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What are the Vesting Rules for My Self-Employed 401(k)?
There is no vesting required for self-employed 401(k) (aka Solo K) plans, since you are the employer and the employee. Vesting is a process in which assets that were completely owned by one party are eventually made the property of another party who has had use of the assets. In retirement plans, employer contributions typically have a vesting schedule, partially to give employees a reason to stick around for a few more years. Continue reading...
What are My Self-Employed 401(k) Investment Options?
As with other retirement plans, this will mostly depend on the options available to you through your custodian. Solo 401(k)s will have an array of asset exposure available to you, but it may come only in the form of mutual funds. This is not unlike many larger 401(k)s. The way these plans are bundled as simple and straightforward products, without so many bells and whistles that they will attract the attention of the IRS, may cause them to be slightly more plain vanilla than the options available in some 401(k)s. Continue reading...
How Can I Establish a Self-Employed 401(k)?
Establishing an Individual 401(k) might only take you a matter of minutes. You can establish a Self-Employed 401(k) by going to an Individual 401(k) provider, or asking your Financial Advisor for help and/or recommendations. However, make sure that you are satisfied with the conditions your provider offers. There are dozens of choices available to you, all with different investment options and fee structures. There are plenty of good ones without annual plan fees, lost cost investment options, and a wide variety of investment choices. Continue reading...
What are the Contribution Deadlines for My Self-Employed 401(k)?
Contribution deadlines vary depending on whether it is a salary deferral or contribution based on profits generated. The contributions to a Self-Employed 401(k)s consist of two parts, and the deadlines for these parts are different. The contribution which you as an employee make on your own behalf, which is considered a salary deferral, is 15 days after the close of your fiscal tax year. If you have a regular fiscal year, which ends on December 31, the contribution deadline is January 15th. These contributions include both regular salary deferrals and catch-up contributions. Continue reading...
What are the Withdrawal Rules From My Self-Employed 401(k)?
Individual 401(k)s will have the same withdrawal rules as regular 401(k)s. The withdrawal rules for a Self-Employed 401(k) are identical to the rules for a traditional 401(k). If you want to avoid a 10% early withdrawal penalty, you’ll need to keep the money in your account until you reach age 59½, but if you separate from service after 55 you may be able to make withdrawals penalty-free. If you really need the money early, certain exceptions for disability, medical expenses, 72(t) annuitized distributions, and plan loans can allow you to sidestep the penalty. Withdrawals for any other reason, including hardships, are still subject to the penalty. Continue reading...
What is a Self-Employed 401(k)?
Self-Employed 401(k)s are one of the best ways for self-employed people to save for retirement. Self-Employed 401(k)s function in exactly the same way traditional 401(k)s do, except for a few tweaks. First of all, Self-Employed 401(k)s can only be opened by a business owner or partnership with no employees, although your spouse may also contribute to the Self-Employed 401(k) if he or she works for the business. Continue reading...
What Are the Contribution Limits for my Self-Employed 401(k)?
There is a high possible contribution you can make to your own 401(k), but you still have to pay attention to the limits. As of 2016, you may contribute up to $53,000 annually to your Self-Employed 401(k), plus a $6,000 catch-up contribution if you’re over 50. If your spouse is also on the payroll, you are allowed to have a combined contribution of up to $106,000, or $118,000 if you’re both over 50. Continue reading...
If I Want to Establish a Self-Employed 401(k), Do I Have to Establish One for All Owners of My Business?
This may be something you have to ask a CPA or tax attorney, but generally the answer will be yes. Some institutions will not allow you to open a self-employed 401(k) if you have more than one owner in the business, but by statutory definition these plans can be set up for partnerships. If you are part of a partnership and this is where your self-employed income is made, you will be getting on thin ice if you attempt to form an LLC for yourself as a conduit for the money, just so you can have a self-employed 401(k), because, while that is not recommended, it will be about your best chance of setting up a Solo K that does not include your partners. Continue reading...
What is a Home Office?
People work out of their homes more an more as telecommuting and remote work becomes easier to manage and more affordable for some companies. Some people use the term “home office” to loosely refer to the fact that they work primarily from their home, while other people have an actual office space in their home which is used solely for business purposes. In the latter case, someone can apply for a home office expense deduction on their taxes. Continue reading...
What is IRS Publication 502 on Medical and Dental Expenses?
IRS Link to Publication — Found Here Publication 502 outlines which types of medical and dental expenses are deductible, who can be included in your considerations, what the limits are on deductions, and more. This publication is primarily meant for individuals but businesses might find it useful as well. Publication 502 is a source of information for all tax information regarding deductions stemming from medical and dental expenses and insurance. Continue reading...
What is Form 1099-MISC?
IRS Link to Form — Found Here The 1099-MISC form is filed by the payer, which is the business (whether for-profit or not-for-profit) making the distributions or payments to an individual who is operating in a non-employee capacity as independent contractor. This form is also used to report rental income, royalties, and Indian gaming profits. Independent contractors are often used by businesses for various kinds of labor. These arrangements might be temporary or long-standing, but the business and worker have agreed that the contractor is not an employee, and does not have employee benefits. Continue reading...
