UPDATE: Tax Cuts and Jobs Act – Divorce

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The Tax Cuts and Jobs Act (TCJA) has made some changes that directly affect those who are planning on getting a divorce. With the new TCJA changes, alimony will no longer be tax deductible or taxable. These changes apply to divorce and separation cases fully executed after December 31, 2018 and adjusted agreements changed on January 1, 2019 and after. These changes, unlike most of the other TCJA revisions, are a permanent part of the tax code and will continue to be effective after 2025.

To fully understand the changes that have been made, it is best to understand the previous set of rules. Before these changes were made, those who paid alimony to an ex-spouse were able to write off the entirety of qualified alimony payments on their federal returns, and recipients of alimony were required to report their alimony received as taxable income. However, child support payments among other types of payments were not tax deductible or taxable for either party.

Alimony that qualified as deductible had the following requirements:
• The parties involved could not file jointly with each other
• The payments were made in cash/check/money order
• The payment to the spouse or former spouse is regulated by a divorce or separation document/instrument
• The divorce or separation document does not specify that the payment is not alimony
• If the spouses are legally separated under a decree of divorce or separate maintenance, the spouses are not living in the same household when the payment is made
• The payments are not required to continue once the recipient passes away.
• The payment is not considered child support or property settlement.

Now that the TCJA changes are in effect, none of the previously listed requirements can make alimony deductible. Agreements finalized after December 31, 2018 and preexisting agreements edited on or after January 1, 2019 are affected by these changes. It is important to know that in some states there is a waiting period after divorce paperwork is finalized before the divorce officially takes effect. This waiting period determines the date of which a divorce or separation is official and what tax rules apply to it. In New Jersey, the wait period in a no-fault divorce is six months if both parties consent to it and 18 months if they do not, meaning that in a consenting no fault divorce, papers would need to be signed in late May or early June to guarantee that it would be finalized before December 31st 2018 and qualify to reap benefits under the old tax code.

These changes in the tax code will likely effect the way people go about renegotiating a divorce agreement. Since the payor will no longer be able to deduct alimony, they may not be willing to pay very much, but instead might agree to a lump-sum payment before 2019 so that the full sum would be deductible. The payee, on the other hand, may attempt to stall the process so that they can avoid being taxed on the alimony.

Additionally, it is to be expected that many people will revisit their preexisting agreements in light of these changes effective January 1, 2019. For example, if an agreement was made based on the fact that the payor could fully deduct alimony, it is likely that a current divorce decree will be revisited and edited now that alimony payments will no longer be deductible. To ensure that these revisions to current alimony agreements beat the end of year deadline, the adjustments must be made before January 1, 2019 with any wait time taken into account.

Another important Tax Cuts and Jobs Act (TCJA) enactment effective immediately is the documentation now required for charitable contributions. The deduction limitation for cash contributions to public charities and some private foundations has increased from 50% to 60%. Contributions over 60% can be carried forward and deducted for up to five years based on the later year’s ceiling. However, the IRS is cracking down and getting stricter with charitable donation record keeping. Be sure to always keep proof and/or records of your charitable contributions, on the organizations letterhead if possible.

As of the latest IRS regulations set forth on 7/30/18, the following documentation is mandated:
• No chartable monetary gift is eligible for deduction unless the donor maintains records of the gift such as bank records or a written communication from the donee with the name of the donee, the date of contribution and the amount of the contribution, regardless of the amount of the donation.
– You can deduct travel costs if you are traveling to provide service as long as you are not compensated for it.
– You can deduct gifts that you receive a benefit from, but only the amount of the donation after the benefit is subtracted.
— EX: If you buy a charity dinner ticket for $50 dollars and the dinner is valued at $20, you can only deduct $30.
• Nonmonetary or property donations under $250 may be claimed for deduction only if the donor receives a receipt from the donee or keeps reliable records.
• If the contribution is at least $250 but less than $500, a contemporaneous written acknowledgment is required.
• For a donation that exceeds $500 but is no more than $5,000 the donor must have written acknowledgement and a completed Form 8283 (Section A) Noncash Charitable Contributions must be attached to the tax return.
• For Noncash contributions of $5,000 or more, in addition to a written acknowledgement the donor must have their contribution appraised by a qualified appraiser and complete and file either Section A or Section B of Form 8283.
• Noncash contributions of $500,000 or more require the same proof as a $5,000 or greater contribution and the qualified appraisal must be attached to the tax return.
– A qualified appraiser is an individual with a verified education and experience in valuating that item or property in question.
— A verifiable education means that the individual has successfully completed professional or college level coursework in evaluating the type of property and has two or more years of experience in valuating that kind of property or has earned a recognized appraiser designation.
— The new requirements for the appraisers apply only to contributions made on or after 1/1/19. All other new requirements are in effect as of 7/30/18.

