Author Trudy Howard.
Did you know that even as an UBER driver or LYFT driver you can start a retirement plan? Yes it’s true! Self employed business owners can save for retirement with a 401(k) plan just like when they were employed. By setting up a one-participant 401(k) plan small business owners such as insurance agents, contractors, hair stylist, barbers, consultants, and UBER/LYFT drivers can also receive a tax credit of up to $500 while reducing their taxable income! Let’s look at an example of how setting up a solo 401(k) would benefit an UBER/LYFT driver.
Hot Rod Harry drives for UBER/LYFT on the weekends to supplement his income & finance his vacations. He typically earns about $500 a week working part time in the evenings and on weekends. At the end of the year Hot Rod Harry didn’t receive a 1099 from UBER, so he contacted his tax consultant to see if he needed to file taxes on the money that he earned. Per the tax consultant, although UBER typically doesn’t send out 1099’s for amounts under $20,000 and LYFT doesn’t send out 1099’s, Harry still needs to pay taxes on the self employment income that he earned. After hearing the tax liability news, Hot Rod Harry was glad that he’d listened to his tax consultant and setup a self employed solo 401(k) so that he could reduce his side gig income of $18,000.
To earn this $18,000 Harry drove 20,000 miles which was a tax deduction of $10,900; he had $3,000 in additional business expenses such as loan/bank fees, car washes, utilities, supplies, etc. During the year, Hot Rod Harry contributed $2,500 to his solo 401(k), and at tax time he received an additional $500 tax credit for setting up the solo 401(k). Also, because of the new 2018 TCJA laws, Harry was able to take the 20% QBI deduction which knocked off another $220 from his taxable income. In the end, Hot Rod Harry only had to pay self employment taxes on $880, which total $66. Because Harry had no other income he didn’t have to pay any income taxes on the $880.
As you can see, setting up a solo 401(k) can not only help you save for retirement, but it can really lower your tax liability. If you are an UBER/LYFT driver or a self employed person looking to setup a 401(k) for self employed people, or need help with your business taxes, please call our office at 855-743-5765.
Recent Posts
12 Things You Must Ask Your Tax Preparer!
Sep 17, 2018
How to find your Section 199A deduction with multiple businesses
Sep 15, 2018
Check your money! Why you need to do a bank reconciliation.
3 Things every business owner needs to manage.
Author Trudy Howard
As a business owner, in order to be successful, there are 3 things that you must manage on a continual basis. Those three things are:
Your time.
Your cost.
Your customers.
It was William Penn who said “time is what we want most, but what we use worst.” In order for your business to survive the 5-year new business hurdle, you must institute a time management system. Without a time management system, you’ll be making customer service calls when you should be making sales, ordering supplies when you should be booking appointments, and missing opportunities because you didn’t have the “time” to get to them. A time management system can be as simple as weekly appointment book, or as complex as a high priced time management software. No matter what system you choose, you must make sure that it allows you to record and track client appointments not only with new customers, but also your existing customers. I like systems that allow the client to book their own appointment, and that reduces no shows by sending automated text messages & email appointment reminders. After we begin to effectively manage our time, we can then begin to manage our cost.
When we talk about managing cost, we have to not only look at managing our cost of goods sold, but we also need to manage our fixed expenses. Fixed expenses are things such as client communication tools (phone, email, newsletter, internet service, etc.), utilities, insurance, rent, salaries, etc. Always look for ways to reduce your cost by inquiring about specials, calling carriers and asking for a discount, and most importantly continuing to shop around! Of course, no cost management conversation would be complete without discussing actively looking for ways to reduce taxable income. The number 1 way to reduce taxable income is to track business activities, and to track all of the cost associated with carrying out business activities. Thankfully, in 2018 there are many apps designed to help you track your business mileage, which is the #1 deduction for most entrepreneurs. Once you’ve gotten a system in place to manage cost, you can then work on a customer management system.
What do I mean when I say “manage” your customers? I mean that you need to institute a set system that allows you to record information about your customer, manage your interactions with your customer, and remind you of important dates surrounding your customer. When I first started in the insurance (and tax business) I wrote all of my appointments on notebook paper or sticky notes (don’t judge me). As my agency grew, I knew that I needed to become more advanced in my “tracking” system, so I graduated to index cards! Do you know what it’s like to flip through 100+ index cards looking for a client’s information and notes about them? Trust me, you don’t want to know! Save yourself the headache and time now, and setup an inexpensive CRM system that can grow with your business, allow additional users (one day you’ll be hiring employee’s), and still allow you to manage cost.
