Category: Newsletters

Question:

I’ve owned a small business for a couple of years and recently hired my first employees. I would like to offer them health insurance, but I’m unsure I can afford it. Is it true I can get a credit by offering a health plan for the first time?

Answer:

Possibly. The Small Business Health Care Tax Credit is a credit of up to 50% of your employees’ premium costs if you provide them with a qualified health plan from a Small Business Health Options Program (SHOP) marketplace. One exception to the requirement is if you don’t have a SHOP marketplace plan available in your area. You can only claim the credit for two consecutive years and other rules and restrictions apply.

Question:

My husband insists we should fill out a FAFSA form for my daughter’s upcoming first college year, but I think we make too much to qualify for aid. Should we?

Answer:

Why not? You might be surprised, and you have nothing to lose by filling out a Free Application for Federal Student Aid (FAFSA). Generally, the higher a family’s income, the less available financial aid may become. However, having to pay college tuition for two or more children simultaneously and other circumstances may help parents with higher incomes qualify.

With open enrollment season upon us and the end of the tax year coming for most businesses, now is a good time to explore your company’s current or future retirement plan options. For sole proprietors and smaller businesses, a Simplified Employee Pension (SEP) is often among the most attractive options.

BIG LIMITS

While small business owners have other options, few offer the generous limits of the SEP. In 2019, you can contribute up to the lesser of 25% of employees’ annual compensation or $56,000, indexed to inflation. If you are a sole proprietor, your compensation is determined by your net earnings from self-employment. Consult your tax professional.

QUALIFICATIONS

In this nonelective plan, employees must receive an employer SEP contribution if they are at least age 21, have worked for the company at least three of the past five years and will be paid at least $600 this year. Plans are allowed to have less restrictive requirements to include younger or newer employees.

FLEXIBILITY

Employers do not have to make a contribution to the plan every year, as is required by some other qualified retirement plans. Additionally, startup and administrative costs are very reasonable.

Does your business have a line of credit (LOC)? If not, does it need one? If you’re a newbie when it comes to this financing vehicle, here’s what you need to know.

WHAT IF?

Your business may run fine without a line of credit, but that doesn’t mean you won’t need one if a future opportunity arises or a temporary financial crisis occurs. A business LOC is typically unsecured and usually available for any business reason. Interest rates may be lower than for a standard business credit card, but are often higher than for a business loan.

The major difference between a loan and an established LOC is that the latter is available without having to wait. That ready money can be helpful if, for example, you find an “act now” deal on supplies or you have a spur-of-the-moment marketing or business development opportunity. An LOC also helps pay bills when business unexpectedly slumps, such as during a stretch of bad weather.

WHO QUALIFIES

Your business may qualify for an LOC if you have a good personal credit score and the business has been in operation at least a year or two and can demonstrate a consistent income flow. Talk to your accounting professional to learn if an LOC can help your business.

Rick used to offer a Flexible Spending Account (FSA) to employees, but discontinued it after establishing a Health Savings Account (HSA). Now his employees are asking for the FSA, in addition to the HSA, to cover dental and eye care expenses. Can he do both?

Yes, Rick can offer both, but with a catch. He can offer an HSA to employees with high-deductible health plans, who can save pre-tax to pay qualified medical expenses including deductibles, copayments and coinsurance. An FSA can do the same for employees with any health plan, but only when employers do not offer an HSA.

Since Rick does offer an HSA, he can offer a limited-purpose FSA. This tax-qualified savings plan can be used for dependent care expenses, either childcare or eldercare, or for limited healthcare expenses such as dental and eye care.

In 2019, employees can save up to $2,700 in an FSA for health care, which they typically can’t carry over year to year, and families can save up to $7,000 in an HSA, which they can carry over. Other differences exist, so Rick should talk to qualified tax and insurance professionals to learn more.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

A relatively old idea with a new name is gaining increased interest among Millennials. Proponents of FIRE — Financial Independence, Retire Early — work toward early retirement by reducing spending during their working lives to build the funds needed for future financial freedom. While this austere, strict saving philosophy may not be for everyone, some of its principles may help those looking to meet ambitious financial goals.

FINANCIAL INDEPENDENCE

The first part of FIRE — financial independence — is the main goal of its proponents. Independence doesn’t necessarily mean retirement, but rather the financial ability of FIRE followers to use their time as they see fit, whether to travel the world, volunteer or open their own businesses.

For most of us, our goals are more traditional. We may want to save for a nice home, a child’s college education and a comfortable retirement, the latter perhaps near normal retirement age instead of in our 40s. FIRE’s personal finance practices can still help you reach these goals.

GOOD PRACTICE

You can use FIRE principles without brown-bagging your lunch for eternity by first defining a financial target. Next, identify and pay off your highest-interest debt, working toward being as debt-free as possible.

Go through your budget and identify where you can spend less. How much you sacrifice should correlate with how important your goals are. Maybe you don’t need to keep your car for 20 years, but an extra couple of years without car payments can help.

At the same time, you might consider earning more via overtime, a second job or gigging, and putting this money toward your most important goals. Save as much as possible early on to take advantage of time and compounding, and do it in tax-deferred vehicles when possible.

