Simple retirement savings options for your small business

Are you thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved in providing a traditional pension plan? Two options to consider are a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an alternative to “qualified” retirement plans, particularly for small businesses. The relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions, are features that are appealing.

Uncomplicated paperwork

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of: 25% of compensation and $58,000 for 2021. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

There are other requirements you’ll have to meet to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of the highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination regulations aren’t required for SEPs. And employers aren’t required to file annual reports with IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund. 

SIMPLE Plans

Another option for a business with 100 or fewer employees is a “savings incentive match plan for employees” (SIMPLE). Under these plans, a “SIMPLE IRA” is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a “simple” 401(k) plan, with similar features to a SIMPLE plan, and automatic passage of the otherwise complex nondiscrimination test for 401(k) plans.

For 2021, SIMPLE deferrals are up to $13,500 plus an additional $3,000 catch-up contributions for employees age 50 and older.

Contact us for more information or to discuss any other aspect of your retirement planning.

© 2021


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Who qualifies for “head of household” tax filing status?

When you file your tax return, you must check one of the following filing statuses: Single, married filing jointly, married filing separately, head of household or qualifying widow(er). Who qualifies to file a return as a head of household, which is more favorable than single?

To qualify, you must maintain a household, which for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent (unless you only qualify due to the multiple support rules).

A qualifying child?

A child is considered qualifying if he or she:

  • Lives in your home for more than half the year,
  • Is your child, stepchild, adopted child, foster child, sibling stepsibling (or a descendant of any of these),
  • Is under age 19 (or a student under 24), and
  • Doesn’t provide over half of his or her own support for the year.

If a child’s parents are divorced, the child will qualify if he meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

A person isn’t a “qualifying child” if he or she is married and can’t be claimed by you as a dependent because he or she filed jointly or isn’t a U.S. citizen or resident. Special “tie-breaking” rules apply if the individual can be a qualifying child of (and is claimed as such by) more than one taxpayer.

Maintaining a household

You’re considered to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include items such as medical care, clothing, education, life insurance or transportation.

Special rule for parents

Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don’t live with the parent. To qualify under this rule, you must be able to claim the parent as your dependent.

Marital status

You must be unmarried to claim head of household status. If you’re unmarried because you’re widowed, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file either as married filing jointly or separately, not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household, you’re treated as unmarried. If this is the case, you can qualify as head of household.

We can answer questions if you’d like to discuss a particular situation or would like additional information about whether someone qualifies as your dependent.

© 2021


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Providing optimal IT support for remote employees

If you were to ask your IT staff about how tech support for remote employees is going, they might say something along the lines of, “Fantastic! Never better!” However, if you asked remote workers the same question, their response could be far less enthusiastic.

This was among the findings of a report by IT solutions provider 1E entitled “2021: Assessing IT’s readiness for the year of flexible working,” which surveyed 150 IT workers and 150 IT managers in large U.S. organizations. The report strikingly found that, while 100% of IT managers said they believed their internal clients were satisfied with tech support, only 44% of remote employees agreed.

Bottom line impact

By now, over a year into the COVID-19 pandemic, remote work has become common practice. Some businesses may begin reopening their offices and facilities as employees get vaccinated and, one hopes, virus metrics fall to manageable levels. However, that doesn’t mean everyone will be heading back to a communal working environment.

Flexible work arrangements, which include the option to telecommute, are expected to remain a valued employment feature. Remote work is also generally less expensive for employers, so many will likely continue offering or mandating it after the pandemic fades.

For business owners, this means that providing optimal IT support to remote employees will remain a mission-critical task. Failing to do so will likely hinder productivity, lower morale, and may lead to reduced employee retention and longer times to hire — all costly detriments to the bottom line.

Commonsense tips

So, how can you ensure your remote employees are well-supported? Here are some commonsense tips:

Ask them about their experiences. In many cases, business owners are simply unaware of the troubles and frustrations of remote workers when it comes to technology. Develop a relatively short, concisely worded survey and gather their input.

Invest in ongoing training for support staff. If you have IT staffers who, for years, provided mostly in-person desktop support to on-site employees, they might not serve remote workers as effectively. Having them take one or more training courses may trigger some “ah ha!” moments that improve their interactions and response times.

