When it comes to your retirement plan, taxes still need to be included in this plan. But with the constant shift in what's available to employees now, the change in how long employees are staying with one company, and what some companies are and are not offering, are you prepared for the end of your career and for a new way of paying taxes?
For some of our readers and clients, retirement may be many years away. For others, it might be right around the corner. Either way, it's always important to be informed and be prepared. Saving for your retirement is something you'll be doing for the entirety of your professional career, and isn't something you'll stop worrying about once that retirement fund is what you're living off of permanently. In our last blog, we talked about what a 401(k) is and how taxes may or may not affect it. In this blog, we will be discussing what a pension is and how they may or may not be affected by taxes. After reading both of these blogs, we would be interested in hearing what your preference is between the two if you have the option of choosing.
Today the 401(k) is much more common than the pension. For newer companies, a pension might never have been in their plan to offer to their employees to begin with. But, as you begin saving for retirement, or you are planning on retiring soon, it's good to know and understand what your options are and what you might be facing when tax season approaches during retirement. Sadly, you won't get to stop paying taxes. Retirement funds will provide you and your family many wonderful opportunities and a chance to live peacefully, but you'll still be dealing with the IRS. But what exactly will you be dealing with, and what do you need to be aware of before you get there?
Let's start at the very beginning. What is a pension? A pension is a type of retirement plan that pays and provides a monthly income to someone in retirement. As we have talked about previously, they're not as common as they used to be. Today, it is the most common to find pensions for those retiring from government or big company jobs. Through your time working for a company that does provide a pension plan as their form of retirement, the company is responsible for putting money into a pension plan throughout the time you work for them. Once you reach a certain age of retirement, the money that has been put into this account throughout the years of employment is given back to the employee in the form of a monthly check. This monthly check serves as income through the course of retirement. For many people today, even those who do come from a healthy pension, this is usually not their only form of income once they are retired. Social security and other forms of income combined with a pension are very common. The amount that you do receive in your pension checks depends on three different things. How long you worked for your employer, how much you were paid while you worked for them, and your age. The longer you work for the company paying into a pension, the more you will receive in your pension The amount every company has to put into a pension is decided upon, protected by, and guaranteed by the Department of Labor. They make sure you do receive all the benefits you're owed by the time you retire. You also have the option to put money into your pension as well from your paycheck or other outside sources of income, just like a 401(k).
But what about taxes once you do start taking this money? You've hit the age of retirement and the checks start coming. What now? Once you start taking this money, you will still have to continue to pay taxes. It is not a source of tax-free income once it starts arriving in the mail. There are some exceptions to this rule, and some parts of your pension could remain tax-free. If a pension is being paid based on health reasons or disability, then that could become tax-free. If after taxed money was added to your pension over time, that too could be considered tax free. But these examples and a few other examples are few and far between. You need to be aware of what you may or may not be taxed on. Once living on your retirement plan, how much you'll be expected to pay in taxes cannot be a guessing game. Your fun and exciting plans for retirement might not become a reality if you're not careful. You might end up spending more than you expected on taxes if you aren't careful, and not spending it on the things you want. The safest thing to do is to plan to save money from your pension to pay taxes on it. Pensions are usually funded with pre-taxed cash, making the whole amount taxable once you start receiving the funds. The good news is, that whatever money you contribute from after taxed money, you will not have to pay taxes on!
That being said - let's look at the pros and cons of a pension.
Paying for your retirement starts long before you get to enjoy it. Since you're going to have to pay taxes the whole of your life, what option sounds the best to you? A pension or a 401(k)? With the changes and needs in what people are wanting to do with their careers, their lives during their work years and retirement years, which plan sounds best to you? Now knowing all that you do in how they differ, does it make sense why a 401(k) is more common now than a pension?
We hope you enjoyed this series of blogs. Retirement is not something you should be putting off, start as soon as you can and plan for as long as possible. Be confident and knowledgeable about what taxes look like before and after retirement, and plan accordingly. If you have any questions or concerns about your retirement plan during this tax season or future seasons, we are here to help you in Goose Creek!
Tax season is here, and we are ready to tackle it head-on. With all the anxiety that tax season can bring, we wanted to give you something to look forward to.
We are inching closer to tax day by the minute, and it's time to stay focused and not get overwhelmed with what's to come. We are here to help you with all of your needs from now until it's over. So please do not hesitate to visit us! Make sure you and your family members are ready and prepared for tax day, and get everything filed on time. The last thing we want is to have you accrue late fees or other issues down the line with the IRS. To ease any worry or pain, we wanted to share with you when you should be expecting your 2020 tax refund. Everyone loves a refund, right? A refund is what so many of our clients look forward to every year, and we can't blame them. They are like little (or hopefully bigger than you expected) consolation prizes for getting your taxes done on time and done properly. As we've discussed in some of our recent blogs, the tax reform laws that started to take effect in 2018 will affect your tax refunds through 2020 and it will affect how much you could potentially be getting back in those refunds. Many factors determine when you receive your refund, some of them depend on you while others will depend on the government and the IRS.
