The Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022, otherwise known as SECURE 2.0, is a piece of legislation that focuses on how employers and their employees are able to save for retirement and how it impacts their bottom lines.
Businesses with as many as 50 employees can receive a tax credit when they offer a defined contribution plan to employees. The start-up tax credit permits up to 100 percent of start-up costs ($5,000 annually) to offset administrative expenses to implement a start-up plan. However, for businesses with 51 to 100 employees, the first SECURE Act’s tax credit equal to 50 percent of administrative costs, capped at $5,000, remains in effect.
SECURE 2.0 also allows for an employer tax credit of up to $1,000 per employee, effective Jan. 1, 2023, when the business contributes to defined contribution plans as long as the employee makes no more than $100,000 annually. It’s phased down over a five-year period. For employers with 51 to 100 employees, the credit phases down based on the number of active employees.
Another tax credit is for eligible employers that employ military spouses. Beginning in 2023, employers with up to 100 employees making at least $5,000 annually are able to obtain a general tax credit, up to $500 for three years as long as they meet the following conditions in conjunction with the company’s defined contribution plan:
Qualified employees enroll within two months of onboarding.
Once qualified, an employee is entitled to plan benefits he wouldn’t otherwise be eligible for until after 24 months of employment, such as the employer deposit of an amount equal to what the employee contributes to his plan.
Contributions from the business are assigned in full to the employee.
The $500 tax credit is comprised of $300 contributed by the employer to the employee and $200 based upon eligible military spouse participation.
Employers may utilize the tax credit during the year the military spouse is onboarded and the following two tax years. Employees also need to attest to their status to qualify.
If an employee is married to someone who is actively serving in the armed services, that person is considered a military spouse. However, if such an individual is considered a Highly Compensate Employee (HCE), he or she must be excluded from this definition based on compensation level.
Based on IRS regulations, there are two different tests that determine if an employee is an HCE and determines eligibility for contribution plan participation by employees and potential tax implications for employers. The first test is an ownership test; the other is a compensation test to determine if an employee is an HCE.
Looking at the compensation test, the IRS’ HCE Threshold for 2022 and 2023 is $135,000 and $150,000 in compensation, respectively. The ownership test looks at whether an employee owns 5 percent of the business during the determination year or within the present plan year. If the same employee has the same 5 percent ownership stake within the lookback year, which is the past 12 months immediately preceding the determination year, they are deemed to meet the ownership test.
While each company has different attributes and must navigate the tax code based on their own circumstances, understanding how the SECURE 2.0 law works is one way to make the most of tax obligations.
How Secure 2.0 Will Impact Employers’ Tax Situations
March 1, 2023 · Blog, General Business News, Uncategorized
⏱ 3 min read
The Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022, otherwise known as SECURE 2.0, is a piece of legislation that focuses on how employers and their employees are able to save for retirement and how it impacts their bottom lines.
Businesses with as many as 50 employees can receive a tax credit when they offer a defined contribution plan to employees. The start-up tax credit permits up to 100 percent of start-up costs ($5,000 annually) to offset administrative expenses to implement a start-up plan. However, for businesses with 51 to 100 employees, the first SECURE Act’s tax credit equal to 50 percent of administrative costs, capped at $5,000, remains in effect.
SECURE 2.0 also allows for an employer tax credit of up to $1,000 per employee, effective Jan. 1, 2023, when the business contributes to defined contribution plans as long as the employee makes no more than $100,000 annually. It’s phased down over a five-year period. For employers with 51 to 100 employees, the credit phases down based on the number of active employees.
Another tax credit is for eligible employers that employ military spouses. Beginning in 2023, employers with up to 100 employees making at least $5,000 annually are able to obtain a general tax credit, up to $500 for three years as long as they meet the following conditions in conjunction with the company’s defined contribution plan:
Qualified employees enroll within two months of onboarding.
Once qualified, an employee is entitled to plan benefits he wouldn’t otherwise be eligible for until after 24 months of employment, such as the employer deposit of an amount equal to what the employee contributes to his plan.
Contributions from the business are assigned in full to the employee.
The $500 tax credit is comprised of $300 contributed by the employer to the employee and $200 based upon eligible military spouse participation.
Employers may utilize the tax credit during the year the military spouse is onboarded and the following two tax years. Employees also need to attest to their status to qualify.
