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​Hoods Tax &
Accounting Blog


​​​THE INFORMATION IN THIS BLOG IS INTENDED TO PROVIDE GENERALIZED INFORMATION DESIGNED FOR A BROAD SEGMENT OF THE PUBLIC; IT IS NOT PERSONALIZED TAX, INVESTMENT, LEGAL OR OTHER BUSINESS AND PROFESSIONAL ADVICE. YOU SHOULD ALWAYS SEEK THE ASSISTANCE OF A PROFESSIONAL WHO KNOWS YOUR PARTICULAR SITUATION FOR ADVICE ON YOUR TAXES, YOUR INVESTMENTS, THE LAW OR ANY OTHER BUSINESS AND PROFESSIONAL MATTERS THAT AFFECT YOU AND/OR YOUR BUSINESS. ​

End of the Year Tax Preparation (Part Two!)

12/24/2020

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In part two of this blog, we are going to be finishing up our recommendations on how to prepare for your end of the year tax prep. Our gift to you is to suggest that you get it done now so that when tax season is here in a blink, you'll be ready for it no matter what! 

Hello Goose Creek and to all of our readers! As we are now sitting in the last few days of 2020, and we hope that this blog reaches each of you and helps you prepare for the coming tax season. We have always believed at Hoods that being prepared way ahead of time can not only save you huge amounts of stress and worry, but it can also potentially save you huge amounts of money. This year has been difficult, we've touched on it in almost every blog of 2020. This pandemic has been a devastating blow in more ways than one, and our finances have taken some of the biggest hits and blows. While there is still so much uncertainty about what is to come with the future of our finances, what is in our power now is to control what we do know and what we do have. 

Being prepared can help make any transition or event that may or may not come from the government easier to deal with and easier to move forward with. Who knows what financial help we might receive between now at April 15th or what might even happen between now and April 15th. What we do know is that there will still be tax day and that we have the power in our own hands to organize our tax documents from this current year and get ready to face 2021 head-on. This season might not be as jolly or bright as the years past, we understand. However, we are here to make it as holly and jolly as possible. If you have any questions, concerns, or need help finishing out this year or starting off strong in 2021, please never hesitate to reach out. We believe in our community and what to help and support each of you as best we can, let us do our job for you! 

What is left of 2020 is still ticking down, so let's hop back into part two of this blog. We will be continuing and wrapping up with our tips, suggestions, and ideas on how to wrap up your finances and taxes this year, and get ready for the upcoming tax season! 

HELLO, 2021!
Now that you've read part one of this blog and you have a few ideas on how to prepare for the end of this current year, let's focus on how to prepare for the beginning of this new year. Remember, one of the first things we will always recommend in these situations is to work with a tax advisor or a tax preparation company. Of course, we would recommend working with us, but we understand if you work with another company currently. We've said it before, but please note that tax law does change every year. With how uniquely challenging this year has been, there are bound to be some very new and unique things we will be facing with our 2020 taxes. Working with a company like ours will help ensure that all of these new compliances are followed and that nothing is missed. This will help you avoid any tax penalties, avoid underpaying your taxes, will help avoid overpaying your taxes, and will help get your refund much faster! 
  • Don't begin your filing process until you've received all of your 1099s or W2s. Don't be quiet if a client or your employers are taking their time getting you your tax papers. Make sure to reach out and mention it to them once it's getting a little late in the year. If you haven't received anything by the end of February, it's time to start making phone calls! 
  • When you sit down to file your taxes, make sure you have all of your 2019 tax documents organized and ready to use. Make sure you have all of the documents that you will need and will be used to file for 2020 organized and within reach. This will help the process go faster and will be much less of a headache for you. 
  • Make sure to be prepared for and aware of tax scams and fraud that will begin to pop up starting January 1st!! We've already seen our fair share of scams this year involving our stimulus checks and promising to provide the vaccine early as long as you provide very personal and vital information about yourself, most of the time about your bank account. Please do your research about what scams and frauds are looking like right now, how to spot them, and how to protect yourself from them. Also, if you have loved ones who are unfamiliar with these scams, please make sure you help keep them aware of these possibilities and teach them about what scams are and what they can do. 
  • Decide who's going to prepare your taxes this year as quickly as possible. Decide if it is going to be a tax professional like us here at Hoods or an online option filled out by you. Make the choice now to save money and not miss out on working with a tax pro. The closer you get to tax season, the higher their rates will be. Also, take the time to familiarize yourself with the programs you're going to use and understand how much you will be paying to use them. 
  • Please do not ignore the IRS. If you owe late fees, back taxes, or penalties, please take care of them. Go one step farther and make sure to prepare your taxes on time, if not early, to avoid these issues again. 
  • Make sure your salary is correct, that all of your deductions from your paycheck are correct, and that you've been paid the proper amount throughout the year. This will determine a lot in your taxes. 
  • Consider turning your IRA into a Roth IRA, which will help you save money over time. With a ROTH IRA, withdraws are not looped into your income and you won't have to take out RMPs once you turn 70 and a half. 


