How to avoid the early withdrawal tax penalty on IRA distributions
If you take withdrawals from your traditional IRA, you probably know they’re taxable. But there may be an additional penalty tax on “early” withdrawals. An early distribution is defined as taken before age 59½. You’ll be hit with a 10% penalty tax unless an exception applies. Fortunately, there are several exceptions. Common examples include: 1) to pay for medical costs that exceed 7.5% of your adjusted gross income; 2) to pay for qualified higher education expenses; 3) to pay up to $10,000 to buy or build a first home; and 4) to take annuity-like annual withdrawals under IRS guidelines. We can tell you if you’re eligible for these or other exceptions to the 10% early withdrawal penalty tax.
6 steps to easing employees’ fears about innovation
Often, the greatest obstacle to business innovation isn’t the change itself, but employees’ resistance to it. Here are six helpful steps: 1) Communicate an innovation’s purpose and expected impact, including its anticipated benefits and initial challenges. 2) Ask employees from every department for their input about the concept and, over time, the details. 3) Assemble an implementation team that includes a strong leader and at least one employee champion. 4) Plan to offer sufficient training related to the innovation. 5) Conduct a “beta test” to catch oversights and fix glitches. 6) If necessary, ask for help from outside consultants. Contact us for assistance with your next innovation.
How to treat business website costs for tax purposes
These days, most businesses have websites. But determining the proper tax treatment for the costs involved in developing a website can be difficult. The IRS hasn’t released formal guidance on when website costs can be deducted, so you must apply existing guidance that’s available on other costs to the issue of website development costs. The exact treatment of website design costs depends on whether they’re software or hardware and whether they’re part of a start-up business. If you hire third parties to set up and run your website, payments are currently deductible as ordinary and necessary business expenses. Contact us if you have questions or want to plan for website costs.
The kiddie tax: Does it affect your family?
The kiddie tax rules may impose substantial limitations on income shifting to your children. They apply if: 1) the child hasn’t reached age 18 before the close of the tax year, or 2) the child’s earned income doesn’t exceed half of his or her support and the child is age 18 or is a full-time student age 19 to 23. The kiddie tax rules apply to your children who are under the cutoff age(s) described above, and who have more than a certain amount of unearned (investment) income for the tax year ($2,300 for 2022). A child’s investment income that’s taxed under the kiddie tax rules may be reduced or eliminated if the child invests in vehicles that produce little or no current taxable income.
Important considerations when engaging in a like-kind exchange
A business or individual might be able to dispose of appreciated real property without being taxed on the gain by exchanging it rather than selling it. You can defer tax on your gain through a “like-kind” or Sec. 1031 exchange. A like-kind exchange is a swap of real property held for investment or for productive use in your trade or business for like-kind investment real property or business real property. Like-kind is very broadly defined and most real property is considered to be like-kind with other real property. However, the real property can’t be held primarily for sale. If you have questions or you’re interested in a tax-deferred like-kind exchange, contact us.
How to keep remote sales on point
One interesting byproduct of the pandemic is that it has created a somewhat involuntary experiment in telework. If your company still has a remote sales staff, don’t assume it will “run itself” or that this tech-based approach is finished evolving. Continue to devise and implement sound sales and marketing strategies. Keep existing customers as happy as possible and target only well-researched prospects. Stay on the lookout for upgrades to video-based solutions, as well as ways to create better presentations and to leverage brandable “microsites.” Last, your remote sales staff must ensure that customers’ experiences with both your technology and people are positive. Contact us for help.
Weathering the storm of rising inflation
Inflation has gone from dark clouds on the horizon to a noticeable downpour. Is it time for business owners to panic? Not at all, but you should confront the problem head on. Although the IRS has increased the mileage rate tax deduction for business travel, major tax relief this year is unlikely. As you’re keeping an eye on rising interest rates, consider strategic moves such as: 1) Adjusting your prices carefully with a close eye on the competition. 2) Taking a hard look at your budget to determine whether you can reduce or eliminate some expenses. 3) Exploring the feasibility of a growth-oriented approach to generate more revenue and outpace inflation. Contact us for help.
Interested in an EV? How to qualify for a powerful tax credit
Electric vehicle (EV) sales have increased in 2022, even though they’re still a small percentage of the market. If you buy one, you may be eligible for a federal tax break. There’s a credit to purchasers of qualifying plug-in EVs including passenger cars and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that can’t exceed $5,000. Therefore, the maximum credit is $7,500. There are a number of requirements to qualify and the credit may not be available because of a per-manufacturer cumulative sales limit. (Tesla and GM vehicles are no longer eligible and the credit for Toyota EVs has begun to phase out.) Contact us for more information.
The tax obligations if your business closes its doors
Sadly, many businesses have been forced to shut down due to the pandemic and the economy. If this is your situation, we can assist you, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability with the Trust Fund Recovery Penalty. There may be other responsibilities. Contact us to discuss these issues and to get answers to any questions you may have.
Qualifying Pass Through Entities Tax
On June 14, 2022, the Ohio governor signed into law a workaround for the $10,000 SALT deduction limitation imposed by the Tax Cut and Jobs Act of 2017. Qualifying Pass Through Entities (PTE), including S corporations and partnerships, may elect to pay Ohio income taxes at the entity level beginning in 2022. The election is […]
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