If an employee is married to someone who is actively serving in the armed services, that person is considered a military spouse. However, if such an individual is considered a Highly Compensate Employee (HCE), he or she must be excluded from this definition based on compensation level.
Based on IRS regulations, there are two different tests that determine if an employee is an HCE and determines eligibility for contribution plan participation by employees and potential tax implications for employers. The first test is an ownership test; the other is a compensation test to determine if an employee is an HCE.
Looking at the compensation test, the IRS’ HCE Threshold for 2022 and 2023 is $135,000 and $150,000 in compensation, respectively. The ownership test looks at whether an employee owns 5 percent of the business during the determination year or within the present plan year. If the same employee has the same 5 percent ownership stake within the lookback year, which is the past 12 months immediately preceding the determination year, they are deemed to meet the ownership test.
While each company has different attributes and must navigate the tax code based on their own circumstances, understanding how the SECURE 2.0 law works is one way to make the most of tax obligations.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Customer loyalty is critical to any successful business strategy in today’s digital age. With emerging technologies such as the internet of things (IoT), companies are now leveraging a new approach called the internet of behavior (IoB) to gain deeper insights into their customers’ behavior and preferences.
What is IoB?
The internet of behavior exists because of the internet of things. IoT is the interconnection of physical digital objects that gather and exchange information over the internet. On the other hand, IoB makes sense of the collected data from various sources, including wearable devices, digital household devices, human online activity and social media.
The acronym internet of behavior (IoB) was coined by Gartner, a tech research firm, as identified among the top 10 trends in their strategic technology report for 2021. However, the concept of using data to influence customer behavior was developed in 2012 by Göte Nyman, a psychology professor at the University of Helsinki, long before the internet of things took hold.
Gartner defines IoB as an extension of the internet of things, focusing on capturing, processing and analyzing the “digital dust” of people’s daily lives.
Simply put, IoB interconnects IoT, consumer psychology and data analytics. The data is analyzed in terms of behavioral psychology to capture patterns that marketing and sales teams can use to influence customer behavior.
How IoB can Influence Customer Loyalty
Aside from products and services, customer experience has become a significant factor in business success. By understanding customer behavior, businesses can leverage IoB data to influence customer loyalty in various ways.
To take advantage of IoB, companies study insights extracted from collected data and use it to decipher customer behavior; that is, their practices, preferences, habits, needs, wants and more. The company can then leverage this data to offer personalized product recommendations, such as insurance premiums, saving plans, travel destinations, etc.
For example, an insurance company can have users install apps on their phones that collect data on distance traveled, car speed, etc., and optimize their car’s premium based on driving behavior.
Timely Improvement of Products and Customer Services
IoB also makes studying how customers interact with specific services or products easy. This saves companies from time-consuming surveys that are used to determine consumer preferences. The collected data is analyzed to identify pain points and issues of concern. The company can then address the issues before they become significant problems, such as by improving on products and services. This is an excellent way to build trust and confidence in a brand, leading to customer retention.
Behavioral Retargeting
Since companies can access customer preferences, recent activities, likes, dislikes, and location data, they can send real-time notifications to customers about discounts and new offers in stores nearby. They also can track loyal customers and offer them rewards. This kind of retargeting will make customers feel like a business values them and caters to their interests.
Develop a Tailored Marketing Strategy
Insights from IoB data can help tailor marketing strategies to individual customers. For instance, a retail store can offer products or services based on the mood, age or gender of a customer; thereby providing a satisfying experience that will lead to a stronger emotional connection with the brand.
Key Challenges that must be Addressed for the Success of IoB
Despite the opportunities IoB offers, companies must be aware of some key challenges to fully realize its benefits.
Privacy Concerns – Although personalization will make consumer lives easier, there is a concern about privacy. Companies must implement strong cybersecurity policies and measures to ensure that customer information is used only for that which a customer has given consent.
Convincing Users to Share Personal Data – People might not be comfortable sharing their personal data.
Laws and Regulations – Strict regulations around collecting and using personal data, such as the General Data Protection Regulation (GDPR), require companies to comply in order to avoid fines and legal issues.
Cybersecurity – As reliance on technology rises, so do cyberattacks. Cybercriminals may access sensitive data on consumer behavior, making consumers susceptible to online scamming and identity theft, among other threats.
Conclusion
Leveraging IoB can provide businesses with a competitive edge and drive revenue growth. Companies seeking continuous success should consider placing IoB at the center of business innovation to create personalized customer experiences. At the same time, they must also examine any challenges that might reduce the effectiveness of IoB.