Just to make sure that we didn't overwhelm you with either part of this blog, we listed only the top things and tasks you need to be thinking about and preparing for now for both your end of the year tax preparation and the tax prep you should be starting 2021 off with. Don't worry, there will be more to come over the next few months and as we inch closer and closer to tax day 2021. We hope that both of these checklists help prepare you to close this year out strongly and to start 2021 out focused and prepared. If you need help to make this upcoming tax season the most stress-free of them all, never hesitate to reach out! 

Remember, if you are looking for the best accounting services in Goose Creek, the best tax preparation in Goose Creek, business consulting in Goose Creek, bookkeeping in Goose Creek, or payroll services in Goose Creek, we are here for you! Our phone lines and inboxes are waiting for you. Don't hesitate! Please stay safe, everyone. As our last blog of 2020, we want to thank all of you for your support, your business, and for letting us be apart of this wonderful community. We will continue to work hard for the people of Goose Creek and our whole community. From our family to yours, we hope you had a wonderful holiday and have a fantastic New Year! We will see you soon! 

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Saving a Penny, Sharing a Turkey

11/25/2020

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​While we all want to open our arms and our wallets to our loved ones and a big turkey dinner, 2020 might not be the best time to do that. While this might be a hard holiday pill to swallow, it's all going to be okay.

Thanksgiving is in the air, and we know that many of our Goose Creek friends and customers are getting excited to gather with their loved ones to celebrate. While everything is still very up in the air and uncertain, we hope that when choosing to gather with your loved ones this year that you choose to do so safely and with your loved ones in mind. 2020 is the year of smaller Thanksgivings, outdoor gatherings, gatherings with bigger smiles and fewer hugs, and sharing a meal over zoom and FaceTime. This might be a different holiday season for so many reasons, and we are here to support and offer our comfort and condolences. It will look much different in our homes this year too, so we sympathize and understand how many of you are feeling right now.

While the Thanksgiving and Christmas holidays might be different when it comes to how far we can and cannot travel and how many of our loved ones we will be seeing, many of us might be tempted to make it look and feel the same. This is a quick route towards spending way more than is needed right now or ultimately what you actually want to do. Remember, Christmas is just a few short weeks after Thanksgiving, so make sure to spread out all of your holiday budgets wisely. With all of these ideas in mind, we were inspired to write this week's blog. We wanted to share a few tips and suggestions on how to save money through the 2020 holiday season, and what that can mean for you and your loved ones.

TRAVEL BILLS
Many of us won't be traveling for the holidays this year. Instead, we will be staying put and creating new traditions with our bubbles, our close friends, the relatives we live closest to, or just with our nuclear family members. While this is still an incredible way to celebrate the holidays, it can be difficult not to see the whole family or all of your friends during this time of year. The silver lining of all of this? You can save hundreds of dollars by not spending it on plane tickets, hotel rooms, and other travel expenses. You can save money not driving those long distances, save money not having to put a lot of work into your car to make those long drives, and you can also save a little peace of mind not having to worry about driving in the snow or ice when many of us haven't done that in years. Instead, make time to plan Zoom Calls, Facetime Calls, and group phone calls. Save this unused travel money to help pay for the shipping on all of the Christmas presents you have your eyes on for your loved ones, save it for when you can travel to see your family again, or save it to help out with those surprise extra bills that might appear at the end of the year. Don't forget, once we hit January 1, 2021, tax day will be here faster than you might think. Maybe saving a few dollars here and there can help with paying your taxes as well.

