Our Blog - UptoDate Bookkeeping

IRS Announces HSA Limits for 2024: What This Means for You

Posted on July 19, 2023 by udtadmin - Bookkeeping Services

The Internal Revenue Service (IRS) recently published their annual inflation adjustments for Health Savings Accounts (HSAs) in Rev. Proc. 2023-23. As HSAs continue to gain popularity due to their numerous tax advantages, it is essential for the general public to stay informed about these updates. Below, we break down the 2024 HSA limits and discuss the factors contributing to these changes.

Key HSA Limit Changes for 2024

High Deductible Health Plans (HDHPs): For the calendar year 2024, an HDHP is considered a health plan with an annual deductible of at least $1,600 for self-only coverage or $3,200 for family coverage. The annual out-of-pocket expenses (including deductibles, copayments, and other amounts, but excluding premiums) must not exceed $8,050 for self-only coverage or $16,100 for family coverage.
Annual Deduction Limit for Self-Only Coverage: The maximum annual deduction for an individual with self-only coverage under an HDHP will be $4,150 in 2024.
Annual Deduction Limit for Family Coverage: In 2024, the maximum annual deduction for an individual with family coverage under an HDHP will be set at $8,300.

It is important to note that the HSA catch-up contribution limit for individuals aged 55 and older remains unchanged at $1,000 by statue.

Factors Behind the HSA Limit Changes

The Society for Human Resource Management (SHRM) highlights several reasons behind the significant 7% increase in annual contribution limits, one of the largest jumps in recent years. The primary factor is the high inflation rate, which directly impacts these limits.

This substantial adjustment in HSA limits brings additional attention to HSAs as a valuable financial tool. Many industry experts endorse health savings accounts as a smart way for employees to save for medical expenses, even during retirement. HSAs provide triple tax benefits that make them an attractive option for those seeking to optimize their financial planning:

Contributions are made using pre-tax dollars.
The money in the accounts grows tax-free.
Withdrawals for qualified medical expenses are tax-free.

By staying informed about HSA limits and understanding their inherent value, individuals and families can make more informed decisions when it comes to planning for healthcare expenses. This knowledge can lead to improved financial health and overall well-being in the long run.

Safeguard Your Digital Assets: The Importance of a Digital Estate Plan

Posted on July 16, 2023 by udtadmin - Bookkeeping Services

In today’s digital world, having a well-crafted digital estate plan has become crucial for every individual and business. A digital estate plan serves as an effective means to protect your digital presence, safeguarding you against potential issues like identity theft, unauthorized access to your business’s financial information, and theft of private files such as insurance documents. This blog post aims to shed light on the importance and intricacies of managing and protecting your digital assets.

What are Digital Assets?

Before delving into digital estate planning, it’s essential to understand what digital assets are. While most people primarily think of digital assets as items they own, such as documents and images stored on their devices, digital assets extend beyond just ownership. For instance, when you purchase a song online, you acquire the rights to listen to it, but you do not own the rights to the music itself. In this case, the song is a digital asset that you license rather than own.

In the context of a business, digital assets not only include customer data and financial information but also various project files and intellectual properties. These assets are often stored on company servers or in cloud-based systems, making effective management crucial to protect their value.

Managing Digital Assets in Uncertain Situations

One of the most pressing concerns surrounding digital assets is how they will be managed and distributed in the event of a person’s incapacitation or death. This is where having a comprehensive digital estate plan comes into play.

Digital assets may include a wide array of internet-based accounts, such as bank accounts, gaming profiles, loyalty program memberships, and even cryptocurrency holdings. It’s crucial to address the distribution of these assets as part of your overall estate planning process.

Key Components of an Effective Digital Estate Plan

To create an engaging and informative digital estate plan, consider the following steps:

Inventory your digital assets: Start by making a comprehensive list of your digital assets. This may include anything from email accounts and social media profiles to Cloud-storage subscriptions and licensed software.
Assign value to digital assets: Some digital assets may have significant monetary or sentimental value associated with them. Identifying the value of your digital assets can help determine their importance in your estate plan.
Appoint a digital executor: Choose a reliable person to manage your digital assets according to your wishes. This individual should also be entrusted with the task of accessing and closing your online accounts when necessary.
Provide clear instructions: Clearly outline your wishes for each digital asset, specifying if they should be preserved, distributed, or deleted. It’s essential to include access information, such as account usernames, passwords, and any required security question answers.
Consult legal and financial advisors: Speak with professionals familiar with digital estate planning to ensure your plan complies with relevant laws and considers tax implications.

