The CPA Desk

A Thought Leader Production by PKFTexas

Self-Employed? Here’s What You Need to Know About Employment Taxes

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In addition to income tax, you must pay Social Security and Medicare taxes on earned income, such as salary and self-employment income. The 12.4% Social Security tax applies only up to the Social Security wage base of $118,500 for 2016. All earned income is subject to the 2.9% Medicare tax.

The taxes are split equally between the employee and the employer. But if you’re self-employed, you pay both the employee and employer portions of these taxes on your self-employment income.

Additional 0.9% Medicare tax

Another employment tax that higher-income taxpayers must be aware of is the additional 0.9% Medicare tax. It applies to FICA wages and net self-employment income exceeding $200,000 per year ($250,000 for married filing jointly and $125,000 for married filing separately).

If your wages or self-employment income varies significantly from year to year or you’re close to the threshold for triggering the additional Medicare tax, income timing strategies may help you avoid or minimize it. For example, as a self-employed taxpayer, you may have flexibility on when you purchase new equipment or invoice customers. If your self-employment income is from a part-time activity and you’re also an employee elsewhere, perhaps you can time with your employer when you receive a bonus.

Something else to consider in this situation is the withholding rules. Employers must withhold the additional Medicare tax beginning in the pay period when wages exceed $200,000 for the calendar year — without regard to an employee’s filing status or income from other sources. So your employer might not withhold the tax even though you are liable for it due to your self-employment income.

If you do owe the tax but your employer isn’t withholding it, consider filing a W-4 form to request additional income tax withholding, which can be used to cover the shortfall and avoid interest and penalties. Or you can make estimated tax payments.

Deductions for the self-employed

For the self-employed, the employer portion of employment taxes (6.2% for Social Security tax and 1.45% for Medicare tax) is deductible above the line. (No portion of the additional Medicare tax is deductible, because there’s no employer portion of that tax.)

As a self-employed taxpayer, you may benefit from other above-the-line deductions as well. You can deduct 100% of health insurance costs for yourself, your spouse and your dependents, up to your net self-employment income. You also can deduct contributions to a retirement plan and, if you’re eligible, an HSA for yourself. Above-the-line deductions are particularly valuable because they reduce your adjusted gross income (AGI) and modified AGI (MAGI). These are the triggers for certain additional taxes and the phaseouts of many tax breaks.

For more information on the ins and outs of employment taxes and tax breaks for the self-employed, please contact us.

Prioritize Culture to Find More Than Just a Job

Jen: This is the PKF Texas Entrepreneur’s Playbook, I’m Jen Lemanski, this week’s guest host and today we’re telling the stories of what PKF Texas means to our people. Emily Smikal is a tax manager here and she’s gonna share her story with us. Emily, welcome to The Playbook.

Emily: Thanks for having me Jen.

Jen: You know, recruits have told us that our people are really our greatest strength and it allows them to get to know PKF Texas, and kind of prove that we are who we say we are. So you know with that, how did you get to PKF Texas?

Emily: Well I was recruited directly off campus, I came in through the internship program here my last summer before I graduated and then was offered a full-time job so came back in the fall of ’09 and have come up the ranks ever since.

Jen: So what’s your role with PKF Texas?

Emily: I’m a manager in the tax department.

Jen: Okay, cool, now what made you choose PKF Texas?

Emily: I think a lot of things but one of the big ones is I connected with the people but you’ll hear that a lot and then I was excited about the variety of work that I would get here. I think most importantly was really just that I felt I could really contribute and make a difference. PKF uses its people really well to do a lot of different trainings and recruiting and I knew I could contribute in that area.

Jen: And have you done any of those special kind of things?

Emily: Yes, I’m very involved in training and recruiting and a lot of things we call task forces here to make decisions.

Jen: Oh cool, cool, now so what advice would you give a recruit going through the recruiting process?

Emily: You know I think you should look for a place that you want to have a career and not just a job, you know look for things that will fit for you and not just follow the trends of everyone else and you know you might not be the happiest person on earth every day at work but you want to have joy in doing it. So I think look for those things.

