Author: Jan Roberg

Posted on by Jan Roberg

Introducing Two New Tax Forms for High Income Individuals

Money

Photo by 401(K) 2012 at Flickr.com

 

Back in July of 2012, I wrote about the new Medicare taxes that higher income earners will be subject to under the Affordable Care Act starting in 2013.

 

Briefly, there is an additional Medicare tax of .9% on wages and self employment income over $200,000. ($250,000 for married filing jointly couples/$125,000 for married filing separately)  For more details and a complete breakdown of the taxes you can read the post at:

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-2/

 

And there’s also the new Medicare tax of 3.8% on your investment income. The 3.8% tax is going to apply to the lesser of your net investment income or the amount of your AGI in excess of a certain threshold amount.   The thresholds are $200k-singles and Head of Household, $250K-MFJ, and $125K-MFS.  For more information you can check this post out.

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-3/

 

Now that 2013 is more than halfway through and the income tax filing season will be here before you know it, how are you supposed to report those taxes on your 1040 tax return?  Well, the IRS has introduced not one but two new tax forms for you to fill out.

 

I don’t know why, but introducing new tax forms makes me feel a little like a late night talk show host, so forgive me for saying, let’s bring out our first guest, Form 8959!  http://www.irs.gov/pub/irs-dft/f8959—dft.pdf Okay, it’s no Johnny Depp.  It’s not even as interesting as the Aflac Duck.  But it is new.  If you click on the link, you’ll have to scroll past all the warning it’s only a draft signs.  (If you’re reading this in 2014, you should be able to find actual forms instead of drafts.)  The Form 8959 is what you’ll be filling out if you have to pay the .9% Medicare tax on wages or self-employment income.

 

If you have investment income, the new form is called the Form 8960 and here’s a link to that:  http://www.irs.gov/pub/irs-dft/f8960—dft.pdf That’s going to be the form you file for the 3.8% Medicare tax on investment income.

 

Now the upside to both of these forms (if there’s an upside to paying more taxes) is that if you’re using computer software (like the 1040.com software you can access from this website) — the software will compute everything for you.  I have 100% confidence that Turbo Tax, H&R Block at home, and all the others will get the 8959 right.  The 8959 form is for the .9% tax on wages.  The form is very straight forward (as far as tax forms go, at least to a tax geek like me.)  You basically take numbers from your W2 or self employment tax form and do a little multiplication.  Bam—you’re done.

 

But I am a little concerned about potential errors in the 8960 forms.  There are 21 official lines to the form and there are 16 places where the form says “see instructions.”  That’s telling me there’s a lot of room for error there.   You’re still going to be better off using a tax software if you have to file the form 8960, but I’d be cautious.  Don’t rush to be the first one to file your return.  During tax season, software programs are updated daily.  This form is likely to have bugs, so let the IT folks work those bugs out before you submit.

 

As a tax professional, I’ll be going over those forms with a fine tooth comb until I’m confident the numbers are all flowing correctly.

 

The taxes that you compute on forms 8959 and 8960 will be reported on line 60 of your 1040 tax return:  http://www.irs.gov/pub/irs-dft/f1040—dft.pdf Line 60 used to just say “other taxes” but now it will specifically 8959 and 8960 with little checkboxes.

 

So technically, Congress can say that your 1040 form won’t be longer.  You’ll just have extra pages to attach to it.

Posted on by Jan Roberg

What is a W-9 and Do I Need One?

w9 forms

I’ve you own your own business and provide service to another company, they may ask you to fill out a W9 form.

 

If you own a business and you pay for services to an individual, and you expect to pay over $600 for those services, then you should have that person complete a W9 form for your files.  You’ll need the information in order to prepare the 1099MISC forms next January.  Also, you only need a W9 if someone is working for your business.  For example:  when I have Brad the Painter come to my house to replace my damaged siding—I don’t give him a W9, it’s a personal service to me.  Now if I hired Brad to paint my office, then I’d have to collect the W9 because it would be a business expense.

