However, if your business does not operate on the calendar year, your new due date may be different. Please note that an extension only affects your deadline for filing your tax return, not paying what you owe. When you request your extension, you must also pay at least 90 percent of your tax liability for the year. If you underestimate your tax liability, the IRS may not allow your extension. Likewise, if you don’t pay your tax liability when you request your extension, the IRS may impose penalties and interest, which will significantly increase the amount you owe. Keep in mind that the IRS is no longer sending notifications to taxpayers whose requests for deadline extension are approved. You will hear from the IRS only if your request is denied.

Personal Filing Extensions. As with business filing extensions, a personal filing extension allows you to extend your deadline for filing your tax return, but not paying. To request an extension, simply file Form 4868. Remember to pay at least 90 percent of the tax you will owe by the standard deadline to avoid paying penalties. Keep in mind that, if you purchase health insurance through the federal exchange, requesting an extension may cause problems when it comes time to renew your health insurance. This process typically begins prior to the October 15th deadline, so file your tax return for the previous year as soon as possible.

About State Extensions. If you need a federal extension, you may need an extension on the deadline for your state income taxes as well. In many cases, your federal extension request can be used to extend the deadline for your state taxes as well. However, this may not be possible if you owe state taxes or if your state’s laws differ.

If you need to request an extension and you want to make sure that you don’t owe any additional interest or penalties because of the request, please contact us for assistance. Even if you have already missed the March 15 deadline, we may still be able to help waive the associated penalties or lessen the damage. We can also help you avoid extensions in subsequent years by ensuring that your tax returns are always prepared and submitted on time.

Common Tax Questions Answered

Tax questions answered when filing taxes:

How do I know if I have to file a tax return?

Whether you’re required to file a tax return will depend on several factors, including your gross income, filing status, age, and whether you’re a dependent on someone else’s federal income tax return. And you may have to file even if you don’t owe any tax.

To get more specific information on who must file, check out IRS Publication 501. For most people, gross income is the main trigger for filing requirements. For example, in 2019, the filing threshold for single people younger than 65 was $12,200. For married couples filing jointly, it was $24,400 if both spouses were younger than 65.

If you were named as a dependent on someone else’s return and had income, you might also have to file, even if your income was much lower than the general threshold. Publication 501 has more detailed information on when dependents must file.

You’ll also need to file a return if you had at least $400 in self-employment earnings or meet other specific requirements, such as earning untaxed tips, receiving money from tax-exempt churches, or owing alternative minimum tax. IRS Publication 501 goes into details about these and other special situations.

What income do I have to pay taxes on?

According to the IRS, income includes money, property or services. Any income is taxable unless the law specifically exempts it, and all taxable income must be reported on your tax return. Some nontaxable income must be reported, too, even though you won’t pay taxes on it.

IRS Publication 525 has details on what counts as taxable income and what doesn’t, and it’s a lengthy list. Not all taxable income is treated the same. Earned income, like your wages, is taxed differently because you pay Social Security tax, Medicare tax, and state and federal income taxes on it.

Unearned income, like child support or Social Security benefits, isn’t subject to payroll taxes, but you do pay federal and sometimes state income tax on it. And some types of unearned income are taxed at a lower capital gains rate, rather than your normal tax rate

What filing status should I choose?

Tax filers are treated differently based on household status. To inform the IRS of which rules apply to you, you’ll have to choose a filing status. There are five: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child.

Your filing status affects your tax rate, standard deduction, and eligibility for certain deductions and credits. The IRS provides an interactive tool to help taxpayers choose a filing status.

Do I have any dependents?

dependent is a person you’re responsible for supporting. If you can claim a dependent, you can become eligible for certain tax breaks, including the child tax credit. You may also qualify for head-of-household status.

You may have a dependent if …

  • You have a qualifying child younger than 19, or under 24 if they’re attending school full time. Your child must either live with you for more than half the year — or qualify for an exception — and must not provide more than half their own support. Your child also can’t file a joint tax return, except to claim a refund.
  • You have a qualifying relative. Your qualifying relative either has to share a specific family relationship with you or must live with you all year long. You must provide more than half their support, they must earn very little, and they can’t be claimed as a dependent by anyone else.

The IRS provides an Interactive Tax Assistant Tool to help you determine if you have a dependent.

How do I know my tax bracket and tax rate?

The U.S. has a progressive tax system, so not all your income is necessarily taxed at the same rate.
Tax brackets refer to the range of incomes taxed at specific rates, while your marginal tax rate is the highest tax bracket applicable to your income.

There are seven tax brackets under current tax law. To find out which one you fall into — and what your tax rate is — you’ll need to know your income. You can then use IRS Tax Rate Schedules for the taxable year to determine your bracket, what your marginal tax rate is, and how much tax you might owe.

tax forms

What tax form should I use?

