In this Edition
January 24, 2023
Smooth Sailing: Tips for Easier Navigation Through Tax Season
PODCAST: When Do I Need to Start Taking a Required Minimum Distribution from My Retirement Plan?
Are You at Risk of Retirement Plan Leakage?
Partner Announcement
Employers Should Be Wary of ERC Claims That Are Too Good to Be True
How the New Secure 2.0 Law May Affect Your Business
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Smooth Sailing: Tips for Easier Navigation Through Tax Season |
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The IRS generally begins accepting the previous year’s individual tax returns in late January. Here are quick tips you can use to help speed tax processing and avoid hassles.
For starters, contact us soon for your tax preparation appointment. Gather all documents needed to prepare an accurate return, including W-2s, 1099 forms, and statements of interest paid or received. Failure to provide all of this information means a return is incomplete, which may then require additional processing and delay any refund that’s due.
Be accurate. Ensure that every name on your tax return is spelled correctly, and that each Social Security number on the return matches the number on the Social Security card. If you supply a bank account number, double-check it.
Possible Penalties
What if you file late or can’t pay your tax bill? Separate penalties apply for failing to pay and failing to file. Both are based on a percentage of the unpaid or late taxes. You can avoid late filing by obtaining an extension of the time to file (until October 16 this year). However, you must still pay any taxes due by the regular deadline or face possible penalties.
These penalties can be quite severe, but if the lateness occurs for a “reasonable cause,” such as illness, the IRS may excuse it. Contact us with your questions.
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Jill Wrensch, EA
D 715.384.1989
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When Do I Need to Start Taking a Required Minimum Distribution from My Retirement Plan?
As a person nears 70 years of age, it's important to prepare for the proper retirement plan withdrawal amounts. In 2023 the required minimum distribution rules will affect those 73 years of age and older.
In this episode, Jeff analyzes the several factors that impact an individual's required minimum distribution amount.
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Are You at Risk of Retirement Plan Leakage? |
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Generally, the term “leakage” has negative connotations. So, it’s not surprising that the same is true in the context of retirement planning, where leakage refers to pre-retirement early withdrawals from a retirement account. Now, as a business owner who sponsors a qualified retirement plan, you might say, “Well, that’s my participants’ business. Not mine.”
However, there are valid reasons to address the issue with employees who participate in your plan.
Does It Matter?
For starters, leakage can lead to higher plan expenses. Fees are often determined on a per-account or per-participant basis. When a plan loses funds to leakage, total assets and individual account sizes shrink, which tends to hurt administrative efficiency and raise costs.
More broadly, if your employees are taking pre-retirement withdrawals, it could indicate they’re facing unusual financial challenges. These issues may have a negative impact on productivity and work quality and leave them unable to retire when they planned to.
The stress surrounding COVID-19 may account for part of the financial need. And more recently, the “Great Resignation” could lead some workers to draw out retirement funds to live on or use to start a business of their own.
What Can You Do?
The most important thing business owners can do to limit leakage is to educate and remind employees about how pre-retirement withdrawals can diminish their accounts and delay their anticipated retirement dates. While you’re at it, consider providing broader financial education to help workers better manage their money, amass savings, and minimize or avoid the need for early withdrawals.
Some companies offer emergency loans that are repayable through payroll deductions to reduce the use of retirement funds. Others have revised their plan designs to limit the situations under which plan participants can take out hardship withdrawals or loans.
Can You Eliminate the Problem?
“Roughly 22% of net contributions made by those 50 or younger leaks out of the retirement savings system in a given year,” according to a 2021 report by the Joint Committee on Taxation. Some percentage of retirement plan leakage will probably always occur to some extent, but becoming aware of the problem and taking steps to minimize it are still worthwhile for any business. We can answer questions you might have about leakage or other aspects of plan administration and compliance.
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Charlie Wendlandt, CPA
D 715.384.1986
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Congrats to our Firm's newest partners Kim Iley and Briana Peters. |
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Kimberly Iley, CPA, CVA, was most recently a Senior Tax Manager in the Firm’s Neenah, WI, office. As partner with more than two decades of experience in tax preparation and business valuations, Iley will continue to provide these services to individuals, trusts, estates and small businesses. |
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Briana Peters, CPA, was most recently a Senior Audit Manager in the Firm’s Green Bay, WI, office. She provides audit, review, and tax services to nonprofit organizations. As partner she will continue to be a trusted advisor to numerous nonprofits in Wisconsin. Peters also audits employee benefit plans and commercial entities. |
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Tax Tip Tuesday - Video Short |
Breaking Edvest and Roth IRA News!
This week, Cole Bay and Kyle Hundt, EA break the latest news regarding Edvest 529 college savings plan and Roth IRAs.
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Employers Should Be Wary of ERC Claims That Are Too Good to Be True |
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The Employee Retention Credit (ERC) was a valuable tax credit that helped employers that kept workers on staff during the height of the COVID-19 pandemic. While the credit is no longer available, eligible employers that haven’t yet claimed it might still be able to do so by filing amended payroll returns for tax years 2020 and 2021.
