Posts under: Tax Planning

Essential Tax & Legal Tips for the NEW Business Owner

August 28, 2017 Business planning, Law, Tax Planning Comments Off on Essential Tax & Legal Tips for the NEW Business Owner

Starting a business is a process.  It is MUCH more than filing the one or two page articles/certificate of formation with the state.  At the same time, it doesn’t have to be so complicated and overwhelming that you never start.   Further, not only is starting a business a process, it’s a process that is unique to YOU.  It is not a cookie-cutter one size fits all proposition.  What your business and YOUR situation require may be completely different than anyone else you might know who is self-employed.  Having said that, here are 8 tips that apply to all businesses, but how to USE these tips will be different for each business owner:

  1. Operate out of and properly maintain the appropriate entity formation for YOUR situation. While it is true you can operate your business as a sole proprietorship, I think it’s generally better to operate your business out of an entity such as an LLC or corporation.  First, I think it has a positive impact on your mindset as a business owner in that it makes you feel more “legit”and others will see you the same. More importantly, it is always better to operate your business out of an entity such as an LLC or corporation as those companies prevent liability of the business from extending to the owners.  Lastly, operating out of an entity can in certain situations produce tax savings such as when operating out of an S-corporation to save self-employment taxes. This is generally recommended for operating businesses who have $30-$40k net annual income.
  2. Make sure you have a partnership/ownership agreement if there are other owners. If you have somebody that you trust to own and run your business WITH YOU, that’s a great thing, and hopefully you continue to have a great business relationship with that person(s).  But don’t let that be a reason to NOT get your relationship in writing through a written agreement that you both/all would sign to memorialize the rights and obligations of each other.  If the business fails or one of the owners wants out or isn’t “pulling their weight” and you didn’t address this in writing BEFORE the crisis/event has occurred, that friendly business partner could wind up AGAINST YOU.
  3. Embrace bookkeeping. Embrace the fact that bookkeeping is one of the keys to maximizing tax write-offs and commit to either obtain the right training to do it yourself OR see the value in outsourcing it to someone who knows what they’re doing.  Maybe your strength as an entrepreneur is the marketing/sales side of business, or you have the relationships to be successful, but when it comes to taxes, you must keep good records, and for all your strengths, if you’re not organized, you’re going to get killed in an IRS audit.  So either learn to be organized with your records in terms of tracking expenses and use a good bookkeeping software (Mark Kohler offers a great set of videos that train on how to use Quickbooks), or outsource it to someone else who is good at it so you can focus on what you do best. The clients who embrace bookkeeping usually have more write-offs and deductions come tax-time as they rarely miss an opportunity to expense something.
  4. Have periodic tax and legal consults with your attorney and CPA. Unfortunately, many small business owners don’t use a business attorney ever, and maybe only meet with their CPA once a year, assuming they even use a CPA.  I think the cost of meeting with a good business attorney and CPA at least twice a year is worth the cost.  Prevention is much less expensive than the cost of getting “sick”, whether “sick” is an unnecessary amount or risk exposure that leads to a lawsuit, or whether “sick” is failure to maximize tax write-offs and you’re paying more than necessary to Uncle Sam, OR, maybe without a good CPA you’re TOO aggressive on your taxes or even worse, you don’t file a return at all and the IRS comes knocking.  Not to mention meeting with your attorney and/or CPA is a tax write-off!  On the legal side, it is good to get periodic “checkups” on how your business is structured, what has changed, what’s coming up that is new in your business, etc., so that your business attorney can guide you on mitigating your risks and protecting against liabilities.  On the tax side, it’s good to also get periodic “checkups” to talk about tax strategies and which ones you aren’t maximizing or implementing, or which ones you’re doing wrong that is going to be a problem in an audit, i.e. health care, paying kids, auto, home office, dining, entertainment, travel, tax deductible contributions to retirement plans, owning real estate, etc.
  5. Be sure to have adequate insurance for your business. This legal tip is not new or cutting edge by any means, but the failure to follow it could be catastrophic to your business.  A good insurance broker can help a great deal to match up the appropriate amount of insurance (in terms of amount and policy types) for YOUR business.   You don’t want to spend TOO much of your business income on insurance premiums but if you don’t have any insurance, if/when a liability comes up in your business, and you don’t have an appropriate insurance policy to divert that financial responsibility for that claim/liability to an insurance company, it puts the full force of that claim or liability on potentially ALL of the assets and income of your business.
  6. Make sure to use contracts in your business and don’t rely on verbal conversations or handshake deals. You may have heard that under the law in most situations verbal contracts are enforceable.  That doesn’t mean you should RELY on them, especially with the core aspects of your business i.e. your clients, your vendors, your business partners, etc., you want to properly memorialize the agreement IN WRITING.  This will make it SO much easier to prove your case in court if the other party violates/breaches the written contract versus trying to prove they breached/violated a contract that is not in writing and signed by all parties.  You should have a good service contract or something applicable that is provided to your customers.  This not only helps with enforcing any liabilities or claims you have against them (non-payment for example), but it also is REALLY helpful to clarify the SCOPE of what your business WILL do for them and what your business will NOT do for them.  If you don’t clarify that in writing, you have no idea what your customer assumes or expects, so even it doesn’t result in a lawsuit, it can create a rift between your business and that client and result in bad press about your business on social media, etc.
  7. Make sure you are properly characterizing your workers (independent contractor v. employee). There is a temptation for the small business owner to view/consider ALL of their workers as independent contractors.  The small business owner loves to do that because there’s no payroll tax, no added costs for worker’s compensation, unemployment, employee benefits, etc.  Unfortunately, the federal and state taxing authorities do not take YOUR word alone that your workers are actually independent contractors.  IF you improperly classify workers as independent contractors and the government (state or federal) determines they are employees, you will have fines and penalties.  Don’t misunderstand, you can have workers that ARE independent contractors, so long as they are TREATED as independent contractors, and the key word there is “independent”.  If you’re going to micro-manage what they wear, when they work, how they work, where they work, etc., that doesn’t sound very “independent” and it sounds at lot like an employee, which it is sometimes necessary to have that much control of your workers, but you can’t have it both ways, if you treat them like employees, you have to accept that it comes with things like payroll taxes, unemployment, worker’s comp, etc.
  8. Have an exit strategy (including an estate plan). Understandably your primary concern is getting the business STARTED, so you might think it would be unproductive to think about an exit strategy so early in the “game”, but it is so important to have that in your mind.  Do you want to grow the business and sell it soon as possible or hold onto it and pass it loved ones, or maybe you want to buy out your partner’s ownership (or vice versa).  There are many unknowns that make it difficult to have any certainty about what WILL happen, but it’s very productive to consider the ways in which it COULD happen and form an opinion on what seems most appealing to you.  But REGARDLESS of what your exit strategy is, you should make sure your business ownership and estate plan is coordinated.  Even if you plan to sell the business as soon as possible, and you have no plans of owning the business for the long-term, the spontaneity of death requires that even in that situation, your business ownership be coordinated with your estate plan.  Don’t forget about incapacity either.  This could mean you have power of attorney documents in your estate plan that contemplates ownership/operation of your business if you become incapacitated.

