January 1, 2020, ushered in The SECURE Act, which brings significant changes for anyone who has a 401(k), SEP, or IRA, especially those who turned 70 ½ last year. The SECURE Act was created, among other things, to help keep retirees from outliving their savings. But this Act has some unwanted effects for those whom it impacts.
On January 1, 2020, the age for required minimum distributions (RMDs) from a tax-deferred retirement account increases from 70 ½ to 72. This is good news for those who are still working into their 70s. It means they have another year and a half to make deposits into their 401(k), traditional IRA, or SEP accounts, giving their investments more time to grow before government-mandated withdrawals (and taxes) kick in.
Another change is the lift of the age restriction for traditional IRAs. Before The SECURE Act, taxpayers could not make a contribution to a traditional IRA in the year that they turned 70 ½. The SECURE Act changes that. Now, for tax years 2020 and beyond, you can make contributions to a traditional IRA after the age of 70 ½.
But here’s the deal. The deadline for making a contribution for the 2019 tax year is April 15, 2020. However, if you turned 70 ½ or older before December 31, 2019, you cannot make a contribution for 2019. In other words, if you had wanted the tax benefit of an IRA contribution in 2019, you should have made the contribution by December 31. If you didn’t know until now…you’re out of luck for 2019.
If all this seems confusing to you, that’s because it’s a complicated issue. Adams Accounting Solutions is here to answer any questions you have about RMDs and how to keep yourself out of trouble with the IRS. Call us today at 913-888-9100.
The medical marijuana industry in Missouri is growing by leaps and bounds as opportunistic entrepreneurs scramble to secure a slice of this quickly growing industry. The legalization of the restricted use of marijuana for medical purposes in Missouri in November 2018 has sparked a whole new industry that includes dispensaries, grow operations, testing facilities, and manufacturers of marijuana-infused products.
The expansion of the medical marijuana industry in Missouri will spawn many new businesses. These businesses – no matter where they fit in the marijuana supply chain – will have to pay taxes at both the state and federal levels. Since the sale or purchase of marijuana is still technically illegal at the federal level, these businesses may have challenges finding an accounting firm with the knowledge to navigate these murky depths.
If you’re considering starting a business that’s associated with the medical marijuana industry, you’ll need a licensed, experienced accounting firm on your side. Give Adams Accounting Solutions a call today at 913-888-9100. We’ll be happy to answer your questions and help you get started on the right foot with your marijuana-related business in Missouri.
There’s a new form in town. The IRS has updated Form W-4, the Employee’s Withholding Certificate, for the first time in roughly 30 years. This revision is long overdue. The old form was fraught with confusing worksheets and tax jargon. The new form should reduce some of the complications associated with calculating withholding amounts for employees’ paychecks. It’s intended to give a more accurate and complete assessment of an employee’s withholding amount, better matching up with the amount that will be due at tax time.
Figuring out the right amount of tax to withhold from an employee’s paycheck is a balancing act. The ideal scenario, according to the IRS, is a perfect balance of money withheld and taxes owed. Take out too little, and your employee will owe more at tax time. Take too much, and they’ll probably get a bigger refund. They’ll appreciate that until they realize that they’ve let the IRS use their money interest-free all year.
Here’s a quick rundown of the changes for 2020 and what employers need to know about the new and improved Form W-4.
No more allowances. The most significant change is that the new Form W-4 no longer uses allowances to calculate withholding amounts. Previously, withholdings were calculated based on personal exemptions – the amount of money a taxpayer could legitimately deduct from taxable income in a year based on the number of dependents in the household. Personal exemptions were eliminated when the 2017 Tax Cuts and Jobs Act went into effect. In their place, the standard deduction and child tax credit were raised.
A five-step process. There are now five steps for employees to complete when filling out the new Form W-4. Steps 2, 3, and 4 may or may not apply based on each individual’s situation. If they do not apply, skip to Step 5.
Starting in 2020, all new employees will need to use the new Form W-4. Existing employees do not have to fill out the new form. Their withholdings will continue to be calculated based on the old form.
You may want to encourage your employees to do a periodic payment assessment, especially if they have a change in their life situation. Marriage, divorce, births or adoptions are always a good time to reassess their tax withholding status and fill out a new Form W-4 if needed.
If you have a new employee who hasn’t filled out and returned the new Form W-4, the IRS will treat them as a single filer with no other adjustments. While this may be what’s needed in their situation, it may not be. This status could result in too little withholding during the year, which means a higher out-of-pocket tax payment at tax time. Encourage them to fill out and return this form as soon as possible.
If you have questions about implementing the new 2020 Form W-4 within your company, call Adams Accounting Solutions. We’ll walk you through the changes and help you better understand and explain the impacts this form may have on your new employees this year.