Review and, if necessary, upgrade systems and software. Your IT support may be falling short because it’s not fully equipped to deal with so many remote employees — a common problem during the pandemic. Assess whether:

  • Your VPN system and licensing suit your needs,
  • Additional or better cloud solutions could help, and
  • Your remote access software is helping or hampering support.

Ensure employees know how to work safely. Naturally, the remote workers themselves play a role in the stability and security of their devices and network connections. Require employees to undergo basic IT training and demonstrate understanding and compliance with your security and usage policies.

Your technological future

The pandemic has been not only a tragic crisis, but also a marked accelerator of the business trend toward remote work. We can help you evaluate your technology costs, measure productivity and determine whether upgrades are likely to be cost-effective.

© 2021


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Retiring soon? Recent law changes may have an impact on your retirement savings

If you’re approaching retirement, you probably want to ensure the money you’ve saved in retirement plans lasts as long as possible. If so, be aware that a law was recently enacted that makes significant changes to retirement accounts. The SECURE Act, which was signed into law in late 2019, made a number of changes of interest to those nearing retirement.

You can keep making traditional IRA contributions if you’re still working

Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. But now, an individual of any age can make contributions to a traditional IRA, as long as he or she has compensation, which generally means earned income from wages or self-employment. So if you work part time after retiring, or do some work as an independent contractor, you may be able to continue saving in your IRA if you’re otherwise eligible.

The required minimum distribution (RMD) age was raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the early 1960s and, until recently, hadn’t been adjusted to account for increased life expectancies.

For distributions required to be made after December 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plans or IRAs is increased from 70½ to 72.

“Stretch IRAs” have been partially eliminated

If a plan participant or IRA owner died before 2020, their beneficiaries (spouses and non-spouses) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the life or life expectancy of the beneficiaries. This was sometimes called a “stretch IRA.”

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most non-spouse beneficiaries are generally required to be distributed within 10 years following a plan participant’s or IRA owner’s death. Therefore, the “stretch” strategy is no longer allowed for those beneficiaries.

There are some exceptions to the 10-year rule. For example, it’s still allowed for: the surviving spouse of a plan participant or IRA owner; a child of a plan participant or IRA owner who hasn’t reached the age of majority; a chronically ill individual; and any other individual who isn’t more than 10 years younger than a plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancies.

More changes may be ahead

These are only some of the changes included in the SECURE Act. In addition, there’s bipartisan support in Congress to make even more changes to promote retirement saving. Last year, a law dubbed the SECURE Act 2.0 was introduced in the U.S. House of Representatives. At this time, it’s unclear if or when it could be enacted. We’ll let you know about any new opportunities. In the meantime, if you have questions about your situation, don’t hesitate to contact us.


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Cordasco’s newest book “A Framework for Growth” set to release in May 2021





Rob Cordasco’s newest book “A Framework for Growth: Smart Financial and Tax Planning Strategies throughout the Entrepreneurial Life Cycle” is set for release in May 2021.

This latest book outlines the framework Rob has developed over his 35 year career as a CPA. The framework helps entrepreneurs’ avoid common pitfalls and anticipate their organizational, financial and tax needs as they move their business through each business life cycle.

If you would like an advanced copy of the book, just let us know and we’ll be glad to send you a copy.

About the Author

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New COVID-19 relief law extends employee retention credit

Many businesses have retained employees during the COVID-19 pandemic and enjoyed tax relief with the help of the employee retention credit (ERC). The recent signing of the American Rescue Plan Act (ARPA) brings good news: the ERC has been extended yet again.

The original credit

As originally introduced under last year’s CARES Act, the ERC was a refundable tax credit against certain employment taxes equal to 50% of qualified wages, up to $10,000, that an eligible employer paid to employees after March 12, 2020, and before January 1, 2021. An employer could qualify for the ERC if, in 2020, there was a:

  • Full or partial suspension of operations during any calendar quarter because of governmental orders limiting commerce, travel or group meetings because of COVID-19, or
  • Significant decline in gross receipts (less than 50% for the same calendar quarter in 2019).

