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Starting your own business is an exciting journey filled with opportunities and challenges. As a young entrepreneur, you have the energy, creativity, and drive to turn your ideas into reality. This comprehensive guide will walk you through the essential steps to launch your business successfully. By following this blueprint, you’ll be well-prepared to navigate the complexities of entrepreneurship and set your business up for long-term success. And remember, before you get started, reach out to us for personalized advice and support tailored to your unique needs.

1. Find the Right Opportunity

The first step in starting a business is identifying the right opportunity. Consider your expertise, interests, and the amount of time and money you can invest. Some businesses can be launched from home with minimal overhead, especially in the e-commerce and remote work sectors. Evaluate your ideas to ensure they are viable and have the potential to generate revenue. If you’re unsure where to start, explore various business ideas and trends to get inspired.

2. Write a Business Plan

A solid business plan is crucial for your success. This document outlines your business goals, strategies, target market, and financial projections. It serves as a roadmap for your business and is essential when seeking funding from investors or lenders. Your business plan should include:

• Executive Summary: A brief overview of your business and its objectives.
• Business Description: Detailed information about your products or services.
• Market Analysis: Insights into your target market and competition.
• Organization and Management: Your business structure and team.
• Marketing and Sales Strategy: How you plan to attract and retain customers.
• Financial Projections: Budgets, cash flow projections, and funding requirements.

3. Choose a Business Structure

Selecting the right legal structure for your business is vital as it affects your taxes, liability, and regulatory requirements. Common structures include:

• Sole Proprietorship: Simple and easy to set up, but offers no personal liability protection.
• Partnership: Ideal for businesses with multiple owners, but personal liability is shared.
• Limited Liability Company (LLC): Provides personal asset protection and flexible tax options.
• Corporation: Offers the most protection but is more complex and costly to set up.
• S-Corporation: S-corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Consult with our office to determine the best structure for your business.

4. Get a Federal Tax ID

An Employer Identification Number (EIN) is necessary for most businesses to file taxes, open bank accounts, and hire employees. Applying for an EIN is free and can be done online in just a few minutes.

5. Apply for Licenses and Permits

Depending on your industry and location, you may need various licenses and permits to operate legally. Research the specific requirements for your business and ensure you comply with all regulations. This may include health inspections, zoning permits, and professional licenses.

6. Open a Business Bank Account

Separating your personal and business finances is crucial for effective financial management. A business bank account helps you track expenses, manage cash flow, and simplify tax preparation. Setting up an account is straightforward and provides a professional image for your business.

7. Understand Your Startup Financing Options

Most businesses require some initial capital to get started. While traditional business loans may not be available to new businesses, there are alternative financing options to consider:

• Personal Savings: Many entrepreneurs use their own savings to fund their startups.
• Crowdfunding: Platforms like Kickstarter and Indiegogo allow you to raise funds from the public.
• Personal Loans: Borrowing from friends, family, or financial institutions.
• Business Grants: Explore grants available for small businesses and startups.
• Equity Financing: High-growth startups may attract investors in exchange for equity.

8. Get a Business Credit Card

A business credit card can provide short-term financing and help manage cash flow. It also helps separate personal and business expenses and can offer rewards such as cashback or travel points. Ensure you use the card responsibly and pay off the balance each month to avoid debt.

9. Choose the Right Accounting Software

Accurate financial records are essential for tracking your business performance and preparing for taxes. Invest in accounting software that suits your needs and budget. As your business grows, consider hiring a bookkeeper to maintain accurate records and provide financial insights.

10. Prepare to Pay Your Taxes

As a business owner, you’ll have new tax responsibilities, including potentially paying taxes throughout the year. Develop a relationship with a tax professional to ensure compliance and take advantage of any tax breaks available to your business.

11. Protect Yourself with Business Insurance

Business insurance protects your personal and business assets from potential risks. General liability insurance is recommended for all businesses, and you may need additional coverage depending on your industry and contracts.

12. Establish Your Online Presence

An online presence is crucial for reaching potential customers and building your brand. Create a professional website and set up social media profiles to engage with your audience. Invest in search engine optimization (SEO) to improve your visibility and attract organic traffic.

13. Set Up a Payments System

If you plan to accept credit and debit card payments, you’ll need a payment processor and point-of-sale (POS) system. Consider the costs of hardware, software, and processing fees when choosing a provider. Ensure your system is secure and user-friendly to provide a seamless customer experience.

14. Hire Employees

If your business requires additional help, you’ll need to hire employees. This involves setting up payroll, obtaining workers’ compensation insurance, and complying with labor laws. Create a clear job description and hiring process to attract the right talent.

15. Get Financing to Grow Your Business

Once your business is established, you may need additional financing to expand. Explore options such as business loans, lines of credit, and equity financing to support your growth. Ensure you understand the terms and conditions of any financing you pursue.

Are You Ready? 

Starting a business is a rewarding journey that requires careful planning and execution. By following this step-by-step guide, you’ll be well-equipped to launch and grow your business successfully. Remember, we’re here to help you every step of the way. Contact us before you get started for personalized advice and support tailored to your unique needs. Let’s turn your entrepreneurial dreams into reality!

In the digital age, crowdfunding has emerged as a revolutionary way for individuals and businesses to raise funds for a wide array of projects, from innovative products and artistic endeavors to personal causes and community projects. However, as with any financial activity, crowdfunding comes with its own set of tax implications and regulatory requirements, particularly when it involves raising money to fund a business. Understanding these implications and the involvement of the Securities and Exchange Commission (SEC) is crucial for anyone looking to embark on a crowdfunding campaign.

Understanding Crowdfunding – Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, even strangers and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms—and leverages their networks for greater reach and exposure.

There Are Three Main Types of Crowdfunding:

• Equity-Based Crowdfunding: Investors receive a stake in the company, typically in the form of shares.
• Donation-Based Crowdfunding: Contributions are made with no expectation of return; often used for charitable and humanitarian causes.
• Rewards-Based Crowdfunding: Backers receive a tangible item or service in return for their funds.

Tax Implications of Crowdfunding – The tax implications of crowdfunding can vary significantly based on the type of crowdfunding campaign and the nature of the funds raised. Generally, funds raised through crowdfunding can be considered taxable income by the Internal Revenue Service (IRS) if they are not classified as loans that need to be repaid, capital contributed in exchange for an equity interest, or gifts made out of detached generosity without any quid pro quo.

• For Equity-Based and Rewards-Based Crowdfunding – If the campaign provides backers with equity or rewards, the funds raised are generally considered taxable income to the fundraiser. However, if the funds are spent on deductible business expenses, the net taxable income could be reduced to zero.
• For Donation-Based Crowdfunding – Funds raised may not be taxable if they are considered gifts, but this depends on the specific circumstances and whether there is any expectation of return or benefit to the donor.

The IRS treats certain crowdfunding contributions as gifts, which means they are not taxable to the recipient. This treatment aligns with the principle that gifts are transfers made out of detached generosity. However, donors need to be aware of the gift tax rules. For instance, if an individual contributes more than the annual exclusion amount ($18,000 for 2024, but periodically adjusted for inflation) to a single recipient through a crowdfunding campaign, they may need to file a gift tax return.