Jen: Perfect, perfect, well thanks so much for being here today, we really appreciate it.

Emily: Thanks for having me.

Growing Your Practice Webinar Series

The Association for Accounting Marketing and American Institute of Certified Public Accountants have teamed up for a five-part webinar series focused on growing your practices. The webinars feature insight and knowledge from the practice growth all-stars of the accounting industry.

Our own Director of Practice Growth, Karen Love, will appear in the November 30th installment of the “Growing Your Practice” webcast series, along with Michelle Golden River, Principal and Growth Leader, K-Coe Isom. Their session, entitled “Leveraging the Marketing Function Properly”, will give viewers a strong overview on success factors to help growth leaders maximize marketing investments.

Two webcasts have already aired, with three more on deck through the end of November. You can access the three remaining episodes in their specific links below.

Growing Your Practice Webinar Series:

  • September 21, 2016 – What Top Growth Leaders Do to Enhance Sustainability – Katie Tolin, President & Chief Growth Guide, CPA Growth Guides; Chuck Ludmer, Principal & Chief Marketing and Practice Development Officer, Cohn Reznick and Lori Colvin, Partner and Chief Marketing Officer, Armanino LLP.
  • September 28, 2016 – Clarifying the Viability of Business Development Pros in Your Firm – Jason Jobgen, Strategic Alliances, BKD LLP and Russ Molinar, Director, Global Markets, Ernst & Young LLP.
  • October 19, 2016 – Exploring Compensation Programs for Professional Sales Teams – Mitch Reno, Principal, Director of Client Experience, Rehmann and Jason Delles, Director of Sales, Moss Adams. (Access this Webinar Here)
  • November 9, 2016 – Building Growth Leadership Skills – Angie Grissom, Owner & President, The Rainmaker Companies and Scott Moore, Senior Vice President, The Rainmaker Companies. (Access this Webinar Here)
  • November 30, 2016 – Leveraging the Marketing Function Properly – Karen Love, Director of Practice Growth, PKF Texas and Michelle Golden River, Principal and Growth Leader, K-Coe Isom. (Access this Webinar Here)

This webcast series is designed for growth-minded CPAs who want to generate and sustain impactful growth in their firms and CPE credit will be given to viewers.

This all comes before the AICPA and AAM host their bi-annual joint conference, ENGAGE 2017, happening next June.

Time Business Expenses to Your Tax Advantage

Typically, it’s better to defer tax. One way is through controlling when your business recognizes income and incurs deductible expenses. Here are two timing strategies that can help businesses do this:

  1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
  2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

But if you think you’ll be in a higher tax bracket next year (or you expect tax rates to go up), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but can save you tax over the two-year period.

These are only some of the nuances to consider. Please contact us to discuss what timing strategies will work to your tax advantage, based on your specific situation.

Overcoming Shipping Challenges with International Entities

Karen: This is PKF Texas Entrepreneur’s Playbook, I’m Karen Love, Host and Founder. Today I’m here once again with Frances Castaneda Dyess; she’s the president of the Houston East End Chamber of Commerce. Welcome back once again.

Frances: Thank you Karen for having me back.

Karen: Well, you know I found it really cool that Houston may benefit from shipments that are coming directly here and I would like to know about another business disruption where Houston’s going to win.

Frances: Absolutely. Well you know flowers are abundant, you see them everywhere here in the city of Houston, but did you know that they actually go somewhere else and then they’re flown into Houston?

Karen: No I didn’t.

Frances: It would be wonderful if they would come directly here so I do know that the port is working with Colombia. There was a test program where flowers came on a shipment, however there were some complications and due to government agencies they arrived and they weren’t in the best quality, so the tests are going to continue. And wouldn’t it be wonderful once that test has been resolved all these flowers would come here immediately? New businesses can open around the port and then everyone else will benefit from it.