We at Mazur and Associates know that separation and divorce is hard enough on everyone involved and that financial and tax planning is just an added stress. Also, the revised documentation for charitable contributions is more stringent beginning with 2018 tax returns. Let us help you get through it with as much confidence as possible. Call us and set up an appointment to discuss your options at (732) 936-1230!

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Higher Education Doesn’t Have to Ruin Your Finances: Part Two

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In our last post, we promised to give you a list of things you SHOULD do when thinking about what to spend and how to save money with college in mind. The wait is over! Here they are:

Things you SHOULD DO:
Medical Plan
— It is recommended to keep your student on your medical plan while they go to college. Nothing is more expensive than a visit to the doctor that isn’t covered. Hopefully there will be no need for a hospital visit, but just in case, it is best to discuss which offices and doctors are covered with your student before they go to school.
Scholarships
— There are thousands upon thousands of scholarships available and not all of them are academic or athletic. Searching scholarships to apply for online can be very beneficial. Even small ones for a few hundred dollars can help offset the cost of books or general university fees. And if your student is granted a few small ones, the money really adds up!
Test Out
— Credits are expensive. If you are proficient in a topic or course material, explore options to test out and receive automatic credit. Why pay for college credits if you can test out of it easily while in High School?
Savings Account
— Open a savings account that gains interest. This is a good way to slowly make some money and to save money for an emergency or to pay off debt once you graduate. Credit unions are a good place to start because a lot of them have specific student accounts with special benefits.
Student Discounts
— Always ask if stores and shops have student discounts before you purchase something. Usually places near universities will have deals and discounts for students that can produce a valid school ID.
Pay Interest
— If you have to take student loans, it is best to start paying interest as soon as possible. Even putting $10 a month towards your loans will help lower your debt in the long run.
Tax Credits
— Discuss with your CPA and apply for the following tax credits to help offset college costs.
– American Opportunity Tax Credit: credit for up to $2,500 towards tuition, fees and course materials available for the first four years of education after high school.
– Refundable credit: reduces the amount of tax you owe on a dollar for dollar basis. If the amount of the credit granted is more than what you owe in taxes, the left over will be refunded to you in either 40% of the credit or $1,000 depending on the situation.
– Lifetime Learning Credit: credit for up to $2,000 a year to cover tuition and fees for all years of education after high school including courses to gain or improve job skills. This credit is also available for graduate school tuition and related expenses.
FAFSA
— Even if you think your income is too high to qualify for federal financial aid, it is still a good idea to fill out the Free Application for Federal Student Aid (FAFSA). This form is required to be considered for financial aid and to maximize your opportunities. It can be used to determine eligibility for other scholarships and grants as well as for low-interest student loans. File as early as possible because some states give out grants on a first come, first serve basis until the money is gone.
Budget/Plan
— Even with all of these tips on how to save money on college expenses, it is still important to create a financial plan or budget for your student. Sit down and discuss realistic spending habits and financial responsibilities with them to ensure that everyone is on the same page about how to manage their finances.

We understand that college is expensive, and the cost is only climbing. At Mazur & Associates, Certified Public Accountants and Business Advisors, we have “been there” and our CPAs have successfully navigated through the trials and tribulations of our children’s college years. Take advantage of our experience and contact us to discuss some financial planning ideas that your family may consider before your student goes off to college. Schedule an appointment today by telephoning us at (732) 936-1230. And good luck to you and your student!

