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Taxes and Retirement Income

Taxes and Retirement Income

While many taxpayers plan for retirement by investing in retirement savings accounts, it is important for taxpayers to also plan on how to handle income during retirement as well. Read more

Timing

The timing of different retirement distributions could drastically affect the amount of taxes paid throughout retirement. To start, the various retirement accounts available have different tax treatments.

Traditional IRA  and Roth Accounts

Withdrawals from traditional IRA accounts are taxed as ordinary income. If any portion was contributed on an after-tax basis, then it is not subject to taxes. Traditional 401(k) accounts are also taxed as ordinary income when funds are withdrawn.  Both Roth IRA and Roth 401(k) account withdrawals are tax free. However, the account holder must be older than 59½ and the first contribution must have been made at least five years prior to the withdrawal.

To time withdrawals to minimize tax liability, taxpayers must evaluate when they will stop working and when they will apply for Social Security. Social Security benefits are available at age 62 but if a taxpayer is still working, receiving Social Security may push the taxpayer into a higher tax bracket. The taxpayer could end up paying taxes on their W-2 income, Social Security income, and any additional withdrawals from a retirement plan.

When to Withdraw

Many advisers recommend taxpayers withdraw first from taxable accounts, then from tax deferred accounts. Roth accounts when withdrawals are tax free should be withdrawn from last. This way, the taxable accounts are paid first and the tax-deferred accounts can grow longer. This method allows for less in taxes paid later in life on in a taxpayer’s life. However, it may mean the taxpayer is paying an increased amount of taxes for a few years.  By taking stock of where retirement income is coming from and creating a proportional withdrawal strategy, a taxpayer can spread out their taxable income evenly over retirement and potentially reduce taxes paid on Social Security benefits.

Each Situation is Different

It is essential to take a thorough look at your projected income for retirement and plan ahead. Periodic adjustments during retirement are also important as different tax rates and laws change.

Let us help you make the best tax choices for your retirement savings.

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How AI Is Changing Accounting

Artificial intelligence (AI) has arrived in the accounting profession in a big way. The good news is it’s streamlining accounting tasks, finding patterns in data you can take action on, and generally making things better. Here are just a few places we’re seeing AI and machine learning impact accounting. Read more

Transaction Coding

Most systems have incorporated some form of machine learning into transaction coding. When bank feeds are imported, each transaction needs to be coded to add the account code in the chart of accounts.  Class, tracking codes, and other custom data may need to be added as well. Rules can be set so that the accounting application can pre-code the transactions; in this case the accountant simply approves or corrects the entry.

Invoice Fetching

It starts with a picture of a receipt and then invoice fetching applications can turn pixels into data using sophisticated OCR (optical character recognition). The data is then turned into a business transaction that can be imported into an accounting system.

Auditing

The books of many government agencies, nonprofits, and large businesses need to be audited on a regular basis. Auditing is an expensive process. Smart programs can review a company’s data and assess where the risks and anomalies are so that the audit program can be modified to focus on the more important parts. This reduces risk and cost for everyone involved.

Accounts Payable

Artificial intelligence can help to speed up the matching of purchase orders, packing slips, and invoices so that accounts payable tasks are streamlined.  It can also automate approvals and look for duplicate invoices to avoid overpayments.

Accounting Tasks That Are Clerical

Robotic Process Automation (RPA) is a platform that allows users to create automation without involving the IT department. Think Excel macros or Zapier on steroids. Any workflow with a mind-numbing set of clerical steps is a candidate for RPA.

AI allows accountants to spend less time on routine tasks and more time on higher-level analysis work. As AI becomes more affordable for small businesses, everyone will benefit from this long-term trend.

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Identity Theft and the IRS

identity theftIdentity theft happens when someone uses your personal information without your permission. While this can include credit cards, banking information, and passwords, it’s your Social Security number that’s the biggest IRS-related identity theft problem.  Read more

An estimated 4 to 5 million taxpayers are currently affected by identity theft with the IRS. When their Social Security numbers are stolen by an identity thief, the thief files for a tax refund early in the season. When you go to file your taxes, you receive a notice that you have already filed.

Here are some tips to prevent it from happening to you:

  • Do not answer any emails from the IRS.The IRS does not send emails or text  If you receive suspicious IRS emails, report them to the IRS at phishing@irs.gov.
  • Do not carry your Social Security number with you. Keep it in a secure location.
  • Protect your computers with firewalls and anti-spam software.
  • Change passwords for internet accounts.
  • Do not give personal information on the phone or through email unless you are absolutely sure who you are giving it to.
  • Shred all documents containing personal information.
  • Check your credit report annually.

