Creating Value in Your Business to Get top Dollar When You Leave It

Did you ever wonder why one business has buyers lined up willing to pay top dollar while another sits on the market for months, or even years? What do buyers look for in a prospective business acquisition?

There are many opinions about what attributes or characteristics buyers seek, but here’s what we know: the characteristics buyers seek must exist before the sale process even begins and it is your job as the owner to create value within your business prior to the sale. We call characteristics that impact value “Value Drivers.”

Walk A Mile In A Buyer’s Shoes

To get an idea of the importance of Value Drivers when preparing to sell your business, it is important to put on the buyer’s shoes for a minute. Let’s look at a hypothetical case study that illustrates how a buyer might compare two similar companies with a different emphasis on Value Drivers.

The A Factor Company has EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $2 million, an owner who runs the business and the systems and processes that create growth. The A Factor Company doesn’t have a real management team in place and the owner generates a majority of its sales. The owner is the center point of the company, holding both the CEO and CFO positions. With this level of responsibility, the owner is burning out quickly.

In comparison, The B Factor Company also has EBITDA of $2 million and a solid management team that runs the business, systems and processes. The management team creates efficiencies within the business and the owner vacations for six weeks a year.

If you were a buyer comparing these two companies, which would provide a more attractive business opportunity? How much more would you pay for a business with a strong management team (one of the most important Value Drivers)? Would you even be interested in buying a business whose management team (the owner) walks out when you walk in?

Investment bankers understand that companies that lack strong Value Drivers also lack a bevy of buyers. Those buyers that do come to the table do not arrive with pockets full of cash.

Let’s look at several of the more important Value Drivers common to all industries:

  • A stable and motivated management team. If you can wait a year to sell your business, we suggest that you consider an incentive compensation system, cash or stock-based, that rewards key employees as the company performs (usually measured by increases in pre-tax income). Sophisticated buyers know that with a solid management team in place, prospects are good for continued business success. Without a strong management team, it may be very difficult to sell your business to a third party or transfer it to an insider.
  • Operating systems that improve sustainability of cash flows. Operating systems include the computerized and manual procedures used in the business to generate its revenue and control expenses, (i.e. create cash flow), as well as the methods used to track how customers are identified and how products or services are delivered. The establishment and documentation of standard business procedures and systems demonstrate to a buyer that the business can be maintained profitably after the sale.
  • A solid, diversified customer base. Buyers typically look for a customer base in which no single client accounts for more than 10 percent of total sales. A diversified customer base helps insulate a company from the loss of any single customer. If the majority of your customer base is made up of only one or two good customers, consider reinvesting your profits into additional capacity that will make developing a broader customer base possible.
  • A realistic growth strategy. Buyers tend to pay premium prices for companies with realistic strategies for growth. Even if you expect to retire tomorrow, it makes sense to have a written plan describing future growth and how that growth will be achieved based on industry dynamics, increased demand for the company’s products, new product lines, market plans, growth through acquisition, and expansion through augmenting territory, product lines, manufacturing capacity, etc. It is this detailed growth plan, properly communicated, that helps to attract buyers.
  • Effective financial controls. Financial controls are not only a critical element of business management, but they also safeguard a company’s assets. Effective financial controls support the claim that a company is consistently profitable. The best way to document that your company has effective financial controls and that its historical financial statements are correct is through a certified audit or perhaps a verified financial statement by an established CPA firm.
  • Stable and improving cash flow. Ultimately, all Value Drivers contribute to stable and predictable cash flow. It is important, especially in the year or so preceding the sale of the business, that cash flow be substantial and on an upswing. You can begin increasing cash flow today by simply focusing on ways to operate your business more efficiently by increasing productivity and decreasing costs.

You can install these Value Drivers and better position your company to secure a premium price upon your exit with the help of a trained Exit Planning Advisor.

If you have any questions about increasing the value of your business prior to your exit, please contact us to discuss your particular situation. We can help you identify and strengthen the current Value Drivers in your business, install additional Value Drivers, and create a road map to meet your overall exit objectives. We also have additional resources that explain Value Drivers in more detail and help you apply these concepts to your business.

Bill Roeser


2018 Tax Reform

The Tax Cuts and Jobs Act ....

is the most sweeping update to the U.S. tax code in more than 30 years. The reforms will simplify taxpaying for many individual Americans, lower taxes on individuals and businesses, and update the business tax code so that American corporations and the people they employ can be globally competitive again.

The Tax Cuts and Jobs Act has the potential to unleash higher wages, more jobs, and untold opportunity through a larger and more dynamic economy. The bill’s pro-growth components include a deep reduction in the corporate tax rate, a scaled-back state and local tax deduction, full (albeit temporary) expensing, and lower individual tax rates. The bill also repeals Obamacare’s individual mandate, expands college savings accounts, and increases some non–growth-enhancing tax credits and deductions.

The conference report demonstrates a serious effort to reform a complex and badly broken system that provides significant relief to the vast majority of taxpaying Americans. While Congress surrendered to the pressures of special interests in several areas, eroding many of the boldest components of their original proposals, the conference agreement nevertheless reflects a critical step in the right direction.

Business Tax Reform

The Tax Cuts and Jobs Act’s most significant changes are to modernize the tax treatment of businesses in the United States. Taken together, the business reforms will result in a significant boost to the U.S. economy by attracting international business investment and jobs to America.

Previous analysis of the two similar bills, independently passed by the House and the Senate, estimates that the economy could grow between 2.6 percent and 2.8 percent larger in the long run.

21 Percent Corporate Rate. The bill permanently lowers the corporate tax rate to 21 percent starting in 2018.  This is a flat rate.  No longer progressive rates of 15, 25, 34, 35%.

Historically, U.S. businesses have faced some of the highest statutory corporate tax rates in the developed world.

 A 21 percent corporate tax rate, down from the current federal rate of 35 percent, is the most pro-growth component of the Tax Cuts and Jobs Act. The reform will encourage significant new investment in the U.S., which will benefit workers primarily through higher wages and more jobs.

A 21 percent federal corporate tax rate still leaves the United States with a higher rate than many of its largest trading partners around the world. When average state taxes are added, the U.S. will have a cumulative rate around 26 percent—higher than the worldwide average of 23 percent.