 

The general rule here is if you’re writing the service off as a business expense, then you’ll need to collect a W9 from the vendor.

 

 

Who should I give a W-9 to? This is an important question because I received numerous complaints from people who were asked to complete a W9 form.  Basically, if you’ve done work for a business and they’ve paid you over $600 you should just hand them a completed W9.  That was the instruction I was given by the IRS for my own company.  You might think you’re not self-employed, or that you don’t have a business—but if you are doing work, getting paid, and not on the payroll; that means you’re self-employed.

 

When you look at the W9, the check boxes indicate if you’re an S Corp, C Corp, or sole proprietor.  The instructions also recommend that sole proprietors use their social security numbers instead of EIN numbers.  This is where I’m going to disagree with the IRS, in light of the huge number of identity theft cases this past year, do not use your social security number on your W9 form.  Anybody can get an EIN number for their business.  You can do it for free and it takes about 5 minutes at the IRS web-site:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employer-ID-Numbers-(EINs)-

 

When completing the EIN application, a sole proprietor is anyone who is filing a schedule C (self employed), E (rental real estate) or F (farm) for their business.  It’s important to know that the minute the IRS issues the EIN number, it’s good.  If you have to submit a W9 but don’t have an EIN, you can go online, get the EIN, and use it on your W9.  The business issuing you a 1099 must accept your EIN even if you did the work a year ago.

 

 

 

Is there any way to avoid having to complete a W-9 form or issue a 1099MISC? The easy way to avoid having to issue a 1099 MISC (and collecting a W9 form) is to pay by credit card.  Credit card companies are now issuing 1099K forms so that revenue to the vendor is already being reported to the IRS by another reporting agency.  If you don’t want to be collecting W9 forms and issuing 1099s, then use your credit card.  This is the easiest way to avoid 1099MISC and W9s, but remember that there are lots of fees associated with using credit cards.  As my Mom used to say, “Pick your poison.”

 

What about home office expenses? Do I need to collect a W9 from my landlord?  I think this is a case of the overzealous W9 collector.  If you have a home office, you’re reporting that on your Form 8829.  Whether you are reporting mortgage interest or apartment rent, it is considered to be a personal expense that you are attributing a percentage of to your business expenses.  You do not need to collect W9s from your mortgage company, landlord, or utility companies to claim your home office deduction.  (I’ve been asked this question enough times that I felt it necessary to include it here.)

 

 

 

What about purchasing an item from an individual?  Do I need a W-9 then? The example that was given to me was buying a claw foot bathtub from Aunt Bertha.  I tend to think of this kind of like going to a garage sale—you wouldn’t dream of giving a 1099 to the person running the garage sale would you?  Now if Aunt Bertha were in the business of refurbishing bathrooms; that might be another story.  But if you just buy something, a private transaction between two people, that’s not a W9 issue.

 

 

 

What about small jobs that are repeated monthly so the total will be over $600.  Do I need to get a W-9 for those? Once again, if you’re talking about business expenses then you should collect a W9 and issue a 1099MISC for the work.  For example:  I used to pay $50 a week to a guy to edit my blog posts and monitor my website.  (Now Mike does that.)  Although the payment was only $50, over the course of a few months, it exceeded the $600 threshold so I had to issue a 1099.

 

Generally, if you’re unsure about needing a W9, it’s safer to err on the side of collecting one and issuing a 1099MISC than it is to not have it.

Posted on by Jan Roberg

Small Business Expenses: Advertising vs. Charity (Purple Pig Purchases)

Purple-Pig

 

 

 

At first blush, you might think that advertising and charity don’t go together at all.  But when you own a small business, your advertising and charity might just go hand in hand.  Let me explain.

 

When you own a small business, you’ll get lots of calls from organizations wanting your business to make donations to charities.  When you’re a sole proprietor, partnership, or S Corporation, your charitable donations don’t reduce your business income, they only count as a charity donation on your Schedule A personal tax return.