In conclusion, creating a well-thought-out digital estate plan is integral to protecting your online presence and digital assets. By taking the time to inventory, value, and appoint a responsible digital executor, you can rest assured that your digital assets will be managed and distributed according to your wishes in any uncertain circumstances.

How to Recognize and Avoid Scams: Stay Alert and Stay Safe

Posted on July 13, 2023 by udtadmin - Bookkeeping Services, Uncategorized

Almost everyone has experienced a moment where they receive a suspicious email, text message, or phone call that appears legitimate but is actually a scam. Scammers have become increasingly sophisticated, fooling even the savviest individuals. According to the FBI’s Internet Crime Report, in 2022, online scams led to over $10 billion in losses, marking the highest annual loss in the past five years. Notably, people over 60 accounted for $724 million of reported losses due to call center fraud, where scammers impersonate tech support or government agencies. Surprisingly, people in their 30s filed the most fraud complaints in 2022.

Nobody wants to become a victim of a scam, considering the potential financial and emotional costs. The Federal Trade Commission (FTC) highlighted the top five commonly reported scams in 2022, which include imposter scams, online shopping scams, prize/sweepstakes/lottery scams, investment-related scams, and business/job opportunity scams. In this blog post, we’ll cover five red flags to watch for that may indicate someone is trying to scam you.

1. Suspicious Communication from Government Agencies

It’s important to note that government agencies like the IRS and the Social Security Administration generally use the U.S. Postal Service to contact taxpayers. If you receive a call, text, email, social media message, or letter from someone claiming to be from a government agency, it’s best to hang up or ignore the message. To confirm if it was a potential scam, consider contacting the agency directly through their official phone number or website.

2. Requests for Personal Information

Be cautious of unsolicited requests for personal information, such as your Social Security number, bank account details, or credit card information. Legitimate organizations typically do not ask for this information through phone calls, text messages, or emails. If you’re uncertain about the authenticity of the request, reach out to the company or organization directly through official communication channels.

3. Urgent or High-pressure Tactics

Scammers often try to create a sense of urgency, pressuring you to make a decision immediately. They may claim that your account has been compromised, or you’ve won a prize that must be claimed right away. Take a moment to evaluate the situation and remember that a genuine organization would allow you to verify the information and make decisions at your own pace.

4. Unusual Payment Methods

If someone instructs you to make a payment through unconventional methods like wire transfers, gift cards, or cryptocurrency, this is a strong indication of a scam. Reputable organizations typically provide multiple, secure payment options and never demand payment using these unorthodox methods.

5. Spelling and Grammar Errors

While not always present, phishing emails or scam messages may contain spelling and grammar mistakes, indicating that the message isn’t legitimate. Additionally, check the sender’s email address or website for any discrepancies that might signal a hoax.

By staying alert, recognizing red flags, and verifying the legitimacy of any suspicious communications, you can protect yourself from falling victim to scams. Remember, if something seems too good to be true, it probably is.

Navigating Employee Taxes: A Guide for Employers

Posted on July 10, 2023 by udtadmin - Bookkeeping Services

Managing employee taxes may seem overwhelming at times, but as an employer, it is crucial to be well-informed and compliant in order to ensure the success of your business. In this article, we will guide you through the process of tax withholding and reporting, as well as delve into other key responsibilities associated with employee taxes.

Withholding Income Tax from Employee Wages

As an employer, it is your responsibility to withhold income tax from employees’ wages. To do this, you must refer to each employee’s Form W-4 and follow the instructions provided in Publication 15-T, Federal Income Tax Withholding Methods. Based on your organization’s size and the total amount of withheld taxes, you’ll deposit your withholdings accordingly.

Quarterly Filing and Year-End Reporting

Employers are required to file tax returns four times a year, and at the end of each year, prepare and file Form W-2, Wage and Tax Statement. This form is used to report wages, tips, and other compensation paid to employees. Ensure that each of your employees receives a completed copy of their Form W-2. To submit the forms to the Social Security Administration, use Form W-3, Transmittal of Wage and Tax Statements.

Additional Employer Responsibilities

Apart from withholding income tax, employers must also withhold Social Security and Medicare taxes from employees’ wages. Additionally, you are responsible for submitting matching amounts for these taxes.

To compute the correct tax withholding, refer to the employee’s Form W-4, Publication 15, Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide. Make sure to deposit these taxes according to IRS requirements.

