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I became totally and permanently disabled after a working for 44 years. I returned to college late in life (while working full-time) to fulfill my dream of becoming an RN and at that time found it necessary to secure student loans. Three years after being declared totally and permanently disabled my student loans were discharged. In January 2013 we received a 1099-C form declaring said student loans that were discharged however that amount could be considered as income for 2012. This was a large amount of money and we live on two pensions and social security income.

I started looking on the internet for information regarding 1099-C and felt that this was something that we could not handle alone. I made phone calls locally to a very reputable tax group in a city near us and they said it would cost $500 for an appointment and that they really prefer to do corporate taxes and they referred me to a local person who had worked for them at one time, we called and explained the situation and an appointment was made and then the comment was made that "I will have to do some research on this" and flags immediately went up and we called back and cancelled that appointment. I had been researching the IRSwebsite and every place else I could think of and I was not comfortable doing our own taxes this year. We called another local tax preparer that we had used in the past and made an appointment, however prior to the appointment, while still seeking information regarding our situation,

I came across a website for Gary l. Bode, MSA, CPA, PC in Wilmington, NC. I called Mr. Bodeand explained our situation and asked if he could help. He spoke very knowledgeably regarding the situation and stated that yes; he felt he could help us. As Mr. Bode was in North Carolina and we were in New York I scanned all of our documents including back-up documents for all of our claims and forwarded all to him. Mr. Bode kept in touch with us via email; we have spoken on the telephone several times and have become very comfortable with his knowledge and professionalism. Also, as I am a true "worrier" I have continued looking into information regarding our tax situation and I came upon another web page for Mr. Bode that included testimonials which spoke of his experience with this type of tax situation as it became prevalent during the recession. This reinforced in our minds that we had made the right decision in hiring this person as our tax preparer.

I share all of this as our taxes are now ready to be filed (we do owe tax for 2012 but not the astronomical figure we thought we were facing), and we are confident that they have been prepared with the utmost care by a gentleman who has an excellent working knowledge of the situation we faced and the tax laws that were applicable to said situation.

 

Bill and Carol

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CPA firm in Wilmington NC discusses IRS SIMPLE Retirement Plans

A Wilmington NC CPA discusses SIMPLE retirement plans.

Retirment Planning Information from a Wilmington NC CPA.

Like SEPs, Keoghs and 401(k)s, SIMPLE is another variant of an IRS approved retirement plan.  The US government encourages employers to offer a retirement savings program to their employees through IRS administered tax incentives.  The best type of retirement plan often depends on the exact circumstances of the owner of the company.  Once the employer decides to offer retirement benefits, due diligence probably involves a consult with a CPA or CFP before selecting a specific program. 

Most of our CPA postings deal with Wilmington NC Widgets, a sample company, which we use as an S Corp or Partnership depending on the circumstances.  But SIMPLE plans are for companies with simple structures like sole proprietorships.  And SIMPLE plans aren’t really simple, as we’ll see.

 “A self employed person (a Schedule C filer), without employees, is probably the most common situation where a SIMPLE plan is useful.”
– Gary Bode, Wilmington NC CPA

Wilmington’s economy is similar the rest of NC where the recession is spawning home businesses.  Many of these home businesses have no employees per se.  Many of them are run as Schedule C or self employed businesses, instead of being an S Corporation with a single shareholder and no employees.  SIMPLE plans are explicitly allowed in the IRS Regulations for self employed (Schedule C) companies, where the employer and employee is the same, and only, person.  Furthermore, IRS regulations explicitly allow for both employee and employer SIMPLE contribution components; see below, to be made from self employed income, which doesn’t require a formal payroll process. 

With a SIMPLE plan, the employee owns an account which is similar to the familiar IRA account available to individuals.  One drawback; SIMPLE accounts allow less self direction of their investment than other retirement plans. 

The Two Tiered Contribution Process 

Both the employee and employer can contribute to the employee’s SIMPLE account.  This can be the same person with a SIMPLE plan.  If so, both components can be contributed from self employment income without the need for a formal payroll process. 

The first component, elective deferrals, is from the employee via voluntary deductions from their pay or self employment income.  The company holds these in trust and deposits them eventually into the employee’s SIMPLE account.  But certain formalities are required with any type of IRS sactioned  retirement plan. 

The annual limit on employee contributions usually increases every year, and the IRS makes next year’s limit announcement in the Fall of the prior year.  However, the limit for 2010 is $11,500 which was unchanged from 2009.  In addition, for employees over 50 years of age, an additional $2500 of annual catch up contribution is allowed. 

The employer “matches” up to 3% of the employee’s salary or self employment income, up to the employee’s contribution.  So the maximum employer contribution allowed is $11,500.  Since both contributions are tax deductable in the year made, and the SIMPLE account’s growth isn’t taxable until withdrawn, this is a pretty strong incentive. 

Let’s look at an example: 

A 55 year old, self employed person, with no employees, files a Schedule C as part of the IRS Form 1040.  The Schedule C’s bottom line is $40,000 which is the company’s revenue less IRS allowed expenses.  In 2010 the allowable contributions are: $11,500 from the employee and $1,200 from the employer (3% of $40,000).  Another $2500 from the employee is allowed as a catch up contribution since the person is more than 50 years old.  $15,200 total. 

Pluses and Minuses of an IRS SIMPLE Plan 

Generally, employers want to contribute to themselves as much as possible and not contribute, or delay contributions for their employees.  IRS SIMPLE plans have limited discrimination options.  And, employees are fully vested on both contributions immediately.  Not really an issue for the self employed person with n0 employees.  With SIMPLE, no other retirement plan can be in place for the company.  Self direction of the SIMPLE account’s investments are more limited than with other plans.  They have the standard 10% early withdrawal penalty, but this is raised to 25% the first two years. The accounting for IRS SIMPLE plans is, well, simple.  An annual IRS Form 5500 is required, but the institution holding the account generally provides this. 

We’re a local Wilmington  NC CPA accounting firm.  Please consider calling us at  (910) 399-2705  for a free consult on SIMPLE retirement plans or any accounting or business issue.

2 comments to CPA firm in Wilmington NC discusses IRS SIMPLE Retirement Plans

  • This is an intriguing topic. I’m always looking for great resources to share with clients and the accounting community, and your post is without a doubt worth sharing!

    • Gary Bode CPA admin

      Thanks Ms. Bass. I actually don’t see SIMPLE plans being used that much. I haven’t looked at the stats, but I suspect other plans are more popular.

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