In sum, your business needs you as the business owner to make sure your business is healthy from both a tax and legal perspective.  These tips are a great starting point to make sure that happens.  Our office is available to assist and would love to help you and your business with implementing these and other tips specifically to you and your business.

Bitcoin Basics: What is Cryptocurrency?

July 3, 2017 Business planning, Law, Tax Planning Comments Off on Bitcoin Basics: What is Cryptocurrency?


Questions about Bitcoin have increased dramatically as investors have seen the price of Bitcoin rise from 30 cents per Bitcoin in 2011 to $2,550 per Bitcoin in July 2017. This article answers basic questions about Bitcoin and we’ll have two follow-up articles addressing IRA ownership of Bitcoin and about accepting Bitcoin in your business. Needless to say, there’s a “bit” of uncertainty when it comes to whether or not one should invest in Bitcoin (sorry –bad pun) but here’s a breakdown of the basics.

What Is Bitcoin And How Does it Work?

Bitcoin is one type of digital currency also known as crypto currency. Users of Bitcoin pay each other directly without traditional intermediaries such as banks or even governments using what is known as blockchain technology to effectuate transactions. First, you would install a Bitcoin wallet on your device and it will generate a Bitcoin address. When you provide your Bitcoin address, the person paying you can transfer funds to your address and into your Bitcoin wallet. This transaction and all transactions on the Bitcoin network are done using this blockchain technology, which is a ledger that tracks balances. Cryptography i.e. mathematical proofs that provide high levels of security are used to strengthen the security of the Bitcoin network. By the way, cryptography is not some untested technology – it is through cryptography that online banking is currently done. As a Bitcoin user, you would authorize a transaction using a secret piece of data called a private key. A transaction isn’t finalized until it has been mined, which is a confirmation process to ensure the integrity of the transaction. You can learn more at www.bitcoin.org. I will write another article regarding whether a small business owner should consider accepting Bitcoin as a form of payment.

Where Did It Come From And Is It Risky?

Bitcoin was created in 2008 by an anonymous creator. Many executives in the financial sector are cautious or even skeptical, but others are optimistic and confident that it is not going anywhere. Fidelity CEO Abigail Johnson believes in the future of digital currency and has been a proponent of Bitcoin.. One of the biggest complaints against digital currency is the lack of security/protection from hackers. JP Morgan Chase CEO Jamie Dimon has been a notable critic citing its use by criminals looking to transact outside of the traditional financial system. In 2015, a notorious online drug sales scheme was orchestrated using Bitcoin. There was an incident in Japan in 2013 in which digital hackers stole about $450M worth of Bitcoin. A similar incident happened in Slovenia in 2013. Other controversies surrounding Bitcoin include the disappearance of notable Bitcoin start-up companies Neo and Bee in 2014. In 2015 there were arrests when it was learned that Bitcoin company MyCoin was running a Ponzi scheme in Hong Kong. There have been quite a few money laundering cases here in the U.S. involving Bitcoin.

Should I Invest In It And How Do I Invest In It?

Most people investing in Bitcoin are using a relatively small portion of their investment portfolio i.e. I don’t know anyone who is investing most or all their “eggs” in the digital currency. A lot of people are excited about it, but like any investment, if you don’t time it right and/or you don’t know what you’re doing you can and probably will lose money. The concept, however, in simplistic terms is that you buy the digital currency at a certain price and sell it for more than you paid for it. There is the famous story of Kristoffer Koch who paid $27 in 2009 for 5,000 Bitcoins which has now been valued at almost $1M. Currently, 1 Bitcoin equals approx. $2,550 U.S. Dollars, so it would cost you over $10,000 to buy 4 Bitcoins right now. Over the last three or four years, the value of Bitcoin has continued to increase and it is the dramatic increase in value that has caused the recent stir and attention around digital currency investing. Others are attracted to Bitcoin as a protection against government currency. These investors fear a failure in the financial markets, which will dilute and may cause value declines in the dollar or other government currencies. These investors prefer to hold their Bitcoin directly, rather than through a fund.

Assuming you’ve done your research and are comfortable with the process, in terms of actually investing, one option is to invest in the Bitcoin Investment Trust (GBTC). GBTC is a publicly traded security that solely invests in Bitcoin. This allows an investor to use a traditional investment vehicle to realize gains (or losses) as the price of Bitcoin fluctuates without actually possessing and storing bitcoins. However, investing in bitcoin through the GBTC provides only a fractional value of the actual price of bitcoin and so in terms of ease and convenience, the GBTC is a good option, but at least for now, it’s not the best option to capitalize on the full value of Bitcoin. Coinbase, Inc. is another option – it is essentially a digital exchange where you can invest in Bitcoin as well as other cryptocurrencies (see below). Another option is to invest in actual Bitcoin through a self-directed IRA, which I will write about in another article.

What Are Other Types of CryptoCurrency?

Bitcoin is not the only form of digital currency – others include Litecoin, Peercoin, Primecoin, Namecoin, Ripple, Quark, Mastercoin, and Ether(Ethereum).

In sum, like any investment, it requires due diligence and a correct timing of the market(s). As you can tell, there have been some crazy tales of Ponzi schemes and fraud but also stories of incredible returns. In any case, I don’t think digital currency is going away anytime soon – I guess you could say that the stories in this article have been “tales from the crypt”-o currency (it was a stretch but I decided to go for it).

How to Donate to Charity and Beat the Tax Man

June 20, 2017 Estate Planning, Real Estate, Tax Planning Comments Off on How to Donate to Charity and Beat the Tax Man

I have a close relative who works in fund-raising for a fairly large university.  While he loves receiving large charitable donations in the form of immediately available cash or other marketable assets (such as real estate and publicly-traded stock), he knows that such donations are often simply not possible or practical for the average person.  This is why a huge buzzword in the world of fund-raising for non-profits is “Planned Giving.”