A less understood but critical aspect of crowdfunding is the “gift tax trap.” This situation arises when someone sets up a crowdfunding campaign to benefit another individual but initially receives all the funds themselves. The IRS views these funds as a gift to the campaign organizer, who then gifts them to the intended beneficiary. If the total amount exceeds the annual gift tax exclusion, the organizer could be liable for gift tax and may need to file a gift tax return, reducing their lifetime gift and estate tax exemption.

Some crowdfunding platforms have addressed this issue by allowing organizers to designate beneficiaries who can directly access the funds, thereby avoiding the gift tax trap. However, not all platforms offer this feature, and organizers must be diligent in how they set up and manage their campaigns.

It’s important to distinguish between crowdfunding campaigns for charitable causes and those for personal benefit. Contributions to qualified charities through crowdfunding can be tax-deductible for the donor, provided all IRS documentation requirements are met. However, funds raised for individual needs, such as medical expenses or personal emergencies, are considered personal gifts and are not tax-deductible for donors. This distinction underscores the need for both donors and recipients to fully understand the tax implications of their crowdfunding activities.

• SEC Requirements When Raising Money – When a crowdfunding campaign involves offering equity in a business activity, it falls under the purview of the SEC, which has established regulations to protect investors and maintain fair, orderly, and efficient markets. The SEC’s involvement is particularly pronounced in equity-based crowdfunding, where businesses offer shares to investors.

Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet certain qualifications to be exempt from registration. The Jumpstart Our Business Startups (JOBS) Act of 2012 introduced an exemption for crowdfunding, allowing companies to raise funds without the need for a traditional securities registration, provided they adhere to certain conditions:

• Fundraising limit: Businesses can raise up to $5 million in a 12-month period through crowdfunding platforms.
• Investor limitations: There are limits on the amount individuals can invest in crowdfunding projects, based on their income and net worth. The amount an individual can invest through crowdfunding in any 12-month period is limited.
  1. If the individual’s annual income or net worth is less than $124,000, their equity investment through crowdfunding is limited to the greater of either $2,500 or 5% of the greater of the investor’s annual income or net worth.
  2. If the individual’s annual income and net worth are at least $124,000, their investment via crowdfunding can be up to 10% of their annual income or net worth, whichever is greater, but not to exceed $124,000.
  3. The forgoing limits are based on the SEC Updated Investor Bulletin posted on October 14, 2022. These limits change from time to time. The bulletin also includes examples of how the limits, included above, are computed as well as instructions for determining net worth. The site also includes higher investment limits for Accredited Investors. Basically, Accredited Investors have higher incomes and net worth as described on the SEC website.

IRS Information Reporting and Crowdfunding – One of the key reporting requirements for crowdfunding campaigns comes in the form of IRS Form 1099-K, “Payment Card and Third Party Network Transactions.” This form is used to report payment transactions processed through payment card transactions or settlement entities. If a crowdfunding campaign processes over $5,000 (2024) in payments, the payment processor will issue a Form 1099-K to the IRS and the fundraiser. Congress has mandated the reporting threshold be reduced to $600 and the IRS is phasing in that lower threshold.

The issuance of Form 1099-K has significant implications for fundraisers:

• Income Reporting – Receipt of a Form 1099-K essentially notifies the IRS that the individual or business has received payments that may be taxable.
• Tax Liability – The fundraiser must report the income on their tax return, potentially increasing their tax liability. However, legitimate business expenses funded by the campaign can be deducted. Where the fundraising was not related to a business, such as with charity-based crowdfunding, and a 1099-K was issued, the 1099-K amount may need to be reported on the fundraiser’s income tax return, and then offset by a like amount, resulting in no taxable income. An explanation why the income is not taxable should be included. This procedure will prevent future inquiry from the IRS as to why the income was not reported.

Crowdfunding offers a unique and powerful means of raising funds, but it comes with complex tax implications and regulatory requirements. For businesses, understanding the nuances of equity-based crowdfunding and complying with SEC regulations are critical steps in leveraging this fundraising method effectively. Additionally, recognizing when funds raised may be taxable and how to report them correctly to the IRS is crucial for all types of crowdfunding campaigns.

If you have questions before launching a crowdfunding campaign, you may wish consult with this office to understand the specific implications for your project. Proper planning and advice can help ensure that your crowdfunding efforts are both successful and compliant with all financial and regulatory requirements.

The Internal Revenue Service (IRS) has introduced a second Employee Retention Credit (ERC) Voluntary Disclosure Program as outlined in Announcement 2024-30. This initiative is designed to address erroneous claims for the ERC, a refundable tax credit aimed at supporting businesses and tax-exempt organizations that continued to pay employees during the COVID-19 pandemic under specific conditions.

Background and Purpose – The ERC was established to provide financial relief to businesses that were either fully or partially suspended due to government orders, experienced a significant decline in gross receipts, or were classified as recovery startup businesses during the pandemic. However, the IRS has identified concerns regarding fraudulent claims and misleading advertisements that have led to improper ERC claims.

The first ERC Voluntary Disclosure Program, which concluded on March 22, 2024, saw over 2,600 participants. It allowed employers to resolve their improper claims by retaining 20% of the claimed ERC amount while settling their employment tax obligations. The second program continues this effort, albeit with a reduced retention rate of 15% for participants.

Eligibility Criteria – To participate in the second ERC Voluntary Disclosure Program, applicants must meet several criteria:

• Only Available for 2021 Claims: The program is limited to ERC claims filed for the 2021 tax periods and for which the employer received a credit or refund prior to August 15, 2024.
• Non-Criminal Status: Participants must not be under criminal investigation or have been notified of such intentions by the IRS.
• Third-Party Information: The IRS should not have received third-party information indicating noncompliance.
• Examination Status: Participants should not be under an employment tax examination for the relevant periods.
• Recapture and Repayment Notices: Participants must not have been notified of ERC recapture or received a demand for repayment.

Program Terms – The second ERC Voluntary Disclosure Program offers several key terms:

Employment Tax Adjustments: Participants are not entitled to any ERC for the periods in question and must remit 85% of the claimed amount back to the Treasury.

Interest and Penalties: Participants will not be required to repay overpayment interest, and no underpayment interest will apply if full payment is made before executing the closing agreement. The IRS will not impose civil penalties related to the underpayment of employment tax attributable to the claimed ERC.

Income Tax Effects: Participants are not required to amend their income tax returns to adjust wage expenses related to the ERC.

Preparer/Advisor Information: Participants must disclose information about any preparers or advisors involved in the ERC claim.

Application Process – Participants must submit Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program, by November 22, 2024. This form must be completed under penalties of perjury and include detailed information about the taxpayer and the claimed ERC.

Payments should be made through the Electronic Federal Tax Payment System (EFTPS), with separate payments for each tax period. Participants unable to make full payments may request alternative arrangements, such as installment agreements.

Closing Agreement – Upon submission of the required information, the IRS will prepare a closing agreement, which participants must sign and return within 10 days. This agreement finalizes the terms of the settlement and ensures compliance with the program’s requirements.

The second ERC Voluntary Disclosure Program represents a critical opportunity for businesses to rectify erroneous ERC claims without facing severe penalties or litigation. By participating, businesses can resolve their tax liabilities while retaining a portion of the claimed credit.

If you have questions or need assistance, please contact this office.

As our population ages, seniors increasingly become targets for a variety of scams. These fraudulent schemes can have devastating financial and emotional impacts on older adults, who may be more vulnerable due to factors such as isolation, cognitive decline, or simply a trusting nature. The Internal Revenue Service (IRS) has been proactive in issuing warnings and providing guidance to help protect seniors from these threats. This article will delve into the nature of scams targeting seniors, what to be on guard for, awareness and protection strategies, IRS advice, and steps to take if one falls victim to a scam.

