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TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSES
October 17, 2019
SPEAKER INTRODUCTIONS
Smith Schafer & Associates, Ltd. | HK Financial Services 2
KYLE SPICER, CPA
Tax Manager
Smith Schafer & Associates
AARON FULTON
Financial Planning Consultant
HK Financial Services
JOHN RANDALL
New Business Development Director
HK Financial Services
TODAY’S AGENDA
Smith Schafer & Associates, Ltd. | HK Financial Services 3
1. Overview of Tax Reform2. Minnesota’s Tax Bill3. Planning for Depreciation4. Qualified Business Deduction (20%)5. Retirement Plan Benefits6. Smart Strategies for your Retirement Assets7. Q & A
Smith Schafer & Associates, Ltd. | HK Financial Services 4
TAX CUTS AND JOBS ACT (TCJA)
• Corporate tax rate reduced to 21%• Individual tax rates reduced to 10%, 12%, 22%,
24%, 32%, 35%, 37%• Standard deduction and itemized deductions
changes
Smith Schafer & Associates, Ltd. | HK Financial Services 5
Smith Schafer & Associates, Ltd. | HK Financial Services 6
TIMELINE OF TAX CHANGES
December 22, 2017 – Tax Cuts and Jobs Act
May 23, 2018 – Governor Dayton vetoes MN Tax Bill
May 30, 2019 – MN Omnibus Tax Bill (conformity retroactive and prospective)
Smith Schafer & Associates, Ltd. | HK Financial Services 7
MINNESOTA CONFORMITY
• Individual taxpayers “special limited adjustment”
• Business taxpayers “do not amend” adjustments expected Spring 2020
Smith Schafer & Associates, Ltd. | HK Financial Services 8
MINNESOTA CONFORMITY
• Depreciation 80% Addback for Section179 expense and 100% Bonus
- Section 179 limits: $25,000 and $200,000 • Itemized Deductions• Second tax bracket reduction from 7.05% to 6.80%
Smith Schafer & Associates, Ltd. | HK Financial Services 9
DEPRECIATION
SECTION 179
Up to $1,020,000 deduction with maximum additions of $2,550,000
Smith Schafer & Associates, Ltd. | HK Financial Services 10
BONUS DEPRECIATION
100% accelerated depreciation for new or used property with a useful life under 20 years
PLANNING CONSIDERATIONS
Smith Schafer & Associates, Ltd. | HK Financial Services 11
Like Kind Exchanges
Cost Segregation Study
COST SEGREGATION EXAMPLE
Smith Schafer & Associates, Ltd. | HK Financial Services 12
Renovation for 3 million dollars
Building ComponentsReal Property 1,000,000 – 39 year propertyQualified Improvement Property 1,000,000 – 39 year property (179 Eligible)Land Improvements 400,000 -15 year property (100% Bonus Eligible)Personal Property 600,000 - 5 year property(100% Bonus Eligible)
POTENTIONAL TAX SAVINGS $940,000
WHEN TO CONSIDER A COST SEGREGATION?
• New construction, purchase, roof replacement or renovations
• Acquisition $750,000, Renovations $200,000
Smith Schafer & Associates, Ltd. | HK Financial Services 13
QUALIFIED BUSINESS INCOME DEDUCTION 199A
Smith Schafer & Associates, Ltd. | HK Financial Services 14
Step 1Are you a specified service business?
Step 2
Income below $321,400 (MFJ)Lesser of:
• 20% of QBI• 20% of Taxable Income without regard to 199A or capital gains
Step 3
Income above $421,400 (MFJ)Business other than SSBLesser of:
• 20% of QBI• 20% of Taxable Income without regard to 199A or capital gains• Greater of 50% of Wages or 25% of Wages + 2.5% of Unadjusted Assets
20% DEDUCTION
Adjusted Gross Income $650,000Qualified Business Income $400,00020% Deduction $80,000Taxable Income $570,000
Approximate Tax Savings $36,000
Smith Schafer & Associates, Ltd. | HK Financial Services 15
PLANNING CONSIDERATIONS
Smith Schafer & Associates, Ltd. | HK Financial Services 16
Research & Development Study
Retirement Planning
Retirement Plan Benefits for Business Owners
OVERVIEW
Smith Schafer & Associates, Ltd. | HK Financial Services 18
• Making sure your retirement plan is working in sync with your personal financial planning goals.
• Selecting a retirement plan design meeting your goals and objectives as a business owner.
