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As an owner of a small business, you’ve proven that you’re a self-starter by operating a successful private enterprise. Of equal importance is applying your skills towards saving for your future. Here are some of the most popular tax-advantaged retirement vehicles for small business owners in 2020 and some tips on saving for retirement.
Options if you’re not currently enrolled in a plan
For small business owners not currently enrolled in a retirement plan, here are three of the most popular retirement account options:
- Simplified Employee Pension (SEP) IRA Account. Contribute as much as 25% of your business’s net profit up to $57,000 for 2020.
- 401(k) Plan. Contribute up to $57,000 of your salary and/or your business’s net profit.
- Savings Incentive Match Plan for Employees (SIMPLE) IRA Account. You can put all your business’s net profit in the plan, up to $13,500 plus an additional $3,000 if you’re 50 or older.
Which plan should you choose? SEP and SIMPLE IRAs are ideal for either sole proprietors or really small businesses (no more than one or two dozen employees). Due to higher administrative costs, 401(k) plans are usually more suited for larger small businesses (more than one or two dozen employees).
Tips to maximize your retirement contributions
For small business owners who are currently enrolled in a retirement plan, here are some suggestions for maximizing your annual contributions into your retirement accounts:
Pay yourself first. Instead of funding your retirement account with whatever is left over after paying your monthly bills, decide at the beginning of each month how much you want to set aside to fund your retirement. Make funding your retirement each month as important as your other bills. Then assume that you pay your retirement bill first. If you run out of money before paying all your bills, decide if there are any expenses that can be pared back for subsequent months so you can meet your monthly retirement savings goal.
List your retirement contributions on your income statement. It is easy to forget about retirement planning when running the day-to-day operations of your business. To keep retirement contributions top-of-mind, record these as a separate line item on your business’s income statement.
Review your tax situation at least twice a year. Tax planning is now more important than ever with the uncertainty caused by the recent pandemic. So review your tax situation at least twice every 12 months to see how to maximize each year’s retirement contributions.
This blog provides summary information regarding the subject matter at the time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
You may have started your business as a simple sole proprietorship that files its taxes as a Schedule C on your Form 1040. As your business grows, you may want to change the structure. Here are several scenarios where it may make sense to do just that.
Reasons to Create Business Entities
- Establishing limited liability. The primary reason businesses form corporations and limited liability companies is to create a separate legal entity that provides legal protection. If your business receives a legal summons for a claim, for example, having limited liability may protect your personal assets like your home and car.
- Hiring your first employee. Businesses are generally liable for their employees’ actions taken on behalf of the company. If an employee performs an act that causes an outside party to sue your business, the outside party can come after your personal assets to satisfy the lawsuit if you don’t have limited liability. You should, therefore, incorporate your business if you anticipate hiring your first employee in the near future.
- Establishing credibility. Having LLC or Inc. after your business’s name conveys maturity in your business to customers and vendors.
- Accessing credit and/or capital. Incorporating can also make it easier for your business to obtain financing through banks or investors. Banks want to see that your business is legitimate and not simply a hobby. Bringing in investors also requires a business form that allows you to do this. Individuals often co-mingle personal funds with business activity, making it hard to consider lending money.
What you need to do
There are several different business entities to consider, including corporations and limited liability companies. There are pros and cons to each entity that must be considered. Added to the complexity are constructing the correct legal filings and related tax obligations for sales tax, income taxes, unemployment and workers’ compensation.
The process of selecting the right structure for your business is not for the faint of heart. Develop connections with professionals that can walk you through this decision-making process.
This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act provides individuals and businesses significant financial relief from the financial strain caused by the coronavirus epidemic.
Here is a snapshot of the unemployment benefits section of the bill and how it affects individuals and businesses.
- Who qualifies to receive unemployment benefits? In addition to full-time workers who are laid off or furloughed, the Act provides individuals who are not already eligible for state and federal unemployment programs, including self-employed individuals and part-time workers, a set amount of unemployment compensation.
