Moving Expenses Are No Longer Deductible
If you were planning on moving this year to take a new position with a new company or even a new position within your current employer, the moving process just got a little more expensive. Not only is it expensive, but it can put you under an intense amount of stress as there will be lots of things that you need to have in place before packing up and
If you were planning on moving this year to take a new position with a new company or even a new position within your current employer, the moving process just got a little more expensive. Not only is it expensive, but it can put you under an intense amount of stress as there will be lots of things that you need to have in place before packing up and moving. Even things like how you are going to transport your car over to your new home, can take up a lot of your time, and on top of that, you have to think about how much it's going to cost. Prior to the tax law changes that took effect January 1, 2018, companies would often offer new employees a "relocation package" or "moving expense reimbursements" to help subsidize the cost of making the move. From a tax standpoint, it was great benefit because those reimbursements were not taxable to the employee. Unfortunately that tax benefit has disappeared in 2018 as a result of tax reform.
Taxable To The Employee
Starting in 2018, moving expense reimbursements paid to employee will now represent taxable income. Due to the change in the tax treatment, employees may need to negotiate a higher expense reimbursement rate knowing that any amount paid to them from the company will represent taxable income.
For example, let’s say you plan to move from New York to California and you estimate that your moving expense will be around $5,000. In 2017, your new employer would have had to pay you $5,000 to fully reimburse you for the moving expense. In 2018, assuming you are in the 35% tax bracket, that same employer would need to provide you with $6,750 to fully reimburse you for your moving expenses because you are going to have to pay income tax on the reimbursement amount.
Increased Expense To The Employer
For companies that attract new talent from all over the United States, this will be an added expense for them in 2018. Many companies limit full moving expense reimbursement to executives. Coincidentally, employees at the executive level are usually that highest paid. Higher pay equals higher tax brackets. If you total up the company's moving expense reimbursements paid to key employees in 2017 and then add another 40% to that number to compensate your employees for the tax hit, it could be a good size number.
Eliminated From Miscellaneous Deductions
As an employee, if your employer did not reimburse you for your moving expenses and you had to move at least 50 miles to obtain that position, prior to 2018, you were allowed to deduct those expenses when you filed your taxes and you were not required to itemize to capture the deduction. However, this expense will no longer be deductible even for employees that are not reimbursed by their employer for the move starting in 2018.
About Michael.........
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
5 Options For Money Left Over In College 529 Plans
If your child graduates from college and you are fortunate enough to still have a balance in their 529 college savings account, what are your options for the remaining balance? There are basically 5 options for the money left over in college 529 plans.
If your child graduates from college and you are fortunate enough to still have a balance in their 529 college savings account, what are your options for the remaining balance? There are basically 5 options for the money left over in college 529 plans.
Advanced degree for child
If after the completion of an undergraduate degree, your child plans to continue on to earn a master's degree, law school, or medical school, you can use the remaining balance toward their advanced degree.
Transfer the balance to another child
If you have another child that is currently in college or a younger child that will be attending college at some point, you can change the beneficiary on that account to one of your other children. There is no limit on the number of 529 accounts that can be assigned to a single beneficiary.
Take the cash
When you make withdrawals from 529 accounts for reasons that are not classified as a "qualified education expenses", the earnings portion of the distribution is subject to income taxation and a 10% penalty. Again, only the earnings are subject to taxation and the penalty, your cost basis in the account is not. For example, if my child finishes college and there is $5,000 remaining in their 529 account, I can call the 529 provider and ask them what my cost basis is in the account. If they tell me my cost basis is $4,000 that means that the income taxation and 10% penalty will only apply to $1,000. The rest of the account is withdrawn tax and penalty free.
Reserve the account for a future grandchild
Once your child graduates from college, you can change the beneficiary on the account to yourself. By doing so the account will continue to grow and once your first grandchild is born, you can change the beneficiary on that account over to the grandchild.
Reserve the account for yourself or spouse
If you think it's possible that at some point in the future you or your wife may go back to school for a different degree or advanced degree, you assign yourself as the beneficiary of the account and then use the account balance to pay for that future degree.
About Michael.........
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
What is the Process for Setting Up a Will?
Creating a will is often a task that everyone knows they should do but it gets put on the back burner. Creating a will is one of the most critical things you can do for your loved ones. Putting your wishes on paper helps your heirs avoid unnecessary hassles, and you gain the peace of mind knowing that a life's worth of possessions will end up in the right
What is the Process for Setting Up a Will?
Creating a will is often a task that everyone knows they should do but it gets put on the back burner. Creating a will is one of the most critical things you can do for your loved ones. Putting your wishes on paper helps your heirs avoid unnecessary hassles, and you gain the peace of mind knowing that a life's worth of possessions will end up in the right hands. But before for you do, it helps to know the overall process of setting up a will to save you time and money.
