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Retirement and Tax

Posted by Admin Posted on Dec 22 2016

One of the most overlooked points, when retirees are calculating their living expenses, is the percentage of tax they will be paying on those retirement dollars. How you go about using your savings accounts can make a big difference in how much tax you will be responsible for. 


It is generally believed that you should tap taxable accounts first, then tax-deferred accounts, and finally your Roth. For most retirees this makes sense. This changes if you have a lot of money in your traditional IRA or 401(k). When you turn 70 1/2 you will have to take required minimum distributions (RMDs) from those accounts. If the accounts grow too large - the minimum distribution could be large enough to put you into a higher tax bracket. This is avoided by making withdrawals from tax-differed accounts earlier. 


Retirement assets are taxed in the following ways:


Tax-deferred accounts. Years of paying into these accounts and enjoying the tax benefits upfront of doing so leaves you with a painful distribution from these accounts. Withdrawals from traditional IRAs and your 401(k) will be taxed as ordinary income. At the top tax bracket. 


Taxable accounts. Profits from sale of investments (stocks, bonds, mutual funds, and real estate) are taxed at capital-gains rates, which vary depending on the length of time you have own the investments. If you have held assets longer than a year, the long-term capital-gains rates are favorable. If you are in the 10% or 15% tax bracket, you will pay 0% on those gains. Most other tax payers pay 15% on long-term gains. Short-term capital gains are taxed at your ordinary income tax rate. 


Roth IRAs. This is a fun account to withdraw from because as long as the Roth account has been open for 5+ years and you're 59 1/2 or older, all withdrawals are tax-free. You also do not have to take RMDs from your Roth account when you turn 70 1/2. 


Social Security. Yes, you can be taxed on your Social Security benefits. Whether or not you’re taxed depends on your provisional income. Your provisional income is your adjusted gross income plus any tax-free interest plus 50% of your benefits. As of 2016 if your provisional income is between $25k and $34k if your single or between $32k and $44k if you are married, up to 50% of your benefits is taxable. If it exceeds $34k if you're single or $44k if you're married, up to 85% of your benefits is taxable. 


Pensions. Assuming you made no after-tax contributions to the plan, payments from private and government pensions are usually taxable at your ordinary income rate. 


Annuities. If you purchased an annuity that provides income in retirement, the portion of the payment that represents your principal is tax-free. Everything else is taxable. You should be told by the insurance company that sold you the annuity what is taxable. If you bough the annuity with pretax funds - different rules apply. If that happens, 100% of your payment will be taxed as ordinary income. 


Financial circumstances are as varying as life circumstances be sure to connect with your Sorge tax team for information and guidance specific to your situation. 


References: Kiplinger's Personal Finance. Yahoo Finance. Business Insider.

Business Entities

Posted by Admin Posted on Nov 02 2016

Starting a business can start organically, with a structured business plan, or a combination. No matter what way you start a business you will have to choose a business entity in order to be recognized by the federal government. The business entity determines which income tax form you have to file. The federal government levies four basic types of business taxes: 

Income Tax
Self Employment Tax
Taxes for Employers
Excise Taxes

To learn more about these taxes visit the Internal Revenue Service's (IRS's) Guide to Business Taxes.

Federal Taxes 
To access the forms you will need to file - click on your business entity. 

Sole Proprietorship
S Corporation
Limited Liability Company (LLC)

State Taxes
Most states levy a business or corporate income tax. State taxe requirements depends on the legal structure of your business. For Wisconsin:

Business Tax Registration
General Tax Information and Forms
Worker's Compensation Insurance
​Unemployment Insurance Tax

Check with your Sorge Team Member to make sure you are defining your business in the best way for both your current business situation and structure and for your desired tax planning goals.

4th Quarter Tax Planning Checklist

Posted by Admin Posted on Sept 29 2016

1. Maximize Investment Tax Benefits. If you have investments, now is the time to recognize loss on stock transactions and how they could offset gains. Also if you have any capitol loss carryover from prior tax years now is the time to recognize how it will come into play this year.

2. Open a 529 Plan. Whether you have kids or grandkids - setting up a 520 plan for contributions can help reduce your tax liability. Contributions must be made by the last day of the year. 

3. Gifting. You can give up to $14,000 per year to anyone you’d like without tax consequences. This can be particularly important to understand around the holiday season.

4. Charitable Giving. Supporting your favorite charities has its advantages tax wise. Be sure to calculate those dollars and have them ready for your tax advisor!

5. Health Insurance. Open enrollment for Medicare starts mid-October and ends in early December. Be sure to discuss this with your advisors to be eligible for the tax benefits related. 

6. Accelerate deductions. Making purchases before the year end will make them eligible for your 2016 tax deductions. Be sure to talk with your advisor about whether deducting things this year or next would be best for your business. Also, for example, if you have medical bills outstanding and you are going to exceed the minimum needed for a medical deduction this year - timely payment of those bills outstanding would result in a bigger 2016 deduction. 

7. Delay Income. If you predict you may be in a lower tax bracket next year waiting to send out late in the year work invoices can help equal out the income between the two years. 

There is never a bad time for tax planning!

