Awarded money in a lawsuit or settlement? It’s only tax-free in certain circumstances
You generally must pay federal tax on all income you receive but there are some exceptions. For example, compensatory awards and judgments for “personal physical injuries or physical sickness” are free from federal income tax under the tax code. This includes amounts received in a lawsuit or a settlement and in a lump sum or in installments. However, not all awards are tax-free. For example, punitive damages and awards for unlawful discrimination or harassment are taxable. And the tax code states that “emotional distress shall not be treated as a physical injury or physical sickness.” If you receive a court award or out-of-court settlement, consult with us about the tax implications.
Influencer marketing could help your business (or not)
Most business owners who are active on social media would likely agree that building a following and getting meaningful reactions to posts isn’t easy. One way that some companies rise above the din is to not only market themselves on social media, but also engage an “influencer” to do it. Some influencers are famous celebrities; others are just high-profile experts in their fields. Under the right circumstances, just one image or video with a few positive words from an influencer can boost sales. But influencer marketing isn’t for everyone. You’ll need to vet prospective endorsers thoroughly, as well as carefully structure the contract to mitigate risk and ensure a return on investment.
Buying a new business vehicle? A heavy SUV is a tax-smart choice
If you’re buying or replacing a vehicle that you’ll use in your business, be aware that a heavy SUV may provide a more generous tax break this year than you’d get with a business car. New and used heavy SUVs, pickups and vans acquired and put in service in 2023 are eligible for 80% first-year bonus depreciation. However, you must use the vehicle more than 50% for business. If your business use is 51% or more, you can deduct that percentage of the cost in the first year the vehicle is placed in service. This tax break is available only if the manufacturer’s gross vehicle weight rating is above 6,000 pounds. Contact us to help evaluate if this is the right move for your business.
There still may be time to make an IRA contribution for last year
If you’re getting ready to file your 2022 tax return, and your tax bill is higher than you’d like, there might still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until this year’s April 18 filing deadline and benefit from the tax savings on your 2022 return. For 2022 if you’re qualified, you can make a deductible traditional IRA contribution of up to $6,000 ($7,000 if you’re 50 or older). To be qualified, you must meet rules involving your income and whether you (or your spouse) are an active participant in an employer retirement plan. If you want more information, contact us or ask about it when we prepare your return.
Do you run a business from home? You may be able to deduct home office expenses
One result of the COVID-19 pandemic is that many people now work 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 business income. There are two methods for claiming deductions. With the actual expense method, you claim direct expenses, such as the cost of painting and a proportionate share of indirect expenses, such as utilities, insurance and depreciation. With the simplified method, you deduct $5 per square foot of home office space, up to $1,500. Unfortunately, employees can’t deduct home office expenses. We can help you determine if you qualify and how to proceed.
How might the Internet of Things affect your business?
Nowadays, almost everything electronic is connected to the Internet or could be, from refrigerators to HVAC to security systems. This phenomenon is known as the Internet of Things (IoT), and business owners should learn about it. There are two big reasons why: 1) To gain or maintain a competitive edge; companies that get the IoT right may reduce costs, gain operational efficiencies, and enhance their ability to harness data to boost productivity and profitability. 2) To heighten awareness of cybersecurity; every IoT-enabled item potentially creates a gateway that hackers could exploit to steal data, hold systems for ransom or otherwise disrupt operations. Contact us for more info.
Child Tax Credit: The rules keep changing but it’s still valuable
Over the years, the Child Tax Credit (CTC) rules have changed significantly. For 2022 and 2023, the CTC applies to taxpayers with children under the age of 17 (who meet certain other requirements). The CTC is currently $2,000 for each qualifying child. A $500 credit for other dependents is available for dependents other than qualifying children. You qualify for the full amount of the CTC for each qualifying child if you meet all eligibility factors and your annual adjusted gross income isn’t more than $200,000 ($400,000 if married and filing jointly). Parents with higher incomes may be eligible to claim a partial credit. You must include the child’s Social Security number on your return.
Key tax issues in M&A transactions
Merger and acquisition activity dropped dramatically in 2022 due to rising interest rates and a slowing economy. But some analysts expect 2023 to see increased M&A activity in certain industries. If you’re considering buying or selling a 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 advice. After a deal is done, it may be too late to get the best results.
Have employees who receive tips? Here are the tax implications
Many businesses in certain industries employ individuals who receive tips as part of their compensation. Here are some employer responsibilities: 1) Send each employee a Form W-2 that includes reported tips. 2) Keep their employees’ tip reports. 3) Withhold taxes, including income taxes and the employee’s share of Social Security tax and Medicare tax, based on employees’ wages and reported tip income. 4) Pay the employer share of Social Security and Medicare taxes based on the total wages as well as reported tip income. 5) Report this information to the IRS on Form 941. 6) Deposit withheld taxes according to federal tax deposit requirements. Contact us with any questions.
Answers to your questions about 2023 limits on individual taxes
Many people are more concerned about their 2022 tax bills than they are about their 2023 tax situations. That’s because 2022 individual tax returns are due to be filed in 10 weeks. However, it’s a good time to acquaint yourself with tax amounts for this year, many of which have increased substantially due to inflation. For example, the amount you must earn in 2023 before you can stop paying Social Security on your salary is $160,200 (up from $147,000 in 2022). If you’re eligible in 2023, you can contribute $6,500 to a traditional or Roth IRA (up from $6,000 in 2022). If you’re 50 or older, you can make another $1,000 “catch up” contribution (for 2023 and 2022). Questions? Contact us.