“What will my raise do to my taxes?”

Good question! The answer? If only it were easy to figure!

Getting a raise, promotion, or accepting a new position often means more money in your pocket. But it can also mean a change in your taxes.  (In rare cases a salary increase can actually mean less net pay!) The IRS has a dizzying amount of tax and deduction thresholds–think of it as an income level trigger–so that it is almost impossible to remember each one, or more importantly when you have reached and passed one.

Until now!

Presenting our extremely handy IRS threshold charts! These charts give the 2013 thresholds (the 2014 ones still unavailable) in ascending order.

2013 Tax Thresholds--MFJ 2013 Tax Thresholds--single Notes:

-The first chart is for couples filing married filing joint tax returns. The second is for individuals filing single tax returns.

-A “phase out” is when a deduction or credit starts to become increasingly smaller. Usually the higher the income, the smaller the allowed deduction or credit until it is entirely gone.

Stay-at-home parent? You need retirement savings, too!

stay-at-home-momThere are over 5 million stay-at-home parents in the United States.  We give these individuals snaps for forgoing earnings (at least for a time) to make sacrifices that are important to them! However, these people are not exempt from aging, and therefore need to be concerned about a retirement nest egg.

Are you a stay at home parent? Have you thought about saving the money you will need for your retirement? Be careful not to assume your partner has it all taken care of–he/she may not! Here are some practical ways to save, suited specifically for your unique situation.

Consider a Spousal IRA

Newly deemed the Kay Bailey Hutchinson IRA, the spousal IRA honors in name the former U.S. Senator from Texas who made it possible for spouses not participating in the workplace to contribute to an IRA, something previously not allowed. In 2013, non working spouses may make contributions of up to $5,500 a year ($6,500 if over 50 years) in their own spousal IRA. The only requirement is that you file a joint tax return with your spouse.

Don’t forget about any old 401(k)s!

If you used to work and had an employer sponsored 401(k) plan, be sure to roll the money into an IRA so that you maintain control over it. Forgetting about it could result in you being cashing out (which will incur taxes and penalties) or limit your control if it is automatically rolled into a less-than-desirable IRA of their choosing.

Maximize your working spouse’s contributions to his/her employer sponsored retirement plans

Don’t assume it is being done! Sit down together and decide how much you can stash away. Working individuals can contribute from their wages up to $17,500 in 2013 ($23,000 if over 50 years) to an employer sponsored 401(k) retirement account. A huge benefit to contributing to an employer sponsored plans is they often provide a matching contribution to yours = free money! (Also as a note to self-employed individuals, the legal limit of total contributions to a 401(k) from all sources is $52,000 in 2013, so consider that your business can match your $17,500 with an extra $34,500!)

Have a small business on the side?

Many stay at home parents have small business ventures. If so, you are eligible to set up a self-employed 401(k) or SEP IRA. (see above note to self-employed individuals!)

Make saving a priority

As a stay at home parent, you are likely the most in tune with family finances. Therefore you hold a lot of power in making saving a priority. Establishing the pattern of putting a little away each month will pay off big in the end. It is these small savings along the way that is more likely to carry you through retirement (along with the power of compound interest) than any windfall investment.

A word on Social Security benefits

If you never work outside the home, you are still eligible for social security benefits based on your working spouse’s benefits; usually half of your spouse’s benefits, to be exact. The situation can change if you become divorced and do not enter the work force yourself, but usually there is still some benefit based on your ex-spouse’s benefit, although it will be reduced.  But as always, do not bank on social security as your sole retirement.

“I’m self employed. How do I get health insurance with the new health care laws?”

(insurance_help_deskTake a second to laugh heartily at the picture and then let’s get to business.)

The health insurance world has been turned on its head courtesy of the Affordable Care Act, and reality has yet to settle in. But in the mean time I have felt anxious for all our self-employed friends, and I dedicate this blog post to you. May it be of help to you in your quest to find health insurance, now a legal requirement.

  1.  Do I need health insurance? : Yes, the law now requires everyone to have it.
  2.  Are there tax benefits in having self-employed health insurance? : Yes, you get to expense the cost of you and your dependent family members’ health insurance premiums as a business expense.
  3.  Are self-employed health insurance plans cheaper than individual health insurance plans? : From what I can tell the prices will be the same, ie, there is no discount just because you are self-employed.
  4. How much is health insurance going to cost me? : Unfortunately there is no way for me to answer this. And there is no way around it. You will simply have to sit down and do your homework. But read on; what I have to say will hopefully save time and headache.

