Why 401k Plans Are Sub-Optimal

Monotelo Advisors spoke at (PFFW) Professional Firefighters of Wisconsin's bi-annual meeting held in February at the Hilton City Center Hotel in Milwaukee, WI. Monotelo Speaks To The Professional Firefighters of Wisconsin Monotelo Advisors spoke at (PFFW) Professional Firefighters of Wisconsin's bi-annual meeting held in February at the Hilton City Center Hotel in Milwaukee, WI. Monotelo was invited to speak because of their unique knowledge of the firefighting profession and how they apply that knowledge to help firefighters retain a higher percentage of their income. "We find that career firefighters are overpaying anywhere from a few hundred dollars per year to over one thousand dollars per year on their tax bill" - shared Jim Allen, Director of Monotelo Advisors. In their presentation to the PFFW, Monotelo offered a no-obligation "Look-back'' for IAFF local members. The "Look-back'' starts with a brief discussion to review job related expenses. Monotelo then compares the expenses identified in the discussion with the expenses that were used on the prior tax returns. When there is a meaningful difference between the two, Monotelo will "We find that career firefighters are overpaying anywhere from a few hundred dollars per year to over one thousand dollars per year on their tax bill" correct the past three years and recover money that was left on the table. About the PFFW - The Professional Firefighters of Wisconsin represents 60 locals with over 4,000 career firefighters across the state of Wisconsin. "Every two years we bring in key leaders from around the state, elected officials, and companies like Monotelo that we believe can help our members. I am very particular as to who I let speak to our guys, and Monotelo did a great job," said Mahlon Mitchell, president of the PFFW. "My local affiliation is IAFF Firefighters Local 311," explained Mitchell. "We invited Monotelo to come meet with our members. We had a full day filled with our members coming in to have Monotelo review their past returns and prepare their current year's return. I've heard nothing but good things; so we're really appreciative of what they did for us." In addition to Local 311, Monotelo has had the opportunity to impact the entire state of Wisconsin using technology. Coming into local meetings via the web, Monotelo offered guidance, answered questions and gave local members the opportunity to recover some of their hard-earned money. For questions about how Monotelo can help your local, contact Jim Allen at jallen@monotelo.com . ARE YOU GETTING BEAT? Don't pay the federal government more tax than the law requires. Call Monotelo today for a NO-COST, NO-OBLIGATION, tax review designed to minimize your tax bill and maximize your take home pay. MONOTELO.COM | 800.961.0298

Retirement Readiness Our Retirement Readiness series is four separate webinars designed to address today's most important retirement issues. Each 20 minute webinar is designed to provide 15 minutes of value-packed content and close with 5 minutes for Q&A You can use the links below to watch the recorded webinars "When Will I Be Ready and What Should I Do Today to Prepare for Retirement?" When Will I Be Ready and What Should I Do Today To Prepare for Retirement is a 20 minute webinar that will walk through the three most important steps you can take to get yourself on track to safely retire on your time frame. In addition to the three specific action steps, all attendees will receive our Safe Retirement Zone calculator as a valuable tool that they can use to help take control of their future. View On-Demand Video Social Security Claiming Strategies - How to Maximize Your Lifetime Benefit The Social Security Claiming Strategies module can have a profound impact because most people don't understand the different options they have when claiming Social Security, and they don't understand the financial implications of the different options. If you are married, your options have doubled, and if you are divorced you may still have the option of a spousal claim. Understanding the spousal benefits and the delayed benefits may not only significantly increase your monthly income, it could change the trajectory of your retirement years. Our Social Security Claiming Strategies module is invaluable if you or someone you care about is in or near retirement. View On-Demand Video Tax Efficient Retirement Planning in Light of the Recent Tax Cuts and Jobs Act The Tax Efficient Retirement Planning module will address the massive shift in the tax code that took place last January. These changes radically impact how individuals should be preparing for retirement, and they provide significant opportunities to take action between now and December of 2025, when the tax cuts are set to expire. The Tax Efficient Retirement Planning module will empower you with the tools to take full advantage of the current compelling, but temporary opportunities created by the new tax laws. View