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

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 & Associates HK Financial Services HK Financial Services k.spicer@smithschafer.com afulton@hkfs.com jrandall@hkfs.com Smith Schafer & Associates, Ltd. | HK Financial Services 2

TODAY’S AGENDA 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 Smith Schafer & Associates, Ltd. | HK Financial Services 3

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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 Smith Schafer & Associates, Ltd. | HK Financial Services 5

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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) 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 BONUS DEPRECIATION 100% accelerated depreciation for new or used property with a useful life under 20 years Smith Schafer & Associates, Ltd. | HK Financial Services 10

PLANNING CONSIDERATIONS Like Kind Exchanges Cost Segregation Study Smith Schafer & Associates, Ltd. | HK Financial Services 11

COST SEGREGATION EXAMPLE Renovation for 3 million dollars POTENTIONAL TAX SAVINGS $940,000 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) Smith Schafer & Associates, Ltd. | HK Financial Services 12

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 Are you a specified service business? Step 1 Income below $321,400 (MFJ) Lesser of: • 20% of QBI Step 2 • 20% of Taxable Income without regard to 199A or capital gains Income above $421,400 (MFJ) Business other than SSB Lesser of: • 20% of QBI Step 3 • 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 Smith Schafer & Associates, Ltd. | HK Financial Services 14

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 Smith Schafer & Associates, Ltd. | HK Financial Services 15

PLANNING CONSIDERATIONS Research & Development Study Retirement Planning Smith Schafer & Associates, Ltd. | HK Financial Services 16

Retirement Plan Benefits for Business Owners

OVERVIEW • 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. Smith Schafer & Associates, Ltd. | HK Financial Services 18

PERSONAL FINANCIAL PLANNING GOALS Smith Schafer & Associates, Ltd. | HK Financial Services 19

RETIREMENT PLAN OPTIONS 59-Year-Old Business Owner Earning $425,000 401(k) with Cash Balance Contributions $310,000 401(k) with Profit Sharing 401(k) Plan $62,000 $25,000 Estimated Tax $10,000 Savings $24,800 $124,000 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 Anyone exercising authority or control over the plan WHO: Operate the plan in accordance with the rules of ERISA WHAT: HOW: 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 Smith Schafer & Associates, Ltd. | HK Financial Services 26

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

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