Bonus Depreciation = Full Write-Off. The bill expands the current-law 50 percent bonus depreciation for new short-lived capital investments to 100 percent or “full expensing” for five years and then phases out over the subsequent five years. Expensing allows companies to deduct the cost of investments (new & used) immediately and removes a current tax bias against investment.

The bill also expands expensing for small businesses under Section 179 by raising the cap on eligible investment from $500,000 to $1 million. The phaseout increases from a $2 million cap to a $2.5 million cap on total equipment purchases. In 2022, businesses will no longer be able expense their research and development costs; this is a step in the wrong direction toward longer write-off schedules rather than toward expensing.

20 Percent Pass-Through Deduction. Small and pass-through businesses that pay their taxes as individuals (and face the new lower individual tax rates) will receive a newly created deduction. Pass-through businesses will be able to deduct 20 percent of certain types of non-salary business income, bringing the top marginal tax rate (on most pass-through income) down from 39.6 percent under current law to 29.6 percent. This 20% deduction also applies to sole proprietorships.  Certain service providers in the fields of health, law, consulting, athletics, financial, or brokerage services are denied the deduction if their income is over a $315,000 threshold, where the deduction begins to phase out.

Although lower marginal tax rates for small and pass-through businesses are an important component of economic growth, the discrepancy in top rates between individual income and small and pass-through business income will increase the incentives to treat income from wages artificially as business income. This new tax privilege has no consistent policy rationale, arbitrarily favors certain types of businesses over others, introduces new complexity, and will provide new opportunities for unproductive tax planning.

  • Example 1: Jack, a single taxpayer, has a “regular” job where he earns a $100,000 salary as an employee. He also “moonlights” as a consultant and earns $50,000 of net profit via his Schedule C sole proprietorship. Now suppose that after accounting for deductions for self-employment taxes and the standard deduction, Jack’s taxable income is $133,500 (before application of the pass-through deduction).  Here, Jack’s business income of $50,000 is less than his taxable income of $133,500. As a result, the 20% pass-through deduction will be applied to Jack’s $50,000 of business income, resulting in a $10,000 ($50,000 x 20% = $10,000) deduction.
  • Example 2: Jill, a single taxpayer, is a real estate agent who earns $100,000 of net profit via her Schedule C sole proprietorship. This is Jill’s only source of income. After factoring in Jill’s deductions for self-employment taxes and the standard deduction, her taxable income is $73,000 (before application of the pass-through deduction).

Contrary to our first example, here, Jill’s taxable income of $73,000 is less than her eligible business income of $100,000. Therefore, Jill’s 20% pass-through deduction will be applied to her $73,000 of taxable income. This results in a $14,600 (73,000 x 20% = $14,600) deduction.


The act imposes a new onetime transition tax on international firm’s accumulated overseas profits. The onetime tax rate is 15.5 percent for liquid assets and 8 percent for physical assets.

Limited Interest Deduction. The current unlimited deduction for net interest expense for C-corporations is capped at 30 percent of earnings before interest and taxes. For the first four years, the cap applies to a slightly different definition of earnings before interest, taxes, depreciation, and amortization. This only applies to businesses with receipts exceeding 25 million annually.

Individual Reform

For a vast majority of Americans, the Tax Cuts and Jobs Act will lower their federal tax bill in 2018. This is accomplished through lower tax rates, a larger standard deduction, and an expanded child tax credit. Most of the individual tax changes revert to current law before 2025 to meet political constraints and Senate budget rules. Although temporary tax policy is never ideal, the expirations give Congress an incentive to revisit the tax code in the coming years to provide more far-reaching and permanent reform.

Lower Individual Tax Rates. The framework lowers rates for almost every tax bracket. The current seven brackets remain, but with new, generally higher income thresholds and lower rates. Table 1 describes the changes for single and married filers; the bill also retains the head of household status with similar adjustments to income brackets.

 Larger Standard Deduction. The standard deduction is almost doubled, consolidating the additional standard deduction and personal exemptions into one larger deduction. For married joint filers, the deduction will be $24,000; for single filers, it will be $12,000. The expanded deduction simplifies tax filing by cutting the percentage of tax filers who will need to itemize their deductions in half. Approximately 9 of 10 taxpayers will simply claim the new standard deduction.

The change will also exempt more people from paying any income tax at all. When fewer people pay income taxes, the harmful side effect is that government appears to cost less for those taxpayers. Decreasing the number of households that pay any federal income tax at all lowers their personal cost of future government expansions, which could lead to higher overall tax rates in the future.

$2,000 Child Tax Credit. The child tax credit (CTC) is doubled from a current-law level of $1,000 to $2,000 per child. The new larger credit begins to phase out for married filers with incomes of more than $400,000an increase from $110,000 under current law. The new larger credit offsets the repeal of the personal exemption for dependents. For any family in the 25 percent tax bracket or lower, this is an expansion of the tax subsidy for children.

The new larger child tax credit is refundable for taxpayers with no federal income tax liability. This effectively allows a taxpayer to accrue a negative tax liability that results in a federal spending outlay of up to $1,400 per child in 2018. The refundable threshold is indexed to inflation, capping out at the full $2,000 value. A new non-refundable credit of $500 is added for non-child dependent care like care for adult family members with disabilities or elderly parents.

$10,000 State and Local Tax Deduction. Taxpayers who itemize their taxes will be able to deduct up to $10,000 of state and local property taxes and income taxes (or sales taxes) paid. Only about one in 10 taxpayers is expected to itemize deductions under the new tax code.

$750,000 Limit on Mortgage Interest Deduction. The bill does not change the treatment of existing mortgages. Interest paid on up to $750,000 of new home mortgage debt will remain deductible for residences (1st & 2nd) for taxpayers who itemize. The new rules lower the threshold from the current-law level of $1 million and exclude the ability to deduct interest on equity lines of credit.  Existing mortgages and lines of credit are grandfathered and protected under the rules existing before the new law. 

Charitable Deduction Expanded. The charitable deduction expands for those who itemize, from 50 percent of income to 60 percent. The charitable deduction is denied for payments made in exchange for seats at college sports games.