More than 25.5 million taxpayers who filed individual 2016 income tax returns reported non-farm sole proprietorship activity. That’s a 1.2% increase from 2015. Total profits from non-farm sole proprietorships decreased 2.4% during this time, although total profits as a percentage of business receipts were 23.1%, the second-highest level in this data series that began in 1988.

Self-Employed

The IRS defines non-employer business as subject to federal income taxes with annual business receipts of $1,000 or more ($1 or more in the construction industries) and no paid employees. Most non-employers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner’s principal source of income.

Talk to a tax pro about ways you can reduce taxes if you have self-employment income. Newer tax laws, including the pass-through provision, could help the self-employed reduce their tax liability.

When you buy life insurance, you plan for the worst and hope for the best. During this Life Insurance Awareness Month, consider the many reasons to own and periodically review this important financial protection.

BASIC PROTECTION

Life insurance in this country is as old as America itself, and it has roots going back to the ancient Greeks and Romans. Today, as then, life insurance is a way to minimize a family’s financial risk when their breadwinner is no longer here to provide for them.

Growing families, in particular, need the financial protection life insurance offers. From replacing lost income and providing money needed to pay off a home to funding childcare and lifestyle costs, life insurance can financially protect your family’s way of life if the unthinkable occurs.

Even retirees may want this protection if they still have minor children, have a disabled adult child or expect their beneficiaries will owe estate taxes. Life insurance, incidentally, is typically income tax-free.

LEGACY FUNDING

Beyond basic protection, life insurance provides a vehicle to achieve other financial goals. With life insurance, you can leave a financial legacy for loved ones or to a favorite charitable organization.

EXTRA INCOME

Policy owners with whole life insurance can potentially supplement their income with its cash value, although this can reduce the policy’s death benefit. Still, the tradeoff may be acceptable for a retired couple with smaller life insurance needs.

FINANCING TOOL

Business owners have long used life insurance as an efficient way to help fund buy-sell agreements between partners, to help fund family succession to the business and to equalize estates for family members who opt not to participate in the family business.

Talk to your tax professional to learn how life insurance can impact you and your family’s finances.

That’s Life – During Life Insurance Awareness Month, consider the many reasons to own and periodically review your life insurance policies.

More Go Solo – In 2016, more than 25.5 million taxpayers who filed individual 2016 tax returns report non-farm sole proprietorship activity.

Is Fire Right For You – Proponents of FIRE – Financial Independence, Retire Early – work toward early retirement by reducing spending during their working lives to build funds needed for retirement.

Client Profile – Can you have both an FSA and an HSA?

What’s My Line – Does your business need a line of credit?

Meet The Simplified Employee Pension (SEP) – For sole proprietors and smaller businesses, a SEP is often among the most attractive options.

Questions And Answers

Short Bits

Healthcare Costs Up

Want to know what you may spend a lot of money on in retirement? Health care. Fidelity Benefits Consulting estimates that a couple retiring in 2019, 65 years old, with average healthy life expectancies, will pay more than $280,000, not including long term care. If you can, contribute to a tax-deferred HSA while working and take tax-free contributions for qualified health expenses.

Retirement Confidence Up

Retirement confidence is higher than at any time since the early 2000s, according to the 29th Annual Retirement Confidence Survey, conducted by the Employee Benefit Research Institute (EBRI) and independent research firm Greenwald & Associates. Slightly better than two of three people surveyed are confident in their ability to live comfortably in retirement. Some 59% are confident they will have enough money for medical expenses in retirement and 52% believe they will have enough for long-term care.

GDP Up In Q1

The economy continued to hum, according to the Bureau of Economic Analysis, whose initial look at real gross domestic product during the first quarter of 2019 found a 3.2% gain. The increase reflected positive contributions from personal consumption expenditures, private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Real GDP is an inflation-adjusted measure showing the value of all goods and services.

Employment Prospects Mostly Good

The Federal Reserve Bank of New York recently analyzed labor market outcomes by college major of recent graduates. Theology graduates and medical technicians had the lowest unemployment rates at 1.0%. Chemical, computer and electrical engineers had the highest early-career salaries at between $65,000 and $68,000, and the highest mid-career salaries at around and just over $100,000.

Question:

I’m a small business owner and a storm damaged my home, which included my home business. How do I pay my estimated taxes when my paper records and computer were destroyed?

Answer:

We’re sorry to hear about the storm damage. Start, of course, by talking to your tax professional, who may have copies of some records you will need. Most newer computer programs include a cloud backup of word processing and spreadsheet files, so you could find some needed records there. Finally, for a copy of old tax records, go to www.IRS.gov and use the Get Transcript application.

Question:

My home was damaged by severe floods. Where can I learn if I am eligible for financial aid as I begin the recovery process?

Answer:

Start by going to www.disasterassistance.gov to learn if your region qualifies for federal disaster assistance. The website has a variety of resources, including contact information for local help.

Your state should also have an emergency management department and your community may have resources to help. Also look toward organizations like the American Red Cross for help, and check with the Federal Emergency Management Agency at www.fema.gov, where you may identify emergency shelters and longer-term rentals if you can’t return home.