Monthly Archives: February 2018

Business Tax Breaks for 2018

Although individual tax brackets have been lowered, many businesses will also reap the benefits of major changes. Here are some of the major changes:

Corporations: The corporate tax rate for c corporations has been reduced to 21 percent from 35 percent. Hopefully this will encourage more investment and business activity in the United States due to these new lower rates.

S-corporations, partnerships, and sole proprietorships: Business owners will receive a 20 percent deduction from their business income starting in 2018. To give an example, if a small business earned $150,000, then they would get a $30,000 deduction. However, there are limitations based upon income thresholds and even the type of business that you operate, including professionals such as accountants, lawyers, doctors, and any trade or business where the principal asset is the reputation or skill of the owner.

There are other factors to consider when calculating this deduction such as wages and assets, and the calculations can be very detailed.

Are Children Really That Expensive?

Virtually every financial article regarding children makes you think that you will go broke if you have children. Between childcare, housing, food, diapers, vacations, clothing, activities, and especially college, they make it seem that you can’t afford to even think about children. The truth is that raising children is as expensive as you make it. Let me dispel some myths . . .

Housing: If you have a three bedroom house and have three children then one of them will have to share a bedroom. The good news is that the two that share a bedroom will not be scarred for life, but they may actually enjoy the company of each other and learn to work together.

College: I am a very, very strong believer in education, especially higher education. However, as I have written before, college is only one route to [financial] success and is not for everyone. There are alternatives, such as attending a trade school, jobs that don’t require college, entrepreneurship, or you may actually want to be a stay at home parent. Just look around you and see for yourself that some of your friends, colleagues and family members have taken a different route and are doing well for themselves.

Vacations: Vacations don’t have to be expensive and Disney is not the only option. Strangely, if you have ever travelled by car for vacation and stopped at a hotel on the way it seems as though the children enjoy the hotel visit more then the vacation! A more expensive vacation does not equal more fun and relaxation.

Food: I’ve written how to reduce your food costs before so I won’t elaborate here. Food can be as expensive as you want it to be.

Everything Else: Expensive private schools or preschools, an abundance of activities, and unnecessary purchases will make raising children very expensive. Also, when both spouses work while the children are very young it usually skyrockets your expenses (see my November 2015 blog article titled, “Should Both Parents Work?”).

Don’t misunderstand me – it is good to have nice things, but not when the “need” for those nice things steers you in the wrong direction. Children are a blessing. All seven of mine.

Did Your Tax Balance Catch You by Surprise?

What should you do if you file your tax return and then realize that you now have a large liability that can’t pay? First, don’t panic as there are several options for you:

Installment Agreement: An installment agreement can be a good option for you, which can sometimes be requested when you file your tax return. Interest and penalties will still accrue, but now you do not have to worry about levies. You may also request an extension of time to pay for several months if you expect to be able to pay off your balance quickly.

Offer in Compromise: Pennies on the dollar! We’ve all heard this advertisement from tax resolution companies. There is some truth to this, but it is greatly overstated. The way it works is that the IRS will accept an amount that is less than the amount of your tax liability. However, a majority of the offers are not accepted by the IRS.

Currently Not Collectible: This option allows you to postpone making any payments towards your tax balance and essentially places all collection activities on hold. However, the IRS may reassess your situation in the future to determine your ability to pay. Penalties and interest will still accrue.

No matter which payment arrangement you make, the caveat is that going forward you must always file your returns timely and full pay your balances. If not, then any arrangement that you have in place can default. Additionally, you generally need to submit financial information to the IRS for them to determine eligibility of an arrangement.

Prevention: How can this be prevented going forward? The first way is to make sure that you are properly planning how to minimize your tax liabilities before the year is over with proactive tax planning. The second way is to project your tax liabilities during the fall to estimate what your tax liability will be, which will make you aware of how much you will owe and give more time to figure out a good solution.