In this Edition
April 18, 2023

Be Prepared for Taxes on Social Security Benefits

PODCAST: Overall Tax Planning Advice for Business

Is Your Withholding Adequate?

Retirement Saving Options for Your Small Business: Keep It Simple

The Tax Advantages of Hiring Your Child This Summer
Be Prepared for Taxes on Social Security Benefits
Whether you’ve filed your 2022 tax return or soon will, one thing you don’t want to experience is a surprise. Many older people are caught off guard when they find that their Social Security benefits may be taxable.

How much might you have to pay? That depends on your other income. If you’re taxed, between 50% and 85% of your payments will be hit with federal income tax. (There could also be state tax.) This doesn’t mean you’ll pay 50% to 85% of your benefits back to the government. It means you may have to include 50% to 85% of them in your income subject to regular tax rates.

Calculate Provisional Income

To determine how much of your benefits are taxed, you must calculate your “provisional income.” Doing so involves adding certain amounts (for example, tax-exempt interest from municipal bonds) to the adjusted gross income on your tax return.

If you file jointly, you’ll need to add your spouse’s income, and then further add half of the Social Security benefits that you and your spouse received during the year. The result is your joint provisional income.

If you file a joint tax return and your provisional income, plus half your benefits, isn’t above $32,000 ($25,000 for single taxpayers), none of your Social Security benefits are taxed. If your provisional income is between $32,001 and $44,000, and you file jointly, you must report up to 50% of your Social Security benefits as income. If your provisional income is more than $44,000, and you file jointly, you need to report up to 85% of your Social Security benefits as income on Form 1040.

For single taxpayers, if your provisional income is between $25,001 and $34,000, you must report up to 50% of your Social Security benefits as income. And if your provisional income is more than $34,000, the general rule is that you need to report up to 85% of your Social Security benefits as income.

Sidestep a Surprise

If you aren’t paying tax on your Social Security benefits now because your income is below the floor, or you’re paying tax on only 50% of those benefits, an unplanned increase in your income can have a significant tax cost. In addition to paying tax on the additional income, you may also have to pay tax on (or on more of) your Social Security benefits and you may get pushed into a higher tax bracket.

Contact us for help in accurately calculating your provisional income. We can also assist you with other aspects of tax planning.

Dave Fochs, CPA
D 507.252.6688
PODCAST
Overall Tax Planning Advice for Businesses

In this episode, Jeff Dvorachek, a tax partner, shares best practices for business expense tracking.
Is Your Withholding Adequate?
If you were distressed to find you owed money when you filed your last federal tax return, you might want to change your withholding so that this doesn’t happen again. You might even want to adjust your withholding if you got a big refund, because you’re essentially giving the government a tax-free loan of your money.  

Adjust if Necessary

Taxpayers should periodically review their tax situations and adjust withholding, if appropriate. The IRS has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized deductions, the child credit, the dependent credit and the repeal of dependent exemptions. The calculator can be accessed here.
Life Changes

In addition to tax law changes, the IRS recommends that you perform a checkup if you:

  • Adjusted your withholding last year, especially in the middle or later part of the year,
  • Owed additional tax when you filed your 2022 return,
  • Received a refund that was smaller or larger than expected,
  • Got married or divorced,
  • Had a child or adopted one,
  • Purchased a home, or
  • Had changes in income.

To modify your withholding at any time during the year, simply submit a new Form W-4 to your employer. Changes typically go into effect several weeks after a new Form W-4 is submitted. (Estimated tax payments can be adjusted each time you make an estimated payment to the IRS.)

Plan Ahead

There’s still time to remedy any shortfalls to minimize taxes due for 2023, as well as any penalties and interest. Contact us if you have any questions or need assistance.  

Curt Bach, CPA
D 715.748.1346
Tax Tip Tuesday - Video Short
Last Minute Tax Saving Deductions - Health Savings Account

This week, Samantha Meiners, Justin Steinbecker, and Aaron Bahr explain how you can use a Health Savings Account for last-minute tax-saving deductions this tax season.
Retirement Saving Options for Your Small Business: Keep It Simple
If you’re thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved, there are a couple of options to consider. Let’s take a look at a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an attractive alternative to “qualified” retirement plans, particularly for small businesses. The features that are appealing include the relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions.