Other Itemized Deductions Retained. The most politically sensitive itemized deductions and exclusions for medical expenses, tuition compensation, private activity bonds, student loan interest, and teacher spending are all retained. The bill expands the deduction for medical expenses for two years for expenses exceeding 7.5 percent of adjusted gross income, down from the current-law level of 10 percent.

529 College Savings Accounts Expanded. 529 college savings accounts—named after their section of the Internal Revenue Code—are expanded to allow parents to save for K–12 and homeschooling expenses. The reform increases the ability of parents to pay for education options outside the public school system, giving families more education choices.

Individual Mandate Repealed. Obamacare’s individual mandate tax (penalty) is repealed. Zeroing out the tax, which is intended to force individuals to buy health insurance, provides tax relief to millions of Americans who cannot afford the rising costs of Obamacare insurance.

Death Tax Remains. The basic exclusion from the estate tax doubles from its current $5.6 million per person to about $12 million.   For married couples, the total would approximate 24 million. 

Individual Alternative Minimum Tax Remains. The exemption for the alternative minimum tax (AMT) increases from $86,200 to $109,400 for married filers. The exemption phases out starting at $1 million, up from $164,100. The new exemption is $70,300 for non-married filers and phases out beginning at $500,000.

The AMT applies a two-rate alternative tax schedule to a more broadly defined measure of income and allows a narrower set of deductions. The tax increases the tax liability of those who can uniquely lower their effective tax rate through the normal tax system. The AMT does its intended job poorly and inefficiently by burdening taxpayers with additional paperwork and not addressing the underlying problem: The tax code has too many credits and deductions that are easily gamed. Full repeal of the AMT, as included in the House bill, would have been a far better policy.

PEP and Pease Repealed. The bill rightly repeals two obscure provisions that complicate the tax code and increase effective marginal tax rates. The personal exemption phaseout (PEP) adds more than one percentage point per person to affected taxpayers’ marginal tax rates. For example, it can add 4.5 percentage points to a family of four’s marginal tax rate. The phaseout of itemized deductions (Pease) adds an additional percentage point to affected taxpayers’ marginal tax rates. Repealing these provisions simplifies the code and reduces marginal tax rates.


The U.S. tax code is sorely in need of reform, and the Tax Cuts and Jobs Act is a pro-growth plan that simplifies taxpaying for many individuals, lowers tax rates, and updates the business tax code so that American corporations and the people they employ can be globally competitive again.


Bill Roeser, CPA

Preparing for the Worst: Business Continuity Planning for Business Owners

Contemplating  one's  own  demise  can  be  challenging  but  is  paramount  to sole  owners  and  their  businesses.  Consider  the  fictional  Harry  Withers,  the 54-year-old  owner  of  Withering  Hikes,  a  chain  of  seven  retail  apparel stores  for  outdoor  enthusiasts  on  the  Western  Slope  of  Sierra Nevada mountains.  Harry was scouting new hiking trails and disappeared.

After  several  months  of  fruitless  searching,  Harry's  family  opened  probate  proceedings  only  to  find  that Harry's  once-thriving  business  also  had  disappeared.  However,  Withering  Hikes's  disappearance  was  far more  typical  than  Harry's.  Because  Harry  had  dreamed  of  selling  his  company  at  60,  he  had  given  little thought  to  what  would  happen  to  his  business  if  something  happened  to  him.  Thus,  Withering  Hikes  died  of all-too-common  causes—human  error  and  neglect—setting  off  a  chain  reaction  of  ever-worsening consequences  for  Harry's  family  and  business:

1.  Harry's key employees  left  the  company  for  jobs  with  more  certain  futures.  They  feared  that  neither Withering  Hikes  nor  their  salaries  would  continue  without  Harry  at  the  helm.

2.   The departure  of  key  employees  meant  that  there  was  no  one  to  manage  the  business.  Total chaos  reigned, and  revenue  took  an  immediate  and  irreversible  nosedive.  Longtime customers grew uneasy with what they perceived to be a  rudderless  ship  and  took  their  business  to  Harry's competitors.  Further, the  company's  vendors  demanded  cash  payments,  cash  that  the  company  no longer  generated.

3.   Harry's bank  saw  the  drop  in  revenues  and  decided  to  call  in  the  company's  debt,  debt  Harry  had  personally  guaranteed.

4.    Because Harry  left  no  instructions  or  recommendations  about  who  could  run  the  business,  who  could offer  advice,  or  even  what  to  do  with  the  business  should  something  happen  to  him,  both  his business  and  family  suffered.

Withering  Hikes  didn't  just  wither  away;  it  fell  off  a  cliff.  It could not survive without its  top employees  or Harry's  leadership.

The  point  of  reviewing  this  list  of  mortal  blows  is  to  demonstrate  that  business-continuity  planning  is  vitally important  to  owners'  companies  and  families.  Without  a  well-considered  business  survival  plan,  the consequences  for  owners'  employees,  customers,  and,  most  importantly,  family  and  estate  are  dire  (estates rarely  escape  the  notice  of  business  creditors).

Fortunately,  there  is  a  process  that  sole  owners  can  quickly  and  easily  use  to  help  avoid  the  type  of  business collapse  that  Withering  Hikes  experienced.

First, sole owners  must  motivate  top  employees  to  stay  on  after  their  demises  by  creating  financially meaningful  incentive  compensation  plans  for  them  that  vest  over  time.  Creating  a  plan  that  provides  these employees  a  substantial  bonus  (called  a  stay  bonus)  for  remaining  with  the  company  beyond  an  owner's demise  is  a  strong  strategy.  The  company  can  usually  fund  the  stay  bonus  with  life  insurance  on  the  owner's life.  This  funded  stay  bonus  provides  designated  employees  with  a  cash  bonus  (usually  about  50%  of  annual compensation)  and  a  salary  guarantee  if  those  employees  stay  (typically  12-18  months)  after  the  owner's death.  The  sole  owner's  job  is  to  communicate  these  actions  to  these  employees  and  assure  them  that  he  or she  has  made  additional  plans  to  ensure  the  continuation  of  the  business.

Second,  sole  owners  should  alert  their  banks  about  their  continuity  plans.  Meeting  with  a  banker  to  discuss the  arrangements  made  and  showing  him  or  her  that  the  necessary  insurance  funding  to  implement  these plans  is  in  place  can  allow  an  ownership  transfer  to  proceed  smoothly.  Additionally,  it  is  wise  to  determine whether  major  creditors  are  comfortable  with  the  succession  plan.  Sole  owners  should  ask  major  creditors which  arrangements  they  would  like  to  see  in  place.

