Hiring family members can offer tax advantages (but be careful)
Are you thinking about hiring your child or spouse to work at your business this summer? There may be some tax advantages to doing so. For example, for a sole proprietorship or partnership in which each partner is a parent of the child-employee, children under age 18 aren’t subject to FICA or FUTA taxes. And children who are 18 to 20 are subject to FICA taxes but not FUTA taxes. If your spouse goes to work for your business, his or her wages are subject to income tax withholding and FICA taxes but not FUTA taxes. However, in either case, you’ll need to treat your child or spouse just as you would any other employee. Our firm can help you handle the situation properly.
In financial planning, forecasts and projections aren’t the same
Financial statements are historical records that depict a company’s financial position as of a certain point in time. To estimate where your business may end up in the future, you need to create either a forecast or a projection. What’s the difference? A forecast presents expected results based on an expected course of action. Alternatively, a projection estimates expected results based on one or more hypothetical situations. Bear in mind that few forecasts or projections are completely accurate. But one or the other can be of great help in financial planning. Contact us for assistance generating properly prepared financial statements as well as useful forecasts and projections.
Advantages and disadvantages of claiming big first-year real estate depreciation deductions
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. Consult with us about how to proceed.
Reduce the impact of the 3.8% net investment income tax
In addition to regular income tax, high-income taxpayers may face the 3.8% net investment income tax. This article explains who the tax applies to, as well as some strategies to minimize it.
Traveling for business this summer? Here’s what you can deduct
If you and your employees are traveling for business this summer, there are a number of considerations. Under tax law, in order to claim deductions, you must meet certain requirements for out-of-town business travel within the U.S. The rules apply if the business reasonably requires an overnight stay. The actual costs of travel (plane fare, cabs, etc.) are deductible for out-of-town business trips. You’re also allowed to deduct the cost of lodging. For 2023, the law allows a 50% deduction for business meals. If a trip is a combined business/pleasure trip, only the costs of meals, lodging, etc., incurred for the business days are deductible (not those incurred for personal vacation days).
Avoid succession drama with a buy-sell agreement
There are many aspects to succession planning. One way to put some clear steps in writing, particularly if your company has multiple owners, is to draft a buy-sell agreement. This is essentially a contract that lays out the terms and conditions under which the owners of a business, or the business itself, can buy out an owner’s interest if that person dies, becomes disabled or decides to leave. By enabling the orderly transition of a departing owner’s interest, a buy-sell helps ensure a smooth ownership transfer while reassuring other stakeholders such as family members and employees. Creating and administering such an agreement calls for expert assistance. Contact us for help.
Keep these DOs and DON’Ts in mind when deducting business meal and vehicle expenses
Business vehicle and meal expenses are a magnet for IRS attention. If you claim deductions for them, it’s important to comply with the strict tax law substantiation requirements. Keep these DOs and DON’Ts in mind: DO keep detailed, accurate records. For each expense, record the amount, time, place, business purpose, and business relationship of anyone to whom you provided a meal. If you have employees who you reimburse for meals and auto expenses, DO make sure they’re complying with all the rules. DON’T reconstruct expense logs at year end or wait until you receive an IRS notice. Take a moment to record the details in a log or diary or on a receipt at the time of the event or soon after.
Benefits of a living trust for your estate
If you have significant assets, you should consider establishing a living trust to avoid probate. Probate is the legal process intended to make sure a deceased person’s assets are properly distributed. However, going through probate typically means red tape, legal fees and your financial affairs becoming public information. You can avoid this with a living trust. For federal income tax purposes, a living trust’s existence is ignored while you’re alive. As far as the IRS is concerned, you still personally own the assets that are in the trust. So, you continue to report on your tax return any income generated by trust assets and any deductions related to those assets. Contact us to learn more.
Is it time for a targeted marketing campaign?
As the saying goes, “life comes at you fast.” Businesses can avoid getting caught off guard by shifting customer desires, preferences and demographics by regularly conducting targeted marketing campaigns. This is an analytical approach to studying your company’s market, breaking it up into segments and focusing on the most potentially profitable ones. It all starts with gathering demographic data, such as age bracket, economic status and location of customers. Then, review purchasing patterns of different demographic groups in your customer base and evaluate trends in the broader market. Consider “cluster analysis” to group similar people into more specific groups. Contact us for assistance.
Being a gig worker comes with tax consequences
In recent years, many workers have become engaged in the “gig” economy. They may deliver takeout restaurant meals, walk dogs, drive for ride-hailing companies or even perform services such as nursing. There are tax consequences when performing these jobs. Generally, if you receive income from gigs or freelancing, it’s taxable. That’s true even if the income comes from a side job and if you don’t receive a 1099-NEC or other form reporting the money you made. You may need to make quarterly estimated tax payments because your income isn’t subject to withholding. Some or all of your business expenses may be deductible on your tax return, subject to the normal tax rules. Contact us to learn more.