Leveraging the Internet of Behavior (IoB) to Boost Customer Loyalty
March 1, 2023 · Blog, Uncategorized, What's New in Technology
⏱ 4 min read
Customer loyalty is critical to any successful business strategy in today’s digital age. With emerging technologies such as the internet of things (IoT), companies are now leveraging a new approach called the internet of behavior (IoB) to gain deeper insights into their customers’ behavior and preferences.
What is IoB?
The internet of behavior exists because of the internet of things. IoT is the interconnection of physical digital objects that gather and exchange information over the internet. On the other hand, IoB makes sense of the collected data from various sources, including wearable devices, digital household devices, human online activity and social media.
The acronym internet of behavior (IoB) was coined by Gartner, a tech research firm, as identified among the top 10 trends in their strategic technology report for 2021. However, the concept of using data to influence customer behavior was developed in 2012 by Göte Nyman, a psychology professor at the University of Helsinki, long before the internet of things took hold.
Gartner defines IoB as an extension of the internet of things, focusing on capturing, processing and analyzing the “digital dust” of people’s daily lives.
Simply put, IoB interconnects IoT, consumer psychology and data analytics. The data is analyzed in terms of behavioral psychology to capture patterns that marketing and sales teams can use to influence customer behavior.
How IoB can Influence Customer Loyalty
Aside from products and services, customer experience has become a significant factor in business success. By understanding customer behavior, businesses can leverage IoB data to influence customer loyalty in various ways.
To take advantage of IoB, companies study insights extracted from collected data and use it to decipher customer behavior; that is, their practices, preferences, habits, needs, wants and more. The company can then leverage this data to offer personalized product recommendations, such as insurance premiums, saving plans, travel destinations, etc.
For example, an insurance company can have users install apps on their phones that collect data on distance traveled, car speed, etc., and optimize their car’s premium based on driving behavior.
Timely Improvement of Products and Customer Services
IoB also makes studying how customers interact with specific services or products easy. This saves companies from time-consuming surveys that are used to determine consumer preferences. The collected data is analyzed to identify pain points and issues of concern. The company can then address the issues before they become significant problems, such as by improving on products and services. This is an excellent way to build trust and confidence in a brand, leading to customer retention.
Behavioral Retargeting
Since companies can access customer preferences, recent activities, likes, dislikes, and location data, they can send real-time notifications to customers about discounts and new offers in stores nearby. They also can track loyal customers and offer them rewards. This kind of retargeting will make customers feel like a business values them and caters to their interests.
Develop a Tailored Marketing Strategy
Insights from IoB data can help tailor marketing strategies to individual customers. For instance, a retail store can offer products or services based on the mood, age or gender of a customer; thereby providing a satisfying experience that will lead to a stronger emotional connection with the brand.
Key Challenges that must be Addressed for the Success of IoB
Despite the opportunities IoB offers, companies must be aware of some key challenges to fully realize its benefits.
Privacy Concerns – Although personalization will make consumer lives easier, there is a concern about privacy. Companies must implement strong cybersecurity policies and measures to ensure that customer information is used only for that which a customer has given consent.
Convincing Users to Share Personal Data – People might not be comfortable sharing their personal data.
Laws and Regulations – Strict regulations around collecting and using personal data, such as the General Data Protection Regulation (GDPR), require companies to comply in order to avoid fines and legal issues.
Cybersecurity – As reliance on technology rises, so do cyberattacks. Cybercriminals may access sensitive data on consumer behavior, making consumers susceptible to online scamming and identity theft, among other threats.
Conclusion
Leveraging IoB can provide businesses with a competitive edge and drive revenue growth. Companies seeking continuous success should consider placing IoB at the center of business innovation to create personalized customer experiences. At the same time, they must also examine any challenges that might reduce the effectiveness of IoB.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Investing in Main Street Act of 2023 (HR 400) – Introduced by Rep. Judy Chu (D-CA) on Jan.20, this bill would permit certain financial institutions to increase investments in small business investment companies (SBICs). The current cap is 5 percent; if passed, the amount would rise to up to 15 percent of their capital and surplus. The bill passed in the House on Jan.25 and is now under consideration in the Senate.
