What No One Tells You about Social Security Benefits

The system of receiving Social Security Benefits was introduced way back in 1935 when the then President, Franklin Roosevelt, signed the Social Security Act. The current regulations governing Social Security Benefits have been through various amendments since their inception. Currently, under the Social Security Benefits, four different types of benefits are paid. These include retirement benefits, disability benefits, dependents benefits and survivor’s benefits.

Though you might know that your Social Security Benefits depend on your level of income and for how long you have worked, there are some facts about such benefits which you might not know. Given below are some common facts which no one tells you about your Social Security Benefits:

• The ‘full retirement age’ depends on the year of your birth
• Getting benefits after divorce
• The Social Security Benefits are calculated on your average 35-year income
• The difference between spousal and survivor benefits
• Spousal and survivor benefits do not increase after the full retirement age

Brief about these facts of Social Security Benefits:

The ‘full retirement age’ depends on the year of your birth

While you might know that receiving your Social Security Benefits are more rewarding from or after you reach your full retirement age, do you know the actual full retirement age. While most of us consider 66 to be the full retirement age, the fact is that the actual age depends on the year we are born. If you are born in 1938 or earlier, your full retirement age is 65 years. If you are born between 1943 and 1954, your full retirement age would be 66 years and if you are born after 1960, the full retirement age is actually 67 years. Did you know this?

Getting benefits after divorce

If you are divorced from your spouse and want to lay a claim to spousal benefits of your ex-spouse, you have to fulfill three important criteria. One, you should remain unmarried for claiming the benefit. Two, your marriage should have lasted for at least 10 years. Three, your spouse should be retired or disabled. However, if you and your spouse are above 62 years of age and have been divorced for more than 2 years, you can start receiving spousal benefits even if your working spouse has not opted for the same.

The Social Security Benefits are calculated on your average 35-year income

Though the computation of Social Security Benefits varies as per different situations, one thing is constant. The number of years taken for your aggregate earnings is 35 years. If you have worked for more than 35 years, the highest earning years are considered in the calculation. However, if you have worked for less than 35 years, ‘zero’ value is taken for such years when your income was nil. This, therefore, reduces the value of the benefits you can receive.

The difference between spousal and survivor benefits

You get spousal benefits being married or being divorced. In either case, your spouse should be alive. However, if your spouse dies, you get survivor benefits. Spousal benefit is 50% of the Social Security Benefit which your spouse is entitled too while survivor benefit is 100% of that amount. When claiming either benefit, you can get only one– either yours or your spouse’s. In case of spousal benefit, if your benefit is more than 50% of your spouse’s benefit, you would get the higher amount, i.e. your benefit. The same holds true in the opposite scenario where you would get your spousal benefit. In short, when claiming spousal benefits, you can claim only one benefit and let go of the other. In survivor benefit, though, you can collect your survivor benefit and let your own benefit to grow.

Spousal and survivor benefits do not increase after the full retirement age

Though you can increase your Social Security Benefit if you delay receiving it post your full retirement age, no increment is available in case of spousal or survivor benefit.

Did you know these things about Social Security Benefits? I bet you didn’t. Wise men say that knowledge is power and they are not wrong. You should learn the nitty-gritties of Social Security Benefits too so that you can avail the maximum possible benefits.

Health Savings Account Deductions

Planning for healthcare costs is very important considering the high cost of medical treatments. As such it becomes imperative to opt for health insurance plans which cover the medical costs whenever they incur. However, health insurance plans have deductibles and if you have a High Deductible Health Plan (HDHP) your pockets would bear a very heavy burden. To combat these High Deductible Health Plans, a Health Savings Account comes to our rescue.

What is a Health Savings Account?

A Health Savings Account is like a tax-free savings account where you and your employer can contribute money. This money can then be used to pay such qualifying medical expenses which are excluded by your health insurance plan.

What are the features of a Health Savings Account (HSA)?

The account has various features which are as follows:

• You can set up the Health Savings Account with a qualified HSA trustee.
• You should have a HDHP to qualify for the HSA.
• Contributions to the HSA can be made by you, your employer, or both. If your HDHP covers only you, the maximum annual contributions to the HSA account would be limited to $3400. If your family is also covered by your health plan, the annual contribution limit goes up to $6750. Individuals above 55 years of age can contribute an additional $1000 in excess of this limit. If you or your employer’s total contributions exceed the specified limits, a penalty of 6% would be levied.
• The contributions made to the HSA, by you or by your employer, are tax-free. They are deducted in the ‘adjustments to income’ section on the Income Tax Form 1040.
• If your HSA earns any interest, such interest is also tax-free.

The balance in the HSA should be used only to pay qualifying medical expenses. If the HSA is used for paying non-qualifying medical expenses a penalty of 20% would be charged. This penalty, however, would not be applicable if the individual is more than 65 years old, becomes disabled or dies.

If the money in the HSA is not utilized in any financial year, it is rolled over to the next year. This carries on every year and the cumulative balance also earns interest.

How to file HSA deductions?

Since HSA contributions qualify for tax exemptions, they can be availed as deductions. For your employer’s contributions it would be listed in box 12 of the Form W-2. Your total HSA contributions should be recorded in Form 8889 and the form should be attached to your Form 1040, i.e. your Income Tax Return and then you should file your taxes.

Significance of Filing an Annual Report

What is an Annual Report?

Most entities are subject to regular reporting requirements to the federal government, state jurisdiction, and/or local jurisdictions in which business is transacted. The definition of an annual report is a required filing due to the Secretary of State, usually a listing of directors, officers and some financial information.

States in which your corporation or LLC is formed or qualified to do business in generally require you to file an annual report.

