Reasons why married couples might want to file separate tax returns
Married couples often wonder if they should file joint or separate tax returns. It depends on your individual tax situation. In general, you should use the filing status that results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for tax on your combined income (as well as any additional tax the IRS assesses, plus interest and most penalties). Therefore, the IRS can come after either of you for the full amount. In most cases, joint filing offers more tax savings but some people can save by filing separately. We can look at both options. Contact us to prepare your tax return or if you have questions.
How to make the most of your multigenerational workforce
Many businesses have employees who range from Baby Boomers to members of Generation X to Millennials to the newest group, Generation Z. Certain stereotypes have long been associated with each one, but successfully managing multigenerational employees means not assuming that employees fit a certain personality profile based simply on their age. Recognize and respect value differences among different age groups, such as the importance of work-life balance. Consider initiatives such as company retreats and mentoring programs so employees from diverse generations can work together and share their strengths. Contact us for help developing cost-effective employment strategies.
The tax aspects of selling mutual fund shares
The tax rules involved in selling mutual fund shares can be complex. If you sell appreciated mutual fund shares that you’ve owned for more than one year, the profit will be a long-term capital gain. As such, the top federal income tax rate will be 20% and you may also owe the 3.8% net investment income tax. One difficulty is that certain mutual fund transactions are treated as sales even though they might not seem like it. For example, many funds provide checkwriting privileges. Each time you write a check on your fund account, you’re selling shares. Another problem may arise in determining your basis for shares sold. Contact us. We can explain in greater detail how the rules apply to you.
Do you want to go into business for yourself?
Many people who launch small businesses start out as sole proprietors. There are many tax rules and considerations involved in operating that way. For example, you may qualify for the pass-through deduction on qualified business income. You must pay self-employment taxes and make estimated tax payments on income earned. If you hire employees, you need a taxpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan. Contact us if you want more information about the tax aspects of your business, or if you have questions about reporting or recordkeeping requirements.
How business owners may be able to reduce tax by using an S corporation
Do you conduct your business as a sole proprietorship, wholly owned LLC or partnership? If so, there may be a way to cut your tax bill by using an S corporation. The self-employment (SE) tax is imposed on 92.35% of SE income at a 12.4% rate for Social Security up to $137,700 for 2020 and at a 2.9% rate for Medicare. An extra 0.9% Medicare tax is imposed on income exceeding $250,000 for married filers and $200,000 for singles. But if you conduct your business as an S corp, you’ll be subject to income tax, but not SE tax, on your share of the business income. But the S corp must pay you a reasonable salary. Contact us if you’d like to discuss conducting your business as an S corporation.
Look closely at your company’s concentration risks
The word “concentration” is usually associated with a strong ability to pay attention, but it has an alternate meaning in a business context. Many companies struggle with customer concentration, that is, relying on only a few customers to generate revenue. A rule of thumb says that if any one buyer represents 10% or more of revenue, customer concentration may be too high. Similarly, vendor concentration occurs when a company relies on only a handful of suppliers. Geographic concentration takes place when a business depends on just one area for customers or on a specific global supplier. We can help you measure your concentration risks and develop strategies for mitigating them.
Answers to your questions about 2020 individual tax limits
Right now, you may be more concerned about your 2019 tax bill than you are about your 2020 tax picture. That’s because your 2019 individual tax return is due to be filed in less than 3 months. However, it’s a good idea to familiarize yourself with tax amounts that may have changed. For example, for 2020, the amount you can put into a 401(k) plan has increased to $19,500 (from $19,000). You may want to start making contributions early in the year because they’ll lower your taxable income. Keep in mind that not all tax figures are adjusted for inflation and some amounts can only change with new tax legislation. Contact us if you have questions or need more information about your situation.
Do your employees receive tips? You may be eligible for a tax credit
If you’re an employer who owns a business where tipping is customary, for you may qualify for a valuable tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income. You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In other words, no credit is available to the extent the tip income just brings the employee up to $5.15 per hour, calculated monthly. Other rules may apply. Contact us if you have any questions.
There still might be time to cut your tax bill with IRAs
If you’re getting ready to file your 2019 tax return, and your tax bill is higher than you’d like, there may still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the Wed., April 15, 2020, filing date and benefit from the resulting tax savings on your 2019 return. For 2019 if you’re qualified, you can make a deductible traditional IRA contribution of up to $6,000 ($7,000 if you’re 50 or over). To be qualified, you must meet rules involving your income and whether you’re an active participant in an employer-sponsored retirement plan. If you’d like more information about whether you can contribute to an IRA, contact us.
Getting help with a business interruption insurance claim
Many companies buy business interruption insurance to cover revenues lost and expenses incurred while operations are limited or suspended due to a disaster. But buying a policy is one thing; receiving a payout is another. Insurers often enlist specialists to audit and reduce claims. Fortunately, your CPA can help you prepare the claim, quantify losses and anticipate insurer challenges. He or she can be the primary contact with the insurer, dealing with document requests. An accountant can also estimate lost profits by analyzing, identifying and segregating revenues and expenses. We’d be happy to provide whatever support you may need in pursuing a business interruption insurance claim.