TO BLACK FRIDAY OR NO?
Black Friday has already started for a lot of our favorite big box stores with in-store deals, discounts, and online deals. While the big Black Friday shopping might not happen as it has in the past, that doesn't mean that it's going to stop or slow down online Black Friday or Cyber Monday sales. We've mentioned this in previous blogs, but as we all reach for our credit cards to buy everything we come across in our Black Friday shopping sprees and going with our "treat yourself" mentality to make these difficult holidays feel a little bit better, maybe step on the brakes. Trying to avoid these big shopping sprees right now can be a huge benefit to you and your bank account. If you're still planning on shopping, set a spending limit and a budget for yourself. This includes if you are planning to do your holiday shopping on Black Friday or Cyber Monday. Pick who you are shopping for, how much you're going to spend on each person, and stick with it. We know a big Christmas for your loved ones can be a knee jerk reaction to a difficult year, but be financially smart about it. Outside of budgeting your cash flow, make sure that these plans include putting a spending limit on your credit cards. You can come up with every excuse to use your credit cards when your Christmas budget has been depleted, but try and go easy with the plastic. Can you imagine the gift it would be to start 2021 financially stable with little to no outstanding balance on your credit cards? We also recommend that if you are planning to shop big on thanksgiving, try and shop small. Invest in local small businesses, local artists, or creators on websites like Etsy or Redbubble for all of your shopping needs. These are the people that need your Black Friday money more than Walmart or Target. If you're investing in local artists and small businesses, this is an investment in your local community and local economy.

TURKEY TIME
We know that Thanksgiving comes with this beautiful picture of a giant turkey with as many sides and desserts surrounding it that can fit on the table. When having a smaller 2020 Thanksgiving, why put that pressure on your family, yourself, your refrigerator, or your wallet? There is nothing in the rule book that says you have to get a huge 20-pound turkey for the holiday. There are smaller birds available, and the option of only getting half a turkey or just a fantastic cut of a turkey breast is out there too and at a much lower price than your standard turkey. This can help save a ton of money on your initial Thanksgiving grocery bill, and it can also help with your leftover situation. Not everyone is on board with eating Thanksgiving leftovers for days on end. So why buy a ton of food that's just going to go to waste? Also, there is no rule saying that you have to eat turkey for Thanksgiving. If you want to try a different protein, go totally vegetarian or vegan, or just have your favorite fast food to celebrate the day, that's okay too. However, if you end up with a big turkey and a large number of leftovers, it can help save you money on the following week's grocery bill following Turkey day. As you plan your turkey day menu, plan a menu for the week to follow that can reuse as many leftovers as possible. The key is to pick a wide variety of recipes that doesn't make you feel like you're just eating turkey for a week straight.

Also, save on the drinks. Many people who enjoy adult beverages during the holidays might go get some wine or beer for the day. Instead of buying multiple bottles of wine or cases of beer, choose a cocktail or punch to share. If you're going to be preparing a traditional meal, use Costco or Sam's Club to help save money. Also, keep an eye on online deals and coups. Don't forget, if you are hosting a small gathering, a potluck Thanksgiving is a perfect way for everyone invited to save money!

SIMPLE AND CHIC
While the Griswald's would disagree with us, keeping your decorations for Thanksgiving and Christmas on the simpler side can help you save money too. It's tempting because right now every store you walk into is already bursting with Christmas decorations. They might be calling out to you to redo all of your decorations this year, but stick with what you already have. Believe us, this will be a huge money saver and can help reduce your stress and anxiety about decorating the perfect house and home for your in-laws to see this year. Take that pressure off, you're staying safe and saving money by decorating with what you already have!

A LITTLE MORE, A LITTLE LESS
While many of us are still having a hard time adjusting to the fact that Thanksgiving will look different this year, and dealing with being away from our loved ones, we will still have food on our tables. Regardless of it being a big turkey dinner or a pizza, there will be something there. Take some of the extra money you're going to be saving by following these tips and donate to those in need.

