Let’s say you own highly appreciated land you’d like to develop. If you subdivide it and sell the parcels off for a hefty profit, you could receive a large tax bill. The tax rules will generally treat you as a real estate dealer. That means the entire profit will be treated as high-taxed ordinary income subject to a rate of up to 37%. You may also owe the 3.8% net investment income tax for a rate of up to 40.8% and state income tax. But you may be able to pay lower long-term capital gain (LTCG) tax on part of the profit. How? By establishing an S corp and selling the land to it, which may allow you to treat pre-development appreciation of the land as LTCG. (Read More)

If you own an unincorporated small business, you know your self-employment (SE) tax bills are high. In 2023, SE tax is imposed at a rate of 15.3% on the first $160,200 of net SE income. This includes 12.4% for Social Security tax and 2.9% for Medicare tax. Above $160,200, Medicare tax continues at a 2.9% rate on all income before increasing to 3.8% at higher income levels due to the 0.9% additional Medicare tax. In some circumstances, you may want to become an S corp. to save on employment taxes. (Read More)

Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). Entrepreneurs often don’t know that many start-up expenses can’t be currently deducted. Some likely have to be amortized over time. You might be able to elect to deduct up to $5,000 currently, but the deduction is reduced by the amount by which your total start-up costs exceed $50,000. You can also deduct $5,000 of the organizational costs of creating a corporation or partnership. (Read More)

Section 179 allows businesses to deduct (rather than depreciate over several years) the costs of eligible assets, such as equipment and furniture. The deduction can also be claimed for real estate qualified improvement property (QIP). For eligible assets placed in service in 2023, the maximum allowable first-year Sec. 179 deduction is $1.16 million. QIP includes improvements to an interior portion of a nonresidential building that are placed in service after the building is placed in service. QIP also includes HVAC systems, nonresidential roofs and alarm systems that are placed in service after the building is first placed in service. (Read More)

Whether you’re operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations. The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly. The tax rules regarding business losses are complex, especially when accounting for how NOLs can interact with other potential tax breaks. (Read More)

Many businesses use independent contractors to help keep their costs down, especially in these times of staff shortages and inflationary pressures. If you’re among them, make sure workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error. Determining whether a worker is a contractor or an employee for income and employment tax purposes can be complex. The IRS and courts have generally ruled that individuals are employees if the businesses they work for have the right to control and direct them in the jobs. Otherwise, they’re generally contractors. (Read More)

If you’re the owner of an incorporated business, you know there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays, but not dividends. So if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid as compensation is only taxed once to the employee receiving it. But there are limits to how much money you can take this way. Compensation can be deducted only to the extent that it’s “reasonable.” Unreasonable portions aren’t deductible and may be deemed dividends. Need help determining a reasonable salary? (Read More)

If your business occupies a large structure and you need to increase space or move, keep the rehabilitation tax credit in mind. The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified building that’s also a certified historic structure and meets other requirements. A QRE is any amount chargeable to capital and incurred in connection with the rehab (including reconstruction) of a qualified building. QREs can’t include building enlargement or acquisition costs. The 20% credit is allocated ratably to each year in the five-year period beginning in the year in which the qualified building is placed in service. (Read More)

An array of tax-related limits affecting businesses are indexed annually, and due to high inflation, many have increased more than usual for 2023. For example, the Section 179 expensing limit has gone up to $1.16 million from $1.08 million. Also up are the income-based phase-ins for certain limits on the Sec. 199A qualified business income deduction for owners of pass-through entities. And most limits related to employer-sponsored retirement plans, such as 401(k)s, are higher this year. This includes employee contributions to 401(k) plans, which are up $2,000 this year to $22,500. (Read More)

If you’re starting a business with some partners and wondering what type of entity to form, an S corporation may be the most suitable form of business for your new venture. A big benefit of an S corp over a partnership is that as an S corp shareholder, you won’t be personally liable for corporate debts. If you expect the business to incur losses in its early years, an S corp is preferable to a C corp from a tax standpoint. C corp shareholders generally get no tax benefit from such losses but S corp shareholders can deduct their percentage share of the losses on their personal tax returns to the extent of their basis in the stock and in any loans made to the entity. (Read More)

A provision of the Tax Cuts and Jobs Act that took effect last year was the end of current deductibility for research and experimental (R&E) expenses. The provision affects businesses with significant R&E costs. Starting in 2022, Section 174 R&E expenditures must be capitalized and amortized over five years (15 years for research conducted outside the U.S.). Previously, businesses could opt to deduct these costs immediately as current expenses. For 2022 tax returns, the IRS recently released guidance for taxpayers to change the treatment of R&E expenses. Revenue Procedure 2023-11 provides a way to obtain automatic consent to change methods of accounting for specified Sec. 174 R&E expenses. (Read More)