Higher Education Doesn’t Have to Ruin Your Finances: Part One

The following are some budgeting, planning, and money saving tips for college students and their parents/financial supporters.

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Things you DO NOT NEED:
•  To Drain Your Retirement Fund
•  Parents with college age children are usually in their 40’s to 50’s, the prime years for them to be adding as much as possible to their retirement. Sure, you might not want your child to drown in student loans, but that is a debt that can be paid off over time. Taking out a loan to cover retirement costs is a much worse loan to pay off because it will more likely than not result in needing a job to supplement your savings or make big retirement budget cuts. Look for low-interest student loans or less expensive colleges.
•  New Textbooks
•  Students spend an average of $579 on school books for the 2016-2017 academic year. You can avoid being one of those people by buying used books or even renting them. E-books and library check outs are cheaper options, too. Make sure to shop around on major online retail and book rental sites for the best deals. Another tip is to keep your books in good condition so you can sell them back to the vendor or a friend when you’re finished using them. Finally, be sure to only buy the REQUIRED books for your classes. Some professors have optional books listed as well.
•  Car
•  People spend around $8,558 per year on their car according to AAA. Think about all of the expenses that come with owning a vehicle: gas, insurance, depreciation, maintenance, repair, licensing fees, registration fees, taxes, loans/leases, etc. Add a parking pass to all of that and you’re looking at a hefty sum that can be avoided by using a bike or public transportation.
•  Meal Plan
•  Well, you might need one, but probably not the most expensive one. Talk about and make a budget for food, look for roll over meal dollar options, and for options to add onto the plan later on if possible. If that is an option, buy a basic plan and add on as needed. If those are not options for you, be sure to buy the plan that makes sense for you and your personal eating habits. Usually, the most expensive plan is too big for one person to fully use.
•  (New) Technology
•  The biggest expense as far as unnecessary technology goes is printers. There is the printer itself, the paper, and the ink. They are not always needed either. Today, most assignments can be submitted online and paperless. Additionally, most campuses have printers on site to be used by students for a few cents per page or even free. Do some research and see if it’s really necessary.
•  Almost every student needs a laptop to do homework, research, etc. However, the most expensive model is not always justified by the extra cost. Before you purchase a computer, know what you will use it for. If your student will use it for basic things like word processing and checking emails, a basic model will suffice.
•  Some majors, such as coding or computer sciences, require a student to have certain software or extra hardware on their computers to complete their courses. These extras can be pricy, but the college will usually offer free instillation or instillation at a cheaper price than major providers.
•  Credit Card
•  It is a good idea to start building credit, but it is typical of college students to get themselves into serious credit card debt that they cannot pay off. Unless your student has a job and will be able to keep up with payments on time, it is best to avoid credit cards. They do not NEED one. They can use a prepaid debit card or cash to make purchases.

Now that you know what to avoid, you need to know what to do. Do you or don’t you fill out the FASFA? Do you keep your student on your medical plan? Do you open any type of bank account at all? All of these questions and more will be answered in our next blog post to be posted in three weeks! Stay tuned to get more advice on how to be smart about your plans for college spending. Can’t wait? Call us at (732) 936-1230 to set up an appointment to discuss budgeting options! At Mazur & Associates we are always happy to help.

Small Businesses and Cybersecurity

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Cybersecurity breaches in the United States are the most expensive and the top cyber threats are as follows:

• Ransomware & similar deception tactics
– Cyber criminals use information illegally obtained to blackmail a victim, threatening to release the information if they are not paid a ransom.

• Social Engineering
– Phishing- Fabricated emails claiming to be from legitimate sources looking to obtain personal information from victims via email exchange or via a link in the email.
– Spear Phishing- Highly customized or personalized phishing emails attempting to gain immediate personal information to payment.
– Baiting- Malware placed within media and graphics on websites and other online platforms (Like clickbait)
– Tailgating- Predator physically follows a person into a restricted area and gains access to private information

• Password Attacks
– Cyber criminals have password cracking software readily available to them and use it to hack private passwords in order to gain access to personal accounts /devices and information stored within them

• Man in the Middle (MITM)
– Cyber criminals secretly intercept communication between two legitimate parties, sometimes impersonating the other party on both ends on the communication in order to gain information or alter communication between the two.

