Say it ain't so, Joe. Is Congress really considering capping 401(k) contributions at $2,400 per year which is down from $18,500 per year now? Let's hope not. This would be a huge mistake and I cannot imagine that it is even true. This would never pass into legislation.
What are these people (idiots) thinking? If you are over 50 years old, you can contribute an additional $6,000 on top of the $18,500. What are they going to do? Allow 50 year old and up people an additional $600 to make it $3,000 total? Seriously?
I just wonder if this is really fake news by the media to try and destroy the Tax Cut 2.0 plan by the Republicans. It fits their playbook 100%. Scare people to death with their outlandish claims in order to win votes from stupid people who don't have any sense and who listen and read fake news all day.
If true, this has to be the dumbest thing to ever come out of Washington, D.C.
President Trump tweeted that the 401(k) will be left alone. I cannot imagine him signing this middle class destroying legislation, nor any President for that matter.
Another thing I heard was they are talking about allowing people over age 70 1/2 to be able to make contributions to their IRA's. Currently, this is not allowed. This is give an old guy a break thinking which would be better than capping contributions. This makes me wonder if the news that came out about capping 401(k) contributions at $2,400 was in reality just another line of fake news.
It always blows my mind that the government has disincentives for people to work. I guess they want everyone on the government dole. Don't these Washington, D.C. idiots understand that if people cannot contribute deductible money to their 401(k), then this means that they will have less money in life which increases their possibility of becoming dependent on the government in the future. Dumb with a capital "D".
Wednesday, July 18, 2018
Tuesday, July 10, 2018
Self-Employed Dilemma
Self-employed people often have a dilemma as far as estimating taxes are concerned. Most of the time, their income is not predictable and they are unsure of what their final income will be at the end of the year. This can present a challenge without professional help and advice.
Let us suppose we have a self-employed advertising executive that is hired by other firms to produce marketing plans. She expects her gross income to be $160,000. For the 2018 tax year, this puts her potentially in the 32% tax bracket before deductions. Some CPA's will say to just set aside 32% in a separate bank account and pay estimated taxes quarterly.
We can look at another alternative for argument sakes. Assume that our heroine is living in a state like Florida with no state income tax. She is using QuickBooks or Zoho Books and instead of paying herself a regular salary, she chooses to pay herself commission only. This would fit more with how her money comes in. It is unpredictable as to timing and amount, so the commission model would be best. We want her commission salary to be no more than the Social Security limit of $128,400. Otherwise, she would be paying extra and unnecessary FICA taxes. So, when her commission hits $128,400 she stops paying herself any more salary. You follow?
However, we want to add an Individual 401k to the mix, since she expects to gross $160,000 and easily meet her salary of $128,400. Based on this figure, she can contribute $32,100 to her i401k. $18,500 of it would be salary deduction and the balance, $13,600 would be a company match.
She has control over how to deposit these funds. For example, when she gets paid $6,000 in January for a project, then enter it in QuickBooks or Zoho Books as a commission. $18,500 divided by 12 equals $1,541.67. She puts $1,541.67 towards her i401k, then adds to that the company match which is $1,133.33 ($13,600 / 12). So, of that $6,000 commission, $2,675.00 went to her i401k and the balance was subject to taxes, FICA and Federal. Now, there is some additional cost to her which is the FICA paid by the employer. However, because she has this i401k, her Federal withholding will be significantly lower. FICA still gets paid regardless of the 401k, but you save in Federal withholding taxes.
Now let's review. She grossed $160,000, her commission salary was $128,400, but she was able to reduce that for Federal withholding down to a $97,300 taxable income. She has socked away $31,100 in her i401k. She has the difference between her gross commission of $160,000 minus the $128,400 commission salary to use for paying expenses and taxes.
Her tax bracket moves down from 32% to 24% assuming she is single saving her 8% as opposed to just paying estimated taxes based on the $160,000. Plus, she has a i401k with $32,100 in it after just one year! Imagine how this will quickly build a nice i401k.
If you need help with this kind of strategy, then let me know. You can reach me via email at rick@firstcoastplanning.com.
Let us suppose we have a self-employed advertising executive that is hired by other firms to produce marketing plans. She expects her gross income to be $160,000. For the 2018 tax year, this puts her potentially in the 32% tax bracket before deductions. Some CPA's will say to just set aside 32% in a separate bank account and pay estimated taxes quarterly.
We can look at another alternative for argument sakes. Assume that our heroine is living in a state like Florida with no state income tax. She is using QuickBooks or Zoho Books and instead of paying herself a regular salary, she chooses to pay herself commission only. This would fit more with how her money comes in. It is unpredictable as to timing and amount, so the commission model would be best. We want her commission salary to be no more than the Social Security limit of $128,400. Otherwise, she would be paying extra and unnecessary FICA taxes. So, when her commission hits $128,400 she stops paying herself any more salary. You follow?
However, we want to add an Individual 401k to the mix, since she expects to gross $160,000 and easily meet her salary of $128,400. Based on this figure, she can contribute $32,100 to her i401k. $18,500 of it would be salary deduction and the balance, $13,600 would be a company match.
She has control over how to deposit these funds. For example, when she gets paid $6,000 in January for a project, then enter it in QuickBooks or Zoho Books as a commission. $18,500 divided by 12 equals $1,541.67. She puts $1,541.67 towards her i401k, then adds to that the company match which is $1,133.33 ($13,600 / 12). So, of that $6,000 commission, $2,675.00 went to her i401k and the balance was subject to taxes, FICA and Federal. Now, there is some additional cost to her which is the FICA paid by the employer. However, because she has this i401k, her Federal withholding will be significantly lower. FICA still gets paid regardless of the 401k, but you save in Federal withholding taxes.
Now let's review. She grossed $160,000, her commission salary was $128,400, but she was able to reduce that for Federal withholding down to a $97,300 taxable income. She has socked away $31,100 in her i401k. She has the difference between her gross commission of $160,000 minus the $128,400 commission salary to use for paying expenses and taxes.
Her tax bracket moves down from 32% to 24% assuming she is single saving her 8% as opposed to just paying estimated taxes based on the $160,000. Plus, she has a i401k with $32,100 in it after just one year! Imagine how this will quickly build a nice i401k.
If you need help with this kind of strategy, then let me know. You can reach me via email at rick@firstcoastplanning.com.
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