Author: Jeff Mork

What Is a SEP IRA?

A SEP IRA offers employers and their employees a tax-friendly way to save for retirement. As it currently stands, with a traditional IRA you can contribute $6,500. This is a decent amount of money. However, with a SEP IRA you can place nearly 10 times that amount in your account during the current tax year. That’s upward of $66,000 per SEP IRA.

What Is a SEP IRA?At the same time, keep in mind that SEP IRA annual contribution limits can’t exceed the lesser of these two conditions:

  • 25% of your total compensation.
  • $66,000 total in the 2023 tax year.

The first limitation states that your annual SEP IRA contribution cannot exceed 25% of your total compensation. This is equivalent to the limit regarding how much money you can contribute for each of your eligible employees. This year, the amount of compensation that you can use to calculate the 25% limit is $330,000. Also, there’s no catch-up contribution at the age of 50 or older for SEP IRA contributions like there is for traditional IRA contributions.

SEP IRAs are generally best for people who are self-employed. This type of IRA is ideal for small-business owners who have few if any employees. If you have employees whom the IRS considers eligible participants in your plan, then you have to contribute on their behalf. Plus, the contributions you make for them must be an equal percentage of compensation compared to your own.

What makes someone an eligible participant in a SEP IRA?

Eligible participants are people who are 21 years of age or older. They must have worked for your business for at least three of the past five years. While working for you, it is required that they also make a minimum of $750 this year alone. For example, if an employee who worked for you in 2019, 2020 and 2021 made $850 over those three years, you would need to contribute to an SEP IRA for them this year.

How are SEP IRAs managed?

Employees own and control their own SEP IRAs. That said, a SEP IRA is easy to set up and administer, so it can be combined with a traditional IRA or a Roth IRA. Even better, a SEP IRA is very flexible because you don’t have to commit to making contributions year after year.

If you’re a sole proprietor, you can deduct contributions that you make to the plan for yourself. You can also deduct the fees of trustees if contributions to the plan do not already cover them. Earnings on the contributions are generally tax-free until you or your employees begin receiving distributions from the plan.

How does a SEP IRA work?

An SEP IRA follows the same investment, distribution and rollover rules as a traditional IRA, which means employees can receive your contributions to their SEP IRA. They can also make regular and annual contributions to their traditional IRA or Roth IRA simultaneously. One does not negate the other. Also, employer contributions to an employee’s SEP IRA won’t affect the amount of money that employees can contribute to their own IRA.

You can set up your SEP IRA so that you’re immediately eligible to participate. After you’ve established your plan, you can amend it and create more restrictive eligibility requirements. However, you must meet the new eligibility requirements if you want to continue your participation in the plan moving forward.

How to set up an SEP IRA

To set up or alter the eligibility requirements of your SEP IRA, use FORM 5305-SEP. It is an IRS-approved prototype that is offered by banks, insurance companies and other financial institutions. You can set up an SEP IRA for one year as late as the due date of your business’s income tax return for the year in question. This yearlong period of time includes any applicable extensions.

A self-employed person can set up a SEP IRA plan even if the employee chooses to participate in an employer’s retirement plan through another job. That said, any partners or members of a limited liability company who are taxed as a partnership cannot maintain separate SEP IRA plans.

For retirement plan purposes, those people would be considered employees of the partnership, so things would contradict and become confusing. People who reach the age of 72 after Dec. 31 can delay the reception of their required minimum distribution until April 1 of the year after they turn 73 years old.

Your contributions to your employees’ SEP IRAs won’t be included as part of your gross income. Participants may be able to transfer or roll over certain property from one retirement plan to another.

But even so, your contributions to their SEP IRAs are made in cash. Also, since an SEP IRA can’t be a Roth IRA, your contributions to an SEP IRA won’t affect the amount of money that an employee can contribute to a Roth IRA or a traditional IRA.

You have to give your eligible employees a statement each year. On that statement, you must clearly show the number of contributions and the value of each that were deposited into their SEP IRAs. You can use a SEP IRA plan instead of setting up a profit-sharing or money purchase plan with a trust.

SEP IRAs can boost the size of your retirement nest egg while doing the same for all your eligible employees. This is due to the higher contribution maximum values and the flexibility of SEP IRAs. The extra perks and overall simplicity make SEP IRAs very desirable for employers looking to offer an employer-sponsored plan.

When To Plan for 2023 Tax Season

Reduce your taxes or increase your refund for your next return by planning throughout the year. The IRS suggests that your first consideration should be going to for online tools that can help you file and pay taxes, find information about your accounts and get answers to tax questions.When to plan for 2023 Tax Season

Create or access your account at to:

  • View your taxes owed, payments and payment plans.
  • Make payments and apply for a payment plan.
  • Access your tax records.

