Computer software costs: How does your business deduct them?
Most businesses buy or lease computer software to use in their operations. Or perhaps your business develops computer software for your use or sells it to others. In any of these situations, you should be aware of the complex rules that apply to determine the tax treatment of the expenses involved. The rules depend on whether the software is purchased, leased or developed by your business. For example, you must deduct amounts you pay to rent leased software in the tax year they’re paid, if you’re a cash-method taxpayer, or the tax year for which the rentals are accrued, if you’re an accrual-method taxpayer. We can assist you in applying the tax rules for computer software costs.
How should your marketing strategy change next year?
The U.S. economy has changed significantly this year. Your marketing strategy for 2023 should promote a business that’s nimbly adjusted to the playing field and can still offer customers great value. A good place to start is with your audience. Consider each prospect, customer or targeted group as an investment. Estimate your net profit after subtracting production, sales and customer service costs. Another key factor is pricing. Inflation has increased expenses for many companies, but you’ve still got to think about whether and how much to raise your own prices in response, and how to communicate price adjustments to customers. Contact us for help evaluating costs and setting price points.
2023 limits for businesses that have HSAs — or want to establish them
No one needs to remind business owners that the cost of employee health care benefits keeps going up. One way to provide some of these benefits is through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. To be eligible, an individual must be covered by a “high deductible health plan.” For 2023, a “high deductible health plan” will be one with an annual deductible of at least $1,500 for self-only coverage, or at least $3,000 for family coverage. An HSA provides a number of tax benefits for your business and its employees. Contact us with questions.
How inflation will affect your 2022 and 2023 tax bills
The IRS recently announced next year’s inflation-adjusted tax amounts. For 2023, the standard deduction will increase to $13,850 for single taxpayers, $27,700 for married couples filing jointly and $20,800 for heads of household. This is up from the 2022 amounts of $12,950 for singles, $25,900 for married couples filing jointly and $19,400 for heads of household. For 2023, the highest tax rate of 37% will affect singles and heads of households with income exceeding $578,125 ($693,750 for married taxpayers filing jointly). This is up from 2022 when the 37% rate affects single taxpayers and heads of households with income exceeding $539,900 ($647,850 for married couples filing jointly).
Reinforce your cybersecurity defenses regularly
Unlike the lock to a physical door, which generally protects property for a long time, a business’s cybersecurity measures need to be regularly updated and reinforced. Most cyberattacks fall into two categories: ransomware and social engineering. In a ransomware attack, hackers infiltrate a company’s computer network, encrypt or freeze critical data, and hold that data hostage until their ransom demands are met. Meanwhile, social engineering attacks use manipulation and pressure to trick employees into giving up sensitive data or granting cyberthieves access to internal systems and bank accounts. Be sure to keep your cybersecurity policies, training methods and security measures up to date.
Inflation means you and your employees can save more for retirement in 2023
How much can you and your employees contribute to your 401(k)s next year? The IRS recently announced the 2023 cost-of-living adjustments. The amounts increased more than in recent years due to inflation. The 2023 contribution limit for employees who participate in 401(k) plans will increase to $22,500 (from $20,500 in 2022). This amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan. The catch-up contribution limit for employees age 50 and over who participate in 401(k)s and the other plans mentioned above will increase to $7,500 (from $6,500 in 2022). That means those age 50 and older can contribute up to $30,000 to their 401(k)s in 2023.
Employers: In 2023, the Social Security wage base is going up
The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $160,200 for 2023 (up from $147,000 for 2022). Wages and self-employment income above this threshold aren’t subject to Social Security tax. The Federal Insurance Contributions Act imposes two taxes on employers, employees and self-employed workers. One is for Social Security tax, and the other for Medicare tax. There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2023, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2022).
You may be liable for “nanny tax” for all types of domestic workers
You’ve probably heard of the “nanny tax.” But even if you don’t employ a nanny, it may apply to you. Hiring a house cleaner or other household employee (who isn’t an independent contractor) may make you liable for federal income tax, Social Security and Medicare (FICA) tax and federal unemployment tax. You may also have state tax obligations. In 2022, you must withhold and pay FICA taxes if your worker earns cash wages of $2,400 or more ($2,600 in 2023). You pay household worker obligations by increasing your quarterly estimated tax payments or increasing withholding from wages, rather than paying a lump sum. Employment taxes are then reported on your tax return. Questions? Contact us.
Supplementing your company’s health care plan with an EBHRA
One way to take your company’s health care benefits to the next level is to supplement group coverage with an Excepted Benefit Health Reimbursement Arrangement (EBHRA). As with a traditional HRA, EBHRAs are employer owned and funded. However, because employer contributions to EBHRAs are limited, the accounts qualify as “excepted benefits” and aren’t subject to mandates under the Public Health Service Act. In 2022, up to $1,800 can be newly allocated to each participant to reimburse eligible medical expenses. This amount will rise to $1,950 for plan years beginning in 2023. Various other rules apply, and EBHRAs are subject to ERISA and parts of HIPAA. Contact us for more information.
Manageable growth should be a strategic planning focus
When a company engages in strategic planning, growing the business is typically at the top of the agenda. But unbridled growth can be a dangerous thing. Businesses often must fund intensive growth initiatives with one or more lines of credit, using the money to acquire assets such as equipment, hardware and software. And as they take on more debt, these companies could see loan payments consume most or all their cash flows. To avoid this, monitor warning signs such as: 1) A high debt-to-equity ratio. 2) Quickly declining profit margins. 3) Rising complaints from customers, vendors and lenders. Contact us for help building reasonable financial objectives into your strategic planning process.