Small Business

Business Tax Planning for Tax Cuts and Jobs Act (TCJA) Sunset

March 10, 2025 by Admin

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced substantial tax reductions and incentives for businesses, many of which are set to expire by the end of 2025. As this sunset approaches, businesses must engage in strategic tax planning to mitigate potential financial impacts. This article outlines key considerations and strategies for businesses to prepare for the post-TCJA landscape.

Key Provisions Set to Expire

Several significant tax provisions benefiting businesses are scheduled to lapse, including:

Corporate Tax Rate Stability – The TCJA permanently lowered the corporate tax rate to 21%. However, potential legislative changes could lead to rate increases, making it essential for businesses to anticipate higher tax burdens.
Qualified Business Income Deduction (QBI) – Pass-through businesses (LLCs, S corporations, sole proprietorships) currently enjoy a 20% deduction on qualified business income. This deduction is set to expire, potentially increasing taxable income for these entities.
Bonus Depreciation – The TCJA allowed businesses to deduct 100% of the cost of eligible property in the year of acquisition. This provision is set to phase out gradually, reducing to 80% in 2023, 60% in 2024, and fully expiring in 2027.
Interest Expense Deduction Limitations – The TCJA limited the deduction of business interest expenses to 30% of adjusted taxable income. With the expiration, businesses may face tighter restrictions, impacting debt-financed operations.
Research & Development (R&D) Expensing – The immediate expensing of R&D costs may revert to a five-year amortization schedule, affecting businesses that rely on innovation and technological advancements.

Strategic Tax Planning Approaches

To navigate these impending changes, businesses should consider the following strategies:

Accelerate Deductions and Capital Investments – Taking advantage of the remaining bonus depreciation and Section 179 expensing rules before they phase out can optimize deductions.
Evaluate Business Structure – With the potential expiration of the QBI deduction, pass-through businesses may reassess their entity type and consider whether a C corporation structure is more tax-efficient.
Optimize Interest Expense Planning – Businesses relying on debt financing should explore restructuring loans or increasing equity financing to minimize potential tax liabilities.
Maximize R&D Credits – Companies engaged in research activities should ensure they are fully leveraging available tax credits before the amortization requirement takes effect.
Plan for Potential Rate Increases – If corporate tax rates rise post-TCJA, businesses may benefit from accelerating income recognition under the current lower rates.

Conclusion

The sunset of the TCJA presents both challenges and opportunities for businesses. Proactive tax planning can help mitigate adverse impacts and maximize available benefits. Consulting with tax professionals and financial advisors will be essential in navigating the evolving tax landscape and ensuring continued profitability.

By taking strategic action now, businesses can position themselves for a smoother transition and financial stability in the post-TCJA era.

Starting a Side Gig in 2022? Your New Tax Obligations

June 15, 2022 by Admin

Businesswoman Doing Paperwork In Factory It’s not just self-employed individuals who must pay estimated taxes. Here’s what you need to know.

W-2 income tax withholding isn’t perfect. You’ve probably had years when you owed more than you expected to on April 15. Or you were pleasantly surprised to receive a sizable refund. The idea, of course, is to try to come out as even as possible. You can usually do this by adjusting your withholding when you experience a life change like taking on a mortgage or having a baby.

Income taxes are also pay-as-you-go for self-employed individuals – or at least they should be. If you’re striking out on your own by starting your own small business in 2022 or you’re simply taking on a side gig to improve your finances, your tax obligation will change dramatically. Your income will not be subject to employer withholding every week or two. In most cases, you’ll get it all. But the IRS expects you to pay estimated taxes on that income four times a year.

Who Else Must Pay?

There are other situations where you’ll be expected to make quarterly payments. In fact, the only individuals who aren’t required to pay estimated taxes (besides W-2 employees whose withholding is on target) are those who meet all three of these conditions:

You owed no taxes the previous tax year (line 24 on your 2021 1040—total tax—is zero, or you weren’t required to file a return).
You were a resident alien or U.S. citizen for all of 2021.
Your 2021 tax year covered a 12-month period.

tax tips

You’ll find your total tax for 2021 on line 24 of the Form 1040. Notice, too, that line 26 asks for 2021 estimated tax payments.

