TAX PLANNING & RETIREMENT STRATEGIES FOR ......401(k) Plan 401(k) with Profit Sharing 401(k) with...

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

[email protected]

AARON FULTON

Financial Planning Consultant

HK Financial Services

[email protected]

JOHN RANDALL

New Business Development Director

HK Financial Services

[email protected]

TODAY’S AGENDA


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

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


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)


MINNESOTA CONFORMITY

• Individual taxpayers “special limited adjustment”

• Business taxpayers “do not amend” adjustments expected Spring 2020


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%


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

PLANNING CONSIDERATIONS


Like Kind Exchanges

Cost Segregation Study

COST SEGREGATION EXAMPLE


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


QUALIFIED BUSINESS INCOME DEDUCTION 199A


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


PLANNING CONSIDERATIONS


Research & Development Study

Retirement Planning

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.

PERSONAL FINANCIAL PLANNING GOALS


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


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


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


CROSS-TESTED PROFIT-SHARING PLAN


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


CASH BALANCE PLAN


UNDERSTANDING YOUR FIDUCIARY RESPONSIBILITIES


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


VIDEO


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


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


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


5-STEP INVESTMENT PROCESS

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


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


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?


CONTACT SMITH SCHAFER


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

TAX PLANNING & RETIREMENT STRATEGIES FOR ......401(k) Plan 401(k) with Profit Sharing 401(k) with...

Documents

Transcript of TAX PLANNING & RETIREMENT STRATEGIES FOR ......401(k) Plan 401(k) with Profit Sharing 401(k) with...