On-Demand Video Small Business Retirement Planning The Tax Cuts and Jobs Act recently passed by congress enacted the most significant tax legislation changes that our country has seen in over thirty years. These changes have a significant impact on how small business owners should prepare for retirement - and that is why we put together our Small Business Retirement Planning module. If you are a small business owner or independent contractor and your financial plan was put in place prior to December of 2017, there is no way you are taking advantage of the new opportunities. Our Small Business Retirement Planning module will help small business owners take full advantage of the recent changes to maximize a lifetime of savings that are currently available. But there is a sense of urgency, because the current tax cuts are set to expire in 2025. View On-Demand Video

If you fail to plan ahead, you will struggle to claim your medical expenses as an itemized deduction when April 15th arrives. You will lose the ability to deduct the bulk of these expenses because they need to surpass 10% of your Adjusted Gross Income (AGI) to be usable as an itemized deduction . This means that taxpayers who make $100,000 during the year will not be able to deduct the first $10,000 in medical expenses. That handicap essentially means you will not be able to deduct any medical expenses, unless you incur heavy medical bills in a single year. And if you are paying AMT (the Alternative Minimum Tax) - don't even think about it. When it comes time to pay your income tax bill, most Americans want to pay the lowest amount possible. One of the ways taxpayers seek to do this is by increasing the number of deductions they take on their tax return each year. So it's not surprising that one of the common questions we receive from our clients is whether or not they can deduct their medical expenses. While the simple answer is "yes," the reality for most taxpayers is "no." However, with a little planning, that answer can be "yes." If you fail to plan ahead, you will struggle to claim your medical expenses as an itemized deduction when April 15th arrives. You will lose the ability to deduct the bulk of these expenses because they need to surpass 10% of your Adjusted Gross Income (AGI) to be usable as an itemized deduction . This means that taxpayers who make $100,000 during the year will not be able to deduct the first $10,000 in medical expenses. That handicap essentially means you will not be able to deduct any medical expenses, unless you incur heavy medical bills in a single year. And if you are paying AMT (the Alternative Minimum Tax) - don't even think about it. The best way to counteract this nasty little piece of the tax code is to set up an HSA (Health Savings Account) and contribute to it each year. When you contribute to an HSA you get the privilege of deducting the amount of your contributions from your income and you bypass the 10% threshold. You can do this even if you don't choose to itemize your deductions! And as an added bonus (do we sound like an infomercial?) - the money you put into your HSA, as well as the earnings of the account, can be taken out tax free as long as they are used for qualified medical expenses. While you cannot pay your health insurance premiums with funds from an HSA, you can pay most other medical expenses. Additionally, once you turn 65 you can use the HSA to pay your Medicare or other healthcare premiums. Requirements for an HSA In order to qualify for an HSA you must have a high-deductible health plan - defined as a healthcare plan with: 1 An annual deductible of at least $1,350 for individual coverage or at least $2,700 for family coverage. 2 Maximum annual out-of-pocket expenses of $6,750 for individual coverage and $13,500 for family coverage. Once you have your HSA set up you can contribute up to $3,500 per year for individual coverage and $7,000 for family coverage. If you are over the age of 55 you can contribute an additional $1,000 annually. Save as PDF Read More Articles Share Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us. Avoiding the 10% Threshold for Medical Expenses How do you setup an HSA? If your employer offers a high-deductible health plan, they should also give you the ability to contribute to an HSA. You can also open an account on your own through a qualified HSA provider, such as a bank or insurance company (go to www.hsasearch.com for a list of qualified HSA providers). What happens if you don't plan ahead? So what is the solution? Key Takeaways If you don't plan ahead and contribute to a Health Savings Account then you will find that most, if not all, of your medical expenses will be ineligible for a deduction due to the 10% threshold that must be met before deducting medical expenses. By setting up and contributing to a Health Savings Account you can deduct your full contribution to the account and have the flexibility to pay your medical bills with tax-free withdrawals from the account.

