What to Know About IRA Taxes in 2020

It’s important for everyone to save for retirement. No matter where a person is in their career, a retirement account is a wise investment. The accrued money from compound interest in a tax-advantaged account can make a big difference for the future. There are plenty of different types of retirement savings accounts. Some people, for example, have a 401(k) or 403(b) through their workplace. There’s also the IRA. Traditionally, IRAs have been a solution for the self-employed. However, the truth is that anyone who works is welcome to open one.

IRAs are governed by special tax regulations in part because they’re a tax-advantaged investment designed for retirement savings. For the 2020 tax season, there are some important things to know about IRAs. First, the basics. The maximum contribution for an IRA is holding at $6,000 for workers under 50. Older savers are entitled to an additional “catch-up” $1,000, for a total of $7,000. There has been no change to these contribution limits since the prior tax year.

The second thing to remember is that there are two types of IRA: the traditional, and the Roth. This is a crucial distinction at tax time because the two types of investment are taxed differently. A traditional IRA can be used by anyone, and almost everyone is able to take a tax deduction if they have one. The exceptions include people who also have workplace-sponsored savings instruments. Roth IRAs are available only to people who make less than a given income limit. For some people who are close to the limit, only partial contributions may be allowed.

IRAs present the kinds of issues where it’s a good idea to contact a tax professional such as an accountant. The big advantage of Roth IRAs is that they allow retirement-aged people to make tax-free withdrawals. However, investors don’t get a tax deduction during the years when they’re making contributions. Finally, remember that it’s possible to make contributions to an IRA until the tax filing deadline. Until April 15 of 2020, people can make contributions for both tax years: 2019 and 2020. This is a great way for people to catch up if their savings were a little bit sluggish at some point during 2019.

Originally published on MorrisTeper.net

Tax Scams 2020

Ahead of tax season 2020, hackers are getting savvier with their tactics to steal personal and financial information. Tax-themed email attacks hit businesses across all sectors, but researchers at Proofpoint have found that financial firms and the construction industry have been targeted disproportionately. Cybercriminals have previously focused on targeting regular citizens and accountants with emails containing malicious links or corrupted files, but this year the hackers have upped the ante by making better fake tax-themed emails with realistic-looking company headers. 

Some of the tactics being implemented include the use of remote control applications onto devices, which allow the criminals to gain full control of access to any banking and investment information. It can be incredibly difficult to spot a scam, as the emails sent resemble those that an accountant or financial professional would receive from a client but contain applications like TeamViewer or Netwire Remote Access Tool. 

Beyond just emails, hackers are also corrupting websites that financial firms build to market themselves online. By corrupting the websites through malicious HTML code, hackers can steal customer emails to procure information that can be used to break into a system. Examples of this from the Proofpoint researchers include abuse of the legitimate application TeamViewer and the compromising of legitimate tax websites. According to Sherrod DeGrippo, senior director of threat research and detection at Proofpoint, people who run smaller tax preparation and accounting companies who have websites should take time to look at how they’re securing their sites and move them to hosting companies that include updating and security as part of their offering. The kicker is that many times cybercriminals will use legitimate applications so that they will not get flagged as malware by most security programs. While this is a new approach, it’s also worth noting that traditional malware attacks are still being used especially as malicious attachments within messages claiming to have attached W2, W4, and 1099 tax form.  

As a means of precaution, everyone should treat all tax-related attachments as potentially malicious. DeGrippo added that many tax preparation and accounting companies don’t typically send information as attachments through regular email. Secured emails and document sharing portals have added security features for both businesses and consumers. In the case that you do receive an email with a tax-themed attachment, verify with the sender before opening it, even if you are expecting it.

Originally published on MorrisTeper.com

Tax Incentives for Higher Education

Higher education is a profound investment of both time and money. As such, it’s understandable that affording higher education can be difficult for many. Fortunately, the federal government provides financial assistance in a couple of ways. The first way is through traditional student aid such as loans, grants, and work-study. The second way is through tax incentives. 

There are three broad classes of tax benefits for college students and their parents: special tax treatment for education savings plans, tax credits for tuition and related expenses, and tax deductions for student loan payments. In other words, there are benefits for before, during, and after college attendance. These tax benefits often target the middle class rather than poor households, who benefit more from traditional student aid. In today’s blog, we’re covering the key tax breaks for pursuing post-secondary education as of 2019, since these can change from year to year.

