Sunday December 8, 2013
Self-employed persons and small business owners may want to review their business structure to see if it their structure will be tax-efficient in the coming years.
The issue we're facing is higher tax rates. There's a new 39.6% top ordinary tax rate and there's a new 0.9% additional Medicare tax on net self-employment income. Plus, there's a new 3.8% tax on net investment income. While the 3.8% surtax does not apply directly to business income, if business income increases a person's adjusted gross income over the threshold for the tax, then this could trigger the 3.8% tax. Both the additional Medicare tax and the net investment income tax impact taxpayers earning over $200,000 per year (or $250,000 for married couples filing jointly).
Small business owners who expect or who might be in the threshold ranges for these new taxes might want to consider options for how they structure their business for tax purposes.
We'll quickly review the choices available and discuss how changing the business structure could impact taxes in future years. Read More...
Saturday December 7, 2013
Self-employed persons and small business owners may want to review their retirement plan before the end of the year.
Here are some retirement plan issues to consider:
Do you currently have a retirement plan for your small business? If not, consider your options. You could set up a SEP-IRA, 401(k), or SIMPLE IRA to cover yourself and your employees. Consider how much could be contributed under each plan and its impact on your tax return.
If you do already have a retirement plan, is it meeting your needs and the needs of your business? I often recommend SEP-IRAs to self-employed persons due to the ease of setting up and administering the plan, and the simplicity of calculating the contribution amount. But sometimes a solo 401(k) works better, especially for middle-income self-employed people with no employees due to the potential for higher contributions and the potential to have some of the contributions placed into a Roth account. Analyzing which plan is right for your needs depends on a lot of factors, and so it's best to run calculations to see what the contribution levels and tax impact could be with different plans.
How it impacts your 2013 taxes: contributions can be made as late as October 15, 2014, which is one of the benefits of filing an extension.
Friday December 6, 2013
Boosting your business deductions can help reduce income tax and so the self-employment tax. For 2013, be aware that the self-employment tax has reverted back to its normal 15.3% rate, and the limit for the Social Security portion of the tax has increased to $113,700.
Some strategies for boosting your deductions:
Thursday December 5, 2013
One way to do tax planning at the end of the year is to get a preliminary idea of how much your tax liability is, how much you have paid in so far, and figuring out how much of a refund or balance due you might have. You can do this yourself using tax software, or you can ask your tax professional to do this for you.
The goals of running a preliminary tax calculation:
- Figure out how much your federal and state tax liability is
- Figure out how much you have paid in so far (through withholding and estimated payments)
- Figure out how much you have left to pay or if you've overpaid already
- Figure out if there's any data being asked by the software or by your accountant that you need to collect or could organize better.
Once you have a pretty solid calculation of your tax liability, you can take a look at what the tax impact will be if you earn additional income and/or take additional deductions. Some tax programs even have what-if utilities to help you build and compare different scenarios for your income and deductions.
Some resources to help you out:
Tax software reviews and previews:
Links to tax software providers: