The Best Age to Start Receiving Your Social Security Retirement Benefit?

“Careful planning may help you avoid the “tax torpedo” that bombards many retirees. In the current system, with the right investments, it is absolutely possible to live a comfortable lifestyle tax free in your retirement years.”~Mitzi E. Sullivan, CPA

SunsetWhen can I start receiving my benefit?

Age 62 – You can start receiving your benefit at age 62, but you’ll only receive 75% of your full social security retirement benefit, and the reduction is permanent. In addition, if you continue to work or have other provisional income, your benefit may be reduced even more and a portion may be subject to income tax.

Ages 63 to 65 – The longer you wait, the larger monthly benefit you will receive. At age 65 (for those born before 1960) for example, you’ll receive 93.3% of your full benefit permanently.

Age 66 – Age 66 (for those born before 1960) is considered full retirement age. If you wait until age 66, you’ll get 100% of your full benefit.

Ages 67 to 70 – After age 66, for every year you wait to start receiving your benefit, your benefit will increase by 8%. The 8% per year increase continues until age 70. There is no advantage to delaying past the age of 70.

Up to 85% may be subject to federal income tax.

If your provisional income exceeds $25,000 (single) or $32,000 (married filing joint), a portion of your social security retirement benefits may be taxed.

Careful planning may help you avoid the “tax torpedo” that bombards many retirees. In the current system, with the right investments, it is absolutely possible to live a comfortable lifestyle tax free in your retirement years.

Be careful with earnings if you start receiving your benefit before age 66.

From age 62 up to age 66, if you continue to work and earn more than the limit ($15,720 in 2016), your monthly benefit will be reduced. The limit is increased in the year you turn 66 (increased to $41,880 in 2016).

The benefit reduction is only temporary and may be made up with an increased benefit at full retirement age.

On a positive note…

Under the current system, your social security retirement benefit is inflation adjusted. In theory, that means that your monthly benefit will provide the same standard of living 20 years from now as it does today. Your other sources of retirement income may provide an opposite return, declining in inflation-adjusted value each year. So the longer you delay your social security retirement benefit, the better your inflation adjustment will be.

What to do? What to do?

Before I offer some general guidelines, I’ll make this disclaimer: social security retirement benefits are not guaranteed by the U.S. government. So if you are worried about the solvency of the system or future reforms, such as “means” testing, the guidelines don’t apply. Take your money and run.

If you are willing to gamble on the system, consider these general guidelines:

  1. If you have health problems and believe that your life expectancy is below average (about 77-78 years), you may want to consider receiving your benefit at age 62.
  2. If you believe that your life expectancy is more than 82 years, you may want to consider delaying your benefit until age 70.
  3. If you continue to work and earn more than the limit ($15,720 in 2016), you may want to consider delaying your benefit until your income decreases.
  4. If you are a lower-earning spouse and your higher-earning spouse will wait to begin receiving benefits at age 70, you may want to consider receiving benefits at age 62.
  5. If your provisional income is less than $25,000 (single) or $32,000 (married filing joint), you may want to consider receiving your benefit at age 62.
  6. If you have other sources of retirement income that can be utilized tax free, you may want to consider delaying your benefit up to age 70.

So what is the best age at which to start receiving your benefit?

As always, consult your CPA. Time spent planning could save you a significant amount of money. There are too many factors to consider to make a decision without an in-depth personal analysis.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

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Don’t Miss Your Deduction for Health Insurance, Medicare Premiums and Long-term Care

“If your business was profitable and you file a schedule C or receive a K-1, you may qualify for the self-employed health insurance deduction.”~Mitzi E. Sullivan, CPA

obamacare-this-is-going-to-hurt

With health insurance premiums and long-term care costs skyrocketing, you may need a little something to ease the pain.  The deduction for qualified health insurance, Medicare premiums and long-term care can provide significant tax savings for taxpayers who are self-employed, partners/members or more than 2% shareholders.  If your business was profitable and you file a schedule C or receive a K-1, you may qualify for the self-employed health insurance deduction.

How much can you deduct?

Generally, you may deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2015, even if the child was not your dependent.  This includes Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance.  The deduction is limited to earnings from the business.

You can also take a deduction for premiums paid on a qualified long-term care insurance contracts and qualified long-term care services.  Your CPA can help you determine whether your deduction is limited.

What if I have income but my spouse is covered under Medicare?

This is an often overlooked deduction.  A self-employed taxpayer/partner/member/shareholder may include costs, including Medicare premiums, related to a spouse, dependent or child under the age of 27.

Qualifications, rules and limits apply.

As with all deductions, consult your CPA to determine the qualifications, rules and limits that apply.

See also: IRS Publication 535

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

It’s Time to Get SaaSy.

“Keeping your finances organized is the best tax strategy you will ever implement, and probably the best ROI you’ll ever realize.”~Mitzi E. Sullivan, CPA

QBO ScreenshotWith federal personal income tax rates up to 39.6%, tax saving strategies are a top priority for most of my clients.  If you find yourself stressed out every year around tax season, it’s time to get SaaSy.  Forget about  “back-door” Roth contributions and start with the basics.  Keeping your finances organized is the best tax strategy you will ever implement, and probably the best ROI you’ll ever realize.