What is a will?
A will is simply a legal document in which you, the testator, declare who will manage your estate after you die. Your estate can consist of big, expensive things such as a vacation home but also small items that might hold sentimental value such as photographs. The person named in the will to manage your estate is called the executor because he or she executes your stated wishes. Sometimes though, people get confused by this and aren't too sure what the meaning of an executor.
A will can also serve to declare who you wish to become the guardian for any minor children or dependents, and who you want to receive specific items that you own - Aunt Sally gets the silver, Cousin Billy the bone china, and so on. Someone designated to receive any of your property is called a "beneficiary."
Some types of property, including certain insurance policies and retirement accounts, generally aren't covered by wills. You should've listed beneficiaries when you took out the policies or opened the accounts. Check if you can't remember, and make sure you keep beneficiaries up to date, since what you have on file when you die should dictate who receives those assets.
What happens if I die without a will?
If you die without a valid will, you'll become what's called intestate. That usually means your estate will be settled based on the laws of your state that outline who inherits what. Probate is the legal process of transferring the property of a deceased person to the rightful heirs.
Since no executor was named, a judge appoints an administrator to serve in that capacity. An administrator also will be named if a will is deemed to be invalid. All wills must meet certain standards such as being witnessed to be legally valid. Again, requirements vary from state to state.
An administrator will most likely be a stranger to you and your family, and he or she will be bound by the letter of the probate laws of your state. As such, an administrator may make decisions that wouldn't necessarily agree with your wishes or those of your heirs.
Do I need an attorney to prepare my will?
No, you aren't required to hire a lawyer to prepare your will, though an experienced attorney can provide useful advice on estate-planning strategies such as establishing testamentary, revocable, and irrevocable trusts. But as long as your will meets the legal requirements of your state, it's valid whether a lawyer drafted it or you wrote it yourself on the back of a napkin.
Do-it-yourself will kits are widely available online which are of course better than nothing but we usually recommend that our clients at least have an attorney review their will and make sure the specifications in their will match their wishes.
Should my spouse and I have a joint will or separate wills?
Estate planners almost universally advise against joint wills, and some states don't even recognize them. Odds are you and your spouse won't die at the same time, and there's probably property that's not jointly held. That's why separate wills make better sense, even though your will and your spouse's will might end up looking remarkably similar.
In particular, separate wills allow for each spouse to address issues such as ex-spouses and children from previous relationships. Ditto for property that was obtained during a previous marriage. Be very clear about who gets what. Probate laws generally favor the current spouse.
Who should I name as my executor?
You can name your spouse, an adult child, or another trusted friend or relative as your executor. If your affairs are complicated, it might make more sense to name an attorney or someone with legal and financial expertise. You can also name joint executors, such as your spouse or partner and your attorney.
One of the most important things your will can do is empower your executor to pay your bills and deal with debt collectors. Make sure the wording of your will allows for this, and also gives your executor leeway to take care of any related issues that aren't specifically outlined in your will.
How do I leave specific items to specific heirs?
If you wish to leave certain personal property to certain heirs, indicate as much in your will. In addition, you can create a separate document called a letter of instruction that you should keep with your will.
A letter of instruction, which isn't legally binding in some states, can be written more informally than a will and can go into detail about which items go to whom. You can also include specifics about any number of things that will help your executor settle your estate including account numbers, passwords and even burial instructions.
Another option is to leave everything to one trusted person who knows your wishes for distributing your personal items. This, of course, is risky because you're relying on this person to honor your intentions without fail. Consider carefully.
Who has the right to contest my will?
Contesting a will refers to challenging the legal validity of all or part of the document. A beneficiary who feels slighted by the terms of a will might choose to contest it. Depending on which state you live in, so too might a spouse, ex-spouse or child who believes your stated wishes go against local probate laws.
A will can be contested for any number of other reasons: it wasn't properly witnessed; you weren't competent when you signed it; or it's the result of coercion or fraud. It's usually up to a probate judge to settle the dispute. The key to successfully contesting a will is finding legitimate legal fault with it. A clearly drafted and validly executed will is the best defense.
Michael Ruger
About Michael.........
Hi, I'm Michael Ruger. I'm the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
How Should I Incorporate My Business?
Starting your own business is an incredible achievement, and for most, your business will shape your life not only professionally but personally. That being said, setting up your business in the correct way and having the necessary pieces in place day one is extremely important.
Business owner
Starting your own business is an incredible achievement, and for most, your business will shape your life not only professionally but personally. That being said, setting up your business in the correct way and having the necessary pieces in place day one is extremely important.