In light of the new health insurance law, it seems everyone who doesn’t receive insurance from their employer has three options. They are:

1. Purchase Health Insurance from a Private Health Insurance Company. Yes, it is still available, only more expensive than before and with fewer options due to compliance to new regulations. Thanks to technology, there are many one-stop-shop websites such as ehealthinsurance.com that will allow you to compare many insurance company’s plans side by side. If you need a tutorial on how to read and understand insurance lingo such as copays, deductibles, coinsurance, and annual maximum, this youtube video gives an easy-to-understand walk through. Remember, picking a plan involves anticipating your medical needs because plans that cost more = more insurance benefit, and plans that cost less = less insurance benefit. The idea is, of course, to pay the least amount of money possible in combined premiums and medical bills, so that will take some consideration on how much you think you will need your insurance in a year, i.e. someone who anticipates having a baby will likely save enough money on medical bills with a higher benefit plan to offset its more expensive price tag.

2. Purchase Health Insurance from a Public Exchange (the government). The public exchanges are operated by the government but the plans are provided by private health insurance companies. Essentially everyone qualifies to use the exchanges. Some states have exchanges run by the state, and other states piggy-back on the federal exchange. Click here to find which applies in your state.

So the big question I had is: what is the difference between buying health insurance from a private company as opposed to from the exchanges which offer plans from the same companies? During my research I found a couple of intended differences. First, the exchange attempts to streamline the insurance shopping process and make comparison easier by categorizing all plans from all companies into 5 classes: bronze, silver, gold, platinum, and catastrophic. Second, it offers tax incentives and government subsidies to those that qualify (as determined by household size and annual income) that lowers the total cost of your health care insurance by either lowering the insurance price or increasing the amount of insurance benefit at no additional cost to you. (To determine if you would qualify for either of these subsidies you can use this subsidy calculator from Kaiser.) The marketplace will also help enroll you directly in CHIP or Medicaid if you qualify.

3. Don’t buy any Health Insurance and pay a penalty. For 2014 the fine for not having insurance will be $95 per person (up to a family maximum of $285, or 1 percent of family income, whichever is more). But the penalty increases by 2016 to  $695 per person, with a family maximum as high as $2,085 (or 2.5 percent of family income, whichever is greater).

Retirement Savings: A Simple Start

It takes moneyRetirement traditionally means the well-earned rest from 9 to 5 work in the golden years of life. But interestingly the word “retirement” more often invokes a sense of anxiety and dread; a heavy pit in one’s stomach. So instead of having dreams of golf and travel, we are instead tortured and obsessed with how we will possibly afford a retirement! Then there are the every present questions, “How much do I need to save?” and “Where do I put the money?”

It’s true that comprehensive retirement planning is complex. But that is no reason to throw in the towel. Retirement planning can actually be very doable when done step by step. These 6 simple steps can assure a great start to retirement savings and are easy enough for anyone to follow without professional assistance.

1. Live on less than you make

Spend less than you earn. Period. It will be hard to have any real monetary success until this skill is mastered.

2. Pay off all consumer debt

Consumer debt is defined as all debt excluding house mortgages and sometimes student loans–this means credit cards, car loans, store loans, etc.  There are several approaches to paying down debt, including paying down the highest interest rate first. One approach that merits attention is called the snowball method, which involves paying off the loans from smallest to largest. (It is supposed to provide periodic tastes of success which keeps you motivated.)

3. Establish an emergency fund

But aside money for an emergency, such as unemployment or unexpected medical bills (not for a home down payment, car repairs, Christmas vacation, etc etc etc). This account acts as a buffer, helps you to feel secure, and helps you avoid more consumer debt in an emergency. There are different recommendations on how much to save varying from 3 to 12 months worth of living expenses. Sit down and figure out how much it costs your family to live for 1 month and multiply that by at least 3 months or more.

4. Max out an employer sponsored 401k

Now actual retirement savings may begin. Most employers offer a 401k plan to their employees. You can elect to withhold a certain percent of each paycheck to be put into your 401k. These contributions are income tax free. You can contribute up to $17,500 per person per year in 2013. For those age 50 and older, the most is $23,000 per person per year.

Many employers also contribute to employee’s 401k, most often determined by and in relation to how much the employee contributes. This is essentially extra money from your company! Contribute as much as needed in order to maximize the company’s contribution.