College Savings Plans

The first class of tax benefits, education savings plans, also known as Section 529 plans, are tax-favored savings accounts. They function similarly to IRAs by allowing taxpayers to save for college expenses by funding a special type of account. With two different types of 529 plans, either education savings plans or prepaid tuition plans, there are minor differences between them but they have the same key benefits. In one of these savings plans, earnings and growth will accumulate without being taxed, and withdrawals from your 529 plan are tax-free as long as they’re used for specified higher education expenses. 

Higher Education Tax Credits

Two tax credits for higher education exist: The American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). The American Opportunity Credit is a tax credit of up to $2,500 for undergraduate education only, whereas the Lifetime Learning Credit provides a tax credit of up to $2,000 for any level of college education without a minimum level of enrollment. You can’t claim both credits in the same year for the same student’s expenses, but there are strategies you can use to maximize your tax benefits using these credits. 

Student Loan Interest Deduction

Loans are a common way of paying for college tuition and expenses, and under the student loan interest deduction, interest on these loans can be deductible up to $2,500 per year. The deduction is how much you spent on qualifying interest or $2,500, whichever is less. In order to take advantage of this deduction, you must be the obligor on the loan.

Originally published on MorrisTeper.com

Tips on Charitable Contributions

It’s good to give, not just for the recipient, but also for the giver. A 2008 study by Harvard Business School professor Michael Norton found that participants who gave money to someone else were happier than those who spent that money on themselves; researchers saw similar results in experiments where they asked people to perform five acts of kindness each week for six weeks. I encourage you to give to charity out of altruism, and if the science backing the joy we experience from giving isn’t enough to convince you, it’s worth mentioning that your charitable contributions may also be eligible for a tax deduction. That being said, the IRS has many rules governing the eligibility and limitations of your contributions, so we’ll dive into the basics of charitable contributions in today’s blog. If you follow the rules, you’ll find that giving is a win-win situation for you and your cause of choice. 

Before you plan to make your donation, know that not all charitable organizations qualify for a charitable contribution deduction. The first criterion is that the recipient must have tax-exempt status as determined by the United States treasury. Eligible recipients include organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes; the prevention of cruelty to animals or children, or the development of amateur sports. It may come as a surprise that nonprofit veterans organizations, fraternal lodge groups, cemetery and burial companies, and even certain legal corporations can also qualify. The IRS Tax Exempt Organization Search tool can help you verify the tax-exempt status of the recipient in question. 

The donation process is not difficult, but it does require documentation in order for you to get the potential tax benefits. To claim this benefit, you’ll need to itemize your deductions and file IRS Form 1040. To maximize your tax impact, you may want to strategize how you give. For instance, you can group your donations by donating in one year what you might have given over two years, then skip a year.  

There are also rules in place for noncash donations such as clothes and household items. This is a great way of helping others while decluttering. The goods must be in usable good condition, and you will claim the item’s fair market value, which is a price similar to a thrift store value. If your total deduction is greater than $500, you will need to file IRS Form 8283, and cash or property donated that is worth more than $250 will need a written acknowledgment from the organization. The IRS has a useful resource to help you determine the value of your noncash contributions.

Originally published on MorrisTeper.net

How to Maximize Tax Advantages when Implementing Employee Benefits

There are various markers for the success of a small business, but one is undoubtedly how they treat their employees. Part of this is ensuring they have access to a fair benefits package. In order to offer good benefits, you’ll need to implement careful financial planning. The benefits employees receive should remain stable, so it should be a package that’s feasible indefinitely. 

Offering generous benefits is beneficial to businesses in many ways. It can help attract new employees and keep them longer, but it can also help your business when it comes to tax season. The money you put into employee benefits can come right back to you in the form of tax incentives.

Deductions (Write-Offs)

Like wages, commissions and salaries, the cost of employee benefits is often tax deductible. For example, life insurance coverage, dependent care assistance, cafeteria plans and education assistance programs may be eligible for deductions, in addition to other benefits. Bonuses, awards and gifts of nominal value can also be deducted. 

Taxable or Nontaxable?

