Seniors may be able to write off Medicare premiums on their tax returns
Are you age 65 and older and have basic Medicare insurance? You may need to pay additional premiums to get the level of coverage you want. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But there may be a bright side: You may qualify for a tax break for paying the premiums. However, it can be difficult to qualify to claim medical expenses on your tax return. For 2021, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 7.5% of adjusted gross income. Contact us if you want more information about deducting medical expenses, including Medicare premiums.
Don’t assume your profitable company has strong cash flow
Most of us are taught from a young age never to assume anything. A dangerous assumption that many business owners make is that, if their companies are profitable, their cash flow must also be strong. But this isn’t always the case. There are many reasons profits and cash flow might differ, including changes in working capital, fixed assets, financing and owners’ capital. Business owners should look beyond profits to ensure they have enough cash on hand to pay employees, suppliers, lenders and of course the IRS (if necessary). Our firm can help you generate accurate financial statements and glean the most important insights from them, including the distinction between profits and cash flow.
Tax-favored ways to build up a college fund
If you’re a parent with a college-bound child, you may want to save with tax-favored vehicles. For example, if used to finance college, eligible families don’t have to report the interest on Series EE U.S. savings bonds for federal tax purposes until the bonds are cashed in. And interest on “qualified” Series EE (and Series I) bonds may be exempt from federal tax if the bond proceeds are used for qualified education expenses. To qualify for the tax exemption, you must purchase bonds in your name (not the child’s) or with your spouse. The proceeds must be used for tuition, fees, etc. and not room and board. The exemption is phased out if your adjusted gross income exceeds certain amounts.
2021 Q3 tax calendar: Key deadlines for businesses and other employers
Here are some key tax-related deadlines for businesses and other employers during the third quarter of 2021. AUGUST 2: Employers report income tax withholding and FICA taxes for second quarter 2021 (Form 941) and pay any tax due. File a 2020 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension. SEPT. 15: If a calendar-year S corporation or partnership that filed an automatic extension, file a 2020 income tax return. If a calendar-year C corp., pay the third installment of 2021 estimated income taxes. Contact us for more about the filing requirements and to ensure you meet all applicable deadlines.
Retiring soon? 4 tax issues you may face
If you’re getting ready to retire, you’ll soon experience changes that may have tax implications. For example, if you sell your principal residence to downsize and you have a gain from the sale, you may be able to exclude up to $250,000 of the gain from your income ($500,000 if filing jointly). You may have to take required minimum distributions from retirement accounts and your withdrawals will be generally included in your taxable income (although qualified distributions from Roth accounts are excluded). You also may have to pay tax on your Social Security benefits, depending on your income from other sources. As you can see, tax planning is still important after you retire. We can help.
Pondering the possibility of a company retreat
As vaccination levels rise and the country largely reopens, business owners may find themselves pondering an intriguing thought: Should we have a company retreat this year? Although there are still health risks to consider, your employees may love the idea of attending an in-person event after so many months of video calls. To ensure the event’s success, plan it well in advance. Identify only two or three key objectives so you have a better chance of fulfilling them. Create a detailed, reasonable budget. (We can help with this.) Set limits for variable costs such as location, food, transportation and speakers. Look for special deals and consider outdoor venues to maximize safety.
Recordkeeping DOs and DON’Ts for business meal and vehicle expenses
If you’re claiming deductions for business meals or auto expenses, expect the IRS to closely review them. It’s important to comply with the strict tax law substantiation requirements for these items. DO keep detailed, accurate records. For each expense, record the amount, the time and place, the business purpose, and the business relationship of anyone to whom you provided a meal. If you have employees who you reimburse for meals and auto expenses, make sure they’re complying with all the rules. DON’T reconstruct expense logs at year end or wait until you receive an IRS. Take a moment to record the details in a log or diary or on a receipt at the time of the event or soon after.
Hiring your minor children this summer? Reap tax and nontax benefits
If you’re a business owner and you hire your child this summer, you can obtain tax breaks and other nontax benefits. Your child can gain on-the-job experience, spend time with you, save for college and learn how to manage money. And you may be able to shift your high-taxed income into tax-free or low-taxed income and realize payroll tax savings (depending on the child’s age and how your business is organized). The child may also be able to contribute to a retirement plan. However, in order for your business to deduct the wages as a business expense, the work performed by the child must be legitimate and the child’s salary must be reasonable. Many other rules apply. Contact us to learn more.
Plan ahead for the 3.8% Net Investment Income Tax
High-income taxpayers face a 3.8% net investment income tax (NIIT) that’s imposed in addition to regular income tax. The NIIT applies only if modified adjusted gross income (MAGI) exceeds: $250,000 for married taxpayers filing jointly and surviving spouses; $125,000 for married taxpayers filing separately; and $200,000 for unmarried taxpayers and heads of household. The amount subject to the tax is the lesser of your net investment income or the amount by which your MAGI exceeds the threshold ($250,000, $200,000, or $125,000) that applies to you. Fortunately, there are some steps you may be able to take to reduce the impact of the NIIT. Consult with us for tax-planning strategies.
The long and short of succession planning
Creating a succession plan may seem overwhelming. But if the past year has taught us anything, it’s that anything can happen. To help get your arms around the concept, you might look at succession planning from one of three perspectives: 1) If you have many years to work with, focus on identifying and mentoring a successor, as well as choosing the best ways to fund your retirement and structure your estate plan, 2) If retirement or another professional opportunity is imminent, you may want to look more at selling the company or even liquidating, 3) Don’t overlook an emergency succession plan; be prepared in case a crisis incapacitates you. Contact us for assistance.