Closing a business involves a number of tax responsibilities
While many facets of the economy have improved this year, the rising cost of living and other economic factors have caused many businesses to close their doors. If yours is among them, we can help you take 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 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 tasks. Contact us with questions and to discuss these issues.
Business website expenses: How they’re handled for tax purposes
Most businesses have websites today. Determining the proper tax treatment for the costs involved in developing a website can be difficult. Despite the widespread use of websites, the IRS hasn’t released formal guidance on when website costs can be deducted. Therefore, you must apply existing guidance that’s available for other costs to website development costs. The exact tax treatment of website design costs depends on whether they’re for software or hardware and whether they’re for 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 want more information.
The tax implications of disability income benefits
Many Americans receive private disability income. How is it taxed? It depends on who paid for the benefit. If the income is paid directly to you by an employer, it’s taxable to you just as ordinary salary is. But if you paid for the policy, the payments received under it aren’t taxable. Frequently, the payments aren’t made by an employer but by an insurance company under a policy providing disability coverage. In other cases, they’re made under an arrangement similar to accident or health insurance. Again, the tax treatment depends on who paid for the insurance coverage. (Note: The rules covering the tax treatment of Social Security Disability Insurance benefits are different.)
The possible tax landscape for businesses in the future
The upcoming elections may significantly alter the tax landscape of U.S. businesses. The reason has to do with provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on Dec. 31, 2025. One significant change is the scheduled expiration of the qualified business income (QBI) deduction. This write-off is for up to 20% of QBI from noncorporate entities. What will happen to your taxes depends on different possible outcomes: For example, all expiring TCJA provisions could expire. Or some provisions could expire and others could be extended or made permanent. New laws could also be enacted to provide different tax breaks and/or rates. We’ll keep you informed so stay tuned.
Do you owe estimated taxes? If so, when is the next one due?
Federal estimated tax payments ensure that certain individuals pay their taxes throughout the year. You may have to make estimated payments if you receive interest, dividends, self-employment income, capital gains, a pension or other income. If you don’t pay enough during the year through withholding and estimated payments, you may be liable for a penalty on top of the tax due. Individuals must generally pay 25% of their required annual tax four times annually with Form 1040-ES. The next payment is due Sept. 16 (because the usual Sept. 15 due date falls on a Sunday). You may be able to use the annualized income method to make smaller payments if your income isn’t uniform over the year.
Businesses should stay grounded when using cloud computing
For a couple decades now, companies have been urged to “get on the cloud” to avail themselves of data storage and software via the internet. But one recent report found that many businesses were overpaying for cloud services because they were failing to claim discounts offered by their providers. The truth is, cloud computing arrangements and invoices tend to be complicated. Be sure you and your leadership team know what you’re getting into with a cloud contract, familiarize yourselves with the content of invoices, identify and claim discounts you’re entitled to, and closely monitor cloud usage. Our firm can help you assess the costs and potential savings of cloud computing.
Vroom vroom: What businesses should know about sales velocity
Owning and running a company tends to test one’s patience. You wait for strategies to play out. You wait for materials, supplies or equipment to arrive. You wait for key positions to be filled. But, when it comes to sales, how patient should you be? A widely used metric called “sales velocity” can help you decide. […]
If your business has co-owners, you probably need a buy-sell agreement
Are you buying a business that will have one or more co-owners? Or do you already own one fitting that description? If so, consider installing a buy-sell agreement. A well-drafted agreement can: 1) transform your business ownership interest into a more liquid asset, 2) prevent unwanted ownership changes, and 3) avoid estate tax hassles with the IRS. The death of a co-owner is an event that triggers a buy-sell agreement. You can use life insurance policies to form the financial backbone of your agreement. In the simplest case of a cross-purchase agreement between two co-owners, each co-owner purchases a life insurance policy on the other. Contact us about setting up a buy-sell agreement.
3 Areas of focus for companies looking to control costs
Controlling costs is a fundamental task for every business. But where and how to address this challenge can change over time based on various factors. One recent survey revealed three top categories for cost-cutting initiatives: 1) Supply chain; identify your top vendors and see whether you can consolidate spending with them to put yourself in a stronger position to negotiate volume discounts. 2) Labor; be sure you know precisely how much you’re truly spending. A metric called labor burden rate can help. Outsourcing and tech upgrades may help, too. 3) Marketing and sales; choosing and monitoring the right metrics is essential for controlling these costs as well. Contact us for help.
Planning your estate? Don’t overlook income taxes
The high federal estate tax exemption ($13.61 million in 2024) means that many people aren’t concerned with estate tax. But you should still consider saving income tax for your heirs. For example, be careful making lifetime transfers of appreciated assets. It’s true that the assets and future appreciation generated by them are removed from your estate. But a gift carries a potential income tax cost because the recipient receives your basis upon transfer. He or she could face capital gains tax on the future sale of the gifted property. If the appreciated property is held until your death, under current law, the heir will get a “step-up” in basis that will reduce or wipe out capital gains tax.
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