Understanding the Threats – Scammers employ a range of tactics to deceive seniors, often posing as representatives from government agencies, familiar businesses, or charities. The IRS, in its news release IR-2024-164, highlights the rising threat of impersonation scams targeting older adults. These fraudsters use fear and deceit to exploit their victims, often pressuring them into making immediate payments through unconventional methods such as gift cards or wire transfers.

Common Scams Targeting Seniors

• Impersonation of Known Entities: Fraudsters often pose as representatives from government agencies like the IRS, Social Security Administration, or Medicare. By spoofing caller IDs, they can deceive victims into believing they are receiving legitimate communications. These scammers may claim that the victim owes money, is due a refund, or needs to verify personal information.
• Claims of Problems or Prizes: Scammers frequently fabricate urgent scenarios, such as outstanding debts or promises of significant prize winnings. Victims may be falsely informed that they owe the IRS money, are owed a tax refund, need to verify accounts, or must pay fees to claim non-existent lottery winnings.
• Pressure for Immediate Action: These deceitful actors create a sense of urgency, demanding that victims take immediate action without allowing time for reflection. Common tactics include threats of arrest, deportation, license suspension, or computer viruses to coerce quick compliance.
• Specified Payment Methods: To complicate traceability, scammers insist on unconventional payment methods, including cryptocurrency, wire transfers, payment apps, or gift cards. They often require victims to provide sensitive information like gift card numbers.

Awareness and Protection Strategies

Awareness is the first line of defense against scams. Seniors and their caregivers should be educated about the common tactics used by scammers and the red flags to watch for. Tips for Seniors:

• Verify the Source: Always verify the identity of the person or organization contacting you. If you receive a call, email, or text message claiming to be from the IRS or another government agency, do not provide any personal information. Instead, contact the agency directly using a verified phone number or website.
• Be Skeptical of Unsolicited Communications: Be cautious of unsolicited communications, especially those that request personal information or immediate payment. Legitimate organizations will not ask for sensitive information through unsecured channels.
• Do Not Rush: Scammers often create a sense of urgency to pressure victims into making hasty decisions. Take your time to verify the legitimacy of the request and consult with a trusted family member or friend before taking any action.
• Use Secure Payment Methods: Avoid making payments through unconventional methods like gift cards, wire transfers, or cryptocurrency. Legitimate organizations will not request payment using these procedures.
• Monitor Financial Accounts: Regularly monitor your bank and credit card statements for any unauthorized transactions. Report any suspicious activity to your financial institution immediately.

Tips for Caregivers

• Educate and Communicate: Regularly discuss potential scams with the seniors in your care. Ensure they understand the common tactics used by scammers and encourage them to reach out to you if they receive any suspicious communications.
• Set Up Protections: Help seniors set up protections such as fraud alerts on their credit reports and two-factor authentication on their online accounts.
• Monitor Communications: If possible, monitor the mail, phone calls, and emails that the senior receives. This can help identify potential scams before any damage is done.
• Encourage Reporting: Encourage seniors to report any suspicious activity to the appropriate authorities. Reporting scams can help prevent others from falling victim to the same schemes.

IRS Advice and Resources – The IRS has been actively engaged in efforts to protect taxpayers, including seniors, from scams and identity theft. The Security Summit partnership between the IRS, state tax agencies, and the nation’s tax professional community has been working since 2015 to combat these threats. Remember that:

• The IRS will never demand immediate payment via prepaid debit cards, gift cards or wire transfers. Typically, if taxes are owed, the IRS will send a bill by mail first.

• The IRS will never threaten to involve local police or other law enforcement agencies.

• The IRS will never demand payment without allowing opportunities to dispute or appeal.

• The IRS will never request credit, debit or gift card numbers over the phone.

Key IRS Recommendations

• Know the IRS Communication Methods: The IRS will never initiate contact with taxpayers by email, text message, or social media to request personal or financial information. Initial contact is typically made through a mailed letter.
• Questions or Concerns About Your Taxes: Contact your tax professional.
• Report Scams: If you receive a suspicious communication claiming to be from the IRS, report it to the IRS at phishing@irs.gov. You can also report scams to the Federal Trade Commission (FTC) at www.ftc.gov/complaint.
• Protect Personal Information: Be cautious about sharing personal information. The IRS advises taxpayers to use strong passwords, secure their devices, and be wary of phishing attempts.
• Seek Professional Help: If you believe your identity has been compromised, contact this office immediately. The IRS has special provisions for victims of identity theft to protect their tax filings.

What to Do if Scammed – Despite all precautions, scams can still happen. If you or a loved one falls victim to a scam, it’s important to act quickly to minimize the damage. Immediate steps to take:

• Stop Communication: Cease all communication with the scammer immediately. Do not provide any further personal information or make any additional payments.
• Report the Scam: Report the scam to the appropriate authorities. This includes the IRS, the FTC, and your local law enforcement. Reporting the scam can help authorities track down the perpetrators and prevent others from being victimized.
• Contact Financial Institutions: Notify your bank, credit card companies, and any other financial institutions involved. They can help you monitor your accounts for fraudulent activity and take steps to protect your assets.
• Place Fraud Alerts: Place a fraud alert on your credit reports with the major credit bureaus (Equifax, Experian, and TransUnion). This can help prevent further identity theft.
• Review Credit Reports: Obtain and review your credit reports for any unauthorized accounts or activities. You are entitled to a free credit report from each of the major credit bureaus once a year through www.annualcreditreport.com. You may even want to put a freeze on your credit, which will help prevent fraudsters from opening credit accounts in your name or accessing your credit reports. To do so you’ll need to contact the three major consumer credit bureaus. The drawback to doing so is the inconvenience of contacting the credit bureaus again if you need to lift the freeze on your credit card(s).
• Secure Personal Information: Change passwords and security questions on your online accounts. Consider using a password manager to create and store strong, unique passwords.

Long-Term Steps

• Monitor Accounts: Continue to monitor your financial accounts and credit reports regularly for any signs of fraudulent activity.
• Educate Yourself: Stay informed about the latest scams and fraud prevention strategies. The IRS and other organizations regularly update their websites with new information and resources.
• Seek Support: Falling victim to a scam can be emotionally distressing. Seek support from family, friends, or professional counselors if needed.
• Legal Assistance: In some cases, it may be necessary to seek legal assistance to resolve issues related to identity theft or financial fraud.

Scams targeting seniors are a growing concern, but with awareness and proactive measures, older adults can be protected from these threats. By staying informed, verifying communications, and taking swift action, when necessary, seniors and their caregivers can safeguard against fraud and ensure financial security.

Remember, if you or a loved one is ever in doubt about a communication or request, it’s always better to be safe than sorry. Reach out to trusted family members, friends, or professionals for advice and support. Together, we can create a safer environment for our seniors and help them enjoy their golden years without the fear of falling victim to scams.

Every profession has its own best practices but proper accounting and bookkeeping techniques are crucial across the board. Whether you’re a hospital administrator trying to write off equipment costs or a small online retail business with complicated multistate sales tax issues, knowing where you stand financially can help with every aspect of your business operations.