PLANNING FOR WHATS NEXT
We know that Turkey Day and Christmas might be what has your full attention is focused on right now. What about the day AFTER Thanksgiving? Just like the day after Halloween and Valentine's day, a lot of Thanksgiving food items will be significantly marked down. Buy the non-perishable items that are on sale and save them for Christmas dinner or help lighten the load in your grocery bills over the next couple of weeks between Thanksgiving and Christmas. While everyone is participating in this year's unique and socially distanced black Friday events, head to the grocery store instead and save big for the next few weeks and beyond.

The great thing about Thanksgiving can be the goals you set for yourself financially, and being able to reach them without stress. This can be your reason for the season and your reason to celebrate without breaking the bank. Enjoy the little things this year, and be ready to financially step into 2021. Remember, if you are looking for the best accounting services in Goose Creek, the best tax preparation in Goose Creek, business consulting in Goose Creek, bookkeeping in Goose Creek, or payroll services in Goose Creek, we are here for you! Our phone lines and inboxes are waiting for you. Don't hesitate! Please stay safe, everyone. We will see you soon!

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Choosing Necessary Payments During A Pandemic

9/15/2020

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Keeping a watchful eye on your finances is always important. During these uncertain times, it is more important than ever.

Keeping a close watch on your purse strings is a necessity. With so much unknown about this year, knowing exactly where your finances stand and how to keep them stable has become a huge priority for most Americans. Since March of this year, over 3 million Americans have filed for unemployment, according to Forbes. Juggling how this pandemic has affected your income and how it will affect your daily and monthly spending could become a huge focus for you and your family. While staying healthy and figuring out new school and work scheduled are our first priorities, it is easy to get overwhelmed with how to deal with these potentially drastic changes in your finances. How do you decide what to cut out? How can you change your spending? What are the necessities that can't be cut out, and how do you make these decisions with the best outcome for your family?

According to Forbes, an estimated 49% of the American population was living paycheck to paycheck even before the pandemic hit. This left no room for extra savings or a nest egg to fall back on. Unemployment has helped, but even that has seen a drastic change since its first wave with the national stimulus checks. Many people have been left without enough to cover their basic needs. The first stimulus check and the additional $600 from the government added to unemployment checks were just short term solutions. What can we do now to help make our bills, keep a roof over our heads, and keep food on the table?

THE NEW BUDGET
You sit down every month and track what you're earning and what you're spending. You create a solid budget based on your calculations that takes care of your bills, your family's needs, and hopefully goes towards a little fun. If your paycheck has been hit or changed due to the pandemic, your budget will have to be retooled. Try and figure out how much of a cut your salary has gone through and try and cut that much out of your monthly spending. Please remember that while you're cutting your budget, your retirement planning and savings still needs your attention. If you can keep paying into those, that is ideal. If you are unable to do so, don't panic. Instead of adding to them, try not touching them unless you have to. Consider what you have in savings during this time, too. If it is needed, remember these funds have been put aside for an emergency.

While the stimulus check will not be part of your 2020 taxes and is being treated as forgiven money, the additional $600 and the now $300 added to your unemployment checks will be taxable income. If you've taken the highest amount in unemployment without choosing to take any taxes out, please prepare for what you will owe in your 2020 taxes. If you can, choose to take out some taxes to make your next tax season a little less painful. Also, try and avoid the temptation of online shopping and avoid making 'panic purchases". Instead of using your extra time to scroll through your favorite shopping sites, sit down and create a brand new long term financial strategy. We have no idea how long this might last, so planning ahead is going to be your best bet.

NEGOTIATIONS
Everyone owes money every month, even those who collect it for a living. We all have bills to pay, there's no exception to that. If you can sit down and take the time to talk with your landlord, your credit card companies, your insurance company, and discuss your current circumstances it could be a huge relief to your bank account. Be honest and ask if they can give you some kind of break or pause in your payments, a break or pause in accruing interest, and if you can negotiate your interest rates. According to Business Insider Apple, Chase, Citi, American Express, and Capital One offered their clients emergency support during the first few months of the pandemic.