SEP Involves Easy Setup

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of: 25% of compensation and $66,000 for 2023. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

There are other requirements you’ll have to meet to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of the highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination regulations aren’t required for SEPs. And employers aren’t required to file annual reports with IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund.

SIMPLE Plans

Another option for a business with 100 or fewer employees is a “savings incentive match plan for employees” (SIMPLE). Under these plans, a “SIMPLE IRA” is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a “simple” 401(k) plan, with similar features to a SIMPLE plan, and automatic passage of the otherwise complex nondiscrimination test for 401(k) plans.

For 2023, SIMPLE deferrals are up to $15,500 plus an additional $3,500 catch-up contributions for employees ages 50 and older.

Contact us for more information or to discuss any other aspect of your retirement planning.

Ryan Laughlin, CPA, MST, JD, AEP
D 920.337.4525
The Tax Advantages of Hiring Your Child This Summer
Summer is around the corner so you may be thinking about hiring young people at your small business. At the same time, you may have children looking to earn extra spending money. You can save family income and payroll taxes by putting your child on the payroll. It’s a win-win!

Here are four tax advantages.

1. Shifting Business Earnings

You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some business earnings to a child as wages for services performed. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 16-year-old son to help with office work full-time in the summer and part-time in the fall. He earns $10,000 during the year (and doesn’t have other earnings). You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your son, who can use his $13,850 standard deduction for 2023 to shelter his earnings.

Family taxes are cut even if your son’s earnings exceed his standard deduction. That’s because the unsheltered earnings will be taxed to him beginning at a 10% rate, instead of being taxed at your higher rate.

2. Claiming Income Tax Withholding Exemption

Your business likely will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year and expects to have none this year.

However, exemption from withholding can’t be claimed if: 1) the employee’s income exceeds $1,250 for 2023 (and includes more than $400 of unearned income), and 2) the employee can be claimed as a dependent on someone else’s return.

Keep in mind that your child probably will get a refund for part or all of the withheld tax when filing a return for the year.

3. Saving Social Security Tax

If your business isn’t incorporated, you can also save some Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent aren’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

Note: There’s no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.

4. Saving for Retirement

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for the child up to 25% of his or her earnings (not to exceed $66,000 for 2023).

Contact us if you have any questions about these rules in your situation. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change too.

Jill Wrensch, EA
D 715.384.1989
Hawkins Ash CPAs Opens 2024 Internship Selection
At Hawkins Ash CPAs, we’re passionate about fostering the next generation of public accounting professionals. Accounting college students chosen to participate in our Internship Program receive the full public accounting experience as they work side-by-side with senior staff to provide critical, timely tax and audit services to clients. Our interns receive the training and support needed to get the most out of their time. They enjoy in-office lunches and snacks and other fun, team-building activities.

In many cases, interns who enjoy their internship and want to pursue a career in public accounting are offered the opportunity to return for the next year's internship program or a full-time position as an associate.

Hawkins Ash CPAs is a Top 200 Firm in the nation with ten offices in Wisconsin and Minnesota. We are proud to offer local tax, audit, and accounting services to clients and compete on a national level. We offer big-city career options and experiences close to home. Our offices are in small to mid-sized safe Midwest towns. Our flexible work schedules and growth opportunities allow our team to develop personally and professionally through all stages of life.
Student On-Campus Events

Our recruiter and accounting professionals will be attending the following college career fairs and on-campus events. At these events, students will grow their network and explore career opportunities. They will be available to answer any questions and help guide students through the application and interview process.
UW-La Crosse
April 19: Small-Firm Night

April 26: Scholarship Awards Night: Meet & Greet
Medford, Rib Lake, Abbotsford, Prentice, and Gilman High Schools
May 16th: 2023 High School Homegrown Success Career Fair
Simek Center, Medford, WI 

Heather Notbohm
D 262.404.2194
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