Harless Tax Blog

Harless Tax Blog

10 Year-End Tax Tips

Wednesday, December 13, 2017

Source: money.usnews.com

With the end of the year looming, the window is quickly closing for taxpayers who want to minimize the taxes they will pay next spring.

What's more, for those trying to make year-end adjustments to their income and deductions, a tax reform bill being discussed in the District of Columbia has created uncertainty. Although it's tempting to take action based on expected changes to the law, some finance experts urge caution. "Until the law becomes formal, we have to be very careful," says Kristin Bulat, senior vice president of strategic resources for insurance and consulting firm NFP.  See More

ESOPs can be expensive

Wednesday, May 24, 2017

Business owners sponsoring ESOPs may realize advantages, but there are drawbacks as well. Payouts to departing employees, for share buybacks, can be a cash drain. The same is true for regulatory requirements, including annual appraisals. In addition, ESOP participants lack diversification in their retirement plans because the primary holding is the sponsoring company’s stock. Therefore, companies that sponsor ESOPs also may offer a retirement plan such as a 401(k), where employees can defer some of their salary (and the tax on that income) in order to acquire other investments.

If the idea of using an ESOP as a retirement plan appeals to you, our office can help you evaluate the costs and the potential benefits.  See More

Advantages to owners

Monday, May 22, 2017

Why should business owners consider an ESOP? Some studies indicate that employees become motivated to excel when they become employee-owners. They know that good corporate results will boost the annually appraised value of their shares, and ultimately provide a bigger payout. Strong results will benefit major shareholders as well.

What’s more, ESOPs offer some exceptional tax benefits to the sponsoring company and its principals.  See More

ESOPs as Retirement Plans

Friday, May 19, 2017

Among the retirement plans that small businesses can offer to their workers are employee stock ownership plans (ESOPs). As the title indicates, an ESOP is a process for transferring ownership of the company to employees. How does that work as a retirement plan?

In some ways, an ESOP is similar to a profit-sharing plan (see the CPA Client Bulletin, January 2017), in which the company makes cash contributions. With a “vanilla” or unleveraged ESOP, the company funds the plan by contributing shares of its stock, or cash to buy those shares.  See More

Many Retirees Face April 1 Deadline to Take Required Retirement Plan Distributions

Wednesday, March 30, 2016

From the IRS.gov Website. Read Original Article >

WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016.

Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70½ in 2015 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary. Both tables can be found in the appendices to Publication 590-B.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2016. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2016 RMD, this amount would be on the 2015 Form 5498 that is normally issued in January 2016.
IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.  See More

Safe Harbor Deadline is October 1

Sunday, September 13, 2015

Just a quick reminder that the deadline for setting up new 401(K) Plans with the Safe Harbor provision is quickly approaching. All new Safe Harbor plans for 2015 must be in place by October 1, 2015.

The Safe Harbor 401 (K) plan is one of the most popular retirement plans that business can have.  Safe Harbor 401 (K) plan makes it easy for small and entrepreneurial business owners to maximize contributions to their own accounts while keeping employee costs manageable.  You have until October 1 to establish a new Safe Harbor 401 Plan for calendar year 2015.

The Safe Harbor Plan 401 (K) plan allows owners to:

  • Contribute the maximum annual deferral amount to their own 401 (K) plan ($18,000 or $24,000 if age 50+)
  • Receive additional Safe Harbor contributions (they are an employee too!)
  • Reduce the challenges associated with the 401 (K) non-discriminating testing

The Safe Harbor 401 (K) Plan makes contributions in one of the following two basic formulas or numerous variations:
  • Non-Elective - Contribute 3% of compensation to all eligible employees
  • Basic Match - Match 100% of the first 3% plus 50% of the next 2% of compensation.
If you have an existing 401 (K) plan without a Safe harbor feature it can be added to take effect beginning 2016. See More