There are numerous situations where individuals who have payroll taxes regularly withheld on their income may still be required to submit quarterly estimated taxes. For example, did you receive income from rents or royalties? Dividends or interest? Income from selling an asset? Gambling?

If you have an employer who withholds taxes, but you don’t think you’ll be paying enough given the deductions and credits you might receive, you need to plan for estimated taxes. Self-employed individuals are almost always required to submit them.

Special Rules for Some

As with all things IRS, there are many exceptions to the rules regarding estimated taxes. For example, there are special rules for:

Fishermen and farmers.
Some household employers.
Certain high-income taxpayers.
Nonresident aliens.

How Do You Estimate Your Quarterly Taxes?

That’s the hard part, especially if you’re new to the world of estimated taxes. There is no magic formula, no way to calculate to the penny what you’ll owe. You’re basically making an educated guess. Since you won’t know for sure what changes to the tax code will be put in place until the end of the year, you can’t be absolutely certain that you might get a particular credit or deduction.

But you know roughly what your income will be for a given quarter once you’re nearing the end of it. Do you have a lot of business-related expenses? Keeping track of those is critical, as they’ll offset your income. If you don’t, you’ll have to budget for a heftier quarterly payment. And you must keep in mind that you’ll be paying self-employment tax – that portion of your income taxes that your employer used to pay.

Once you’ve been self-employed for a full tax year and have seen what your tax obligation was, it will be easier to estimate in subsequent years. But you may have a difficult time your first year.

How Do You Pay Estimated Taxes?

tax tips

Individuals and business that had to pay estimated taxes in 2021 submitted the Form 1040-ES four times. If you’re self-employed in 2022, you’ll need to submit similar vouchers with your payments, unless you’re paying online.

If you’re self-employed and you anticipate owing $1,000 or more in taxes on your 2022 income, you’ll need to file quarterlies using IRS Form 1040-ES vouchers (available on the IRS website) along with a check or money order. There are also ways to pay online using a credit or debit card or direct bank withdrawal. Corporations would file the Form 1120-W if they expect to owe $500 or more.

Estimated taxes for the 2022 tax year are due:

April 18, 2022 (January 1-March 31, 2022)

June 15, 2022 (April 1-May 31, 2022)

September 15, 2022 (June 1- August 31, 2022)

January 16, 2023 (September 1-December 31, 2022)

A Challenging Task

Estimated taxes are not precise. And it may be difficult to set aside money for them if your income is not where you’d like it to be. But as you might expect, the IRS will levy penalties on you if you don’t.

Year-round tax planning can help you in this critical area. We’ll be happy to set aside time to consult with you about estimated taxes. We’re also available to do tax preparation and to look at how your taxes fit into your overall financial situation. Contact us soon to get a jump on the 2022 tax season — or to finish up 2021.

4 Tips on How Small Businesses Can Reduce Taxes

April 11, 2022 by Admin

Tax wording on wooden cubes with US dollar coins and bag. As a small business owner, tax liability is the money you owe the government when your business generates income. With changing laws and gray areas regarding deductions, exemptions, and credits, it’s no wonder small business owners rank taxes at the top of the list of the most stress-inducing aspect of business ownership. To reduce that stress, taxes shouldn’t be something to focus on only at year’s end. Use these tips on reducing your business tax year-round and see your taxes and stress level decrease!

1. Business structure

Your company’s business structure is how it is organized – it answers questions like who is in charge, how are profits distributed, and who is responsible for business debt. The most common business structures are:

Sole proprietorships have one owner who takes all profits as personal income. The owner is personally liable for any business debts.
Partnerships are structured like sole proprietorships but can have an unlimited number of owners.
C corporations have unlimited shareholders who each own part of the company. Profits are distributed as dividends between them. Owners are not personally liable for business debts.
S corporations are structured like C corporations, but the number of shareholders is capped at 100.