It’s time for employers to file form 1099-MISC for any contractors or freelancers they’ve used during the past year. This form must be filed for any non-employees who have been paid $600 or more during 2019. The filing deadline to have these in the mail is January 31, 2020.
The 1099-MISC is a tax form used to report non-salary income to the IRS for tax purposes. Independent contractors and freelance workers must pay taxes on any earnings they’ve received from employers during the tax year; the 1099-MISC is the form by which that income is reported to the IRS. The 1099-MISC is filed by employers, not by the contract workers.
An independent contractor is anyone hired temporarily (secured via contract) to complete a project or assignment for your business. Examples of independent contractors may include graphic designers, social media experts, or part-time office staff.
The 1099-MISC only needs to be sent to the IRS for those independent contractors that were paid $600 or more by your company during the current tax year.
If you hire an independent contractor through an employment service, you may not have to submit a 1099-MISC for that contractor. The employment service may handle that for all the contractors they hire out, so check with them before you start the process.
You may also be able to figure this one out for yourself. Are you paying the contractor directly, or are you paying the employment firm that sent the contractor to you? If the answer is the latter, there’s a good chance the employment firm will file the 1099-MISC.
You’ll need some basic information for each contractor that you’ve hired and paid $600 or more this year. Here’s the information that’s required:
All of this information except for the total amount paid can be found on form W-9. As a general business practice, you should request a form W-9 from every contractor before they begin work for you.
All 1099-MISC forms need to be sent to the IRS. You can do this yourself or have your accountant do it for you. Your accountant is well-versed in this process and will make sure you have all the bases covered.
Yes. If you intentionally provide incorrect information or disregard the 1099-MISC filing process, you could be fined $270 per occurrence with no cap for the year. If you file your 1099s late, you could be subject to late penalties determined by the date that you actually submit the forms. The penalties can add up quickly; ignoring or delaying the filing of your 1099-MISC forms isn’t worth the risk.
Adams Accounting Solutions is happy to handle the burden of completing and filing your 1099-MISC forms for you. Give us a call today with any questions or to get the process started. Don’t wait too long. The filing deadline of January 31 will be here before you know it!
Many small businesses are overwhelmed with paperwork. Yes, we supposedly operate in a paperless society, but somehow our desks continue to get overrun with paperwork. How do you determine what to keep and what to throw out? How do you organize it? And where do you store all this?
For small businesses, proper document retention is critical for several reasons. Keeping a handle on the filing of mission-critical paperwork not only tidies up the office, but it can keep you out of hot water with the IRS or other government entities, as well. Having a clear, logical document retention plan in place can save you hours of searching — not to mention stress — if you have to produce a document for a specific purpose.
Keeping track of relevant documents is also a good idea when they support other business decisions. Tax deductions, tax payments, and tax credits all have supporting documents that need to be retained. What if you decide to sell your business? You’ll need to produce tax documents, financial statements, bank statements, and a whole host of other information for the new owner. Payroll documents should be kept for a minimum of three years, according to the Fair Labor Standards Act, and any documents used to determine the rate of pay for your employees must be kept for a minimum of two years.
All of this adds up. The best way to keep track of all your important papers is by using a document storage facility. There are several out there, but they’re not all created equal. Make sure you choose one that has an organized filing system and a secure location (secure from theft and natural disaster). Also, choose one that guarantees that they can retrieve your documents when you need them. If the IRS wants to see your tax return from three years ago, you need to be able to access it within the requested time frame.
To get you started on taming that mountain of paperwork, here are a few tips from the IRS for document retention for small businesses.
There are many nuances when it comes to tax-related document retention. If you have any questions about how long you need to keep your tax documents, give Adams Accounting Solutions a call. We’ll help you sort it all out.
Many people don’t realize that once they turn 70½, they have to take required minimum distributions (RMD) from their tax-deferred retirement accounts each year. This is part of the IRS tax code, so there’s no getting around it. For some, these RMDs push them into a higher tax bracket, increasing their overall tax liability and potentially reducing their eligibility for certain tax deductions and credits. Not a good situation to be in.
If you’re nearing age 70½, take heart. There’s a way to make these RMDs work for you – and for others, as well.
If you have an interest in helping others, using an RMD to make a qualified charitable distribution (QCD) is a great way to support a worthy organization while also keeping your RMD from impacting your taxable income. QCDs of up to $100,000 count toward your annual IRA distribution requirement, and because the money is going to a charity, it’s excluded from taxable income. So you can help others and keep your tax liability to a minimum at the same time. It’s a win-win.
When you request a distribution from your IRA, the money you receive is classified as income, and you’ll have to pay taxes on it. When you request a distribution for a charitable organization, the check is made out to the charity and sent directly to the organization, or it’s mailed to you so that you can forward it on to the organization. Either way, the money goes to the charitable entity, and not into your bank account. This is the difference between the two types of distributions.