Because we truly want you to succeed, we’re giving you free trial offers of each of the systems that we use to manage our time, cost, and customers. After your free trials end, for less than $39 a month you’ll have: a toll free number, a customer service database, an appointment booking software, and an automated mileage tracker. Listed below are product descriptions and links to your free trial offers that will allow you to “try it before you buy it.”
TOLL FREE NUMBER
Clients love toll free numbers, and now you can have one for your business at a reasonable rate. I’m giving you a 30 DAY FREE TRIAL & a toll free number with ONLINE FAX, & 300 minutes, and CALL FORWARDING TO ANY NUMBER that you choose (cellphone, office phone, home phone, etc.). After your 30-day free trial you’ll only pay $9.95 a month.
TOLL FREE # FEATURES:
• Memo on Call (Patented)
• Multiple Extensions
• Internet Fax
• Auto Attendant
• Conference calling
• Call recording
• No Contract
• Instant Activation
To set this up I’ll need your full name, business address (can be home), phone number that you want the calls forwarded to, and the best time to call/text you so that you can choose your number. Please note, for vanity (1800 CALL ME) or true “800” numbers there will be an additional cost.
CRM SOFTWARE
We use Lessannoying crm software to create sales pipelines, customer database, birthday reminders, etc. Use the link below and get an additional 30 days added to the 30-day free trial (so 60 days total). After the 60 days it’s only $10 a month. Let me know how you like it! https://www.lessannoyingcrm.com/invite/3CBBD
APPOINTMENT BOOKING SOFTWARE
We use 10to8 to manage my appointments, send SMS, TEXT, & EMAIL REMINDERS, and get bookings online. Try the FREE appointment Scheduling Software now. https://10to8.com/account/organisations/create_short/?token=howard-tax&utm_source=howard-tax&utm_medium=share
MILEAGE TRACKING FOR TAX DEDUCTIONS
I’m using MILEIQ to track my business miles, personal miles, and commuting miles. It has really saved me a lot of time and energy, and it’s CHEAP! Try it out for free by clicking the link below, and let me know how you like it.
https://www.mileiq.com/invite/NYQZB
As always, if you have any questions, or need our assistance please call us at 855-743-5765, or email us at info@howardtaxprep.com
Facts to help taxpayers understand Individual Retirement Arrangements
Reprinted Email IRS Issue Number: Tax Tip 2018-145
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bank or other financial institution
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life insurance company
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mutual fund
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stockbroker
12 Things You Must Ask Your Tax Preparer!
Author Trudy Howard
1.) Can I pay my fees out of my return?
This one question will give you insight into whether or not your preparer has passed the IRS & BANK CRIMINAL & CREDIT BACKGROUND CHECKS! If your tax return preparer only accepts cash (or cash equivalents such as PayPal, cash app, or even credit/debit cards), 9 times out of 10 you’re dealing with an unauthorized E-file provider. In order to offer clients, refund advances, and the ability to have their tax preparation fees deducted from their tax refund, a tax preparer (or the agency they work for) has to be approved by the IRS as an ERO (electronic return originator) that is authorized to send the IRS E-files. ERO providers have to pass background checks, credit checks, and suitability checks in order to become an authorized E-file provider.
2.) Do you screen your tax return preparers and assistants to see if they’ve ever been arrested for (or charged with) bank fraud, theft, identity theft, or any other criminal charges?
This is HUGE. During tax season I always see an increase in social media post referencing bank accounts that have been compromised, and identity theft issues. While your preparer may not be committing fraudulent acts, your preparer may have unknowingly hired a data entry assistant that is using/selling your information. Ask questions about the assistant, and find out if they’ve been background checked.
3.) Will my preparer sign my return, and do all of the preparers have a paid tax identification number?
I’ve seen HUNDREDS of tax returns in which consumers paid someone to prepare their returns, only to have the “tax return preparer” use Turbo Tax or some other software, and submit the tax return as a SELF PREPARED return without the return preparers signature. THIS IS A HUGE RED FLAG! Whenever you pay someone to prepare your tax return, that preparer needs to sign your return. Also, although YOU ARE RESPONSIBLE for what is on your tax return, some penalties can be waived if you can prove that you relied on the advice of a tax professional. **
4.) What safety measures do you have in place to protect my data (locked file cabinets, encrypted file sharing, etc.)?
This is self-explanatory.
5.) What are the minimum education and experience requirements for your preparers?
You don’t necessarily need a CPA, but you also don’t want someone that dropped out of the 8th grade.
6.) Do you have a special concentration (small business, truck drivers, realtors, salespeople etc.)?