 

So—let’s say you want to donate $100 to Cystic Fibrosis from your business.  That’s all fine and good, but that donation doesn’t reduce your business income by $100.  It doesn’t reduce your business income by anything at all.  You still get to deduct it on your Schedule A—but if you don’t itemize your deductions, that $100 donation doesn’t help your tax return at all.

 

This is where advertising comes in.  Instead of just donating $100 to a charity, you can buy an ad in a charity event program, that way you’re giving money to the charity, and getting a 100% business write-off for the advertising.  The charity still gets your money, and you get a better write-off.

 

Why do you want to your business donation to be  advertising?  The taxes!  If you have a sole proprietorship and you’re in the 25% tax bracket, your business income is actually taxed at 40.3%.  (25% regular tax rate plus 15.3% self employment tax.)  If you itemize your deductions, your $100 donation would really only cost you $75 (but only if you can itemize your donations.)  But if you can count it as a business expense, then your $100 donation would really only cost you $59.70. ($100 minus $40.30) See why this is a good thing?

 

Of course, there are some things that are just going to be charitable donations no matter how you try to align them.  Your tithe or temple dues simply won’t count as advertising.   But when you’re looking at charities that you like to support, be sure to check out the advertising opportunities.

 

So what’s with the purple pig?  A not for profit I support held an event for kids.  Instead of just donating money, I got to set up a booth and hand out my fliers to the parents.  The pig was part of a pig race game for the kids.  The pig is a 100% deductible business expense—and he’s really cute.   Cute and deductible—that works for me.

Posted on by Jan Roberg

More Balance Sheet for Dummies

Small Business Balance Sheet (part 2)

Disclaimer:  Realize that this blog post is not an accounting class.  This is just simple, basic information for small business owners who would normally freeze up when they hear the word accounting.  If you’ve got an accountant preparing your return for you, you have the right to ask questions and not be intimidated.  Sometimes the balance sheet numbers just look like mumbo jumbo.  My goal here is to help you get a little handle on what your balance sheet is showing you.

Abigail On The Balance Beam

Photo by Joe Shlabotnik at Flickr.com

 

In the last post we learned that

 

Assets  =  Liability   +  Owner’s Equity

 

We left off with partners Peggy and Sarah having a very simple balance sheet of  $12,000 in cash and $12,000 in owner’s equity.  (example 1)  But in real life, there’s usually more to a balance sheet than just your cash.

 

So let’s say that Peggy and Sarah (I’m going to call the company P&S from here out, okay?) bought a piece of equipment for $5,000 cash.  That’s going to change the balance sheet—but not the owner’s equity.  Look.   We took $5000 out of cash, so now they only have $7000 left.  But they have a $5000 piece of equipment—equipment is also an asset so their assets still equal $12,000.  Since they still have no liabilities, then their owner’s equity is also still $12,000.

 

But maybe they didn’t feel like they could spend $5000 cash on that equipment, so they charged it on a credit card instead.   (example 3)  They still have their $12,000 cash, plus they have $5,000 in equipment so their total assets are $17,000.  But since the equipment is on a credit card, they now have a liability of $5,000.  Their total Liabilities + Owner’s Equity = $17,000 (because it has to equal the total assets, right?).  So the Owner’s Equity is $12,000.  They could have taken out a loan instead.  A loan would also be a liability and would affect the balance sheet in the same way.

 

Now over time, the equipment will get used and worn down.  In accounting, it’s called depreciation.  (Oh yeah, that’s a whole other thing to tackle but not today.)  But just for the very simple balance sheet side—let’s say P&S’s equipment depreciated by $1,000 during the year.  In example 4, we haven’t changed anything else so when the book value of the equipment goes down, so did the owner’s equity.

 

(Kind of like the housing market crash—maybe you bought a house for $200,000 but then the market crashed and the house was worth $150,000 instead.  When the value of your house when down—do did your equity.  It’s a similar situation.)