Social Security and Medicare Tax Rates

Keep in mind that the current tax rate for Social Security is 6.2% for both you, the employer, and the employee. For Medicare, the rate is 1.45% for each party, totaling 2.9%. Furthermore, an Additional Medicare Tax is applicable to individuals earning over a certain threshold.

In conclusion, employers have several important responsibilities when it comes to withholding and remitting employee taxes. By staying informed and compliant with IRS regulations, you can promote the smooth operation of your business

Navigating Business Succession in the Post-COVID-19 World

Posted on July 7, 2023 by udtadmin - Bookkeeping Services

COVID-19 has undoubtedly transformed the way businesses operate, pushing many owners to reconsider the future of their ventures. As the world slowly adapts to the new normal, it is time to address critical issues that were sidelined during the pandemic, one of which is business succession. This topic is essential for a company’s longevity and involves several options for owners to consider:

Selling the business
Choosing a successor and transitioning the business
Filing for bankruptcy
Closing the business

Determining the best course of action is not a simple task, mainly because the pandemic has introduced new challenges that may have altered the original succession plan. Thus, business owners should conduct a thorough analysis of the current situation, taking into account the following key questions:

How well did the business handle cash flow during the pandemic? Assessing the company’s financial health is crucial. A business that maintained adequate cash flow during these trying times may be in a better position to transition or continue operations.
Can pandemic loans or grants be forgiven (fully or partially)? Understanding the total financial burden and potential relief can have significant implications in the decision-making process.
How have supply chain issues been addressed? Identifying any changes in suppliers and understanding the impact on business operations can shed light on the company’s resilience and adaptability.
What was the pandemic’s effect on sales and margins? Analyzing whether they will recover, continue to grow, or decline can give valuable insights into the business’s future viability.
Has the company’s vision and mission been altered? Understanding the strategic changes made during the pandemic will help forecast potential long-term effects on the business.

Approaching these questions with a professional and thorough mindset can help business owners better understand their options and make informed decisions about the future of their companies. While uncertainty still surrounds us, developing and implementing a well-informed succession plan will contribute to the business’s continued success and survival amidst a changing world.

In conclusion, the post-COVID-19 landscape demands new strategies and considerations for business owners. As they navigate the challenges of business succession in this evolving environment, asking the right questions and embracing the adaptations that have been made during the pandemic can lead to a more stable and successful future.

Discover the Lowdown on Fringe Benefits and Taxes

Posted on June 24, 2023 by udtadmin - Bookkeeping Services

Value of Fringe Benefits

Generally, to value certain fringe benefits, the IRS provides other specific protocols that employers and workers can adhere to. The employer should not relinquish their obligations. The IRS notes that the company is the one granting the benefits, whether a third party or the customer provides the benefits to the employee for their service to the employer.

What is Not Taxed

However, the IRS emphasizes that if the employer pays the hospital or health insurance plans’ costs for their workers (including their spouses and dependents), these payments are not wages and have no taxes levied on them, such as the Social Security, Medicare, and Federal Unemployment Tax Act charges or withholding of federal income tax. This exception applies to long-term care insurance policies as well.

The cost of health insurance benefits must be in the wages of S corporation employees who own more than two percent of the business, but the IRS sets limits between proprietorships and employees. This list of exceptions to withholding laws is by no means complete, and changes may occur in the future. Discuss with a tax advisor to ensure that you’re administering your fringe benefits correctly.

Withholding Exclusions

Certain exclusions apply to withholdings, such as athletic facilities, employer-provided cell phones primarily for non-compensatory business purposes, meals furnished on-site at the business, and dependent care assistance up to $5,000 ($2,500 for couples filing as separate individuals).

Maximize Your Mortgage Approval Chances by Understanding Your Debt-to-Income Ratio

Posted on June 21, 2023 by udtadmin - Bookkeeping Services

Curious about your debt-to-income ratio and what it means for your mortgage application? This number is critical to lenders, who look at your monthly expenses and debt load to assess the likelihood that you’ll make mortgage payments on time. The lower your ratio, the better your chances of being approved.

But what exactly is it?

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward your monthly debts. This includes payments for credit cards, auto loans, student loans, and any other debts you may have.

How can you calculate it?

Simply divide your monthly debt payments by your gross monthly income. To qualify for most mortgages, lenders typically want your total expenses, including your estimated mortgage payment, to be no more than 43% of your income. However, a high debt-to-income ratio doesn’t necessarily mean that you won’t qualify for a mortgage – but you might end up with a higher interest rate and monthly payment.