Gather and organize all of the previous year’s tax records, including:

  • W-2 forms and pay stubs.
  • Home mortgage payments and receipts from anything you can claim as an itemized deduction.
  • Your vehicle mileage log if you intend to claim the vehicle as a business expense.
  • Canceled checks from individual retirement account contributions and other deductions.
  • Form 1099 from banks and other payments, such as unemployment compensation, dividends, a pension, and annuity and retirement plan distributions.
  • Credit card statements.
  • Medical bills you can deduct.
  • Cellphone bills.

Keep the calendar in mind

Most qualifying tax deductions and tax credits for a given tax year must be expensed by Dec. 31 of the tax year. An exception is retirement plan contributions, which you can contribute to until April 15 — the filing and payment deadline.

Remember that most income is taxable, including unemployment income, interest received, income from the gig economy and digital assets. You should also check your individual Tax Identification Number to see whether it needs to be renewed.

Consider the possible tax implications of life-changing events like getting married, purchasing a home or making a career change — and unplanned life events that can have tax consequences, like separating from or divorcing your spouse.

Scan documents and keep them as PDF files to print out if you need them. Plan or make your estimated tax payments. What other steps can you take to help you plan for tax season? First, adjust your paycheck withholding so you can get a refund now as part of your regular paycheck rather than waiting to get it back as a tax refund. Adjust your W-4 to stop paying too much in income taxes.

Plenty of credits and deductions

  • Sell stocks that are weighing down your portfolio so you can write off the loss on your taxes.
  • Use tax filing software to help claim all the tax credits and deductions you may not know you qualify for.
  • Contribute to traditional IRA, 401(k), 403(b) and other retirement accounts.
  • Contribute to other tax-deductible accounts — Health Savings Accounts and/or Flexible Savings Accounts.
  • Open and contribute to a 529 college savings plan.
  • Start your own business and write off deductible expenses.
  • Purchase a qualifying electric or hybrid vehicle for a tax credit.
  • Educate yourself, a spouse or a dependent and claim an education tax credit.
  • Donate to charity if you plan to itemize your deductions.
  • Track your home mortgage insurance payments, plus state and local taxes.
  • Check your pay stubs against your W-2 to ensure they add up — even employers can make mistakes.

If you’ve planned your taxes successfully enough to receive a small tax refund, invest in an educational savings account, an IRA or a basic savings account. Use the money to start preparing for next year’s taxes. The IRS recommends you keep all tax-related records for three years in case of an audit.

This is just a brief overview. You may have certain issues that make tax season more complicated, which gives you even more incentive to get started early by talking with a qualified tax preparer.

When Death Do Us Part

Unlike a unilateral will, a prenup is a bilateral agreement crafted between two people. Ideally, a prenup will be drafted in alignment with the corresponding will. However, in situations in which the two documents are in direct contradiction with one another, courts tend to prioritize the prenup over the will as long as the former document was negotiated fairly between the two involved parties.

A prenup can enhance an estate plan. For instance, it can protect the financial interests of children from prior marriages, keep family money safe or ensure that an inheritance is not taken away from the original beneficiary. It may also be appropriate when both spouses are financially independent.

These instruments are becoming increasingly popular for those who enter second marriages, marry later in life, enjoy financial independence or amass substantial assets prior to getting married. Prenups can also provide people with reassurance when a significant age difference is at play between spouses or one party has a massive amount of debt, such as college loans, prior to the marriage.

What prenups can and cannot do

Although a prenup cannot serve as a replacement for a will, a prenup can spell out the minimum standards and waive certain inheritance rights. Spouses can agree to provide for one another as generously as they choose, which can end up being an extra layer of protection that transcends the basic, elective legal entitlements.

A flexible prenup can also include an adjusting formula. For instance, it can tie a share of the inheritance to the actual duration of the marriage, which is known as an escalator clause.

Spousal rights vary among states, but they usually comprise one-half to one-third of the estate. A bereaved spouse may also be able to claim other allowances, potentially including the following:

  • Homestead: A right to remain in the marital home.
  • Personal property: A right to items such as housewares and furniture.

A prenup enables a spouse to decline either some or all of these rights. Frequently, after one spouse dies, the living spouse is allowed to stay rent free in the marital home for the rest of his or her life. Conversely, a prenup may instead specify that the surviving spouse cannot receive a share of the family business. It is all relative.

