October 27, 2017

As tax reform comes into focus, the 401(k) plan -- a stalwart of savings in the investment community -- is reportedly on the chopping block, creating a mild panic for traditional W-2 employees. For taxpayers who take on the risk of self-employment, however, the ability to contribute to a 401(k) plan as both employee and employer provides a unique opportunity to work around the currently proposed changes.


Last week, the IRS announced 2018 contribution limit...

For expats and entrepreneurs with foreign business interests, additional information returns are required to be filed on tax day. The failure to file some of these foreign information returns can trigger a hefty penalty from the IRS, usually starting at $10,000 per offense. More importantly, failure to file required foreign information returns can leave taxpayers open to audits and assessments long after the standard three-year statute of limitations.



Cash compensation arrangements for small businesses can oftentimes generate 'phantom income' for the owners. In order to reconcile cash with taxable income, sophisticated calculations by an experienced professional are necessary. In the long run, understanding the mechanics involved will prevent tax headaches and lighten tax bills for owners.


Imagine two owners are starting a new business together—a professional services firm. They agre...

November 24, 2016

Defined benefit plans, otherwise known as "pension" plans, are ideal saving and planning vehicles for taxpayers consistently earning in excess of $200,000 per year (net of expenses) through a closely-held small business.


Previously, in "Retirement planning through payroll" (Oct 13 2016), I broadly introduced the two major models of defined contribution retirement plans (IRA-based plans and 401(k)-based plans). In this update I will discuss the mega tax-saving and re...

October 19, 2016

Long after Halloween passes, many taxpayers across the country will continue to be haunted by the curious faces of phantom income. For some, there is hope; a CPA can often curtail, mitigate, or at the very least prepare a taxpayer for the trauma associated with paying tax on income that was never 'cash in hand.' For others, taxes will never be the same...


For cash-basis taxpayers, ‘Phantom Income’—aka the ‘Tax Bogeyman’, aka the ‘Green Reaper’, aka the ‘Phantom of the IRS’—is a spooky phen...

October 13, 2016

If you are a micro- to medium-sized business owner, consider reevaluating the role of retirement planning in your business operations as well as in your individual tax ‘portfolio.’


Choosing the right retirement solution for your small business can be instrumental in providing growth and security for yourself, your employees, and your enterprise as a whole.

The tax advantages of small business retirement plans include:

  • Tax deductions for employer contributions to employee plans (including...

September 21, 2016

My last update on Sept 8 2016 (Saving taxes through payroll) briefly touched on the timing differences between estimated quarterly taxes and withholding through payroll. This week I will extend and elaborate upon the concept of estimated taxes, in particular how higher income taxpayers can ballpark their 2016 taxes and avoid underpayment penalties and interest.


IRS Publication 505 provides guidance for taxpayers regarding estimated taxes and withholding. The following excerpts intr...

September 8, 2016

Last week I explained how self-employment taxes and payroll taxes are two sides of the same coin. This week, I will illustrate how a self-employed individual can benefit from being on payroll.


Let's take a closer look at how payroll can reduce excessive taxation:

1. Assuming no other data, $100,000 of business income for a self-employed individual (filing single in 2015) will result in $30,580 of tax.

2. Of this $30,580 in taxes, nearly half ($14,130) is in the form of self-employment tax...

September 2, 2016

W-2 employees don't pay self-employment taxes. Or do they?


As an employee, 6.2% of every dollar earned is withheld for Social Security, and an additional 1.45% is withheld for Medicare. 

The employer pays the same amount, so that the total amount of Social Security and Medicare taxes withheld is:

= (6.2% + 1.45%) + (6.2% + 1.45%)

= 15.3%

Therefore, on $100,000 of W-2 wages paid by an employer to an employee, $15,300 is paid to the IRS in the form of payroll taxes.

[$100,000 x 15.3% = $1...

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