While you could request a distribution from your IRA and then use it to make a charitable donation, the impact on your taxes isn’t the same. Under this scenario, the distribution is considered income, and you’ll pay taxes on it, even if you turn around and donate that same money to charity. It’s all in how the funds are distributed.
There are eligibility requirements for RMDs and QCDs. Talk to your accountant before taking any distributions from your IRA accounts to make sure you’re handling them in a way that makes sense for your situation.
Below are the general requirements for QCDs.
There are a few other rules around which types of IRA accounts are eligible for QCDs and which charities are eligible (or not) to receive this type of contribution. Check with your accountant to make sure you’re following the rules. Using RMDs to make a difference in the lives of others is a good thing to do at the end of the year, but make sure you’re doing it right so you also get benefits.
At Adams Accounting Solutions, we’ll help you sort out the impacts of RMDs and QCDs on your tax situation. Give us a call today to make sure you don’t miss the December 31 deadline.
Small business owners are always looking for ways to save money and cut expenses, and it’s no wonder. Trying to turn a profit is no easy feat, and business owners must be vigilant about every detail of the business.
One detail that needs constant attention is your tax liability. Did you know that as a small business owner, you can legitimately hire your spouse and reimburse him or her for all medical expenses in the household as a business deduction?
Section 105 of the IRS code allows small business owners to reduce taxable income by reimbursing certain specified medical and insurance expenses incurred by their employees. For qualifying businesses, this is a great way to lower taxes each year, but many small business owners don’t know about Section 105. This lack of awareness often leads to business owners leaving between $2,000 and $4,000 in tax savings on the table at tax time.
There are a couple of ways businesses can benefit from Section 105. One is by creating a self-funded insurance plan for employees. The other involves setting up a Health Reimbursement Account (HRA). Your accountant can help you decide which works best for your business.
To benefit from Section 105, you have to enroll in the program by December 15, 2019, and commit to participating in the plan for both 2019 and 2020 tax years. The tax professionals at Adams Accounting Solutions can help you determine your eligibility for participation in a Section 105 plan and get you enrolled.
Don’t leave money on the table at tax time. Call Adams Accounting Solutions to set up a Section 105 plan for your business.
What are you doing over Memorial Weekend? If you’re still making plans, there are lots of fun options across KC this weekend! Here are just a few to get you started:
Oceans of Fun: It’s opening weekend at Oceans of Fun! If you’re a 2018 Gold, Platinum or Pre-K passholder for the water park, you can get into Oceans of Fun at 10AM – an exclusive full hour ahead of the rest on Friday May 25-Monday May 28.
Celebration at the Station: Take in beautiful views and music by the Kansas City Symphony at Union Station’s Celebration at the Station event on Sunday May 27. The event site opens at 3PM and the concert begins at 8PM. This FREE event offers pre-concert musical acts, food trucks and MORE! Come out rain or shine.
Westport Roots Festival: Enjoy live music at the 5th annual Westport Roots Music Festival. The event will showcase 65 bands on 2 stages over the weekend, featuring bluegrass, honky-tonk, rock and roll, southern metal and everything in between!
This weekend is also opening weekend for most area pools – a fun way to cool off with family and friends. However you choose to celebrate, we wish you a safe and fun holiday weekend!
We hope you completed your 2017 on time without issue! If for some reason you didn’t, you can still call on us to help. We’re now meeting with clients who filed extensions to wrap things up.
With that, we realize the last thing you want to think about right now are your 2018 taxes, but there are some changes with new tax reform that could impact your 2018 income taxes. And being informed and managing to these now will save you stress and aggravation for your next file.
One of the most significant is the Tax Cuts and Jobs Act. If you’re a W-2 employee, you need to understand this change, as it currently includes the loss of unreimbursed employee expenses for 2018. This may affect how you handle expenses related to your job like mileage, business lunches or travel expenses.
To be sure you’re managing expenses in a way that will be most beneficial to you when tax season rolls around again, talk with your employer. They may be able to provide guidance or an alternative form of reimbursement that’s fair. If you want to have a better understanding of the change and how it may impact your overall tax position first, give us a call at 913.888.9100.
Tax day is drawing near. While everyone has taxes on their mind, i’s a good time to ensure the right amount of tax is being taken out of your 2018 paycheck for your situation. Tax law changes can be complicated, but IRS is trying to help. Here’s a short video – have a look and see if you think your paycheck withholding is correct.
Additionally, there are tools available on IRS.gov to make sure you don’t have too little or too much tax withheld. “Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time in 2019,” noted the IRS website. “And with the average refund topping $2,800, some tax payers might prefer to have less tax withheld up front and receive more in their paychecks.”
If you need to adjust, you will need to submit a new Form W-4. Doing this sooner rather than later is best. Call on us at 913.888.9100 if we can help. And if you’re feeling overwhelmed with your 2017 file, it’s not too late to get it in on time. We’re ready to step in and help.
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.