Here we will discuss some of the different options for structuring your business which is just a piece of the business infrastructure. We will define the structure as well as give some details such as tax filing. It is recommended you speak with a professional (accountant/attorney) when making this decision as incorporating a business the wrong way may have ramifications like paying more in taxes. Constant communication with a professional about your business as you start to make money and grow is also recommended as the structure of your company may have to evolve.
Sole Proprietorship
This is the most basic type of business structure. There is one owner of the company that is responsible for the business assets and liabilities. No formal action is needed to set up a sole proprietorship. Once business activities commence and you are the only owner, you are a sole proprietor. That being said, there are still registration, licenses, and permits that are generally required which vary based on industry and location.
A sole proprietorship is not separate from the owner for tax purposes and therefore the business activity is included on Schedule C of Form 1040. It is important to know that the owner is responsible for paying all the taxes related to owning a sole proprietorship which includes estimated taxes, if necessary.
The biggest pitfall of a sole proprietorship is that there is unlimited liability. This means the owner is personally responsible for any liability of the company.
Partnership
A partnership includes multiple owners (partners) and can be set up a number of ways. The three types of partnerships include general partnerships, limited partnerships, and joint ventures. Choosing the type of partnership depends on matters such as the participation of each partner in the business and length of time the partnership will be in place.
Partnership agreements are not legally required but are highly recommended as they should document how decisions will be made, the responsibilities of each partner, how profits and losses will be divided, and ownership changes.
To form a partnership, you must register with your state and include the legal name of the partnership. This will allow you to obtain an Employer Identification Number (EIN) for the company. The licenses, permits, and other regulations associated with forming a partnership depend on your location and industry.
Unlike a sole proprietorship, a partnership files a separate tax form (Form 1065). This form is known as an information return as the income shown on Form 1065 passes through to the owners who claim the income on their personal return. There are local excise taxes and other fees that the partnership will be responsible for but the income of the company is passed through to the owners. Form 1065 generates what are known as K-1's for each partner. The K-1 will show what the partner should claim on their personal return.
Advantages of partnerships include multiple sources of additional capital, a shared financial commitment, and the individual skills and experiences of each partner. Pitfalls include unlimited liability, disagreements between owners, and shared profits.
Corporation
A corporation is typically more complex and meant for larger companies with multiple employees. Unlike sole proprietorships and partnerships, corporations are treated as its own legal entity separate from the owners. Forming a corporation requires more filings and registrations and they are typically more costly to administer due to the complexity.
Since corporations are treated separate from individuals, they are required to pay federal, state, and local (if necessary) taxes. For federal purposes, Form 1120 is used to show the activities of the business and pay income tax.
Unlike sole proprietorships and partnerships, individuals are protected from corporate liabilities usually up to the amount they have invested in the company. This structure makes it easier to generate capital for the business and it is possible to become publically traded on a stock exchange. Pitfalls of a corporation include the amount of time and money it takes to set up and administer the corporation and potential double taxation. The corporation pays income tax and then distributes profits (in the form of dividends) to owners. Those dividends are now taxable to the individual after they were already taxed at the corporate level.
S Corporation
An S corporation is similar to a C corporation but is taxed at a personal level and avoids double taxation. The S Corp election passes through income to the owner's personal tax return rather than taxing the corporation and then the individual's dividends.
It is important to determine whether or not your corporation will be eligible to qualify as an S Corp under IRS regulations. A business must first register as a corporation and then file Form 2553 (signed by all owners) to apply for S Corp status.
Form 1120S is used to file taxes at a federal level. Again, S Corp income is passed through to the owners for federal tax purposes. Some states recognize this election but others (like New York) do not and will tax the company as a C Corp.
Limited Liability Company
An LLC provides limited liability features associated with a corporation with the same tax and operational efficiencies of a sole proprietorship or partnership. Owners of a corporation are not personally responsible for the liabilities of a company like sole proprietorships or partnerships.
Forming an LLC is similar to forming a partnership including choosing a business name, registering with the state (filing the "Articles of Organization"), obtaining necessary licenses and permits, and creating an operating agreement (similar to the partnership agreement). New York State also requires you to announce your LLC formation in a local newspaper.
An LLC can be structured similar to a sole proprietorship (single member LLC), a partnership, or an LLC filing as a C Corporation for tax purposes. The same filings will be completed as if the LLC was a sole proprietor, partnership, or corporation. A special election can also be made with the IRS allowing an LLC to be treated as an S Corp in some circumstances.
The main advantage of an LLC is that members are protected from personal liability for business decisions and actions. If provisions are not documented in the operating agreement, one of the pitfalls of an LLC is that when one member leaves, the LLC must dissolve completely. The remaining members can create a new LLC if they choose to continue operations.
About Rob.........
Hi, I'm Rob Mangold. I'm the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally , professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, pleas feel free to join in on the discussion or contact me directly.