If you’re considering converting your C corporation to an S corporation, there may be tax implications if you’ve been using the last in, first out (LIFO) inventory method. That’s because of the LIFO recapture income that will be triggered by converting to S corp status. As you’re aware, your corporation has been reporting a lower amount of taxable income under LIFO than it would have under the first in, first out (FIFO) method. The reason: The inventory taken into account in calculating the cost of goods sold under LIFO reflects current costs, which are usually higher. We can meet to compute what the tax on recapture would be and to see what planning steps might be taken to minimize it. (Read More)

If you’re launching a new venture, you’re probably wondering which form of business is most suitable. There are advantages and disadvantages of doing business as a C corporation. For example, a C corporation allows the business to be treated and taxed as a separate entity from you as the owner. A properly structured corporation can protect you from business debts yet enable you to control day-to-day operations and corporate acts such as redemptions, acquisitions and liquidations. Plus, the corporate tax rate is 21%, which is lower than the highest noncorporate rate. One potential drawback: Earnings can be subject to double tax, once at the corporate level and again when distributed to you. (Read More)

IRS audit rates are historically low, according to a recent GAO report (https://bit.ly/3SLZ9Sb). That’s little consolation if your return is selected. But with proper preparation, you should fare well. It helps to know what might catch the attention of the IRS. For example, some audit “red flags” are unusually high deductions, major inconsistencies between previous years’ tax returns and the current one, profit margins and expenses markedly different from those of similar businesses. The IRS normally has three years in which to conduct an audit. If the IRS selects you for an audit, we can help you understand the issues, gather the needed documents and respond to the inquiries effectively. (Read More)

Does your business need real estate to conduct operations? Or does it hold property and put the title in its name? You may want to separate real estate ownership from the business. For example, C corporations treat real estate as they do other business assets. Expenses related to owning the assets are generally tax deductible in the year incurred. However, when the business sells real estate, the profits are taxed twice, at the corporate level and at the owner’s individual level when a distribution is made. But if the real estate ownership was transferred to a pass-through entity instead, the sale profit would be taxed only at the individual level. (Read More)

With Labor Day past us, it’s a good time to start thinking about making moves that may help lower your small business taxes for 2022 and 2023. A standard year-end approach is to defer income and accelerate deductions to minimize taxes, as well as to bunch deductible expenses into this year or next to maximize their tax value. Other ideas: Buy eligible equipment and place it in service by Dec. 31 to claim a Section 179 or 100% bonus depreciation deduction. Eligible businesses also may be able to defer income or accelerate deductions to keep income under certain thresholds to claim a qualified business income deduction. (Read More)

The new Inflation Reduction Act contains a provision that provides tax relief for small businesses. Under current law, qualified small businesses can elect to claim a portion of their research credit as a payroll tax credit against their employer Social Security tax liability, rather than against their income tax liability. A qualified small business can now claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. Under the new law, qualified small businesses can apply an additional $250,000 in qualifying research expenses as a payroll credit against the employer share of Medicare. This provision takes effect for tax years beginning after Dec. 31, 2022. (Read More)

Which business entity should you choose? A limited liability company (LLC) is somewhat of a hybrid because it can be structured to resemble a corporation for liability purposes and a partnership for federal tax purposes. Like corporation shareholders, LLC owners or “members” generally aren’t liable for business debts except to the extent of their investment. Plus, there may be tax benefits. For example, earnings aren’t subject to an entity-level tax. Instead, they flow through to owners in proportion to their respective interests in profits. They’re reported on the owners’ individual returns and taxed only once. (Read More)

A business or individual might be able to dispose of appreciated real property without being taxed on the gain by exchanging it rather than selling it. You can defer tax on your gain through a “like-kind” or Sec. 1031 exchange. A like-kind exchange is a swap of real property held for investment or for productive use in your trade or business for like-kind investment real property or business real property. Like-kind is very broadly defined and most real property is considered to be like-kind with other real property. However, the real property can’t be held primarily for sale. (Read More)

Sometimes small is better: Your small business may be eligible for tax breaks that aren’t available to large businesses. For example, the qualified business income (QBI) deduction is available to eligible individuals but not to C corporations or their shareholders. The deduction can be up to 20% of: 1) QBI earned from a sole proprietorship or single-member LLC treated as one for federal income tax purposes, plus 2) QBI passed through from a pass-through business, meaning a partnership, S corp or LLC classified as a partnership. Pass-through businesses report tax items to their owners, who then take them into account on their own returns. The rules are complex. (Read More)

