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February 2020

The 2019 tax filing season is in full swing. If you have not already done so, now is the time to collect your tax forms, organize your records and set a schedule to get your tax return completed.

Deep in the Form 1040 instructions is an annual recap of federal income and how the money is spent. Since most taxpayers no longer see these instructions, a recap of this information is provided here for your review.

Given late breaking tax laws, now is a good time to read a review of how newly passed retirement rules could help you save more. This issue also includes an article with several interesting facts about Valentine’s Day and for small business owners, some information is provided to help your employees navigate the new W-4 paycheck withholding form.

Please call if you would like to discuss how this information could impact your situation. If you know someone who can benefit from this newsletter, feel free to send it to them.

Contents

Finding the Balance of Income vs. Spending

The IRS primer every voter should know

Every year the IRS publishes instructions to prepare your Form 1040, individual tax return. The publication for 2019 is a whopping 108 pages! On page 103 of the IRS booklet is a summary of collections (income) and spending (outlays) by the federal government. Given the election year, here is a summary of this recap and some general observations.*

2020 Retirement Fund Limits image

Observations

23%: The amount of annual spending with no income to cover it.

63%: The amount of spending for social programs, Social Security and Medicare.

20%: National defense (15%), veterans benefits (4%), foreign aid (1%)

8%: Amount of annual budget required to pay interest on prior year deficits.

Why care?

Want to learn more?

The website www.usafacts.org is a great resource for an objective review of the numbers. This nonprofit is committed to providing the figures and letting you decide what they mean to you.

*for fiscal year 2018 ending September 30, 2018.



New Rules Mean Saving More for Retirement

How to Take Advantage of the New Retirement Rules imageThe Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, was passed by Congress in late December 2019. Here are some of the features in the new legislation that will help you save more for retirement:

Retirement planning is often put off by most of us. If nothing else, these rule changes are a reminder that now is a great time to look at how you plan for retirement, all while making the best use of tax benefits along the way.


Valentine's Day - Did you know?

Saints, dogs and cash all play a role

Valentines Day Did you know imageCupid, candy hearts, flowers and chocolates are common items associated with Valentine’s Day. According to the National Retail Federation, Americans now spend more than $20 billion lavishing gifts on their kids, friends and significant others.

But why?

Who decided a day in the middle of February is a time to celebrate love and spend a bunch of money on gifts? The actual story of how Valentine’s Day (and its symbols) got its wings, and how much Americans spend on gifts for Valentine's Day, might surprise you.

Knowing the history of Valentine’s Day and how the U.S. spends money on gifts for this special day certainly adds some intrigue to the holiday, but recreating the actual events is probably not a great idea. Instead, give your loved ones a hug, a simple treat and have a wonderful Valentine’s Day!


New W-4 Creates Questions for Human Resources

With the major Form W-4 overhaul for 2020, you may field questions from your employees concerning their federal paycheck tax withholdings. While it’s not your responsibility to provide tax advice to your employees, it’s good to be prepared to help answer common questions about the new IRS form. Here is a summary of the W-4 changes and answers to some common questions you might encounter:

New W4 is creating questions for human resources imageThe change

Form W-4 was changed by the IRS in an attempt to make payroll withholdings more accurate and easier for employees to understand following the implementation of the Tax Cuts and Jobs Act. The new Form W-4 eliminates the sometimes confusing allowance system, replacing it with targeted questions, worksheets and fields for dependents, other income and anticipated deductions.

Gone are days of simply increasing or decreasing allowances to get the proper withholding — making a change now requires some tax forecasting.

5 common questions about the new Form W-4

  1. Do I have to submit a new form?
    No. The allowances an employee has on a previous Form W-4 will continue to calculate appropriately in 2020. If changing jobs or if an employee wishes to adjust withholdings, completing the new W-4 is required.

  2. Are ALL steps on the new W-4 required to be filled?
    No. Step 1 (personal information) and step 5 (your signature) are the only required sections to complete. If your employee only completes steps 1 and 5, a withholding will be calculated under the assumption that he/she is only taking the standard deduction. If your employee has dependents or wishes to make other withholding adjustments they will need to fill out other steps in the form.

  3. Do employees have to complete all the worksheets?
    No. The worksheets are intended to provide a more accurate withholding amount. If an employee has multiple jobs or itemizes deductions, the worksheets will help the payroll department withhold the proper amount from a paycheck while accounting for these other factors. Remember, the IRS made many mistakes in trying to estimate the proper withholding under new tax rules, so the worksheets were added to reduce this problem.

  4. Will completing the new W-4 affect refunds?
    Perhaps. If an employee has the exact same tax situation (income, deductions and credits) in 2020 as they did in 2019, the tax calculation should have minimal impact on the tax refunded or owed. If there is a need to adjust withholdings at any time during 2020, however, the anticipated refund might look a lot different if an employee does not take the time to carefully complete the new Form W-4.

  5. Should an employee adjust their withholdings?
    Perhaps. This, of course, is up to the employee. It is best to coach them to speak to their tax advisor. But let them know that it really depends on them. If they want to maximize monthly cash flow or wish to receive a larger refund, then they need to go through the W-4 exercise. While more complicated, per the IRS this new form allows for less guessing when it comes to forecasting their April tax bill. A simple tax forecast that factors in last year’s tax situation and accounts for changes in the current year will provide clarity to the amount that needs to be withheld.

Remember, to avoid an underpayment tax penalty an employee must withhold 100% of last years tax bill or 90% of this year's tax bill. This moves to 110% of last year's bill if income is over $150,000 ($75,000 if married filing separate). Finally, coach your employees to double check their paycheck after any change, it is never fun to be surprised by a big tax bill because withholdings are too low.



Newsletter Archive

Please note: Some material may be time-sensitive and may no longer apply.
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  1. Posted on: 2020-07-01
  2. Posted on: 2020-06-02
  3. Posted on: 2020-05-05
  4. Posted on: 2020-03-31
  5. Posted on: 2020-03-03
  6. Posted on: 2019-12-31
  7. Posted on: 2019-12-03
  8. Posted on: 2019-11-05
  9. Posted on: 2019-10-01
  10. Posted on: 2019-09-03
  11. Posted on: 2019-08-06