• Denial of Service (DoS)
– Cyber criminals overwhelm websites with high volumes of traffic or data in order to disrupt the availability of the website to legitimate users and handicap the network.

Cybersecurity is increasingly important to every business in this technological age. Below you will find some advice on how to keep your business safe from cybercriminals and attacks.

Train your employees to practice basic security measures when online. Require strong passwords and create a policy that outlines appropriate Internet use, including penalties for violating the cyber security policies and direction on how to handle and protect customer and company information and data online.

Ensure your electronic equipment is safe by using the latest security software, web browsers, and operating systems. This is the best defense against online threats like viruses and malware. Antivirus software is also necessary. It scans a computer or machine for viruses each time the system is updated.

Your internet connection should always be protected by a firewall (a set of programs that prevent someone outside of the company from accessing the data on your private network). If your operating system comes with a firewall, make sure it is enabled. If your operating system has no firewall to enable, there are sufficient firewall programs and software available for download online. If you have employees that work from home or on a personal device like a laptop or tablet, make sure that their system(s) are also using an up to date firewall software.

In your cybersecurity policy, include a clause for personal mobile devices. Require password protection, encryption of data, and installation of security apps to prevent cybercriminals from stealing information while the device, like a phone, is connected to a public network. Add in procedures for reporting lost or stolen devices with data on them as well.

To ensure that there is never a loss of information due to a breach in cyber security, make sure all important data and information is backed up and or copied from all business devices. This includes word processing documents, spreadsheets, databases, financial files, human resources files and accounts payable and receivable. If an automatic backup setting is available, that is the best option to choose. If not, make sure you back up your data once a week at least and store the copies either offsite or in the cloud.

Limiting physical access to devices with sensitive information is another way to prevent cybersecurity breeches. Do not allow nonemployees to use computers or other devices in your office space. Make sure all personal devices like laptops and phones are locked when left unattended. Each employee should have their own unique username and strong password to log into the company server. And only one trusted employee or IT staff member along with key personnel should be given administrative access on your network.

Your Wi-Fi, if you have it, should be secure, encrypted, and hidden. There should be a password required to use your companies Wi-Fi server and set up your router so that it does not broadcast the network name or the Service Set Identifier (SSID).

Secure your payment and credit card information by working with your banks and processors Make sure that the best tools and anti-fraud services are being used. Payment tracing systems should be kept separate from other systems. For example, do not use the same computer to process credit card payments and to browse the web for leisure or for things unrelated to processing payments.

To limit access to data and information is to limit the abilities of cybercriminals. Employees should only have access to the data systems they need to do their jobs and should not be able to download any software without administrative permission.

Be aware of what is posted on social media platforms as well. Cybercriminals have developed ways to get public information about you personally or your business from social media domains and use it to create highly personalized phishing schemes that are hard to spot. Sometimes users are not even aware that what they are posting is publicly available.

Using your own email domain and maintaining control over it within the business is a helpful security measure. It is recommended not to use Yahoo, Google, Bing, and other public domains for business accounts.

Lastly, require employees to use unique passwords that are to be changed every three months or so. A multifactor authentication that requires additional information to access a computer may also be helpful in cybersecurity. Some vendors who handle sensitive data, such as financial institutions, offer multifactor authentication account options.

Securing your personal information and Company data is of utmost importance in today’s tech-driven business environment. At Mazur & Associates we have relationships with firms who are experts in this field. Please contact us for a referral to an IT specialist who can assist you or your Company.

Although the summertime is upon us, be reminded that we are already in the second half of 2018. It is not too early but instead, prudent to contact us now to take advantage of our tax planning expertise! Call us for an appointment today. We are available Monday through Friday, 8:30 AM to 5 PM, at (732) 936-1230. We at Mazur & Associates, CPAs are here to assist you and design an income tax-savings plan for the 2018 tax year!

Great News for Pass-through Entities and Schedule C Filers:

 

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20% deduction for Qualified Business Income effective for tax years beginning on or after January 1, 2018 !