If your business plans to purchase bonus depreciation qualifying property, take action soon to realize a valuable tax break. (Read More)

Sadly, many businesses have been forced to shut down due to the pandemic and the economy. If this is your situation, we can assist you, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and re port employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability with the Trust Fund Recovery Penalty. There may be other responsibilities. (Read More)

Here are some key tax-related deadlines for businesses and other employers during Quarter 3 of 2022. AUG. 1: Report income tax withholding and FICA taxes for Quarter 2 of 2022 (unless eligible for Aug. 10 deadline). File a 2021 calendar-year retirement plan report or request an extension. SEPT. 15: If you operate a calendar-year partnership or S corp. that filed an extension, file a 2021 income ta x return. If a calendar-year C corp., pay third installment of 2022 estimated income taxes. (Read More)

If your small business or start-up is planning to claim the research tax credit, here’s an option. Subject to limits, you can elect to apply all or some of research tax credits that you earn against payroll taxes instead of your income tax. Many new businesses, even if they have some cash flow, or even net positive cash flow and/or a book profit, pay no income taxes and won’t for some time. Thus, there’s no amount against which business credits, including the research credit, can be applied. On the other hand, a wage-paying business, even a new one, has payroll tax liabilities. The payroll tax election is an opportunity to get immediate use out of the research credits that a business earns. (Read More)

If you’re a partner in a business, you may have come across a situation that’s puzzling. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner. Why? It’s due to the way partnerships and partners are taxed. Unlike C corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on partnership earnings whether or not they’re distributed. And if a partnership has a loss, it’s passed through to partners. (However, various rules may prevent partners from currently using their share of a partnership’s loss to offset other income.) (Read More)

The IRS has begun mailing notices to businesses and other payers that filed certain returns with information that doesn’t match the agency’s records. These CP2100 and CP2100A notices are sent by the IRS twice a year to payers who filed information returns that are missing a Taxpayer Identification Number, have an incorrect name or have a combination of both. Payers are required to file with the IR S various information returns reporting payments they make to independent contractors, customers and others. These include Form 1099-MISC (Miscellaneous Income) and Form 1099-NEC (Nonemployee Compensation). (Read More)

What are the tax consequences of selling property used in your business? Many rules may apply. Let’s assume the property you want to sell is land or depreciable property used in your business and has been held by you for more than a year. Gains and losses from sales of business property are netted against each other. The net gain or loss qualifies for tax treatment as follows: 1) If the netting of gains and losses results in a net gain, long-term capital gain treatment results, subject to “recapture” rules. Long-term capital gain is generally more favorable than ordinary income. 2) If the netting of gains and losses results in a net loss, the loss is fully deductible against ordinary income. (Read More)

Although S corporations may provide tax advantages over C corporations, there are a number of potentially costly tax issues that you should assess before making a decision to switch. Here are 4 important issues to consider when converting from a C corp to an S corp: 1) Built-in gains tax; 2) Passive income; 3) LIFO inventories, and 4) Unused losses. There are strategies for eliminating or minimizing some of these tax problems and for avoiding unnecessary pitfalls related to them. But a lot depends upon your company’s particular circumstances. Contact us to discuss the effect of these and other potential problems, along with possible strategies for dealing with them. (Read More)

Businesses typically want to delay taxable income into future years and accelerate deductions into the current year. But sometimes they want to do the opposite. One reason might be tax law changes that raise tax rates. Another reason may be because you expect your pass-through entity to pay taxes at higher rates in the future. There are ways to accelerate income into the current year and delay deductions into later years. For example, sell appreciated assets that have capital gains in this year, rather than waiting until a future year. Or depreciate assets over a number of years rather than claiming big first-year Section 179 deductions or bonus depreciation deductions. (Read More)

The credit for increasing research activities, often referred to as the research and development credit, is a valuable tax break for eligible businesses. Claiming the credit involves complex calculations, which we can take care of for you. But in addition to the credit itself, be aware that it also has a feature that is especially favorable to certain eligible small businesses. The credit can be used against the employer’s Social Security payroll tax liability. To qualify for the election a taxpayer: 1) must have gross receipts for the election year of less than $5 million and 2) be no more than five years past the period for which it had no receipts (the start-up period). (Read More)

Do you want to withdraw cash from your closely held corporation at a minimum tax cost? The simplest way is to distribute cash as a dividend. However, a dividend distribution is taxable to you as a shareholder and not deductible by the corporation. But there are some alternatives that may allow you to withdraw cash from a corporation and avoid dividend treatment. For example, you might be able to receive capital repayments, or obtain reasonable compensation for you (or family members), as well as certain fringe benefits. (Read More)

Do you operate a small business as a sole proprietor? There are many tax rules and considerations involved in operating this way. For example, you may qualify for the pass-through deduction on qualified business income. You must pay self-employment tax and make estimated tax payments on income earned. You can deduct health insurance costs as a business expense. If you hire employees, you need a ta xpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan. (Read More)

Businesses must keep records of their income and expenses. Carefully record them in order to claim the full amount of tax deductions to which you’re entitled. You also want to make sure you can defend the amounts on your tax returns if you’re ever audited by the IRS. Certain expenses, such as automobile, travel, meals and home office expenses, require special attention because they’re subject to special recordkeeping requirements or limits on deductibility. (Read More)

A number of tax limits affecting businesses are annually indexed for inflation and many have increased for 2022. For example, the Section 179 expensing limit has gone up to $1.08 million from $1.05 million in 2021. Health Savings Account (HSA) contributions for individual coverage have increased to $3,650 (from $3,600). HSA family coverage contributions increased $100 to $7,300. Employees can contribute $20,500 to a 401(k) plan in 2022 (up from $19,500). 401(k) “catch-up contributions” are $6,500 (unchanged from 2021). And the deduction for business-related meals and beverages provided by a restaurant is 100% for 2022 (and 2021). (Read More)

Do you want to sell commercial or investment real estate that has appreciated significantly? One way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange where you exchange the property rather than sell it. With real estate prices up in many markets (and higher resulting tax bills), the like-kind exchange strategy is attractive. A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business for like-kind investment, trade or business real property. Like-kind exchanges can be a great tax-deferred way to dispose of real property. (Read More)

Here are a few key tax-related deadlines for businesses during Q1 of 2022. JAN. 17: Pay the final installment of 2021 estimated tax. JAN. 31: File 2021 Forms W-2 with the Social Security Administration and provide copies to employees. Also provide copies of 2021 Forms 1099-NEC to recipients and, if reporting nonemployee compensation in Box 7, file, too. FEB. 28: File 2021 Forms 1099-NEC if not required earlier and paper filing. MARCH 15: If a calendar-year partnership or S corp., file or extend your 2021 tax return. (Read More)

The holiday season is just around the corner. Your business may want to show its gratitude to employees and customers by giving gifts or hosting parties after a year of forgoing them due to the pandemic. It’s a good time to review the tax rules. Gifts to customers are generally deductible up to $25 per recipient per year. De minimis, noncash gifts to employees (such as a turkey) aren’t included in their taxable income but are deductible by you. In general, holiday parties are 100% deductible. And for 2021 and 2022, there’s a temporary 100% deduction for expenses of food or beverages provided by a restaurant. (Read More)

Don’t let the holiday rush keep you from considering some important steps to reduce the 2021 tax liability of your small business. You have time to execute a few strategies. For example, are you thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment early in the new year? Buy them now and place them in service by Dec. 31, and you can deduct 100% of the cost as bonus depreciation. Or you can charge recurring expenses normally paid early in the year on your credit card before Jan. 1. That way, you can claim the deduction for 2021 even though you don’t pay the bill until 2022. (Read More)

Don’t let the holiday rush keep you from considering some important steps to reduce the 2021 tax liability of your small business. You have time to execute a few strategies. For example, are you thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment early in the new year? Buy them now and place them in service by Dec. 31, and you can deduct 100% of the cost as bonus depreciation. Or you can charge recurring expenses normally paid early in the year on your credit card before Jan. 1. That way, you can claim the deduction for 2021 even though you don’t pay the bill until 2022. (Read More)

If your business is depreciating over a 30-year period the entire cost of constructing the building that houses your operation, you should consider a cost segregation study. It might allow you to accelerate depreciation deductions on certain items, which can reduce taxes and boost cash flow. Under current law, the potential benefits are now even better than they were in the past due to enhancements to certain depreciation tax breaks. You may even be able to get the benefit of speedier depreciation for items that were incorrectly claimed. Cost segregation studies can yield substantial benefits, but they’re not right for all businesses. (Read More)

OCT. 15: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2020 income tax return. NOV. 1: Report income tax withholding and FICA taxes for Q3 2021 (unless you’re eligible for a Nov. 10 deadline because you deposited on time (and in full) all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2021 estimated income taxes. Note: Certain deadlines may be postponed in federally declared disaster areas. Contact us for more about the filing requirements and to ensure you’re meeting all applicable deadlines. (Read More)