In addition to affecting how a business operates, business structure impacts how much a company pays in taxes. The U.S. tax code is complex and includes four main tax categories:

Income tax – paid on profits
Employment tax – employee Social Security and Medicare contributions
Self-employment tax – Social Security and Medicare contributions for self-employed individuals
Excise tax – special taxes for specific goods and services like tobacco, alcohol, etc.

IA sole proprietorship or partnership is a good idea for businesses wanting tax simplicity. For those with less than 100 owners, an S corporation might be the right fit and best tax option. Again, business structure and tax laws are complex and are best determined by a qualified, experienced accountant.

2. Net Earnings

Net earnings (i.e., net income or profit) is the gross business income minus business expenses. Regardless of the business, it begins with gross income (the income received directly by an individual, before any withholding, deductions, or taxes), and allowable expenses are deducted to arrive at net income. How this figure is calculated is dependent upon business structure.

Net earnings are used to calculate business income taxes. Again, the calculation process differs slightly for different business structures. It is best to seek a professional to help with net earnings calculations for the proper calculation and maximum legal deductions.

3. Employ a Family Member

One of the best ways for small business owners to reduce taxes is hiring a family member. The (IRS allows a variety of options for tax sheltering. For example, suppose you hire your child, as a small business owner. In that case, you will pay a lower marginal rate or eliminate the tax on the income paid to your child. Sole proprietorships are not required to pay Social Security and Medicare taxes on a child’s wages. They can also avoid Federal Unemployment Tax Act (FUTA) tax. Consult a trusted accounting professional for details about the benefits of hiring your children or even your spouse.

4. Retirement contributions

Employee retirement plans benefit employees, but they can also be good for your small business. Employer contributions to an employee retirement plan are tax-deductible. They can also carry an employer tax credit for setting up an employee retirement plan. Again, this is a task an accountant can handle for you. They can guide you on retirement plan choices based on your business’s situation, employees, and other factors.

As a small business owner, you can deduct contributions to a tax-qualified retirement account from your income taxes (except for Roth IRAs and Roth 401(k)s). Sole proprietors, members of a partnership, or LLC members can deduct from their personal income contributions to their retirement account.

As with any tax situation, consulting your trusted accounting professional is always best. They are up to date on the latest tax laws, information, and allowable deductions. By being aware of ways your small business can reduce taxes, you can bring these topics up with your accountant, discuss the best options for you, and be prepared long before tax time rolls around.

Contact our tax professionals to learn more about how you can control tax exposure for your small business.

7 Small Business Tax Credits You Should Know About for 2021

August 23, 2021 by Admin

Notebook with tax credit sign on a table. Business concept. Small businesses benefit from various tax credits that reduce the amount of tax they pay to the government. Here, we discuss tax credits, why they exist and provide a list of the top tax credits that small business owners should know.

Small Business Tax Credits

A small business tax credit is an amount of money subtracted from the taxes the business owes. Tax credits differ from tax deductions. For example, deductions cut a business’ total tax by a percentage of the deduction, depending on the tax bracket. Alternatively, tax credits reduce the tax due, not the amount of taxable income. In other words, a small business tax credit is a dollar for dollar deal – every dollar of credit cuts the business’ tax by a whole dollar. This credit is a significant benefit for small business owners because it helps recover some operating costs and retains the precious capital needed for growth.

As a practical example, if your business owes $20,000 in taxes, but you can claim a $5,000 tax credit, that amount is subtracted from your total tax bill making the new tax bill $15,000.

The Purpose of Small Business Tax Credits

The U.S. government grants tax credits to promote behaviors it finds favorable. For example, tax credits are offered to businesses as incentives for activities that benefit employees, promote specific industries, or aid or benefit society. One example is the government offering tax credits to businesses that purchase electric vehicles. The government encourages this to fight climate change and global warming. Because tax credits can have such a dramatic impact on a small business’s bottom line, it is crucial to stay apprised of tax credits for which your business is eligible.