Third, create a written plan that does the following:

1.  Names  the  person(s)  who  will  take  on  the  responsibility  of  running  the  business.

2.    States  whether  the  business  should  be  continued,  liquidated,  or  sold  (if  so,  to  whom).

3.   Names  the  resources  heirs  should  consult  regarding  the  company's  sale,  continuation,  or  liquidation.

Creating  a  contingency  plan  for  your  company  should  you  depart  unexpectedly  is  a  vital  part  of  your  overall Exit  Planning process.  Failing  to  do  so  invites  the  kind  of  disaster  that  befell  Withering  Hikes,  Harry's employees,  and  his  family.

Our expertise  in  crafting  business-continuity  plans  that  work  can  help  you  be  prepared  for  the unexpected.  Contact us today to learn more about how to begin creating a contingency plan and the options available for your business.

Bill Roeser, CPA

See also: 

Copywrite Business Exit Institute


Tax Reform - Changes Affecting Businesses

Overview of New Tax Reform Changes Affecting Businesses

On December 22, the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA). The 503-page TCJA is the largest tax overhaul since the 1986 Tax Reform Act and it will affect almost every individual and business in the United States. Unlike the provisions for individuals, which generally expire after 2025, the business-related provisions in the TCJA are permanent and generally take effect in tax years beginning after 2017.

For businesses, highlights of the TCJA include: (1) an increase in amounts that may be expensed under bonus depreciation and Section 179; (2) a 21 percent flat corporate tax rate; (3) a new business deduction for sole proprietorships and pass-through entities; and (4) the elimination of the corporate alternative minimum tax (AMT).

Changes Affecting Businesses

The following is a summary of some of the more significant changes under the new tax law that may affect your business.

Reduction in Corporate Tax Rate and Dividends Received Deduction

TCJA eliminates the graduated corporate tax rate structure and instead taxes corporate taxable income at 21 percent. It also eliminates the special tax rate for personal service corporations and repeals the maximum corporate tax rate on net capital gain as obsolete.

A corresponding change reduces the 70 percent dividends received deduction available to corporations that receive a dividend from another taxable domestic corporation to 50 percent, and the 80 percent dividends received deduction for dividends received from a 20 percent owned corporation to 65 percent.

Corporate Alternative Minimum Tax (AMT) Eliminated

TCJA repeals the corporate AMT. It also allows the AMT credit to offset the regular tax liability for any taxable year. In addition, the AMT credit is refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50 percent (100 percent in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability.

Enhanced Bonus Depreciation Deduction

TCJA extends and modifies the additional first-year (i.e., "bonus") depreciation deduction, which had generally been scheduled to end in 2019, through 2026 (through 2027 for longer production period property and certain aircraft). Under the new law, the 50-percent additional depreciation allowance is increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after September 27, 2017, and before January 1, 2023.

The 100-percent allowance is phased down by 20 percent per calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft).

TCJA also maintains the bonus depreciation increase amount of $8,000 for luxury passenger automobiles placed in service after December 31, 2017, that had been scheduled to be phased down in 2018 and 2019.

TCJA also removes the requirement that, in order to qualify for bonus depreciation, the original use of qualified property must begin with the taxpayer. Thus, the provision applies to purchases of used as well as new items.

TCJA also expands the definition of qualified property eligible for the additional first-year depreciation allowance to include qualified film, television and live theatrical productions, effective for productions placed in service after September 27, 2017, and before January 1, 2023.

Enhanced Section 179 Expensing

TCJA increases the maximum amount a taxpayer may expense under Code Sec. 179 to $1,000,000, and increases the phase-out threshold amount to $2,500,000. Thus, the maximum amount you may expense, for taxable years beginning after 2017, is $1,000,000 of the cost of qualifying property you place in service during the tax year. The $1,000,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2,500,000.

In addition, TCJA expands the definition of Code Sec. 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging.

TCJA also expands the definition of qualified real property eligible for Code Sec. 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

Modifications to Depreciation Limitations on Luxury Automobiles and Personal Use Property

TCJA increases the depreciation limitations that apply to listed property, such as luxury automobiles. For passenger automobiles that qualify as luxury automobiles (i.e., gross unloaded weight of 6,000 lbs or more) placed in service after December 31, 2017, and for which the additional first-year depreciation deduction is not claimed, the maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period. The limitations are indexed for inflation for luxury passenger automobiles placed in service after 2018.

In addition, TCJA removes computer or peripheral equipment from the definition of listed property. Such property is therefore not subject to the heightened substantiation requirements that apply to listed property.

Modification of Like-Kind Exchange Rules

TCJA modifies the rule for like-kind exchanges by limiting its application to real property that is not held primarily for sale. While the provision generally applies to exchanges completed after December 31, 2017, an exception is provided for any exchange if the property disposed of by the taxpayer in the exchange is disposed of on or before December 31, 2017, or the property received by the taxpayer in the exchange is received on or before such date.

Other Changes Relating to Cost Recovery and Property Transactions

TCJA makes the following additional changes with respect to cost recovery and property transactions:

(1) allows for expensing of certain costs of replanting citrus plants lost by reason of casualty;

(2) shortens the alternative depreciation system (ADS) recovery period for residential rental property from 40 to 30 years;

(3) allows an electing real property trade or business to use the ADS recovery period in depreciating real and qualified improvement property;

(4) shortens the recovery period from 7 to 5 years for certain machinery or equipment used in a farming business;

(5) repeals the required use of the 150-percent declining balance method for depreciating property used in a farming business (i.e., for 3-, 5-, 7-, and 10-year property);

(6) excludes various types of self-created property from the definition of a "capital asset", including: patents, inventions, models or designs (whether or not patented), and secret formula and processes;

(7) specifies situations in which a contribution to the capital of a corporation is includable in the gross income of a corporation (i.e., contributions by a customer or potential customer, and contributions by governmental entities and civic groups); and

(8) tweaks the carried interest rule to provide that a profits interest must be held for three years, rather than one year, in order to receive favorable long-term capital gain treatment.