THE DINNER MENU
Part of your monthly budget includes your grocery bill and funds set aside for going out to eat. As much as we all want to support our favorite local restaurants, eating out adds up just as quickly as it did before the pandemic. Tack on delivery fees to this bill, and it can be even more expensive. The dangers of panic purchasing delivered meals three times a day is very easy thanks to our favorite food apps. Meal planning is going to be just as important as budget planning. You'll need to stick to both to feed your family and save as much money as possible. We understand a few delivered and take out meals, but try and avoid them as much as possible.

THE (UN)ESSENTIALS
The pandemic has done a good job keeping us at home and helped us save money on group activities like going to concerts, going to the gym, and getting our hair and nails done. While things are getting back to normal and these services are slowly becoming available, that doesn't mean you need to jump back into using them again. It's best to wait and do so when your income is back to normal. You've survived without them up until now, and you can continue to do so a little while longer. If you have a lawn care service or a maid service that helps you care for your home, it might be beneficial to pause these services. As essential as they might be, they aren't as important as many other things in your budget. Making these decisions is difficult, but they are possible. You just have to keep going back to the drawing board when things get tough.

We know the last thing you want to hear right now is that you have to sacrifice more than you already have just to hang on. You've given up so much already, changed plans, and lost out on promised opportunities. The truth is, you can keep going. If you continue to make these hard decisions to save your finances and protect your family, the light at the end of the tunnel will become much brighter. If you are looking for the best accounting services in Goose Creek, the best tax preparation in Goose Creek, business consulting in Goose Creek, bookkeeping in Goose Creek, or payroll services in Goose Creek, we are here for you! Our phone lines and inboxes are waiting for you. Don't hesitate! Please stay safe, everyone. We will see you soon!

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The Battle between the Pension or the 401(k); Part Two!

2/28/2020

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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. 
PROS! 
  • A pension is a steady stream of income for your entire retirement. No matter how long you live after you retire, you won't outlive the funds. Once your 401(k) runs out, it's gone. 
  • The market and its fluctuations won't affect what you're receiving. 
  • You don't have to rely on the money from other investments through the length of your retirement. 
  • You don't have to add to your pension if you don't want to while you're working. Money is still being added to the pension account by your employer and not coming out of your current check. 
  • You cannot access the money until you reach a certain age, guaranteeing that the money will be there once you hit retirement. This way you won't spend it all before retirement, and you won't be hit with huge fees when you pull it out before you're supposed to. 
CONS! 
  • Unless you set aside a part of your pension or all of it to be saved for your spouse or family members to have once you pass, there is a chance your pension money could be lost. This can leave your spouse and family members without anything to live on once you're gone. 
  • You cannot access or take out any large lump sums of money from your pension if you want or need it. You are only able to receive the calculated monthly amount. 
  • The amount you receive may or may not reflect the cost of living once you have access to it, and it may or may not adjust to the change in inflation. 
  • If you do add money into your pension, you no longer have control in the investment once it's made. It's your companies responsibility to care for it once you put it in the pension. You also won't benefit from any positive changes in the market. 

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! 



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The Battle Between the 401(K) and the Pension

2/13/2020

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Tax season is here, and for many of our clients, as you grow professionally and through your financial years, you come to discover more and more things finding their way onto your tax documents that you have to pay for. One of the most expensive things that you will depend on later in life is your retirement fund. Are you prepared to retire and are you aware of what you may or may not have to pay taxes on once you do? 

February is here, and we are one day closer into tax season here in Goose Creek. We are here to provide the best tax preparation services to all of our current and new clients, so please don't hesitate to contact us this tax season! We are in full swing, and are prepared for what is going to be a very busy but very exciting tax season! With that being said, we are here to offer our clients at many stages of their lives help with their taxes. For those filing for the first time, for those filing for the first time as a married couple, and those filing for the first time after retiring. Just as you change through the stages of your life, how you pay your taxes will also change along with you. 