Beginning with the 2018 tax year, a single Form 1040 has replaced the previous three versions — Forms 1040, 1040EZ and 1040A.

The simplified 1040 form is half the size of recent forms and uses a “building block” approach to simplify the filing process. Taxpayers with more-complex tax situations may need to submit additional forms (called “schedules”), but all 150 million individual U.S. taxpayers start with the same basic form.

Should I take the standard deduction or itemize?

Deductions reduce taxable income. You have a choice between taking a standard deduction or itemizing your deductions. When you itemize, you reduce taxable income by the value of certain expenses deductible under U.S. tax law. For example, if you pay mortgage interest, you can deduct the interest paid — but only if you itemize.

To decide which deductions to take, compare the value of the standard deduction versus the total value of your itemized deductions. The standard deduction was raised for tax years 2018 to 2025. For 2019, the standard deduction amounts are:

  • $12,200 if you file as single or married filing separately
  • $18,350 if you file as head of household
  • $24,400 if you file as married filing jointly

Because tax reform significantly increased the standard deduction, you may find your itemized deductions don’t exceed the standard deduction amount for your filing status.

What’s the difference between a tax credit and a tax deduction?

Both tax credits and tax deductions can reduce the amount of tax you must pay. Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax. Credits are a dollar-for-dollar reduction in the amount of tax you owe.

If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).

By contrast, a $1,000 credit would reduce the actual amount of tax you owe by that $1,000. So if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.

What are some deductions and credits I can claim?

The deductions and credits you’re eligible to claim vary depending upon your situation. Here are some deductions that you can claim even if you don’t itemize.

  • Contributions to individual retirement arrangements, including IRAs, SEP-IRAs, Simple IRAs and solo 401(k)s (these phase out at higher incomes)
  • 50% of self-employment taxes
  • Student loan interest up to $2,500
  • Tuition and fees for higher education up to $4,000 if you fall within income limits
  • Health savings account contributions made with personal funds

Deductions you may be eligible to claim only if you itemize:

  • $10,000 maximum for the aggregate of state and local taxes paid (SALT taxes)
  • Interest on up to $1 million of eligible home mortgage debt for loans taken out before Dec. 15, 2017, and up to $750,000 of eligible home mortgage debt for loans taken out after that
  • A deduction for medical expenses, but only if they cost at least 7.5% of your income
  • A deduction for charitable contributions that don’t exceed a set percentage of income

And finally, here are credits you may be eligible to claim.

  • The earned income tax credit provides a credit for lower-income Americans. The IRS EITC Assistant can help you determine if you qualify.
  • The child tax credit provides a credit of up to $2,000 per qualifying child for tax years 2018 to 2024. As much as $1,400 of this credit is refundable. Eligibility begins phasing out at $200,000 in income for single filers and $400,000 in income for married couples filing jointly.
  • The child and dependent care tax credit is valued at 20%–35% of the costs of allowable care expenses, up to $3,000 in expenses for the care of one qualifying person. A taxpayer caring for two or more dependents could claim a maximum credit of $6,000.
  • The American opportunity tax credit provides a maximum credit of $2,500 for qualifying educational expenses paid for eligible students. The credit is available only for tuition paid for the first four years of post-secondary education and there are income limits.
  • The lifetime learning credit provides a maximum credit of $2,000 per year for postsecondary educational costs. There are also income limits, and the credit is worth only 20% of qualifying expenses, up to a $10,000 maximum.

When are taxes due?

Each year, you’re required to file your federal income tax return for the previous calendar year by Tax Day. Usually, the filing deadline is on or around April 15, though if the 15th falls on a weekend or holiday the deadline can be bumped to the next business day.

How do I file a tax return?

You have multiple options to file your return.

  • Mail: The address to mail in your return will depend on the state you live in (the IRS offers a list of addresses)
  • IRS e-file: The e-file system is free if your income is $69,000 or less
  • Free online tax filing: Like with a service such as Credit Karma Tax®
  • DIY: With fee-based tax-preparation software
  • Paid tax professional: If your situation is more complex

However you choose to file, be aware that submitting your return electronically has several advantages. If you’re owed a refund, you could get it sooner via e-file, since the IRS processes e-filed returns more quickly than paper returns.

When will I get my refund?

According to the IRS, most refunds are issued within 21 days for taxpayers who e-filed and who are having their refund directly deposited. Refunds take up to six weeks if you submitted paper returns. Claiming certain credits or deductions might delay your refund. You can check the status of your refund on the IRS “Where’s My Refund” website.

What if I can’t afford to pay the tax I owe?

If you can’t afford to pay your taxes, it’s imperative you still file tax a return and make arrangements to pay what you owe. Failing to file and/or pay your taxes on time will result in interest and penalties.

