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Archive for Financial Services – Page 9

Some Other Important Income Tax Provisions

Posted by Frank McKinley on
 March 18, 2021

The Act contains numerous changes to personal income taxes. Some of the more substantive changes include:

PAYMENT OF DEFERRED PAYROLL TAXES EXTENDED TO DECEMBER 31, 2021 — Through executive order, employees were allowed to defer their share of Social Security taxes incurred from September 1 to December 31, 2020. Payment of these deferred taxes was supposed to happen between January 1 and April 20, 2021. As part of this Act, repayments can now be repaid from January 1 to December 31, 2021. Employers had the option to offer deferment of payroll taxes to employees, but many did not do so.

PERMANENT REDUCTION IN HURDLE FOR MEDICAL EXPENSE DEDUCTIONS — Medical expenses can now be deducted on tax returns when medical expenses exceed 7.5% of adjusted gross income (AGI), down from 10%. This change is permanent.

DECUCTIONS FOR COLLEGE EXPENSES — 2020 is the last year that the above-the-line deduction for tuition and related expenses can be claimed. However, this Act replaced the above-the-line deduction by increasing the phase out ranges for the current Lifetime Learning Credit. Starting in 2021, the Lifetime Learning Credit phase out ranges will be aligned with the American Opportunity Tax Credit, phasing out from $80,000 to $90,000 for single taxpayers (up from $59,000 to $69,000) and from $160,000 to $180,000 for joint taxpayers (up from $118,000 to $138,000).

CHARITABLE CONTRI BUTION DEDUCTIONS — The CARES Act created an above-the-line deduction for cash contributions made to charitable organizations for individuals who do not itemize deductions. The deduction was for 2020 only with a maximum cap of $300 for both single and joint taxpayers. This benefit has been extended through 2021, and in 2021, joint taxpayers can claim a maximum of $600. The ability to deduct up to 100% (up from 60%) of an individual’s AGI as a qualified charitable contribution when making an all cash contribution has also been extended through the end of 2021.

FULL DEDUCTION FOR BUSINESS MEAL EXPENSES — For 2021 and 2022, business meal expenses incurred for food or beverages provided by a restaurant can be fully deducted (up from a 50% deduction).

EARNED INCOME AND CHILD TAX CREDITS — Since many individuals were out of work for a good portion of 2020, they may not have enough earned income to qualify for the full earned income or child tax credits. This Act allows individuals to use their 2019 earned income to calculate the amount they will receive for either credit for 2020.
memPloyeR Payments of student loans — Originally authorized by the CARES Act for 2020 only, employers can provide up to $5,250 of annual tax-free education assistance to pay the principal or interest on an employee’s qualified student loan debt through 2025. Neither the employer nor the employee is liable for employment taxes on this amount.

DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE DEBT — The Act extends the period of time that forgiven debt for a primary residence may be excluded from income through 2025. Beginning in 2021, the maximum amount of debt that can be discharged is reduced from $2 million to $750,000 for joint filers and from $1 million to $375,000 for single filers.

CARRY-FORWARD OF FLEXIBLE SPENDING ACCOUNT FUNDS — Typically, funds remaining in an individual’s dependent care or health flexible spending accounts at the end of the year are forfeited, with employers able to provide some limited relief. This Act allows employers to let employees roll forward any unused 2020 balances to 2021 and any unused 2021 balance to 2022. Employers are not required to do this. Also, employees can modify future contributions for 2021 only. Individuals who cease participation in the plan during 2020 and 2021 can receive reimbursements through the end of the plan year that participation ceased.

EDUCATOR EXPENSES INCLUDE COVID-19 RELATED SUPPLIES— The above-the-line deduction of $250 per educator includes expenses for personal-protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19 incurred after March 13, 2020.
mmoRtgage insuRance PRemiums — The deduction for mortgage insurance premiums has been extended through 2021, subject to phase out limits.

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Categories : Blog, Financial Services, Tax, the SECURE ACT

How Do You Know If You Are Saving Enough?

Posted by Frank McKinley on
 March 17, 2021
How do you know if you are saving enough

 

 

Categories : Financial Services, Newsletters
Tags : , ,

Return of the Paycheck Protection Program

Posted by Frank McKinley on
 March 11, 2021

The Act reopens the Paycheck Protection Program (PPP) with meaningful revisions and clarifications. Businesses that have not yet received a PPP loan will be able to apply for round one financing. Businesses that have already received a loan but need additional capital may be able to obtain a second loan if they meet the new qualification requirements. Here are the basics:

EXPENSES PAID WITH FORGIVEN PPP LOAN FUNDS ARE DEDUCTIBLE — If the PPP loan is forgiven, the loan is not considered taxable income for the business. However, the Internal Revenue Service had maintained that any expenses paid with those funds could not be deducted on the business’ tax return. This Act explicitly authorizes that expenses paid by PPP proceeds can be deducted on tax returns.

