Category Archives: Taxes

Nanny Tax: What You Need to Know When You Hire a Household Employee

A 60-second read by the Baron Team: 

  • Nanny taxes are taxes paid to the government from a person working in and/or around your home. These jobs can include nanny, housekeeper, gardener, chef, personal assistant or caregiver.
  • The worker is considered a household employee if the employer controls what work is done and how it is done and can be full time or part time work.
  • If you pay someone that works in your home $2,100 or more a year or $1,000 in a quarter they are considered a household employee.
  • The employer must obtain the employee’s name and social security number.
  • The employer must withhold a certain amount of compensation from a household employee for FICA and Medicare.
  • As well as withholding a certain amount of money from your household employee, you must also pay your share of FICA employer taxes and federal and state unemployment taxes.
  • The employee, as well as the employer, can benefit from filing these taxes. The employee can prove she/he was working for a set amount of time and qualify for certain government benefits, such as social security and unemployment.

  • Forms Required to file:
    1. Form SS-4 to obtain your federal Employer Identification Number, which is needed for the other forms.
    2. Form I-9 is needed to be filled out by your employee to verify she/he is eligible to work in the United States.
    3. W-4 Forms are used to determine what taxes are needed to be deducted from the household employee’s wages and sent to the IRS.
    4. Schedule H Form is part of your personal return with Form 1040 & an accountant can help determine the amount the employer is taxed for FICA and unemployment.

  • Insurance requirements:
    1. You must register for unemployment insurance in your residing state.
    2. You also need to have workers compensation insurance, which is very important.
      • If you reside in NY, you will also need to purchase a separate disability policy.

  • State taxes are generally paid quarterly while Federal taxes are paid annually.
  • If you refuse to file the proper tax documents you may be subjected to an audit from the IRS leading to tax evasion. Trying to classify your household employee as an “independent contractor” is a red flag to the IRS and should be avoided.

For more information on hiring household employees visit:  https://www.irs.gov/businesses/small-businesses-self-employed/hiring-household-employees

For more information on what forms are needed for hiring employees visit: https://www.irs.gov/businesses/small-businesses-self-employed/hiring-employees

If you have more specific questions on this matter, we recommend speaking with a tax professional.

If you have any other questions, please reach out to your Baron Financial Group team.

 

 

Things to Consider If You Have Over-Contributed to an IRA

A 60-second read by Victor Cannillo:

#1 – We highly recommend you hire a Certified Public Accountant to help you resolve the issue.

Here are some points to consider:

  • There are limitations on the total amount that may be contributed to an IRA. Currently, it’s the greater of either $5,500 ($6,500 if the person is 50 or older) or your taxable compensation for the year.

  • The IRS considers each individual person to have a single IRA.  The maximum contribution limits apply to all of your IRA accounts.  If you have more than one IRA account open, you can contribute to one account or all of your accounts as long as the total contributions meet the yearly limit.

  • If there are excess contributions to your IRAs, there is an annual additional 6% tax penalty (paid with the filing of Form 5329) on those excess contributions until you withdraw them from your account.

  • Normally, if the excess contribution for the tax year is withdrawn with any related earnings before the tax return deadline (including extensions), you are not subject to the 6% additional tax. Also the earnings on the excess IRA contributions as determined by the custodian will be subject to tax for the year the excess contribution was made. Those earnings are also subject to a 10% early withdrawal penalty if the person’s age is under 59 and a half for the year of the contribution.

  • You will need to consult a Certified Public Accountant to determine what tax returns need to be filed.

If you have more specific questions on this matter, we recommend speaking with a tax professional.

For any other questions, please reach out to your Baron Team.

How to File an Extension on Your 2017 Tax Return

A 60-second read by the Baron Team: With the filing due date fast approaching, you are probably in the process of collecting all of your tax-related documents from the past year. Tax returns must be submitted by April 17th this year. If by that time you realize that you are going to need more time to compile information for your tax return or haven’t received all of the documents you need, it will be in your best interest to file a tax extension. This will extend the due date up until October 15, 2018.

How to file a Paper Tax Extension:

 To file an extension, you are going to need to fill out Form 4868 [Application for Automatic Extension of Time to File U.S. Individual Income Tax Return]. You can download the form and instructions from the IRS website.

With the form, you also need to send in at least 90% of your estimated tax liability due for the year. To pay by check, mail the form with the check together. Make the check out to United States Treasury. On the memo line, write your Social Security Number, Form 4868, and the tax year (2017). This way, they know that you are sending the check as part of your extension.

When mailing in the tax extension, it is highly recommended that you send it via certified mail or another method that provides you with a tracking number. The envelope needs to be postmarked by April 17th. Check the instructions portion of Form 4868 for the correct mailing address (it varies according to what state you reside in).

 To Prevent any Penalties:

  • Carefully read all instructions and follow all directions on Form 4868.
  • Correctly estimate your tax liability for the year and send in 90% of the amount due.