Get started File from home File your taxes from home. Upload your documents, and get started. Need additional tax help? Schedule an appointment to get started. Schedule an appointment Get started Ready to start your 2023 tax return? Run your business, we'll handle your finances. Small business owner? Yes, we can help you with your tax, bookkeeping and payroll needs. But there is so much more to having the right financial partner. Get Started Learn More What We Offer Looking for Financial Planning Help? Our values-based retirement planning will give you the quiet confidence that everything is on track for you to achieve your life goals. Get Started Learn More Have questions, or need help? Give us a call or send us an email; me are happy to help. Call Us Email Us Wondering where your refund is? Not sure what tax documents you need, or want to upload a file? Refund Tracker Documents checklist File Upload

Contact us Phone: 800-961-0298 Fax: 847-929-9134 Email: Info@monotelo.com Give us a call Schedule an appointment Schedule an Appointment Client Portal resources Need help with the portal? Click below to get help. View Resources Tax tools & tax tips Refund Tracker W-4 Withholding Calculator Documents checklist Tax Bracket Calculator File Upload Our Team Recent posts & news Social Security Changes for 2026: A Complete Guide for Retirees and Working Beneficiaries Social Security plays a crucial role in the financial security of more than 70 million Americans. For 2026, the Social Security Administration has announced several important updates affecting retirees, workers claiming early benefits, SSI recipients, and individuals with disabilities. Below is a comprehensive overview to help you stay informed and plan financially for the year ahead. 1. A 2.8% Cost‑of‑Living Adjustment (COLA) The biggest change for 2026 is the 2.8% COLA appl Key Tax Season Deadlines for Monotelo Small Business Clients in 2026 As the 2026 tax season gets underway, our goal is to ensure that all of our small business clients experience an easy and stress-free filing. The following dates highlight essential deadlines for S-Corps, partnerships, and C-Corporations—these are intended to keep you organized, help you avoid penalties, and clarify what you can expect from us. Feel free to bookmark this page or revisit it during the season; it's your key resource for the most important tax milestones. Key Important Tax Dates for Small Businesses in 2026 As a small business owner, staying on top of tax deadlines is essential to avoid penalties and keep your operations running smoothly. Below is a clear timeline of key dates for the 2026 tax season, along with an important update on 1099 reporting requirements. January January 15, 2026 – Fourth-quarter 2025 estimated tax payment due (Form 1040-ES). January 31, 2026 – Deadline to issue W-2 and 1099 forms to employees and contractors. Since January 31 falls on a Saturday Important Tax Updates for 2026 As the 2025 tax season approaches, taxpayers and businesses must stay informed about critical updates and deadlines to ensure a smooth filing process. Here’s a comprehensive guide to help you navigate this year’s tax requirements. Key Dates Individual Tax Filers: Jan. 31, 2026:  Deadline for employers to furnish Form W-2 to employees and for businesses to provide certain Form 1099s to contractors and recipients. Late Jan. 2026 (TBD):  The IRS is expected to begin accept A Journey Toward the King Merry Christmas! As we gather with family, reflect on the year behind us, and look forward with hope, we want to welcome you to this year’s Christmas message. At Monotelo Advisors, it is a joy and a privilege to walk alongside you—through every season and every milestone. This Christmas, we invite you to pause with us and revisit one of the most awe‑inspiring moments in history. The night a star lit the sky and hope entered the world: The Star That Changed Everything I s Gratitude, Generosity, and the Power to Change Lives As Thanksgiving approaches, many of us pause to reflect on what we’ve been given: family, health, opportunities, and the simple blessing of food on our Thanksgiving table. Gratitude is more than a seasonal sentiment; it’s a transformative force that shapes our mental health, relationships, and even our financial decisions. Why Gratitude Matters Research consistently shows that people who intentionally count their blessings live happier lives and experience less depression View More Stay up to date with the latest tax and market analysis. Subscribe to receive our weekly market and tax analysis. Site Title