7 Small Business Tax Credits for 2021

In the wake of the COVID-19 pandemic, related tax credits for small businesses top the list.

1. Employee Retention Credit

Under the American Rescue Plan, the Employee Retention Credit (ERC) is extended for small businesses through December 2021 and is available for all four quarters of the year. This tax credit allows small businesses to offset payroll tax liabilities by up to $7,000 per employee per quarter. That means a credit of up to $28,000 per employee is available for small businesses whose revenue declined due to the COVID-19 pandemic. A 20 percent decline in gross receipts during a single quarter makes a business eligible for this tax credit.

2. Paid Leave Credit

Another tax credit that falls under the American Rescue Plan is the Paid Leave Credit. This credit is extended through September 30, 2021, and offers credits for small and midsize businesses that offer paid leave to employees for COVID-related illness, quarantine, or family caregiving. The allowable credit is equal to wages up to $5,000 of paid leave for sick or quarantining employees.

Note: Small businesses are no longer required by law to offer paid leave related to COVID; however, if they do, the credit still applies.

Other tax credits of which small businesses should be aware are:

3. Health Care Tax Credit

With the Health Care Tax Credit, the smaller the business, the bigger the credit. The credit is highest for businesses with fewer than ten employees. Generally, the way to qualify for the credit is by enrolling in a Small Business Health Options Program (SHOP).

A business must meet the following requirements to qualify:

(a) have fewer than 25 full-time employees,
(b) have an average employee salary of approximately $50,000 per year or less,
(c) pay at least 50 percent of full-time employees’ healthcare premiums, and
(d) offer SHOP coverage to all full-time employees.

This credit can be claimed for two consecutive years, applicable from 2017 forward.

4. Work Opportunity Credit

This credit is available to employers who hire from specific groups that face barriers to employment. For example:

Qualified IV-A Recipient – receiving TANF assistance
Qualified Veteran – the IRS provides details of what “qualified” entails on their site under Tax Credits
Ex-Felon
Designated Community Resident (DCR) – between 18 and 40 years old and living in an empowerment zone, an enterprise community, or a renewal community
Vocational Rehabilitation Referral – a person who has a physical or mental disability and has been referred to the employer while receiving or upon completion of rehabilitative services
Summer Youth Employee
Supplemental Nutrition Assistance Program (SNAP) Recipient
Supplemental Security Income (SSI) Recipient
Long-Term Family Assistance Recipient
Qualified Long-Term Unemployment Recipient

Under the Consolidated Appropriation Act, 2021, this credit was extended until December 31, 2025.

5. Disabled Access Credit

Eligible small businesses that earn $1 million or less and have a maximum of 30 full-time employees in a year can claim this credit each year in which expenditures are incurred to make their business accessible to persons with disabilities under the Americans with Disabilities Act (ADA).

Expenditures include, but are not limited to, installing wheelchair ramps, upgrading restrooms, and providing Braille text materials.

6. Employer-Provided Childcare Facilities and Services

While few businesses these days seem to provide in-house child care for their employees’ children, a tax credit can make this an attractive option. This credit is a general business tax credit for 25 percent of qualified employer-provided child care expenditures plus 10 percent of qualified child care resources and referral expenditures. The credit is capped at $150,000 per tax year.

Qualifying expenditures:

Include operating costs of a qualified child care facility
Include costs for acquisition, construction, rehabilitation, or expansion of a property used as a care facility (but not land or any part of the principal residence of the taxpayer)
May not exceed the fair market value of care provided

The employer-run facility must open enrollment to employees and must not discriminate in favor of highly compensated employees. At least 30 percent of the facility’s enrollment must consist of dependents of taxpayer employees.

7. Research and Development (R&D) Tax Credits

Several R&D tax credits exist for small businesses. These credits typically apply to science, medical and technology-based businesses; however, many businesses engage in qualified R&D activity.

