The pros and cons of turning your home into a rental
If you’re buying a new home, you may have considered keeping your current home and renting it out. This carries potential tax benefits and pitfalls. You’re generally treated as a landlord once you begin renting your home. That means you must report rental income on your tax return, but are entitled to deductions for utilities, incidental repairs, depreciation and other expenses. However, you could forfeit a big tax break if you sell the home at a profit. You can generally escape tax on up to $250,000 ($500,000 for married joint filers) of gain on the sale of a principal home. But to qualify, you must use the home as your principal residence for at least two of the five years before the sale.
Don’t have a tax-favored retirement plan? Set one up now
If your business doesn’t already have a retirement plan, it might be a good time to take the plunge. If you’re self-employed and set up a SEP-IRA, you can contribute up to 20% of self-employment earnings, with a maximum contribution of $69,000 for 2024 (up from $66,000 for 2023). If you’re employed by your own corporation, up to 25% of your salary can be contributed to your account, with a maximum contribution of $69,000 for 2024. If you’re in the 32% federal income tax bracket, making a maximum contribution could cut your federal tax bill for 2024 by $22,080 (32% × $69,000). In addition to a SEP, there are other retirement plan options. We can provide information on the best one for you.
7 common payroll risks for small to midsize businesses
If your company is well-established, you may not pay much attention to your payroll system so long as it’s running smoothly. But don’t get complacent. Here are six risks to be aware of: 1) Inaccurate recordkeeping; the FLSA requires companies to maintain employee-earnings records for at least three years. 2) Employee misclassification; be sure to know the latest rules regarding gig workers. 3) Manual processes; human error can happen. 4) Privacy violations; hackers are out there! 5) Internal fraud; segregate payroll duties as much as possible. 6) Tax and legal compliance. Contact us for help conducting a payroll audit, reviewing your payroll costs and managing your tax obligations.
Keep these 3 issues in mind after you file your return
After filing a 2023 tax return, keep these three issues in mind: 1) You can check on your refund by going to irs.gov. Click on “Get your refund status.” 2) Some tax records can now be thrown out. You should generally save statements, receipts, etc., for three years after filing. However, keep your actual returns indefinitely. There are exceptions to the general three-year rule. 3) If you forgot something, you can file an amended tax return. In general, you can file Form 1040-X to claim a refund within three years after the date you filed the original return or within two years of the date you paid the tax, whichever is later. If you have questions, contact us.
How renting out a vacation property will affect your taxes
What are the tax implications of renting out a vacation home part of the year? It depends on the time it’s rented and the time you personally use the home. (Personal use includes vacation use by relatives and use by nonrelatives if market rate rent isn’t charged.) If you rent the property for less than 15 days during a year, it’s not treated as rental property. Any rent received isn’t included in your income for tax purposes. But you can only deduct property taxes and mortgage interest. If you rent the property for more than 14 days, you include the rent you receive in income and you can deduct part of the operating expenses and depreciation, subject to several rules. Questions? Contact us.
Should your business change its health care plan for next year?
Business owners, the year is still relatively young. That makes now a good time to consider making changes to your employer-sponsored health care plan. Or perhaps you’d like to explore launching a plan for the first time. Here are four “big picture” factors to keep in mind: 1) Fully insured vs. self-funded; the former offers predictability while the latter could save you money. 2) Network size; this can make a big difference in participant satisfaction. 3) Tax-advantaged accounts such as HSAs and FSAs; these can enhance insurance plans. 4) Government assistance; the federally run Small Business Health Options Program is a good place to start for eligible companies. Contact us for help.
Business owners, your financial statements are trying to tell you something
Business owners should regularly generate financial statements in compliance with Generally Accepted Accounting Principles (GAAP). One reason why is GAAP-compliant financial statements can reveal critical details about your company’s financial performance. For example, your income statement can point to revenue and profit trends, though it doesn’t address cash flow. Meanwhile, your balance sheet tallies assets, liabilities and equity. But the book value of owners’ equity isn’t always the same as market value. The statement of cash flows shows both inflows and outflows of cash. Be sure to check it as soon as it’s available to see where your cash flow stands. Contact us for more information.
Update on retirement account required minimum distributions
If you have a tax-favored retirement account, including a traditional IRA, you must comply with the required minimum distribution (RMD) rules after reaching a certain age. Currently, the starting age for RMDs is 73 for account owners who turned 72 beginning in 2023. So, if you turned 72 in 2023, you’ll turn 73 in 2024 and your initial RMD will be for calendar 2024. You must take that initial RMD by April 1, 2025, or face a penalty. The tax-smart strategy is to take your first RMD (for 2024) before the end of 2024 instead of in 2025. Then, take your second RMD (for 2025) by Dec. 31, 2025. That way, you’ll avoid having to take two RMDs in 2025 with the resulting double tax in that year.
Scrupulous records and legitimate business expenses are the key to less painful IRS audits
If you operate a business, you know records of income and expenses need to be kept. Specifically, you should carefully record expenses to claim all the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns in case you’re ever audited by the IRS. Certain expenses, such as auto, travel, meal and home office expenses, require extra attention because they’re subject to special recordkeeping requirements or limits on deductibility. In addition to keeping good records, make sure to use your business bank account for business purposes only. A business can’t deduct personal expenses. Contact us with questions.
A general look at generative AI for businesses
Many businesses are now using “generative” artificial intelligence (AI). Essentially, this is software that’s able to generate new content based on input from users and existing data either inputted during development or gathered from the internet. How companies use generative AI depends on factors such as industry, mission, operational needs and strategic objectives. But it can help businesses create marketing content, analyze financial data and automate customer service. If you’re intrigued by the concept, discuss it with your leadership group. If you decide to move forward, form a project team to clearly define your objectives. Also, explore potential liabilities. Contact us for help.