Miscellaneous tips:

  • It is possible to file your extension online. See the IRS website for more details.
  • If you ever feel unsure or concerned about the process, consult a Tax Professional to assist you.

For any other questions, contact the Baron Financial Group Team.

Tax Identity Theft Awareness Week 2018

A 30-second read by Nicholas Scheibner: The week of January 29th – Feb 2nd has been designated “Tax Identity Theft Awareness Week.” The FTC (Federal Trade Commission) will be offering some free webinars and chats on this topic. To learn more about the free webinar offerings, click here.

According to the FTC, tax identity theft occurs when another person uses your social security number for the purpose of getting a job or a tax refund. You will usually know when you receive a letter or notice from the IRS saying that you filed more than one tax return or see on their records that you were paid by an unknown employer. To learn more, click here for the FTC’s article on Tax-Related Identity Theft. If you’re the victim of tax fraud, visit the IRS website.

On a related note – if you are interested to know how long you should be keeping your tax returns, please refer to our “What documents are safe to shred? What must I keep?” blog post.

Feel free to reach out to us for any questions.

5 Financial Actions to Consider at Year-End – 2017 version

A 90-second read by Anthony Benante:  What 5 things should you be thinking about at the end of the year when it comes to your finances?

1. Review your personal budget and commit to a savings plan for 2018

a. On January 1, write down the balance in your checking account. Do this on the first of the month for the next three months. After you incorporate your income for the period, as well as take note of any cash withdrawals from other accounts, you can get a general sense of what your monthly spending is.

b. We work directly with our clients at Baron to help understand how their budget and all of their financial assets work together.  If you would like a budget sheet (either electronic or hard-copy), let us know. 

2. Review your long-term investment strategy

a. Is the long-term strategy in place for you still right for your specific circumstance? Are you going to be making any large purchases coming up in the New Year? Are you thinking about revisiting your risk tolerance – becoming more aggressive or conservative?

b. At Baron, we use a customized approach to design client portfolios.  We not only consider potential return, but also risk, as well as how the investments complement each other.  Having a long-term investment strategy is critical for investing success and provides a guide for when markets act unexpectedly or make a major directional move.

3. Rebalance your investment accounts

a. Rebalancing brings the portfolio into alignment with the original target weights of each asset class. It also helps to reduce long-term portfolio volatility.

b. Client portfolios at Baron are rebalanced on a contingent basis.  This means the actual holdings are regularly compared to the recommended strategy.  Triggers are in place to help identify when investments deviate too far from strategy and trades are placed. This keeps client portfolios close to their strategy.  Most individuals do not follow this disciplined approach. 

4. Review your tax situation for the year and take advantage of tax trading in your investment accounts, if possible

a. Understanding how your investments may impact your tax circumstance is important.  The last trading day for 2017 is Friday December 29th.  That is the last day you can make any changes to your portfolio for your 2017 tax return.

b. Throughout the year, we review Baron clients’ tax situations and see if any strategic trades can be made to help reduce tax burdens.  As year-end approaches, we look to minimize tax impacts when possible.  However, our main focus is adhering to portfolio strategy, while minimizing taxes when possible.

c. A new tax  bill has been passed and there will be changes for 2018.  Check in with your accountant or tax preparer to see if they recommend any changes prior to year-end or to your tax plan for 2018.

5. If you are 70 ½ or older, or if you have inherited a tax-deferred account, make sure you understand how required minimum distributions (RMDs) apply to you

a. If either of the above applies to you, you will need to take an RMD.  Contact your advisor or custodian to help understand the amount and how to take your RMD.  It is important to take your required minimum distribution in order to prevent any penalties from the IRS.

b. At Baron, we advise our clients on the timing, the structure (lump sum or regular distributions throughout the year) and the correct dollar amount needed to be withdrawn from retirement accounts requiring RMDs.

If you have any questions, don’t hesitate to contact the Baron Financial Group team.

 

Converting your IRA to a Roth IRA – What to Know

A 60-second read by Nicholas Scheibner:  The main difference between a Traditional Individual Retirement Account (IRA) and a Roth IRA is that with a Roth IRA, you pay taxes upfront, so that when you are in retirement, you can make withdrawals tax-free.

If you are considering converting your IRA to a Roth, here are a few things to consider:

Taxes: If you convert money from a traditional IRA to a Roth, your tax rate for the year you convert could go up.  If you decide to explore the conversion, please review with your accountant when to convert, as ideally, you would want to convert in a year that you expect your taxes to be lower.

RMDs: If you do decide to convert, this does provide a greater tax diversification to your overall portfolio, since you will potentially be reducing the required minimum distribution (RMD) amount from your IRA by converting IRA assets to Roth IRA assets.