If you can’t afford to pay the full amount you owe by the deadline, the IRS has multiple payment options that could help, including installment agreements. Keep in mind that you’ll still owe interest, and possibly penalties, even if you enter into a payment arrangement.

Costs and fees of payment plans vary depending upon the duration of your plan and whether you apply by mail or online.

Bottom line

While these answers to top tax questions might help you get started in fulfilling your tax obligations, you may still have questions as you go through the process of filing a return. You can find more answers from Credit Karma Tax® about a wide array of issues, from how a car lease affects your taxes to forms you may need to use if you suspect a fraudulent tax return has been filed in your name.

UIA Rate Tax Reduction

The State announced that All employers will receive a Tax Reduction in their unemployment rate effective January 01, 2020.  This reduction is five months ahead of schedule.

The Obligation Assessment was a 10 year plan initiated in 2012 to repay the federal government, the $3.2 billion debt owed to the US Treasury.  To assist with paying the excessive number of Unemployment claims, the federal government loaned the state money.  In 2012 it was determined that the Obligation Assessment was necessary to gradually force all employers to assist in paying the debt back to the federal government.

Due to the growth in the state, more UIA revenue is now collected than originally expected.  The solvency of the state allows the Obligation Assessment to now be totally eliminated.  All employers will receive a $65 – $217 per employee tax savings.

Use the attached table to determine your 2020 savings.

Find your 2019 UIA Rate in the table.  Find your savings per employee and then multiple by your number of employees.

2020 Minimum Wage Rate Increase

Effective 01/01/2020, the State of Michigan increased the Minimum Wage from $9.45 to $9.65.

Employees age 16 to 19 years old must now be paid $8.20.  In their first 90 days of employment, a training wage of $4.25 is allowed.

For Tipped Employees, the new hourly minimum wage is $3.67 and Reported Average Hourly Tips Rate is $5.98.  Tips received plus wages paid must equal or exceed the minimum hourly wage rate and if it does not, the employer must pay the shortfall.

IRS withholding Tax Estimator

Allow time to complete the new IRS Withholding Tax Estimator. Even though the IRS makes it appear easy, there are still at least 4 parts to complete and may be as many as 6. Have your 2018 1040 handy. Caution: If there will be significant changes from your 2018 to 2019 return, ask a tax preparer for help.

  • Did you marry in 2019?
  • Did you divorce?
  • Did you start or lose a business?

Part I : “About You Do you know if you should be claiming “Head of Household”? If you don’t, that can be a thousand dollar error. This section consists of 9 questions.

Part II : “Income and Withholding. To complete this section, have your last paystub available. You can answer 10, 20, or maybe even 30 fields depending on your Filing Status and Pensions.

Part III : “Adjustments” consist of eight categories, including the Impact of Student Loans, Alimony, and Early Withdrawal Penalties.

Part IV : “Deductionsgives you the chance to input your Itemized Deductions. These include Medicat and Dental Expenses, Taxes Paid, Qualified Mortgage Interest, Gifts to Charity, and more. Did you use your 2018 Itemized Deductions , or what you “Think” this year will be?

Part V : “Tax Creditslist Foreign Tax Credit, Educational, Retirement Savings, Homeowner, and others.

Part VI : “Results” lists whether or not you will need to put more in for taxes.

Don’t hesitate to ask your tax professional for help or to do this for you, If you check the Head of Household Box when you should have checked single, your results may be that you’ll receive a refund, when you should be depositing $1,000 more in taxes. A mistake as this can result in penalties.

If you want to learn about the Alternative Minimum Tax Credit, click on the “?” and the IRS will explain it to you in 2 sentences. Or read about Form 5801 to complete the Prior Year Minimum Tax Credit. These are complex concepts.

The IRS encourages “everyone” to use the Estimator. It is User Friendly, but taxes are not. Using this Estimator if you do not understand what you are doing,  Not depositing the correct amount for taxes can be more costly.

Do I File my Tax Returns if I don’t have money to pay?

YES!  Effective January 1, 2020 the IRS will start penalizing Individuals $330 for Form 1040 Tax Returns due after December 31, 2019, but only if you owe money

If you are due a refund, you will receive your refund without interest when you do decide to file.  The IRS only refunds tax payers on late filed returns up to 3 years back.

The IRS knows if you owe them money.  All W2’s and Form 1099’s are recorded and sent to the IRS annually.  They know your income big or small.  They know your mortgage interest and possible income in your stock sales.

You may as well file your Form 1040 Tax Return timely.  You are not helping yourself by not submitting.

A client came into our office in December of 2018 and had not filed a Tax Return since April of 2009.  His wife died in 2010 and a “family friend”, not a tax preparer, told the gentlemen that he did not need to file a Form 1040 Tax Return.