Summer Tax Tips

Posted by Admin Posted on July 28 2016

Day camps are common during the summer months. Many parents enroll their children in a day camp or pay for day care so they can work or look for work. If this applies to you, your costs may qualify for a federal tax credit. Here are 10 things to know about the Child and Dependent Care Credit:

  1. Care for Qualifying Persons.  Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 generally qualify.
  2. Work-related Expenses. Your expenses for care must be work-related. In other words, you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they are physically or mentally incapable of self-care.
  3. Earned Income Required. You must have earned income. Earned income includes wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care.
  4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
  5. Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
  6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income.
  7. Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
  8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
    • Overnight camps or summer school tutoring costs.
    • Care provided by your spouse or your child who is under age 19 at the end of the year.
    • Care given by a person you can claim as your dependent.
  9. Keep Records and Receipts. Keep all your receipts and records for when you file taxes next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
  10. Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer.

Keep in mind this credit is not just a summer tax benefit. You may be able to claim it at any time during the year for qualifying care. IRS Publication 503, Child and Dependent Care Expenses, provides complete details on all the rules. Get it anytime on

Standard Deduction vs Itemized Deduction

Posted by Admin Posted on July 20 2016

Standard Deduction

The standard deduction will vary year to year depending on your filing status. The fixed number, determined by the tax year, reflects the dollar amount that reduces the income you’re taxed on. 

In 2015, the standard deductions were:

Single/Married Filing Separately — $6,300
Married filing jointly or qualifying widow(er) — $12,600
Head of household — $9,250

Most (around two - thirds) of tax returns will claim the standard deduction. The benefits of using the standard deduction for your taxes include:

- allows a deduction even without expenses that qualify for claiming itemized deductions
- no need to itemize deductions
- avoids the need to keep records + receipts for IRS audit purposes 

Itemized Deduction

Similarly to the standard deduction, itemized deductions reduce your taxable income. However, itemized deductions require more information.

You might see itemizing your deductions as beneficial if:

- your itemized deductions > the standard deduction you’d receive
- you had large medical/dental expenses
- paid mortgage interest and real estate taxes on your home
- had large business expenses or unreimbursed expenses as an employee
- had theft, natural casualty losses in your immediate family
- donated sizable dollars to charities
- had unreimbursed miscellaneous expenses


If you calculate your itemized deductions and it is less than your standard deduction you might want to consider taking the standard deduction. However, in some cases there is a benefit to itemize deductions even if your itemized deductions are less than the standard deduction. For example - you might choose to do this if you would end up paying less tax by itemizing on a state return in order to get a larger tax benefit than if you would file the standard deduction on your federal tax return.


 At Sorge CPA we can help go through your tax return line by line to make sure that your are filing the appropriate deduction method for your unique case.

Garage Sale vs. Donation

Posted by Admin Posted on July 14 2016

It is that time of year, again! Garage Sales are saturating Craigslist, neighborhoods, and our thoughts as we all try to determine if all of that pricing, organizing, and purging of our STUFF is worth it. Here are some important tips to consider as you are gearing up or scaling down the thought of opening up your garage to patrons. 

1. Understand your Itemized Deductions. The IRS provides a great description of charitable donations as well as other itemized deductions you can look into. We will be posting a more detailed description  between standard and itemized deductions on a future blog post next week! 

2. Standard Deduction. What is the standard deduction for your filing status? Do you exceed the standard?
For 2016 the Standards are: 

Filing Status Standard Deduction
Single $6,300
Married Filing Jointly $12,600
Married Filing Separately $6,300
Head of Household $9,250
Qualifying Widow(er) $12,600 

3. Your Status. Will your donations exceed the standard? If they don't then donating the items will not benefit your tax situation. Maybe opt for a garage sale at that point, to get some extra cash. If your donations do exceed the standard - you will want to value the goods you are looking to donate.

4. Value your items. When valuing your property you will want to use Fair Market Value FMV or a value you would expect someone to pay for your item at a Thrift Store. Generally, this is more than what you would expect to receive at a garage sale. 

5. Documentation. You will need a receipt or written note to substantiated the deduction of the items you donate. This can be in the form of a statement from the organization or a reliable written record that shows the organizations name, address, date of the donation, and a description of the items. (Note: This does not need to be included with your tax return, but instead saved for reference in the future.)

6. Sweat Equity. Along with the tax advantages, and standard deduction comparisons, you will also want to give thought to your personal time to organize + prepare for the garage sale as well as the time spent "working" the sale itself. This is knows as "sweat equity." How much is your own time worth? 

Some individuals enjoy time outside mingling with patrons and selling their things. Others would rather save the time and donate to take the deduction instead. Which would you prefer? What are your experiences with garage sales, time, and tax deductions?


S-Corp Advantage

Posted by Sorge CPA Posted on June 30 2016

One of the main advantages to having your business taxed as an S-Corporation is that you can potentially reduce self-employment tax. 


For example you will end up paying self employment tax on 100% of what you make in a sole-proprietorship. Where as if you have an S-Corp you have the opportunity to pay yourself as the business owner and pay self-employment tax only on the income you allot for yourself. 


