TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSES October 17, - - PowerPoint PPT Presentation

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TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSES October 17, - - PowerPoint PPT Presentation

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TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSES October 17, 2019 SPEAKER INTRODUCTIONS KYLE SPICER, CPA AARON FULTON JOHN RANDALL Tax Manager Financial Planning Consultant New Business Development Director Smith Schafer &

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TAX PLANNING & RETIREMENT STRATEGIES FOR BUSINESSES

October 17, 2019

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SPEAKER INTRODUCTIONS

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KYLE SPICER, CPA Tax Manager Smith Schafer & Associates k.spicer@smithschafer.com AARON FULTON Financial Planning Consultant HK Financial Services afulton@hkfs.com JOHN RANDALL New Business Development Director HK Financial Services jrandall@hkfs.com

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TODAY’S AGENDA

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  • 1. Overview of Tax Reform
  • 2. Minnesota’s Tax Bill
  • 3. Planning for Depreciation
  • 4. Qualified Business Deduction (20%)
  • 5. Retirement Plan Benefits
  • 6. Smart Strategies for your Retirement Assets
  • 7. Q & A
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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

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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)

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MINNESOTA CONFORMITY

  • Individual taxpayers “special limited adjustment”
  • Business taxpayers “do not amend” adjustments

expected Spring 2020

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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%

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DEPRECIATION

SECTION 179

Up to $1,020,000 deduction with maximum additions of $2,550,000

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BONUS DEPRECIATION

100% accelerated depreciation for new or used property with a useful life under 20 years

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PLANNING CONSIDERATIONS

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Like Kind Exchanges Cost Segregation Study

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COST SEGREGATION EXAMPLE

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Renovation for 3 million dollars

Building Components Real Property 1,000,000 – 39 year property Qualified 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

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WHEN TO CONSIDER A COST SEGREGATION?

  • New construction, purchase, roof replacement or

renovations

  • Acquisition $750,000, Renovations $200,000

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QUALIFIED BUSINESS INCOME DEDUCTION 199A

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Step 1

Are 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 SSB Lesser 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
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20% DEDUCTION

Adjusted Gross Income $650,000 Qualified Business Income $400,000 20% Deduction $80,000 Taxable Income $570,000 Approximate Tax Savings $36,000

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PLANNING CONSIDERATIONS

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Research & Development Study Retirement Planning

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Retirement Plan Benefits for Business Owners

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OVERVIEW

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  • Making sure your retirement plan is working in sync with

your personal financial planning goals.

  • Selecting a retirement plan design meeting your goals and
  • bjectives as a business owner.
  • Minimizing your fiduciary risk.
  • Improving your employee’s retirement readiness.
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PERSONAL FINANCIAL PLANNING GOALS

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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 Estimated Tax Savings Contributions

RETIREMENT PLAN OPTIONS

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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

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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

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CROSS-TESTED PROFIT-SHARING PLAN

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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

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CASH BALANCE PLAN

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UNDERSTANDING YOUR FIDUCIARY RESPONSIBILITIES

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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 years Work with a retirement plan specialist – 3(21) vs. 3(38) advisor

WHO: WHAT: HOW:

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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

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VIDEO

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Smart Strategies for your Retirement Assets

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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

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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

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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

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5-STEP INVESTMENT PROCESS

Developing an appropriate investment allocation based on your personal goals is critical to building a successful asset management portfolio.

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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

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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,
  • r 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?

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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 Office 7500 Highway 55, Suite 350 Minneapolis, MN 55427 952-920-6603 info@smithschafer.com

FACEBOOK.COM/SMITHSCHAFERASSOCIATES TWITTER.COM/SMITHSCHAFER INSTAGRAM.COM/SMITHSCHAFERCPAS LINKEDIN.COM/COMPANY/SMITHSCHAFERCPAS

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John Randall

New Business Development Director HK Financial Services jrandall@hkfs.com | 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

  • ther 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 and ProEquities are independent, unaffiliated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.

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Aaron Fulton

Financial Planning Consultant HK Financial Services afulton@hkfs.com | 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.

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CONTACT SMITH SCHAFER

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While this communication may be used to promote or market a transaction or an idea that is discussed in this publication, it is intended to provide general information only about the subject matter covered and is provided with the understanding that neither HKFS nor ProEquities are rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with your CPA, legal counsel or

  • ther appropriate advisors on all matters pertaining to legal, accounting or tax obligations and

requirements. 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 by

ProEquities registered representatives and offered through ProEquities, Inc., a Registered Broker- Dealer and Member FINRA and SIPC. HKFS, ProEquities, and Smith Schafer are not affiliated with each other entities. The Guidance Planning Strategies and GPS names and logo are registered marks of HK Financial Services, Inc.