ADDITIONAL EXPENSES THAT AN BE PAID WITH PPP FUNDS — Four new categories of expenses can be paid with unused original PPP funds and second PPP loan proceeds:

Covered operations expenditures, including payment for any software, cloud computing, and other human resources and accounting needs.

Covered property damage costs, including expenses related to property damage and vandalism or looting due to public disturbances that occurred during 2020 not covered by insurance or other compensation.

Covered supplier costs, including expenditures pursuant to a contract for goods in effect prior to the PPP loan and essential to the current operations of the entity.

Covered worker protection expenditures, including expenditures for personal protective and other equipment needed to help a borrower comply with federal health and safety guidelines related to the COVID-19 pandemic.

Payroll expenditures must still comprise 60% of used PPP loan funds and 40% can be used for non-payroll expenses, including the four categories above, mortgage, rent, and utility payments.

EXPANSION OF PAYROLL EXPENSES — Group life insurance, group dis-ability, vision, and/or group dental insurance all count toward payroll expenses.

ECONOMIC INJURY DISASTER LOAD (EIDL) ADVANCES — The$10,000 EIDL advance will no longer reduce the amount of PPP loan forgiveness.

SELECTION OF PPP COVERED PERIOD — The covered period for the PPP loan is used in calculating how much of the PPP loan is forgivable. Initially,the covered period was eight weeks, but was extended to 24 weeks for loans funded on or after June 5, 2020. All PPP borrowers will now have the option of choosing a covered period ranging from eight to 24 weeks, but the period must end by September30, 2021.

SIMPLIFIED FORGIVENESS APPLICATION — PPP borrowers of up to$150,000 seeking forgiveness of their loan simply have to fill out a one-page forgiveness certification with minimal information, including number of employees retained due to the PPP loan, estimated amount of PPP funds spent on payroll expenses, and total loan value. While borrowers have to follow all applicable PPP rules, they do not have to submit any proof. Relevant records must be retained for four years for employment records and three years for all other records.

EXPANSION OF ELIGIBLE BUSINESSES — Organizations that now qualify for PPP loans include nonprofit trade associations, veterans’ organizations, tribal businesses, farmers, ranchers, destination marketing organizations, and media organizations such as newspapers, television, and radio stations previously ineligible due to their affiliation with other stations. Certain organizations are not eligible, such as publicly traded businesses, new organizations not in operation on February 15, 2020, certain financial services industries and foreign organizations, and entities that receive grants under the live venues grant program.

PRIOR PROVISIONS — As a reminder, PPP loans are 100% forgivable if used in accordance with program rules. Repayment may be required if certain rules are not met, such as maintaining the number of employees, stable hours, and wage levels. Proportionate repayment may be required if the employer does not maintain the average number of full-time-equivalent employees or if compensation for any individual making less than $100,000 per year is reduced by more than 25%. However, if reductions in the number of employees or in compensation are restored by a safe-harbor date, reductions will not affect loan forgiveness. The safe-harbor date was changed from December 31, 2020 to September 30, 2021 for borrowers that have not already applied for forgiveness.

SECOND DRAW PPP LOANS

To obtain a second draw PPP loan, a business must have received and spent its first PPP loan. Businesses that did not obtain a first loan will be able to do so now. The second draw PPP loans operate very similar to the original PPP loans, but the eligibility criteria are different:

Businesses must have no more than 300 employees (down from the original 500 employees),except for accommodation and food services businesses, which can still have up to 500 employees.

The business must have experienced a drop in revenue of more than 25% in any quarter in 2020compared to the same quarter in 2019. Special rules apply for businesses that were in operation by February 15, 2020 but did not exist for all or some portion of 2019.

The loan amount is still equal to 2.5 times average monthly payroll with a second draw limit of $2 million (down from the original $10 million limit). Businesses in the accommodation and food services industries can receive second draw loans up to 3.5 times their average monthly payroll costs. 

