Inflation Reduction Act provisions of interest to small businesses
The new Inflation Reduction Act contains a provision that provides tax relief for small businesses. Under current law, qualified small businesses can elect to claim a portion of their research credit as a payroll tax credit against their employer Social Security tax liability, rather than against their income tax liability. A qualified small business can now claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. Under the new law, qualified small businesses can apply an additional $250,000 in qualifying research expenses as a payroll credit against the employer share of Medicare. This provision takes effect for tax years beginning after Dec. 31, 2022.
Home sweet home: Do you qualify for office deductions?
If you’re a business owner working from home or an entrepreneur with a side gig, you may qualify for home office deductions. On the other hand, employees who work remotely can’t deduct home office expenses under current federal tax law. To qualify for a deduction, you must use part of your home regularly and exclusively as your principal place of business, or a place to meet with customers, clients or patients in the normal course of business. Typically, the business use percentage is determined by your home office’s square footage but there are other methods. We can address questions about the best way to compute home office deductions and the tax implications when you sell your home.
Self-employed? Build a nest egg with a solo 401(k) plan
Do you own a small business with no employees and want to set up a retirement plan? Or do you want to upgrade from a SIMPLE or SEP plan? Consider a solo 401(k) if you have healthy self-employment income and want to contribute large amounts to a nest egg. For 2022, you can make an elective deferral contribution of up to $20,500 of your net self-employment (SE) income ($27,000 if you’ll be 50 or older as of Dec. 31, 2022). On top of the elective amount, an extra contribution of up to 20% of your net SE income is allowed for solo 401(k)s. For 2022, the combined elective and extra contributions can’t exceed $61,000 ($67,500 for 50 or older) or 100% of net SE income. Contact us to learn more.
Evaluating an ESOP from a succession planning perspective
Strictly defined, an employee stock ownership plan (ESOP) is a qualified retirement plan for employees. But one of these plans can also play a key role in succession planning by facilitating the transfer of a business to an owner’s children or employees over a period of years in a tax-advantaged way. And, unlike a buyout, an ESOP allows owners to cash out and transfer control gradually. There are challenges to consider, however. Trustees must, under law, obtain appraisals by independent valuation professionals to support ESOP transactions. There are considerable plan administration and compliance costs, and only corporations (C or S) may establish an ESOP. Contact us for more information.
Key aspects of a successful wellness program
Wellness programs have found a place in many companies’ health care benefits packages. But designing and maintaining these programs isn’t easy. One key aspect of most successful wellness programs is simplicity. The simpler the design, the easier it will be to explain and administer. Clarity of communication is also paramount. Materials should be well-organized and written clearly and concisely. In addition, outside vendors typically provide most wellness program services and activities. Thoroughly vet these providers and engage only those that are skilled and qualified. Contact us for help assessing the costs of designing or revising a wellness program and tracking them over time.
Why an LLC might be the best choice of entity for your business
Which business entity should you choose? A limited liability company (LLC) is somewhat of a hybrid because it can be structured to resemble a corporation for liability purposes and a partnership for federal tax purposes. Like corporation shareholders, LLC owners or “members” generally aren’t liable for business debts except to the extent of their investment. Plus, there may be tax benefits. For example, earnings aren’t subject to an entity-level tax. Instead, they flow through to owners in proportion to their respective interests in profits. They’re reported on the owners’ individual returns and taxed only once. Contact us to discuss whether an LLC or other entity is best for your business.
Is it time for your business to fully digitize its accounts receivable?
If your company is still using some paper-based accounts receivable processes, maybe it’s time to fully automate your system. Just be sure to set a feasible budget and invest only in a solution that suits your well-specified needs. Why? Digitalization streamlines the cash conversion cycle. You might even be able to reassign accounting staff from administrative tasks to more value-added ones. Customers like it, too, because they don’t have to write paper checks. Some buyers might submit e-payments more quickly to capture discounts or easily remove a task from their to-do lists. And, assuming it’s secure, the right software can help prevent fraud. Contact us for more information.
Estimated tax payments: Who owes them and when is the next one due?
You may have to make estimated payments if you receive interest, dividends, self-employment income, capital gains or other income. If you don’t pay enough tax during the year through withholding and estimated payments, you may be liable for a tax penalty on top of the tax that’s due. Individuals must generally pay 25% of their required annual tax by April 15, June 15, Sept. 15, and Jan. 15 of the following year, to avoid an underpayment penalty. If a deadline falls on a weekend or holiday, the deadline is the next business day. You may be able to use the annualized income method to make smaller payments if your income isn’t uniform over the year. Use Form 1040-ES to make estimated payments.
Is your business required to report employee health coverage?
Certain employers are required to report information about employees’ health coverage. Does your business have to comply? “Applicable large employers” (ALEs) with 50 or more full-time employees must use Forms 1094-C and 1095-C to report information about offers of health coverage and enrollment in health coverage. Specifically, an ALE uses Form 1094-C to report summary information for each employee and to transmit Forms 1095-C to the IRS. A separate Form 1095-C is used to report information about each employee. In addition, 1094-C and 1095-C are used to determine whether an employer owes payments under the employer shared responsibility provisions (also referred to as the employer mandate).
Provide employee parking? Here’s what the IRS wants to know
Does your business provide parking as a fringe benefit, either on or near your premises or at a location from which employees commute? If so, a recently revised IRS webpage (https://bit.ly/3zk2PTl) reveals what the tax agency may investigate during an audit. The IRS is chiefly concerned with how employers determine the fair market value of parking benefits. The webpage explains that the value of employer-provided parking must be established following the same general rules as those used for valuing other fringe benefits under Treasury regulations. Be sure to document how you determine the value of your parking benefit and be ready to produce that documentation in the event of an IRS audit.