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THE IMPACT OF YOUR PENSION On Your Social Security Benefits Many public sector workers do not pay into Social Security because they pay into a separate state or local pension fund. Since Social Security benefits are based on the Social Security wages earned during working years, public-sector workers who do not pay into Social Security will not be eligible for Social Security benefits at retirement. There are other public sector workers however, who have paid into the Social Security pool because they work second jobs or began working in the public sector later in life or retired and began a second career. Public sector workers who have paid into Social Security can qualify for benefits on top of their pension, but those benefits may be reduced based on the number of years they paid into Social Security. How Are Social Security Benefits Calculated? Social Security benefits are based on your average wages for your 35 highest earning years. If you pay into Social Security for 29 years, your benefits will be calculated using the 29 working years plus 6 years of zero wages. Your annual wages are also adjusted for inflation to prevent your early earning years from hurting your benefits. After adjusting for inflation and averaging your 35 highest years, your annual wages are divided by 12 to produce your Average Indexed Monthly Earnings (AIME). Your monthly benefits are calculated using 3 percentage brackets of your AIME: 90% of the first $926 of AIME, 32% of the next $4,657 of AIME and 15% of AIME after that. Example: If you work for 35 years and have average adjusted wages of $72,000 per year, your Social Security benefit calculation will use $6,000 for your Average Indexed Monthly Earnings and calculate your benefits as follows: $926 x 90% = $833.40 + $4,657 x 32% = $1,490.24 + $417 x 15% = $62.55_____ $6,000 = $2,386.19 monthly benefits How Your Pension May Limit Your Social Security Benefits If you receive a pension from an employer that does not withhold Social Security taxes, your benefits may be reduced by the Windfall Elimination Provision (WEP). This provision reduces monthly benefits by reducing the first bracket benefits from 90% down to 40% in 5% increments depending on the number of years worked. If you paid into Social Security for at least 30 years with "substantial earnings," then the WEP limitation will not apply. But if you paid in for less than 30 years of substantial earnings the first bracket percentage will be reduced by 5% for each year under 30 until it bottoms out at 40% for 20 years of contributions. This limitation can reduce your base Social Security benefits by as much as $5,500 per year. Example: To demonstrate how this limitation reduces your benefits we have calculated the monthly benefits you would receive if your AIME was $6,000 under two scenarios: 1) where you have 30 years of substantial Social Security wages and 2) where you only have 20 years of substantial Social Security wages: The lower percentage applied to the first $926 of wages when the WEP limitation applies reduces your benefits by $463 per month or $5,556 per year. What Can You Do to Eliminate the Pension Penalty? The Equal Treatment of Public Servants Act of 2019 was recently introduced in congress to repeal the WEP limitations by replacing them with a new formula that treats public servants more favorably. With the bill’s future uncertain, we want to focus on steps you can take right now. The first step in the process is to determine your Social Security benefits by creating an account at www.ssa.gov . This account will allow you to view your estimated benefits based on your prior work history. Be aware that the estimates provided by the Social Security Administration will not account for any WEP limitation that may apply to you. After you find your estimated benefits you will need to subtract $46.30 per month for every year short of the 30-year window of substantial earnings. If you are more than 10 years short of the 30 year mark, only subtract amounts for the first 10 years that you are short. If you are short of the 30-year threshold, you may want to consider working a few extra years at a part-time job or starting a new career at retirement. These additional years of contributions will not only increase your potential Social Security benefit, they will also decrease the limitation put on those benefits by the Windfall Elimination Provision. What Constitutes "Substantial Earnings" Substantial Earnings are a separate calculation from the calculation of year paid into Social Security. To qualify for a year’s worth of Social Security earnings, you only need to earn $5,880 of wages. To qualify for substantial earnings, you need a total of 26,550 of wages subject to Social Security. The table below will show the substantial earnings test. To discuss this further, please reach out to one of our team members at (847) 923-9015. Save as PDF Read More Articles Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