To terminate the requirement imposed by the Director of the Centers for Disease Control and Prevention for proof of COVID-19 vaccination for foreign travelers and for other purposes (HR 185) – This bill would nullify the standing CDC order that requires non-U.S. citizens who are not immigrants to be fully vaccinated against COVID-19 (or otherwise prove adherence to public health measures to prevent contagion)for entry into the United States by air travel. The bill also would nullify both successor and subsequent orders that would require proof of a COVID-19 vaccination as a condition of entry and prohibit the use of federal funds to enforce such a requirement. However, the bill carves out exceptions for certain individuals traveling from China to the United States. The bill was introduced on Jan. 9 by Rep. Thomas Massie (R-KY). It passed in the House on Feb. 8 and is currently under consideration in the Senate.
Freedom for Health Care Workers Act (HR 497) – The passage of this bill would eliminate the current COVID-19 vaccine mandate for healthcare providers working in certain federal healthcare programs. The bill was introduced by Rep. Jeff Duncan (R-SC) on Jan. 25 and passed in the House on Jan. 31. It is currently awaiting review in the Senate.
To nullify the modifications made by the Food and Drug Administration in January 2023 to the risk evaluation and mitigation strategy for the abortion pill mifepristone and for other purposes (HR 383) – This bill would nullify the FDA’s new rule allowing a pharmacy to dispense mifepristone, as well as ban the pill from being offered by mail. Medication abortion is now the most commonly used abortion method in the United States. Under the current guidelines, pharmacies may prescribe mifepristone in person to patients, essentially permitting it to be disseminated at the same time with misoprostol. This two-pill combination is taken in sequence to induce an abortion at home. The bill to ban this access was introduced on Jan. 17 by Rep. Diana Harshbarger (R-TN) but has yet to be assigned to a committee for review.
To ensure the privacy of pregnancy termination or loss information under the HIPAA privacy regulations and the HITECH Act (HR 459) – This legislation was introduced in the House by Rep. Anna Eshoo (D-CA) on Jan. 24. It would ban doctors from revealing a patient’s abortion information without consent, even under a court order or subpoena. Presently, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) restricts doctors, psychologists, pharmacies, hospitals, etc., from revealing a patient’s protected health information – unless compelled to do so by law. This bill would make it illegal for a medical professional to reveal a patient’s abortion information without the patient’s consent, superseding even a court order or subpoena. The bill is currently in the House awaiting a potential vote by the Energy and Commerce Committee.
Prescription Pricing for the People Act of 2023 (S 113) – This bill would authorize the Federal Trade Commission to study the role of intermediaries in the pharmaceutical supply chain and report on anti-competitive practices and other trends that impact how prescription medications are priced. In an effort to increase transparency, the FTC also would provide recommendations to Congress for potential legislative action. The bill was introduced on Jan. 26 by Sen. Chuck Grassley (R-IA) and is currently being considered in the Senate.
Increasing Small Business Investments, Relaxing COVID Vaccination Requirements and Generating More Challenges to Abortion Access
March 1, 2023 · Blog, Congress at Work, Uncategorized
⏱ 4 min read
Investing in Main Street Act of 2023 (HR 400) – Introduced by Rep. Judy Chu (D-CA) on Jan.20, this bill would permit certain financial institutions to increase investments in small business investment companies (SBICs). The current cap is 5 percent; if passed, the amount would rise to up to 15 percent of their capital and surplus. The bill passed in the House on Jan.25 and is now under consideration in the Senate.
To terminate the requirement imposed by the Director of the Centers for Disease Control and Prevention for proof of COVID-19 vaccination for foreign travelers and for other purposes (HR 185) – This bill would nullify the standing CDC order that requires non-U.S. citizens who are not immigrants to be fully vaccinated against COVID-19 (or otherwise prove adherence to public health measures to prevent contagion)for entry into the United States by air travel. The bill also would nullify both successor and subsequent orders that would require proof of a COVID-19 vaccination as a condition of entry and prohibit the use of federal funds to enforce such a requirement. However, the bill carves out exceptions for certain individuals traveling from China to the United States. The bill was introduced on Jan. 9 by Rep. Thomas Massie (R-KY). It passed in the House on Feb. 8 and is currently under consideration in the Senate.
Freedom for Health Care Workers Act (HR 497) – The passage of this bill would eliminate the current COVID-19 vaccine mandate for healthcare providers working in certain federal healthcare programs. The bill was introduced by Rep. Jeff Duncan (R-SC) on Jan. 25 and passed in the House on Jan. 31. It is currently awaiting review in the Senate.