What the “family friend” did not know was that the client was having Federal and State taxes withheld from his Pension and Social Security Benefits that exceeded the taxes owed.

In other words, the client gave up $18,238 in tax refunds that he could have collected for Tax Years 2010 to 2015. In 2017, the same gentlemen was penalized for not filing his 2017 Form 1040 because he owed money to the IRS.

It never pays to not file your Tax Return – However you look at it.

Take Care of Yourself!

No doubt, running a business drains you both physically and mentally. As a business owner, you’re always focused on the health of your business, and that’s normal since it’s your financial stability. But to be the best leader, it’s important to take care of yourself first. Here are some areas of personal health which need regular attention.

  • Reduce stress by taking control of your time. Schedule time to address the problems and stressors, so that you can manage them. Allocate time to what you need to get done and learn to say “no” when you need to.
  • Establish a daily routine and stick to it. This means going to bed at relatively the same time every night and getting up at the same time every morning, even on weekends. Find a balance in your daily routine and maintain it.
  • Spend quality time with family and friends. Social beings need to regularly disconnect from electronic devices and focus on building relationships with real people.
  • Find humor every day because laughter is good for you! Seek things which make you laugh, even at work. Your health will appreciate it.
  • Stretch and grow your mind. You can always learn more. Even if you have already learned a lot and accomplished a lot, push yourself and expand your brain power! Try something new…perhaps learn a new language or try out a new hobby.
  • Eat healthy. Eating a nutritious diet helps to provide strength and stability to your mind and body. Pack a healthy lunch…your brain will thank you, and so will your wallet!
  • Exercise regularly. 30 minutes of daily exercise increases your mental health, decreases stress, lowers blood pressure, and reduces anxiety. Even little steps like taking the stairs instead of an elevator can help. Consider taking a walk on your lunch hour.
  • Get rest. Take time off when your body tells you to and get a good night’s sleep every night. Strive for 7-8 hours.
  • Mental health is necessary for your success. Maintain a journal to track your mental health. Log daily items such as your diet, sleep habits, and social activity, and make lifestyle adjustments when needed.
  • Visit doctors for regular checkups. Routine checkups are beneficial, as they can help find problems before they start. By getting the right health services and treatments, you’re taking steps to help your chances of living a longer, healthier life.

Prepare for Summer Storms!

Power outages can wreak havoc on electronic files. Safeguard your personal and business assets by taking the following steps:

Back up your records electronically. Keep a set of backup records stored away from the original set. Remember to scan paper documents into an electronic format!

Document valuables. Photograph or video the contents of your home or business, especially items of higher value, to prove the market value of items for insurance and casualty loss claims.

Update emergency plans. Emergency plans should be reviewed annually and distributed to all employees. Don’t forget the new hires!

Maintain current contact information for employees and customers. Ensure that you can communicate with employees and clients in the event of business disruption. Email is your best method when the phones are down!

Know how to get help. Federal and State agencies can offer assistance, such as FEMA, the Small Business Association, and the Department of Homeland Security. IRS publication 2194, Disaster Resource Guide for Individuals & Businesses, contains information and form needed to claim a casualty loss.

Delegation is Crucial to Success and Peace of Mind

Owning and managing a business requires time and energy…and honesty, a lot of both! Could your time be better spent by focusing on the tasks requiring only your attention and expertise? Many small business owners find it hard to give up control on certain aspects of the business but what are you forfeiting by trying to “do it all”? In our opinion, by delegating some tasks to others, you can regain meaningful time and reduce stress. It’s a win-win!

Jenny Blake of the Harvard Business Review suggests six categories of tasks, each beginning with a letter “T”, which take too much time and make sense to delegate. She used these measures to help triple the income of her business within three years. Below is a summary of Blake’s Six T’s:

Tiny: Small tasks can add up and devour your time. Tasks such as booking your plane flight and hotel aren’t urgent and can be handled by someone else.

Tedious: Tasks that are simple and straightforward, such as data entry or updating a list of performance indicators from last month’s sales results.

Time-consuming: Complex tasks are often important and may require lots of research. Often, you can delegate 80-percent of those time-consuming tasks and then oversee the finality of the project.

Teachable: Tasks which may seem complex can be broken into smaller tasks that become part of a system with integrated checkpoints so that you maintain quality and final approval.

Terrible At: Some tasks are beyond your abilities to complete efficiently and effectively, often leading to inadequate results and wasted time. Hire a professional for those tasks and you will be happier.

Time-sensitive: Some tasks must be completed simultaneously with others. Delegate the tasks which someone else can do, such as waiting on hold with someone on the phone while trying to locate your luggage which was lost at the airport. This frees you up to focus on more important tasks or projects.

With these thoughts in mind, look at your daily routine and tasks. There are some things which you, and only you, can do. But for everything else, delegate them to someone else!

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