5. Contribute to an IRA

If you are contributing the maximum amount possible to your 401k and still have more money to invest, you can also contribute to an IRA, another similar retirement account to a 401k. A traditional IRA is tax free and you may contribute up to $5,500 per person in 2013. For those age 50 and older, the most is $6,000 per person per year.

6. Pay off your mortgage

At this point there is room for speculation on what to do with any available monies, but paying off your mortgage will eliminate one of your largest expenses, ensure you still have a home if your financial situation becomes rough, and provide you with an asset that will always have value.

Techflex: Easy ways technology can save your small business time and money now

What POS system?The Golden Age of Technology (as I like to coin it) has been amazing to experience!  It has also been overwhelming at times given the super-sonic speed at which new technology arrives on the scene.  It can be tempting to bury your head and hope it will all be over soon.  But resist! If you are a small business owner there are many fabulous, easy to use, affordable and practical technologies out there just waiting to save you time and money.  (And don’t worry, we won’t try to fill a bucket with a fire hose.)

Save Money on Gas

  • Cut trips to the office or client sites as you can get access to remote (meaning ones not physically where you are) computers from your own computer with software such as logmein.com, gotomypc.com, or teamviewer.com. Video conferencing software such as well-known and free Skype, G Chat (from a Google gmail account), or Adobe Connect makes it easy to interface with a potential client or employees without the travel time or money. These programs often have either a free option or free trial period.
  • Cut trips to the bank as many banks now offer a feature that allows you to take a picture of your checks and deposit them online (see this example from Chase). Contact your bank to see if this feature exists.

Save Money on Marketing

  • It is officially a necessity to have a business website. But it must look current and professional, not like your friend put it together 10 years ago for free. Great sites like wix.com and webs.com allow you to pick a professional looking website template and simply drop in your pictures and text where indicated. There are often free options or trial periods.
  • Facebook, Twitter, blogs, and customer review sites such as Yelp or Angies List: if your business does not have, update, and monitor a presence on sites like these (where it does make sense for your business to be) slap yourself and then get busy.  At best you lose potential clients, and at worst your business may be getting negative reviews that you are not responding to. Also these sites usually have interfaces for business owners to use with tools and data analysis to help you maximize your use of these free marketing machines.

Save Money on Systems

  • Paper invoicing is slowly following the dinosaur. Online invoices emailed to clients who in turn pay online saves you paper, stamps, envelope stuffing time, and gets money into the bank quicker.  It also gets rid of the “lost-in-the-mail” problem/excuse (but I wonder about “lost-in-cyber-space”). Your bookkeeping software may offer this option, or there are other websites like bill.com or Bill Grid.
  • Point of sale systems can be costly and antiquated. The c square technology allows a square attachment and (usually free) application to turn your mobile device into a register.

Save Money on Professional Services: With the internet bringing the world to us, outsourcing is getting more efficient, affordable, and therefore possible for small business.

  • If you insist on doing your own payroll, ADP RUN is an intuitive online interfaces that allow you to easily enter payroll data and it takes care of the rest, even federal tax payments and reports.
  • Don’t risk getting your legal documents wrong. There are many reputable sites such as Legal Zoom that walk you through various legal processes for an affordable rate.

A Word on Apps

The slogan hit it on the head: There’s an app for that.  If you can think of anything that might make your business run more efficiently, I bet there’s an app for it. Take some time to browse Apple’s App store or the Android App store. You may be surprised at what you can find.

Bookkeeping (Don’t go it alone: let us help!)

Death by bookkeeping

You own a small business. The best strategy is to stay involved with everything to ensure all goes perfectly, right? Wrong! The side details, while very important to your business’s success, can cause you to feel or become bogged down, depriving your business of its strategic leader’s honed (and sane) efforts. 

Bookkeeping is a classic bog-you-down task. But since money is the life blood of your business it needs to be done. As a business owner you need to know how much your business is making and how much it is costing, how its assets match up against what it owes, and all the information in-between that can come from analyzing and tweaking this valuable information. Plus, the government requires these to be reported annually via tax returns! It is a wise investment to hand-off bookkeeping to the experts. Then you can focus on what you do best: building clientele and orchestrating your company’s core operations and future.