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Categories : Blog, Financial Services, Paycheck Protection Program

Rebate Payments and Enhanced Unemployment Benefits

Posted by Frank McKinley on
 March 4, 2021

While the new Act contains many provisions to help small businesses, individuals also get relief in the form of another round of rebate payments and enhanced unemployment benefits. Here are the details:

Rebate Payments

In an effort to help stimulate the economy, the Act provides an additional 2020 refundable credit of $600 for single taxpayers, $1,200 for married filing joint taxpayers, plus a$600 credit for each qualifying dependent child under the age of 17. The rebates are subject to phase-out thresholds based on 2019 income beginning at $150,000 of adjusted gross income (AGI) for joint filers and surviving spouses, $112,500 of AGI for heads of household, and $75,000 of AGI for single taxpayers. The credit is phased out at $5 for each $100 of income over these threshold amounts.

The rebates are a 2020 refundable credit, paid as soon as possible based on income reported on 2019 income tax returns. If a taxpayer’s 2019 income is high enough to phase out the rebate, but his/her actual2020 income is lower, the difference will be added as a credit when the taxpayer files his/her 2020 tax return. However, taxpayers whose 2019 income was low enough to qualify for a rebate, but whose 2020income would have resulted in a phase out, will not have to repay the difference. The Treasury Secretary made the refunds via direct deposit, with payments made by January 15, 2021.

Enhanced Unemployment Benefits

The Act provides $286 billion for enhanced unemployment benefits:

Enhanced federal unemployment insurance is reinstated, providing an additional $300 per week(down from the $600 subsidy that expired in July 2020) for 11weeks, through March 14, 2021.

The Pandemic Unemployment Assistance (PUA) program is extended through March 14,2021, which provides unemployment assistance to the self-employed, independent contractors, gig workers, low-wage individuals, and individuals with a limited work history.

The Pandemic Emergency Unemployment Compensation (PEUC) program is extended through March 14, 2021, providing 11additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.

The maximum number of weeks an individual can claim benefits through state unemployment plus emergency federal programs was increased to a total of 50 weeks.

Workers who have not exhausted the time for PUA/PEUC benefits on March 14, 2021 are entitled to a transition period for an additional three weeks of benefits, through April 5, 2021.

The Act also confirms that shared work plans qualify as unemployment benefits for purposes of the $300 subsidy payment.

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Categories : Blog, Financial Services, rebate payments, unemployment benefits

It’s Important to Keep Saving After Retirement

Posted by Frank McKinley on
 February 26, 2021

Just because you’re retired doesn’t mean you should stop saving. Carefully managing your money and looking for ways to save will help ensure you remain financially fit during retirement. Consider these tips: 

Construct a financial plan.
Most retirees fear that they’ll run out of money during retirement. To ease those fears, create a financial plan detailing how much money will be obtained from what sources and how that income will be spent. Make sure your annual withdrawal amount won’t cause you to deplete your savings. Review your plan annually to ensure you stay on course. 

Consider part-time employment.
Especially if you retire at a relatively young age, you might want to work on at least a part-time basis. Even earning a modest amount can help significantly with retirement expenses. However, if you receive Social Security benefits and are between the ages of 62 and full retirement age, you will lose $1 of benefits for every $2 of earnings above $18,960 in 2021. You might want to keep your income below that threshold or delay Social Security benefits until later in retirement.

Contribute to your 401(k) plan or individual retirement account (IRA).
If you work after retirement, put some of that money into a 401(k) plan or IRA. As long as you have earned income and meet the eligibility requirements, you can contribute to these plans. 

Try before you buy.
Want to relocate to another city or purchase a recreational vehicle to travel around the country? Before you buy a home in an unfamiliar city or purchase an expensive recreational vehicle, try renting first.

Keep debt to a minimum.
Most consumer loans and credit cards charge high interest rates that aren’t tax deductible. During retirement, that can put a serious strain on your finances. If you can’t pay cash, avoid the purchase. 

Look for deals.
Take the time to shop wisely, not just at stores, but for all purchases. When was the last time you compared prices for auto or home insurance? Can you find a credit card with lower fees and interest rates? When did you last refinance your mort-gage?

Evaluating P/E Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward — it is simply the price of a single share of stock divided by the company’s per share earnings. 

When considering public companies, it seems reasonable that well-established businesses growing in a fairly predictable pattern would command a higher P/E ratio than a small private business. Typically, companies with higher growth rates command higher P/E ratios. 

The difficulty is deciding what a reasonable P/E ratio is for a particular company or for the overall stock market. It generally helps to follow the P/E ratios of stocks that interest you, along with companies in similar industries, to develop a feel for how the P/E ratios fluctuate. 