What else do lenders consider?

In addition to your debt-to-income ratio, lenders will review your FICO credit score, employment history, and savings to determine your overall financial health. By paying off debts, lowering credit card balances, and maximizing your income, you’ll boost your chances of being approved for a mortgage with favorable terms.

Make Tax Planning a Year-Round Priority: Tips to Maximize Your Savings

Posted on June 18, 2023 by udtadmin - Bookkeeping Services

Don’t wait until the last minute to plan for taxes. Stay ahead of the game with these tips you can follow alongside your tax adviser throughout the year.

Personal tax issues:

Timing is everything. Delaying taxation when possible can mean more savings and keeping more of what you earned.
Capital gains and losses: Don’t miss out on opportunities to offset gains with losses. Unused losses can even be carried forward.
Charity contributions: Consider contributing appreciated stock instead of cash to maximize your deduction benefit and avoid paying taxes on gains.
Secure your retirement. Catch up contributions to retirement plans can benefit people 50 and over. Talk to your adviser for the best option.

Business tax issues:

Get the most out of any qualified retirement plans. Consider contributing to an IRA to save money in the long run.
Control wages through year-end bonuses to protect your business and personal interests.
Maximize your deductions. Whether it be using personal automobiles for business or having a home office, make sure to review the rules thoroughly to reap the benefits.

Don’t be caught off-guard by the alternative minimum tax and other surprises. Take advantage of these tips and more that apply to your situation. Contact us in the coming weeks and let us help you save.

Debt Limit: Resolved Until 2025

Posted on June 15, 2023 by udtadmin - Bookkeeping Services

Take a deep breath – the United States can continue to pay its debts now that the issue of raising the debt limit has been resolved until at least January 2025. While it would be ideal if Congress found a way to eliminate this issue permanently, for now, we need to understand the provisions included in the recent act.

What You Need to Know About the Act

The debt limit is suspended until January 2025.
Military spending will increase by about 3% in 2024, and there will be funding to improve medical care for military veterans, including a $20.3 billion fund for veterans who have been exposed to toxic substances or environmental hazards. Non-defense spending levels are flat this year and can be raised by 1% in 2025.
The act includes new work requirements for able-bodied, low-income Americans ages 50-54 who receive food assistance under the Supplemental Nutrition Assistance Program. Certain exceptions are included for homeless people and veterans.
Student loans are no longer frozen for COVID-19, but President Joseph Biden’s efforts to forgive between $10,000 and $20,000 in student loan debt for most borrowers aren’t affected. Payments are set to resume no later than Aug. 29, 2023.
There are new measures aimed at getting energy projects approved more quickly, plus much more.

What’s Not in the Act

Changes to Social Security or Medicare.
New taxes on corporations or wealthy individuals.
Steps to reduce Medicare spending on prescription drugs.
Changes to the Inflation Reduction Act’s clean energy and climate provisions.

To understand how these provisions might affect you, it’s best to work with a financial professional.

7 Effective Tips for Establishing Business Credit

Posted on June 12, 2023 by udtadmin - Bookkeeping Services

Are you struggling to establish credit for your small business without putting up personal guarantees? Here are some guidelines you can follow:

Separate your personal and business credit. Avoid using your personal funds for business purposes, or vice versa, to prevent losing the protection of your LLC or corporation. This will also prevent personal liability for any outstanding debts.
Apply for a federal tax ID number or EIN. Just like your Social Security number, this unique nine-digit number identifies your business entity and allows you to open a bank account.
Prepare all necessary documentation. Keep your licenses and other relevant documents on hand for easy access. Lenders and vendors will review these during their due diligence process.
Set up a business bank account. Consider your current and future banking needs before selecting a financial institution. Decide if a big bank, community bank, credit union or online bank suits your business best.
Monitor both personal and business credit scores. Different credit reports mean different credit scores. To obtain favorable credit rates, strive to keep your personal score at 680 and your Paydex business score at 80 or above. Dun and Bradstreet will determine the latter.
Get a business credit card. Be aware that the issuer may assess your personal credit score since most business credit cards require a personal guarantee. However, your score typically rebounds after a few on-time payments.
Apply for an unsecured line of credit. An unsecured line of credit gives you access to capital that you can use for business expenses. Repayments are replenished automatically when additional payments are made to the lender.