Adopting these seven practices in QuickBooks Online can enhance productivity, ensure data integrity, and improve the accuracy of your financial records month after month — and year after year.

Why Best Practices Matter

Implementing general best practices in your accounting tasks for any type of business can:

• Maintain the integrity of your QuickBooks Online data.
• Improve accuracy in your accounting work.
• Save time.
• Provide valuable insights into your business’s financial health.

These practices can also indirectly strengthen your relationships with customers and vendors. When, for example, you send professional-looking invoices in a timely manner or provide detailed receipts for services rendered, you assure your clients and vendors that you’re looking out for their best interests, and that they can trust you for the long term.

Top 7 QBO Strategies for Modern Business Owners

1. Track 1099 Vendors

If your business employs contractors, mark their 1099 status in their vendor records. This ensures accurate reporting and compliance during tax season. Create and deliver 1099s easily within QuickBooks Online.

2. Regular Reconciliation

Reconciling your accounts after downloading transactions is crucial. This process helps identify errors, discover missing transactions, and provides a better picture of your cash flow situation.

3. Keep Lists Up-to-Date

Over time, your QuickBooks Online file can become cluttered. Regularly update and clean your lists of products, services, customers, and vendors. Make unused records inactive to streamline your data management and avoid confusion.

4. Categorize and Classify Transactions

Properly categorizing and classifying your transactions allows for better data organization and reporting. Use features like Classes, Categories, and Tags to group related transactions and gain deeper insights.

5. Assign User Permissions Carefully

Protect sensitive business data by restricting user access to specific areas and functions. QuickBooks Online allows you to manage user permissions to ensure that only authorized personnel can access critical information, like customer billing details and your company credit card number.

6. Utilize QuickBooks Online Reports

Make full use of QuickBooks Online’s report templates to stay on top of your financial health. Regularly check reports like “Who Owes You” and “What You Owe.” Generate standard financial reports such as Profit and Loss and Statement of Cash Flows for thorough analysis.

7. Security Practices

Always log out of QuickBooks Online when not in use, especially in multi-person offices. It is also wise to avoid using the mobile app on public Wi-Fi networks to protect sensitive company information.

More Than Common Sense

While these best practices may seem like common sense to experienced users, they are essential for new users to understand. Adopting these practices ensures the long-term safety, accuracy, and usefulness of your company data.

Remember, we’re here to help with any questions you might have about using QuickBooks Online effectively. Call us at [phone] to get started.

As Boomers and Gen Xers approach retirement, effective financial planning becomes crucial to ensure a comfortable and secure future. This article outlines essential tax and financial planning strategies tailored to the unique needs of individuals nearing retirement. By understanding and implementing these strategies, you can navigate the complexities of retirement planning with confidence.

Understanding Retirement Goals

Before diving into specific strategies, it’s important to clearly define your retirement goals. Imagine Jane, a 58-year-old marketing executive, who dreams of traveling the world and spending more time with her grandchildren. To achieve this, Jane needs to assess her retirement lifestyle expectations and estimate her retirement expenses. This foundational step helps in creating a realistic financial plan that aligns with her aspirations.

Maximizing Retirement Contributions

One of the most effective ways to prepare for retirement is to maximize contributions to retirement accounts. For those over 50, catch-up contributions allow you to contribute more to your 401(k) and IRA, helping to boost your retirement savings. Take the example of Tom, a 52-year-old engineer, who increased his 401(k) contributions by taking advantage of catch-up provisions. This strategic move significantly enhanced his retirement nest egg, providing him with greater financial security.

Tax-Efficient Withdrawal Strategies

Understanding the tax implications of your retirement accounts is essential. Required minimum distributions (RMDs) must be taken from traditional IRAs and 401(k)s starting at age 73 for years 2023 through 2032. Planning your withdrawals strategically can help minimize your tax burden. Consider the benefits of Roth IRAs, which offer tax-free withdrawals. For instance, Sarah, a 65-year-old business owner, diversified her retirement accounts by converting a portion of her traditional IRA to a Roth IRA. This allowed her to manage her tax liabilities more effectively during retirement.

Social Security Optimization

Maximizing Social Security benefits requires careful planning. Delaying benefits until age 70 can result in higher monthly payments. Evaluate your financial situation to determine the optimal time to claim Social Security. John, a 67-year-old teacher, decided to delay his Social Security benefits until age 70. This decision increased his monthly benefits, providing him with a more substantial income stream during retirement.

Healthcare and Long-Term Care Planning

Healthcare costs can be a significant expense in retirement. Ensure you understand Medicare options and consider supplemental insurance to cover additional costs. Planning for long-term care is also crucial, as these expenses can quickly deplete your savings. Mary, a 60-year-old nurse, invested in a long-term care insurance policy. This proactive step ensured that she would have the necessary resources to cover potential long-term care expenses, protecting her retirement savings.

Estate Planning Essentials

Estate planning is not just for the wealthy. Having a will and, if necessary, a trust, ensures your assets are distributed according to your wishes. Be aware of the tax implications of your estate plan to minimize the tax burden on your heirs. Consider the story of Robert, a 62-year-old entrepreneur, who established a trust to manage his estate. This not only provided clarity on asset distribution but also minimized estate taxes, ensuring a smoother transition for his heirs.

Investment Strategies for Retirement

As you approach retirement, your investment strategy should balance risk and return. Diversification and proper asset allocation can help protect your savings while still providing growth potential. Consider shifting to more conservative investments as you near retirement. Lisa, a 59-year-old financial analyst, rebalanced her investment portfolio to include more bonds and dividend-paying stocks. This strategy reduced her exposure to market volatility while still generating a steady income stream.

Managing Debt Before Retirement

Carrying debt into retirement can be risky. Develop a plan to pay down high-interest debt before you retire. Reducing your debt load can improve your financial security and provide peace of mind. Mark, a 55-year-old architect, focused on paying off his mortgage and credit card debt before retiring. This decision significantly reduced his monthly expenses, allowing him to enjoy a more financially stable retirement.

Selling a Company

For those who own a business, selling the company can be a significant part of retirement planning. Properly valuing the business, understanding the tax implications, and planning the sale can ensure you maximize the financial benefits. Consider the example of Susan, a 60-year-old small business owner, who sought professional advice to prepare her company for sale. By optimizing her business operations and understanding the tax consequences, Susan was able to sell her company at a premium, providing her with a substantial retirement fund.

It’s Not Too Late To Plan

Effective tax and financial planning is essential for Boomers and Gen Xers approaching retirement. By understanding your goals, maximizing contributions, planning tax-efficient withdrawals, optimizing Social Security, preparing for healthcare costs, managing debt, and considering the sale of a business, you can ensure a secure and comfortable retirement.

To navigate these complexities and tailor these strategies to your unique situation, seek professional advice from our office. Our experts can help you analyze best practices and develop a personalized financial plan that aligns with your retirement goals.

Contact us today to start planning for a prosperous retirement.

Social Security benefits serve as a crucial financial backbone for millions of retirees, disabled individuals, and families of deceased workers in the United States. However, the taxation of these benefits often presents a complex landscape for beneficiaries. This article delves into the intricacies of how Social Security benefits are taxed, the conditions under which these benefits become taxable, and strategies to minimize tax liabilities.

These benefits are part of a social insurance program that provides retirement income, disability income, and survivor benefits. Funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA), the Social Security Administration administers these benefits. The retirement benefits an individual receives is based on their lifetime earnings in work in which they paid Social Security taxes, modified by other factors, especially the age at which benefits are claimed. Benefits are adjusted annually for inflation.