Some types of employee benefits are treated as tax-free, and therefore exempt from FICA taxes, such as health insurance and employer contributions to retirement plans. Taking advantage of tax-exemptions can significantly lower your tax payments, or even eliminate them completely. 

Tax Credits

In addition to deductions and exemptions, a small business may qualify for a tax credit that can cover as much as 50% of health insurance premiums you pay. To qualify, there are some requirements. For example, you must have fewer than 25 full-time employees, and their average salary must be less than $53,000 annually. Your business must also offer a group health insurance policy and pay at least 50% of employee premium costs. And you must cover yourself through the same plan as your employees. 

The tax advantages for employee benefits can be complicated. To ensure you’re receiving every possible tax benefit in relation to employee benefits, you’ll need to fill out the proper forms during tax time and be sure you’re meeting all the requirements. There are many variants based on the type of business you have, so consult a tax expert if you need assistance. They may be able to help you determine what additional fringe benefits can help your staff while simultaneously saving tax dollars. 

Originally published at morristeper.net.

5 Tips for Getting Yourself Out of Debt

Being in debt can hinder financial security, putting unnecessary stress into your life. Whether you’re $10,000 or $100,000 in debt, there are easy ways to ensure you’re paying that debt efficiently. 

• Know What You’re Up Against

The first step to paying off your debt is to compile a list of all your outstanding balances. This should include everything, such as student loans, credit cards, mortgage, car payment, medical bills, etc.  The list should be as comprehensive as possible, listing the balance, minimum monthly payment and interest rate. You should also make a note of your monthly take-home pay to put the debt into perspective. 

• Create a Budget and Debt Pay-Off Plan

Once you know your total debt vs. how much you bring home each month, you can create a detailed budget. Some financial experts recommend a 50/30/20 budget. This is when 50% of your budget is allocated for essential expenses (such as housing), 30% is used for things you want (morning coffee, movie tickets, etc.), and 20% is used to pay off your debt. However, some people are comfortable allocating more money toward debt pay-off, so do what’s right for your individual situation. Just make sure it’s a plan you can stick to in the long-run.

• Pay More than You Have to

You can pay more than the monthly minimum payment for each outstanding balance. In fact, you should whenever possible. In addition to helping you pay off your debt faster, it will also help minimize what you’re paying in interest. Whenever you have extra money, such as if you worked overtime or received your income tax refund, you can use that to pay down your debt faster.

• Try to Lower Your Interest Rates

If you feel like you’re paying too much interest on any of your loans, you should look into lowering your interest rates. If your credit score is good, it may be beneficial to get a credit card with a lower interest rate or a balance transfer credit card. For student loans, you can look into the benefits of consolidating, especially if you got the loans while interest rates were high.

• Don’t Dig Yourself into a Bigger Hole

While paying off your debt, don’t create more payments for yourself. Cut up any credit cards you can, and stick to your budget.

Remember that you didn’t acquire all your debt overnight, so you can’t expect to pay it off immediately. Patience is key. Just keep chipping away at your debt when you can, and you’ll be surprised how much of a difference that can make a few years from now. 

If this all seems daunting, you can always consult a financial expert who can help get you on the right track.

Originally published at morristeper.com.

Financial Projections and Forecasts: A Necessity for Small Businesses

No one can predict the future with complete accuracy, but you should do your best to plan for it. Financial projections can help your business’s overall success by helping you manage your business plan and spending.

Knowing Your Business

When dealing with any financial professionals, the best thing you can do is lead with honesty and transparency. Anyone involved in your business’s finances should know your business as well as you do in order to best serve you and your interests. When it’s your business on the line, it’s easy to let emotions dictate decisions that should instead be decided by a formulaic approach.

In addition to financial projections and forecasts for your individual business, you should also be concerned about trends and updates happening in your industry. These will likely be folded into your financial forecast, analyzing how policy changes and economic shifts may affect your business and other businesses in your industry. 

An Extended Forecast Isn’t Just for Meteorologists

Your financial forecast should encompass projections for at least 6 to 12 months, but a plan that stretches further into the future is appealing for banks and angel investors. It’s often best to have a detailed financial plan that covers a period of 2 to 5 years. Keep in mind that the plan won’t be set in stone. The plan should be visited at least once per quarter, or when a major event occurs. 