Sept. 13-17 has been declared National Small Business Week by the SBA. To commemorate, here’s a tax break to consider. Your business may be able to claim 100% bonus depreciation for asset additions. Under current law, first-year bonus depreciation is available for qualified new and used property that’s acquired and placed in service in 2021. That means your business may be able to deduct the entir e cost of some or all asset purchases on this year’s return. To take advantage of this, you may want to make acquisitions before Dec. 31. The bonus depreciation tax break can also be used for eligible heavy SUVs, pickups and vans used over 50% for business. (Read More)

If you own or operate a business, you may not know that the IRS has “Audit Techniques Guides” for certain industries and tax issues. IRS examiners use them to prepare for audits and you can read them too. (Read More)

Is a limited liability company (LLC) the right choice for your small business? Like the shareholders of a corporation, LLC owners (called members) generally aren’t liable for the debts of the business except to the extent of their investment. So their personal assets are protected from the entity’s creditors. Plus, partnership earnings aren’t subject to an entity-level tax. Instead, they “flow through” to the owners (in proportion to their respective interests), are reported on the owners’ individual returns and taxed only once. To the extent the income passed through to you is qualified business income, you’ll be eligible to take the pass-through deduction, subject to various limitations. (Read More)

Despite the COVID-19 pandemic, government officials are seeing a large increase in the number of new businesses being launched. From June 2020 through June 2021, the U.S. Census Bureau reports that business applications are up 18.6%. Entrepreneurs often don’t know that many start-up expenses can’t be currently deducted. Some likely have to be amortized over time. You might be able to elect to deduct up to $5,000 currently, but the deduction is reduced by the amount by which your total start-up costs exceed $50,000. You can also deduct $5,000 of the organizational costs of creating a corporation or partnership. (Read More)

Are you eligible to take the deduction for qualified business income (QBI)? This valuable tax break is also referred to as the pass-through or Section 199A deduction. It’s available to owners of sole proprietorships, single member limited liability companies, partnerships and S corps. (Read More)

Although you might want to enjoy the lazy days of summer, employers and businesses should be careful not to miss these third quarter 2021 tax deadlines. (Read More)

If your business is organized as a sole proprietorship or a wholly-owned limited liability company, you’re subject to both income tax and self-employment (SE) tax. There may be a way to cut your tax bill by operating as an S corporation. SE tax is imposed on 92.35% of SE income at a 12.4% rate for Social Security up to $142,800 for 2021 and at a 2.9% rate for Medicare. An extra 0.9% Medicare tax is imposed on income exceeding $250,000 for married filers and $200,000 for singles. If you conduct business as an S corp, you’re subject to income tax, but not SE tax, on your share of business income. But the S corp must pay you a reasonable salary. (Read More)

Employee or independent contractor? That’s the question businesses ask when they bring on certain workers. Here are the basic rules to help keep you out of tax trouble. (Read More)

There’s a great deal of interest in alternative energy technologies today. If your business invests in certain equipment or property, what are the federal tax benefits? (Read More)

Are you thinking about launching a business with some partners and wondering what type of entity to form? An S corporation may be the most suitable form of business. A big advantage of an S corp over a partnership is that as an S corp shareholder, you won’t be personally liable for corporate debts. If you expect the business to incur losses in its early years, an S corp is preferable to a C corp from a tax standpoint. C corp shareholders generally get no tax benefit from such losses but S corp shareholders can deduct their percentage share of the losses on their personal tax returns to the extent of their basis in the stock and in any loans made to the entity. (Read More)

President Biden signed the American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses. For example, the Employee Retention Credit (ERC) is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. This means an employer can potentially have up to $40,000 in qualified wages per employee through 2021. This is only one of the ARPA provisions. (Read More)

While many businesses have been forced to close due to the COVID-19 pandemic, some entrepreneurs have started new small businesses. They may start out as sole proprietors. There are many tax considerations involved in operating that way. For example, you may qualify for a deduction on qualified business income. You must pay self-employment taxes and make estimated tax payments on income earned. If you hire employees, you need a taxpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan. (Read More)

During the pandemic, many people are working from home. If you’re self-employed and run your business from home or perform certain functions there, you may be able to claim deductions for home office expenses against your business income. There are two methods for claiming deductions. With the actual expenses method, you claim direct expenses, such as the cost of carpeting, and a proportionate share of indirect expenses, such as utilities, insurance, and depreciation. With the simplified method, you deduct $5 for each square foot of home office space, up to $1,500. Unfortunately, employees aren’t eligible for home office deductions. (Read More)