 

You see how every little thing affects the balance sheet.  As P&S earns income, the cash goes up—and so does the equity.  As they spend money, the cash goes down—and so does equity.  It would drive you nuts to monitor the balance sheet every minute, but it’s constantly changing.  But you do need to take a good look at it at least once a year to see where you stand.

Posted on by Jan Roberg

Understanding Your Small Business Balance Sheet

(Balance Sheets for Dummies)

 

Snowy Playground

Photo by elycefeliz at Flickr.com

 

I learned how to do balance sheets from an ex-Israeli special ops soldier turned CPA.  (Go ahead, take a minute and morph Judd Hirsch and Arnold Schwartzenegger, it’s more fun than math.)  Although my balance sheet training was a little “intense,” this is just a brief overview to help you understand your balance sheet.

 

The basic accounting equation (there I go with the math, don’t get scared off yet)  for a balance sheet is:

 

Assets = Liabilities + Owner’s Equity

 

Assets are the good things like cash and equipment.  A more politically correct accounting definition is “Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.”

 

Liabilities are the stuff you owe like credit card bills and loans.  You could also say liabilities are “probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

 

Owner’s Equity is what’s left over (assets minus the liabilities).  On your tax return, owner’s equity is referred to as “Retained Earnings.”  Another technical definition is “the residual interest in the assets of any entity that remains after deducting liabilities.

 

So let’s take a simple balance sheet.  A small business runs on a cash basis.  It has no equipment and no debt.  There’s $2,000 in the bank account.

Assets                   =             $2,000 cash in the bank

Liabilities              =             $0

Owner’s Equity                 =             $2,000

 

In this simple example, as cash comes into the company, the owner’s equity goes up.  As cash goes out, the owner’s equity goes down.

 

Here’s the important part: When the owner takes the money out of his company for his own use (which he does because it’s his money) the owner equity in the business goes down because he took the cash out of the company.

 

For example:  Sarah and Peggy have a Partnership.  They started the year with $2,000 in their checking account.  After expenses, they netted $100,000.  Now if they kept all of that money in the company, their balance sheet balances would read:

Cash:                     $102,000

Owners Equity:                 $102,000

 

But Peggy and Sarah like to eat and pay their rent so they each took $45,000 out of the company (that’s $90,000 altogether) so at the end of the year, the balance sheet balances would have looked like this:

Cash:                     $12,000

Owner’s Equity:                $12,000

 

This is important to know because many software programs will just plug a number into owners equity to make it tie out.  Sometimes the plug goes into cash.  If Sarah and Peggy didn’t check their balance sheet, in a few years it could look like they have half a million dollars of equity sitting in their company that’s just not there.   I’m not joking about that.

 

I once had to amend ten years worth of tax returns for a business owner trying to sell his company.  His balance sheet had $2 million dollars worth of equity but the figure should have been closer to $200,000.  For ten years his tax preparer had let the program “adjust” his balance sheet.  The taxpayer didn’t know any better (and clearly that preparer didn’t either.)  Sadly, the owner had quite a bit of a “smack down” when he tried selling his $2 million dollar company that was really only worth $200,000.

 

That’s why it’s so important to be able to read your balance sheet.  If you own a business, you need to know what’s on there and why it’s there.

 

My next post will add some common balance sheet items so you can see a more complete picture.   The bottom line is—your balance sheet should tell you what your company is worth.  If the “owners’ equity” doesn’t jive with what you think your company is worth—then it’s time to start asking questions.

Posted on by Jan Roberg

Why Doesn’t My QuickBooks Income Match the Income on my Tax Return?

(Explaining the Schedule M1 for Dummies)

Photo by Jenny Kaczorowski at Flickr.com

 

So you’re a small business owner and you just got your business return back. You take a look at the tax return and it says your net income is $20,000 but you gave your QuickBooks profit and loss statement to your account and it said that your income was $15,000. What happened? Maybe instead it was the other way and your tax income was lower. What’s up with that?