The financial breakeven: The financial breakeven for a Roth is different for everyone, however, there are some general principles for the calculation – If tax rates increase in the future, this conversion may be worth more. If tax rates stay the same, or go lower, there may be less of a benefit. You may want to consider the opportunity cost of investing all monies today as opposed to using a portion for taxes.  The longer you live the more you may benefit from having the Roth assets grow tax-free.

Please review this information with your accountant and consult with your financial planner prior to converting.

For any further questions, please reach out to your Baron team.

Important information regarding Equifax data breach

You may have read that hackers broke into the Equifax database and stole personal information tied to 143 million people.  Ongoing updates from Equifax about this incident are available at equifaxsecurity2017.com

Baron Financial does not use Equifax for any services, but we are sharing this information for educational purposes.

Equifax is one of the three main credit reporting agencies.  They collect and maintain individual credit information and sell it to lenders, creditors, and consumers in the form of a credit report.   

What you should consider doing now:

  1. Order a Credit Report at www.annualcreditreport.com.
  2. Freeze Your Credit Reports (after ordering a copy).  A freeze stops thieves from opening new credit cards or loans in your name, but it also prevents you from opening new accounts. So each time you apply for a credit card, mortgage or loan, you need to lift the freeze a few days beforehand.  Equifax said it will waive all fees until Nov. 21 for people who want to freeze their Equifax credit files. 
  3. Regularly Monitor Your Financial Accounts, Credit Cards and Loan Accounts for any suspicious activity

Something else to consider: Sign up by November 21 for the free Credit Monitoring offer from Equifax (equifaxsecurity2017.com). Some experts have offered differing opinions on taking advantage of this service.  However, we did want to make you aware of the offer.

Continue reading Important information regarding Equifax data breach

Class of 2017: It Isn’t Too Early to Start Thinking about Your Retirement

A 60-second read by the Baron Team:  Congratulations 2017 college graduates! Throw that mortarboard as high in the air as you can and before it circles back down to earth, start thinking about saving for your retirement. You are most likely going to be responsible for setting yourself up for a successful retirement, so your best bet is to invest early and often.

Invest in yourself first. Most people think investing is the key to wealth, but while certainly important, you have to have some money first to invest. So as soon as you begin your first job out of school, start saving as much as you can for retirement.

Continue reading Class of 2017: It Isn’t Too Early to Start Thinking about Your Retirement

How to File an Extension on Your 2016 Tax Return

A 60-second read by the Baron Team: Need more time to compile information for your tax return? Haven’t received all of the documents you need? It will be in your best interest to file a tax extension. This will extend the due date up until October 16, 2017.

How to file a Paper Tax Extension:

To file an extension, you are going to need to fill out Form 4868 [Application for Automatic Extension of Time to File U.S. Individual Income Tax Return]. You can download the form and instructions from the IRS website.

With the form, you also need to send in at least 90% of your estimated tax liability due for the year.
To pay by check, mail the form with the check together. Make the check out to United States Treasury. On the memo line, write your Social Security Number, Form 4868, and the tax year (2016). This way, they know that you are sending the check as part of your extension.

When mailing in the tax extension, it is highly recommended that you send it via certified mail or another method that provides you with a tracking number. The envelope needs to be postmarked by April 18th. Check the instructions portion of Form 4868 for the correct mailing address (it varies according to what state you reside in).

 To Prevent any Penalties:

  • Carefully read all instructions and follow all directions on Form 4868.
  • Correctly estimate your tax liability for the year and send in 90% of the amount due.

Miscellaneous tips:

  • It is possible to file your extension online. See the IRS website for more details.
  • If you ever feel unsure or concerned about the process, consult a Tax Professional to assist you.

Any other questions, contact the Baron Financial Group Team.

What documents are safe to shred? What must I keep?

A 30-second read by Victor Cannillo: Whether you are tired of piles of papers cluttering up your home or are trying to go “paperless,” it is important to know what documents you should keep and which you could shred.

Below we list some of the important documents the Federal Trade Commission (FTC) suggests that you should always keep:

  • Birth certificates/ adoption documents
  • Social Security cards
  • Marriage licenses or divorce decrees
  • Tax returns
  • Passports or citizenship materials
  • Familial death certificates
  • For items like your home and car, you want to hold on to any automobile titles and home deeds for as long as they are in your ownership.
  • To see more, click here.

Shredding Timeline-The FTC recommends that you wait:

  • 7 years before shredding any tax-related receipts and cancelled checks.
  • 1 year before shredding bank statements, medical bills, etc.

Items such as credit card statements can be shredded right away once paid. To help reduce capital gains tax, retain home improvement receipts until your home is sold.

To view the FTC’s safe shredding timeline infographic, click here.

In addition to decluttering your home, shredding documents with personal information can help prevent identity theft.  Just remember to keep the listed documents above for the suggested amount of time.

Feel free to reach out to us for any other questions.