If you do happen to become a victim of this crime, here’s what you should do:

  • If the IRS sends you a notice, respond immediately. Follow the instructions on the notice.
  • File an Identity Theft Affidavit (IRS Form 14039).
  • Call the IRS Identity Theft Specialized Unit at 1-800-908-4490.
  • Request an Identity Protection PIN from the IRS if you’ve received a letter inviting you to opt-in to the program.  An IP PIN is a 6-digit number assigned to a taxpayer to help prevent the misuse of the Social Security number on fraudulent tax returns.
  • If your purse or wallet containing personal information is stolen, contact all credit cards to cancel.
  • Report the theft to the police department.
  • Contact the credit bureaus about a fraud alert at the following numbers:

Equifax:  1-800-525-6285

Experian: 1-888-397-3742

Trans Union: 1-800-680-7289

  • If your Social Security number has been stolen, notify the Social Security office of Inspector General at 1-800-269-0271.
  • The Federal Trade Commission has a toll-free Identification Theft helpline at 1-877-438-4338 or visit their website: ftc.gov.

We certainly hope it doesn’t happen to any of our clients, but if it does, this handy checklist will help you through it.

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Your New Hire Checklist

new hireHiring a new employee is a big accomplishment in any small business, and there are a lot of steps involved, too. Here’s a handy checklist to help you stay organized when you bring that new hire on board.  Read more

First things first, the legal and accounting items:

  • Signed employment agreement, typically an offer letter. There may also be a supplemental agreement outlining employee policies.
  • Payroll documents include:
    • IRS form W-4
    • Form I-9
    • Copy of employee’s government-issued ID
  • Most states require a new hire report to be filed; sometimes your payroll system vendor will automatically file this for you.
  • Notify your workers comp insurance carrier.

Next, it’s time for employee benefits enrollment:

  • Health insurance
  • 401K
  • Any other benefits you provide
  • Provide the employee with the holiday schedule
  • Explain their PTO and vacation if not already explained in the offer letter

Set your new employee up for success with the right equipment:

  • Desk, chair, lamp, other furniture
  • Uniform
  • Tools
  • Coffee mug, refrigerator shelf
  • Phone
  • Truck, keys
  • Computer, monitor, mouse, keyboard, power strip, floor mat
  • Office keys, card entry, gate remote, parking assignment
  • Filing cabinet, keys
  • Tablet
  • Forms
  • Office supplies
  • Cooler, other supplies

Your new employee may need access to your computer software systems:

  • Employee email address
  • Any new user IDs and password for all the systems they will need to access
  • Document access

How will your new employee learn the ropes?

  • Set up training
  • Assign a buddy

Hopefully, this list will give you a start toward making your employee onboarding process a little smoother.

Let us at PTA handle all your payroll and new hire needs.

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Disasters and Taxes

Disasters and TaxesDisasters and Taxes

While some may say that tax season in and of itself should be classified as a “federally declared disaster,” the phrase holds more weight this upcoming year as thousands of families have been devastated by the California wildfires and East Coast hurricanes. Read more

Beginning in 2018, the personal casualty and theft loss deduction is limited to casualty losses incurred in a federally declared disaster area. The casualty and theft deduction is only available to those who itemize their deductions, not to those who take the standard deduction.

In the instructions for the 2018 Form 4684 (Casualties and Theft Loss Deductions), the IRS defines a disaster loss as “a loss that occurred in an area determined by the President of the United States to warrant federal disaster assistance and that is attributable to a federally declared disaster. It includes a major disaster or emergency declaration.” A list of federally declared disasters can be found at https://www.fema.gov/Disasters.

There are two limitations to qualify for the deduction:

  1. A loss must exceed $100 per casualty
  2. Net total loss must exceed 10 percent of your AGI (adjusted gross income)

You can still elect to deduct the casualty loss in the tax year immediately preceding the tax year in which you incurred the disaster loss. IRS Publication 976 provides information about personal casualty losses resulting from disasters that occurred in 2016 and certain 2017 disasters, including Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires.

An exception to the rule above limiting the personal casualty and theft loss deduction to losses incurred in a federally declared disaster area applies if you have personal casualty gains for the tax year. In this case, you will reduce your personal casualty gains by any casualty losses not attributable to a federally declared disaster. Any federal disaster losses that remain are subject to the 10% AGI limitation.

In a recent publication clarifying some of the new tax reform laws (Publication 5307), the IRS touched on how some of the recent laws enacted in 2018 make it easier for retirement plan participants to access their retirement plan funds. This may allow affected taxpayers to:

  • waive the 10% additional tax on early distributions and
  • include a qualified hurricane distribution in income over a 3-year period
  • repay their distributions to the plan
  • have expanded loan availability
  • extend the loan repayment period

We certainly hope you weren’t affected by a disaster last year, but if you were, we have you covered tax-wise. Contact us for your tax and accounting needs.