On Your Plate
We are here to help you, bring you peace of mind, and get your refund money back in your pocket as quickly as possible. With this knowledge, it's easy to see that we can help skip some serious wait time and help you avoid worry for this tax season, and the many seasons to come. So until next time, keep this information in mind, stay organized, and visit us to help get your taxes filed on time!
The new year brings many new and exciting things, it is also the start of tax season. There have been many changes to business and federal taxes, but with all of these changes, personal taxes will also be seeing many changes for the 2019 and 2020 tax season. Are you familiar and up to date on these changes? If not, you've come to the right place!
2020 is officially here! Some people might be spending a little extra time at the gym and meal prepping, while all of us at Hood's are spending more time getting our clients and future client's in the Goose Creek area ready for April 15th with no surprises or stress. Every year, something changes with tax law. These changes might be small and easy to deal with, while other years prove to be rather difficult. It takes time and dedication to stay up to date on these changes, so why not take advantage of our services to make sure your taxes are prepared efficiently, on time, and with no worry about being charged any late fees?
While you are starting to gather your tax documents, there is quite a list of things you will need to keep in mind. Please take the time to read through every one of these changes before you start filling out any paperwork for 2019 and 2020. We talked a lot about changes for forms and filing in our last blog. In this blog, we will be discussing some of the benefits that will hopefully make paying your taxes a little easier.
Use these new changes in your personal taxes to prepare for this tax season and the next. They may not benefit or affect you this year, but they could have a significant effect on you in the years to come and for the better. Are you planning on retiring next year? How about getting married? Are you starting a new job that offers you a 401(k) for the very first time? Are you dealing with an HSA account for the first time or wanting to expand one? The changes we have mentioned above will help you decide and understand the best routs to take with these important decisions.
Please don't stress when it comes to taxes. Our professionals can help you with all of these changes, and answer any questions you might have. Please take into account that this list is just an overview of some of the changes happening, it doesn't cover all of the changes that could be affecting your personal taxes in the years to come. Come visit us and depend on Hood's to get everything taken care of, and to understand what changes are heading your way for this tax season and the many seasons to follow!
There are many loose ends you need to tie up at the end of any year for your personal taxes and those of your small business. You also need to be staying on top of the many changes coming your way in 2020 taxes. You might have more work ahead of you, so it's better to be prepared now for what is quickly heading your way.
You've made it through the holidays and all the celebrations that go along with them, both in your job and with your families. As tax season approaches for the 2019 fiscal year, you need to start thinking about a few new changes that you'll be seeing sooner rather than later, along with tying up a few loose ends.
In this blog, we won't be discussing all of the changes that are heading your way. We will just be touching on some of the most important. You will see changes in the W-4 form in 2020, in State withholding, Federal W-2s and State Deadlines, ACA Compliance from the State, and in Gig Economy and worker classification.
Changes with W-4 Forms
In 2020 you're going to see changes with the IRS W-4 tax form. They have changed the form and given it a bit of a facelift. The changes include calculations for income tax withholding. There is a new form that has been added for the head of the household as well. The new form eliminates withholding allowance. As an employee, you will just adjust your withholdings by putting your tax information on your W-4 forms. This will include non-wage income, full-year deductions, and any child or any other dependent tax credits. If you own a small business or are getting a new job in the year to come, filling out tax papers will be much different than previous years. Since you probably don't know all of your tax information off the top of your head, and you probably won't be carrying around copies of last year's tax refund, take more time filling out the paperwork. If you are a business owner, allow your employee to take it home. Ask your new employer for a private space to call home or your tax professional to fill out all the information. If you are happy with your current withholdings at your job now, you will not need to fill out the w-4 form again. If you need to change anything for your future taxes, you will have to fill out the new paperwork.
The new W-4 paperwork could affect state tax withholdings. Many states are still trying to figure out how to work with these new changes, so you or your small business won't be the only one trying to follow along. You will need to prepare for these changes by the end of next year, as their decisions on how to deal with these new changes will also affect how you file your taxes. The main issue many states are dealing with right now is the fact that there is no longer a box for allowances on the federal tax forms. Different states are picking different ways to handle the situation. One option that might become the norm is taking the focus away from income tax and shifting to pay-roll taxes. This might not be a very fun solution for many of us, but be prepared. When it's time to do taxes and paperwork for 2020, make sure to pay attention to the choices your state has made to deal with the W-4 changes.
Federal W2s and State Deadlines
In 2020 the tax rate will remain the same for employees and employers, at 6.2%. Medicare tax rates will also stay the same as they were in 2019. The IRS has now moved up the W-2 submission deadline to January 31st. They have done this to continue the fight against tax fraud and identity theft. Most states will now require electronic W-2 filing from your employers. Many states have also increased the penalties for late filings of W-2 forms. Be very aware of these due dates. These fees can add up very quickly and become very costly.
The good news for you, if you're feeling overwhelmed for next year's tax season, is that we are here to help you keep up to date on these changes. We are here to help you understand them, help guide you through them, and prepare for them. These charges vary from small differences to ones that will affect you on a state and federal level. Just like any tax law changes, the new ones we will be seeing in 2020 will evolve into others. So don't get too comfortable. Stay connected, educated, and ready for the unexpected.
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