• Minimizing your fiduciary risk.
• Improving your employee’s retirement readiness.
PERSONAL FINANCIAL PLANNING GOALS
Smith Schafer & Associates, Ltd. | HK Financial Services 19
59-Year-Old Business Owner Earning $425,000
$25,000$62,000
$310,000
401(k) Plan
401(k) with Profit Sharing
401(k) with Cash Balance
$10,000
$24,800$124,000
Estim
ated
Tax
Sa
ving
sCo
ntrib
utio
nsRETIREMENT PLAN OPTIONS
Smith Schafer & Associates, Ltd. | HK Financial Services 20
SAFE HARBOR 401(K) PLAN
• Maximize owner(s) and employee deferrals ($19,000 -$25,000)
• Eliminate ADP failures, refunds and deferral limitations
• Required employer contributions
‒ 4% matching contribution‒ 3% non-elective contribution
• Company contributions are 100% vested
Smith Schafer & Associates, Ltd. | HK Financial Services 21
PROFIT SHARING PLAN (CROSS-TESTED METHOD)
• Maximize owners/key employees total plan contributions ($56,000 - $62,000)
• Profit sharing contribution is discretionary• Owners/key employees receive larger profit-sharing
allocation• Enhanced benefit for employees/required gateway
contributions• Contributions are tax deductible for the business
Smith Schafer & Associates, Ltd. | HK Financial Services 22
CROSS-TESTED PROFIT-SHARING PLAN
Smith Schafer & Associates, Ltd. | HK Financial Services 23
CASH BALANCE PLAN (DEFINED BENEFIT)
• Owners looking to increase tax deductions and want to contribute more than $100,000 annually to your retirement account
• Owners with consistent cash flow or expected profits for 3 years or more
• Professional groups (doctors, dentists, engineers, accountants, attorneys)
• Small family or closely held business
Smith Schafer & Associates, Ltd. | HK Financial Services 24
CASH BALANCE PLAN
Smith Schafer & Associates, Ltd. | HK Financial Services 25
UNDERSTANDING YOUR FIDUCIARY RESPONSIBILITIES
Smith Schafer & Associates, Ltd. | HK Financial Services 26
Anyone exercising authority or control over the plan
Operate the plan in accordance with the rules of ERISA
Have a documented process for making any and all decisions related to operating your plan
Re-evaluate your plan at least every three yearsWork with a retirement plan specialist – 3(21) vs. 3(38) advisor
WHO:
WHAT:
HOW:
INCREASING EMPLOYEE’S RETIREMENT READINESS
• Matching contributions (Safe Harbor)• Auto enrollment and auto escalate• Roth 401(k) provision• Access to investment advice• Financial wellness programs
Smith Schafer & Associates, Ltd. | HK Financial Services 27
VIDEO
Smith Schafer & Associates, Ltd. | HK Financial Services 28
Smart Strategies for your Retirement Assets
GUIDANCE PLANNING STRATEGIES (GPS)
Assisting you in achieving your financial goals is our team’s main priority. The GPS platform provides you with tools, reports and resources to help you navigate your financial plans.INTERACTIVE PLANNING• Aggregate view of all accounts• Real-time market updates• Interactive scenario tools
USER-FRIENDLY PLATFORM• Stay organized• Set budgets• Track spending• Establish goals
Smith Schafer & Associates, Ltd. | HK Financial Services 30
CASE STUDY
• Business Owner and Physician, 52 Years of Age• 2 Adult Children• Goals
‒ Retire at Age 60‒ Reduce Taxes‒ Sell Business at Retirement‒ Give to Charity‒ Spend $200,000 Per Year‒ Leave Assets to Children
Smith Schafer & Associates, Ltd. | HK Financial Services 31
CASE STUDY, CONTINUED
• Physician Earns $350,000 Per Year • Business Owner Draws a $250,000 Salary• Business Earns $400,000 in Profit• Business is Valued at $3,000,000• 401k Assets
‒ Physician - $1,500,000‒ Business Owner - $500,000
Smith Schafer & Associates, Ltd. | HK Financial Services 32
5-STEP INVESTMENT PROCESS
Developing an appropriate investment allocation based on your personal goals is critical to building a successful asset management portfolio.