The Tax Cut and Jobs Act (TCJA) Code Sec. 199A provides a 20% deduction on Qualified Business Income (QBI) from: Sole proprietorships, S corporations, Partnerships, and LLCs that are taxed as partnerships. QBI is defined as the net amount of qualified items of income, gain, deduction, and loss concerning the qualified trade and business of the taxpayer. It does not include qualified REIT dividends or publicly traded partnership income. These are eligible for a separately calculated 20% deduction outside of QBI deductions. The Code Sec. 199A QBI deduction is a deduction available to both itemizers and non-itemizers, and most importantly, can be claimed by individuals on their personal tax returns as a reduction of their taxable income! This deduction is active for tax years beginning after December 31, 2017 and before January 1, 2026. It is applicable to estates and trusts as well.

According to TCJA Code Sec 199A, a taxpayer’s deduction for qualified business income for the tax year is equal to the sum of the lesser of the combined QBI for the tax year OR an amount equal to 20% of taxable income (which is reduced by any net capital gain and qualified cooperative dividends) PLUS the lesser of 20% of the qualified cooperative dividends OR taxable income reduced by net capital gain.

Combined QBI includes an amount equal to 20% of the total amount of qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for that tax year.

Additionally, Code Sec. 199A provides a special deduction to specified agricultural or horticultural cooperatives. (If this applies to you, please call our office to discuss it further at (732) 936-1230.)

That is a lot of technical information to take in. Here is where we make it a bit easier for you, a business owner, partner, member or S corporation shareholder taxpayer, to understand. Below is the three-step simplified process for calculating your QBI deduction:
•  Calculate the QBI deduction of each of the qualifying trades or businesses
–  The deductible amount for each qualified trade or business is the lesser of 20% of the taxpayer’s QBI OR the greater of 50% of the W-2 wages OR the sum of 25% of the W-2 wages and 2.5% of the unadjusted basis, immediately after obtaining all qualified property.
–  The W-2 wage limitation is applied when calculating the QBI deduction and therefore the W-2 wages do not include any amount that cannot be properly allocated to the QBI as a qualified item of deduction AND any amount that was not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions). **These limitations exclude those in the health, law, accounting, broker, actuarial science, preforming arts, consulting, athletic, and financial services, deeming them not qualified trade or business.**
•  Calculate the combined QBI amount
–  Take the sum of the deductions from step 1, adjusted for any carryover qualified business loss (which means reduced by 20% of any carryover or loss but not reduced below zero) and add that to 20% of the total amount of the REIT dividends and qualified publicly trades partnership income.
•  Determine whether the taxable income limitation applies
–  There are caps on the QBI deduction at 20% of the taxable income. This makes the final deduction equal to the lesser of the combined QBI amount found in step 2 OR an amount equal to 20% of the taxpayer’s taxable income once it is reduced by any net capital gain.

Note that this deduction is not used in calculating adjusted gross income, thus it does not affect limitations based on adjusted gross income.

This 20% deduction is quite significant for the S Corporation shareholders, partners/members in partnerships, Limited Liability companies or Schedule C filers. The QBI deduction could reduce your individual marginal tax bracket or reduce your AGI so that you are now eligible for tax credits. One thing is for certain: if your business or K-1 has positive income, is not one of the “specified service trade or business” mentioned above, the QBI deduction will DEFINITELY reduce your federal income tax bill on your 2018 tax return!

For calendar year entities, tax planning before December 31st is a must! Make sure you take advantage of our tax planning expertise as soon as possible by calling and making an appointment to help your company maximize its tax savings. We are available Monday through Friday, 8:30 AM to 5 PM, at (732) 936-1230. We at Mazur and Associates look forward to hearing from you and helping you create the best and most tax efficient plan plan possible for the 2018 tax year!