What Is “Planned Giving”?

Planned Giving is the present day legal commitment by a donor to give some assets or property to a charitable organization or institution at a future date. The future date is usually the death of the donor.

There are several types of planned gifts. Some people make outright gifts of assets such as appreciated securities or real estate.  Some planned gifts are payable upon the donor’s death such as a life insurance policy where the beneficiary is a charitable organization.  Still other planned gifts provide a financial benefit, as well as a tax deduction, for the donor.  Examples of this are: 1) Charitable Remainder Trusts, which provide an income stream for the donor, and at the death of the donor, the charity receives what is left in the trust; and 2) Charitable Lead Trusts, which essentially do the opposite and produce a stream of income for a charity, and the donor’s heirs receive what remains in the trust when the donor passes away.

What Is a Charitable Remainder Trust (“CRT”)?

A CRT is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to a designated charity. If you have a highly appreciated asset (e.g. real estate), the CRT will avoid capital gains taxes that would otherwise be due if you or your company sold the asset.

Who Should Be Thinking About a CRT?

People who:

  • Have a highly appreciated marketable asset (usually real estate or stock);
  • Want to save on taxes (i.e. they don’t want to take the capital gains tax hit);
  • Want an income stream over the rest of their life or over a certain number of years;
  • Want to make a donation to charity; and
  • Want to totally or partially disinherit their children. This isn’t the case if you structure it correctly!

How Does a CRT Work?

The diagram below goes through the steps involved in a CRT.  However, in a nutshell:

1)   A tax-exempt trust is created with the help of a professional.

2)   The donor places the asset in the CRT.  Are taxes due here?  No – and the donor gets a charitable deduction for making the donation that he/she can carry forward for up to five years!

3)   The property is sold to a third party and the proceeds are deposited into a CRT-owned account.  Are taxes due here?  Not if the property is owned free and clear!  These proceeds are then invested, and no taxes are owned when those investments appreciate in value!

4)   Payments in a set amount or set percentage are made from the CRT account to the donor on a regular basis (quarterly, annually, etc.).  Payments are either made for the life of the grantor or for a term of years.  Are taxes due on this income?  Yes, but the charitable deduction gained when the donation is made can be used to offset at least some of this income!

5)   The donor can use some of the income from the trust to buy a life insurance policy in order to make sure their heirs aren’t left out in the cold.  Do beneficiaries owe tax when they receive life insurance proceeds?  No!

6)   In some cases, the life insurance proceeds may be in the multiple millions of dollars, and could cause an estate tax problem for the heirs.  This issue can be taken care of by the proper use of an Irrevocable Life Insurance Trust (“ILIT”) – which is another subject for another day.

7)   At the death of the donor, or at the end of the term of years, whatever remains in the CRT is donated to the charity.  Does anyone owe taxes here?  No!

 

 

Who Are the Winners and Losers in a Properly-Structured CRT?

1)   The Donor – Winner!  Because he or she gets to avoid the capital gains hit on selling a highly appreciated asset, gets a tax advantaged stream of income, and gets to make a charitable donation that gives them warm fuzzies – and may end up helping to get their name on a building at their favorite university!

2)   The Charity – Winner!  The charity gets an irrevocable promise from the donor to donate assets at some point in the future.  With good investment of the funds in the CRT, the final donation to the CRT can end up being significant.

3)   The Donor’s Heirs – Winners!  Instead of inheriting a piece of appreciated real estate that they need to market and sell, they get tax-free life insurance proceeds, and will avoid possible estate tax issues if an ILIT is used.

4)   The IRS – Loser (for once)!  When properly structured, the only taxes paid in all of these transactions are those owed by the donor when they receive payments from the trust.  However, the charitable deduction will offset at least some of this income.

Now, there are plenty of details to sort through, but please give me a call if you’d like to discuss the CRT further and find out if it is something that might make sense for you.

Just “Having” an S-Corp May Not be Enough

February 21, 2017 Business planning, Law, Real Estate, Tax Planning Comments Off on Just “Having” an S-Corp May Not be Enough

Just “having” an S-Corporation may not be enough. It’s important you make sure to reap the tax and legal benefits of your S-Corp if you’re going to set one up.

If you routinely read articles in this space or have heard any of our attorneys speak around the country, you are probably aware that we are big fans of the S-Corporation structure as a way for folks who own and operate small operational businesses (i.e. ones where they are selling goods or services and are not someone else’s W-2 employee) to get some limited liability protection and (probably more importantly) to save on self-employment taxes.

When self-employed folks don’t incorporate and instead operate as a sole proprietorship, their entire net profit from the business is subject to self-employment taxes. If you don’t do anything about them, self-employment taxes will eat up about 15.3% of your income – before we even talk about income taxes. So, on a net profit of $100,000, a self-employed person will pay about $15,300 in self-employment taxes

If instead, a self-employed person operates as an S-Corporation, they can do a “salary/dividend split” on the net income from the business. In a salary/dividend split, the business owner will pay himself a “reasonable” salary from the S-Corporation’s profits. A general rule of thumb is that roughly 1/3 of the company’s net profit is considered a reasonable salary. Self-employment taxes are paid on the amount of the salary, and the rest of the income flows through to the business owner as a type of “dividend” from the S-Corporation. That dividend is not subject to self-employment taxes.

So, if a small business owner has the same $100,000 of net profit and operates as an S-Corporation, he will pay himself a “reasonable” salary of about $33,000 and pay self-employment taxes of about $5,000 (instead of $15,300). The remaining $67,000 flows through to the owner free of self-employment taxes. We love the S-Corporation structure for self-employed doctors, dentists, engineers, realtors, commissioned salespeople, certain types of real estate investors, and others whose income would otherwise be subject to the 15.3% tax.

Right now, you’re probably either thinking: “Yep, Jarom, you’re preaching to the choir. I already have my s-corp and I’m saving a bunch on my self-employment taxes!” OR “Man, I need to look into an s-corp right away!” Either way, please keep reading because establishing an s-corp and doing the correct tax filings is only part of the equation.

