benefits

2 tax credits just for small businesses may reduce your 2017 and 2018 tax bills

Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums

The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. For 2017, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $26,200 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 $52,400.

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 2017 may be a good idea. Why? It’s possible the credit will go away in the future if lawmakers in Washington continue to try to repeal or replace the ACA.

At this point, most likely any ACA repeal or replacement wouldn’t go into effect until 2019 (or possibly later). So if you claim the credit for 2017, you may also be able to claim it on your 2018 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. Credit for starting a retirement plan

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 2017, you might still have time to do so. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 so you can potentially take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.

Determining eligibility

Keep in mind that additional rules and limits apply to these tax credits. We’d be happy to help you determine whether you’re eligible for these or other credits on your 2017 return and also plan for credits you might be able to claim on your 2018 return if you take appropriate actions this year.

© 2018

Will your business have a net operating loss? Make the most of it

When the deductible expenses of a business exceed its income, a net operating loss (NOL) generally occurs. If you’re planning ahead or filing your income tax return after an extension request and you find that your business has a qualifying NOL, there’s some good news: The loss may generate some tax benefits.

Carrying back or forward

The specific rules and exact computations to figure an NOL can be complex. But when a business incurs a qualifying NOL, the loss can be carried back up to two years, and any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow during a time when you need it.

However, there’s an alternative: The business can elect instead to carry the entire loss forward. If cash flow is fairly strong, carrying the loss forward may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.

Your situation is unique

Your business may want to opt for a carryforward if its alternative minimum tax liability in previous years makes the carryback less beneficial. In the case of flow-through entities, owners might be able to reap individual tax benefits from the NOL. Also note that there are different NOL rules for farming businesses.

Please contact us if you’d like more information on the NOL rules and how you can maximize the tax benefits of an NOL.

© 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

Changes to Social Security Benefits

by Karen Atchley, CPA

Partner at Atchley & Associates, LLP

 

THIS IS SOMETHING THAT MAY BE OF INTEREST TO YOU.  I am not a social security administration expert by any means but I noticed this law change  may affect you or your spouse based on your ages.  You can contact the social security administration  if you want more information, I can give you the name of a person to consult with who does hold themselves out as having experience in this area.

Under the new Social Security rules included in the Bipartisan Budget Act of 2015, the ability to temporarily claim just spousal benefits is being phased out.  Married people or divorced spouses who are 62 or older by the end of 2015 will retain the right to claim only spousal benefits at age 66, ONLY if their spouse has filed for benefits.  The way I understand it, those 66 or older MUST file for benefits by April 30, 2016, even if they want to immediately suspend getting current benefits until a later time in order for his/her spouse who is or will be 62 years of age by the end of 2015 (or other eligible family member) to claim spousal benefits.  If the spouse who is 66 years of age has not filed for benefits by April 30, 2016, then their spouse will not be able to file for spousal benefits until their spouse starts receiving benefits.

Below is a bullet point of the basics:

  • At age 66 one spouse can file for social security benefits but suspend payment.  This allows their benefits to grow by 8% per year so that when they do begin taking payments later, say at age 70, their benefit will be larger.
  • The alleged “loophole” was that a family member could claim social security benefits based on the earnings of the person who has filed and suspended their benefits, so the household could still receive a benefit payout while at the same time taking advantage of the 8% growth of benefits for the spouse who filed-and-suspended.
  • What’s changing is that after May 1, 2016,  a family member can no longer claim benefits against the file-and-suspend spouse’s social security unless that spouse also receives payment of his/her benefits.  In other words, if the spouse suspends payments, family members cannot collect benefits while payments are suspended.
  • Anyone who is already age 66 and using this strategy/”loophole” will be grandfathered, but anyone who wants to begin implementing this strategy must file-and-suspend by May 1, 2016, assuming they will be at least age 66 by then.
  • Another strategy is the restricted application approach where a spouse who reaches full retirement age at age 66 can file an application to only collect their spouse’s benefits.  This allows their own benefits to essentially be suspended and earn delayed credits (a premium for taking your benefits later, up until age 70).  This is also changing – in order to take advantage of this strategy, if a spouse will turn age 62 before the end of 2015, that spouse can begin collecting his/her benefit while the other spouse files a restricted application and chooses the spousal benefit.  If not 62 before the end of 2015, the “restricted application” strategy will no longer be available.