Repeal of Domestic Activities Production Deduction

TCJA repeals the deduction for domestic production activities.  For our construction and manufacturing clients, this could be the loss of a substantial deduction.

New Deduction for Qualified Business Income

If you are a sole proprietor, a partner in a partnership, a member in an LLC taxed as a partnership (hereafter, "partner"), or a shareholder in an S corporation, TCJA provides a new deduction for qualified business income for taxable years beginning after December 31, 2017, and before January 1, 2026. Trusts and estates are also eligible for this deduction.

The amount of the deduction is generally 20 percent of the taxpayer's qualifying business income from a qualified trade or business.

Example: In 2018, Joe receives $100,000 in salary from his job at XYZ Corporation and $50,000 of qualified business income from a side business that he runs as a sole proprietorship. Joe's deduction for qualified business income in 2018 is $10,000 (20 percent x $50,000).

The deduction for qualified business income is claimed by individual taxpayers on their personal tax returns. The deduction reduces taxable income. The deduction is not used in computing adjusted gross income. Thus, it does not affect limitations based on adjusted gross income.

The deduction is subject to several restrictions and limitations, discussed below.

Qualified Trade or Business. A qualified trade or business means any trade or business other than (1) a specified service trade or business, or (2) the trade or business of being an employee. A "specified service trade or business" is defined as any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities, and any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. Engineering and architecture services are specifically excluded from the definition of a specified service trade or business.

Special Rule Where Taxpayer's Income is Below a Specified Threshold. The rule disqualifying specified service trades or businesses from being considered a qualified trade or business does not apply to individuals with taxable income of less than $157,500 ($315,000 for joint filers). After an individual reaches the threshold amount, the restriction is phased in over a range of $50,000 in taxable income ($100,000 for joint filers). If an individual's income falls within the range, he or she is allowed a partial deduction. Once the end of the range is reached, the deduction is completely disallowed.

"Domestic" Business Income Requirement. Items are treated as qualified items of income, gain, deduction, and loss only to the extent they are effectively connected with the conduct of a trade or business within the United States.

Qualified Business Income. Qualified business income means the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. Qualified business income does not include any amount paid by an S corporation that is treated as reasonable compensation of the taxpayer, or any guaranteed payment (or other payment) to a partner for services rendered with respect to the trade or business. Qualified items do not include specified investment-related income, deductions, or losses, such as capital gains and losses, dividends and dividend equivalents, interest income other than that which is properly allocable to a trade or business, and similar items.

Loss Carryovers. If the net amount of qualified business income from all qualified trades or businesses during the tax year is a loss, it is carried forward as a loss from a qualified trade or business in the next tax year (and reduces the qualified business income for that year).

W-2 Wage Limitation. The deductible amount for each qualified trade or business is the lesser of:

(1) 20 percent of the taxpayer's qualified business income with respect to the trade or business; or

(2) the greater of: (a) 50 percent of the W-2 wages with respect to the trade or business, or (b) the sum of 25 percent of the W-2 wages with respect to the trade or business and 2.5 percent of the unadjusted basis, immediately after acquisition, of all qualified property (generally all depreciable property still within its depreciable period at the end of the tax year).

Example: Susan owns and operates a sole proprietorship that sells cupcakes. The cupcake business pays $100,000 in W-2 wages and has $350,000 in qualified business income. For the sake of simplicity, assume the business had no qualified property and that the variation of the limitation involving the unadjusted basis of such property isn't relevant. Susan's deduction for qualified business income is $50,000, which is the lesser of (a) 20 percent of $350,000 in qualified business income ($70,000), or (b) the 50 percent of W-2 wages ($50,000).

The W-2 wage limitation does not apply to individuals with taxable income of less than $157,500 ($315,000 for joint filers). After an individual reaches the threshold amount, the W-2 limitation is phased in over a range of $50,000 in taxable income ($100,000 for joint filers).

Allocation of Partnership and S Corporations Items. In the case of a partnership or S corporation, the business income deduction applies at the partner or shareholder level. Each partner in a partnership takes into account the partner's allocable share of each qualified item of income, gain, deduction, and loss, and is treated as having W-2 wages for the taxable year equal to the partner's allocable share of W-2 wages of the partnership. Similarly, each shareholder in an S corporation takes into account the shareholder's pro rata share of each qualified item and W-2 wages.

Additional Limitations on the Deduction for Qualified Business Income. This deduction for qualified business income is subject to some overriding limitations relating to taxable income, net capital gains, and other items which are beyond the scope of this letter and will not affect the amount of the deduction in most situations.

Carryover of Business Losses

TCJA provides that, for taxable years beginning after December 31, 2017, and before January 1, 2026, excess business losses of a taxpayer other than a corporation are not allowed for the taxable year. Instead, if you incur such losses, you must carry them forward and treat them as part of your net operating loss (NOL) carryforward in subsequent taxable years. Thus, TCJA generally repeals the two-year carryback and the special carryback provisions under prior law; however, it does provide a two-year carryback in the case of certain losses incurred in the trade or business of farming. NOL carryovers generally are allowed for a taxable year up to the lesser of your carryover amount or 80 percent of your taxable income determined without regard to the deduction for NOLs.

Relaxed Gross Receipts Test for Various Accounting Methods

TCJA expands the universe of taxpayers who can use various accounting methods by increasing the gross receipts threshold ("gross receipts test") under which those methods may be used. TCJA increases the limit for the gross receipts test to $25 million for using the cash method of accounting (including the use by farming C corporations and farming partnerships with a C corporation partner).

The new law also increases the limit for the gross receipts test to $25 million for exemption from the following accounting requirements/methods:

(1) uniform capitalization rules;

(2) the requirement to keep inventories (allowing taxpayers to treat inventories as non-incidental materials and supplies, or in another manner conforming with the taxpayer's financial accounting treatment of inventories); and

(3) the requirement to use the percentage-of-completion method for certain long-term contracts (allowing the use of the more favorable completed-contract method, or any other permissible exempt contract method).

Additional requirements and restrictions apply to the use of the above-mentioned accounting methods. For most, only the dollar limit for the gross receipts test has been relaxed.