What is a Home Office Expense?
IRS Link to Form — Found Here The home office expense deduction allows people who work from home to take a tax deduction reflecting the loss of square footage in their home for the purpose of doing business there. The space must be used exclusively for doing business on a regular basis and it must be the principal place of business, not just a place to work outside of the actual office. Many people fail to file for the home office expense deduction because they believe it will be more trouble than its worth or that it may even trigger an IRS audit of their reporting. Continue reading...
What is Form 1045: Application for a Tentative Refund?
IRS Link to Form — Found Here Form 1045 can be used to apply for a refund that might carry-back of up to 5 years, if an individual or trust has overpaid on their taxes, finds Net Operating Losses (NOL), or has section 1256 losses to carry-back. The 1045 is meant to be the quickest way to get a carry-back refund. Net Operating Losses from a pass-through entity or business can be carried back up to 5 years now, according to updates to IRC 172(h). Section 1256, which applies to futures contract investing, will allow a carry-back of losses in a 3-year time frame. For such carry-backs, the standard filing is IRS Form 1045. Continue reading...
Can My Employer Pay Me In Bitcoin?
The IRS has already paved the way for employers to pay wages using bitcoin and other cryptocurrencies, and more services to facilitate this activity are being established. If your employer is willing to facilitate it, you can indeed receive your paycheck, or part of it, in bitcoins. Several financial services companies that deal in bitcoins exist that can help you accomplish this, and there will likely be more of them in the future. One such company, Bitwage, acts as an intermediary between your payroll service and Bitcoin exchanges, such as Coinbase, before sending the balance to your Bitcoin Wallet. The IRS has already established guidance on the subject. As an employer, you are free to pay employees in bitcoin and other “convertible virtual currencies” as long as you adhere to the same withholding and reporting requirements that would pertain to employee remunerations in US dollars, including FICA taxes and the rest of it. Continue reading...
What is FICA?
FICA (Federal Insurance Contributions Act) taxes are handled by the Social Security Administration, as they are payroll withholdings that go toward Social Security and Medicare funds. Most people will have half of their FICA paid by their employer, but self-employed people must pay it all on their own, which is called the “Self-Employment Tax.” FICA is a tax on employees and employers that funds the Social Security and Medicare programs of the United States. Continue reading...
What is an S-Corporation?
S-Corporations, also called S-corps, are a cross between a traditional corporation and an LLC. S-Corporations are companies which, as opposed to C-Corporations, do not pay any federal income tax on their earnings, except in a few exceptional cases. Instead, the earnings (or losses) are passed to the shareholders and will appear on their individual income tax reports. The “S” comes from the subchapter of the Internal Revenue Code where the taxation laws are outlined. S-corps can actually be owned and operated by a sole proprietor after incorporating or starting an LLC in the state of residence and filing IRS form 2253 (link to instructions and form — found here). Continue reading...
What is a Limited Liability Company (LLC)?
A limited liability company (LLC) establishes a separate entity from the sole proprietor or partners in a business which shields them from some of the liability associated with the business. An LLC is a business entity that creates a distinction between the business’s assets and liabilities and the assets and liabilities of the owner or partners. Sole proprietors and partnerships who do not file for this distinction leave themselves and all of their personal assets at risk, in the event of a lawsuit or bankruptcy. Continue reading...
What is Publication 17 for Individual Federal Income Taxes?
IRS Link to Publication — Found Here The Publication 17 is a very large and detailed guide to help individuals correctly file their federal income tax returns. Form 1040, 1040-A, and 1040-EZ are the return forms used by individuals for federal income tax, but most people won’t know which one to use without either consulting a tax professional or reading this handy 290-some-odd page document. There are many ins-and-outs when it comes to filing federal income tax returns, and Publication 17 is robust enough to clear up many of the questions that might be asked by non-professional filers and CPAs alike. Issues such as filing status, charitable contributions, and a list of instructions for deductions individuals can take, are all listed, among other things. Continue reading...
What is a Keogh plan?
Keogh plans are any type of qualified plan at a sole proprietorship or partnership. Keogh plans come in various forms, and this is because they are actually quite a broad category. IRS Publication 560 (found here) divides workplace retirement plans into SIMPLE IRAs, SEP IRAs, and Qualified Plans. This last category, Qualified Plans, includes profit-sharing plans, 401(k)s, 403(b)s, money purchase plans, and defined benefit plans such as pensions and salary continuation plans. Continue reading...
What is the Form 6251: Alternative Minimum Tax, Individuals?
IRS Link to Form — Found Here The Form 6251 is used to calculate the alternative minimum tax (AMT) for individuals who may have high income but relatively low taxes due after deductions. The individual first computes his or her adjusted gross income, which does not allow for some deductions that may have been taken for the tax filing. If the AMT is higher than the taxes already paid, the individual will have to pay the difference. Continue reading...