The definition of “qualified wages” depends on staff size. If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those paid to employees who aren’t providing services because operations were suspended or due to the decline in gross receipts. Qualified wages may include certain health care costs and are capped at $10,000 per employee. These employers could count wages only up to the amount that the employee would’ve been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, also including health care costs and capped at $10,000 per employee, paid to any employee during the period operations were suspended or the period of the decline in gross receipts — regardless of whether employees are providing services.

Expansion and extensions

Under the Consolidated Appropriations Act (CAA), signed into law at the end of 2020, the ERC was extended through June 30, 2021. The CAA also expanded the ERC rate of credit from 50% to 70% of qualified wages. The law further expanded eligibility by:

  • Reducing the required year-over-year gross receipts decline from 50% to 20%,
  • Providing a safe harbor that allows employers to use previous quarter gross receipts to determine eligibility,
  • Increasing the limit on creditable wages from $10,000 in total to $10,000 per calendar quarter (that is, $10,000 for first quarter 2021 and $10,000 for second quarter 2021), and
  • Raising the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees (meaning wages qualify for the credit even if the employee is working).

Most recently, the ARPA further extended the ERC from June 30, 2021, until December 31, 2021. The 70% of qualified wages is also extended for this period, as is the allowance for up to $10,000 in qualified wages for any calendar quarter. This means an employer could potentially have up to $40,000 in qualified wages per employee through 2021.

Valuable break

We can help you determine whether your business qualifies for the ERC and, if so, how much the credit may reduce your tax bill.

© 2021


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Business highlights in the new American Rescue Plan Act

President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.

Here are some of the tax highlights of the ARPA.

The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.

Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).

Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.

Under the ARPA, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately).

This provision is effective for tax years beginning after December 31, 2020.

Paid Sick and Family Leave Credits. Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.

Grants to restaurants. Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.

Much more

These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Contact us for more information about your situation.

© 2021


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EIDL loans, restaurant grants offer relief to struggling small businesses

The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions.

If you own a small company, you may want to explore funding via the Small Business Administration’s (SBA’s) Economic Injury Disaster Loan (EIDL) program. And if you happen to own a restaurant or similar enterprise, the ARPA offers a special type of grant just for you.

EIDL advances

Under the ARPA, eligible small businesses may receive targeted EIDL advances from the SBA. Amounts received as targeted EIDL advances are excluded from the gross income of the person who receives the funds. The law stipulates that no deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.

In the case of a partnership or S corporation that receives a targeted EIDL advance, any amount of the advance excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because targeted EIDL advances are treated as such, they’ll be allocated to the partners or shareholders — increasing their bases in their partnership interests.

The IRS is expected to prescribe rules for determining a partner’s distributive share of EIDL advances for federal tax purposes. S corporation shareholders will receive allocations of tax-exempt income from targeted EIDL advances in proportion to their ownership interests in the company under the single-class-of-stock rule.

Restaurant revitalization grants

Under the ARPA, eligible restaurants, food trucks and similar businesses may receive restaurant revitalization grants from the SBA. As is the case for EIDL loans:

  • Amounts received as restaurant revitalization grants are excluded from the gross income of the person who receives the funds, and
  • No deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.

In the case of a partnership or S corporation that receives a restaurant revitalization grant, any amount of the grant excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because restaurant revitalization grants are treated as tax-exempt income, they’ll be allocated to partners or shareholders and increase their bases in their partnership interests.

Just like EIDL advances, the IRS is expected to prescribe rules for determining a partner’s distributive share of the grant for federal tax purposes. And S corporation shareholders will receive allocations of tax-exempt income from restaurant revitalization grants in proportion to their ownership interests in the company under the single-class-of-stock rule.

Help with the process

The provisions related to EIDL advances and restaurant revitalization grants are effective as of the ARPA’s date of enactment: March 11, 2021. Contact us for help determining whether your small business or restaurant may qualify for financial relief under the ARPA and, if so, for assistance with the application process.

© 2021


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How to ensure life insurance isn’t part of your taxable estate

If you have a life insurance policy, you may want to ensure that the benefits your family will receive after your death won’t be included in your estate. That way, the benefits won’t be subject to federal estate tax.