Taxation Thresholds and Conditions – The taxation of Social Security benefits is contingent upon the beneficiary’s “combined income,” which includes adjusted gross income, nontaxable interest, and half of the Social Security benefits. The Internal Revenue Service (IRS) uses this combined income to determine the portion of benefits subject to taxation.

For individuals, if the combined income falls between $25,000 and $34,000, up to 50% of the benefits may be taxable. Should the combined income exceed $34,000, up to 85% of the benefits could be taxable. For married couples filing jointly, these thresholds are set between $32,000 and $44,000 for up to 50% taxation, and above $44,000 for up to 85% taxation. When the combined income is less than $25,000 ($44,000 for married joint filers), none of the Social Security benefits are taxable, with an exception for some married taxpayers filing separate returns as noted below.

Railroad Retirement – The taxation rules that apply to Social Security benefits also apply to Railroad Retirement benefits. Railroad Retirement benefits are reported on Form RRB-1099 whereas Social Security benefits are reported on Form SSA-1099.

Married Taxpayers Filing Separate – Some married taxpayers for one reason or another may choose not to file jointly and instead each spouse files a return using the status Married Taxpayer Filing Separately.  Married individuals filing separately generally face taxation on up to 85% of benefits, regardless of combined income, if they lived with their spouse at any point during the tax year.

Survivor Benefits – Social Security survivor benefits are payments made by the Social Security Administration (SSA) to the family members of a deceased person who earned enough Social Security credits during their lifetime. Eligible family members include widows, widowers, divorced spouses, children, and dependent parents.

These benefits are a crucial financial support for families who have lost a wage earner. However, many beneficiaries are unaware that these benefits may be subject to federal income tax, depending on various factors.

Survivor benefits can be taxable and the amount that is taxable is determined in the same manner as for a retiree as discussed previously based on the beneficiary’s total income and filing status.

Children and Social Security Survivor Benefits – A child’s taxable Social Security benefits are treated as unearned income and subject to the Kiddie Tax rules and thus will generally be taxed at their parent’s top marginal tax rate. The Kiddie Tax is designed to prevent parents from shifting large amounts of investment income to their children to take advantage of the child’s lower tax rate.

• If the child only receives Social Security benefits and has no other income, the benefits are typically not taxable, and the child may not need to file a tax return.
• If the child has other income, the taxability of Social Security benefits depends on their “combined income.” Combined income includes the child’s adjusted gross income (AGI), nontaxable interest, and one-half of the Social Security benefits. Basically, the same way a retiree’s benefits are taxed.

Strategies to Minimize Taxation – Beneficiaries can adopt several strategies to minimize the taxation of their Social Security benefits.

• Income Planning – Adjusting the timing and sources of income can help keep combined income below the taxable thresholds. For example, delaying withdrawals from retirement accounts or strategically timing the sale of investments can reduce AGI. If required to take distributions from a traditional IRA or 401(k) account, only take the minimum amount required if possible.
• Tax-Deferred Savings – Contributing to tax-deferred savings accounts, such as traditional IRAs or 401(k)s, can lower AGI, potentially reducing the taxable portion of Social Security benefits. Of course, this suggestion only applies to those who have earned income (wages, self-employment income).
• Tax-Efficient Investments – Investing in tax-efficient vehicles, such as Roth IRAs or growth stocks that aren’t currently paying dividends, can generate income that doesn’t count toward combined income, thus reducing the taxability of Social Security benefits.
• Deductions and Credits – Taking advantage of all eligible tax deductions can lower AGI, which in turn can reduce the taxable portion of Social Security benefits.

Other Issues

• Tax Withholding on SS Benefits – Taxpayers can elect to have federal income tax withheld from their Social Security benefits and/or the SSEB portion of Tier 1 Railroad Retirement benefits. Use Form W–4V to choose one of the following withholding rates: 7%, 10%, 12%, or 22% of the total benefit payment (flat dollar amounts aren’t permitted). Once completed, the W-4V form can either be mailed or faxed to the Social Security Administration.
• Same-Sex Married Couples – The Supreme Court determined that same-sex couples have a constitutional right to marry in all states.  As a result, the Social Security Administration says that same-sex couples will be recognized as married for purposes of determining entitlement of Social Security benefits. Therefore, their Social Security benefits are taxed the same way as for married taxpayers.
• Gambling & Social Security Taxation – For tax purposes gambling winnings are added to a taxpayer’s income while gambling losses are deducted as an itemized deduction. Thus, even if the gambling resulted in a net loss, the full amount of the gambling winnings is added to the combined income which can make more of the Social Security benefits be taxable or cause some of the benefits to be taxable at the higher 85% rate.

Example: Suppose the combined income, without considering gambling income, for a married couple filing a joint return is $30,000. That is below the combined income Social Security taxable income threshold of $32,000. Thus, none of the couple’s Social Security benefits are taxable. However, suppose the couple are recreational gamblers and for the year had winnings of $20,000 and losses of $21,000 for a net gambling loss of $1,000. Because the gains and losses are not netted, the $20,000 of gambling winnings is added to the combined income, bringing it to $50,000, which makes nearly all the Social Security benefits taxable.

To make matters even worse, if a taxpayer is covered by Medicare, the Medicare premiums are based on the taxpayer’s income two years prior, so the gambling winnings might very well also cause an increase in future Medicare premiums. If married taxpayers are both covered by Medicare, the increase would apply to each spouse.

• Lump-Sum Payments – Some SS beneficiaries may receive a lump-sum payment that includes benefits for previous years. Special rules apply for reporting and taxing these payments, allowing beneficiaries to potentially reduce their tax liability.
• State Taxes – While this article focuses on federal taxation, it’s important to note that some states also tax some or all Social Security benefits, which as of 2023 included Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont.
• International Aspects and Treaties – The taxation of Social Security benefits also has international dimensions. The U.S. has entered tax treaties with several countries, which can affect how benefits are taxed for residents and nationals of those countries. For instance, benefits paid to individuals who are both residents and nationals of treaty countries may be exempt from U.S. tax.

The taxation of Social Security benefits has evolved since its inception nearly 90 years ago, and future legislative changes could further impact how these benefits are taxed. Beneficiaries and financial planners must stay informed about these changes to effectively manage tax implications. This article includes issues in effect as of April 1, 2024.

If you have questions related to taxation of Social Security benefits, please contact this office.

Proper accounting is the backbone of any successful small business. It ensures that your financial records are accurate, helps you make informed decisions, and keeps you compliant with tax regulations.

However, many small business owners, who juggle multiple responsibilities, often commit common accounting mistakes that can lead to significant issues down the line. Avoiding these mistakes can save you time, money, and stress.

Here, we discuss the top five accounting mistakes small business owners make and how to avoid them.

Mixing Personal and Business Finances

Explanation:

One of the most common mistakes small business owners make is mixing personal and business finances. This often happens when owners use the same bank account or credit card for both personal and business expenses. While it may seem convenient, this practice can lead to a host of problems.

Consequences:

Mixing personal and business finances can result in inaccurate financial records, making it difficult to track business performance and manage cash flow. It can also complicate tax filings, as separating personal and business expenses becomes a tedious task. Moreover, it can expose you to legal risks, as it may undermine the limited liability protection offered by certain business structures, such as LLCs and corporations.