However, the IRS is warning employers to beware of third parties that may be advising them to claim the ERC when they don’t qualify. Some third-party “ERC mills” are promising that they can get businesses a refund without knowing anything about the employers’ situations. They’re sending emails, letters and voice mails as well as advertising on television. When businesses respond, these ERC mills are claiming many improper write-offs related to taxpayer eligibility for — and computation of — the credit.
These third parties often charge large upfront fees or a fee that’s contingent on the amount of the refund. They may not inform taxpayers that wage deductions claimed on the companies’ federal income tax returns must be reduced by the amount of the credit.
According to the IRS, if a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction. Your tax advisor can assist with this.
Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
ERC Basics
The ERC is a refundable tax credit designed for businesses that:
- Continued paying employees while they were shut down due to the COVID-19 pandemic, or
- Had significant declines in gross receipts from March 13, 2020, to September 30, 2021 (or December 31, 2021 for certain startup businesses).
Eligible taxpayers could have claimed the ERC on an original employment tax return or they can claim it on an amended return.
To be eligible for the ERC, employers must have:
Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.
As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining Paycheck Protection Program (PPP) loan forgiveness or that were used to claim certain other tax credits.
How to Proceed
If you didn’t claim the ERC, and believe you’re eligible, contact us. We can advise you on how to proceed.
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Matt Eckelberg, CPA
D 715.384.1995
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How the New Secure 2.0 Law May Affect Your Business |
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If your small business has a retirement plan, and even if it doesn’t, you may see changes and benefits from a new law. The Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) was recently signed into law. Provisions in the law will kick in over several years.
SECURE 2.0 is meant to build on the original SECURE Act, which was signed into law in 2019. Here are some provisions that may affect your business.
Retirement plan automatic enrollment. Under the new law, 401(k) plans will be required to automatically enroll employees when they become eligible, beginning with plan years after December 31, 2024. Employees will be permitted to opt out. The initial automatic enrollment amount would be at least 3% but not more than 10%. Then, the amount would be increased by 1% each year thereafter until it reaches at least 10%, but not more than 15%. All current 401(k) plans are grandfathered. Certain small businesses would be exempt.
Part-time worker coverage. The first SECURE Act requires employers to allow long-term, part-time workers to participate in their 401(k) plans with a dual eligibility requirement (one year of service and at least 1,000 hours worked or three consecutive years of service with at least 500 hours worked). The new law will reduce the three-year rule to two years, beginning after December 31, 2024. This provision would also extend the long-term part-time coverage rules to 403(b) plans that are subject to ERISA.
Employees with student loan debt. The new law will allow an employer to make matching contributions to 401(k) and certain other retirement plans with respect to “qualified student loan payments.” This means that employees who can’t afford to save money for retirement because they’re repaying student loan debt can still receive matching contributions from their employers into retirement plans. This will take effect beginning after December 31, 2023.
“Starter” 401(k) plans. The new law will allow an employer that doesn’t sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan) that would require all employees to be default enrolled in the plan at a 3% to 15% of compensation deferral rate. The limit on annual deferrals would be the same as the IRA contribution limit with an additional $1,000 in catch-up contributions beginning at age 50. This provision takes effect beginning after December 31, 2023.
Tax credit for small employer pension plan start-up costs. The new law increases and makes several changes to the small employer pension plan start-up cost credit to incentivize businesses to establish retirement plans. This took effect for plan years after December 31, 2022.
Higher catch-up contributions for some participants. Currently, participants in certain retirement plans can make additional catch-up contributions if they’re age 50 or older. The catch-up contribution limit for 401(k) plans is $7,500 for 2023. SECURE 2.0 will increase the 401(k) catch-up contribution limit to the greater of $10,000 or 150% of the regular catch-up amount for individuals ages 60 through 63. The increased amounts will be indexed for inflation after December 31, 2025. This provision will take effect for taxable years beginning after December 31, 2024. (There will also be increased catch-up amounts for SIMPLE plans.)
Retirement savings for military spouses. SECURE 2.0 creates a new tax credit for eligible small employers for each military spouse that begins participating in their eligible defined contribution plan. This became effective in 2023.
These are only some of the provisions in SECURE 2.0. Contact us if you have any questions about your situation.
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Judy Haven, CPA
D 262.243.9610
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More Resources from CPA-HQ |
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6 Key Tax Q&As for 2023
This article poses six key questions about such amounts, including those related to retirement planning and the itemized deduction.
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Are You at Risk for Investment Fraud?
Many perpetrators of investment fraud know how to push the right psychological buttons to entice their “marks” to buy worthless or nonexistent securities. Would-be investors can mitigate the risks by asking a few questions, performing some research and consulting with trusted advisors.
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The Standard Business Mileage Rate Is Going Up in 2023
The price of gas is lower than it was a year ago. How does this affect the amount your business can deduct for business driving in 2023? You might be surprised.
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