 

Well first thing, if you have an accountant doing your taxes, she should be able to explain exactly what’s going on. (If she can’t, it’s time for a new accountant.) But the simple answer is right on your tax return. It’s called the Schedule M1. If you’ve got a corporation, it will be on page 5 of the tax return. If you’ve got a partnership, it’s on page 4, right underneath the balance sheet.

 

Schedule M1 is the part of the tax return that explains what’s different between the books that you handed your accountant and the tax return that you’re giving to the IRS. If you had less than $250,000 in revenue, you don’t need to submit an M1 to the IRS (tax programs will leave them blank), but it’s still a good idea to complete those schedules to make sure your books are straight.

 

So what are the most common discrepancies between tax and book income? That’s easy; you’ll find it in the meals and entertainment category and depreciation. If you don’t have expenses in either of these categories, most likely your tax income and book income are going to match up just fine. But if you do have meals and entertainment or depreciation, they almost always affect your tax income.

 

Let me explain the meals and entertainment first. That’s the category where the IRS only allows you to claim a 50% deduction on there. So let’s say you spent $3,000 in meals and entertainment. On your tax return, you’d only get to expense $1,500. That means there’s another $1500 expense that’s recorded on your books that’s not on your tax return.  So, in this example your tax net income is higher than your book income.

 

Depreciation usually goes the other way.  Often small businesses ignore depreciation.  Or they run depreciation through their software program, but it’s not the same depreciation schedule that’s used for taxes.  For example, using the straight line method for book purposes but using the Modified Accelerated Cost Recovery System (MACRS) for tax purposes.  Usually that makes for a tax adjustment the other way.

 

Let’s look at an example so you can see what the Schedule M-1 looks like and how it affects your net income.  In the example below, the business owner showed $20,000 of net income on his QuickBooks profit and loss statement.  He had $2,600 of travel and entertainment expenses, so half of that get’s added to his taxable income.  He also had $4,500 of depreciation that showed up on his tax return, but he didn’t include in his QuickBooks, so that reduces his taxable income.

 

$20,000 (net income from the profit and loss statement) + $1300 (half of the meal and entertainment expense) – $4500 (the depreciation expense) = $16,800 (the net income shown on the tax return)

 

 

There are lots of other items that can affect the Schedule M1.  These two are so common that many tax programs automatically plug them in for you.  Another common item that might show up on the M-1 is when you’ve got an expense on your profit and loss statement that your accountant says, “No, you can’t count that on your tax return.”    (We don’t do that to be mean, we just don’t look that good in prison orange.)

 

Why you want the Schedule M-1.  Let’s say you file your business tax return and you get audited by the IRS.  The first thing they do is ask for your profit and loss statement and your bank records.    The examiner takes one look at your P&L and sees you have net income of $20,000—but you’re tax return says you made $16,800.  He’s licking his chops because he gets to assess you additional taxes and he hasn’t even opened your bank statement yet.  Aha!  You’ve got your M1 showing the depreciation.  Your butt is covered.

 

Now in real life, the IRS examiner would notice the depreciation eventually anyway.  But sometimes there will be items in the M-1 that aren’t so obvious.  That’s why you want this reconciliation, because by the time the IRS gets around to auditing your books, you’ll forget the little adjustments—unless they’re tracked.  M-1 keeps you neat and tidy.

Posted on by Jan Roberg

VA Disability Benefits Taxability

Taxability of VA Disability

The IRS doesn’t tax your VA Disability, but if you owe the IRS money, they count your benefits as part of your ability to pay the IRS back.

 

I was having a bout of writer’s block and had a blog post due. Fortunately, I just received this email from Morgan, a disabled Navy vet, and it seemed like a worthy topic.

