CPA Blog

How summer day camp can save you taxes

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Published: Wednesday, 18 May 2016 08:37

Written by Phillip Strickler, CPA.CITP

Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?

The power of tax credits

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 28% tax bracket, $1 of deduction saves you only $0.28 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

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Unexpected retirement plan disqualification can trigger serious tax problems

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Published: Tuesday, 17 May 2016 08:50

Written by Phillip Strickler, CPA.CITP

It’s not unusual for the IRS to conduct audits of qualified employee benefit plans, including 401(k)s. Plan sponsors are expected to stay in compliance with numerous, frequently changing federal laws and regulations.

For example, have you identified all employees eligible for your 401(k) plan and given them the opportunity to make deferral elections? Are employee contributions limited to the amounts allowed under tax law for the calendar year? Does your 401(k) plan pass nondiscrimination tests? Traditional 401(k) plans must be regularly tested to ensure that the contributions don’t discriminate in favor of highly compensated employees.

If the IRS uncovers compliance errors and the plan sponsor doesn’t fix them, the plan could be disqualified.

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Why it’s time to start tax planning for 2016

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Published: Tuesday, 10 May 2016 10:22

Written by Phillip Strickler, CPA.CITP

Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. For maximum tax savings, now is the time to start tax planning for 2016.

More opportunities

A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

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Why it’s a good idea for employers to encourage 401(k) rollovers

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Published: Friday, 22 April 2016 14:36

Written by Phillip Strickler, CPA.CITP

Many people collect “orphan” 401(k) plan balances as they move from job to job. Why should employers care? Helping new employees roll over their accounts from former employers can be beneficial for both parties. The same is true of assisting former participants (who have left your business).

Current employees

One reason participants orphan their previous employers’ plans is that the process of rolling over an old 401(k) plan balance to a new employer’s plan can be cumbersome. Unfortunately, many employees fail to properly manage their accounts even when they have only one, let alone two or three. If you have employees in this situation, counseling them on the benefits of consolidating their accounts can help improve their retirement planning while boosting morale and engagement.

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