The recent U.S. Tax Court Case of Fleischer v. Commissioner (2016 T.C. Memo. 238, filed 12/29/16) demonstrates that just having an S-Corporation may not be enough to save on self-employment taxes. Mr. Fleischer is a financial consultant who signed on as an independent contractor representative for a couple different brokerage houses. He also established an S-Corporation, and funneled his income through that entity to save on self-employment taxes in roughly the same way I described above.

So, why was Mr. Fleischer in Tax Court? Well, the IRS sent him something called a Notice of Deficiency. The Notice basically said that his use of the S-Corporation to save on self-employment taxes was invalid, and that he owed roughly $42,000 in back taxes, plus penalties and interest. Mr. Fleischer disputed the Notice, and the case went before a Tax Court judge.

The IRS argued that the Notice they sent was proper because the income at issue belonged to Mr. Fleischer, personally, and not to his S-Corporation. In support of this argument, the IRS presented evidence (which was unrefuted by Mr. Fleischer) showing: 1) Mr. Fleischer signed both independent contractor representative agreements in his personal capacity, not on behalf of his S-Corporation; and 2) Payment for Mr. Fleischer’s work went to Mr. Fleischer personally, not to his S-Corporation’s bank account.

Mr. Fleischer’s primary argument in response was that he had to sign the agreements and receive payment in his own name because he, not his S-Corporation, is licensed and registered as a financial advisor, and it would cost him millions of dollars to get the same required licenses for his company.

The Tax Court wasn’t impressed with Mr. Fleischer’s arguments, and ruled that he was indeed on the hook for all the taxes, penalties and interest the IRS asked for in the Notice. While the Tax Court’s decision in Fleischer isn’t necessarily binding on other cases, it is instructive for those hoping to use the S-Corporation to save on self-employment taxes – and have that use stand up under IRS scrutiny. Namely, it drives home two important points:

1)   To the extent possible, all of your S-Corporation’s contracts – especially those where it will be receiving income – should be in the name of your S-Corporation. This is crucial. One of the huge factors the IRS looks at when determining whether income belongs to a corporation is the existence “between the corporation and the person or entity using the services [of] a contract or other similar indicium recognizing the corporation’s controlling position.” A contract between your S-Corporation and the person or entity paying it will satisfy this factor. Besides, entering into contracts in the name of the S-Corporation also helps from a limited liability standpoint if the other party wants to sue for breach of that contract.

2)   Again, to the extent possible, all payments for goods or services provided should be made to the S-Corporation directly. Such direct payments may serve as “other similar indicium recognizing the corporation’s controlling position.” At the very least, these direct payments will save you from being in a position where you have to explain to the IRS why income being reported through you S-Corporation went first to you personally.

The S-Corporation is a wonderful and legitimate tool to save on taxes. Please just take the time to make sure you are using and operating it correctly. Doing so will save you time, money and headaches if you are ever audited by the IRS (or sued in your business).

Court Rules Against California Franchise Tax Board on Overreaching Franchise Tax

January 24, 2017 Business planning, Small Business, Tax Planning Comments Off on Court Rules Against California Franchise Tax Board on Overreaching Franchise Tax

On January 12, 2017, an appeals court in California ruled, in a closely watched case of Swart Enterprises, Inc. v. Franchise Tax Board (Appeals Case F070922), that a non-resident of CA was not “doing business in California” and therefore not liable for California Franchise Taxes merely because it owned a passive investment in California.   Although this ruling may not have much impact on California residents who own and direct investments from California, it does signify the Court’s willingness to impose some limitations on California’s ability to tax under its expansive definition of “doing business in” California.

California imposes a minimum franchise tax of $800 for every corporation (or LLC) “doing business within …this state.”   Revenue and Tax Code § 23101 defined doing business as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.”

Beginning in 2011, the California Franchise Tax Board (“FTB”), adopted a policy whereby it would impose the minimum $800 franchise tax for any LLC or corporation outside of California if they were deemed to be “doing business in California.”  The policy was summarized in Publication 689 from the Franchise Tax Board, and used the example of a California resident (Paul), who formed a Nevada LLC owning property in Nevada, would nonetheless be subject to the annual LLC franchise tax because he could (from California) (1) hire and fire the Nevada management company, (2) have telephone conversations from California with the management company, and (3) was ultimately responsible for and oversees the management company from California.   The FTB need not consider the frequency or continuity of the California activities as a single activity tied to California could be sufficient to impose the Franchise Tax. This was considered by many experts to be an aggressive stance to tax out of state corporations and LLCs that had any connection with California.

In July 2014, the Franchise Tax Board doubled down on this policy and issued its Legal Ruling 2014-01 that if an LLC doing business in California was classified as a partnership for tax purposes, ALL of its members were also deemed to be doing business in California even if the individual LLC member never stepped foot into California or performed any transactions in California.  The rationale was that in an LLC taxed as a general partnership, each partner has the right to participate in the management of the partnership business, and it made no difference if the partner/member never actually participated in the management of the business.  In a general partnership, all partnership’s activities are attributable to each partner, and so if the partnership were doing business in California, then all the partners were also doing business in California.  Contrast that with the situation of a limited partner which the California Board of Equalization recognized in a 1996 decision of Amman & Schmid Finanz AG, did not have the right to manage or conduct the business of the limited partnership, and therefore, would not be considered doing business in California merely because of its limited partner interest in a California Limited Partnership.

The Swart Enterprises case was the test case for an out of state entity whose only connection to California was a passive investment in an LLC that happened to be taxed like a partnership.  Legal Ruling 2014-1 made clear that if an LLC doing business in California was owned in part by a corporation that had no independent presence or activities in California, the corporation would still need to register and pay the minimum annual $800 franchise tax fee (Situation 4 in Legal Ruling 2014-1).   Swart Enterprises was an Iowa corporation operating a farm in Kansas who had no physical connection to California except that it invested $50,000 for a .2% interest in Cypress LLC which was a California LLC.  Swart had no involvement in any of Cypress’ operations or management, and the Cypress LLC documents specified that the Cypress LLC was “manager managed,” and that no member could take part in the control, conduct or operation of the business, or bind the LLC or act on its behalf unless it was the “manager.”   Despite the fact that Swart had no independent business activities in California, the FTB concluded that that Swart owed the $800 minimum tax because the Cypress LLC elected to be taxed as a partnership, and all of its members would be considered doing business in California if the LLC itself was doing business in California.  In other words, the FTB applied its rationale in Situation 4 of Legal Ruling 2014-1 to conclude that Swart owed the $800 minimum franchise tax in California.

