retirement

Take small-business tax credits where credits are due

Tax credits reduce tax liability dollar-for-dollar, making them particularly valuable. Two available credits are especially for small businesses that provide certain employee benefits. And one of them might not be available after 2017.
1. Small-business health care credit
The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. The maximum credit is 50% of group health coverage premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.
For 2016, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $25,000 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,000.
To qualify for the credit, online enrollment in the Small Business Health Options Program (SHOP) generally is required. In addition, the credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.)
If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2016 may be a good idea. Why? It’s possible the credit will go away for 2018 because lawmakers in Washington are starting to take steps to repeal or replace the ACA.
Most likely any ACA repeal or replacement wouldn’t go into effect until 2018 (or possibly later). So if you claim the credit for 2016, you may also be able to claim it on your 2017 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.
2. Retirement plan credit 
Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.
Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.
If you didn’t create a retirement plan in 2016, it might not be too late. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions.
Maximize tax savings
Be aware that additional rules apply beyond what we’ve discussed here. We can help you determine whether you’re eligible for these credits. We can also advise you on what other credits you might be eligible for when you file your 2016 return so that you can maximize your tax savings.
© 2017

Looking for a retirement plan for your business? Here’s one SIMPLE option

Has your small business procrastinated in setting up a retirement plan? You might want to take a look at a SIMPLE IRA. SIMPLE stands for “savings incentive match plan for employees.” If you decide you’re interested in a SIMPLE IRA, you must establish it by no later than October 1 of the year for which you want to make your initial deductible contribution. (If you’re a new employer and come into existence after October 1, you can establish the SIMPLE IRA as soon as administratively feasible.)

Pros and cons

Here are some of the basics of SIMPLEs:

  • They’re available to businesses with 100 or fewer employees.
  • They offer greater income deferral opportunities than individual retirement accounts (IRAs). However, other plans, such as SEPs and 401(k)s, may permit larger annual deductible contributions.
  • Participant loans aren’t allowed (unlike 401(k) and other plans that can offer loans).
  • As the name implies, it’s simple to set up and administer these plans. You aren’t required to file annual financial returns.
  • If your business has other employees, you may have to make SIMPLE IRA employer “matching” contributions.

Contribution amounts

Any employee who has compensation of at least $5,000 in any prior two years, and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE. An employee may defer up to $12,500 in 2016. This amount is indexed for inflation each year. Employees age 50 or older can make a catch-up contribution of up to $3,000 in 2016.

If your business has other employees, you may have to make SIMPLE IRA employer “matching” contributions.

Consider your choices

A SIMPLE IRA might be a good choice for your small business but it isn’t the only choice. You might also be interested in setting up a simplified employee pension plan, a 401(k) or other plan. Contact us to learn more about a SIMPLE IRA or to hear about other retirement alternatives for your business.

© 2016

Are your Social Security strategies up to date?

Believe it or not, a bipartisan federal budget deal might affect your retirement planning strategies.

The Bipartisan Budget Act of 2015, signed into law last November, eliminated two Social Security claiming strategies that have been used by many people to maximize their benefits. Depending on your age, though, you might still be able to use these strategies.

The file-and-suspend strategy

The first strategy, known as file-and-suspend, has been used mainly by married couples, especially if one spouse has earned substantially more than the other. Upon reaching full retirement age, the higher-earning spouse files for Social Security benefits and then suspends receipt of the benefits until later — usually, until age 70.

As a result, this spouse will receive delayed retirement credits totaling 8% per year, or 32% if he or she waits until age 70 to receive benefits. In addition, the lower-earning spouse can receive spousal benefits based on the higher-earning spouse’s earnings record if they are more than his or her own benefits. In general, these benefits are equal to 50% of the higher-earning spouse’s full retirement amount, assuming the higher-earning spouse has reached full retirement age.

The budget act makes a subtle but crucial change to this rule: Married individuals can no longer receive a benefit based on their spouse’s earnings unless the spouse is actually receiving those benefits. This effectively eliminates the file-and-suspend strategy.

Fortunately, the law contains a provision that grandfathers in anyone who is currently using file-and-suspend. You also can use file-and-suspend if you will reach age 66 before May 1, 2016, and file to claim benefits by this date.

The restricted application strategy

The second Social Security claiming strategy affected by the budget act is known as “restricted application.” Here, a spouse reaching full retirement age who is eligible for both retirement and spousal benefits files a restricted application for spousal benefits only. At this time, the spouse delays applying for his or her own benefits, but can switch and start receiving these benefits later.

Using this strategy, a higher-earning spouse can claim 50% spousal benefits upon reaching full retirement age instead of taking his or her own benefits, thus enabling these benefits to continue to grow. The lower-earning spouse doesn’t have to have reached full retirement age.

When the higher-earning spouse starts receiving his or her own benefits, the lower-earning spouse can switch to a spousal benefit based on the higher earner’s benefits at full retirement age. Using this strategy, some married couples have been able to increase their Social Security benefits by tens of thousands of dollars.

The budget act is phasing out the use of the restricted application strategy. If you’ll turn 66 before May 1, 2016, you can file a restricted application anytime between ages 66 and 70. If you turned 62 before the end of 2015, you can file a restricted application for spousal benefits when you turn 66 so long as your spouse — or, if you’re unmarried and meet certain other criteria, your ex-spouse — is at least 62.

A fresh look

These changes make it critical to take a fresh look at your Social Security claiming strategies, especially if you fall within the age ranges outlined here. Contact your financial advisor to discuss your situation in more detail.

© 2016