Time to Think About Paid Time Off

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On May 2, 2018, Governor Murphy passed the first state-wide paid sick leave legislation in New Jersey. This new law clearly outlines new uniform requirements for paid sick leave and time off policies that New Jersey employers must comply with. The statute becomes effective on October 29th, 2018. All existing paid time off policies must now meet the minimum requirements of the new law and those employers without one must create one to comply with the requirements outlined. We at Mazur and Associates understand that for small businesses it is often difficult to keep up with the ever-changing legal requirements, so we have outlined and highlighted the parts of the bill that affect employers and employees alike.
• All New Jersey employers, regardless of size, must give one hour of paid sick leave per every 30 hours worked by each covered employee, even if they are a temporary employee.
– Exclusions include: Construction workers with collective coverage, healthcare and public employees with paid sick leave benefit packages
• Employees can accrue up to 40 hours of paid sick leave per benefit year
– A “benefit year” is a 12 month period set by the employer. Once a benefit year is established, it cannot be changed without going through the Commission of the Department of Labor and Workforce Development regulation.
• Employers can “front load” and pay employees their yearly 40 hours sick leave in advance at the beginning of the benefit year
• Employees hired on or before the effective date may start accrual on the effective date (October 29th, 2018)
• Employees hired after the effective date start accrual upon employment
– Employees, whether they were hired before or after the effective date, may not use their sick time until 120 days after the effective date.
• Employees can carry over up to 40 hours of paid time off from one benefit year to the next.
• Employers can “buy back” paid sick leave hours from employees
– Employees can accept full or half of the payment equal to their accrued paid sick leave at the end of the benefit year and have any remaining hours roll over into the next year.
• Approved reasons for taking paid time off are:
– Diagnosis, care, or treatment for: personal mental or physical illness, a family member’s* mental or physical illness, domestic abuse or sexual violence suffered by the employee or a family member.
– Time off needed because: the employee is not able to work because of the closure of the employee’s workplace, or the school or daycare of a child of the employee, the employee must attend school-related conferences, meetings, functions or other events requested or required by a child’s school, or to attend a meeting regarding the care provided for the child’s health conditions or disability
*A family member is a child, grandchild, sibling, spouse, domestic partner, civil union partner, parent or grandparent of an employee or a spouse, domestic partner, civil union partner or a parent or grandparent of the employee, or a sibling of a spouse, domestic partner or civil union partner of the partner under this new law.
• If the reason for taking paid time off is foreseeable or planned, employers may require up to seven (7) days’ notice and the employee must make their best effort not to disrupt the employers operations with the timing of their absence.
• If the reason for taking time off is not foreseeable, notification of leave is required as soon as possible.
• If leave is three (3) days or more in a row, employers may require documentation to prove that the paid time off is being used lawfully and for one of the approved reasons.
• Employers are not required to pay accrued hours to employees upon termination. Resignation, or other forms of separation from work and the business.
• Employers are required to keep documentation of hours worked and hours of sick leave taken for five years.
– If records are not kept, it is assumed that the employer is non-compliant with the law.
• Employers must distribute materials on the new requirements concerning paid time off provided by the Commission of New Jersey Department of Labor and Workforce Development.
• Employees who file and win civil court cases against an employer who was not compliant with the New Jersey Wage and Hour law are entitled to double damages.
• Employers can not retaliate against an employee for using his or her sick hours
– For example, counting a paid sick day as an absence from work that results in disciplinary action is not allowed
• Employers cannot take action against an employee within 90 days of said employee
– filing a complaint alleging a violation
– reporting or cooperating with any person investigation a violation
– opposing any unlawful policy or practice under the act
– informing any individual of their rights under the act
• Employees are entitled to their accrued hours even if employers change during the benefit years.

Our suggestion to all employers is to review your current paid sick leave policy or other paid time off policies in place to ensure that they meet the minimum requirements of the earned sick leave act. Employers with a separate sick and vacation leave policy might want to think about using a Paid Time Off bank in order to lessen some of the impacts the new requirements can have on the administration. Those without a policy on paid sick leave must create and implement a new policy that complies with the new act before the effective date.

At Mazur and Associates, Certified Public Accountants and Business Advisors, we have the business management expertise to guide your Company! We would be pleased to discuss some planning ideas that your Company may consider implementing before the law’s effective date of October 29, 2018. Call us at (732) 936-1230 to schedule a consultation with one of our CPA-Advisors.

Not taking action by October 29th would be a huge mistake!