To nullify the modifications made by the Food and Drug Administration in January 2023 to the risk evaluation and mitigation strategy for the abortion pill mifepristone and for other purposes (HR 383) – This bill would nullify the FDA’s new rule allowing a pharmacy to dispense mifepristone, as well as ban the pill from being offered by mail. Medication abortion is now the most commonly used abortion method in the United States. Under the current guidelines, pharmacies may prescribe mifepristone in person to patients, essentially permitting it to be disseminated at the same time with misoprostol. This two-pill combination is taken in sequence to induce an abortion at home. The bill to ban this access was introduced on Jan. 17 by Rep. Diana Harshbarger (R-TN) but has yet to be assigned to a committee for review.
To ensure the privacy of pregnancy termination or loss information under the HIPAA privacy regulations and the HITECH Act (HR 459) – This legislation was introduced in the House by Rep. Anna Eshoo (D-CA) on Jan. 24. It would ban doctors from revealing a patient’s abortion information without consent, even under a court order or subpoena. Presently, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) restricts doctors, psychologists, pharmacies, hospitals, etc., from revealing a patient’s protected health information – unless compelled to do so by law. This bill would make it illegal for a medical professional to reveal a patient’s abortion information without the patient’s consent, superseding even a court order or subpoena. The bill is currently in the House awaiting a potential vote by the Energy and Commerce Committee.
Prescription Pricing for the People Act of 2023 (S 113) – This bill would authorize the Federal Trade Commission to study the role of intermediaries in the pharmaceutical supply chain and report on anti-competitive practices and other trends that impact how prescription medications are priced. In an effort to increase transparency, the FTC also would provide recommendations to Congress for potential legislative action. The bill was introduced on Jan. 26 by Sen. Chuck Grassley (R-IA) and is currently being considered in the Senate.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
The College Savings 529 plan offers a way for modest-income families to save and invest for college expenses for their children as early as birth up to college age. When invested 529 funds are used to pay for the beneficiary’s qualifying education costs, earnings are distributed tax-free.
However, a lesser-known advantage for wealthier families is that the 529 plan can be used as an effective tax-advantaged tool for funding college expenses for family members over multiple generations. Basically, the 529 enables the investment to continue growing tax-free for years and even decades after the death of the original owner and beneficiary.
Assets from a 529 account may be used to pay for expenses associated with higher education, including tuition, fees, books, room, and board. The 529 also can be used to pay up to $10,000 a year in tuition expenses for K-12 education and a lifetime total of up to $10,000 in student loan repayments.
No Age or Use Restrictions
The two key components to this planning strategy, referred to a Family Dynasty 529 plan, are that the beneficiary can be changed at any time and that there is no time frame during which all assets must be distributed (including no required minimum distributions).
Note that the selection of a 529 beneficiary is rather broad:
Account owner (self)
Spouse
Child
Spouse of a child
Brother, sister, stepbrother, stepsister or their spouse
Mother, father, the ancestor of either or their spouse
Stepfather, stepmother or the spouse of either such person
Nephew, niece or their spouse
Aunt, uncle or their spouse
Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law or their spouse
First cousin
While the 529 can have only one named beneficiary at a time, the beneficiary can be changed at any time (such as once a student graduates), leaving the remaining funds for the next beneficiary.
No Contribution Limit
Unlike federal tax filings, many states offer a limited tax deduction on annual 529 contributions. Note that there is no limit to the amount that can be contributed to a 529 account each year. However, there is a limit to how much can be contributed to each 529 account in total, and that amount differs by state, with the range falling between $235,000 and $529,000. Georgia and Mississippi are the lowest at $235,000, and California features the highest limit at $529,000 (note that a California account can be opened no matter where the owner or beneficiary lives). Moreover, there is no limit to how much invested tax-free 529 assets can grow.
One strategy is to fund a family dynasty 529 with the maximum limit in one lump sum. The idea here is that one lump sum invested for tax-free growth offers the potential to fund college education expenses for a vast number of extended family members over several generations. Each time a beneficiary graduates, a new beneficiary is named. If there are multiple students scheduled to attend college at the same time, multiple 529 accounts can be opened with separate beneficiaries.
