Are you a tax-favored real estate professional?
For federal income tax purposes, rental real estate losses are generally considered passive activity losses (PALs), which can only be deducted against passive income from other sources. If you don’t have enough passive income, excess PALs are suspended and carried forward to future years. They can be deducted later when you have enough passive income or sell the property. But there’s an exception for real estate professionals. If you qualify, rental losses can be treated as non-passive, allowing you to deduct them currently, regardless of passive income. This can provide a significant tax break if you’re eligible. You may also be eligible for other exceptions. Contact us for help.
Businesses considering incorporation should beware of the reasonable compensation conundrum
Are you considering incorporating your business? If so, beware of the reasonable compensation conundrum. As a C corporation, you’ll likely want to pay highly compensated employees more compensation and lower dividend amounts because compensation is tax deductible and dividends aren’t. But the IRS is watching: If the tax agency believes you’re excessively compensating a highly compensated employee, it may challenge your compensation approach. Such challenges can result in compensation being reclassified as dividends, with penalties and interest potentially added. You may contest an IRS determination, but doing so will involve time and legal expenses. Contact us for more information.
An essential tax deadline is coming up — and it’s unrelated to your 2024 return filing
April 15 is the deadline for filing your 2024 tax return. But another essential tax deadline is coming up for some taxpayers: April 15 is also the deadline for making the first 2025 quarterly estimated tax payment if you’re required to make one. You may have to make estimated payments if you receive interest, dividends, self-employment income, capital gains or other income and you expect to owe tax of $1,000 or more when your tax return is filed. These are the general rules. The requirements are different for others, including those in the farming and fishing industries. Contact us if you have questions. We can help you stay on top of your tax obligations and avoid underpayment penalties.
Small business alert: Watch out for the 100% penalty
Some tax sins are worse than others. An example is not paying over income and employment taxes that have been withheld from employees’ paychecks. In these cases, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person. It’s called the 100% penalty because the entire unpaid tax amount can be assessed personally against a responsible person or several persons. It could be a shareholder, director, officer, partner or employee of a business. To be hit with the penalty, the person must: 1) be responsible for collecting, accounting for, and paying over withheld federal income and payroll taxes, and 2) willfully fail to pay over those taxes.
Is your business on top of its tech stack?
Your company’s “tech stack” is crucial, but it can be a major drain on cash flow. Simply defined, a tech stack is all the software and other digital tools a business uses to operate. Here are five factors to focus on: 1) Composition; conduct regular audits so you know what you have. 2) Integration/compatibility; choose solutions that play well together. 3) Price to value; beware of cheaper solutions because they may lead to inefficiencies and functionality gaps. 4) Scalability; look for flexible assets that you can scale up or down. 5) Adoptability; shop carefully and strive for employee buy-in. Contact us for help assessing the financial impact of every component of your tech stack.
Discover if you qualify for “head of household” tax filing status
When preparing your tax return, we’ll check one of the following statuses: single, married filing jointly, married filing separately, head of household (HOH) or qualifying widow(er). Filing as HOH is more favorable than filing as single. To illustrate, the 2025 HOH standard deduction is $22,500, while it’s $15,000 for singles. To be eligible, you must maintain a household that, for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent. The IRS considers you to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. We can answer any questions about your situation.
Weighing the pluses and minuses of HDHPs + HSAs for businesses
A popular benefits model for many businesses is sponsoring a high-deductible health plan (HDHP) accompanied by Health Savings Accounts (HSAs). HSAs are participant-owned, tax-advantaged accounts that accumulate funds for eligible medical expenses. To own an HSA, participants must be enrolled in an HDHP (as defined by the IRS), have no other insurance and not qualify for Medicare. For businesses, HDHPs generally have lower premiums than other insurance plans, and optional employer contributions are tax deductible. For participants, HSAs are powerful savings vehicles that they own for life. However, the HDHP + HSA model has potential drawbacks for both parties. Contact us for more info.
6 essential tips for small business payroll tax compliance
Staying compliant with payroll tax laws is crucial for small businesses. Mistakes can lead to fines, strained employee relationships and legal consequences. Here are four quick tips: 1) Maintain organized records so you can verify to the IRS that you’re withholding and remitting the correct amounts. 2) Understand withholding and adhere to filing and deposit deadlines. A “responsible person” who willfully fails to withhold or deposit employment taxes can be held personally liable for a steep penalty. 3) Stay current with regulatory changes. 4) Seek professional advice. We can help you select the right system, calculate employee withholding, navigate multi-state filing requirements and more.
Deduct a loss from making a personal loan to a relative or friend
Suppose your adult child or friend needs to borrow money. You may want to help by making a personal loan. But there are tax implications that you should understand. You want to be able to prove that you intended for the transaction to be a loan rather than an outright gift. That way, if the loan goes bad, you can claim a non-business bad debt deduction for the year the loan becomes worthless. You should have a written promissory note. It’s best to charge an interest rate that equals or exceeds the applicable federal rates set by the IRS. They potentially change each month. For April 2025, they range from 4.09% to 4.52%, depending on the loan length. Contact us if you have questions.
Business owners should get comfortable with their financial statements
Business owners: Each of the three parts of your financial statements is a valuable tool that can guide you toward good operational decisions. For example, the balance sheet’s primary purpose is to tally your assets, liabilities and net worth, creating a snapshot of your company’s financial health during the statement period. Meanwhile, the income statement’s purpose is to show sales, expenses, and income or profits earned after expenses over the period. It can help you assess profitability. Finally, the statement of cash flows aims to track all sources (inflows) and recipients (outflows) of your cash. It can allow you to optimally manage liquidity. Contact us for more information.