Social Security tax update: How high can it go?
Employees, self-employed people and employers pay Social Security tax. If you’re an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half of the Social Security tax (6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see it. The Social Security tax wage ceiling for 2024 is $168,600 (up from $160,200 for 2023). If your wages meet or exceed that ceiling, the Social Security tax for 2024 will be $20,906 (12.4% x $168,600). Half comes out of your paychecks and your employer pays the other half. The wage ceiling is projected to go up to $174,900 in 2025 and up to $242,700 by 2033.
Hiring your child to work at your business this summer
Are you hiring your child to work at your business this summer? You and your child could reap some tax breaks. Certain noncorporate entities can hire an owner’s under-age-18 children as full- or part-time employees and the children’s wages will be exempt from the following federal payroll taxes: Social Security tax, Medicare tax and federal unemployment (FUTA) tax. (FUTA exemptions last until an employee-child is age 21.) In addition, your dependent child’s standard deduction can shelter from federal income tax up to $14,600 of 2024 wages. You’ll get a business tax deduction for the child-employee’s wages. The deduction will reduce your income tax bill and your self-employment tax bill.
4 ways businesses can better control cash flow
Cash flow management is something many small to midsize businesses struggle with. Here are four ways to put and keep the odds in your favor: 1) Create and continuously update a sound annual budget; ensure that every item aligns with your strategic goals. 2) Generate GAAP-compliant financial statements; a statement of cash flows will be particularly helpful in catching potential problems. 3) Exercise careful expense management; detailed records may reveal ways to reduce day-to-day operating expenses. 4) Mind your timing; look for ways to stabilize revenue inflows (such as strong collection procedures) and payment outflows (discounts and favorable payment terms). Contact us for help.
The tax consequences of selling mutual funds
The tax rules involved in selling mutual fund shares can be complex. If you sell appreciated fund shares that you’ve owned for more than one year, the profit will be a long-term capital gain. The top federal income tax rate will be 20% and you may also owe the 3.8% net investment income tax. One challenge is that certain mutual fund transactions are treated as sales even though they might not seem like it. For example, many funds provide check-writing privileges. Each time you write a check on your fund account, you’re selling shares. Another issue may arise in determining your basis for shares sold. We can answer any questions you may have and explain how the rules apply to your situation.
Figuring corporate estimated tax
The next quarterly estimated tax payment deadline is June 17 for individuals and businesses. (The normal June 15 due date falls on a Saturday, so it’s extended until Monday.) Let’s review the rules for computing corporate federal estimated payments. You want your business to pay the minimum estimated tax amount without triggering the penalty for underpayment. The required installment of estimated tax that a corporation must pay to avoid a penalty is the lowest amount determined under each of these four methods: The current year method, the preceding year method, the annualized income method or the seasonal income method. Contact us to determine which method is best for your corporation.
Could conversational marketing speak to your business?
Businesses have long been advised to engage in active dialogues with customers and prospects. But historically, this tended to take a long time. There’s now a much faster way to conduct these interactions called “conversational marketing.” The basic concept is to strike up real-time discussions with customers and prospects as soon as they contact you. You’re not looking to give them sales pitches; you want to first create authentic social connections. Conversational marketing generally occurs on tech-based channels such as company websites (using chatbots or live chat with human reps), social media, and text and email. For help determining whether it’s right for your business, contact us.
House rich but cash poor? Consider a reverse mortgage strategy
Are you a taxpayer age 62 or older who needs income and owns a house that has appreciated greatly? A reverse mortgage may be a solution. With one, you can raise needed cash and also take advantage of the tax-saving basis “step-up” rule. The federal tax basis of a capital gain asset owned by a person who dies, including a personal residence, is stepped up to fair market value as of the date of the owner’s death. If your home’s value stays about the same between your date of death and the date your heirs sell it, there will be little or no taxable gain because the sale proceeds will be nearly or fully offset by the stepped-up basis.
Inflation enhances the 2025 amounts for Health Savings Accounts
The IRS recently released the inflation-adjusted amounts for Health Savings Accounts (HSAs) next year. For 2025, the annual contribution limit for an individual with self-only coverage under an HDHP will be $4,300. For an individual with family coverage, the amount will be $8,550. These are up from $4,150 and $8,300, respectively, for 2024. For calendar year 2025, an HDHP will be a health plan with an annual deductible that isn’t less than $1,650 for self-only coverage or $3,300 for family coverage. And annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) won’t be able to exceed $8,300 for self-only coverage or $16,600 for family coverage.
Timelines: 3 ways business owners should look at succession planning
Business owners are urged to develop succession plans so their companies will pass on to the next generation, or another iteration of ownership, in an optimal manner. But, as many learned during the pandemic, life comes at you fast. That’s why succession planning should best be viewed from three parallel timelines: 1) Long term; focus on identifying and mentoring a successor, as well as strategizing how to fund your retirement and structure your estate plan. 2) Short term; if retirement or another opportunity becomes imminent, look more at selling the company or even liquidating. 3) In case of emergency; be prepared for a crisis that may incapacitate you. Contact us for assistance.
Should you convert your business from a C to an S corporation?
The most common business structures are sole proprietorships, partnerships, LLCs, C corporations and S corporations. Choosing the right entity has many implications, including the taxes you pay. Although S corps may provide tax advantages over C corps in some cases, there are potential tax problems to assess before converting from C to S status. One issue to consider is last-in, first-out (LIFO) inventory. A C corp that uses LIFO must pay tax on the benefits it derived by using LIFO if it converts to an S corp. Other issues are the built-in gains tax, passive income tax and unused net operating losses. If you’re interested in an entity change, contact us to learn about the implications.