- How much will I receive? There are two different components to the new law’s unemployment benefits:
- Each worker will receive unemployment benefits based on the state in which they work, and
- In addition to their state unemployment benefits, each worker will receive an additional $600 per week from the federal government.
- How will benefits for self-employed workers be calculated? Benefits for self-employed workers are calculated based on previous income and are also eligible for up to an additional $600 per week. Part-time workers are also eligible.
- How long will the state unemployment payments last? The CARES Act provides eligible workers with an additional 13 weeks of unemployment benefits. Most states already provide 26 weeks of benefits, bringing the total number of weeks that someone is eligible for benefits to 39.
- How long will the federal payments of $600 last? The federal payment of $600 per week will continue through July 31, 2020.
- How do I apply for unemployment benefits? You must apply for unemployment benefits through your state unemployment office. Most state applications can now be filled out online. Workers who normally don’t qualify for unemployment benefits, such as self-employed individuals, need to monitor their state’s unemployment office website to find out when they can apply, as many states need to update their computer systems to reflect every type of worker who is eligible to collect unemployment benefits under the CARES Act.
What to do now
If you have not already done so, you must file for unemployment with your state as soon as possible. State offices and websites are being slammed, so the sooner you get in the queue the better for you and your loved ones. And remember, these benefits now apply to self-employed and part-time employees.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
How to get cash quickly when you’re out of work
You’re not alone in trying to navigate the financial uncertainty during the coronavirus pandemic. Millions of American workers who lost their paycheck because of COVID-19 need to find creative ways to pay bills.
Here are 6 ways to get cash to help pay for your monthly expenses.
- Apply for state unemployment benefits. Recent federal legislation expands traditional state unemployment payments from 26 weeks to 39 weeks. State unemployment offices are also administering an additional weekly payment of $600 to unemployment benefit recipients courtesy of the federal government. This additional $600 weekly payment runs through July 31, 2020. Visit your state’s unemployment insurance website to fill out your application. Even better, this federal unemployment assistance applies to self-employed workers and part-time workers.
- Look to your retirement accounts. While not ideal, you can withdraw up to $100,000 penalty-free from your retirement accounts. You can then pay it back within the next three years without penalty or being subject to annual contribution limits!
- Talk to your banker/landlord about a mortgage or rent deferral. Recent legislation suspends required payments on certain loans and halts foreclosures for at least 60 days. But you must contact your lender to discuss the specifics of your situation. It may be trickier to work with landlords to defer rent payments, but many property owners have signaled a willingness to work with tenants over the next several months to defer or forgive payments.
- Talk to lenders about credit card payments. Call your credit card company to see if they are willing to defer your payment for several months. While credit card companies haven’t explicitly said that consumers can skip or defer credit card payments, they have encouraged anyone experiencing financial hardships because of COVID-19 to contact their customer service teams to discuss their individual situation.
- Tell everyone in your network that you could use work. While the U.S. unemployment rate is close to 20%, that still means 80% of Americans are still working. You may have numerous friends and family that could help you weather the financial storm for several months. But you won’t know unless you ask.
- Downsize your budget. If you normally don’t create a monthly budget, now would be a good time to start. Keep track of where every dollar goes. Identify non-essential spending you could put on hold until you find your next job.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
The IRS has two websites to help with stimulus payments: One for non-tax filers to register to receive their economic impact payment and a new “Get My Payment” tool.
Background
As a response to the COVID-19 pandemic, the government is sending $1,200 to single taxpayers with income less than $75,000 ($98,000 with phaseouts). $2,400 is being sent to married taxpayers with income less than $150,000 ($198,000 with phaseouts). An additional $500 is being sent for each child under the age of 17.
The Problem
The payments are being made based on 2019 or 2018 tax returns. If you do not need to file a tax return for either of these years, you run the risk of not receiving this payment.
The Solution
The IRS launched a way to register to receive your payment and to determine the status of your payment. Here are the websites:
- Non-filers: If you are not required to file a 2019 and/or a 2018 tax return, visit https://www.freefilefillableforms.com/#/fd/EconomicImpactPayment.