Merger and acquisition activity in many sectors slowed during 2020 due to COVID-19. But analysts expect it to improve in 2021 as the country comes out of the pandemic. If you’re considering buying or selling another business, it’s important to understand the tax implications. For tax purposes, a transaction can basically be structured in two ways: stock (or ownership interest) or assets. For tax and nontax reasons, buyers usually prefer to purchase assets, while sellers generally prefer stock sales. Buying or selling a business may be the largest transaction you’ll ever make, so seek professional tax advice. After a deal is done, it may be too late to get the best tax results. (Read More)

A number of tax-related limits affecting businesses are annually indexed for inflation, and many have increased for 2021. For example, the Section 179 expensing limit has gone up to $1.05 million from $1.04 million for 2020. Health Savings Account (HSA) contributions for individual coverage have increased to $3,600 (from $3,550). HSA family coverage contributions increased $100 to $7,200. Some 202 1 amounts have stayed the same due to low inflation. This includes employee contributions to 401(k) plans, which remain $19,500. And the deduction for business-related meals and beverages doubled from 50% to 100% due to a new law. (Read More)

The best choice of entity can affect your business in several ways, including the amount of your tax bill. Although S corporations can provide substantial tax advantages over C corporations in some cases, there are potential tax problems to assess before deciding to convert from C to S status. One issue to consider is last-in, first-out (LIFO) inventory. A C corporation that uses LIFO inventory must pay tax on the benefits it derived by using LIFO if it converts to an S corporation. Other issues to consider are the built-in gains tax, passive income tax and unused net operating losses. (Read More)

Are you eligible to claim the qualified business income (QBI) deduction? Taxpayers other than corporations may be entitled to a deduction of up to 20% of their QBI. For 2020, if taxable income exceeds $163,300 for single taxpayers or $326,600 for a married couple filing jointly, the QBI deduction may be limited in certain cases. Taxpayers may be able to save taxes with this deduction by deferring income or accelerating deductions at year-end so that they come under the dollar thresholds (or be subject to a smaller phaseout of the deduction). You also may be able to increase the deduction by increasing W-2 wages before year-end.  (Read More)

The Section 179 deduction provides a tax benefit to businesses, enabling them to claim immediate deductions for qualified assets, instead of depreciating them over time. For 2020, the maximum deduction is $1.04 million, subject to a phaseout rule if more than $2.59 million of eligible property is placed in service during the tax year. Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for assets such as machinery and equipment. Under the 100% bonus depreciation tax break, the entire cost of eligible assets placed in service in 2020 can be written off this year.  (Read More)

S corporations may provide tax advantages over C corporations. This can be true if you expect the business to incur losses because C corp. shareholders generally get no tax benefit from losses. Conversely, S corp. shareholders can deduct their share of these losses on personal tax returns to the extent of their basis in the stock and any loans they make to the entity. So the ability to use losses that pass through from an S corp. depends on your basis in the corporation’s stock and debt. Be aware that there are some elections available to an S corp. or its shareholders that can affect the basis adjustments caused by distributions and other events.  (Read More)

Unfortunately, COVID-19 has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability for what’s known as the Trust Fund Recovery Penalty. There may be other responsibilities.   (Read More)

IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is selected. But with proper preparation and planning, you should farewell. But it helps to know what might catch the attention of the IRS. For example, some audit “red flags” are unusually high deductions, major inconsistencies between previous years’ tax returns and the current one, profit margins and expenses markedly different from those of similar businesses. The IRS normally has three years within which to conduct an audit. If the IRS selects you for an audit, we can help you understand the issues, gather the needed documents and respond to the inquiries effectively.  (Read More)

Here are a few key tax-related deadlines for businesses and other employers during Quarter 4 of 2020. OCT. 15: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2019 income tax return. NOV. 2: Report income tax withholding and FICA taxes for Q3 2020 (unless you’re eligible for a Nov. 10 deadline because you deposited on time (and in full) all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2020 estimated income taxes.   (Read More)

You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide variety of qualifying property. There are some important points to be aware of when it comes to this powerful tax-saving tool. For example, bonus depreciation is available for new and most used property. And it’s scheduled to phase out. Under current law, 100% bonus depreciation will generally be phased out in steps. An 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Asset depreciation can be a complex area of tax law.  (Read More)

If you hold an interest in a business, or may do so in the future, be aware that the CARES Act has made changes to excess business losses.   (Read More)

