Your 2018 Taxes – Get Started Now

4a283bcf-90e0-4357-8bc7-b865c6c65329While the end of the year is not quite here yet (but rapidly approaching), now is an opportune time to take a moment and start your year-end tax planning for 2018. This is particularly necessary this tax year because of the changes to the tax law that became effective in 2018. As a result of the significant changes in the law, your taxes may look different this year, so you should allow for some extra time in the preparation. Getting started early is even more essential if you are a business owner, have moved to another state, or plan to make charitable contributions before the year ends.

Things to Consider

Now is the best opportunity to make use of tax strategies to take advantage of tax-deferred growth opportunities, charitable-giving opportunities, as well as tax-advantaged investments among others. During this tax planning process, you will also want to make sure you maximize deductions and credits ahead of the busy tax season. As you consider your year-end options, make sure to sit down with your attorney or other advisors to review your investments to ensure they still align with your goals, the economic landscape, and the current tax law. This conversation can help you identify where adjustments may be necessary for the future.

What You Need

 Know that the “traditional” year-end planning we’ve recommended for years still applies to your 2018 taxes. Make sure you are harvesting losses to offset your gains, are contributing the appropriate amount to your Individual Retirement Account (IRA) and/or Health Savings (HSA) accounts, and have taken the necessary required minimum distribution from your IRA (if this applies to you). Other things to consider is fully funding employer-sponsored retirement plan contributions such as 401(k, 403(b) or 457 plans before the end of the year. The same rings true for college savings plans, such as 529 plans. You may even want to consider converting a traditional IRA to a Roth IRA.

 

Beyond these important points, also make sure to start gathering the necessary documentation you may need for any deductions that you are claiming. These may include copies of statements or receipts regarding your property taxes, medical expenses, dental expenses, child care expenses, education expenses, moving expenses, and heating/cooling expenses. For business owners, the new 199A deduction for business income will have additional paperwork requirements. It’s best to work with your bookkeeper and accountant at gathering those records now, rather than waiting until the hectic tax season.

Seek Professional Advice

 With changes to the U.S. tax code now in effect, it is especially important to make the right decisions when it comes to your year-end financial moves. A skilled tax attorney or financial advisor can help explain your options under the law and provide you with guidance so that you can make the best decisions for you, your family, and your future. If you have any questions, feel free to contact us.

Retirement Planning for Business Owners

business_maze_challengeFor many employees, saving for retirement is usually a matter of simply participating in their employer’s 401(k) plan and perhaps opening an IRA for some extra savings.

But, when you’re the owner of a business, planning for retirement requires proactivity and strategy. It’s not just the dizzying array of choices for retirement accounts, there’s also planning for the business itself. Who will run the business after your retirement? Additionally, your estate plan must integrate into your retirement and business transition strategy.

Owners of businesses (like employees and everyone else) want to make sure they will have enough money in retirement. Business owners recognize the value of their businesses, so they are often tempted to reinvest everything into the enterprise, thinking that will be their “retirement plan.” However, this might be a mistake.

Retirement Accounts for Business Owners

Rather than placing all your eggs in one basket, it makes sense to have some “backup” strategies in place. There are many retirement account options open to business owners. Although the number of options can make things confusing, a tax and financial professional can often quickly make a recommendation for you.

For example, you may consider opening a 401(k), SEP-IRA, SIMPLE, or pension plan. This can reduce your income taxes now, while simultaneously placing some of your wealth outside your business. From a financial perspective, these account are tax-deferred, so the investment growth avoids taxation until you retire, which greatly boosts returns. The “best” plan really depends on how much income your business earns, how stable your earnings are, how many employees you have, and how generous you want to be with those employees. You must consider how generous you’ll be with employees because the law requires most tax-deferred plans to be “fair” to all employees. For example, you can’t open a pension or 401(k) for yourself only and exclude all of your full-time employees. When making this decision, consider that many employees value being able to save for their retirement and your generosity may be repaid with harder work and loyalty from the employees.

Depending on how many employees you have, you may even consider “self-directed” investment options, which can allow you to invest some or all of your retirement funds into “alternative” investments, such as precious metals, private lending arrangements, real estate, other closely held businesses, etc. These self-directed accounts are not for everyone, but for the right person, they open up a wide world of investment opportunities. The tax rules surrounding self-directed tax-deferred accounts are very complex and penalties can be incredibly high. So, if you choose to do self-directed investments, always work with a qualified tax advisor.

Outside of your business, you can likely contribute to an IRA or a Roth IRA. This can allow you to add more money to your retirement basket, especially if you’ve maximized your 401(k), SEP, or SIMPLE plan. Like the other tax-deferred accounts, self-directed IRAs are also an option, opening up a broad world of investment options.