- Payment status and direct deposit registration: There is also an IRS app called “Get Your Payment” to register to receive your payment via direct deposit. Visit https://www.irs.gov/coronavirus/get-my-payment. Also use this tool to review the status of your payment.
Who should use the app for non-filers
If you fall into one of the following cases, you need to review whether it makes sense to use the app mentioned above for non-filers:
- Not required to file. If you are not required to file a tax return in either 2018 or 2019 but otherwise qualify to receive a stimulus payment, using this tool or other tax filings is the only way to receive the payment.
- College students. If you are not a dependent on someone else’s tax return, you need to look into using this tool. If you are a dependent, it may also be worth a conversation to see if you can or should change your filing status in 2019 in order to receive this payment.
- Seniors. Seniors that do not file tax returns in 2018 or 2019 will eventually receive the payment based upon their Form 1099-SA or railroad retirement information. The non-filer site asks you not to register, but you may receive the payment sooner AND protect your identity from would-be thieves by filing a tax return.
Who should NOT use the app for non-filers
DO NOT use the app for non-filers if you will be filing a 2019 return. If you are required to file a return, using this tool will not speed up your stimulus payment and will likely slow down processing of your tax return and receiving any refund.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
CITY OF PHILADELPHIA DEPARTMENT OF REVENUE
March 26, 2020
Non-resident employees based in Philadelphia are not subject to Philadelphia Wage Tax during the time they have been ordered to work outside of Philadelphia.
The Philadelphia Department of Revenue has not changed the Wage Tax policy. Schedules to withhold and remit the tax to the City remain the same. We are publishing this guidance at a time when employees have been forced to perform their duties from home, many for the first time.
This is the policy:
The City of Philadelphia uses a “requirement of employment” standard that applies to all non- residents whose base of operation is the employer’s location within Philadelphia. Under this standard, a non-resident employee is not subject to the Wage Tax when the employer requires him or her to perform a job outside of Philadelphia (i.e. their home).
A non-resident who works from home for the sake of convenience is not exempt from the Wage Tax – even with his or her employer’s authorization. On the other hand, if a Philadelphia employer requires a non-resident to perform duties outside the city, he or she is exempt from the Wage Tax for the days spent fulfilling that work.
Non-resident employees who mistakenly had Wage Tax withheld during the time they were required to perform their duties from home in 2020, will have the opportunity to file for a refund with a Wage Tax reconciliation form in 2021.
The City requires an employer to withhold and remit Wage Tax for all its Philadelphia residents, regardless of where they perform their duties.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was just passed by Congress, are intended to assist business owners with whatever needs they have right now. When implemented, there will be many new resources available for small businesses, as well as certain non-profits and other employers. The following blogs provide information about the major programs and initiatives that will soon be available from the Small Business Administration (SBA) to address these needs, as well as some additional tax provisions that are outside the scope of SBA.
To keep up to date on when these programs become available, please stay in contact with your local Small Business Administration (SBA) District Office, which you can locate here. (NO LINK HERE)
Struggling to get started? The following questions might help point you in the right direction. Do you need:
- Capital to cover the cost of retaining employees?
Then the Paycheck Protection Program might be right for you.
- A quick infusion of a smaller amount of cash to cover you right now?
You might want to look into an Emergency Economic Injury Grant.
- To ease your fears about keeping up with payments on your current or potential SBA loan?
The Small Business Debt Relief Program could help.
- Just some quality, free counseling to help you navigate this uncertain economic time?
The resource partners might be your best bet.
Robert J. Kratz is pleased to provide blogs covering the following topic:
- Payroll Protection Program (PPP) Loans
- Small Business Debt Relief Program
- Economic Injury Disaster Loans and Emergency Economic Injury Grants
- Small Business Counseling
- Small Business Contracting
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This blog provides summary information regarding the subject matter at the time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.