Planning for your retirement is one of the most important things you can start doing once you start working in the professional world. You'll be paying for your retirement your whole professional career, and it will most likely be one of the most expensive things you'll ever pay for. There are no loans, no short cuts, so you will have to save and work for it. As overwhelming and difficult as this can be at times, the sooner you can start, the better your years of retirement will be. In honor of that, we will be dedicating this two-part blog to the pros and cons of having a 401(k) versus a Pension, and what that will mean come tax season once you are thinking of retiring and once you do retire! 

The days of working for a company for 40 plus years and retiring with an amazing pension, health benefits, and security are becoming things of the past. Today, the 401(k) is dominating the world of the retirement plan. A 401(k) is a plan that was specifically designed to help you save for retirement and was created almost by accident! The 401(k) that we know today started its journey in 1978 with the creation of the Revenue Act passed by Congress that year. This Act was added to the Internal Revenue Code, Section 401(k), and it allowed employees to avoid paying taxes on deferred compensation. in 1980, a gentleman by the name of Ted Benna, benefits consultant of the Johnson Companies, was trying to come up with a way to have a more tax-friendly option for companies to provide retirement programs based on this new 401(k) idea. He came up with the incredible idea that allowed employees to save pre-taxed money in a retirement plan that the employer would then match and put back into the plan as well. This was the birth of the modern-day 401(K) plan, and The Johnson Companies were one of the first to provide these new benefits to their employees. 

In the very beginning, the original section of the 401(K) in the Internal Revenue Code, did not allow stand-alone accounts to be created and to be funded by salary reductions. Mr. Benna pushed the IRS to change this idea, and they followed through. Those employees who now decided to partake in a 401(k) could now use their deferred income to make investments and not be taxed on any gains. By 1982, 401(k)s were being offered by thousands of companies, and they are commonplace for most companies today. 

There are many benefits 401(k) programs give to business owners and employers, and many of these benefits are why pensions are becoming an endangered species. 
  • The amount that the employer contributes to its employees 401(k) is tax-deductible for the employer or company. 
  • There is huge flexibility available in plan options that an employer and company can offer to their employees. 
  • Offering a strong retirement plan like a 401(k) can be very attractive to outstanding employees and can keep them at a company for many years. This can prevent constant turn over and save a company money on training new employees. 

The benefits a 401(k) can offer to the employee are also very positive. 
  • You can carry your 401(k) from one company to the next (with some exceptions). 
  • It allows small contributions over time to grow into large sums for retirement. 
  • The amount of money in your 401(k) is not taxed until you begin taking money out of the account. 
  • The amount of money put into your 401(k) from the company you work for can lower the amount of taxes on your income. 
  • It is very easy to pay into a 401(k) 
  • Traditional 401(k) plans are tax-deferred 

Right away in just these two short lists (they could be much longer, this is just an overview), you can see how a 401(k) can be such a relief on your taxes now, and it won't be an issue on your taxes or even something you have to worry about until you start pulling money out of it. But even though there are some wonderful benefits to a 401(k) there are still some cons. 
  • Depending on if you have a larger income when you retire compared to when you were paying into your 401(k) you could be put into a different tax bracket and will have to pay a large fee in taxes once you begin taking money out of the account. 
  • You might have fewer investment options and you might run into high account fees. 
  • If you do withdraw from your 401(k) before you are 59, you will be faced with a penalty charge. This happens most often when someone runs into some kind of financial hardship, and they need the money. Even in these desperate circumstances, the account owner will be facing a 10% penalty. 

Don't be overwhelmed with these cons. When deciding on your future, especially your financial future that could affect your taxes, you need to be aware of both sides of the coin. It is good to remember that what you pay into your 401(k) can help reduce the liability rate on your taxes every year and can help with tax withholding during every one of your pay periods.

You have a lot on your plate right now when it comes to tax season, so for those who aren't taking money out of their 401(k) this year, it's one less thing you have to worry about when filing. For those who are just starting to use their 401(k) plan as retirement or in a situation based on need, this tax season might be a little different for you. But don't worry, we are here to help. We hope this information has enlightened you a little more on 401(k) plans, and one of the many options available to you for retirement. In our next blog, we will be exploring pension's and what kind of taxes you may or may not be facing with those. Until then, we are Hood's Tax and Accounting Service, here to help you with all of your tax needs in Goose Creek, SC! 

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