 

I was placed on “uncollectable status” by the IRS last year. Now, to keep my uncollectible status, they want me to provide them with the amount I receive from the VA each month along with my SSDI amount! Am I missing something here? I am totally
confused. I was told that VA disability benefits are tax exempt. So is my SSDI benefit. If that’s so, why is it considered income by IRS? Can you help me with this so I can understand?

 

 

This is a good question—if VA and SSDI payments aren’t taxable, why does the IRS ask about them when settling tax debt? Or in Morgan’s case, when determining collectability status?

 

The answer is—there’s a difference between “taxable” income and “money that you have that you can use to pay bills.” So even though things like VA payments and SSDI are not taxable, they are counted towards money available to pay bills.

 

So here’s what the IRS is doing. They’re taking all of your income—whether it’s taxable or not, and adding it together. Then they’re looking at all of your expenses and if there’s any money left over, that’s what they consider is available for you to pay your taxes with.

 

Here’s how the formula works:  Income includes wages, interest, dividends, business income, rental income, distributions, pensions, social security, child support, alimony, and other income.  VA payments and SSI would count as “other income”.

 

Expenses include:  Food, clothing, and misc., housing and utilities, cost of owning and operating a car or using public transportation, health insurance, out of pocket health care, court ordered payments, child or dependent care, life insurance, taxes, and other debts.

 

Here’s the kicker.  Expenses are limited to what the IRS calls “national standards.”  The national standard for food, clothing, housekeeping supplies and personal care products is $583 for one person.    Out of pocket healthcare is $60 if you’re under 65 and $144 if you’re over.  If you own a car, the allowance is $517 for owning and operating it.  If you use public transportation, you’re allowed $182 a month.

 

Housing and utility expenses vary greatly by area.  Here in St. Louis County, the expenses allowed for one person is $1,426.  If you live in St. Louis City, you’re only allowed $1,208.

 

You can look up all of the collection financial standards on the IRS website:  http://www.irs.gov/Individuals/Collection-Financial-Standards

 

When dealing with the IRS on this issue, you are allowed to use the national standards for your family size without them questioning the amount you actually spend.  The housing allowing will be the amount you actually spend or the local allowance, whichever is less.

 

So while the IRS is asking about VA payments and SSI to determine if you’re capable of paying a tax debt, SSI and VA payments will remain non-taxable income on your tax return.

Posted on by Jan Roberg

Married and Gay: Should You Amend Your Tax Returns?

Photo by Guillaume Paumier at Flickr.com

 

First the Supreme Court overturned DOMA.  Now the IRS has announced that no matter what state you live in, if you are married and gay, you should file as married filing jointly on your federal income tax return.  Now the big question for everyone is:  Should you amend your old tax returns?

 

The answer, in my best professional opinion, is MAYBE.  If you read my blog posts very often, you saw that one coming didn’t you?

 

For some couples, filing jointly is going to help them out and get them a refund.  If you’re a couple that’s entitled to a refund—AMEND! For some couples, filing jointly is going to have them paying more in taxes.  To those couples I say—DON’T AMEND.  You really do have a choice here because you filed your original return using the law of the land at the time of the filing.  You are not required to amend your return because DOMA was overturned.   You are allowed to amend your return.  There’s a big difference.

 

An accountant friend of mine in Iowa has been working with some of his gay married clients and he’s finding that about 75% of his clients would lose money or stay close to the same amending their returns.  Only about 25% of them would profit from it.

 

So how do you tell which category you fit into?  Generally, a couple with a big difference is incomes—for example, one spouse stays home to care for the household while the other is the primary breadwinner—that couple is more likely to benefit from filing jointly.  On the other hand, a couple where both spouses work and their incomes are close together could find themselves kicked into a higher tax bracket.  They could really lose out filing together.   Tax returns for families with children can go either way.   I’m an accountant geek, so I say just run the numbers.

