4 ideas that may help reduce your 2023 tax bill
You may still have time to cut your 2023 federal tax liability by taking certain steps. For example, contribute the maximum to your retirement plans, including traditional IRAs and SEP plans. Another idea: If you make your Jan. 2024 mortgage payment in December, you can deduct the interest portion on your 2023 tax return (assuming you itemize deductions). You can also make charitable contributions (if you itemize) and “harvest” any investment losses by Dec. 31. If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income. Remaining losses are carried forward to future tax years. Contact us with questions about your 2023 tax liability.
A company car is a valuable perk but don’t forget about taxes
One of the most appreciated fringe benefits for owners and employees of small businesses is the use of a company car. This perk results in tax deductions for the employer and tax breaks for the owners and employees using the cars. (And of course, they enjoy the nontax benefit of using a company car.) For tax deduction purposes, a business treats the car much the same way it would any other business asset. Providing an auto for an owner or key employee comes with complications and paperwork. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. Contact us for assistance. We can help keep you in compliance with the rules.
Solving the riddles of succession planning for family businesses
Every established business will encounter challenges when it comes to succession planning. Family-owned companies, however, often face particularly complex issues. If yours is a family business, always bear in mind that there are solutions to be found. For example, an installment sale of the company to children or other family members can provide liquidity for owners while easing the financial burden on children and grandchildren. Alternatively, owners may transfer business interests to a grantor retained annuity trust (GRAT) to obtain gift and estate tax benefits, provided they survive the trust term. A GRAT also provides a fixed income stream for a certain period. Contact us for more info.
Don’t forget to empty out your flexible spending account
If you have a tax-saving flexible spending account (FSA) with your employer to help pay for health or dependent care expenses, it’s a good time to review 2023 expenses. A pre-tax contribution of $3,050 to a health FSA is permitted in 2023. This is increasing to $3,200 for 2024. To avoid forfeiting your health FSA funds because of a “use-it-or-lose-it” rule, you must make eligible medical expenditures by the last day of the plan year (Dec. 31 for a calendar year plan), unless the plan allows an optional grace period. Like health FSAs, dependent care FSAs are also generally subject to a use-it-or-lose-it rule. They generally have a $5,000 maximum annual contribution. Other rules may apply.
Key 2024 inflation-adjusted tax parameters for small businesses and their owners
The IRS recently announced various inflation-adjusted federal income tax amounts for next year, including those for Section 179 deductions. For tax years beginning in 2024, small businesses can potentially write off up to $1,220,000 of qualified asset additions in year one (up from $1,160,000 for 2023). However, the maximum deduction amount begins to be phased out once qualified asset additions exceed $3,050,000 (up from $2,890,000 for 2023). Various limitations apply to these deductions. Also, keep in mind that under the (separate) bonus depreciation break, you can deduct up to 60% of the cost of qualified asset additions placed in service in 2024. For 2023, you could deduct up to 80%.
Key 2024 inflation-adjusted tax amounts for individuals
The IRS recently announced various 2024 inflation-adjusted federal tax amounts that affect individual taxpayers. Here are the inflation-adjusted standard deduction numbers for 2024 for those who don’t itemize: $14,600 for single filers (up from $13,850 in 2023); $29,200 for married joint filers (up from $27,700); and $21,900 for heads of household (up from $20,800). Older taxpayers and those who are blind are entitled to additional standard deduction allowances. In 2024 for those age 65 or older or blind, the amounts will be: $1,550 for a married taxpayer (up from $1,500 in 2023) and $1,950 for a single filer or head of household (up from $1,850 for 2023).
Smaller companies: Explore pooled employer plans for retirement benefits
Smaller businesses may struggle with the financial and administrative burdens of sponsoring their own retirement plans. Thanks to the Setting Every Community Up for Retirement Enhancement Act of 2019, however, a relatively new solution is available: pooled employer plans (PEPs). PEPs are a variation on an existing retirement plan model, multiple employer plans (MEPs), which are qualified plans maintained by two or more employers. But properly designed PEPs avoid some of the restrictive rules that can negatively impact MEPs. PEPs are available from “pooled plan providers,” which include financial services companies, insurers and third-party administrators. Contact us for further info.
Some businesses may have an easier path to financial statements
Privately held businesses may not need to incur the cost or effort that goes with formally audited financial statements. You could, for example, opt for a financial statement preparation. This is when a CPA, who’s not even necessarily independent from your company, prepares financial statements using an acceptable financial reporting framework. A preparation provides no formal assurance of accuracy but may be useful for internal purposes. There’s also a compilation. It doesn’t provide assurance either but includes a report indicating that a CPA has read the financial statements and evaluated whether they’re free from obvious material errors. Contact us for help with this important decision.
11 Exceptions to the 10% penalty tax on early IRA withdrawals
If you’re facing a serious cash shortfall, one possible solution is to take an early withdrawal from your traditional IRA. That means one before you’ve reached age 59½. Unless one of these or other exceptions applies, there will be a 10% penalty tax on the taxable portion of a traditional IRA withdrawal taken before age 59½: 1) for qualified medical expenses; 2) after disability; 3) for eligible higher education expenses; 4) for a first-time home purchase, subject to a $10,000 lifetime limit; 5) for health insurance premiums while unemployed; and 6) for birth or adoption expenses. These are only some of the exceptions and each of them has requirements. Contact us for more details.
A cost segregation study may cut taxes and boost cash flow
Is your business depreciating over 30 years the entire cost of constructing the building that houses your enterprise? 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 used to be due to enhancements to certain depreciation tax breaks. You may even be able to get the benefit of faster depreciation for items that were incorrectly claimed. But cost segregation studies aren’t the best move for every business. Contact us to determine whether this strategy would work for your business.