Current exemption amounts

For 2021, the federal estate and gift tax exemption is $11.7 million ($23.4 million for married couples). That’s generous by historical standards but in 2026, the exemption is set to fall to about $6 million ($12 million for married couples) after inflation adjustments — unless Congress changes the law.

In or out of your estate

Under the estate tax rules, insurance on your life will be included in your taxable estate if:

  • Your estate is the beneficiary of the insurance proceeds, or
  • You possessed certain economic ownership rights (called “incidents of ownership”) in the policy at your death (or within three years of your death).

It’s easy to avoid the first situation by making sure your estate isn’t designated as the policy beneficiary.

The second rule is more complicated. Just having someone else possess legal title to the policy won’t prevent the proceeds from being included in your estate if you keep “incidents of ownership.” Rights that, if held by you, will cause the proceeds to be taxed in your estate include:

  • The right to change beneficiaries,
  • The right to assign the policy (or revoke an assignment),
  • The right to pledge the policy as security for a loan,
  • The right to borrow against the policy’s cash surrender value, and
  • The right to surrender or cancel the policy.

Be aware that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise them.

Buy-sell agreements and trusts

Life insurance obtained to fund a buy-sell agreement for a business interest under a “cross-purchase” arrangement won’t be taxed in your estate (unless the estate is the beneficiary).

An irrevocable life insurance trust (ILIT) is another effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured. As long as the trust agreement doesn’t give the insured the ownership rights described above, the proceeds won’t be included in the insured’s estate.

The three-year rule

If you’re considering setting up a life insurance trust with a policy you own currently or simply assigning away your ownership rights in such a policy, consult with us to ensure you achieve your goals. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. (For policies in which you never held incidents of ownership, the three-year rule doesn’t apply.)

Contact us if you have questions or would like assistance with estate planning and taxation.

© 2021


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COBRA provisions play critical role in COVID-19 relief law

During the COVID-19 pandemic, many employees and their families have lost group health plan coverage because of layoffs or reduced hours. If your business has had to take such steps, and it’s required to offer continuing health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the recently passed American Rescue Plan Act (ARPA) includes some critical provisions that you should be aware of.

100% subsidy

Under the ARPA, assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums during the period beginning April 1, 2021, and ending on September 30, 2021.

An AEI is a COBRA qualified beneficiary — in other words, an employee, former employee, covered spouse or covered dependent — who’s eligible for and elects COBRA coverage because of a qualifying event of involuntary termination of employment or reduction of hours. For purposes of the law, the subsidy is available for AEIs for the period beginning April 1, 2021, and ending September 30, 2021.

Extended election period

Individuals without a COBRA election in effect on April 1, 2021, but who would be an AEI if they did, are eligible for the subsidy. Those who elected but discontinued COBRA coverage before April 1, 2021, are also eligible if they’d otherwise be an AEI and are still within their maximum period of coverage.

Individuals meeting these criteria may make a COBRA election during the period beginning on April 1, 2021, and ending 60 days after they’re provided required notification of the extended election period. Coverage elected during the extended period will commence with the first period of coverage beginning on or after April 1, 2021, and may not extend beyond the AEI’s original maximum period of coverage.

Duration of coverage

As explained, the subsidy is available for any period of coverage in effect between April 1, 2021, and September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021. Eligibility may also end if the qualified beneficiary becomes eligible for coverage under Medicare or another group health plan other than coverage consisting of only excepted benefits or coverage under a Health Flexible Spending Arrangement or Qualified Small Employer Health Reimbursement Arrangement.

Other provisions

The ARPA’s COBRA provisions go beyond the subsidy. For example, they stipulate that group health plan sponsors may voluntarily allow AEIs to elect to enroll in different coverage under certain circumstances. In addition, group health plans must issue notices to AEIs regarding the:

  • Availability of the subsidy and option to enroll in different coverage (if offered),
  • Extended election period, and
  • Expiration of the subsidy.

The U.S. Department of Labor is expected to issue model notices addressing all three points.

Further explanation

The COVID-19 crisis has emphasized the importance of health care coverage. Our firm can further explain the ARPA’s COBRA provisions and help you manage the financial risks of offering health care benefits to your employees.

© 2021


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