A Well-Planned Retirement — Free From Financial Worry

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A well-planned retirement is a comfortable and happy retirement. Living out your golden years without financial worries is the goal, and Mazur & Associates has some advice on how to get yourself there.  Most people miss out on the potential tax benefits from funding a qualified retirement plan.  Don’t worry though, it is not too late to reduce your 2017 tax liability if you take action before April 17, 2018.

Before you start strategizing, it is important to understand the basic differences in some of the most common retirement accounts.

Employer Types
• 401(k): This type of retirement plan is sponsored by an employer.  As a worker, you can save and invest a piece of your salary before taxes are withheld and drops your taxable income by the amount you contribute.  You will pay the income taxes on contributions and earnings upon withdrawal from the account.  You can contribute up to $18,000 this year, and for those aged 50 or older you can take advantage of the catch-up contribution, which allows an additional $6,000, bringing the total yearly contribution to $24,000. If you have a SIMPLE 401(k), you can contribute up to $12,500 and $15,500 if you are over 50 years old.

• 403(b): Also known as a tax-sheltered annuity plan, these plans are usually used by employees of educational institutions or non-profit organizations.  This plan is similar to a 401(k). You make pre-tax contributions, the funds grow tax free, and taxes are paid upon withdrawal.  Contribution limits, including catch-ups, are the same as 401(k) plans.

Individual Types
• Individual Retirement Account (IRA): An IRA can be opened by anyone who has earned income.  There are two types of IRA plans:  traditional and Roth. With both your funds grow tax free.  For 2017, you can contribute the maximum $5,500 to either IRA ($6,500 if you are age 50 or older by the end of last year) and this contribution must be made by the tax filing deadline:  April 17, 2018. For traditional IRA’s you must start withdrawing money from the account by age 70½.  If you withdraw from an IRA account before reaching age 59½ you may also be assessed a 10% premature distribution penalty (there are exceptions, such as first-time homebuyer, college tuition for you or any of your dependents, etc.). If you have a traditional IRA and are active in your retirement plan, there are ranges of phase outs based on your filing status. For the 2017 tax year there exists a phase out range of $186,000-$196,000 for a married individual who is not an active participant in a retirement plan at work and files a joint return with a spouse who is an active participant. If your income exceeds this range then your contribution to a traditional IRA is non-deductible.

There are special rules for contributions to ROTH IRAs. With a Roth IRA, you get no tax deduction when you contribute and you can leave the money in the account for as long as you want. Roth IRA distributions will generally be tax free and will not be added to your income in the year of withdrawal. If you are filing as single or as the head of the household, your range is $62,000-$72,000. If you are married filing jointly or single status/qualifying widow/widower, your range is $99,000-119,000. If you are married filing single your range is $0-$10,000. If you have a Roth IRA plan and are filing as single or as the head of the household, your range is $118,000-$133,000. If you are married filing jointly or as single status/qualifying widow/widower, your range is $186,000-$196,000. Married filing single has the same range as a traditional IRA plan with that filing status. You cannot contribute to a Roth IRA if your income is above those levels.

If you already have a traditional IRA, you may want to consider converting it to a Roth IRA this year since 2017 is the last year this recharacterization is permitted (The Tax Cuts and Jobs Act legislation prohibits conversations to ROTH IRAs beginning with tax year 2018). Taxpayers are taxed on the amount exchanged as ordinary income but investments made after that and future earnings in the ROTH account will be free of tax. Traditional 401(k), 403 (b) or 457 plans that include after-tax contributions generally roll over these after-tax amounts to a Roth IRA with no tax consequences. Rollover to a SIMPLE 401(k) is also possible. If you are considering this, you should immediately schedule a meeting with us, before you take any action, to prevent any unintended circumstances, including a surprise tax bill!

Choosing among the various retirement plans can be confusing and that is where our savvy tax guidance comes into play.  We at Mazur and Associates Certified Public Accountants and Business Advisors, PC possess the knowledge and expertise to assist you in this area.  We will counsel you on how to save income tax on your 2017 tax returns while at the same time increasing your financial security upon retirement.  Call us today at (732) 936-1230 to schedule an in-person tax consultation with one of our seasoned CPA staff!