Changing Owner for Dynasty Plan to Continue
It is likely that when funding over several generations, the original 529 account owner will pass away. A few plans permit change of ownership only in the event of the death or incapacity of the current owner, but most 529 plans allow the change in ownership at any time, as long as the owner has reached the age of majority for that state’s plan. By periodically changing both owners and beneficiaries of the account, the family dynasty 529 can continue to grow and pay for qualified education expenses indefinitely.
The 529 also may be structured so that the account owner is a trust, which makes it unnecessary to change owners as they pass away. A trust can help protect 529 funds from creditors and may contain language mandating that assets can be used only for higher education – thus eliminating the potential for a beneficiary to drain the account with non-qualified withdrawals.
Potential Gift/GST Tax Consequences
Be aware that some state 529 plans may treat a change in ownership as a distributable event and will issue Form 1099 for tax purposes. Also note that when a new 529 plan beneficiary is one or more generations below the most recent beneficiary, distributed assets beyond the annual gift tax exemption ($17,000 for 2023) may be subject to the gift tax. In this scenario, should excess amounts exceed the lifetime gift tax exemption ($12.92 million for 2023), distributions may be subject to an additional generation-skipping transfer tax (GST).
The Family Dynasty 529 plan is best optimized when started early, such as the birth of the first child, and overfunded to the maximum limit. This allows for the best growth opportunity, wherein college expenses may be funded using tax-free earnings, leaving the principal available to grow for the next student beneficiary. Better yet, parents or grandparents can retain control of the account to ensure it is used only for college funding over multiple generations.
Multigenerational College Planning with a Family Dynasty 529 Plan
March 1, 2023 · Blog, Financial Planning, Uncategorized
⏱ 5 min read
The College Savings 529 plan offers a way for modest-income families to save and invest for college expenses for their children as early as birth up to college age. When invested 529 funds are used to pay for the beneficiary’s qualifying education costs, earnings are distributed tax-free.
However, a lesser-known advantage for wealthier families is that the 529 plan can be used as an effective tax-advantaged tool for funding college expenses for family members over multiple generations. Basically, the 529 enables the investment to continue growing tax-free for years and even decades after the death of the original owner and beneficiary.
Assets from a 529 account may be used to pay for expenses associated with higher education, including tuition, fees, books, room, and board. The 529 also can be used to pay up to $10,000 a year in tuition expenses for K-12 education and a lifetime total of up to $10,000 in student loan repayments.
No Age or Use Restrictions
The two key components to this planning strategy, referred to a Family Dynasty 529 plan, are that the beneficiary can be changed at any time and that there is no time frame during which all assets must be distributed (including no required minimum distributions).
Note that the selection of a 529 beneficiary is rather broad:
Account owner (self)
Spouse
Child
Spouse of a child
Brother, sister, stepbrother, stepsister or their spouse
Mother, father, the ancestor of either or their spouse
Stepfather, stepmother or the spouse of either such person
Nephew, niece or their spouse
Aunt, uncle or their spouse
Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law or their spouse
First cousin
While the 529 can have only one named beneficiary at a time, the beneficiary can be changed at any time (such as once a student graduates), leaving the remaining funds for the next beneficiary.
No Contribution Limit
Unlike federal tax filings, many states offer a limited tax deduction on annual 529 contributions. Note that there is no limit to the amount that can be contributed to a 529 account each year. However, there is a limit to how much can be contributed to each 529 account in total, and that amount differs by state, with the range falling between $235,000 and $529,000. Georgia and Mississippi are the lowest at $235,000, and California features the highest limit at $529,000 (note that a California account can be opened no matter where the owner or beneficiary lives). Moreover, there is no limit to how much invested tax-free 529 assets can grow.
One strategy is to fund a family dynasty 529 with the maximum limit in one lump sum. The idea here is that one lump sum invested for tax-free growth offers the potential to fund college education expenses for a vast number of extended family members over several generations. Each time a beneficiary graduates, a new beneficiary is named. If there are multiple students scheduled to attend college at the same time, multiple 529 accounts can be opened with separate beneficiaries.
Changing Owner for Dynasty Plan to Continue
It is likely that when funding over several generations, the original 529 account owner will pass away. A few plans permit change of ownership only in the event of the death or incapacity of the current owner, but most 529 plans allow the change in ownership at any time, as long as the owner has reached the age of majority for that state’s plan. By periodically changing both owners and beneficiaries of the account, the family dynasty 529 can continue to grow and pay for qualified education expenses indefinitely.
