Be aware of the tax consequences of selling business property
If you’re selling property used in your trade or business, you should understand the tax implications. Many rules may apply. Let’s assume you want to sell land or depreciable property used in your business and held for more than a year. Gains and losses from sales of business property are netted against each other. The net gain or loss qualifies for tax treatment as follows: 1) If the netting of gains and losses results in a net gain, long-term capital gain treatment results, subject to “recapture” rules. Long-term capital gain is generally more favorable than ordinary income. 2) If the netting of gains and losses results in a net loss, the loss is fully deductible against ordinary income.
Could a 412(e)(3) retirement plan suit your business?
When companies are ready to sponsor a qualified retirement plan, they have many options. One under-the-radar choice is a 412(e)(3) plan. Unlike 401(k) plans, these are defined benefit plans funded with insurance and annuity contracts. Older business owners who want to maximize retirement savings in a short time may want to check out 412(e)(3)s. Why? Because, assuming they have few if any highly compensated employees, owners can take a large share of the financial benefits while also enjoying tax deductions for plan contributions. As is the case with defined benefit plans, however, sponsors must have the financial stability to support the plan indefinitely. Contact us for more information.
Certain charitable donations allow you to avoid taxable IRA withdrawals
Are you philanthropic? If you’re 70½ or older, you may want to consider making a cash donation from your IRA to an eligible charity. This potential tax-saving strategy is called a qualified charitable distribution (QCD). How does it save tax? When required minimum distributions (RMDs) are taken out of traditional IRAs, federal income tax (and possibly state tax) must be paid. But not if you transfer IRA assets to charity via a QCD. In 2024, you can direct up to $105,000 of RMDs to charity. The money given to charity counts toward your RMDs but doesn’t increase your adjusted gross income (AGI), which may allow you to qualify for other tax breaks. Questions? Contact us.
Consider borrowing from your corporation but structure the deal carefully
If you own a closely held corporation, you can borrow from it for personal purposes at rates below those charged by a bank. But be sure to set up a bona-fide loan to avoid adverse tax consequences. For example, draft a formal written agreement that establishes an unconditional promise to repay a fixed amount under a repayment schedule or on demand by the business. The minimum interest rate the business should charge to avoid triggering the complex, generally unfavorable below-market loan rules is the IRS applicable federal rate (AFR). For July 2024, AFRs are: 4.95% for short-term loans up to 3 years; 4.40% for mid-term loans 3 years to 9 years; and 4.52% for long-term loans over 9 years.
Businesses have options for technology leadership positions
Today’s businesses must contend with a wide array of technological issues. That’s why many are hiring technology-focused executives such as: 1) Chief Information Officers, who manage internal IT infrastructure and operations; 2) Chief Technology Officers, who focus on external processes and oversee development and production of tech products or services; 3) Chief Digital Officers, who look for new markets, channels and opportunities; and 4) Chief Artificial Intelligence Officers, who set AI strategy and oversee its compliance and ethical use. These positions typically entail substantial costs for hiring, compensation and benefits. Contact us for help exploring the feasibility of adding one.
What might be ahead as many tax provisions are scheduled to expire?
Buckle up: We’re likely to see major federal tax changes within the next year or two. The reason has to do with the upcoming elections and provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on Dec. 31, 2025. Here are 4 possible scenarios: 1) All TCJA provisions that are scheduled to expire will expire. 2) All TCJA provisions that are set to expire will be extended or made permanent. 3) Some provisions will expire while others will be extended or made permanent. 4) Some or all expiring TCJA provisions will expire and new laws will be enacted that provide different tax breaks and/or rates. What will happen to YOUR taxes depends on which scenario becomes reality.
2024 Q3 tax calendar: Key deadlines for businesses and other employers
Here are a few key tax-related deadlines for businesses and other employers during the third quarter of 2024. JULY 31: Report income tax withholding and FICA taxes for Quarter 2 of 2024 (unless eligible for an Aug. 12 deadline). File a 2023 calendar-year retirement plan report or request an extension. SEPT. 16: If you operate a calendar-year partnership or S corp. that filed an extension, file a 2023 income tax return and pay any tax, interest and penalties due. SEPT. 16: If a calendar-year C corp., pay third installment of 2024 estimated income taxes. Contact us for more about the filing requirements and to ensure you meet all applicable deadlines.
How family businesses can solve the compensation puzzle
Family-owned businesses face distinctive challenges regarding compensation, largely because they employ both family and nonfamily staff. Salary inequities among siblings, for example, can breed resentment. Meanwhile, nonfamily employees may become disgruntled over preferential treatment of family employees if they feel those family members aren’t pulling their weight. Addressing compensation in a family business calls for an objective understanding of the company’s distinctive traits, culture and strategic goals, along with a healthy dash of creativity. There are ways to tackle the challenges analytically to arrive at an overall strategy that’s reasonable for everyone. Contact us for help.
Social Security tax update: How high can it go?
Employees, self-employed people and employers pay Social Security tax. If you’re an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half of the Social Security tax (6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see it. The Social Security tax wage ceiling for 2024 is $168,600 (up from $160,200 for 2023). If your wages meet or exceed that ceiling, the Social Security tax for 2024 will be $20,906 (12.4% x $168,600). Half comes out of your paychecks and your employer pays the other half. The wage ceiling is projected to go up to $174,900 in 2025 and up to $242,700 by 2033.
Hiring your child to work at your business this summer
Are you hiring your child to work at your business this summer? You and your child could reap some tax breaks. Certain noncorporate entities can hire an owner’s under-age-18 children as full- or part-time employees and the children’s wages will be exempt from the following federal payroll taxes: Social Security tax, Medicare tax and federal unemployment (FUTA) tax. (FUTA exemptions last until an employee-child is age 21.) In addition, your dependent child’s standard deduction can shelter from federal income tax up to $14,600 of 2024 wages. You’ll get a business tax deduction for the child-employee’s wages. The deduction will reduce your income tax bill and your self-employment tax bill.