Moving Mom or Dad into a nursing home? 5 potential tax implications
If your parent is entering a nursing home, you’re probably not thinking about taxes, but there may be tax breaks. For example, the costs of qualified long-term care are deductible as medical expenses to the extent they, along with other medical expenses, exceed 7.5% of adjusted gross income (AGI). If your parent qualifies as your dependent, you can include any medical expenses you incur for your parent along with your own when determining your medical deduction. Premiums paid for a qualified long-term care insurance contract are deductible as medical expenses (subject to limitations based on age) to the extent they, along with other medical expenses, exceed the percentage-of-AGI threshold.
A tax-smart way to develop and sell appreciated land
Let’s say you own highly appreciated land you’d like to develop. If you subdivide it and sell the parcels off for a hefty profit, you could receive a large tax bill. The tax rules will generally treat you as a real estate dealer. That means the entire profit will be treated as high-taxed ordinary income subject to a rate of up to 37%. You may also owe the 3.8% net investment income tax for a rate of up to 40.8% and state income tax. But you may be able to pay lower long-term capital gain (LTCG) tax on part of the profit. How? By establishing an S corp and selling the land to it, which may allow you to treat pre-development appreciation of the land as LTCG. Contact us to learn more.
Improving your company’s sales pipeline management
A sales pipeline identifies and quantifies the prospective deals a business has in progress at various stages of its sales process. Properly managing your pipeline can help your company avoid losses and meet or even exceed its revenue goals. Generally, the six stages of a pipeline are: 1) Lead generation. 2) Lead qualification. 3) Engagement with a lead. 4) Relationship building. 5) Deal negotiation. 6) Closing. Various pipeline-related metrics can enable you to channel data into accurate sales forecasts, which can in turn help you devise effective sales strategies. Sales pipeline management software or customer relationship management software can help as well. Contact us for more info.
Retirement account catch-up contributions can add up
If you’re age 50 or older, you can probably make extra catch-up contributions to your tax-favored retirement account(s). It is worth the trouble? Yes! Eligible taxpayers can make extra catch-up contributions of up to $1,000 annually to a traditional or Roth IRA. If you’ll be 50 or older as of Dec. 31, 2023, you can make a catch-up contribution for 2023 by April 15, 2024. However, there are income limits on the privilege. You also have to be age 50 or older to make extra salary-reduction catch-up contributions to an employer 401(k), 403(b), or 457 retirement plan (assuming the plan allows them and you signed up). You can make extra contributions of up to $7,500 to these accounts for 2023.
Corporate officers or shareholders: How should you treat expenses paid personally?
If you play a major role in a closely held corporation, you may sometimes spend money on corporate expenses personally. In general, you can’t deduct an expense you incur on behalf of your corporation even if it’s a legitimate business expense. That’s because you can only deduct expenses that are your own and the corporation is a separate legal entity. And the corporation won’t generally be able to deduct them either because it didn’t pay them. One solution is to arrange to have the corporation reimburse you for expenses you incur. Turn the receipts over to the corporation and use an expense reimbursement claim form or system. Then, the corporation can deduct the reimbursement amount.
Solo business owner? There’s a 401(k) for that
If you own a successful small business with no employees, it may be time to set up a retirement plan. With a solo 401(k), the self-employed are able to make large annual deductible contributions to a tax-advantaged retirement account. For 2023, you can make an “elective deferral contribution” of up to $22,500 of your net self-employment income. If you’re 50 or older, you can make another $7,500 catch-up contribution. You can also make a separate “employer” contribution. One downside: Lots of upfront paperwork and ongoing administrative complexity. A solo 401(k) may be a good choice if you’re able to make large contributions, but there are other plans to consider. Contact us for more info.
Use an S corporation to mitigate federal employment tax bills
If you own an unincorporated small business, you know your self-employment (SE) tax bills are high. In 2023, SE tax is imposed at a rate of 15.3% on the first $160,200 of net SE income. This includes 12.4% for Social Security tax and 2.9% for Medicare tax. Above $160,200, Medicare tax continues at a 2.9% rate on all income before increasing to 3.8% at higher income levels due to the 0.9% additional Medicare tax. In some circumstances, you may want to become an S corp. to save on employment taxes You can then pay modest, but justifiable, salaries to shareholder-employees and pay out most or all remaining corporate cash flow in federal-employment-tax-free shareholder distributions.
That email or text from the IRS: It’s a scam!
“Thousands of people have lost millions of dollars and their personal information to tax scams,” according to the IRS. The scams may come in through email, text messages, telephone calls or regular mail. Criminals regularly target both individuals and businesses and often prey on the elderly. Important: The IRS will never contact you by email, text or social media channels about a tax bill or refund. Most IRS contacts are first made through regular mail. Be on guard for any suspicious messages. Don’t open attachments or click on links. Contact us if you get an email about a tax return we prepared. You can also report suspicious emails that claim to come from the IRS at phishing@irs.gov.
Starting a business? How expenses will be treated on your tax return
Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). Entrepreneurs often don’t know that many start-up expenses can’t be currently deducted. Some likely have to be amortized over time. You might be able to elect to deduct up to $5,000 currently, but the deduction is reduced by the amount by which your total start-up costs exceed $50,000. You can also deduct $5,000 of the organizational costs of creating a corporation or partnership. Contact us if you have tax questions about a start-up business.
Strong billing processes are critical to healthy cash flow
Some companies look at billing mistakes as part of the “cost of doing business.” Top-performing companies, however, regularly check on their billing processes to ensure they’re as efficient, effective and accurate as possible. Be sure to listen to customer complaints and track errors so you can identify trends and implement effective solutions. Common mistakes include billing incorrect amounts and failing to apply promised discounts or special offers. For invoice-based businesses, revisit industry norms before setting payment schedules. If you haven’t already, consider sending invoices electronically and letting customers pay online. Doing so greatly speeds up payment. Contact us for help.