But there are limits to what a prenup can achieve. It is normally confined to assets and property rather than details such as child custody or support. Prenups must be in writing as well, seeing as how verbal promises do not qualify. Many prenups have been challenged in court as an indication of certain boundaries, such as:

  • Attorney conflict of interest: if sharing the same attorney prompts favoritism.
  • Fraud or a misrepresentation of assets.
  • Unconscionable or inequitable behavior.
  • Coercion or duress, though a threat to call off the marriage does not count.

Clarifying who owns what

Parties who are considering a prenup must disclose the full extent of their assets to one another. At the very least, they must waive disclosure. Describing exactly who owns each asset is helpful in terms of preventing marital conflicts or family discord over the estate. A prenup can expressly state that an asset is separately, not jointly, owned, even in reference to the couple’s home itself.

Normally, assets that were acquired before the marriage are classified as separate, and they can be willed to anyone. However, in community property states, shared marital property is almost always divided equally between spouses, though a prenup would allow couples to bypass the community property division.

Spouses should ensure that they do not inadvertently convert a separate asset to a joint asset. For example, someone might transfer the title of a separately owned house to a spouse or transfer funds into a joint bank account. Even adding a spouse to a checking account for the sake of facilitating a credit card can create joint implications.

Many fear that a prenup might birth feelings of mistrust. Instead, think of it as marriage insurance. No one buys life insurance expecting to die prematurely or auto insurance counting on a car accident to happen soon. Likewise, a prenup offers peace of mind, honest knowledge of each other’s finances and the assurance of fewer estate conflicts over money.

If you think you might benefit from such an arrangement, discuss your individual circumstances with your attorney today.

How To Handle Intangible Assets

Intangible assets have long existed — rights such as copyrights, leases and government subsidies — but other electronic properties are gaining recognition, too. Intangibles run a wide spectrum, from patents and trademarks to less visible concepts like culture and networking or to even more latent infrastructure, such as industry protocols, standards or trusts.

Examples include:

  • Brand names.
  • Internet domains and social media presences.
  • Noncompetition and employment agreements.
  • Computer software.
  • Trade secrets and recipes processes.
  • Customer lists.
  • Order backlogs.
  • Licenses, leases and royalties.
  • Government grants.

The art of valuation

In general, if a company derives much of its value from intangible assets, it typically warrants a higher discount rate and a more conservative approach. One drawback of discount rate analysis is that it is easy to manipulate to arrive at the required valuation. Compounding the dilemma, even slight adjustments have amplified ramifications. Think of it like the Hubble telescope — move it a quarter of an inch, and you’re in a different galaxy.

A decision to increase or decrease the discount rate may come down to idiosyncratic factors. Patents, for example, provide differing levels of protection, depending on their remaining term. A longer remaining life could increase the discounted cash flow. By contrast, that same patent might actually lead you to reduce your estimated cash flow if it were nearing expiration. How many years does it have left to run, what’s the nature of the competitive landscape, and does a firm’s process generate additional patents over time?

Interpreting goodwill

Goodwill is exceptionally difficult to evaluate. Assets like trademarks, patents or customer lists are somewhat easier to pin down, but goodwill is vulnerable to manipulation.

Some companies are organically driven and may not even utilize a line item for goodwill. Others, during an aggressive growth mode, might lump many components of goodwill together. Coca-Cola is often cited as exemplifying how organic goodwill can be worth billions of dollars, vastly more than the rest of a company’s assets. Coca-Cola’s product consists of water, corn syrup and flavoring, but the company has tremendous brand and secret-recipe value.

What is the underlying reason for the existence of a particular item of goodwill? Is it relevant to longer-term business exposures and strategies? Does that goodwill help a firm establish a position or become more involved in trends driving the global economy? At the crux, is it more economical to buy a new business line of activities or to create it in-house?

Current accounting rules call for a rapid write-down for any impairment of that elusive goodwill balance sheet entry. In simple terms, goodwill represents the excess amount an acquirer is willing to pay over the fair value of a unit — the price that would be received in an orderly transaction between market participants. Yet analysts struggle mightily with impairments.

For any acquisition, the purchase price only applies to Day 1. The slope gets slipperier for a nonfinite asset with no expiration, like a trademark. Rather than amortizing and writing down these assets over time, companies must retest them annually. The technology may even become obsolete, in which case that entire investment should theoretically be written down to zero. But management would then have to admit a huge mistake. Few are eager to do so!

It can happen, however. Goodwill sometimes provides justification for the price of an acquisition. For example, Warren Buffett wrote down the value of the Kraft and Oscar Mayer brands inside the Kraft Heinz Company. The company concluded it had overpaid in goodwill when Heinz acquired the Kraft name. Although relatively little had changed, the company considered it imprudent to carry those brand values at overstated valuations.

