TAX+BUSINESS
ALERT
Publication by Hawkins Ash CPAs
|
|
In this edition
October 2, 2018
Are You a Member of the Sandwich Generation?
Podcast: Independent Contractor vs. Employee
Avoid Penalties by Abiding by the NQDC Tax Rules
DOL Has Increased Scrutiny of Defined Benefit Plans
|
|
|
Are You a Member of the Sandwich Generation?
|
|
If you’re currently taking care of your children and elderly parents, count yourself among those in the “Sandwich Generation.” Although it may be personally gratifying to help your parents, it can be a financial burden and affect your own estate plan. Here are some critical steps to take to better manage the situation.
Identify Key Contacts
Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.
List and Value Their Assets
If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.
Open the Lines of Communication
Before going any further, have a frank and honest discussion with your elderly relatives, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish. Understandably, they may be hesitant or too proud to accept your help initially.
Execute the Proper Documents
Assuming you can agree on how to move forward, develop a plan incorporating several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some elements commonly included in an estate plan are:
- Wills: Your parents’ wills control the disposition of their possessions, such as cars, and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically pass to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.
- Living Trusts: A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, so this might save time and money, while avoiding public disclosure.
- Powers of Attorney for Health and Finances: These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.
- Living Wills or Advance Medical Directives: These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies so they can act according to their wishes.
- Beneficiary Designations: Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.
Spread the Wealth
If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $15,000 (for 2018) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts, so you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.
Mind Your Needs
If you’re part of the Sandwich Generation, you already have a lot on your plate. But don’t overlook your own financial needs. Contact us to discuss the matter further.
|
|
|
|
Contact:
Steve Albers, CPA
Direct: 920.337.4520
|
|
Podcast: Independent Contractor vs. Employee
|
Many small and medium sized businesses face the issue of when someone is an employee and when they are an independent contractor. It is critical that owners correctly make this determination as there are consequences if someone is misclassified.
|
|
|
Avoid Penalties by Abiding by the NQDC Tax Rules
|
|
Nonqualified deferred compensation (NQDC) plans pay executives at some time in the future for services to be currently performed. If you participate in such a plan, or your business offers one as an employee benefit, it’s critical for everyone involved to abide by the applicable tax rules. Of course, in the hectic course of the average exec’s schedule, keeping up with the details isn’t always easy.
How They Differ
NQDC plans differ from qualified plans, such as 401(k)s, in a variety of ways. First, these plans can favor certain highly compensated employees. And though the executive’s tax liability on the deferred income also may be deferred, the employer can’t deduct the NQDC until the executive recognizes it as income. What’s more, any NQDC plan funding isn’t protected from the employer’s creditors.
What You Need to Know
NQDC plans also differ in terms of some of the rules that apply to them. Internal Revenue Code (IRC) Section 409A and related IRS guidance have tightened and clarified some of these rules. Specifics to study up on include:
- Timing of initial deferral elections. Executives must make the initial deferral election before the year they perform the services for which the compensation is earned. So, for instance, if you wish to defer part of your 2019 compensation to 2020 or beyond, you generally must make the election by the end of 2018.
- Timing of distributions. Benefits must be paid on a specified date, according to a fixed payment schedule or after the occurrence of a specified event — such as death, disability, separation from service, change in ownership or control of the employer, or an unforeseeable emergency.
- Elections to change timing or form. The timing of benefits can be delayed but not accelerated. Elections to change the timing or form of a payment must be made at least 12 months in advance. Also, new payment dates must be at least five years after the date the payment would otherwise have been made.
Employment Tax Issues
Another important NQDC tax issue is that FICA taxes are generally due when services are performed or when there’s no longer a substantial risk of forfeiture, whichever is later. This is true even if the compensation isn’t paid or recognized for income tax purposes until later years.
So, if you’re the plan participant, your employer may withhold your portion of the tax from your salary, or ask you to write a check for the liability. An employer may also pay your portion, in which case you’ll have additional taxable income.
Consequences of Noncompliance
The penalties for noncompliance with NQDC plan rules can be severe. Plan participants may be taxed on plan benefits at the time of vesting, and a 20% penalty and potential interest charges also will apply. So, if you’re receiving NQDC, check with your employer to make sure it’s addressing any compliance issues.
Putting It All Together
Whether you’re a busy exec who participates in an NQDC plan or an employer offering one, please contact our firm. We can help incorporate your plan or other executive compensation into your year-end tax planning.
|
|
|
|
Contact:
Charles Wendlandt, CPA
Direct: 715.384.1986
|
|
DOL Has Increased Scrutiny of Defined Benefit Plans
|
|
Sponsors of defined benefit plans — commonly known as pensions — might be facing tighter scrutiny from the U.S. Department of Labor. Just last year, at an ERISA Advisory Council meeting, the agency’s Employee Benefits Security Administration (EBSA) announced that it had ramped up pension audit operations in its Philadelphia office and later decided to do so elsewhere. If your organization offers its employees a defined benefit plan, here’s what you should know.
Required Statement
The focus of the audits is on pension plan sponsors’ efforts to deliver benefits to terminated vested participants. According to EBSA’s
Reporting and Disclosure Guide for Employee Benefit Plans
, plan administrators must provide a “Statement of Accrued and Nonforfeitable Benefits” to participants on request, on termination of service with the employer or after the participant has a one-year break in service. However, only one statement is required in any 12-month period for statements provided on request.
Best Practices
Timothy Hauser, EBSA’s Deputy Assistant Secretary for Program Operations, offered some best practices for satisfying the agency’s notification requirements. He advised, first and foremost, that plan sponsors keep good records on how to reach plan participants and relay those records to other corporate entities in a merger or acquisition.
A good starting point, according to Hauser, is for plan sponsors to send participants a certified letter using the participant’s last known address. If mail is returned from the former employee’s last known address, he suggested trying to contact the participant by phone. It’s possible the phone number on record is a mobile phone that wouldn’t be pinned to a previous mailing address.
When other methods fail, Hauser recommended reaching out to former co-workers of the separated participant who might have remained in contact. With so much information available through social media, employers should also consider using the Internet to help find terminated missing participants.
Up to Speed
Pension plans may not be as widely used as they used to be, but the compliance rules related to them remain strict. Make sure you stay up to speed on everything that’s required.
|
|
|
|
Contact:
Erica Knerzer, CPA
Direct: 608.793.3113
|
|
More Resources from CPA-HQ
|
|
Podcast: The Taxability of Social Security
How much of your Social Security becomes taxable is based off of a sliding scale.
|
|
QuickBooks Update: Fall 2018
View the fall 2018 QuickBooks e-newsletter from Hawkins Ash CPAs.
|
|
The Changing Face of Personal Exemptions and the Standard Deduction
Many individual taxpayers may find themselves confused by the changing face of these tax-planning elements. Here are some clarifications.
|
|
|
|
|
|
|
