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 benefits a 401(k) can offer to the employee are also very positive.
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.
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!
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.
You've made the runs to the grocery store for the bottles of water, bread, and PB&J. But when it comes to natural disasters, you need to consider your financial preparedness as well.
It's not new news that hurricane season is here. The weather channel, our weather apps, and friends up North have made sure we don't forget. But hurricane season isn't just about being prepared by storing up on non-perishable foods, batteries, bottles of water, and having an evacuation plan. You financially need to be prepared and ready for a hurricane, especially here in the Lowcountry. Now that we have had a taste of our first hurricane of 2019, we need to remember that one could be on its heels. Hurricane season isn't over until November. So, you still have time to get prepared.
It goes without saying that yes, you need to make sure that your home and family are safe and prepared for anything. Make sure your home is stocked with what you'll need to get through a storm if you're going to stay. Follow all of the safety precautions laid out by local officials and police, and make sure you make informed and safe decisions. Your safety and the safety of your loved ones and pets are the first things that need your attention.
But these precautions need to be taken care of even before the hint of the first hurricane appears. Taking care of your financial needs ahead of time will help eliminate stress, worry, and truly help you when a storm does arrive. Here in the Lowcountry, it's not a question of if, it's when.
Last but very not least, keep cash handy! ATMs might be down or unavailable after a storm. You might not be able to get cashback at a store or even get to the inside of your bank. Make sure to have a safe stash with you or ready to go when you evacuate. Most plan for at least 72 hours worth of lodging, food, and travel expense. So start with that amount, and go from there.
We hope this information is helpful for this year's storms and for many storms to come. Now that we've had the taste of our first one you have time to get prepared for the next hurricane. But as you do so, don't panic. If do just a few of these main points, you will be ahead of the game. Please stay smart, safe, and prepared this hurricane season!
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