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.
4 ways businesses can better control cash flow
Cash flow management is something many small to midsize businesses struggle with. Here are four ways to put and keep the odds in your favor: 1) Create and continuously update a sound annual budget; ensure that every item aligns with your strategic goals. 2) Generate GAAP-compliant financial statements; a statement of cash flows will be particularly helpful in catching potential problems. 3) Exercise careful expense management; detailed records may reveal ways to reduce day-to-day operating expenses. 4) Mind your timing; look for ways to stabilize revenue inflows (such as strong collection procedures) and payment outflows (discounts and favorable payment terms). Contact us for help.
The tax consequences of selling mutual funds
The tax rules involved in selling mutual fund shares can be complex. If you sell appreciated fund shares that you’ve owned for more than one year, the profit will be a long-term capital gain. The top federal income tax rate will be 20% and you may also owe the 3.8% net investment income tax. One challenge is that certain mutual fund transactions are treated as sales even though they might not seem like it. For example, many funds provide check-writing privileges. Each time you write a check on your fund account, you’re selling shares. Another issue may arise in determining your basis for shares sold. We can answer any questions you may have and explain how the rules apply to your situation.
Figuring corporate estimated tax
The next quarterly estimated tax payment deadline is June 17 for individuals and businesses. (The normal June 15 due date falls on a Saturday, so it’s extended until Monday.) Let’s review the rules for computing corporate federal estimated payments. You want your business to pay the minimum estimated tax amount without triggering the penalty for underpayment. The required installment of estimated tax that a corporation must pay to avoid a penalty is the lowest amount determined under each of these four methods: The current year method, the preceding year method, the annualized income method or the seasonal income method. Contact us to determine which method is best for your corporation.
Could conversational marketing speak to your business?
Businesses have long been advised to engage in active dialogues with customers and prospects. But historically, this tended to take a long time. There’s now a much faster way to conduct these interactions called “conversational marketing.” The basic concept is to strike up real-time discussions with customers and prospects as soon as they contact you. You’re not looking to give them sales pitches; you want to first create authentic social connections. Conversational marketing generally occurs on tech-based channels such as company websites (using chatbots or live chat with human reps), social media, and text and email. For help determining whether it’s right for your business, contact us.
House rich but cash poor? Consider a reverse mortgage strategy
Are you a taxpayer age 62 or older who needs income and owns a house that has appreciated greatly? A reverse mortgage may be a solution. With one, you can raise needed cash and also take advantage of the tax-saving basis “step-up” rule. The federal tax basis of a capital gain asset owned by a person who dies, including a personal residence, is stepped up to fair market value as of the date of the owner’s death. If your home’s value stays about the same between your date of death and the date your heirs sell it, there will be little or no taxable gain because the sale proceeds will be nearly or fully offset by the stepped-up basis.