Karen: That would be fantastic. I had no idea so thank you for sharing that with us and our audience.

Frances: You’re very welcome, thank you.

Karen: So for other port related topics visit because this has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.

Adapting to Change in Business

Byron: Hi, my name is Byron Hebert and this is another Tool Time Update brought to you by your friends at PKF Texas and the Entrepreneur’s Playbook. We’ve been talking about the Birkman personality profile examination; how we use it here in our organization for hiring executives, we use it for coaching, we use it for putting teams together and for conflict resolution. It’s got many good tools we can use for our biggest asset in our company, our most important asset, which is our people; getting to know them a little bit better and how they work and what their work style is.

Again, we’re going through the 11 components that we measure in Birkman and remember we talked about our usual style, that’s the way people see us, that’s the way we come to work every day and where we want to stay. Our needs; how we need to be communicated and how we deal with each one of these 11 components ourselves. And our stress behavior which is what we want to avoid because that’s destructive to the organization and to our own careers. And the way we stay out of that stress behavior is getting our needs met, right?

So we’re going to talk about change today and that component within Birkman. Change is how well we deal with change, how we accept change, how quickly we are at accepting change. Change is happening all the time in our business and so we have to accept it. But this may give you an indication as to how well people are going to accept it and what you need to do to get people ready for change. If you have a low change score, your low usual style – low need, that sort of thing – that means that you’re not going to like change very much. Change is going to be hard for you and so how you deal with that. As a leader we may want to start getting them interested in that or involved in that change initiative so they could ask questions and be involved in it and be part of the change, and that’s one way we can deal with that.

Someone with a very high change usual style of need, they’re going to be fine; with whatever change you give them they’re going to move faster, they’re going to be able to adapt to change a little bit quicker and it’s not going to be as stressful for them.

So change is how well we deal with change in our organization and it’s good to know how our people are going to respond to that and how we can help them deal with that – their score, whichever it is. And to keep them out of that stress behavior which is where we want to keep them out of because that becomes destructive to the organization and to their own careers. My name is Byron Hebert, this has been another Tool Time Update brought to you by your friends at PKF Texas and The Entrepreneur’s Playbook.

The Benefit of Donating Long-Term Appreciated Stock

If you’re charitably inclined, making donations is probably one of your key year-end tax planning strategies. But if you typically give cash, you may want to consider another option that provides not just one but two tax benefits: Donating long-term appreciated stock.

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The Role Social Media Plays in a Crisis

Russ: This is the PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m here once again with Chris Jones, Vice President at Pierpont Communications and head of their Energy in Crisis practices. Pierpont also plays a key role in the Profit and Peril Report. Chris, welcome back to the Playbook once again.

Chris: Thanks Russ, glad to be here.

Russ: You bet. Okay, so we’ve already talked about things that you need to do internally in your company to prepare for international expansion and then we talks about those things that you really need to be aware of in the destination country that you’re headed for. But are there aspects of going international that apply no matter where you’re moving too?

Chris: There certainly are. From a crisis management or planning perspective probably the best example that most everyone’s familiar with would be social media and the role it can play. Social media, as we know, it moves essentially at the speed of light; it can jump boundaries, it can cross time zones and it can really short circuit your crisis communications plans.

Russ: Okay, so what would one do to prepare for that?

Chris: What we like to do is begin monitoring before there’s ever a crisis. We like to have a background monitoring program in place so we understand the normal chatter and the normal sentiment. Then when and if a crisis incident comes along we’ve got a base of and we can see how severe is this incident, who are the influencers in the conversation that allows us to begin to address that.

Russ: Okay, sounds like an aspect of business these days that you have to pay attention to no matter what.

Chris: You cannot ignore that one.

Russ: All right Chris thanks so much.

Chris: Appreciate it.

Russ: You bet. For other international topics visit This has been another Thought Leader Production brought to you by PKF Texas Entrepreneur’s Playbook.