Solution:

To avoid this mistake, open separate bank accounts and credit cards for your business. This will help you maintain clear and accurate financial records. Additionally, consider using accounting software that allows you to categorize and track expenses easily. Keeping personal and business finances separate will simplify your bookkeeping and tax preparation, and provide a clearer picture of your business’s financial health.

Neglecting Regular Bookkeeping

Explanation:

Regular bookkeeping is essential for maintaining organized financial records. However, many small business owners neglect this task, either due to lack of time or because they underestimate its importance. This neglect can lead to disorganized records and financial chaos.

Consequences:

Failing to keep up with regular bookkeeping can result in missed deductions, cash flow problems, and inaccurate financial statements. It can also make it challenging to identify and rectify errors promptly. In the long run, neglecting bookkeeping can hinder your ability to make informed business decisions and may lead to costly penalties during tax season.

Solution:

Set aside dedicated time each week to update your books. This can be as simple as entering receipts, reconciling accounts, and reviewing financial statements. If you find it challenging to manage bookkeeping on your own, consider hiring a professional bookkeeper. A professional can ensure that your records are accurate and up-to-date, allowing you to focus on growing your business.

Failing to Track Expenses Accurately

Explanation:

Accurate expense tracking is crucial for understanding your business’s financial health and maximizing tax deductions. However, many small business owners fail to track all their expenses accurately, leading to incomplete financial records.

Consequences:

Inaccurate expense tracking can result in missed deductions, which means you may end up paying more in taxes than necessary. It can also lead to inaccurate financial statements, making it difficult to assess your business’s profitability and financial position. Additionally, poor expense tracking can complicate budgeting and cash flow management.

Solution:

Use accounting software or mobile apps to track expenses in real time. These tools can help you categorize expenses, attach receipts, and generate reports effortlessly. Make it a habit to record expenses as they occur, rather than waiting until the end of the month. Accurate expense tracking will ensure that you capture all eligible deductions and maintain precise financial records.

Not Reconciling Bank Statements

Explanation:

Reconciling bank statements involves comparing your business’s financial records with your bank statements to ensure they match. This process is essential for identifying discrepancies and maintaining accurate records.

Consequences:

Failing to reconcile bank statements can lead to errors, fraud, and discrepancies in your financial records. It can also result in missed transactions, such as bank fees or interest, which can affect your cash flow. Inaccurate records can complicate tax filings and financial reporting, potentially leading to penalties and audits.

Solution:

Make it a practice to reconcile your bank statements monthly. Use accounting software to automate the process and flag discrepancies for review. Regular reconciliation will help you catch errors early, prevent fraud, and ensure that your financial records are accurate and up-to-date.

Ignoring Cash Flow Management

Explanation:

Cash flow management is the process of monitoring, analyzing, and optimizing the flow of cash in and out of your business. It is critical to ensure that your business has enough liquidity to meet its obligations and invest in growth opportunities.

Consequences:

Poor cash flow management can lead to an inability to pay bills, meet payroll, or invest in growth opportunities. It can also result in increased borrowing costs and financial stress. Ignoring cash flow management can ultimately jeopardize your business’s survival.

Solution:

Create a cash flow forecast to project your business’s cash inflows and outflows over a specific period. Regularly monitor your cash flow to identify trends and potential issues. Implement strategies to optimize cash flow, such as offering early payment discounts to customers, negotiating favorable payment terms with suppliers, and managing inventory efficiently. Effective cash flow management will ensure that your business remains solvent and can seize growth opportunities.

How to Get Help

Avoiding these common accounting mistakes is crucial for the success and sustainability of your small business. Proper accounting practices will help you maintain accurate financial records, make informed decisions, and stay compliant with tax regulations. However, dealing with accounting issues can be complex and time-consuming. Let our office handle the heavy lifting for you. Contact us today to learn how we can help you keep your books in order and your business on track.

As a small business owner, one of your primary goals should be to maximize your business deductions to minimize your tax liability. Effective tax planning can significantly impact your bottom line, allowing you to reinvest more into your business. This comprehensive guide will cover various strategies and deductions available to small business owners, including those related to new businesses, legal and professional fees, spousal joint ventures, self-employed health insurance, home offices, business equipment, advertising expenses, website costs, financing, vehicle expenses, entertainment, depreciation, material and supply expensing, de minimis safe harbor expensing, routine maintenance, bonus depreciation, Section 179 expensing, business meals, the qualified business income deduction, and the effects of the Tax Cuts and Jobs Act (TCJA) sunsetting after 2025.

New Businesses – Starting a new business involves various costs, many of which can be deducted to reduce your taxable income. Normally, the costs of starting a business must be amortized (deducted ratably) over 15 years. However, you can elect to deduct up to $5,000 of start-up expenses and $5,000 of organizational expenses in the first year. Qualified start-up costs include:

• Surveys/analyses of potential markets, labor supply, products, transportation facilities, etc.
• Wages paid to employees, and their instructors, while they are being trained.
• Advertisements related to opening the business.
• Fees and salaries paid to consultants or others for professional services; and
• Travel and related costs to secure prospective customers, distributors and suppliers.

Each of the $5,000 amounts is reduced by the amount by which the total start-up expenses or organizational expenses exceeds $50,000. Expenses not deductible in the first year of the business must be amortized over 15 years.

Legal and Professional Fees – Legal and professional fees incurred in setting up your business fall under the organizational expense first year deduction of $5,000 and the balance would be amortized over 15 years. After your business is operational, these fees can be expensed as they are incurred. This includes costs for legal advice, accounting services, and consulting fees, which are essential for maintaining compliance and optimizing business operations.

Spousal Joint Ventures – For married couples running an unincorporated business together, it’s common but incorrect to report all income as one spouse’s sole proprietorship. Instead, you should consider a spousal joint venture, allowing both spouses to report income and expenses on separate Schedule C forms. This approach enables both spouses to accumulate Social Security benefits and contribute to retirement accounts.

In addition, to claim a childcare credit, both spouses on a joint return must have earned income (or imputed income if one of the spouses is a full-time student or is disabled), so unless the non-Schedule C spouse has another source of earned income, the couple would not be allowed a childcare credit. There are two ways to remedy this situation, either: (1) by establishing a partnership or (2) a joint venture (each spouse files a Schedule C with their share of the income, deductions, and credits).

Self-Employed (SE) Health Insurance – Rather than deducting health insurance as an itemized deduction medical expense subject to the 7.5% of AGI reduction, self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouses, and dependents above the line, reducing your adjusted gross income (AGI) and potentially qualifying you for other tax benefits. However, this deduction is limited to the net income of the business. The deduction for SE health insurance is allowed even if the self-employed individual uses the standard deduction rather than itemizing deductions on Schedule A.

Self-Employment Tax Deduction – Sole proprietors with more than a minimal amount of profit from their business are required to pay self-employment tax (their contribution to the Social Security and Medicare programs, like the payroll taxes of employees). There is a deduction element to this tax. As a self-employed individual you may deduct 50% of your SE tax liability for the tax year. Like the self-employed health insurance deduction, the SE tax deduction is claimed as an above-the-line-deduction in computing adjusted gross income (AGI). You do not need to itemize deductions to claim the deduction.

Insurance – A range of insurance premiums are deductible for sole proprietors, if they are deemed necessary and ordinary for your business operations. This includes health insurance, liability insurance, property insurance, and auto insurance for vehicles used in your business.