The Court of Appeals rejected the conclusion of the FTB and, focusing on the language in § 23101 requiring “actively engaging” in a transaction in California and following the rationale in Amman & Schmid, concluded that Swart’s purely passive investment did not meet the standard for doing business in California.  The Court concluded that an LLC electing to be taxed as a partnership does not make each LLC member a “general partner” for purposes of the franchise tax.  Among the other factors considered by the Court in favor of Swart included the following:

  1. Swart had no interest in any of the specific assets of Cypress LLC;
  2. Swart had no right to act, bind, or be liable for the obligations of the LLC, was specifically prohibited from management and control of the LLC which was reserved only for managers, and these limitations were specifically referenced in the LLC’s Articles and/or Operating Agreement;
  3. Cypress LLC was a “manager-managed” LLC, and under California law, a member who is not a manager in a “manager-managed” LLC has no authority to manage or conduct LLC activities; and
  4. There was no evidence that Swart actually conducted any management activities for the LLC.

Because Swart was deemed to be the “quintessential passive investor” akin to a limited partner who never performed any activities in California, the mere fact it was a member of an LLC in California did not result in imposition of California Franchise Taxes.

This case is most relevant for out of state entities seeking to invest in California.  Unfortunately, it does not provide any real assistance for California residents seeking to invest in entities outside of California.  Appellate decisions typically go to great lengths to limit the impact of rulings only to the specific facts of the case, and therefore, it is unknown if the outcome would be different if any of the factors 1-4 listed above were different.   In the opinion of this author reviewing the Court’s analysis in Swart, if the Court were presented with a situation similar to Paul from FTB Publication 689, the Court would likely agree with the Franchise Tax Board that Paul was “actively engaged in transactions” in California, and therefore, owes the minimum $800 Franchise Tax.  Nevertheless, Swart should settle the issue that merely passively investing in an entity in California will not, by itself, constitute “doing business in California.”

The Law of Christmas Light Displays according to the Hon. Clark W. Griswold

December 20, 2016 Business planning, Law, Small Business, Tax Planning Comments Off on The Law of Christmas Light Displays according to the Hon. Clark W. Griswold

According to a 2011 survey, Americans spend in excess of $6 billion per year on Christmas decorations – and there’s no truth to the rumor that more than half of that number was spent by Clark Griswold for his annual Christmas light extravaganza.

What is true is that displays get bigger and more expensive every year, and the desire to have the best and brightest Christmas display in the neighborhood (or maybe in the town, the state, or even the country!) could land you in a lawsuit if you’re not careful.  Let’s take a look at three of the biggest issues to watch out for as you enjoy your Christmas lights this year:

1) Is Your Display a Nuisance?

Many among us look forward to driving around with our kids looking for the most ostentatious displays we can find.  Even here in little Cedar City, Utah there are some very impressive presentations, including one neighborhood where all the houses are involved with thousands of lights, and hand-painted signs retelling ’Twas the Night before Christmas.  However, what happens when your lights are too much for your neighbors?  Remember, not everyone loved Clark Griswold’s “25,000 tiny twinkling lights,” along with the miniature sleigh and eight tiny reindeer.

Holiday decorations can create additional traffic and noise from those coming by to get a look (or noise from the displays themselves).  They can also result in parking issues, blocked driveways, and unwelcome late-night revelers.  The display itself can also be a nuisance to the folks next door or across the street who have to deal with flashing lights at all hours of the night.  Displays using older incandescent bulbs also use much more electricity and could cause power outages.

While I’m not aware of any particular case law, it’s absolutely conceivable that an aggrieved neighbor could sue and demand a restraining order for a particularly gaudy holiday display.  However, in the spirit of Christmas, I would certainly hope that before it gets that far, neighbors could get together to work out a compromise that is acceptable to everyone.  While being on a court docket during the holidays doesn’t necessarily guarantee you’re on Santa’s naughty list – it is pretty close!

2) Getting “Professional” Help to Hang Your Lights

If you’re like me, you love how your house looks when it’s decorated with a dazzling Christmas display, but you’re not a huge fan of the work it takes to get there (and you’re not in a huge hurry to place yourself on your roof to make it happen).  Those of us in that rather large boat are in luck – there are plenty of “professionals” out there who are ready, willing and able to do that work for us – for a reasonable fee of course.

Seems like a win-win, right?  What could possibly go wrong?  Well, a lot of the folks who perform this work are unlicensed.  So, what happens when the wind kicks up and one of the workers is blown off your roof and becomes seriously injured?  If the contractor you hired is licensed, then they will carry worker’s compensation insurance and you can rest easy.  On the other hand, if you hired an unlicensed contractor, then you may wake up on Christmas morning to a present you didn’t want to receive – a process server handing you a summons and a complaint for a lawsuit from the guy who fell off your roof.

3) Issues with Laser Lights

The past two or three years have seen a huge proliferation in the number of homeowners eschewing the traditional strands of Christmas lights, and going instead with one of several different “laser” holiday light products, which project lights onto the exterior of your house.  The main selling point of these systems is that they produce attractive displays with less work and less danger than hanging actual lights yourself.  While all of that is true, these systems are not without their issues.

Several news outlets have highlighted concerns with these lights, claiming that they can cause issues for pilots.  There are also reports of arrests coming after people “intentionally” pointed the lights at aircraft.  Because these systems are so new, this is still a developing area of the law.  However, it’s probable that cities and other municipalities will begin implementing regulations on these systems – including how close they can be used to airport facilities.

These systems have also been in the news for how easily then can be pilfered.  While it’s fairly difficult for a Grinch to steal lights that are affixed to your residence, he will have very little trouble making off with the compact device that sprays laser light all over your house.

Being aware of these issues and taking steps to mitigate them can help you enjoy the holidays without needing to get your attorney involved – after all, we all know the Child Born in Bethlehem wasn’t the biggest fan of lawyers!

