It’s time for your small business to think about year-end tax planning
With Labor Day in the rearview mirror, it’s time to take proactive steps that may help lower your business’s taxes for 2024 and 2025. The strategy of deferring income and accelerating deductions to minimize taxes can be effective for most businesses, as is the approach of bunching deductible expenses into this year or next to maximize their tax value. Other ideas: Buy eligible equipment and place it in service by Dec. 31 to claim a Section 179 or 60% bonus depreciation deduction. Eligible businesses also may be able to defer income or accelerate deductions to keep income under certain thresholds to claim a qualified business income deduction. Contact us to customize a plan for your business.
Does your company have an EAP? If so, be mindful of compliance
Many businesses have established employee assistance programs (EAPs) to help their workforces deal with mental health, substance abuse and financial challenges. Whether your company is considering an EAP, or you already offer one, among the most important factors to keep in mind is compliance. For example, one of these programs may be subject to ERISA if it’s established or maintained to provide ERISA-listed benefits, including medical services. Generally, an EAP providing mental health counseling, including help with substance abuse, will be subject to ERISA. You’ll also need to assess potential compliance issues under HIPAA and the ACA. Contact us for more information.
Strategic planning for businesses needs to include innovation
In many industries, substantial growth or even just staying competitive calls for innovation. As your company looks to the future, be sure to create an environment where you and your employees can innovate. Developing an innovative business culture typically entails actively encouraging staff to come up with ideas and explore their feasibility without worrying about making mistakes. Consider holding regular brainstorming sessions where staff can suggest bold ideas in a safe space without fear of ridicule. When pursuing prospective innovations, it’s often helpful to assemble cross-functional teams that can cover more ground. Customer feedback can also be a good source of innovative concepts.
Understanding taxes on real estate gains
Let’s say you own real estate that has been held for more than one year and is sold for a taxable gain. Perhaps the gain comes from indirect ownership of real estate via a pass-through entity such as an LLC, partnership or S corporation. You may expect to pay the standard 15% or 20% federal income tax rate that usually applies to long-term capital gains from assets held for more than a year. However, some real estate gains can be taxed at higher rates due to depreciation deductions. Some of the profit could be taxed at up to 25%, and you may also owe the 3.8% net investment income tax on some or all of the gain. The calculations are complex. We’ll handle them when we prepare your tax return.
How are Series EE savings bonds taxed?
Many people own Series EE savings bonds that were purchased many years ago. Perhaps they were given as gifts or maybe you bought them yourself and filed them away. You may wonder: How is the interest taxed? EE bonds don’t pay interest currently. Instead, accrued interest is reflected in their redemption value. (Owners can elect to have interest taxed annually.) EE bond interest isn’t subject to state income tax. And using the money for higher education may keep you from paying federal income tax on it. Unfortunately, the law doesn’t allow for the tax-free buildup of interest to continue forever. When the bonds reach final maturity, they stop earning interest. Contact us with questions.
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.