At Sweeten CPA we affordably provide business owners the peace of mind knowing their financial books are in sound order, as well as furnish them with powerful financial decision-making tools. We are experts in what is known as “after-the-fact” bookkeeping. This is how easy it is:

  1. At the end of each month (or other predetermined period of time) send Sweeten CPA all your company’s bank and credit card statements.
  2. We properly enter all the information into your bookkeeping software, most commonly QuickBooks. (Properly is the key word. Trust us, bookkeeping is not an intuitive exercise. Leave it to the trained experts!)
  3. We ask any questions we may have about transactions; you provide answers.
  4. We provide the 2 most basic financial reports for your review: the Profit and Loss statement (or Income Statement; all income minus all itemized expenses; it answers “What did we make?”) and the Balance Sheet (all assets and liabilities at that point in time; it answers “What do we have?”). Additional, more detailed reports and analysis can also be provided if requested, such as forecasts, budgets and tax projections.

And that’s it!

Most bookkeeping projects take only between 2 to 4 hours a month. And at $45 an hour it can fit nicely into your business’s budget. Remember: having accurate financial records means having accurate information to make the best decisions. It can also help ensure your taxes will be correct and timely. Plus, it’s so much less painful than trying to teach yourself double entry accounting!

Making your small business an LLC; when is it the right time?

Small BusinessYou have, own, or are a small business. Everyone tells you to become an LLC. So should you? We cannot go into all the complexities here without putting everyone to sleep, but we will try our best to give an overview that will make sense to an ordinary, non-accountant, small business person.

We’ll start at the beginning. The minute you begin to make money of any kind outside of a wage job, you are a small business. Teach music lessons? Small business. Tutor? Small business. Mow lawns on the side? Small business. And you must claim this income on your tax return, no matter how small. When you start/become a small business, by default you are a sole proprietorship for tax purposes. A sole proprietorship is the most simple form of a business:

  • You don’t need to file any paperwork with any government entity to start one, you don’t need to file any special reports, get special numbers, pay special fees, or put accounts such as cell phone accounts under the business name.  You don’t even have to give the business an official name!
  • As the word “sole” implies you are the only owner of the business.
  • You also don’t need to file a separate tax return for the business.When you are a sole proprietor you will merely report all your income and associated business expenses (remember to keep track of them all! It’s anything that assists you in making money for that business!) on your personal tax return on what’s called the Schedule C, Profit or Loss from Business. You then pay the 15% self employment tax on the profit (which comes in lieu of payroll taxes that are usually taken from employees’ paycheck wages).

A sole proprietorship is the most hassle-free way to operate. It may be the best option for small operations where there isn’t much intention of growing the business, making lots of money, or if the business is not risky. However nice the hassle free approach might be, it isn’t right for every business. Converting your business to an LLC may be the way to go.

The first and foremost benefit of an limited liability corporation, or LLC, is the liability protection. It makes a business legally separate from the owner. So if someone sues the company, the owner’s personal savings and house are protected; the suit cannot take anything beyond the LLC’s assets. It also means most or all company debts do not have to be paid with the owner’s monies and assets; debt collectors would only be able to use the LLC’s assets to pay debts.

From a strictly tax prospective (which is our specialty), one consideration to think of when forming an LLC is whether there is one owner or more. If there is only one owner, an LLC is given the name “disregarded entity” and is by default taxed as a sole proprietorship. You can, however,elect to be taxed as a corporation or S corporation.

If there is more than one owner in an LLC, there are some tax advantages to consider.

  • An LLC can choose to be taxed as and file its tax return as a C corporation, S corporation, or partnership. This can allow the company to be taxed in the way that best suits the company.
  • The company can save money in the form of saved payroll taxes as the owners can take both salary and distributions–owner withdrawals from the company’s earnings which are not subject to payroll taxes–instead of strictly salary which is always subject to payroll taxes.
  • If the LLC chooses to be taxed as a partnership or a S corporation it is taxed only once instead of twice like a C corporation. Partnerships and S corporations are known as pass through entities meaning the company itself does not pay tax on the profits, but instead profits are passed through to the owners’ personal tax returns where they are then taxed.
  • If the LLC chooses to be taxed as a partnership or S corporation it can divide the profits or losses between the owners in a beneficial way. For example, if one owner is in a lower tax bracket the LLC can pass down a larger share of the profits to that owner, meaning overall lower taxes paid.

To read more about the advantages and disadvantages of an LLC, the wikipedia page has a good list.

This article skims the surface of a complex issue and legal and/or financial professionals should be consulted before final decisions are made.