SMALL BUSINESS TIPS A SIGNIFICANT NEW TAX DEDUCTION NOW AVAILABLE TO SMALL BUSINESS OWNERS! The Tax Cuts and Jobs Act, signed into law in December of 2017, placed a severe limit on the deduction for state income and property taxes. This limitation, commonly referred to as the SALT (State and local taxes) cap, restricts this deduction to a combined amount of $10,000. For reference, a family in Illinois making $400,000 with $18,000 in property taxes would have combined state income and property taxes of $38,000 but could only deduct the first $10,000. Even if your combined taxes are below the $10,000 level, you are unlikely to realize any actual savings from the deduction since you need to itemize your deductions to do so. To circumvent this restriction, a number of states have passed laws allowing pass-through businesses to elect to be taxed at the business level, rather than the personal level. This election can provide meaningful tax savings to small business owners. How Does this Work? If your business is a partnership or an S-Corporation, it is considered a pass-through business, meaning the business itself is not taxed at the corporate level. Instead, that income is passed through to the owners, who are then responsible for the taxes on the business profits. This is relevant because the SALT cap only applies to individual taxes, not business taxes. By electing to pay tax at the entity level, business owners can now turn their state income taxes into deductible business expenses without needing to itemize and without being subject to the $10,000 SALT cap. Nineteen states have passed laws allowing pass-through businesses (as of 10/8/21) to make an election to be taxed at the business level, including Illinois, Wisconsin, New York and California. We are going to focus today's article on how this provision will work in Illinois, as Illinois’ flat tax rate makes it the most straight forward example. Illinois The bill that created this provision in Illinois was signed at the end of August. We are still waiting on the state to provide more thorough guidance on how businesses will make the election, but here is what we currently know: Passthrough businesses can elect to pay state taxes at the business level for tax years 2021-2025. (The SALT cap is set to expire in 2026). This election will need to be made each year. Once made for a given year, the election cannot be revoked. Starting in 2022, businesses that make this election will need to make quarterly estimated tax payments towards state taxes to avoid penalties. This requirement is waived for 2021 since the first 2 quarterly payment deadlines had already passed before the bill was signed. A business that makes the election will pay a 4.95% tax rate on its net income. The owners of the business will then receive a credit towards their personal taxes equal to the amount of taxes the business paid times their percentage ownership in the business. Should You Make This Election? The decision to make this election will depend on several factors, including the net income of your business, the total taxable income on your personal return, your filing status, and the state you live in. As we mentioned, because Illinois has a flat tax rate, nearly all business owners in Illinois will benefit by making this election, though the extent of that benefit may not always be worth the extra steps. The more income your business generates, the larger the benefit this election will have on you (for Illinois business owners). However, in other states the benefits are less certain due to differing methods of implementing this program. Example In Wisconsin, individual taxes fall into one of four brackets depending on income, with 3.54% being the lowest bracket and 7.65% being the highest bracket. However, businesses making this election in Wisconsin will pay taxes at the fixed corporate rate of 7.9%. As a result, the federal tax savings barely outweigh the increased taxes paid to Wisconsin at lower income levels. See the chart below that illustrates how business owners in different states will benefit from making this election,. As these examples illustrate, the savings for businesses in flat-tax states like Illinois are fairly straightforward. The more income your business generates the larger the potential savings. This is due to the fact that Illinois tax rates do not change when you make this election, they are simply changed from a personal expense to a business expense. On the other hand, there are additional factors at play in Wisconsin. The benefits in Wisconsin are not so obvious until higher income levels. For example, in scenario 5, a married couple in Wisconsin with $250,000 in wages and $500,000 in business profits could reduce their federal taxes by $11,123 while only increasing their Wisconsin taxes by $2,667 resulting in net savings of $8,456. And the benefits only increase as incomes rise. The key takeaway is that the benefits for business owners in states with a flat tax rate (such as Illinois) are straightforward. The more income your business generates, the greater the savings from making this election. For states with bracketed tax rates (such as Wisconsin), the benefit is not as clear. We will need to analyze the impact of making this election on both your federal and state taxes to determine the best course of action. Summary The essential benefit of this strategy is that you can now capture your state income tax payment as a business expense to reduce the taxable income on your federal tax return. If you have $1,000,000 in business income you are likely in the 37% marginal tax bracket. If we push a $50,000 tax bill through your business, we can save you between $14,000 and $19,000 on your federal income tax bill. The SALT cap has been a thorn in taxpayer’s sides for nearly four years. With the passage of these laws in different states, many business owners will now have the ability to work around this cap to deduct their state income taxes against their federal tax liability. The benefit to each individual will depend on your home state, your marital status and your income level. Please reach out to us for help determining if you would benefit from making this election. Schedule a Tax Planning Call