November 30, 2016 Health Care, Small Business, Tax Planning Comments Off on The Election Didn’t Kill ObamaCare (yet): What You Need to Know

As Americans awoke on the morning of November 9, 2016, the reality of a Donald Trump presidency began to sink in.  Many believed that a Trump administration would mean the end of the Affordable Care Act (a.k.a. the ACA or ObamaCare) on day one.  Well, the reports of ObamaCare’s death have been greatly exaggerated (or are at least premature).  ObamaCare is alive and well for 2017 and Open Enrollment began November 1st and runs through January 31st.  Here’s what you need to know for what may be ObamaCare’s last ride:

  • Turns out that insurance under the Affordable Care Act isn’t really so affordable: Unless you’ve been under a rock for the past couple of months, you know to be prepared for a bit of sticker shock. ObamaCare Premiums for 2017 are up by an average of about 25%, and eight states (Alabama, Georgia, Illinois, Minnesota, Nebraska, Oklahoma, Pennsylvania and Tennessee) will see increases of more than 30%.  The steepest increase belongs to the Sooner State – as Oklahomans will see their premiums increase by an average of 76%.
  • You may have to choose between paying more for insurance and paying more for not having insurance: Insurance premiums aren’t the only prices on the rise. The penalty for not having health insurance has increased as well, and is calculated in one of two ways.  It’s either: a) 2.5% of your income; or b) $695 per adult and $347.50 per child, with a maximum of $2,085 per family.  The penalty is whichever amount is higher.  This means that anyone with an income of $83,400 or more who fails to obtain health insurance will be paying a penalty of at least $2,085, regardless of the size of their family.
  • Not all employers are required to provide health insurance for employees: The “employer mandate” which requires employers to offer acceptable coverage to their workers or pay tax penalties was one of the most controversial aspects of ObamaCare. However, this mandate only applies to employers with 50 or more full-time employees, so many small businesses are off the hook.  In addition, employers with less than 25 full-time employees with annual wages of less than $50,000 can qualify for employer tax credits through ObamaCare’s Small Business Health Options Program (SHOP).  More information on SHOP is available at https://www.healthcare.gov/small-businesses/.
  • A Health Savings Account (HSA) can be your friend: This strategy can be a huge opportunity for the small-business owner. Although non-business owners can also use a HSA, small-business owners have much more control over their health insurance plans and can utilize creative strategies to acquire the right type of insurance to allow for an HSA. In order to qualify, you have to enroll in a high-deductible health plan (HDHP), and if you’re generally healthy, this is a great chance to save on premiums and avoid the doctor as much as possible.

In the meantime, contributions to your HSA are deductible from your gross pay on the front page of your tax return, potentially putting you into a lower tax bracket.  In 2016, the tax deduction is up to $3,350 for singles and $6,750 for families.  The funds grow tax-free and aren’t a “use it or lose it” type plan.  The account can continue to grow and build year over year for your future healthcare needs. You can also spend the money tax-free on qualified medical expenses, and you can invest the money in much the same way you invest an IRA.  You can even invest HSA funds in real estate!

Knowing the deadlines is huge in order to take advantage of an HSA in 2016 or 2017. There are two deadlines to be aware of: the Setup Deadline and the Funding Deadline:

The Setup Deadline: Dec. 1, 2016 (as in this Thursday!!!) – In order to qualify to make contributions and take deductions in 2016, you must have established your HSA by this date.

The Funding Deadline: April 15, 2017 – Deadline to contribute to your HSA for 2016 and receive the tax deduction on your 2016 tax return.

  • Don’t forget about the Health Reimbursement Arrangement (HRA): This is a great strategy, but it only works for business owners, and it really benefits those with higher-than-average medical expenses. The HRA allows you to set up your own “benefit plan” for health care and reimburse yourself for ALL of your health care expenses — thereby getting a 100 percent write-off for all of your medical expenses.

The only challenge can be the structure you need to use in order to make the plan work. Sometimes it takes a little extra business planning and structuring – and certainly some attention to bookkeeping – to make it happen. But again, it can be very lucrative and worth the extra time.  With a little bit of planning with an attorney or CPA who understands the HRA, you can take massive tax deductions for your healthcare expenses over and above your health insurance.

The Trump administration and a Republican-controlled Congress means that in 2017 we may finally have the chance to bid a fond farewell to ObamaCare, but for the time being the ACA remains the law of the land.  Take steps to make sure you are doing all you can to capitalize on its advantages and avoid its pitfalls.

Thinking About Starting a Business? Consider These Ten Tax Tips

November 21, 2016 Business planning, Corporations, Tax Planning Comments Off on Thinking About Starting a Business? Consider These Ten Tax Tips

As the end of the year is fast approaching and 2017 will be here soon, if you’ve been thinking about starting a new business, keep in mind that once you are self-employed, a huge portion of the tax code opens up and becomes available to you for tax write-offs.  Of course there are a lot of risks and rewards of starting your own business, but one of those rewards is the availability to take tax write-offs that you wouldn’t otherwise be able to take including dining, travel expenses, and entertainment.  Here are a few tax tips to give you an “eye in the sky” perspective of the tax landscape as you consider if and/or when you will start that new business:

  1. Keep Your Day Job (If You Want To). You can keep your day job / “9 to 5” career while you build your business on the side AND still take all of the tax write-offs that are available to someone who is building their business full-time.  For example, if you leave your day job for the day and meet a potential client of your part-time/side business for dinner that night, you can write-off 50% of that meal JUST LIKE the business owner sitting next to you who runs his business FULL-TIME and is likewise meeting with a potential client for dinner. It’s probably wise in terms of your budget to keep your day job while you start your business but I’m simply pointing out that you have full access to the tax code for business write-offs the same as the guy who is running his business full-time.
  1. Take a Tax Write-off for Business Start-up Costs. The IRS allows up to $5,000 of qualified “start-up expenses” as a tax deduction in the year the costs were incurred.  If you have more than $5,000 of qualifying start-up expenses then the rest is amortized / spread out over a fifteen year period.  For example, if you spend $7,000 of qualified start-up expenses in the year your business began then you can claim a write-off in that first year in the amount of $5,000 and the remaining $2,000 is spread out over 15 years.  If your business closes down prior to that, you can claim the rest as a deduction at that time. HOWEVER, you need to make a sale or receive income in your business in order to write off these start-up costs.  For example, if you had $8,000 of qualified start-up expenses in 2016 but you have no income from your business for 2016, you can’t write-off $5,000 of that for tax year 2016 – You need to have income for your business in 2016 in order to claim that $5,000 deduction for that year. ADDITIONALLY, not every expense qualifies as a “start-up expense”; however,  many expenses DO qualify such as consulting fees and fees for similar professional services, costs to organize your business, cost of travel to meet with potential customers, suppliers, distributers, etc., advertising costs to announce your business opening, and costs to analyze the market/industry in which your business will compete.  IRS Publication 535.  As a practical matter, once your business has received income, expenses after that are no longer “start-up” expenses and are analyzed under Tip #3 below. There are some other rules and caveats regarding start-up expenses but in sum, this is a powerful incentive to get your business started now!
  1. Understand Which Expenses are Tax-Deductible. With some exception, as a general rule, any business expense that is ORDINARY and NECESSARY is tax deductible, i.e., it’s a tax write-off.  The IRS has stated that the word “ordinary” means common and accepted in the industry of your business and the word “necessary” means helpful and appropriate to your business.  For example, if your business sells products online and it is common and accepted in your industry to pay advertising fees and such fees are helpful and appropriate to your business, you can write-off those fees as a tax deduction.  There are many deductions which need to be analyzed further particularly those in which the IRS has set forth specific rules and guidelines such as the home office deduction and the auto deduction but this gives you the general idea of what expenses are typically going to be tax-deductible and which are not.
  1. Keep Good Records. Good record-keeping is the key to claiming tax deductions.  You need to have records that substantiate the tax deductions that you claim on your tax return.  This includes receipts and bank statements as well as good book-keeping using a chart of accounts to track each item of income and expense.  A chart of accounts is also helpful for tracking your business assets and liabilities, which can then generate balance sheets, profit and loss statements, and other financial statements that may help with qualifying for loans, etc.  Quick Books or similar software can help with this.  If organization and record-keeping is not a strength of yours but you are otherwise very entrepreneurial and have many other skill sets to run your business, you may find it helpful to outsource some of these tasks.
  1. Most Tax Deductions are Entity-Agnostic. Almost all of the tax deductions that we discuss for the typical small business owner are available to claim as a tax write-off REGARDLESS of whether your business is a sole proprietorship, LLC, s-corporation, partnership, etc.  For example, with some exception, you can take advantage of many, if not, all of that low hanging fruit such as dining, travel expenses, entertainment, retirement plan contributions, paying kids in your business, health care expenses, home office, etc. and you can be a sole proprietor, an LLC, an s-corporation, etc., it generally does not matter!
  1. Don’t Let the Tax Tail Wag the Dog (Your Business). Be smart about what you purchase in your business.  Simply because an expense is tax-deductible doesn’t mean you should buy it.  Don’t let the tax tail wag the dog, i.e., make the decision to buy business related expenses based on the needs and circumstances of your business.  For example, even if you can deduct that very expensive laptop that might not be the best use of your business capital whereas it could be spent somewhere else in your business much more efficiently and a moderately priced laptop could be sufficient for your business needs.
  1. Some Business Expenses Must be Spread Over Multiple Years. When you purchase an asset in your business you generally cannot claim a deduction for the full cost of the asset in the year of purchase – rather, the cost generally determines the basis meaning when you sell the asset you only pay income tax on the sales price minus the basis.  Further, the cost is generally spread out over multiple years and allows you to claim a portion of the cost each year as a tax deduction, i.e., depreciation. For example, if you purchase office furniture for $8,000 – the cost is generally spread out over seven years (IRS Form 4562).  However, IRS Code Section 179 would allow you to make an election to write-off the full cost in the year of purchase.  Section 179 is a powerful tool for the small business owner!
  1. Consider an accountant/CPA. Once you begin working for yourself, even if only part-time, it pays off to hire an accountant/CPA to do your taxes.  It also pays off to get some training on bookkeeping using software like Quick Books or at least until you’re knowledgeable it may be wise to outsource that task to a competent bookkeeper.  Also, you probably primarily think of federal income tax – don’t forget state income tax, as well as self-employment tax, payroll tax, as well as potentially excise tax, franchise taxes, etc.  All the more reason to consider an accountant/CPA.
  1. There isn’t a legitimate “Pay No Tax Quick” Scheme.  Just like Get-Rich Quick Schemes are usually too good to be true, similarly, the “tax game” is one in which the winner is the one who is steady, aggressive (not too aggressive – remember pigs get fat but hogs get slaughtered), and utilizes sound strategies over the course of many years.
  1. Understand the Type of Income Generally Determines How It is Taxed. Income you make in your business (after subtracting all those tax deductions) is generally included with your other income such as W-2 income to determine what personal income tax bracket you’re in.  But not all income is taxed in the same manner.  For example, income you make in your business is generally subject to self-employment tax whereas other type of income, such as rental income, dividends, and capital gain income is not.  The more you understand how various types of income is taxed then you can learn to be strategic with how you spend your time pursuing some types of income over others.  This where your business can ultimately build wealth for you and your loved ones for many years.

There are many other tips I could give a potential new business owner including the hobby loss rule as well as specific rules regarding home office deductions, auto deductions, Rule 179 deductions, health care deductions, and self-employment tax savings, etc., but these Tips hopefully give a baseline starting point to consider.  Note: many specific tips on various tax deductions can be found at www.markjkohler.com and www.kkoslawyers.com.  If you need assistance with business and tax planning, please call our office at 602-761-9798.

What are My Options if I Disagree with the IRS?

October 25, 2016 Business planning, Law, Small Business, Tax Planning Comments Off on What are My Options if I Disagree with the IRS?

Many view the IRS as an agency shrouded in mystery and the IRS is generally perceived as the omnipotent “big brother” that we should all fear. It is true that the IRS does have the ability to unilaterally garnish wages or levy on assets, whereas almost every other creditor would only have these rights only after filing a lawsuit and successfully getting a judgment from the courts.

However, that does not mean you do not have rights if you disagree with the IRS, and the IRS does have administrative procedures available when a taxpayer disagrees with an IRS determination.