By filing an annual report, you’re providing the Secretary of State with updated information about your business. The details of your annual report may vary from state to state, but typically include information about your corporation or LLC such as:

• The names and addresses of your officers, directors, members, managers and/or trustees
• Your principal business office address
• The name of your company’s registered agent
• The number of shares of stock your corporation has issued

Different states charge different filing fees for annual reports. Deadlines, too, vary from state to state. Some states have only a bi-annual (every two years) filing requirement. Other states require corporations and LLCs to file an initial annual report soon after formation.

What is the purpose of filing an Annual Report?

The purpose of filing an annual or biennial report is to provide the jurisdiction with current information on the company’s structure (officers, directors, members, registered agent, etc.) and finances (authorized shares, issued shares, stated capital, paid in capital, etc.)

In many states the amount of a company’s franchise tax due is often determined by the information provided by the company on its annual report.

What happens if I ignore or miss my Annual Report due date?

Missing an Annual Report due date can have major consequences. A company’s good standing status and even its rights to exist can be jeopardized by ignoring annual report requirements. A company may also incur monetary penalties for not filing their report on time.

If you are late to file your annual report, depending on the state, you’ll have to pay penalty fees and reinstatement fees, both of which are much higher than the price of actually filing the annual report for the first time.

We at AO Tax can prepare and file your business’s annual reports. By outsourcing the job to us, you’ll save time, remove uncertainty about details, deadlines and fees, and help protect your company’s good standing. To make sure we have the right information, we’ll even conduct a thorough audit of your company records and provide you a detailed report of our findings. It’s important to note that along with annual reports, many states require companies to pay annual franchise taxes. We at AO Tax can help you satisfy your franchise tax filing requirements, as well as a host of other business compliance obligations.

Is Bookkeeping Important to my Business?

Bookkeeping is comprised of two words “Book” and Keeping” where “Book” means the collection of records and “keeping” is their maintenance. In this sense, Bookkeeping is an activity or process of collections, retention and maintenance of financial records of a business.

This activity of maintaining accurate records cannot be overemphasized.

Bookkeeping is as important as maintaining your business, as this helps us in maintaining regulatory compliance with local governmental bodies and filing an accurate income tax return at the end of every tax period or financial year on time.

This process involves in the formulation of an accurate and appropriate accounting system, which involves recording daily business transactions, and keeping the relevant bill/receipts to substantiate all incomes reported and expenses claimed.

All transactions should be recorded on regular intervals, whether a sale was made, or expense was incurred and paid as it is related to business. Documents such as bills, invoices, bank statements, cheque stubs just to name a few, should be kept as evidence that our records are in fact accurate.

Generally, the same records that are used to prepare financial statements and to monitor the financial position of the business can also be used in the preparation of an income tax return, except in a few cases where the law requires a specific treatment. Therefore, any kind of record keeping can be chosen once it is an appropriate system, suited for your business and it clearly shows the income and expenses for the financial year.

The length of time you should keep a document depends on the action, expense, or event which the document records.

Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.

Why Bookkeeping process plays key role and necessary to the health and wealth of any business.

Bookkeeping process may look like a great time waster to most small business owners, but it is a silent factor that can either make or break any business. This is a great place to start especially for small business owners who desire sustained business growth.

These financial books are very crucial to both small and big business survival.

If you are poised for growth and success, below are few of the books and records should start keeping from now are:

• Cash Receipts book

It is a list of all cash received and an explanation of where the funds have come from, example debtor. Again, this is required for each bank account.

• Cheques Journal

This is a list of all payments made from your bank account. Again, this will be required for each bank account.

• Sales and purchase books

A copy of all customer invoices and vendor invoices listed in books must be maintained. Sales Book helps you to measure the success of your marketing efforts, industry trends. Purchase book helps you to monitor your business outgoings and how much you have spent for each product, material, services, expenses and so on.

• Debtors records

These books show at any time what you are owed from your customers and behavior of your customer base for example whether customers are paying payment within credit period.

• Creditors Records

These books show at any time what money is owed to your suppliers at any given time.

• Payroll records

Records must also be kept regarding the salaries you are paying to your staff. Information must be maintained on how tax is calculated and separate expense claims forms must be retained for these payments.

• Bank statements

All bank statements from all your accounts should be maintained and do bank reconciliation to your records at regular intervals.

• Save time when you file

When the time comes to file your taxes you need to do the last minute scramble to find all that paperwork or overlooking tax deductions to record this headache of recording transactions as we go.

• Separate business and personal expenses

Personal expenses are to be shown separately from business expenses.

The importance of bookkeeping cannot be emphasized enough, but here we will discuss why this process plays key role to the health and wealth for any business.

• It helps you to know whether your business is making a profit or not. Having accurate records allows you to trace trends to see what kind of progress your business has been making, i.e it gives you a good understanding of where your business really succeeds and areas where it needs a bit of help.
• It helps to forecast the future of your business, set projections and goals for the business, we call it budgeting
• It helps in better financial analysis and management, like cash flow management, ratios will never be possible without proper bookkeeping.
• It will help small business meet deadlines and help to make timely payments of loans, and other expenses.
• It will help to know when to infuse additional funds and increase employee base.It helps to evaluate the business performance to know if
• It helps to evaluate the business performance to know if business is stagnant, depreciating or growing. This evaluation helps to strategize and make certain adjustments to business.
• It helps to stay organized when dealing with customers and suppliers. It also helps to plan in advance for tax payment and other liabilities.
• By maintaining proper bookkeeping records information can be easily accessible at the touch of a button.
• When it comes time to sell your business or secure capital to grow your business, being able to thoroughly document your past performance will help your company’s valuat