 

It makes a lot of sense to run the numbers because the new tax ruling is going to affect all of your future tax returns as well.  If filing jointly is not to your advantage, it’s better to learn that now so you can adjust your withholding.  Here’s a link to my Tax Tips for Newlyweds:  http://robergtaxsolutions.com/?s=tax+tips+for+newlyweds.  You may have been married for a couple of years, but never gotten to file a federal return as being married before so you might not have needed these tips before.

 

One more thing—if you’re in a state that doesn’t recognize gay marriage, you still might not be able to file a joint state return.  Couples in gay marriage states have been dealing with the opposite problem for a few years now.  They file joint state returns but then file a separate federal return.  I suspect we’ll be seeing a lot of separate state returns for awhile.   It’s going to take some time for lawmakers to make up their minds on that.

 

So, do you wait to see how your state legislature is going to handle the issue before amending?  I say no.  Go ahead and file your federal amendments.  If the state changes, you can fix those later.  I worry about people waiting too long and then missing out on their refund because they didn’t file the amended return on time.  Unless the IRS grants some type of special extension, you only have until April 15th of 2015 to amend your 2010 income tax return.

 

If you need help determining if you should file an amended return or not, please contact our office.   We can help you figure out if it’s worth your while or not.

Posted on by Jan Roberg

How to Check Your Social Security Annual Statement (And Why You Want To, Even if You’re Only 18)

Photo by 401(K) 2012 at Flickr.com

 

“Social Security, that’s for old people.  Social Security won’t even be around when I retire.”

 

Let’s look at that second statement first.  Social Security won’t be around when you retire.  That’s what I was told back in college thirty years ago.  “There will be no more Social Security by the time you retire, you’re just paying in and you’ll get none of it back.”  That was Gospel when I was 20 but Social Security is still here.  We’re still being told doom and gloom stories and granted Social Security is not perfect.  I wouldn’t plan on it being my only source of retirement income—but I suspect that it’s going to be around for a long time so you need to make sure your Social Security records are right.

 

Now I agree that Social Security is mostly for old people, but it also affects your payments should you become disabled and your spouse’s and children’s survivor benefits should you die.  We don’t want those things to happen, but Social Security is there for those situations.

 

The reason you want to check your Social Security statement every year is to make sure that the wages you earned are listed correctly.  Most of the time they’re right but not always.    Usually if there’s a mistake, it happens in a year when you received two or more W2s.  Sometimes they’ll report one or the other but not add them together.  Other mistakes are possible, but that’s the most common one.

 

Here’s why it’s important—Did you know that Social Security uses your top 35 years of wages and self employment to figure your Social Security benefits?  Thirty-five years!  That’s fine if you graduated from college, got a good job, and worked steadily until you retired.  That will give you 35 years and then some, easy.

 

For the rest of us, life happens.  We get laid off, we have babies, and maybe we start our own businesses and have negative income for awhile.  We get some zeroes on our Social Security statement.   Never in a million years would I have dreamed that the $2.50 an hour job I had back in 1976 would affect how much money I’d get for my Social Security retirement benefit.  But it will—because that $2.50 an hour job is better than some of the zeroes that will be affecting my Social Security statement.

 

So how do you go about checking your Social Security statement?  First you’ll need to set up an account with the Social Security Administration.  Go to the website:  www.ssa.gov .  On the left hand side of the screen, you’ll see a picture of a lock and it will say “My Social Security”.  That’s where you’ll create your account, or log in if you already have an account.

 

When you set up your account you’ll need your name (as it appears on your social security card), your social security number, and mailing address.  You have to have a valid email address to set up the account.  You also have to be at least 18 years old, so if you’re only 16 and working, you won’t be able to verify your employment yet.

 

One thing the Social Security website is really good at is security.  They’re going to ask you questions to identify yourself.  Be prepared to freak out a little by how much they know.   The SSA gets the information off of your credit report to generate the questions.