The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn’t deductible if both: 1) the payment of the expense results in forgiveness of a loan made under the PPP, and 2) the income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. IRS Notice 2020-32 states that “this treatment prevents a double tax benefit.” However, two members of Congress say they’re opposed to the IRS stand on this issue. They say they’ll seek legislation to make certain expenses deductible.  (Read More)

The CARES Act includes favorable changes to the rules for deducting net operating losses (NOLs) to provide businesses with relief from the novel coronavirus (COVID-19) crisis. It permanently eases the taxable income limitation on deductions. For tax years beginning before 2021, the CARES Act removes a taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years. These changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return.  (Read More)

The IRS has issued guidance providing relief from failure to make employment tax deposits for employers entitled to refundable tax credits provided under two laws. The two laws are the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. Under the laws, the penalty for failure to deposit the employer share of Social Security tax is waived in anticipation of the allowance of the refundable tax credits. IRS Notice 2020-22 provides that an employer won’t be penalized for failing to deposit employment taxes related to qualified leave or qualified retention wages in a calendar quarter if certain requirements are met.   (Read More)

As a business with employees, you may have questions about the new employee retention tax credit. Here are some answers.  (Read More)

A law providing relief due to the coronavirus (COVID-19) crisis contains a valuable change in the tax rules for improvements to interior parts of nonresidential buildings. You may recall that under the Tax Cuts and Jobs Act, any qualified improvement property (QIP) placed in service after Dec. 31, 2017 wasn’t eligible for 100% bonus depreciation. The cost had to be deducted over 39 years rather than entirely in the year the QIP was placed in service. This was due to a drafting error by Congress. But the new CARES Act now allows most businesses to claim 100% bonus depreciation for QIP as long as requirements are met. The correction is retroactive to QIP placed in service after Dec. 31, 2017.  (Read More)

On March 27, President Trump signed into law another coronavirus (COVID-19) bill, which provides extensive relief for businesses and employers. The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the crisis. It also allows eligible taxpayers to defer paying the employer portion of Social Security taxes through Dec. 31, 2020. Instead, employers can pay 50% of the amounts by Dec. 31, 2021 and the remaining 50% by Dec. 31, 2022. In addition, there are changes to net operating losses, the business interest expense deduction and more. Other rules and limits may apply.   (Read More)

Is your business affected by the coronavirus (COVID-19)? Fortunately, the Families First Coronavirus Response Act recently became law. It includes paid leave benefits to employees; employer and self-employed tax credits; and FICA tax relief for employers. The IRS also issued guidance allowing taxpayers to defer some federal income tax payments and estimated tax payments due on April 15, 2020, until July 15, 2020, without penalties or interest. “There is no limitation on the amount of the payment that may be postponed,” the IRS stated in Notice 2020-18. Plus, the IRS announced the 2019 income tax FILING deadline will be moved to July 15, 2020 from April 15, 2020.  (Read More)

A recent tax law extended a credit for hiring people from targeted groups. Employers can qualify for the Work Opportunity Tax Credit (WOTC), which is worth as much as $2,400 for each eligible employee, including ex-felons and from other groups. The credit amounts are different for some employees ($4,800, $5,600 and $9,600 for certain veterans; $9,000 for long-term family assistance recipients; and $1,200 for summer youth employees). The WOTC was set to expire on Dec. 31, 2019. But a law passed late last year extends it through Dec. 31, 2020.  (Read More)

Many people who launch small businesses start out as sole proprietors. There are many tax rules and considerations involved in operating that way. For example, you may qualify for the pass-through deduction on qualified business income. You must pay self-employment taxes and make estimated tax payments on income earned. If you hire employees, you need a taxpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan.  (Read More)

A slightly lower IRS mileage rate means smaller tax deductions for business miles in 2020.  The optional standard mileage rate used to calculate the deductible costs of operating an auto for business has decreased by by one-half cent to 57.5 cents per mile.  It was 58 cents for 2019 and 54.5 cents for 2018.  This mileage rate comes into play if you don’t want to keep track of actual vehicle-related expenses.  But you still must record certain information, such as the mileage, date and destination for each trip.  The mileage rate can also be used for reimbursing employees.  (Read More)

An array of tax-related limits affecting businesses are annually indexed for inflation, and many have increased for 2020.  For example, the Section 179 expensing limit has gone up to $1.04 million from $1.02 million.  Also up are the income-based phase-ins for certain limits on the Sec. 199A qualified business income deduction for owners of pass-through entities.  And most limits related to employer-sponsored retirement plans, such as 401(k)s, are higher this year.  This includes employee contributions to 401(k) plans, which are up $500 this year to $19,500.  (Read More)