The following activities qualify for an R&D tax credit:

New prototype or model development
Proprietary product on which you seek a patent
Developing a new manufacturing process or business process
Improving product efficiency or existing business processes
Improving quality control processes
Environmental or certification testing

Businesses that qualify for this credit can subtract up to 10 percent of R&D costs from their tax bill.

Ask your tax professional about small business tax credits that apply to your business. There are additional federal small-business tax credits from state and local governments. Tax credits often expire after a few years, so act quickly to take advantage of those that apply to you.

We offer a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 702-658-9535 and request a free initial consultation to learn more.

Client Data Security

February 4, 2019 by Jake Worline

Keeping my clients’ personal information private is of the utmost importance to me. At JW Enterprises, I make sure each and every item of data is kept secure.

With everything being digitized these days, data security is a top priority. And recently, as I flipped through the pages of Tax Pro Monthly, I found an interesting and helpful article about ways tax accountants and professionals can protect our clients’ data.

I’ve decided to share with you a few different ways to safeguard sensitive client data. By following the information below, clients can trust tax professionals handling their personal and financial information with the most care possible.

Phishing:

Be aware of phishing scams. “Phishing” is when scammers send fraudulent information via digital communication platforms (i.e. email, text, etc.) in order to obtain sensitive information such as account passwords, credit card numbers, Social Security numbers, and the like. Never open an embedded link from an email, text, or website that you do not recognize.

Limit access:

The only person who should have access to client information is the tax professional handling the account.

Software:

Anti-virus, anti-spyware, firewall, drive encryption: this is all security software that helps keep information on computers protected. While PCs and Macs typically come with security software already installed, there is always the option to purchase further protection.

Be Aware:

Being aware of possible data theft is essential. A tax preparation professional or firm can potentially be a victim of theft if one of the following occur:

● Clients receive tax returns before they file
● Clients’ tax returns are rejected (this could mean their S.S.N has already been used to file)
● Clients receive tax information they did not request.

Should anything out of the ordinary happen while filing, it is essential to contact the IRS immediately.

EFIN/PTINs:

Tax professionals can receive weekly reports regarding the number of tax returns they’ve filed. To check, login to the IRS’s e-Service account and check your EFIN status. If the number of returns filed in the report does not match the real number you’ve filed, contact the IRS e-Help Desk.

While some of this may seem like common knowledge, it is essential to reiterate. Data safeguarding is also important should an individual or small business choose to file on their own using online tax software.

During tax season, a lot of data is being used to create the best return possible. Just remember: Be safe and protective of your valuable information.

—Jake

Do You Run Your Own Small Business? Read This!

January 15, 2019 by Jake Worline

The rise of e-commerce has created a rise in the amount of people looking for self-employment—and why not? Running an online store, marketplace, or business is an excellent way to make money, and in most cases, also do something you love.

Do you enjoy painting in your free time? Graphic design? Sewing? Writing? There are a ton of different platforms nowadays that allow you to monetize these things. Etsy, Amazon Stores, Ebay, blogs, or even social media platforms in one way or another are spaces to create, build, and earn some money!

So, you’ve started an online shop and you’re actually earning an income! What now? Well, that’s where I come in. As a financial advisor for small businesses, I am a firm believer in working for yourself while using your passions to build a strong financial future. With tax season in full-swing, I’d like to take time to inform you about your obligation as someone self-employed.

To determine whether or not you need to file self-employment tax (SE tax), you need to figure out net profit or net loss from your business (business income, less your business expenses). If you have self-employment income of $400 or above, you are required to file taxes!

Filing taxes on income earned from self-employment might be something that slips your mind, especially if you receive a W2 from a full-time employer, too. However, turning to a tax accountant for help while filing independently-earned income is very beneficial. As I’ve stated in previous blog posts, free, online tax software is very convenient. Unfortunately, this software is cookie-cutter, impersonal, and does not ask all underlying questions about what goes into the work you do. This is why turning to a tax accountant or tax professional is beneficial when it comes to filing for your small business.

If you run your own small business or online marketplace, I will gladly help go through all options for filing your 2018 taxes. Call 702-515-4025 today for your free consultation.

— Jake