Start simple.

Maximizing your tax savings begins with knowing what you’ve spent and for what purpose.  In this electronic age, that’s pretty simple data to gather.  Convert your accounting to the cloud and connect your bank and credit card accounts.  Your income and expenses will flow from most financial institutions automatically into your accounting system.  No downloading, no uploading, no backing up data, no flash drives…and no IT guy!  If you value your time, the low cost of cloud accounting is a no-brainer.

Less is more.

Sometimes, less is more.  Don’t set up a system that does more than you need.  If you are new to the cloud, start slowly.  The cloud is your friend!  Like the internet, it won’t be long before you’ll wonder what you ever did without it.

Help me help you.

Keep business and personal expenses separate, but track both.  It doesn’t take much additional work to code personal expenses since they are repetitive.  Set up some simple rules and most of your transactions will be coded automatically.

You may be surprised at how many business deductions you find in your personal account.  By tracking what you consider to be “personal” expenses, it will be easy for your CPA to look for deductions that you may have missed.  For my sole proprietor clients, I like to see P&L reports with two columns; one for “business” and one for “personal.”  With cloud accounting, I can drill down to the details to make sure they are coded correctly.  I can easily reclassify from personal to business and vice versa with a few mouse clicks.

Real time financial reporting is the most significant benefit of cloud accounting.  For tax planning, you need data in real time.  With cloud accounting properly maintained, estimating quarterly tax payments, preparing personal and business financial statements and projecting future cash flows are a breeze.

Let go of the paper!

I know this is like taking the blanket from Linus, but people, it’s time to let go.  The IRS has accepted electronic receipts since 1997.  And with OCR technology, your scanned receipts will post automatically to your accounting system.  If I need more detail about an expense, having the electronic receipt attached to the transaction saves me time and you money.  Get two or three monitors if you need them, but unless you can’t afford tables, lose the file cabinets.

A word to the wise.

You do you.  Focus your time and energy on what you do best.  If accounting is not your thing, outsource it.  But don’t ignore it.  At a minimum, have your CPA adjust your books monthly or quarterly to keep them accurate.  You can add them as an accountant user to your cloud accounting software, usually at no extra charge.  If you stay on top of it throughout the year, your year-end tax preparation bill will be significantly less.  I think you will be surprised to see all of the deductions that you’ve been missing.

…Now about those “back-door” Roth contributions.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

Self-employment Tax Snafoos

“If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.” ~Mitzi Sullivan, CPA

limited partner self-employment tax
Limited partner with self-employed income?

Since 1977, limited partners have reported distributive income as passive investment income not subject to self-employment tax.  But the times they are a changin’.  With the increased popularity of LLPs and LLCs, the IRS is looking more closely at the facts and circumstances, and less at the legal structures, of taxpayer and entity relationships.

There have been rumblings of clarification of the tax treatment of limited partner and LLC member income for SECA purposes, but Congress has made little progress.  The IRS continues to decide the treatment of distributive income on a case-by-case basis, with no concrete guidance.   The courts have consistently upheld that a passive activity under IRC Section 469 is not necessarily a passive activity under IRC Section 1402(a)(13).

If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.  My advice?  Don’t rely on your K-1 to determine whether or not your income is subject to self-employment tax or ACA’s new investment tax .  Discuss your entity relationships with your CPA to determine the proper reporting.

See also:

Federal Register / Vol. 62, No. 8 / Monday, January 13, 1997 / Proposed Rules

5 Essentials for Every Nonprofit

“I always advise implementation of these 5 essential practices.”~Mitzi E. Sullivan, CPA

6045OLHDPYAs a nonprofit auditor, I frequently meet with boards of directors that are struggling to properly govern while remaining ministry focused.  I always advise implementation of these 5 essential practices.

  1. Make sure you have the basics covered.  Every nonprofit, regardless of size, should have these basic written policies.  All of these policies should be reviewed and updated annually and effectively communicated to board members and employees.  Click on the links below for some of my favorite resources, samples and templates.
    1. Conflicts of interest
    2. Code of ethics
    3. Document retention
    4. Gift acceptance
    5. Whistleblower protection
  2. Retain a schedule of required board meetings and maintain minutes for each meeting.  Every ministry is required to have at least one board meeting annually.
  3. Annually approve executive compensation and benefits and make sure they meet the criteria for reasonable compensation set forth by the IRS?
  4. Review your 990 in detail with your board of directors.  Your 990 is available for all to see and provides a unique opportunity to show your donors how you are meeting your stewardship responsibility.
  5. Have your financial statements prepared, compiled, reviewed or audited by a CPA, either in-house or by a third party.  With the new SSARS 21, CPAs have more flexibility in providing “prepared” financial statements at a reduced cost.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

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