As a business owner, you likely have a great deal of control over your health insurance decisions. If you’re relatively young and healthy or otherwise an infrequent user of health care services, consider using a high deductible health plan (HDHP) and a health savings account (HSA) to add additional money to your savings. These plans let you set aside money in the HSA which can be invested in a manner similar to IRAs. At any time after you setup the account, you can withdraw your contributions and earnings, tax-free, to pay for qualified medical expenses. And, after you turn 65, the money can be used for whatever purpose you want, although income tax will need to be paid on the distributions.

Selling or Transferring the Business

Many business owners dream of a financially lucrative “exit” when a business is sold, taken public, or otherwise transferred at a significant profit for the owner. This does not happen by accident – a business owner must first create and sustain a profitable enterprise that can be sold. Then, legal and tax strategies must be coordinated to minimize the burdensome hit of taxes and avoid the common legal risks that can happen when businesses are sold. When a business is sold, the net proceeds can form a significant component of the owner’s retirement. When supplemented by one or more of the retirement accounts discussed above, this can be a great outcome for a business owner.

On the other hand, other businesses are “family” businesses where children or grandchildren will one day become owners. Like their counterparts who will sell their businesses, these business owners must also focus on creating and sustaining a profitable enterprise, but the source of retirement money is a little less clear. In these cases, clearly thinking through the transition plan to the next generation is essential. Although the business can be given to the next generation through a trust or outright, there are also transition options to allow for children, grandchildren, or even employees to gradually buy-out the owner, if the owner needs or wants to obtain a portion of the retirement nest egg from the business.

The Importance of Estate Planning

Regardless of which retirement accounts (401(k), SEP, SIMPLE, IRAs, HSAs) you select, it is wise to integrate them into your estate planning. You’ve probably already considered who you want to take over your business after you retire (perhaps a son or daughter or a sale to a third party). For your retirement accounts, an IRA trust is a special trust designed to maximize the financial benefit, minimize the income tax burden, and provide robust asset protection for your family. These trusts integrate with the rest of your comprehensive estate plan to fully protect your family, provide privacy, all while minimizing taxes and costs.

Leverage the Team Approach

Let us work with you, your business advisors or consultants, your tax advisor, and your financial advisor to develop a comprehensive retirement, business transition, and estate planning strategy. When we work collaboratively, we can focus on setting aside assets for retirement, saving as much tax possible, while freeing you to do what you do best – build your business!

Give us a call today so we can help you craft a retirement, business transition, and estate planning strategy. The Belleh Law Group, PLLC, (888) 450-7999, visit our website at www.bellehlaw.com or email us at info@bellehlaw.com.

super-hero-boyInheriting Money at a Young Age is Never a Good Idea

Whitney Houston’s estate was worth approximately $20 million when she died – plenty to meet the needs of her only daughter – Bobbi Kristina. Sadly, only a few years after Houston’s death, Bobbi Kristina died as well.

Although Bobbi Kristina’s previous boyfriend, Nick Gordon, is still a suspect in her murder, many say that having access to so much money at a young age was a contributing factor. Sadly, Houston’s estate planning mistakes are all too common.

Aunt & Grandmother Say Will Did Not Depict Houston’s Intentions

Houston’s aunt and grandmother filed a lawsuit to re-write the will as they say it didn’t accurately depict what Whitney really wanted for Bobbi-Kristina. They claimed that she was too young to handle so much money.

Although they likely had the best of intentions, probate courts must follow the terms of the actual will or trust documents, not what the person who died might have otherwise intended.

Whitney Houston’s will was created in 1993, specifying that a trust would be created after she died for any children she may have (so before Bobbi-Kristina was even born). Unfortunately, she never updated her will before she died.

You’ve Got to Have a Plan for Your Children

Whether this tragedy could have been adverted if Bobbi Kristina’s distributions were delayed until she was older is anyone’s guess. The bottom line is that inheriting large sums of money at a young is generally never a good idea. Although the young beneficiary might be responsible, young people can be easily manipulated by others.

While it’s clear that Houston could have better protected that money with a stronger estate plan, she’s certainly not the only one guilty of not following through. In fact, many of us have the best intentions, but simply don’t make the time to create – and update – proper estate planning documents that can help beneficiaries.

Set Your Children Up For Success!

You do have the power to set your young beneficiaries up for success. In most cases, that means creating a trust that allows them access to money over time and can be managed by someone you trust and has their best interests at heart.

We can provide you with the tools you need to protect your loved ones – whatever your situation may be. As Houston’s case shows, ignoring estate planning issues can have tragic consequences.  Contact us today and let’s get started protecting you and those you love. The Belleh Law Group, PLLC, Tel: (888) 450-7999; email: Info@bellehlaw.com; website: www.bellehlaw.com.