Tax Plans to Help Pay Tuition

Section 529 plans provide a tax-advantaged way to help pay for college expenses. Here are just a few of the benefits:

  • Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred.
  • Some states offer tax incentives for contributing in the form of deductions or credits.
  • The plans usually offer high contribution limits, and there are no income limits for contributing.

Prepaid tuition plans

With this type of 529 plan, if your contract is for four years of tuition, tuition is guaranteed regardless of its cost at the time the beneficiary actually attends the school. This can provide substantial savings if you invest when the child is still very young.

One downside is that there’s uncertainty in how benefits will be applied if the beneficiary attends a different school. Another is that the plan doesn’t cover costs other than tuition, such as room and board.

Savings plan

This type of 529 plan can be used to pay a student’s expenses at most postsecondary educational institutions. Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

The biggest downside may be that you don’t have direct control over investment decisions; you’re limited to the options the plan offers. Additionally, for funds already in the plan, you can make changes to your investment options only twice during the year or when you change beneficiaries.

But each time you make a new contribution to a 529 savings plan, you can select a different option for that contribution, regardless of how many times you contribute throughout the year. And every 12 months you can make a tax-free rollover to a different 529 plan for the same child.

As you can see, each 529 plan type has its pluses and minuses. Whether a prepaid tuition plan or a savings plan is better depends on your situation and goals. If you’d like help choosing, please contact us.

Three Steps to Becoming Compliant with the New Overtime Rules

Karen: This is the PKF Texas Entrepreneur’s Playbook and I’m Karen Love; I’m the Host and Founder of the show. I‘m here with Wilka Toppins and she is the Principle and Founder Lawyer of the Toppins Law Firm and we’re having her back again to talk about overtime and new laws and I would like to know based on the first two segments we did with you, it seems like there’s steps that employers or team member, employees, would need to take. Could you do an overview of what those steps would be to become compliant?

Wilka: Absolutely Karen. The first thing we are asking employers to do is to first educate themselves.

Karen: Okay.

Wilka: Go to the website; the Department of Labor has a lot of information on its website. It’s, it’s right there on the front page.

Karen:, okay.

Wilka: Educate yourselves; call your advisor whether it’s your Human Resource advisor, whether it’s your Accountant, whether it’s your attorney or someone like ourselves – an outside firm – could be hired to educate and inform about the law. You need to understand the law, it’s going to apply to you no matter what, whether you know it or not.

Karen: Right.

Wilka: The second thing is once you educate about the law you can perform what’s called an audit – an internal audit – just to see if you have to make any changes to become compliant with any law. It may be that you don’t need any changes; it may be that you’re fine and you document that and you put it away in your audit file.

Karen: So it’s just a diagnostic tool to actually figure out whether you’re in compliance or not.

Wilka: Or what do you need to do to become compliant December the 1st. Because I want to point out Karen to the audience as well that there is no grace period, so the law will become the law on December the 2nd; the next day.

Karen: Right, this is important.

Wilka: So you have 4 months to do this audit, to become complaint, talk to your advisor, educate yourself, talk to your HR professionals and put some steps into play. Some of the things we’re suggesting after you do an audit and you see that you do have to make some adjustments; you can either raise the salary above the threshold to avoid the overtime – well, that’s going to be expensive, right? Not everybody can just raise salaries the next day; you may have to prepare for that. You may not be able to raise salaries at that point, what you can do is really, really modify or come up with a good overtime policy. So you avoid overtime.

Karen: Okay, so just another step there.

Wilka: Right, so you have to look at your policies. Last thing is if you do have the overtime that make sure you have a policy to record the work in excess of the 40 hours per week so that you can then pay accordingly. So those are the suggestions at this point.

Karen: First steps; well thank you very much, those are very helpful and we could reach out to the Department of Labor to look at what the compliance issues are.

Wilka: That’s right,

Karen: Fantastic, thank you very much.

Wilka: Sure.

Karen: I think we need to have you back again to talk a little bit more on this.

Wilka: Okay, perfect.

Karen: Thank you. This had been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook. Tune in again.