Plan now to make tax-smart year-end gifts to loved ones
Are you feeling generous this year? Taxpayers can transfer large amounts free of gift taxes to loved ones each year with the proper use of the annual exclusion. For 2022, the exclusion amount is $16,000. The exclusion covers gifts that an individual makes to each recipient each year. So a taxpayer with three children can transfer $48,000 to the children this year free of federal gift taxes. Married couples can consent to give up to $32,000 a year to each recipient because two exclusions are available. Other rules may apply, and you may need to file a gift tax return if you give more than $16,000 or you consent to give gifts with your spouse. We can prepare a gift tax return for you.
Providing fringe benefits to employees with no tax strings attached
Businesses may provide tax-free benefits to employees that don’t cost them much or anything. For example, two benefits that employees generally can exclude from income are: 1) A no-additional-cost benefit, which involves a service that doesn’t impose any substantial additional cost on an employer. For example, a hotel might allow employees to stay in vacant rooms. 2) A de minimis fringe benefit, which includes property or services provided infrequently by an employer with a value so small that accounting for it is unreasonable or administratively impracticable. An example is the personal use of a copier. Keep in mind the rules for tax-free benefits are strict. Contact us with questions.
M&A on the way? Consider a QOE report
Are you thinking of selling a business or acquiring one? Many prospective buyers obtain a quality of earnings (QOE) report to evaluate the accuracy and sustainability of the seller’s reported earnings. Sometimes sellers obtain their own such reports to spot problems that might derail the transaction and identify ways to preserve or even increase company value. Generally, the starting point for a QOE report is the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). The report also identifies factors that bear on the business’s continued viability as a going concern, such as operating cash flow and supply chain stability. Contact us for more information.
Tax and other financial consequences of tax-free bonds
If you’re interested in investing in tax-free municipal bonds, you may wonder if there are any tax consequences. In general, interest received on tax-free municipal bonds isn’t included in gross income for federal (and possible state) tax purposes. However, it may be included for alternative minimum tax purposes. Keep in mind that a municipal bond may pay a lower interest rate than an otherwise equivalent taxable investment. The after-tax yield is what counts. In addition, if you receive Social Security benefits, municipal bond investing could increase the tax you must pay with respect to the benefits. Contact us if you have questions about how the tax rules apply to your situation.
What local transportation costs can your business deduct?
You and your small business are likely to incur a variety of local transportation costs each year. Commuting costs aren’t deductible but the cost of any local trips you take for business purposes is a deductible business expense. Your deduction can be computed using actual expenses or a standard mileage rate (58.5¢ per business mile driven between Jan. 1 and June 30, 2022, and 62.5¢ per business mile driven between July 1 and Dec. 31, 2022) plus tolls and parking. Actual expenses include depreciation (subject to limitations), gas, repairs, maintenance, insurance, tolls, parking, loan interest and any other related costs allocable to the business portion of using the vehicle.
Shine a light on sales prospects to brighten the days ahead
Perhaps the most discernible way a sales department can help boost a company’s bottom line is to win over new buyers consistently and manageably. How to do so? First, continually work on lead generation. Actively involve your marketing department and leverage customer relationship management software. Reduce wasted time and effort by qualifying prospects according to criteria such as fulfillable needs and a timely desire to buy. Develop questions to encourage prospects’ interest and train salespeople to actively listen to the responses. Above all, position yourself as a problem solver by investing in industry and market research, as well as continually educating your sales staff.
Worried about an IRS audit? Prepare in advance
IRS audit rates are historically low, according to a recent GAO report (https://bit.ly/3SLZ9Sb). That’s little consolation if your return is selected. But with proper preparation, you should fare well. It helps to know what might catch the attention of the IRS. For example, some audit “red flags” are unusually high deductions, major inconsistencies between previous years’ tax returns and the current one, profit margins and expenses markedly different from those of similar businesses. The IRS normally has three years in which to conduct an audit. If the IRS selects you for an audit, we can help you understand the issues, gather the needed documents and respond to the inquiries effectively.
Investing in the future with a 529 education plan
If you have a child or grandchild who’s heading to college in the future, you may wonder about investing in a qualified tuition program or 529 plan. You don’t get a federal tax deduction for a contribution, but the earnings aren’t taxed while the funds are in the program. (There may be a state deduction in your state.) You can change the beneficiary without income tax consequences. Distributions are tax-free up to the amount of the qualified higher education expenses. These include tuition (including up to $10,000 in tuition for an elementary or secondary public school), fees, books, supplies and required equipment. Room and board is also a qualified expense if enrolled at least half time.
Formalizing your business’s BYOD policy
Many businesses have established bring your own device (BYOD) policies regarding employees’ use of personal phones, tablets, laptops and other tech. It’s a good idea to regularly review and, if necessary, formalize yours. A comprehensive BYOD policy needs to anticipate a multitude of situations, such as voluntary or involuntary terminations and what to do if a device is lost, shared or recycled. Clarify who pays the bill for voice and data usage, as well as whether you or the employee owns the cell phone number in question. Above all, formalizing your BYOD policy should mean having all participants sign a written user’s agreement carefully drafted in consultation with a qualified attorney.
Year-end tax planning ideas for individuals
It’s time to think about steps to lower your tax bill for this year and next. If you itemize deductions, you may be able to deduct medical expenses, state and local taxes up to $10,000, charitable donations and eligible mortgage interest. But these deductions won’t save taxes unless they’re more than your standard deduction ($25,900 for joint filers, $12,950 for singles and $19,400 for heads of household). You may be able to work around the deduction limits by bunching discretionary medical expenses and charitable donations into the year where they’ll do some tax good. For example, if you itemize for 2022 but not 2023, you may want to make two years of charitable contributions this year.