Have you ever heard the term jack of all trades, master of none? Make sure that you get a tax preparer familiar with your industry as tax law, and deductions can vary based on profession. For example, a salesperson can’t take per diem, but an owner operator truck driver can.
7.) Do your preparers have any accounting experience?
There are 2 words that come to mind when thinking of why you want your tax preparer to have accounting knowledge/experience. Those two words are: depreciation, and basis.
8.) How many continuing education hours are your tax preparers required to meet? How often must they complete these continuing education requirements (yearly, every 3 years, etc.)?
Tax law changes often, so you want an agent that stays abreast of the new Federal, State, and county tax law changes.
9.) Are you and your agents listed on the IRS website under the
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications?
The IRS has an online directory that will let you know if the person you are dealing with is credentialed; use it.
10.) If I get audited can you represent me before the IRS?
Make sure that your preparer can represent you in front of IRS employees, and the tax payor advocate service.
11.) Are you open year round? What if I need help after April 15th?
You want to work with a tax firm that is open year round, and not just during tax season. Many “fly by night” operations come into town for tax season, submit fraudulent tax returns, and then disappear into the night just as quickly as they appeared.
12.) Do you offer tax planning services?
Tax preparation is the method of recording facts & reporting the facts to the IRS in proper format. Tax planning is the act of analyzing data & creating a plan of action to reduce tax liability. Tax planning requires that your tax preparer not only knows tax law, but also understands how to apply tax law.
*See Whitsett, T.C. Memo. 2017-100. Also see United States v. Boyle, 469 U.S. 241, 250 (1985))
How to find your Section 199A deduction with multiple businesses
If at all possible, you want to qualify for the 20 percent tax deduction offered by new tax code Section 199A to proprietorship’s, partnerships, and S corporations (pass-through entities).
If you own one business, you can run into some complications qualifying for the Section 199A deduction.
Basic Rules—Below the Threshold
If your taxable income is equal to or below the threshold of $315,000 (married, filing jointly) or $157,500 (single), follow the three steps below to determine your Section 199A tax deduction with multiple businesses or activities.
Step 1. Determine your qualified business income 20 percent deduction amount for each trade or business separately.
Step 2. Add together the amounts from Step 1, and also add 20 percent of
- real estate investment trust (REIT) dividends, and
- qualified publicly traded partnership income.
This is your “combined qualified business income amount.”
Step 3. Your Section 199A deduction is the lesser of
- your combined qualified business income amount, or
- 20 percent of your taxable income (after subtracting net capital gains).
Above the Threshold—Aggregation Not Elected
If you do not elect aggregation and you have taxable income above $207,500 (or $415,000 on a joint return), you apply the following additions to the above rules:
- If you have an out-of-favor specified service business, its qualified business income amount is $0 because you are above the taxable income threshold.
- For your in-favor businesses, you apply the wage and qualified property limitation on a business-by-business basis to determine your qualified business income amount.
The wage and property limitations work like this: for each business, you find the lesser of
- 20 percent of the qualified business income for that business, or
- the greater of (a) 50 percent of the W-2 wages with respect to that business or (b) the sum of 25 percent of W-2 wages with respect to that business plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property with respect to that business.
If You Are in the Phase-In/Phase-Out Zone
If you have taxable income between $157,500 and $207,500 (or $315,000 and $415,000 joint), then apply the phase-in protocol.
If You Have Losses
If one of your businesses has negative qualified business income (a loss) in a tax year, then you allocate that negative qualified business income pro rata to the other businesses with positive qualified business income. You allocate the loss only. You do not allocate wages and property amounts from the business with the loss to the other trades or businesses.
If your overall qualified business income for the tax year is negative, your Section 199A deduction is zero for the year. In this situation, you carry forward the negative amount to the next tax year.
Aggregation of Businesses—Qualification
The Section 199A regulations allow you to aggregate businesses so that you have only one Section 199A calculation using the combined qualified business income, wage, and qualified property amounts.
To aggregate businesses for Section 199A purposes, you must show that
- you or a group of people, directly or indirectly, owns 50 percent or more of each business for a majority of the taxable year;
- you report all items attributable to each business on returns with the same taxable year, not considering short taxable years;
- none of the businesses to be aggregated is an out-of-favor, specified service business; and
- your businesses satisfy at least two of the following three factors based on the facts and circumstances:
- The businesses provide products and services that are the same or are customarily offered together.
- The businesses share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources.
- The businesses operate in coordination with or in reliance upon one or more of the businesses in the aggregated group (for example, supply chain interdependencies).
As you can see, with multiple businesses you have much to consider. If you would like us to work through this with you, please contact us, or call our office at 855-743-5765.
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