Creating a financial forecast that stretches into the future serves as a safety net. If your business is in need of funding, you can fall back on your plan when considering loans or fundraising. This saves you from scrambling when you’re in a cash crunch. 

Who Should Take the Lead on Financial Forecasting?

No matter the size of your business, financial planning is crucial. It’s something you should consider before the business starts, and at every step along the way.

When choosing a company or individual to take the lead on financial projections and forecasts for your business, you want to hire someone you can trust. They should have significant expertise in this sector of small business financial advising.

At Morris Teper, CPA, PC, we make your needs a priority and customize our plan accordingly. Our services can range from top-level reports to detailed financial models.

Originally published on morristeper.net.

When Should You Start Thinking About Estate and Trust Planning?

When you’re young and healthy, the concept of planning anything related to your death or incapacitation can seem unnecessary. It’s also not a pleasant topic to spend time dwelling on. However, estate and trust planning is a necessary part of life. Ensuring that your assets will be properly handled can provide you with peace of mind because you’ll know that you’ve done all you can to prepare. 

If you have a house and mortgage, children, and additional belongings, you should start the process immediately.

Creating Your Will

For most people, the first step in estate planning is creating a will. If you don’t have a will that dictates what should happen after your death, the state will decide who gets your property. It doesn’t have to be an expensive, time-consuming task. Your will needs to include:

• Your property. For most people, this means a list of their real estate, bank and investment accounts, and retirement accounts.
• Your beneficiaries. These people should be notified in advance of being included in your will. 
• The executor of your will. This person will ensure that your wishes are carried out. You should also consider who will be your medical power of attorney in the case that someone needs to make a medical decision on your behalf. 
• Guardians for your children, if applicable. It’s also common to make provisions to compensate the person taking on the responsibility, helping them pay for your children’s care. 

If you’re creating your own will, you will need it to also be signed by two witnesses who aren’t receiving anything in the will. While you can create a will on your own terms, it’s often recommended to consult a professional. This ensures that nothing falls through the cracks. Because requirements can vary slightly by state, a local expert may be your best option. Tax laws are complex and prone to shifting. You want to make sure your affairs are in order so your loved ones can be financially secure without the stress of any complications during their time of grief. 

Creating Your Trust

Even if you’ve created a will, you should still consider the benefits of having a living trust. This can minimize some hassle involved with the probate process, especially in the event of incapacitation. 

Estate and trust planning can become complicated, especially if you have a significant number of assets. You want your plan to remain up-to-date, so you should review your will every few years to make any necessary adjustments.

Originally published on morristeper.com.

Difference Between Tax Planning and Tax Preparation

A majority of people need help when it comes to filing their taxes and planning for their financial future. Very few know how to minimize their tax payments and therefore seek financial advice. Many view tax preparing and tax planning as interchangeable activities. The truth is, tax planning and tax preparation have different distinctions, even though both are very important.  

Tax Preparation

When meeting with someone for tax preparation, the tax preparer will compile, prepare, and file your tax forms. Typically, you would seek out a tax accountant to meet with a couple of times each year to ensure that your forms are being taken care of. Tax preparation requires information such as income as well as tax deductions from previous years that could be showing up on the income tax return. As a client, you will be asked to provide the required information to the tax preparer. The tax preparer will then record and determine whether you will owe money or receive a tax refund.

Tax Planning

Tax planning has more of a long-term outlook. The tax planner will look into your financial future to determine a plan that will benefit the client for future tax returns. Tax planning requires more time and collaboration between the client and the tax accountant. While creating portfolios for their clients, tax planners will require the client’s income, nature and timing of their purchases, insurance coverage, and the investments they are making. This will, in turn, affect the tax bracket and the deductions the client will qualify for. 

Why they both matter?

To compare each one to the other, tax preparation entails the steps and information you need to file your taxes, while tax planning helps determine ways you can legally minimize the amount in taxes you will have to pay. Tax preparation can ensure that your filings are done timely, correctly and include the proper information needed while filing. Tax planning can make a huge difference in the value of your portfolio in the future and have a major impact on the client’s lifestyle going forward.

Along with tax preparation and tax planning, there are many other actions that can be taken. Tax mitigation, consulting, and compliance can be explained by an experienced tax adviser. Hire a tax professional to help review your finances and give an expert viewpoint toward your financial futures.