How do taxes factor into an M&A transaction?
Although M&A activity has been down in 2022, according to various reports, there are still companies being bought and sold. If your company is merging with or acquiring another business, it’s important to understand how the transaction will be taxed. 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 most important deal you’ll ever make, so seek professional tax advice as you negotiate. After a deal is done, it may be too late to get the best tax results. Contact us.
Is your cloud provider still meeting your company’s needs?
Some business owners pay little attention to a cloud computing provider once the service is in place. Given the value of the data and documents that you store in the cloud, it’s a good idea to regularly review your vendor and determine whether you’re still making a good investment. You should still be enjoying benefits such as lower computing costs, scalability (flexible storage capacity) and convenience. Perhaps most important, you should have faith in your provider’s cybersecurity measures. Verify basic features such as firewalls, authorization restrictions and data encryption. And investigate whether the provider has experienced a data breach recently and, if so, how it responded.
Vehicle expenses: Can individual taxpayers deduct them?
Individuals can deduct vehicle-related expenses in certain circumstances. Unfortunately, under current law, you may not be able to deduct as much as you could years ago. For 2018 through 2025, business and moving miles are deductible only in limited circumstances. Fortunately, if you’re eligible to deduct driving costs, the IRS recently increased the standard amounts for the second half of the year. The 2022 rates vary depending on the purpose: business — 62.5 cents for July 1 to Dec. 31, and 58.5 cents for Jan. 1 to June 30; medical for all eligible taxpayers and moving for active-duty military — 22 cents for July 1 to Dec. 31, and 18 cents for Jan. 1 to June 30; and charitable — 14 cents.
Businesses will soon be able to deduct more under the standard mileage rate
Business owners are aware that the price of gas is historically high, which has made their vehicle costs soar. Fortunately, the IRS is providing some relief. The tax agency announced an increase in the optional standard mileage rate for the last six months of 2022. Taxpayers may use the optional cents-per-mile rate to calculate the deductible costs of operating a vehicle for business. From July 1–Dec. 31, 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up from 58.5 cents per mile for Jan. 1–June 30, 2022. Taxpayers also have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rate. Contact us to learn more.
When hiring, don’t overlook older workers
As the job market continues to feel the impact of “the Great Resignation,” competition for talent remains fierce. One area of the hiring pool that many businesses overlook is older workers. They can bring years of experience and industry connections while being self-motivated and easy to supervise. To facilitate the transition, inform your staff of older workers’ arrival (as appropriate) and involve current employees in the hiring process. In addition, provide training to managers, who might suddenly find themselves supervising workers with many more years of employment history. Consider establishing a mentorship program, too. Contact us for help assessing and managing your hiring costs.
2022 Q3 tax calendar: Key deadlines for businesses and other employers
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 tax return. If a calendar-year C corp., pay third installment of 2022 estimated income taxes. Contact us for more about the filing requirements and to ensure you meet all applicable deadlines.
Checking in on your accounts payable processes
Managing accounts payable is a critical task for every business. However, once in place, payment processes can get taken for granted. Don’t underestimate the impact of accounts payable on your company’s financial performance. Explore the potential benefits of early payment discounts, volume discounts or other incentives. Implement policies, procedures and systems to ensure that you properly vet vendors and negotiate the best possible prices and payment terms. And of course, regularly examine whether and how to upgrade your accounts payable technology to increase efficiency, reduce costs and shorten the time it takes to process invoices. We can help you identify areas of improvement.
Your estate plan: Don’t forget about income tax planning
The current federal estate tax exemption ($12.06 million in 2022) means that many people aren’t concerned with estate tax. But they should still plan to save income taxes. For example, be careful making lifetime transfers of appreciated assets. It’s true that the assets and future appreciation generated by them are removed from your estate. But the gift carries a potential income tax cost because the recipient receives your basis upon transfer. He or she could face capital gains tax on the future sale of the gifted property. If the appreciated property is held until death, under current law, the heir will get a “step-up” in basis that will reduce or wipe out the capital gains tax.
Is your corporation eligible for the dividends-received deduction?
There’s a valuable tax deduction available to a C corporation when it receives dividends. The “dividends-received deduction” reduces or eliminates an extra level of tax on dividends received. As a result, a corporation will typically be taxed at a lower rate on dividends than capital gains. Ordinarily, the deduction is 50% of the dividend, meaning only 50% of the dividend received is effectively subject to tax. For example, if a corporation receives a $1,000 dividend, it includes $1,000 in income, but after the $500 dividends-received deduction, its taxable income from the dividend is only $500. The tax break may be higher or lower, depending on the circumstances, and other rules apply.
Simple ways to make strategic planning a reality
The term “strategic planning” is so broad. Perhaps you and your leadership team often find yourselves overwhelmed by all the directions you could go in. Here are a few simple ways to make strategic planning a reality: 1) focus on who you already know; that is, consider developing deeper relationships with customers or partnering with other businesses, 2) dig deeper into social media to highlight specific products or services, and better familiarize the buying public with your brand and culture, and 3) reevaluate your pricing strategy, delving into possibilities such as bundling or subscriptions. Contact us for help assessing the profitability impact of your strategic planning ideas.