Reviewing a company’s P/E ratio for prior years can also be helpful. If a company’s growth rate in the past is expected to continue in the future and market conditions are similar, you might not expect much change in P/E ratios. But you also must evaluate whether changes to the company, its industry, or the overall stock market would cause an increase or decrease in the company’s P/E ratio. 

Financial Thoughts

Researchers found that investors with larger accounts follow more contrarian strategies, reflect the news in their trades, and experience subsequent gains, while smaller accounts tend to follow momentum-based strategies, fail to account for the news when placing trades, and incur trading losses. They also found that these trends were stronger for younger men. The study’s authors found that all groups of individual investors lose money, though individual investors with larger account sizes lose significantly less on average (Source: AAIIJournal, August 2020). 

Another study found that investors with a high level of financial literacy take too many risks, overborrow, and hold naive financial attitudes. However, this high level of financial literacy also lends itself to better retirement planning, since people with more financial literacy are more likely to have a retirement savings plan. In addition, financially literate households earn higher financial returns than illiterate ones. (Source: AAIIJournal, August 2020). 

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Categories : Financial Services, Retirement, Savings

5 Facts about Estate Planning

Posted by Frank McKinley on
 February 19, 2021

When it comes to the future, most Americans have a blind spot: estate planning. Maybe it’s because of an unwillingness to think about mor-tality or a sense that wills and trusts are only for the wealthy that people put off this important financial planning task. Whatever the reason, there are a lot of estate planning slackers out there. That’s a problem, because not having an estate plan could put your family’s financial future in jeopardy and cause other serious consequences. Here are five facts everyone should know about estate planning. 

1. Everyone Needs an Estate Plan

Yes, estate planning is absolutely necessary for the wealthy. But the rich are far from the only ones who need to think about the future. Pretty much everyone needs an estate plan, regardless of how old they are or how much money they have, and can benefit from putting documents in place that clarify who should receive their property after they die, what kind of healthcare they’d like to receive if they were incapacitated, how surviving family members will be provided for, and more. Estate planning is especially important for those who have children, complicated family situations, special needs family members, or own certain types of assets (like art, intellectual property, or a small business). 

2. A Will Is Not Enough

Wills are an important part of estate planning, but they are just one piece of a larger puzzle. Wills clarify who should receive your assets after you die. But you may also need other documents, like a living will, which explains what kind of medical treatment you’d like to receive if you can’t make decisions on your own, a healthcare proxy (a person who will make 

healthcare decisions on your behalf) and a power of attorney (a person who is authorized to make legal decisions on your behalf when you’re not able to). In some cases, you may want to set up trusts to provide for your heirs or charities. An estate planning attorney can help you understand which estate planning documents are necessary in your situation. 

3. Your Beneficiary Designations Supersede Your Will

Many people assume that the instructions in your will take precedence over any other directions regarding their estate. That’s not always the case. Beneficiary designations on retirement accounts, life insurance policies, and bank accounts aren’t superseded by your will. So, even if your will leaves your entire estate to your surviving child, a retirement account that names your brother as the primary beneficiary will still go to your sib-ling. That’s why it’s important you review your beneficiary designations regularly and update them when your life changes (birth of a child, divorce, etc.). 

4. You Can Leave More to Your Heirs if You Structure Your Estate Properly

If you have a sizable estate —

Estate planning is more than just creating a will

one that exceeds the $11.7 million federal estate tax exemption in 2021 — you may want to look into strategies that will allow you to pass that money to your heirs in a way that avoids estate taxes. There are numerous legal techniques you can employ to do this, such as transferring assets and property to a trust, making gifts during your lifetime, setting up family foundations, or leaving money to charity. Even those with smaller estates should keep taxes in mind. Did you know, for example, that life insurance proceeds pass tax-free to beneficiaries? That’s important to keep in mind when you’re considering how to make sure your spouse and children will be provided for if you die unexpectedly. 

5. It’s Important to Talk to Your Family about Your Estate Planning Decisions

Disagreements among family members about how to distribute an estate are far from uncommon. Often, those squabbles break out over unexpected or unclear provisions in the deceased’s estate plan. If one member of your family feels he/she isn’t getting his/her due, it can make the process difficult for everyone. Drawn out legal battles that eat away at the wealth you’ve accumulated — and wanted to leave to your heirs — may result. Even if you think your family can handle your estate civilly, it may still be a good idea to sit down as a group or with individual family members to discuss your wishes and explain your estate planning choices. If you plan to leave more of your wealth to one child than the other, make sure your children know about that so they don’t end up feeling blindsided and betrayed after your death.

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Categories : estate planning, Financial Services
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