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401(k) Hardship Withdrawals
Many employers sponsor 401(k) plans to help employees save for retirement, but sometimes those employees need access to plan funds well before they retire. In such cases, if the plan allows it, participants can make a hardship withdrawal. If your organization sponsors a 401(k) with this option, you should know that there are important changes on the way next year. What will be different Right now, 401(k) hardship withdrawals are limited to only funds an employee has contributed, and the employee must first take out a plan loan from the account. The employee also cannot participate in the plan for six months after a hardship withdrawal. However, important changes take effect in 2019 under the Bipartisan Budget Act of 2018 (BBA). First, employees’ withdrawal limits will include not only their own contributed amounts, but also accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this could add substantially to the amount of funds available for withdrawal in the event of a legitimate hardship. In addition, the BBA eliminates the current six-month ban on employee participation in the 401(k) plan following a hardship withdrawal. This means employees can stay in […] Details
Transitioning to Remote Audits
Are you comfortable communicating electronically with your auditors? If so, a logical next step might be to transition from on-site audit procedures to a more “remote” approach. Remote audits can help reduce the time and cost of preparing audited financial statements. 21st century audits Traditionally, audit fieldwork has involved a team of auditors camping out for weeks (or even months) in one of the conference rooms at the headquarters of the company being audited. Now, thanks to technological advances — including cloud storage, smart devices and secure data-sharing platforms — many audit firms are testing the feasibility of remote auditing as a replacement for sending auditors on-site. In addition to saving time and audit fees, allowing auditors to work remotely improves the work-life balance for auditors and in-house accounting personnel. Your employees won’t need to stay glued to their desks for the duration of the audit, because they can respond to the auditor’s inquiries and document requests remotely. Best practices Changing the format of an audit requires flexibility, including a willingness to embrace the technology needed to facilitate the exchange, review and analysis of relevant documents. You can facilitate the transition process by: Being responsive to electronic requests. Auditors who […] Details
Business deductions for meal, vehicle and travel expenses: document, document, document!
Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS. A critical requirement Subject to various rules and limits, business meal (generally 50%), vehicle and travel expenses may be deductible, whether you pay for the expenses directly or reimburse employees for them. Deductibility depends on a variety of factors, but generally the expenses must be “ordinary and necessary” and directly related to the business. Proper documentation, however, is one of the most critical requirements. And all too often, when the IRS scrutinizes these deductions, taxpayers don’t have the necessary documentation. What you need to do Following some simple steps can help ensure you have documentation that will pass muster with the IRS: Keep receipts or similar documentation. You generally must have receipts, canceled checks or bills that show amounts and dates of business expenses. If you’re deducting vehicle expenses using the standard mileage rate (54.5 cents for 2018), log business miles driven. Track business purposes. Be sure to record the business purpose of each expense. This is especially important if on the surface an expense could appear to be a personal one. If […] Details
What can you deduct when volunteering?
Because donations to charity of cash or property generally are tax deductible (if you itemize), it only seems logical that the donation of something even more valuable to you — your time — would also be deductible. Unfortunately, that’s not the case. Donations of time or services aren’t deductible. It doesn’t matter if it’s simple administrative work, such as checking in attendees at a fundraising event, or if it’s work requiring significant experience and expertise that would be much more costly to the charity if it had to pay for it, such as skilled carpentry or legal counsel. However, you potentially can deduct out-of-pocket costs associated with your volunteer work. The basic rules As with any charitable donation, for you to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can use the IRS’s “Tax Exempt Organization Search” tool (formerly “Select Check”) at http://bit.ly/2KXWl5b to find out. Assuming the charity is qualified, you may be able to deduct out-of-pocket costs that are: Unreimbursed, Directly connected with the services you’re providing, Incurred only because of your charitable work, and Not “personal, living or family” expenses. Supplies, uniforms and transportation A wide […] Details
Avoiding Payroll Tax Penalties
For small businesses, managing payroll can be one of the most arduous tasks. Adding to the burden earlier this year was adjusting income tax withholding based on the new tables issued by the IRS. (Those tables account for changes under the Tax Cuts and Jobs Act.) But it’s crucial not only to withhold the appropriate taxes — including both income tax and employment taxes — but also to remit them on time to the federal government. If you don’t, you, personally, could face harsh penalties. This is true even if your business is an entity that normally shields owners from personal liability, such as a corporation or limited liability company. The 100% penalty Employers must withhold federal income and employment taxes (such as Social Security) as well as applicable state and local taxes on wages paid to their employees. The federal taxes must then be remitted to the federal government according to a deposit schedule. If a business makes payments late, there are escalating penalties. And if it fails to make them, the Trust Fund Recovery Penalty could apply. Under this penalty, also known as the 100% penalty, the IRS can assess the entire unpaid amount against a “responsible person.” […] Details