In general it is safe to start your business as a sole-proprietorship. However, when your business reaches a point when you would like more control over your tax liability be sure to connect with your accountant to discuss options with your business titling.


Being Audited

Posted by Sorge CPA Posted on June 23 2016

It is helpful to understand the many factors that go into the selection process for IRS Audits. In general everyone can be audited - however some people are at greater risk. 


Tax Return Selection Process for Purposes of IRS Agent Audit:

· Not necessarily available to the public

· Some tax returns are selected randomly

· Most audit cases: returns have line items that are “out of the norm”


Sorge CPA has several teams who put extra care into your tax return. Your personal team is devoted to eliminating mistakes and also being aware of current updated tax law involved with every new tax return.



Income Statement vs Balance Sheet

Posted by Sorge CPA Posted on June 20 2016

Income Statement

· Answers the Question: How much money you will make this year

· Most familiar to people

· Explains: income - expenses = bottom line


Balance Sheet

· Answers the Question: Where did the money go?

· More in depth understanding of expenses

· Explains: dollars going into things like debt, inventory, or supporting the clients lifestyle. 



What Kind of Software Should I Use?

Posted by Sorge CPA Posted on June 14 2016

There are many worthy accounting software programs available. We recommend Quickbooks for small to medium sized businesses. At Sorge CPA we will host your quickbooks file for you remotely this proves to be an advantage in the following ways:

1. Quickbook files are accessible anywhere through a secure icon.

2. Quickbook files are backed up off site continuously.

3. Paperless! There is no need of paper delivery of your documents.

4. Your team at Sorge CPA can efficiently complete your work in real time.

5. Payroll services can be added. 

6. No ongoing fees for the routine hosting of your files.


What Makes Sorge CPA Different?

Posted by Sorge CPA Posted on June 13 2016

Our accounting firm's main focus is to have strong communication with our clients. We accomplish this in two main ways:

1. Using Large Firm Resources + Cultivating Small Firm Attention

2. Taking Advantage of Technology


Sorge QuickBooks Online (SQBO) allows our firm to unite technology with our main objective of staying connected with you. 

· Allows us to host clients QuickBooks file on our server.

· Allows for simultaneously access for both client and us.

· Client can access their file from anywhere in the world.

· We can access clients file for advisory and tax planning purposes.


SQBO becomes extremely valuable when their are questions or for an opportunity to educate a client for best practices.

What is a Balance Sheet Used For?

Posted by Sorge CPA Posted on June 02 2016

It shows each category of the assets owned, such as:

· cash

· accounts receivable

· inventory

· equipment

It also shows each category of liabilities involved, such as:

· accounts payable

· payroll tax liabilities

· loans payable

The Balance Sheet can helps answer the questions:

· Where did the profit go?

· Did cash increase?

· Did loans decrease?

· Did the owner draw funds out of the business?

· Was cash used for fixed assets?

The balance sheet allows us to understand basic things about a business. Comparing balance sheet year-to-year shows the financial structure and stability of the business.


Income Statement

Posted by Sorge CPA Posted on June 01 2016

By analyzing an income statement, we can find answers to questions like:

 · Is the % of Gross Profit compared to % Gross Income higher or lower than last year? Why?

 · How do unique core differentiators impact the gross profit margin?

The analysis of each line item in the income statement compared to the prior year is important.

Ratios,help to compare each income and expense item to the total business income.

The relationship between the expense items and the revenue items is critical in helping businesses become more profitable.

For example: If we are able to increase revenue without increasing certain expenses the business will become more profitable.

Income statements are used to show the gross income, expenses, and net income. Depending the nature of the business the cost of sales (a subtotal of gross profit after direct expenses of sales) may be applicable. Through a careful analysis, they can help reveal ways to imporve your business.


Profit Planning Process

Posted by Sorge CPA Posted on May 24 2016

Every business needs to be analyzed carefully in order to both grow and maintain growth successfully. Here at Sorge CPA we offer to help you plan in a way that allows you to expect greater profit margins and overall business health. The profit planning process should be done after tax season to allow for a clear understanding of what is happening within the business. Here is our process.

Review the income statement and balance sheet. This helps to determine the gross profit margin and overhead costs.

Calculate sales needed to reach net income goals. Using the historical information allows us to create appropriate sales goals for you.

State the sales goal. This can be in annual or monthly terms depending on the type of business and the seasonal sales that may occur.

Analyze the gross profit margin for potential improvement. Based on historical income and cost relationships we analyze the gross profit margin in terms of improvement. Profit margin improvement is possible when unique core differentiators are identified and communicated to your customers in a way that they will understand the value of your product or service.

Consider line by line potential improvements. This is done by going through your balance sheet and income statement to see what changes could be made to improve profitability.

We consider profit improvement strategies and the investment required in order to implement these strategies. Is there a better way of completing a task(s) within your business? We can go over potential investments for your business and how they could help you profit more in the future.

Tasks are then assigned with deadlines. Ideally, profit planning sessions will occur multiple times a year in order to assess your business.

We want your profit margins to continue to grow year-round.Planning for this allows it to be an expectation rather than a variable.