Posts Tagged ‘retirement benefits’

Is Your Business A Family Affair?

Wednesday, November 16th, 2016

Top Tax Savings Strategies For The Family-Run Business

Family Business- Ohio Tax Planning

Instead of chores, how about give your children a job to do in your family-run business. The money they earn can go to their college savings account and the savings you accumulate can be reinvested to help your company find future growth. Read on to learn more.

There’s a certain freedom associated with being self-employed, but there’s also a lot of responsibility … and expenses. Fortunately, the family that’s invested in the success of the business, and is willing to roll up their sleeves and get to work, may be able to secure some significant tax savings.

Marriage Has It’s Benefits

If you’re married, chances are good that your spouse is already doing helping out in some aspect of your business. So why not extend a formal job offer? While you may be hesitant to bring them aboard (officially), there are several key reasons why it pays to add your spouse to the payroll.

  • Retirement benefits – Once hired, federal taxes will begin to be withheld from your spouse’s paycheck. That means that they will start receiving Social Security credits toward retirement. This alone is a pretty great (when it comes to retirement – every little bit helps), but the retirement benefits of hiring your spouse don’t stop there. If your business already offers employees a retirement plan, those benefits can be extended to your spouse when they opt in to the plan as well. Furthermore, contributions your company makes to the plan are tax deductible – up to 25 percent of compensation or $49,000, whichever is less.
  • Health Insurance – Business owners everywhere continue to struggle with the affordability of health care. But those who do offer this benefit to their employees, might be able to secure some additional savings by opting to cover their spouse as an employee rather than as a dependent. Especially if you consider the fact that your company can deduct the premiums it pays for employee health coverage. Then you may want to ask your tax advisor if you are also eligible to receive the health care tax credit.
  • Life Insurance – Because they are employees of your business, your spouse is eligible for the same benefits as all your other employees. That includes life insurance. And those costs are deductible as business expenses as well.

All Hands On Deck

Raise your hand if you had to do chores as a kid. We all did. It taught us work ethic and the value of a dollar. These days, families that own their own businesses can go a step further. Instead of paying your son or daughter a few dollars to mow the lawn, how about hiring them as a grounds keeper for your business? These days giving your kids a job in your business isn’t just a huge help when it comes to managing the day-to-day responsibilities of the company, it can be advantageous from a tax perspective. Business owners who welcome their kids to the family workforce, may be able to:

  • Deduct their children’s salary from the business’s income as a business expense.
  • Avoid paying FICA tax on their children’s salary.
  • Shift a portion of business income from your tax bracket to your child’s to significantly reduce your taxable income.

But, in order to make this strategy work, you must be able to prove that your children are legitimate employees and that their work is necessary. And don’t forget to fill out all the proper forms that go along with hiring any new employee (W-4, U.S. Citizenship and Immigration Services Form I-9, Employment Eligibility Verification, etc.). It’s also wise to keep track of their work and the time they put in by maintaining a time sheet. Also, while it may be tempting to pay your kids top-dollar for answering phones or cleaning the office, the IRS is on the lookout for unreasonable compensation practices. Don’t pay your son or daughter more than what you would pay a stranger for doing the same job and pay them regularly, as you would with any other employee. Your child’s paycheck can then be directly deposited into an account in your child’s name.

TIP: Get more out of your child’s earnings by opening a Roth IRA or 529 College Savings Plan in your child’s name and direct deposit their wages into the account and watch it grow.

Start taking advantage of the various strategies available for family-run businesses. Email rea.news@reacpa.com or ted.klimczak@reacpa.com to find out how.

By Ted Klimczak (Medina office)

Check out these articles for more tax tips and insight:

5 Tax Deductions To Ease Your Business’s Tax Burden

How To Drive For Business And Save On Your Tax Bill

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File and Suspend Strategy Suspended

Wednesday, November 18th, 2015
File Suspend Strategy - Ohio CPA Firm

President Barack Obama signed legislation on Nov. 2 to put an end to the file and suspend strategy. But, that doesn’t necessarily mean it’s too late to act. There is a six-month window of opportunity, as long as both spouses were born on or before April 30, 1950. Keep in mind that you are up against a May 1, 2016, deadline.

Deciding when to claim your Social Security benefits is often one of the most significant financial decisions older Americans must make today because, for many, Social Security benefits make up a substantial portion of their retirement income. Unfortunately, Congress recently passed legislation that will put an end to two popular strategies being used to maximize benefits married couples receive in their golden years.

Read Also: Retirement Is Knocking … Are You Ready To Answer The Door?

The strategies that are scheduled to be phased out are commonly known as “File and Suspend” and the Restricted Application for Spousal Benefits. These strategies have made it possible for couples to delay laying claim to their individual benefits based on their earnings while still claiming a spousal benefit based on the other’s earnings – as long as both are 66 or older.

How Does File And Suspend Work?

To receive the spousal benefit, one individual would file for their Social Security benefits – then immediately suspend them. The other spouse would then file a restricted application to collect only the spousal benefit rather than the benefit they earned as an individual, even if their individual would have been higher. By employing this strategy, both could increase their earned benefits by taking advantage of the option to delay retirement credits, which would increase their earned benefit by up to 8 percent for each year the benefit is delayed until the individual reaches 70 years of age.

Is It Too Late To Take Advantage Of This Strategy?

President Barack Obama signed legislation on Nov. 2 to put an end to the file and suspend strategy. But, that doesn’t necessarily mean it’s too late to act. There is a six-month window of opportunity, as long as both spouses were born on or before April 30, 1950. Keep in mind that you are up against a May 1, 2016, deadline.

What About The Couples Who Are Already Receiving Benefits?

Fortunately, the couples already using these strategies will be grandfathered in under the new law and will not be asked to pay back any of the benefits they have received to date. Furthermore, they will continue to receive the benefits they have already been granted. The new law will not impact their current Social Security income, which is why it’s so important for eligible couples to take advantage of this 6-month window.

What Happens After The 6-Month Window Closes?

Moving forward, under the new law, individuals will still have the ability to suspend their benefits, but the Social Security Administration will not allow spousal or dependent child benefits based on the earnings of someone who has suspended their own benefits. In other words, to claim a spousal benefit, the earned benefits have to be paid out as well.

When filing for retirement benefits (other than with a restricted application), spouses will effectively claim their earned benefit and their spousal benefit. They will then receive the greater amount.

Fortunately, there are still opportunities to maximize your Social Security benefits. A financial advisor can you help navigate the terrain. There are also free tools available to help you find out how much you can expect to collect from Social Security when you finally decide to claim the benefit. The Social Security calculator is located here. You can also visit the Social Security website to view your Social Security Account Statement. To discover more retirement strategies, check out one of the articles below or email Rea & Associates and ask to speak with a retirement planning expert.

By David Shallenberger, CPA (Wooster office)

Check out these articles to learn more about the importance of planning for your retirement:

Planning For Uncertainty In Retirement

Five Financial Considerations For Every Age Group

How Can I Make The Most Of My Retirement?

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