The 529 also may be structured so that the account owner is a trust, which makes it unnecessary to change owners as they pass away. A trust can help protect 529 funds from creditors and may contain language mandating that assets can be used only for higher education – thus eliminating the potential for a beneficiary to drain the account with non-qualified withdrawals.
Potential Gift/GST Tax Consequences
Be aware that some state 529 plans may treat a change in ownership as a distributable event and will issue Form 1099 for tax purposes. Also note that when a new 529 plan beneficiary is one or more generations below the most recent beneficiary, distributed assets beyond the annual gift tax exemption ($17,000 for 2023) may be subject to the gift tax. In this scenario, should excess amounts exceed the lifetime gift tax exemption ($12.92 million for 2023), distributions may be subject to an additional generation-skipping transfer tax (GST).
The Family Dynasty 529 plan is best optimized when started early, such as the birth of the first child, and overfunded to the maximum limit. This allows for the best growth opportunity, wherein college expenses may be funded using tax-free earnings, leaving the principal available to grow for the next student beneficiary. Better yet, parents or grandparents can retain control of the account to ensure it is used only for college funding over multiple generations.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
With the world seeing inflation, the Internal Revenue Service (IRS) has issued guidance for tax filers. Based upon an October 2022 IRS News Release, there have been more than 60 adjustments in conjunction with its yearly inflation alterations. Highlights of inflation adjustments include increasing the married couples’ standard deduction for 2023 by $1,800 to $27,700. Another highlight of inflation adjustments includes raising the threshold for the highest tax rate of 37 percent for individual taxpayers to an income higher than $578,125 or $693,750 if two married individuals are filing jointly.
However, there are certain things that are not subject to indexing for inflation. This includes permitting unlimited itemized deductions and maintaining the personal exemption at zero for the 2023 tax year – codified into law by the Tax Cuts and Jobs Act. The modified adjusted gross income (MAGI) amount used by joint filers to determine the reduction in the Lifetime Learning Credit (§25A(d)(2)) is not inflation adjusted for the taxable year (post-Dec. 31, 2020).
When it comes to the topic of inflation, while the United States experienced monthly inflation as high as 9.1 percent in 2022, there are considerations for economies and businesses operating in foreign jurisdictions where the rate of inflation is much higher for sustained periods of time (multiple years).
The International Financial Reporting Standards (IFRS), via International Accounting Standard IAS 29, explains how companies navigate financial statements if their primary currency used for commerce is the same legal tender experiencing hyperinflation in a particular economy, generally within a specific country. It also may be referred to as functional currency. IFRS generally looks at wages, pricing, and interest correlated with a price index increasing by at least 100 percent in aggregate over 36 months when determining if a company’s financial statements must be amended for economies with hyperinflation.
With PWC considering Argentina a hyperinflationary economy to entities whose functional currency is the Argentine peso, it’s considered so due to IAS 29. Specifically, IAS 29.3 details criteria when evaluating if indeed, an economy and its currency is experiencing hyperinflation. Select criteria include:
Residents of the subject jurisdiction attempting to preserve wealth via non-monetary assets or stable non-native currencies.
Business is indexed and transacted in non-native currencies with far lower rates of inflation.
When credit is the means of a transaction, it is priced at levels factoring in the expected debasement of the subject currency according to the time frame of the borrowing.
As of the 2019 publication, based on the 36-month lookback measuring inflation gauges and the IAS 29 evaluation criteria indicating hyperinflation, PWC determined the Argentina economy to be hyperinflationary. And according to IAS 29 standards, if a company’s primary legal tender it uses for commerce is the same as a country experiencing hyperinflation economic conditions, it must adhere to specific financial reporting standards.
Financial statements in hyperinflationary environments, according to IAS 29, that factor in relative details are required to be reported in the functional currency in up-to-date figures at the conclusion of the coverage time frame. When it comes to revising to current units of currency, businesses must use a general price index to account for inflationary changes. In addition to requiring a distinct declaration for a required business’ net monetary position, it must be reflected as proceeds or a decline in profits for the defined time frame.
The business must adhere to full disclosure, which includes transparency whereby financial statements have been restated, what price index the business relied upon to adjust for currency inflation considerations, and if the financial statements have been put together via historical or original costs versus current or fair value costs. The remaining requirement is that business results must assess its financial outcome and situation in its functional currency. Although according to IAS 21 guidelines, once financial results are restated, the restated functional currency can then be read in alternate forms of currency.