Accounting Method Rules Relating to Income Recognition Modified

TCJA revises the rules associated with the recognition of income. Specifically, the new law requires a taxpayer subject to the all events test for an item of gross income to recognize such income no later than the taxable year in which such income is taken into account as income on an applicable financial statement or another financial statement under rules specified by the Secretary, but provides an exception for long-term contract income to which Code Sec. 460 applies.

TCJA also codifies the current deferral method of accounting for advance payments for goods and services provided by the IRS under Rev. Proc. 2004-34. That is, the law allows taxpayers to defer the inclusion of income associated with certain advance payments to the end of the tax year following the tax year of receipt if such income also is deferred for financial statement purposes.

Interest Deduction Rules Changed for Certain Taxpayers

Under TCJA, a taxpayer's deduction for business interest is limited to the sum of business interest income plus 30 percent of adjusted taxable income for the taxable year. There is an exception to this limitation, however, for certain small taxpayers, certain real estate businesses that make an election to be exempt from this rule, and businesses with floor plan financing, which is a specialized type of financing used by car dealerships, and for certain regulated utilities.

For smaller taxpayers, TCJA exempts from the interest limitation taxpayers with average annual gross receipts for the three-taxable year period ending with the prior taxable year that do not exceed $25 million. Further, at the taxpayer's election, any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business is not treated as a trade or business for purposes of the limitation, and therefore the limitation does not apply to such trades or businesses.

Limitation on Deduction by Employers of Expenses for Fringe Benefits

TCJA provides that no deduction is allowed with respect to:

(1) an activity generally considered to be entertainment, amusement or recreation;

(2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes; or

(3) a facility or portion thereof used in connection with any of the above items.

Thus, the present-law exception to the deduction disallowance for entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer's trade or business (and the related rule applying a 50 percent limit to such deductions) is repealed.

TCJA also disallows a deduction for expenses associated with providing any qualified transportation fringe to employees of the taxpayer, and except as necessary for ensuring the safety of an employee, any expense incurred for providing transportation (or any payment or reimbursement) for commuting between the employee's residence and place of employment.

A business may still generally deduct 50 percent of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees during work travel). For amounts incurred and paid after December 31, 2017, and until December 31, 2025, this 50 percent limitation is expanded to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and for the convenience of the employer. Such amounts incurred and paid after December 31, 2025 are not deductible.

Employer Credit for Paid Family and Medical Leave

For 2018 and 2019, TCJA allows eligible employers to claim a general business credit equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50 percent of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 percent.

Observation: An employer must have a written policy in place that provides family and medical leave to all employees on a non-discriminatory basis in order to qualify for the credit. Given the cost of implementing such a policy and complying with yet-to-be-announced reporting requirements, the credit may be impractical for many employers to pursue during the short period it's available. For companies that already have a qualifying family and medical leave plan in place, however, the credit may provide a nice windfall.

Partnership Rule Changes

Several changes were made to the partnership tax rules.

First, gain or loss from the sale or exchange of a partnership interest is treated as effectively connected with a U.S. trade or business to the extent that the transferor would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. Any gain or loss from the hypothetical asset sale by the partnership is allocated to interests in the partnership in the same manner as nonseparately stated income and loss.

Second, the transferee of a partnership interest must withhold 10 percent of the amount realized on the sale or exchange of the partnership interest unless the transferor certifies that the transferor is not a nonresident alien individual or foreign corporation.

Third, TCJA modifies the definition of a substantial built-in loss such that a substantial built-in loss is considered to exist if the transferee of a partnership interest would be allocated a net loss in excess of $250,000 upon a hypothetical disposition by the partnership of all partnership's assets in a fully taxable transaction for cash equal to the assets' fair market value, immediately after the transfer of the partnership interest.

Fourth, TCJA modifies the basis limitation on partner losses to provide that a partner's distributive share of items that are not deductible in computing the partnership's taxable income, and not properly chargeable to capital account, are allowed only to the extent of the partner's adjusted basis in its partnership interest at the end of the partnership taxable year in which an expenditure occurs. Thus, the basis limitation on partner losses applies to a partner's distributive share of charitable contributions and foreign taxes. Lastly, TCJA repeals the rule providing for technical terminations of partnerships. Under that rule, a partnership's existence did not necessarily end; rather, it resulted in the termination of some tax attributes and the possibly early closing of the tax year.

S Corporation Changes

TCJA makes several changes to the tax rules involving S corporations. First, it provides that income that must be taken into account when an S corporation revokes its election is taken into account ratably over six years, rather than the four years under prior law. Second, it allows a nonresident alien individual to be a potential current beneficiary of an electing small business trust (ESBT). Third, it provides that the charitable contribution deduction of an ESBT is not determined by the rules generally applicable to trusts but rather by the rules applicable to individuals. Thus, the percentage limitations and carryforward provisions applicable to individuals apply to charitable contributions made by the portion of an ESBT holding S corporation stock.

International Tax Changes

TCJA makes sweeping changes to the Unites States' international tax regime through a series of highly complex provisions that are beyond the scope of this letter.

Concluding Thoughts

As you can see, the provisions in the TCJA are quite extensive and complicated – simplification was certainly not achieved.

Be assured we will be contacting you regarding how these changes will impact your business, and what kind of strategies we can adopt to ensure that your business gets the best possible tax outcome under the new rules. 

Let us know of any questions.

Your Team at Roeser Accountancy Corporation


Tax Reform - Changes Affecting Individuals

Overview of New Tax Reform Changes Affecting Individuals

The following is a brief overview of the Tax Cuts and Jobs Act  (TCJA) key changes (and non-changes) affecting individuals.

Tax Rates and Brackets. The new tax reform provides seven tax brackets, with most rates being two to three points lower than the ones under present law (the top rate goes from 39.6 percent to 37 percent). The top rate kicks in at $600,000 of taxable income for joint filers, $300,000 for married taxpayers filing separately, and $400,000 for all other individual taxpayers.

Observation: While applicable rates at any given level of income generally go down by two to three points, some go up. For example, the rate for single individuals with taxable income between $200,000 and $400,000 goes from 33 percent to 35 percent.

Capital Gain Rates and Net Investment Income Tax. Tax rates on capital gains and the 3.8 percent net investment income tax (NIIT) are unchanged by TCJA.  This special tax does not generally apply to the sale of one’s business stock.