OCTOBER 2016 MONOTELO QUARTERLY WHAT IS THE BEST Business Structure for You? assets. Once you choose a corporate structure, it is not easy to switch to another, so it is important that you weigh all your options before deciding. LIMITED PARTNERSHIPS. If your business is structured as a limited partnership, then all the profits and losses of the company to distinguish between income earned as a salary, and income earned as profits of the corporation, allowing them to only pay payroll taxes on a portion of the income. The major downside to the C-corp is what is referred to as double taxation, where the profits of the company are taxed first at the corporate level, and then again at the personal level as they are passed through to the owners. S-CORPORATIONS. The main benefits to operating as an S-corporation, are that income is passed through the corporation without being taxed, and you can differentiate between salary and profits of the corporation. The S-corp provides the same benefits as the C-corp, without being subject to the double taxation of the C-corp. Another benefit to the S-corp over the C-corp is when an S-corp is sold, the proceeds are treated as capital gains, which have Once you choose a corporate structure, it is not easy to switch to another When you operate a business, it is very important how you decide to initially structure that business. While a sole proprietorship is the easiest business to start and operate, not only will you miss out on tax strategies to lower what you pay the government, but you could find yourself personally responsible for the debts of the company if the company takes a turn for the worse. To avoid this risk, you can structure your business as a limited liability company, a limited partnership, or a corporation. These structures protect you from the debts of the company, hence creditors can't go after your personal will flow through to the individual returns of the owners, meaning there is no income tax at the business level. In a limited partnership, only the owners who are actively involved in the management of the business are personally liable for the debts of the company. Owners who are only financially involved in the company are not personally liable. C-CORPORATIONS. This is the most common type of corporation, as there is no limit to the number of shareholders and it is easy to transfer ownership. One benefit of the C-Corporation is the ability of the managing owner LIMITED LIABILITY COMPANIES. Similar to an S-corp, an LLC provides the liability protection of a corporation, along with the pass-through nature of a partnership. An LLC, however, places no restrictions on the number of owners, the tradeoff being that all LLC members pay self-employment taxes on all income. LLC's also provide advantages upon dissolution as assets distributed to owners are not taxable until sold by the recipient. more favorable tax treatment than ordinary income, which is how proceeds from the sale of a C-corp are treated. While there are requirements to qualify as an S-corp, such as no more than 100 owners, they can provide significant tax advantages over the C-corp. July 2016 Save as PDF January 2017

HOW TO GET FORGIVENESS OF YOUR PAYCHECK PROTECTION LOAN Congratulations to those of you who were able to secure a loan through the Paycheck Protection Program. Now that your loan has been secured, proper steps must be taken to get the loan forgiven. Loans made through the PPP program can be forgiven in-part or in-full – meaning you may be obligated to repay 0-100% of the principal balance plus accrued interest on the loan if certain conditions are not satisfied. MAXIMUM FORGIVENESS To be considered for maximum forgiveness, you must meet all of the following conditions: Use the loan in the first eight weeks from the day you received the funds in your bank account. At least 75% of the total loan amount must be used for eligible payroll expenses. No more than 25 percent of the loan amount can be used for other eligible expenses. The other eligible expenses are interest on a commercial mortgage incurred before February 15, 2020, as well as rent and utilities payments under agreements in effect also prior to February 15, 2020. PARTIAL FORGIVENESS The following items could reduce the forgiveness amount or be excluded from forgiveness consideration: Reducing the number of full-time employees during the eight-week period as compared to certain prior periods or decreasing the compensation for any employee making under $100,000 per year (annualized in 2019) by more than 25 percent of the employee’s salary for the most recent full quarter. However, loan forgiveness will not be reduced to the extent the changes to salaries or reductions in