Home Office – Small business owners may qualify for a home-office deduction, which will help them save money on their taxes and benefit their bottom line. Taxpayers can generally take this deduction if they use a portion of their home exclusively for their business and on a regular basis. Plus, this deduction is available to both homeowners and renters. There are two methods to determine the amount of a home-office deduction:

• Actual-Expense Method – The actual-expense method prorates home expenses based on the portion of the home that qualifies as a home office, which is generally based on square footage. Aside from prorated expenses, 100% of directly related costs, such as painting and repair expenses specific to the office, can be deducted. Unlike the simplified method, the business-use percentage for the calculation is not limited to 300 square feet.
• Simplified Method – The simplified method allows for a deduction equal to $5 per square foot of the home used for business, up to a maximum of 300 square feet, resulting in a maximum simplified deduction of $1,500.

A taxpayer may elect to take the simplified method or the actual-expense method (also referred to as the regular method) on an annual basis. Thus, a taxpayer may freely switch between the two methods each year. In addition, when using the simplified method, the taxpayer need not account for the home office depreciation when computing the gain when and if the home is sold.

Additional office expenses such as utilities, insurance, office maintenance, etc., are not allowed when the simplified method is used. Prorated rent or home interest and taxes are not either, although 100% of home interest and taxes are deductible as non-business expenses if the taxpayer itemizes deductions.

Qualified Business Income Deduction – The TCJA introduced the Qualified Business Income (QBI) deduction, allowing eligible pass-through entities to deduct up to 20% of their qualified business income. This deduction is subject to various limitations and phase-outs based on income levels and business types. Proper planning is essential to maximize this valuable deduction.

Advertising Expenses – Once the business is operating, all forms of advertising are generally currently deductible expenses, including promotional materials such as business cards, digital or print advertisements, and other forms of advertising. However, any advertising expense incurred before a business begins functioning would be treated as a start-up expense. Trade shows are a form of advertising, and if a business purchases their own custom trade show booth, that booth can generally be totally or mostly expensed in the year purchased using bonus depreciation or Sec 179 expensing.

Website Costs – Website development and maintenance costs are deductible as business expenses. Initial development costs can be amortized over three years, while ongoing maintenance and updates can be expensed in the year incurred. A well-maintained website is crucial for attracting and retaining customers in the digital age.

Financing – Interest on business loans is deductible, reducing your taxable income. This includes interest on loans for purchasing equipment, real estate, or other business needs. Properly managing your business financing can optimize cash flow and support growth initiatives.

But be careful not to mix personal and business interest expenses. Banks are usually reluctant to lend money on a startup business. However, an equity loan on your home will generally achieve a lower interest rate anyway, and the interest can be traced to and deductible as business interest.

Vehicle Expenses – If you use your car for business purposes you can deduct its business use by using either the standard mileage method, which allows a per mile amount, or the actual expense method. However, both methods require that you track your business and total mileage for the year. If using the standard mileage method, you need to know the number of business miles driven, and if using the actual method, you will need to prorate the actual operating expenses including fuel, insurance, repairs, and depreciation by the percentage of business miles to total miles. You can also deduct tolls and parking fees with either method.

• Record Keeping – Both the standard mileage and the actual expense methods offer unique advantages and requirements, but one common thread is the necessity of meticulous record keeping. To claim the standard mileage rate, you must be able to substantiate the business use of your vehicle. This means keeping a detailed log of each trip, including the date, destination, purpose, and miles driven.
• Business vs. Personal Use – If you use your vehicle for both business and personal purposes, you must allocate expenses based on the percentage of business use. Accurate records of both business and personal mileage are essential to calculate this percentage correctly.

In the event of an IRS audit, your mileage log serves as evidence to support your deduction claims. Without proper records, you risk having your deductions disallowed, which could result in additional taxes, penalties, and interest.

Meal Deductions – Meal expenses are deductible under certain conditions. These expenses must be ordinary and necessary for carrying on a trade or business, and not lavish or extravagant under the circumstances. However, the percentage of a qualified business meal that is deductible has varied in recent years.

• Prior to 2021 – Businesses were only allowed to deduct 50% of the cost of a qualified meal.
• 2021 and 2022 – In response to the COVID-19 pandemic, the Consolidated Appropriations Act, 2021, introduced a temporary provision allowing a 100% deduction for business meals provided by restaurants. The aim was to support the struggling restaurant industry by encouraging businesses to spend more on qualified meals.
• After 2022, the allowable deduction has reverted to 50% of the cost of a qualified meal.

Qualified meal deductions are basically in two categories, business meals and away from home meals:

• Business Meals – The taxpayer or an employee must be present at the meal. Additionally, the meal must be provided to a current or potential business customer, client, consultant, or similar business contact.
• Away From Home Meals – When there is travel away from home on business, the traveler may deduct 50% of the cost of their own meals. For instance, if a self-employed individual goes on a business trip and incurs meal expenses, they can deduct 50% of those costs. If they dine with a business contact, they can also deduct 50% of the cost of the contact’s meal. The temporary 100% deduction for restaurant-provided meals in 2021 and 2022 also applied to away-from-home meals.

Instead of actual meal costs, self-employed individuals can use an optional rate method, also called the standard meal allowance, in effect for the year, with the rate generally higher for major cities, resort areas and other locations in the U.S. The per diem rates for 2024 range from a low of $59 to $79. The applicable rates can be found at the following web site: www.gsa.gov/perdiem

• Recordkeeping and Compliance – To claim business meal deductions, taxpayers must maintain detailed records. This includes keeping receipts, invoices, or other documentation that substantiates the expense. The IRS requires that the records clearly indicate the amount, date, location, and business purpose of the meal, as well as the identities of the individuals involved.
• Entertainment – The Tax Cuts & Jobs Act (TCJA) essentially eliminated the deduction for most entertainment expenses, but you can still deduct 50% of business meals if they are directly related to your business. This includes meals with clients, prospects, and employees. Proper documentation is essential to substantiate these deductions.

Away From Home Lodging Expenses – Self-employed individuals are not entitled to use the federal per diem rates to substantiate lodging expenses under any circumstances. There is no optional standard lodging amount like the standard meal allowance. The allowable lodging expense deduction is the taxpayer’s actual cost as documented by receipts.

Deducting the Cost of Business Supplies and Equipment – From time to time, an owner of a small business will purchase equipment, office furnishings, vehicles, computer systems and other items for use in the business. How to deduct the cost for tax purposes is not always an easy decision because there are several options available, and the decision will depend upon whether a big deduction is needed for the acquisition year or more benefit can be obtained by deducting the expense over several years using depreciation. The following are the write-off options currently available.