Personal Exemptions and Standard Deduction. TCJA repeals the personal exemption deductions, but nearly doubles the standard deduction amounts to $24,000 for joint filers and surviving spouses, $18,000 for heads of household, and $12,000 for single individuals and married filing separately (additional amounts for the elderly and blind are retained).

Observation: The fact that the standard deduction has nearly doubled may create the misleading impression that you'll reap a large tax benefit from the change. But, because the increase in the standard deduction was coupled with the repeal of the deduction for personal exemption ($4,150, per exemption in 2018), the actual benefit is fairly modest. For example, the overall amount of income that is exempt from tax will increase by $2,700 for joint filers - a nice increase, but nowhere near double the $13,000 standard deduction under prior law.

Because the standard deduction is generally claimed only when its amount exceeds available itemized deductions, the increases will not benefit you if you itemize (the repeal of personal exemptions, by contrast, will affect you whether you itemize or not).

Exemption for Dependents and Child Tax Credit. As part of the repeal of personal exemption deductions, TCJA repealed exemptions for dependents. To compensate, TCJA increases the child tax credit to $2,000 ($1,400 is refundable), up from $1,000 (fully refundable) under present law. The modified adjusted gross income threshold where the credit phases out is $400,000 for joint filers and $200,000 for all others (up from $230,000 and $115,000, respectively). The maximum age for a child eligible for the credit remains 16 (at the end of the tax year).

TCJA also provides a $500 nonrefundable tax credit for dependent children over age 16 and all other dependents. Most families with non-child dependents will lose some ground here, as the $500 credit will generally be less valuable than the $4,150 exemption deduction it replaces.

Other Tax Breaks for Families Unchanged. The child and dependent care expenses credit, the adoption credit, and the exclusions for dependent care assistance and adoption assistance under employer plans are all unchanged by TCJA.

Passthrough Tax Break. TCJA creates a new 20 percent deduction for qualified business income from sole proprietorships, S corporations, partnerships, and LLCs taxed as partnerships. The deduction, which is available to both itemizers and nonitemizers, is claimed by individuals on their personal tax returns as a reduction to taxable income. The new tax break is subject to some complicated restrictions and limitations, but the rules that apply to individuals with taxable income at or below $157,500 ($315,000 for joint filers) are simpler and more permissive than the ones that apply above those thresholds.

Example: In 2018, Joe receives a salary of $100,000 from his job at XYZ Corporation and $50,000 of qualified business income from a side business that he runs as a sole proprietorship. Joe has no other items of income or loss. Joe's deduction for qualified business income in 2018 is $10,000 (20 percent of $50,000).

Observation: The effective marginal tax rate on qualified business income for individuals in the top 37-percent tax bracket who are able to fully apply the new deduction will be 29.6 percent - fully 10 points lower than the top rate under current law.

Deduction for State and Local Taxes (SALT). TCJA imposes a $10,000 limit on the deduction for state and local taxes, which can be used for both property taxes and income taxes (or sales taxes in lieu of income taxes) and repeals the deduction for foreign property taxes. There is no limit on the amount of the SALT deduction under present law.

Mortgage Interest Deduction. TJCA reduces to $750,000 (from $1 million) the limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered. TCJA also repeals the deduction for interest on home equity loans.

Deduction for Medical Expenses. An early version of the tax overhaul passed by the House would have repealed the deduction for unreimbursed medical expenses. TCJA retains that deduction and enhances it for 2017 and 2018 by lowering the adjusted gross income (AGI) floor for claiming the deduction from 10 percent to 7.5 percent for all taxpayers.

Deduction for Casualty and Theft Losses. TCJA repeals the deduction for casualty and theft losses, except for losses incurred in presidentially declared disaster areas.

Observation: The new law does, however, provide enhanced relief for victims in federally declared disaster areas in 2016 and 2017.

Deduction for Charitable Contributions. TCJA retains the charitable contribution deduction and increases the maximum contribution percentage limit from 50 percent of a taxpayer's contribution base to 60 percent for cash contributions to public charities.

Deduction for Certain Miscellaneous Expenses. TCJA repeals the deduction for any miscellaneous itemized deductions subject to 2-percent of AGI floor.

Repeal of Alimony Deduction. TCJA repeals the deduction for alimony paid and also the corresponding inclusion in income by the recipient, effective for tax years beginning in 2019. Alimony paid under separation agreements entered into prior to 2019 will generally be grandfathered under the old rules.

Education-Related Tax Breaks Preserved. TCJA retains deductions for student loan interest and educator expenses, and also exclusions for graduate student tuition waivers and employer educational assistance programs.

Alternative Minimum Tax. TCJA increases alternative minimum tax (AMT) exemption amounts by 27 percent, and sharply increases the income level where the exemption is phased out. Combined with the effects of other TCJA changes, many individuals who are currently subject AMT in 2017, will not be in 2018 and beyond.

Expanded Uses for 529 Plan Distributions. TCJA allows up to $10,000 in aggregate 529 distributions per year to be used for elementary and secondary school tuition. Under present law, 529 distributions can only be used for higher education expenses.

Repeal of Individual Healthcare Mandate. TCJA repeals the tax penalty on individuals who fail to carry health insurance enacted as part of the Affordable Care Act (ACA).

Estate and Gift Tax Exclusion. TCJA permanently doubles the basic exclusion amount for estate and gift tax purposes from $5.6 to $11.2 million, per person. So a married couple can pass on approximately 22 million without incurring estate taxes on their death.  The annual gift tax exclusion was raised from $14,000 per person to $15,000 per person starting in year 2018. Therefore, a married couple can gift $30,000 per year to an individual such as their children without tax consequences.  

Please let us know of any questions.

Your Team at Roeser Accountancy Corporation


Personal Use of Autos by Employees and Owners

In some situations, it makes sense for a company to give its employee's company owned or leased vehicles for their everyday use.  If you’re an employee who drives an employer-provided vehicle, you should be aware of some tax implications if you also use the vehicle for personal use.  If you are an owner and employee, these rules apply to you as well.

When an employer provides a vehicle to an employee (or owner) with no restrictions on the use, it is assumed that the vehicle will be driven for both business and personal reasons (commuting to and from work, for business during work days, and personally on the weekends and outside of work hours).  Personal use of the company-provided vehicle is considered to be a fringe benefit for the employee – a form of “non-cash” compensation.  Because of this, the employer should report the value of the employee’s personal use of the vehicle in the employee’s wages (included in box 1 on Form W-2).