full-time employment made between February 15, 2020 and April 26, 2020 are reversed by June 30, 2020. Using funds for non-eligible expenses. Having unused funds after the eight-week period. Paying amounts to an independent contractor or sole proprietor (other than you as the borrower). Providing compensation to employees whose principal place of residence is outside the United States. You will be required to pay back the portion of the loan that is not forgiven. Payments will not be required on the remaining portion of the loan until after six months from the day the loan was first disbursed to you. It is important to note that during those six months interest will continue to accrue at one percent (1%) per year on the outstanding loan amount. You will have two years from disbursement of the loan to repay the remaining principal and interest on the loan in full in accordance with the terms of your Note. You may pay the loan off before two years without penalty. WHAT SHOULD YOU DO NOW? Keep accurate records and documentation of how you spend the loan funds. You will need to submit documentation and certify the expenses you paid with the loan over that eight-week period. You should consult with your lender to find out what documentation they will be requesting to support your expenses. Do your best to pay out at least 75 percent of the loan for eligible payroll expenses over the eight-week period and use the remainder for other eligible expenses. Toward the end of the eight-week period, you will need to reach out to your lender and fill out a forgiveness application. If you have any additional questions on the Paycheck Protection Program please reach out to us.

JULY 2017 MONOTELO QUARTERLY AVOID THE HEADACHES and Penalties Associated with 1099 Reporting When a small business hires an employee, there are a number of expenses that are incurred in addition to the hourly wage. This could include the employer-provided benefits, office space, along with the technology and other tools required to do the job. The employer will also have to make required payments and contributions on behalf of employees, including: The employer's share of the employee's Social Security and Medicare taxes, which totals 7.65% of the employee's compensation State unemployment compensation Workers' compensation insurance Depending upon the industry, the additional contributions could increase your payroll costs by 20% to 30% - or more. You can avoid these expenses by hiring an independent contractor to do the same work. The additional contributions could increase your payroll costs by 20% to 30% - or more. However, there are certain requirements that must be followed in order to avoid the headaches and penalties associated with 1099 reporting. WHAT AND WHEN DO I HAVE TO FILE? Businesses are required to report all income to the IRS for its employees and any independent contractors. For employees, a W-2 is required to be filed. Independent contractors on the other hand, get a little more complex. To make matters worse, congress recently passed the Path Act, and moved up the filing deadline for W-2's and certain 1099's. The required date to provide W-2's and 1099's to employees and independent contractors is January 31. The deadline for submitting these forms to the government is also January 31. THREE STRATEGIES TO AVOID 1099 HEADACHES The easiest way to avoid the penalties, and filing headaches caused by issuing 1099's to independent contractors is to structure your business activities to minimize the number you must issue, and prepare them in advance, if you do have to issue them. STRATEGY #1: Choose contractors that operate as corporations. Your business is not required to issue 1099's for payments made to corporations, S corporations, or LLC's that elect corporate status for tax purposes (unless the corporation collects attorney fees or payments for health and medical services). STRATEGY #2: Make payments to independent contractors with a credit card, or a third-party payment network like PayPal. Shift the burden of reporting this income to the credit card company or the third-party network. They are required to report the payments on Form 1099-K. STRATEGY #3: Require the independent contractor to provide you with a W-9 upfront before making any payments to them. Here are the benefits: You will know if a 1099 filing is required, because their business type is disclosed on the W-9. You will know whether an LLC is classified as a corporation for federal tax purposes, and excluded from 1099 reporting. By getting the W-9 upfront, it eliminates the need to chase the contractor down for the required information if you need to file a 1099. Once the contractor is paid, your leverage for getting the information is gone. If an independent contractor refuses to provide you with a taxpayer identification number (TIN), and you pay the contractor more than $600 during the calendar year, then you are required to withhold federal income tax on payments made to that contractor. If you do not withhold, your business owes the tax, and it is on you to prove the contractor paid the tax. January 2017 Save as PDF October 2017