While you were celebrating the holidays, you may have missed a law that passed with a grab bag of provisions providing tax relief to businesses and employers. It makes many changes to the tax code, including an extension (generally through 2020) of provisions that were set to expire or already expired. For example, the law extended the employer tax credit for paid family and medical leave through 2020, as well as the Work Opportunity Tax Credit for hiring individuals who are members of targeted groups. It also repealed the “Cadillac tax” on high-cost employer-sponsored health coverage. These are only a few provisions of the new law.  (Read More)

Don’t let the holiday rush keep you from taking some important steps to reduce your 2019 tax liability. You still have time to execute a few strategies. For example, are you thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? Buy them and place them in service by December 31, and you can deduct 100% of the cost as bonus depreciation . Or you can put recurring expenses normally paid early in the year on your credit card before Jan. 1. That way, you can claim the deduction for 2019 even though you don’t pay the bill until 2020. Finally, before year-end, contribute to a SEP or 401(k) if you haven’t reached the contribution limit.  (Read More)

Under current law, there are two valuable depreciation-related tools that may help your business reduce its 2019 tax liability. To benefit from the Sec. 179 and bonus depreciation deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 (up to certain limits) eve n if you acquire assets and place them in service during the last days of the year. It’s important to note that these deductions may also be used for business vehicles. But, depending on the type of vehicle, additional limits may apply.  (Read More)

Is your business depreciating over 30 years the entire cost of constructing the building that houses your operation? If so, consider a cost segregation study. It may allow you to accelerate depreciation deductions on certain items, thereby reducing taxes and boosting cash flow. And under current law, the potential benefits are now even greater than they were a few years ago due to enhancements to certain depreciation tax breaks. You may even be able to get the benefit of speedier depreciation for items that were incorrectly claimed. Cost segregation studies can yield substantial benefits, but they’re not right for every business.  (Read More)

As a business owner, are you worried about an IRS audit? The good news is that the odds against being audited are in your favor. The IRS audited 0.6% of individuals in fiscal year 2018. Businesses and high-income people are more likely to be audited, but audit rates are historically low. However, some tax return items may raise red flags with the IRS, such as major inconsistencies between previous years’ filings and the current one, profit margins or expenses markedly different from those of similar businesses, and unusually high deductions.  (Read More)

Operating a business as an S corporation may provide advantages, including limited liability and no double taxation (at least at the federal level). Self-employed people may also be able to lower their exposure to Social Security and Medicare taxes. But not all businesses are eligible and, with tax law changes, S corps may not be as appealing as they once were. Double taxation may be less of a con cern due to the 21% flat income tax rate that now applies to C corporations, while the top individual rate is 37%. On the other hand, S corp owners may benefit from the new qualified business income (QBI) deduction, which can equal as much as 20% of QBI.  (Read More)

The IRS uses Audit Techniques Guides (ATGs) to help IRS examiners get ready for audits. Your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations. Many ATGs target specific industries, such as construction, aerospace, art galleries, child care providers and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation and passive activity losses. ATGs allow auditors to uncover unique industry issues, common areas of noncompliance, customary business practices and terminology.  (Read More)

The Section 179 deduction has long provided a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of depreciating them over time. For 2019, the maximum deduction is $1.02 million, subject to a phaseout rule if more than $2.55 million of eligible property is placed in service during the tax year. Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for assets such as machinery and equipment. Under the 100% bonus depreciation tax break, the entire cost of eligible assets placed in service in 2019 can be written off this year. Contact us to learn how your business can maximize the deductions.  (Read More)

It may seem that the current, flat 21% corporate income tax rate makes C corporation status for your business the best choice. After all, 21% is much lower than the 37% top rate that applies to sole proprietors and pass-through entities (such as partnerships, S corps and LLCs). But C corps can still be subject to double taxation. And pass-through entity owners may be currently eligible for a 20% qualified business income deduction. The best entity type for your business depends on its unique situation and your situation as an owner. Taxes are only one consideration. You may also want the protection from business debts that certain entities provide.  (Read More)

If you spend money in the course of doing business, you want to be able to deduct it on your tax return. But in order to write off expenses, they must meet certain requirements. Under federal tax law, you can deduct “ordinary and necessary” business expenses. In general, an expense is considered ordinary if it’s common or customary in the particular trade or business. A necessary expense is defined as being helpful or appropriate. In order to be deductible, an expense must also be reasonable in relation to the benefit expected. (Read More)