In general, disputes with the IRS from individual taxpayers will usually fall into several categories which include:

  1. Deficiency determinations: Taxpayer disagrees with a determination of income or certain other taxes or penalties assessed by the IRS after an examination (audit). Typically, when the IRS assesses additional taxes after an examination, they will send a letter stating what changes were made which could be on a Letter 915 or “30 day letter.” If there was no examination but the IRS believes additional taxes are due, they may send a “balance due” notice instead. Typically, if you disagree with the determination by the IRS, you should file a “Protest” with the office issuing the letter within thirty (30) days. The notice you receive from the IRS usually includes a summary explanation of your rights or options if you disagree, and so read those notices carefully, and especially any time limitations stated in the letter.   For additional information on preparing Protests, see IRS Publication 5.
  2. Collection Actions: Taxpayer disagrees with actions the IRS intends to take to collect on taxes owed, or is planning to deny or revoke a proposal for tax resolution such as an installment agreement or offer in compromise. The issue in these types of cases is not whether the tax liability is valid or not, but whether the proposed collection action by the IRS is reasonable and/or whether the IRS followed the required procedures. For example, the IRS filed a federal tax lien, or purports to seize assets from the Taxpayer without complying with the notice requirements in 26 U.S.C. §6331(d). In these circumstances, you may have the right to a Collection Due Process Hearing (CDP) with the Office of Appeals or an appeal under the Collection Appeals Program (CAP).   There are differences in which types of actions can be appealed as a CDP or as a CAP, and there is no right to judicial review of CAP decisions, and so you must familiarize yourself with the rules for these procedures which you can find under IRS Publication 1660 and in the Internal Revenue Manual Section 5.1.9. This should also be done within 30 days of the date of the notice or according to the date stated in the notice.
  3. Disallowing Refund Claims: The IRS disallows all or part of a refund claim filed by the taxpayer. The deadlines for filing Refund Claims is generally 3 years from the return due date or 2 years from the date the tax was paid.   IRS Form 843 is generally used for this purpose.   If you disagree with the determination of the IRS with respect to a refund claim, the procedures for disputing the IRS determination and requesting an Appeals conference can be similar to deficiency procedures and more information can be found in IRS Publication 556.
  4. Penalty Abatement: If you disagree with a penalty proposed by the IRS, it is important that you respond timely to the deadline stated in your notice and usually to the office that proposed the penalty. You may be able to obtain relief under the provisions for “First Time Penalty Abatement, ”the “Reasonable Cause Exception,” or other basis for relief.  Details on the factors for meeting these exceptions can be found in the Internal Revenue Manual from the IRS.

In any written dispute to the IRS, you should always include copies of all documents and any legal authorities supporting your dispute. This may include documents previously sent or received from the IRS including, the legal notice you received, IRS tax transcripts, receipts, affidavits or sworn statements from third parties in support of your dispute, and send your dispute certified mail with return receipt.

This is where an attorney who is experienced in such tax issues who can research your specific issue and present your legal arguments in an organized and logical manner setting forth the facts, the law, and legal analysis applying the facts to the law can be helpful. Above all, always make sure the IRS has a current address for you and do not ignore IRS Notices as failure to take advantage of these dispute procedures will effectively waive your rights.

If you are not satisfied with the administrative remedies with the IRS, you may have an option to litigate the matter in tax court. The procedures and rules are similar to litigation in court. For more information on your rights and options with the IRS, refer to the Taxpayer’s Bill of Rights.

Starting Your Solo 401k By Year-End

October 17, 2016 Business planning, Retirement Planning, Tax Planning Comments Off on Starting Your Solo 401k By Year-End

The end of the year is approaching fast and many small business owners and real estate investors are looking for end of year tax savings!  One of the typical year-end tax strategies is to make a tax deductible retirement account contribution. If you’re self-employed with no other full-time employees, you have some choices, but typically a SEP IRA or a solo 401k are the most popular options.  With that said, the 401k strategy is by far the best in the long-run.

A SEP IRA is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRA’s. However, a solo 401k can have both a traditional and a Roth account but your business cannot have full-time employees other than you and certain family members.

Both SEP IRA’s and 401k’s can be good for the small business owner, but it depends on your situation.  Both are easy to setup and operate with low administrative costs.  However, in terms of the amount of business income that is required to max out an annual contribution, a solo 401k typically provides much greater tax efficiency with contribution amounts than the SEP IRA.  Also, options such as Roth and the 401k loan are available with a Solo 401k, but not a SEP IRA.

To help our clients make this move to the 401k, every year in the month of November we provide a consultation with a lawyer and complete set-up of a 401k (that YOU can self-direct) and do it all at a significant discount.

     Check out a video and more information about our 2016 Special HERE.

Here are five of the most common reasons to setup a solo 401k:

  1. You need to make a year-end tax deductible contribution. If you need a tax deduction for the current tax year then you need to setup your solo 401k before the end of the year.  Don’t wait until the last month of the year to set it up.  Get it set up now so you’re not stressing during the final month to set it up.  Also, make the contribution as soon as possible.  Talk to your accountant because by November you and your accountant should have a pretty good idea where you’re at in terms of annual business income.  If you need to wait until after the New Year to actually make the contribution that is allowed because you may need to see how your other deductions are affecting your taxable income before you can determine the appropriate contribution amount.  However, keep in mind that if your business is an s-corp and you get a W2, you’ll need to know your contribution amount by the end of January which is when W2’s are required to be filed.  Also, if you miss the December 31 deadline to setup a solo 401k, you can setup a SEP IRA up until the date of your business tax return deadline, including extensions and still make a contribution for 2016.   Follow this link for more information on account setup and contribution deadlines.
  1. You want to rollover existing retirement funds and make self-directed investments into real estate, etc. This reason doesn’t involve making a tax deductible contribution for tax year 2016 and so there isn’t as much pressure to get the 401k setup before the end of the year but you may still want to set it up before the end of year deadline so you have the option to make a tax deductible contribution for 2016.
  1. You want to rollover existing retirement funds and take out a 401k loan. We can help you be strategic with the 401k loan and make sure you stay compliant with the IRS to pay it back in accordance with their requirements.  This reason doesn’t involve making a tax deductible contribution for tax year 2016 and so there isn’t as much pressure to get the 401k setup before the end of the year but you may still want to set it up before the end of year deadline so you have the option to make a tax deductible contribution for 2016.
  1. You want to grow your retirement through generous contribution limits. The solo 401k (and all 401k’s) offers some of the most generous contribution limits of any retirement account.  The amount of your business income will be the true contribution limit but the solo 401k allows contribution limits of up to $53,000 for 2016 ($59,000 if you’re age 50+) whereas the IRA allows contribution limits of up to $5,500 for 2016 ($6,500 if you’re age 50+).  The SEP IRA is capped at $53,000 (no catch up contributions and no employee contributions are allowed).    Follow this link for more information on contribution limits.

  1. You want to make Roth contributions. If you’re a married couple filing jointly and your modified adjusted gross income is greater than $194,000, you cannot contribute to a Roth IRA.  A Roth 401k has no such income limitations.  A Roth 401k is a great way to grow a Roth account through contributions but remember Roth contributions are not tax deductible.

The end of the year will be here soon, so don’t delay!  I invite you to contact our office to discuss the timing of what type of account to setup, when to set it up, and how and when to make your contributions.