This concept is important for small businesses to keep in mind. An S Corporation with two shareholders, for example, each using a company-owned vehicle, must account for the business versus personal use of the vehicles.  If the S Corporation purchased or leases the vehicles, depreciates them and takes deductions for all related expenses, the employee-shareholders are receiving a fringe benefit for the personal use of the vehicles.  The employee-shareholders should be including the value of that personal use as income on their personal returns.

The rule is for the business to include only the value associated with the employee’s personal use on their W-2.  In this case, the employee-shareholder would only be included in income the amount associated with their personal use and, therefore, would not deduct any expenses for business use on his or her individual return (unless there are some additional expenses unreimbursed by the employer).  The IRS publishes a table to determine the value of the personal use; the Annual Lease Value Table.  Please contact us for a copy.

The personal use amount should be included in the W2 and is subject to federal and state tax withholding and other usual payroll taxes such as Social Security. 

Please contact our office for further assistance with calculating the personal use amounts.

Roeser Accountancy Corporation

December 2017




Health Insurance for S-Corp Owners

As the 2017 year-end closes in, it’s a good time to revisit the proper treatment of health insurance premiums and S corporation “2 percent shareholders.”

If you own more than 2 percent of the outstanding stock of an S corporation (or stock giving you more than 2 percent of the total voting power), a good chance may exist that your health insurance premiums are not being handled properly at the corporate level. As a result, you could be at risk from a personal tax standpoint.

Health insurance premiums paid by an S corporation on behalf of its 2 percent shareholders should be reported as wages on shareholder W-2 forms. Too often, these payments are not included in wages because the premiums are paid along with those for rank-and-file employees.

From the corporation’s perspective, premiums are different than payroll. Unfortunately, in the eyes of the IRS, they belong on the W-2.

Excluding these amounts from wages jeopardizes the 2 percent shareholders’ ability to deduct these premiums on their personal tax return as self-employed health insurance in arriving at adjusted gross income (AGI). Based on the cost of health insurance, the value of this tax deduction is not something to take lightly.

If there are family members employed by the corporation and covered under the health plan, premium payments made on their behalf may also be required to be included in their wages. Generally, this applies to a spouse, sons, daughters, parents and other direct relatives of 2 percent shareholders.

As wages, these amounts are subject to withholding. But what about Social Security and Medicare tax?

If the 2 percent shareholders are participating in a corporate plan established for the benefit of employees and their dependents, these amounts are not subject to Social Security and Medicare. But they are subject if there is no such plan for the employees.

As far as premium payments and the personal deduction for AGI, it’s important that the corporation make the premium payment or reimburse the 2 percent shareholder making the payment. The 2 percent shareholder cannot make the payment personally.

For those clients who request, we will make the adjustments in your QuickBooks software and process payroll appropriately. 

 Roeser Accountancy Corporation

December 2017


How to Estimate Your Social Security Benefits

Tools for Planning Ahead

Social Security plays a vital role in the retirement planning of nearly every American. Yet it can be hard to guess how much you should expect from Social Security after you retire. By using some tools that are available, though, you can estimate how big your Social Security benefits will be when you need them.  Planning ahead is important, as there may be things you should be doing now to increase the ultimate benefit.

Here’s How its Determined

If you want to know exactly what to expect from Social Security, you’ll have to do a lot of legwork. To come up with the number, the Social Security Administration takes your entire work history, indexing your annual earnings for inflation and then choosing the 35 highest-earning years. Then, the SSA adds up those annual earnings for the 35 top years and then finds the average indexed monthly earnings.

After you have that number, you’ll run it through a formula that differs depending on your age. For example, if you’re turning 62 in 2017, then your benefit equals the sum of the following:

  • 90% of the first $885
  • 32% of the amount between $885 and $5,336
  • 15% of the amount above $5,336

The result is the primary amount, which is what your monthly benefit will be if you retire at full retirement age. If you retire early, then your benefits will be reduced. If you retire later, then you can get higher benefits. Delayed retirement credits for taking benefits past full retirement age amount to 8% per year, while the penalty for taking benefits early ranges from 5% to 7% per year.

Special Opportunities for Those Born Before 1953

For those born in 1953 or earlier, there may be opportunities to file for spousal benefits while allowing your benefits to defer and grow.  Be sure to check this out when planning your Social Security benefits or contact Bill Roeser for more information.

The Social Security Online Website Can Help

One place where you can always get a basic estimate that’s tailored reasonably well to your past work history is from your Social Security benefits statement. The SSA now mails out paper statements only once every five years, but you can always access yours via the internet from the mySocialSecurity website.  I encourage all my clients to register for the online access to their government account and review the reported history of earnings and the calculations provided.

The Social Security Administration has created several calculators to try to make it easier to come up with reasonable estimates of what your benefits will be. Four calculators can give you benefit estimates with varying degrees of sophistication and precision:

  • The Social Security Quick Calculator makes simple assumptions about your past and future earnings to give you a basic look at your estimated retirement benefit based on your current earnings. If your earnings have been relatively stable throughout most of your career, then this calculator gives a good estimate.
  • The Online Calculator offers more precision by letting you input your past work history. The calculator still has to make assumptions about the future based on what you’ve made in the most recent year. However, the actual work history makes a more accurate estimate possible than the simple calculator’s basic assumptions.
  • If you don’t want to type in your information yourself, the Retirement Estimator does some of the legwork for you. It accesses your Social Security work history directly to fill in blanks about your earnings. But it doesn’t work well if you’re currently receiving benefits based on another person’s work record.
  • The Detailed Calculator is the most sophisticated SSA tool. It gives information about both future and past retirement benefits, and dependent and survivor benefits are also available in addition to benefits based on your own work history. Still, you won’t get a complete picture of how any other benefits integrate with your own.

Until it’s actually time to file, you can’t know for certain how much your Social Security monthly benefits will be. Yet by looking at estimates, you’ll likely get close enough to be able to make good plans about your retirement finances.

For more information and additional blogs by Bill Roeser, see

Bill Roeser, CPA, CFP

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