Smith Schafer & Associates, Ltd. | HK Financial Services 33
PERSONALIZED INVESTMENT STRATEGY
• Coordinate with Financial and Tax Plan• Intentionally Design Order of Distributions• Determine your Asset Allocation in
Each Registration• Move beyond just Risk Tolerance and
Include Cash Flow Timing Considerations
Smith Schafer & Associates, Ltd. | HK Financial Services 34
INVESTMENT STRATEGY KEY QUESTIONS
• Should I overweight stocks in my taxable account for tax efficiency or do I plan on spending those dollars first?
• Should I use Individual Securities, Mutual Funds, or ETFs?
• How and When will I change my asset allocation?• Do I need to maintain a cash position?• Is my portfolio coordinated with my financial and tax
plan?• Is my CPA and Financial Advisor working together?
Smith Schafer & Associates, Ltd. | HK Financial Services 35
Smith Schafer & Associates, Ltd. | HK Financial Services 36
CONTACT SMITH SCHAFER
Smith Schafer & Associates, Ltd. | HK Financial Services 37
W W W . S M I T H S C H A F E R . C O M | I N F O @ S M I T H S C H A F E R . C O M
Twin Cities Office7500 Highway 55, Suite 350Minneapolis, MN [email protected]
FACEBOOK.COM/SMITHSCHAFERASSOCIATES
TWITTER.COM/SMITHSCHAFER
INSTAGRAM.COM/SMITHSCHAFERCPAS
LINKEDIN.COM/COMPANY/SMITHSCHAFERCPAS
John RandallNew Business Development DirectorHK Financial [email protected] | 952.831.2200
HK Financial Services, Inc. (HKFS), an SEC-Registered Investment Adviser, offers investment advisory services, including separately managed accounts for an ongoing asset-based fee, and retirement plan administrative services. HKFS is an investment manager under § 3(38) of the Employee Retirement Income Security Act of 1974 (ERISA) only for those portfolios managed by HKFS. Plan advisors and trustees may have other fiduciary obligations separate from those assumed by an ERISA § 3(38) investment manager. Registered representatives of ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC, may also offer non-discretionary brokerage accounts for per-transaction commissions through ProEquities under the d/b/a name HKFS. John Randall is a ProEquities Registered Representatives. HKFS andProEquities are independent, unaffiliated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.
Aaron FultonFinancial Planning ConsultantHK Financial [email protected] | 952.831.2200
HK Financial Services, Inc. (HKFS), an SEC-Registered Investment Adviser, offers investment advisory services, including separately managed accounts for an ongoing asset-based fee. Registered representatives of ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC, may also offer non-discretionary brokerage accounts for per-transaction commissions through ProEquities under the d/b/a name HKFS. Aaron Fulton is a ProEquities Registered Representative. HKFS and ProEquities are independent, unaffiliated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.
CONTACT SMITH SCHAFER
40
While this communication may be used to promote or market a transaction or an idea that isdiscussed in this publication, it is intended to provide general information only about the subjectmatter covered and is provided with the understanding that neither HKFS nor ProEquities arerendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoidpenalties under the Internal Revenue Code. You should consult with your CPA, legal counsel orother appropriate advisors on all matters pertaining to legal, accounting or tax obligations andrequirements.
Investment advisory services are offered through HK Financial Services (HKFS), an SEC-Registered Investment Adviser, and provided under the d/b/a name Smith Schafer & Associates,Ltd. Non-discretionary brokerage accounts for a transaction-based commission are sold byProEquities registered representatives and offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC. HKFS, ProEquities, and Smith Schafer are not affiliated witheach other entities. The Guidance Planning Strategies and GPS names and logo are registeredmarks of HK Financial Services, Inc.
TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSESSpeaker introductionsToday’s agendaSlide Number 4Tax cuts and jobs act (tcja)Slide Number 6TimeLINE of tax changesMinnesota conformityMinnesota conformityDEPRECIATIONPlanning considerationsCost segregation exampleWhen to consider a cost segregation?Qualified Business income deduction 199A20% DeductionPlanning considerationsSlide Number 17OverviewPersonal financial planning goalsRetirement Plan OptionsSafe harbor 401(k) planProfit sharing plan (cross-tested method)Cross-Tested Profit-Sharing PlanCash Balance Plan (defined benefit)Cash Balance PlanUnderstanding your fiduciary responsibilitiesIncreasing employee’s retirement readinessVideoSlide Number 29Guidance Planning Strategies (GPS)Case StudyCase Study, continued5-Step Investment ProcessPersonalized Investment �StrategyInvestment Strategy Key QuestionsSlide Number 36Contact smith schaferSlide Number 38Slide Number 39Contact smith schafer