 

Once you’ve got your account set up, you can go in and look at your Social Security Statement.  Here’s a sample one that you can see:  http://www.socialsecurity.gov/myaccount/SSA-7005-OL.pdf

 

Page 2 shows how much your payments would be at retirement, assuming that you continue working at your current income.  It also shows what your disability payments would be if you became disabled today and benefits your spouse or children could receive if you die.  If you haven’t worked long enough to qualify for benefits yet (generally 10 years) it will tell you that too.

 

Page 3 will give you a breakdown of the wages that have been reported over the years.  2012 wages should be posted now.  It’s a slow process; the annual wages that you report on your tax return in April don’t show up on the Social Security Statement until September.  So now’s a good time to check.  If you find a mistake, you’ll need to contact the SSA and notify them.  Usually you’ll need to prove the error by providing them with copies of your W2s.

 

See why it’s a good idea to do this once a year?  Who keeps W2s for 35 years?  (No, I don’t.  You were thinking geeky accountants weren’t you?)

 

Make sure you keep your Social Security user name and password in a safe place.  You’re going to want to access the account once a year and just check the information to make sure it’s accurate.  Labor Day is a good time to check—it’s a celebration of workers, and your Social Security statement is your documentation of your years of working.  (Okay, it’s because the information gets posted in September, but that’s not as easy to remember.)

 

For Labor Day, check your wage history at www.ssa.gov.

Posted on by Jan Roberg

Growing Entrepreneurs

Photo by Janice E. Roberg

I was driving home the other day and it was hot and I was thirsty. As I turned into my subdivision I found my favorite lemonade stand. I’m probably their best customer, I always stop. For one thing, I figure I owe for all the neighbors who have bought lemonade or Girl Scout cookies or whatever from my kids. And the other reason is they make pretty good lemonade.

 

I do all sorts of blog posts about small business taxes and rules and regulations. The beauty of a lemonade stand is kids don’t think like that. They don’t let things like a business license or taxes get in the way. (And shame on any city official who closes down a kid’s lemonade stand: http://www.forbes.com/sites/erikkain/2011/08/03/the-inexplicable-war-on-lemonade-stands/) Kids decide they want to open a business and (to borrow the tag line from Nike) they just do it!

 

What’s really cool about a lemonade stand is what it teaches kids about business.

 

1. Location, location, location: you won’t sell any lemonade if your stand isn’t where people can get to it–if the street is too busy the cars won’t stop, too quiet and you have no customers. This lemonade stand is just off the busy street near the sub-division entrance.

2. Quality: no one will buy your lemonade if it tastes nasty. Like I said earlier, they make good lemonade.

3. Price: if it’s too expensive no one will buy it. If it’s too cheap, you won’t cover your costs. (Okay, with most lemonade stands, Mom paid for the lemonade already. My Mom used to charge me for the Kool-aid I used. I did not appreciate the lesson she was trying to teach at the time but now I understand.) My favorite stand charges 50 cents.

4. Advertising: A good sign and word of mouth are pretty much the standard in the lemonade stand industry. No one will buy your product if they don’t know you have something to sell though. I’m not sure the photo does the sign justice, but you know it’s a lemonade stand when you drive by.

 

As adults, we have quite a bit more to focus on to get our businesses off the ground. But without those top four lemonade stand basics: location, quality, price and advertising; our grown-up businesses won’t succeed either.

 

If you’re looking to start a business in Missouri, a really good resource is the Missouri Small Business & Technology Development Centers, it’s a University of Missouri Extension Partner. They have wonderful resources for business start ups; reading materials, templates for business plans and financial worksheets, seminars, counseling, and all sorts of programs. Here’s a link to their booklet about starting a business in Missouri: http://www.missouribusiness.net/sbtdc/docs/starting_new_business_missouri.pdf Even if you’re not in Missouri they have a lot of good information for start ups.

 

One piece of advice that you’ll find in the booklet is to talk with an accountant. I know a small tax company that has a nice location at Westport Plaza, provides quality service, is priced fairly and if you’re reading this, their advertising is working. Give us a call and we’ll be happy to talk to you. Helping small business start ups is the fun part of our day.