When it comes to inflation and the jurisdiction it occurs in, knowing the levels is important to help businesses account for times of normal and abnormally high levels.
Noteworthy 2023 IRS Inflation Tax Changes and Accounting Considerations for High Inflation
March 1, 2023 · Accounting News, Blog, Uncategorized
⏱ 4 min read
With the world seeing inflation, the Internal Revenue Service (IRS) has issued guidance for tax filers. Based upon an October 2022 IRS News Release, there have been more than 60 adjustments in conjunction with its yearly inflation alterations. Highlights of inflation adjustments include increasing the married couples’ standard deduction for 2023 by $1,800 to $27,700. Another highlight of inflation adjustments includes raising the threshold for the highest tax rate of 37 percent for individual taxpayers to an income higher than $578,125 or $693,750 if two married individuals are filing jointly.
However, there are certain things that are not subject to indexing for inflation. This includes permitting unlimited itemized deductions and maintaining the personal exemption at zero for the 2023 tax year – codified into law by the Tax Cuts and Jobs Act. The modified adjusted gross income (MAGI) amount used by joint filers to determine the reduction in the Lifetime Learning Credit (§25A(d)(2)) is not inflation adjusted for the taxable year (post-Dec. 31, 2020).
When it comes to the topic of inflation, while the United States experienced monthly inflation as high as 9.1 percent in 2022, there are considerations for economies and businesses operating in foreign jurisdictions where the rate of inflation is much higher for sustained periods of time (multiple years).
The International Financial Reporting Standards (IFRS), via International Accounting Standard IAS 29, explains how companies navigate financial statements if their primary currency used for commerce is the same legal tender experiencing hyperinflation in a particular economy, generally within a specific country. It also may be referred to as functional currency. IFRS generally looks at wages, pricing, and interest correlated with a price index increasing by at least 100 percent in aggregate over 36 months when determining if a company’s financial statements must be amended for economies with hyperinflation.
With PWC considering Argentina a hyperinflationary economy to entities whose functional currency is the Argentine peso, it’s considered so due to IAS 29. Specifically, IAS 29.3 details criteria when evaluating if indeed, an economy and its currency is experiencing hyperinflation. Select criteria include:
Residents of the subject jurisdiction attempting to preserve wealth via non-monetary assets or stable non-native currencies.
Business is indexed and transacted in non-native currencies with far lower rates of inflation.
When credit is the means of a transaction, it is priced at levels factoring in the expected debasement of the subject currency according to the time frame of the borrowing.
As of the 2019 publication, based on the 36-month lookback measuring inflation gauges and the IAS 29 evaluation criteria indicating hyperinflation, PWC determined the Argentina economy to be hyperinflationary. And according to IAS 29 standards, if a company’s primary legal tender it uses for commerce is the same as a country experiencing hyperinflation economic conditions, it must adhere to specific financial reporting standards.
Financial statements in hyperinflationary environments, according to IAS 29, that factor in relative details are required to be reported in the functional currency in up-to-date figures at the conclusion of the coverage time frame. When it comes to revising to current units of currency, businesses must use a general price index to account for inflationary changes. In addition to requiring a distinct declaration for a required business’ net monetary position, it must be reflected as proceeds or a decline in profits for the defined time frame.
The business must adhere to full disclosure, which includes transparency whereby financial statements have been restated, what price index the business relied upon to adjust for currency inflation considerations, and if the financial statements have been put together via historical or original costs versus current or fair value costs. The remaining requirement is that business results must assess its financial outcome and situation in its functional currency. Although according to IAS 21 guidelines, once financial results are restated, the restated functional currency can then be read in alternate forms of currency.
When it comes to inflation and the jurisdiction it occurs in, knowing the levels is important to help businesses account for times of normal and abnormally high levels.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
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With the world seeing inflation, the Internal Revenue Service (IRS) has issued guidance for tax filers. Based upon an October 2022 IRS News Release, there have been more than 60 adjustments in conjunction with its yearly inflation alterations. Highlights of inflation adjustments include increasing the married couples’ standard deduction for 2023 by $1,800 to $27,700. Another highlight of inflation adjustments includes raising the threshold for the highest tax rate of 37 percent for individual taxpayers to an income higher than $578,125 or $693,750 if two married individuals are filing jointly.