Secure Your Financial Future! More in Our February E-newsletter!

FEBRUARY 2021 E-NEWSLETTER

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TAXES IN RETIREMENT

Have you considered how your retirement income will be taxed?

Not all retirement income is taxed the same, so it is important that you understand the details

SUCCESSION PLANNING

Don’t fail to plan for what will happen to your business when you retire.

THE COST OF NEW HIRES

Hiring employees is fundamental to business.

Whether looking to hire your first employee or expand your team, be sure to understand the total cost of hiring help.

HOW BUSINESS LOSSES AFFECT YOUR TAX RETURN

Many businesses may have incurred a loss in 2020 due to the pandemic-induced economic slowdown. When expenses exceed revenue, a loss is generated.

How these losses affect your business tax return depends on many factors.

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IS YOUR HOBBY A BUSINESS OR IS YOUR BUSINESS A HOBBY?

Everyone has hobbies and sometimes those hobbies provide some income.

But when does your hobby become a business? Getting the right classification determines how this income is taxed.

FEBRUARY 2021

CLIENT PROFILE

Elizabeth gave her brother $10,000 for a down payment on a house and is considering giving him another $10,000 to help with renovations.

Will either of them owe gift tax on these amounts?

February 2021 Q & A

Q: I’m working on my Master’s degree online. Can I write off any of my tuition on my tax return?

A: You can deduct up to $4,000 in tuition expenses in 2020 but the deduction begins to phase out for single taxpayers with income of $65,000. This deduction is completely eliminated for 2021 and beyond.

However, you may prefer to take the Lifetime Learning Credit. It provides a credit of up to $2,000 on your tax bill and has similar phase out thresholds as the deduction. The phase out thresholds will increase in 2021, due to the elimination of the tuition expense deduction. As an extra bonus, there is no limit to the number of years you can claim the credit. The credit may be a better option because tax credits are generally more valuable than tax deductions since a tax credit directly offsets the tax you owe. Tax deductions only lower the amount of income on which you are taxed.

Q: My business sells goods online and my customers live all over the world. Do I have to pay taxes on income earned from other countries?

A: Most countries will require you to pay taxes only if you have a meaningful presence in their country. This could mean maintaining an office or warehousing inventory in their country. If your business has no connection to a foreign country other than sales to its citizens, generally you won’t have to worry about paying taxes there. But international tax is complicated. Consult with your tax professional if you have specific questions.

SHORT BITS

BANK ACCOUNT USAGE

A recent study by the FDIC found that 95% of American households had a bank or credit union account in 2019. From 2017 – 2019, 1.5 million new households opened accounts and the use of mobile banking to access accounts has more than doubled since 2017. Roughly 73% of American households used bank credit, such as credit cards, personal loans, or lines of credit in 2019.

IDENTITY THEFT AND THE IRS

The Taxpayer First Act requires the IRS to notify parents when it detects an unauthorized use of a dependent’s Social Security number. However, in 2019, Treasury inspectors found that the IRS didn’t send letters to parents of 133,864 dependents that its computers identified as employment-related identity theft victims.

$1 AND $5

According to the Federal Reserve, a $1 bill has an estimated life span of 6.6 years. The first $1 note was issued in 1862. The current design of the $5 bill entered circulation in 2008. It has a slightly shorter life span of 4.7 years and in 2019, a total of $15.3 billion in $5 bills was in circulation. Each bank note is made of a blend of 25% linen and 75% cotton and weighs approximately 1 gram.

LOST HEALTH INSURANCE

According to a survey by the Employee Benefit Research Institute, nearly 7.7 million workers lost their employer-sponsored insurance during the COVID-19 pandemic. Women and young workers made up most of the losses. Fifty-five percent of the job losses were incurred by women and workers younger than 54 bore the brunt of the losses. Not only were employees impacted but dependents covered by the employer-sponsored plan also lost coverage. An estimated 6.9 million dependents lost insurance coverage.