Business Owners – Pay less income taxes (legally) with QBI – Qualified Business Income Deduction

Qualified Business Income QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.

Generally this includes, but is not limited to, the deductible part of self-employment tax, self-employed health insurance, and deductions for contributions to qualified retirement plans (e.g. SEP, SIMPLE and qualified plan deductions).

Checklist is available by clicking the DOWNLOAD button.

More information from the IRS: https://www.irs.gov/newsroom/qualified-business-income-deduction

Use Before Filing Your 2019 Income Tax

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Get ready for your 2019 Income Taxes.

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Have this sheet ready when you start working on your 2019 Income Taxes and let's see if it will save you money on your taxes. $$$

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2020 Tax Bracket for You?

 The IRS recently released the new tax brackets for the 2020 tax year, so now you can start thinking about how to handle your 2020 finances in a tax-efficient way. The seven 2020 tax rates themselves didn't change (they are the same as those in affect for the 2019 calendar year), however the tax bracket ranges were modified based on inflation. So, you could be in a different tax bracket for 2020 than the last time you reported your taxes, even if your income has not changed.1
 
Tax Brackets Are Marginal
 The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you make $40,125 in 2020, your first $9,875 will be taxed at 10 percent. The next portion of your income will be taxed at an increased rate; from $9,875 to $40,125, your tax rate will be 12 percent. 
 As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income. 

 Why Would My Tax Bracket Be Different? 
 The IRS regularly adjusts tax brackets to take inflation into consideration. This is because, with inflation, people will face higher prices, meaning the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket, or credits and deductions are reduced. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.2   

 2020 Tax Brackets 
 Without further ado, here are the 2020 tax brackets according to your filing status and income from the IRS1.

 10% Tax Rate
     Single Individuals: from $0 to $9,875
     Married Individuals Filing Jointly: from $0 to $19,750
     Heads of Households: from $0 to $14,100
     Married Individuals Filing Separately: from $0 to $9,875 

 12% Tax Rate
     Single Individuals: from $9,876 to $40,125 
     Married Individuals Filing Jointly: from $19,751 to $80,250    
     Heads of Households: from $14,101 to $53,700
     Married Individuals Filing Separately: from $9,876 to $40,125 

 22% Tax Rate
     Single Individuals: from $40,126 to $85,525    
     Married Individuals Filing Jointly: from $80,251 to $171,050        
     Heads of Households: from $53,701 to $85,500
     Married Individuals Filing Separately: from $40,126 to $85,525 

 24% Tax Rate
     Single Individuals: from $85,526 to $163,300        
     Married Individuals Filing Jointly: from $171,051 to $326,600    
     Heads of Households: from $85,501 to $163,300
     Married Individuals Filing Separately: from $85,526 to $163,300 

 32% Tax Rate
     Single Individuals: from $163,301 to $207,350    
     Married Individuals Filing Jointly: from $326,601 to $414,700        
     Heads of Households $163,301 to to $207,350
     Married Individuals Filing Separately: from $163,301 to $207,350 

 35% Tax Rate
     Single Individuals: $207,351 to $518,400
     Married Individuals Filing Jointly: from $414,701 to $622,050
     Heads of Households: from $207,351 to $518,400
     Married Individuals Filing Separately: from $207,351 to $311,025 

 37% Tax Rate
     Single Individuals: over $518,400    
     Married Individuals Filing Jointly: over $622,050    
     Heads of Households: over $518,400
     Married Individuals Filing Separately: over $311,0251 

 In addition to the tax inflation adjustments, the IRS also altered standard deductions. While the above rates and brackets are at the federal level, different states might have varying brackets and rates. 


              https://www.irs.gov/pub/irs-drop/rp-19-44.pdf
         https://www.aier.org/article/bracket-creep-a-real-problem-for-taxpayers/      
     This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. 

Two Helpful Tax Strategies – Easy and Quick

Two Helpful Tax Strategies – Easy and Quick

If you’re like most taxpayers, you have no clue about the most effective tax strategies for these financial vehicles – especially if you lack access to expensive accountants and attorneys. Here’s some guidance.

Here are two common situations and innovative solutions that might help.

  1. You are self-employed and want to save tax. You feel you pay too much in taxes and want at least $17,500 of deductions. You are not an employee with a company that offers a 401(k) retirement plan but you still need more deductions than the $5,500 annual contribution ($6,500 if 50 or older) limit for a traditional individual retirement account.

Solution: a solo 401(k), aka an independent, one-participant or family 401(k). Using this vehicle in this case hinges on your being a sole proprietor or operator of the business with your spouse, and have no non-family employees.

Let’s say your spouse works in the business with you and is younger than 50. He or she can contribute up to $17,500 annually to the solo 401(k) plan, and this is called employee salary deferral of up to a full year’s compensation. If your spouse earns $17,500 this year ($18,000 in 2015) he or she can put all of $17,500 into the solo 401k(k) plan.

Assume you are 50 or older and now also contribute a maximum $23,000 (the maximum $17,500 contribution for 2014 tax year plus the $5,500 catch-up amount) employee salary deferral to a solo 401(k) plan. With an eye to even further deductions, you can also kick in the employer contribution – remember, you are both the employee and the employer – of 20% of your net earnings if you are a sole proprietor and 25% if your business is a corporation.

If you are 50 or older by this Dec. 31, you can save up to $57,500 in the solo 401(k), a combination of the employee salary deferral and the employer contribution. For 2015, the total maximum contribution increases to $18,000 salary deferral plus $6,000 catch-up plus $35,000 employer contribution, or $59,000 total.

Additional points:

You can still contribute to an IRA in addition to your solo 401(k) contribution.

Setting up a solo 401(k) can be inexpensive and easy. A reasonably priced independent 401(k) administrator can cost as little as $500 for set up and $500 in annual fees. Brokerage firms can offer lower costs but you then are tied to their investment choices.

If you have non-family employees and want to offer a workplace retirement plan, your normal 401(k) plan may come with potentially higher set-up and maintenance fees. You will also be subject to non-discrimination rules, meaning that you must allow your permanent employees into the plan and that your employer profit contribution must treat all employees – including you the owner – equally.

  1. You want to leave a tax-free legacy. In one excellent example, a retired nurse, married, 75, wants to leave a legacy to her 9-year-old twin grandsons. The most tax-effective strategy: Combine the Multi-Generational (MGIRA) strategy with a Roth IRA conversion.

The MGIRA, aka an extended or stretch IRA, allows you to designate a successor beneficiary to pass on funds you saved for retirement. Converting other kinds of IRAs to a Roth IRA offers many advantages, including eventual tax-free withdrawals of qualified distributions.

We structured a Roth conversion of the nurse’s $385,000 traditional IRA and paid the conversion tax with non-IRA funds. The two grandsons will each get slightly more than $2 million tax-free over their lifetimes in annual checks without ever raiding the principal.

Let’s hope they raise a glass to the grandma who will still be looking after them.