A new outlook

Older gauges may not adequately capture today’s business themes: the compression of time, technological change, enhanced communications, globalization and network effects. None of these concepts are easy to operationalize in concrete corporate terms. As investments shift in emphasis toward ideas and relationships, investors may want to take into account the role of intangible elements in their portfolio holdings.

For a deeper dive into the role and weight of intangibles among your own investments, ask your financial adviser how these features may be reflected in your asset lineup.


Long-Term Advantages of Home Ownership

There are two big tax benefits you get when owning a home: You can deduct the mortgage interest that you pay each year and you can deduct at least a portion of your property taxes.

Mortgage interest deduction: The most valuable tax benefit is the mortgage interest deduction. This perk allows you to deduct the interest you pay each year on any mortgage that you use to buy, build or improve your primary residence or a second home.

Under federal law, you can deduct the interest you pay on up to $750,000 of combined mortgage debt if you are filing your taxes as an individual or as a married couple filing jointly. Married couples filing separately can deduct up to $375,000 in mortgage debt. (Higher limits apply if you bought your home on or before the end of 2017 — check the IRS for details.)

What’s especially nice is that these deduction rules don’t apply only to the mortgage you used to buy your primary residence. You can also deduct the interest you pay on a second home. Remember, though, that you can only deduct up to a combined $750,000 in interest, no matter how many mortgages you have.

You can deduct the interest — again up to the federal limits spelled out above — on home equity loans and home equity lines of credit, too. But to take the deduction, you must use the funds from these loans to make improvements to your primary or second home. If you use the dollars from these home equity loans to pay down credit card debt or cover your child’s college tuition, you can’t deduct the interest you paid on them.

Property tax deduction: You can also deduct the state and local property taxes that you pay each year on your home, though this deduction might not be as valuable if you live in a state in which property taxes are especially high. That’s because you can only deduct up to $10,000 for state and local taxes each year, a change that went into effect after Congress passed the Tax Cuts and Jobs Act in 2017.

If you live in a state in which property taxes routinely soar past that $10,000 limit, then you won’t be able to deduct all the money you spend each year on these taxes. That $10,000 cap is for a combination of taxes, including state and local income and sales taxes, too, which means that in high-property-tax states, you’re more likely to be paying more than the limit.

Still, you’re at least able to deduct some of the property taxes that you pay, providing a bit of relief when you file your income taxes each year.

This is just a summary; there may be other provisions that affect you. The point is that you have to look at the big picture. To understand in detail how home ownership will affect your bottom line, work with a financial professional.

How To Deal With Employee Taxes

Employers generally must withhold income tax from employees’ wages. To figure out how much tax to withhold, you need to use the employee’s Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods. You’ll deposit your withholdings based on your business and the amount you withhold.

File returns four times a year, and at the end of the year, prepare and file Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to employees. Each employee needs a completed copy. You will use Form W-3, Transmittal of Wage and Tax Statements, to transmit Form W-2 to the Social Security Administration.

Other key responsibilities

You must withhold Social Security and Medicare taxes from employees’ wages and make sure they submit the matching amounts. (Something else to budget for!) To figure out how much tax to withhold, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide. Deposit the taxes you withhold. You can find the detailed requirements for depositing on the website.

The current tax rate for Social Security is 6.2% for you and 6.2% for the employee. For Medicare, the current rate is 1.45% for you and 1.45% for the employee, or 2.9% total. Also, an Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. You’ll withhold an Additional Medicare Tax of 0.9% for single filers who make more than $200,000. For married couples filing jointly, the threshold is $250,000, but if filing separately, $125,000. You don’t have to match this additional portion.

The government generally adjusts the earnings subject to Social Security each year. For 2023, the maximum earnings were $160,200.

Employers report and pay taxes under the Federal Unemployment Tax Act. The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different based on the respective state’s rules.

Mark your calendar with key dates. The IRS has an Employment Tax Due Dates page with information on what you need to do and when you need to do it. The matching share of the Social Security and Medicare payroll taxes are collected as the Federal Insurance Contributions Act taxes and your part is considered a business expense, not a liability. Because it’s a business expense, it can be written off at tax time.

Don’t forget the states

This is just the beginning of an employer’s responsibilities. You are likely subject to state withholding rules as well. It’s essential that employers be on top of the general rules and any annual rate changes. Understanding these tax issues is important, since you bear the responsibility of fulfilling your tax obligations relating to your employees. It’s important to send out payments on time to avoid penalties and late fees. Be sure to work closely with financial professionals to make sure you stay compliant.