• Material & Supply Expensing – IRS regulations allow certain materials and supplies that cost $200 or less, or that have a useful life of less than one year, to be expensed (deducted fully in one year) rather than depreciated. This simplifies accounting and provides immediate tax benefits for necessary business purchases.
• De Minimis Safe Harbor Expensing – The de minimis safe harbor rule allows businesses to expense purchases up to $2,500 per item or invoice, or $5,000 if the business has an applicable financial statement. This rule simplifies record-keeping and provides flexibility in managing smaller capital expenditures.
• Routine Maintenance – IRS regulations allow a deduction for expenditures used to keep a unit of property in operating condition where a business expects to perform the maintenance twice during the class life of the property. Class life is different than depreciable life. Here are examples of the class life and depreciable life differences for some items commonly used in business:
  

  Depreciable Item	Class Life	Depreciable Life
  Office Furnishings	10	7
  Information Systems	6	5
  Computers	6	5
  Autos & Taxis	3	5
  Light Trucks	4	5
  Heavy Trucks	6	5

• Depreciation – Depreciation is the normal accounting way of writing off business capital purchases by spreading the deduction of the cost over several years. The IRS regulations specify the number of years for the write-off based on established asset categories, and generally for small business purchases the categories include 3-, 5- or 7-year write-offs. The 5-year category includes autos, small trucks, computers, copiers, and certain technological and research equipment, while the 7-year category includes office fixtures, furniture and equipment. The cost of nonresidential real property (buildings) used in business is depreciated over 39 years.
• Bonus Depreciation – The tax code provides for a first-year bonus depreciation that allows a business to deduct 100% of the cost of most new or used tangible property if it is placed in service during 2022. This provides a larger first-year depreciation deduction for the item. Bonus depreciation is a temporary provision and for eligible business property bought after 2022, the rates drop to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and nothing after 2026. When the bonus depreciation rate is less than 100%, the difference between the cost of the item and the bonus write-off amount is eligible for regular depreciation.
• Sec 179 Expensing – Another option provided by the tax code is an expensing provision for small businesses that allows a certain amount of the cost of tangible equipment purchases to be expensed in the year the property is first placed into business service. This tax provision is commonly referred to as Sec. 179 expensing, named after the tax code section that sanctions it. The expensing is limited to an annual inflation adjusted amount, which is $1,220,000 ($610,000 for taxpayers filing as married separate) for 2024. To ensure that this provision is limited to small businesses, whenever a business has purchases of property eligible for Sec 179 treatment that exceed the year’s investment limit ($3,050,000 for 2024), the annual expensing allowance is reduced by one dollar for each dollar the investment limit is exceeded.

  An undesirable consequence of using Sec. 179 expensing occurs when the item is disposed of before the end of its normal depreciable life. In that case, the difference between normal depreciation and the Sec. 179 deduction is recaptured and added to income in the year of disposition.

• Mixing Bonus and Section 179 Expensing – Businesses can combine bonus depreciation, regular depreciation, and Section 179 expensing to maximize deductions. This flexibility allows businesses to tailor their tax strategy to their specific needs, optimizing cash flow and tax savings.
• Pension Plans – Contributions to retirement plans, such as SEP IRAs or solo 401(k)s, are deductible. These plans allow for significant contributions, reducing taxable income while saving for retirement. For example, in 2024, the contribution limit for a SEP IRA is up to 25% of compensation (20% of the net business profit) or $69,000, whichever is less. If you have employees, your contributions to their retirement plans are deductible from your business income. However, your contributions to your own plan, while deductible from your adjusted gross income, are not an expense of your self-employment business.
• Pension Start-Up Credit – Where a small employer does not already have a pension plan, there is a tax credit for the costs of establishing a retirement plan, up to $500 per year per eligible employee for the first three years of the plan, maximum $5,000 per year. This can include setup and administrative costs.
• Employee Payroll – Wages paid to employees, including salaries, bonuses, commissions, and certain fringe benefits, are deductible business expenses. This encompasses all forms of compensation given to an employee for services performed, regardless of how the compensation is measured or paid. In addition. employers can also deduct the costs associated with payroll taxes. These taxes include the employer’s share of Social Security and Medicare taxes, federal unemployment taxes (FUTA), and state unemployment taxes.
• Hiring Your Children – Where they can provide meaning services, hiring your children can be a smart move for both your business and your family. Not only does it provide your children with valuable work experience and instill a strong work ethic, but it also offers significant tax advantages. By employing your children, you can shift income from your higher tax bracket to their lower one, potentially reducing your taxable income and saving on taxes.
• Research Credit – The Research and Development (R&D) Tax Credit allows businesses to deduct expenses related to research and development activities. This can include wages, supplies, and contract research expenses. For a sole proprietor developing a new product, the costs associated with design, testing, and prototyping could be eligible for this credit.
• Accountant and Bookkeeping Fees – Including those related to tax preparation, payroll services, bookkeeping and other financial management activities, are generally deductible expenses for businesses. These costs are considered necessary and ordinary expenses incurred in the operation of a business.
• It’s important for business owners to maintain detailed records of these expenses to substantiate their deductions during tax filing. Consulting with a tax professional can provide further insights into how to maximize these deductions while adhering to the IRS guidelines.

Effects of TCJA Sunsetting After 2025 – Many provisions of the TCJA, including the QBI deduction and increased bonus depreciation, are set to expire after 2025. Business owners should be aware of these changes and plan accordingly. Strategies may include accelerating deductions and income recognition to take advantage of current tax benefits before they expire.

Maximizing business deductions requires careful planning and a thorough understanding of the tax code. By leveraging available deductions and credits, small business owners can significantly reduce their tax liability and reinvest savings into their business.

Summer is the perfect time to relax and enjoy the warm weather, but accounting tasks can eat into your valuable leisure time. The last thing you need is to spend unnecessary hours on repetitive financial activities for your small business. If you’ve created a record or transaction once, you don’t want to have to enter the information a second or third time.

That’s where QuickBooks Online comes in, with its powerful recurring transactions feature designed to streamline your accounting processes and free up time for what matters most.

Using QuickBooks Online is superior to manual accounting because it “remembers” everything, allowing you to reuse data when needed. However, like all technology, sometimes QBO requires a bit of guidance, especially for recurring transactions. If you have forms that you create repeatedly with minimal changes, like utility bills, for instance, you can tell the software to  “memorize” these transactions. When the bill comes around the next month, you can quickly modify any necessary details and dispatch it again.

Here’s how it works.

Three Options for Recurring Transactions

To get started, enter a transaction you want to save and reuse (with changes). For example, let’s say it’s an invoice you send to a customer monthly for a service contract. After completing the form, look toward the bottom of the screen and click “Make recurring.” The screen will now read “Recurring Invoice,” displaying new options.

You can specify transactions as recurring and add details like frequency and start/end dates. If you want to change the template name to something more descriptive, you can easily do so. Under the “Interval” field, select “Daily”, “Weekly”, “Monthly”, or “Yearly”, and indicate the specific day of the month the transaction should occur. Enter a “Start” date and “End” date, or select “None” if the service is open-ended.

Next to the template name is a field labeled “Type”. QuickBooks Online gives you three options for handling the recurring transaction:

• Scheduled: This automated option sends the transaction as scheduled without any intervention from you. Only the date will change. Use this option with caution to ensure all details remain accurate.
• Reminder: QuickBooks Online sends you a reminder ahead of the scheduled date. You can specify how many days in advance you want to be notified. This allows you to make any necessary changes before sending out the transaction.
• Unscheduled: QuickBooks Online saves your template but takes no further action until you manually process it.

When you’ve completed all the required fields, click “Save template” in the lower left.

Using Recurring Transactions

If you’ve chosen the “Scheduled” option for any transactions, you don’t need to do anything more until you want to change its content or status.

To find your list of recurring transactions for those marked as “Reminder” or “Unscheduled”, click the gear icon in the upper right of the QuickBooks Online screen. Under Lists, click “Recurring transactions.”

The screen that opens displays a table containing all your recurring transactions. You can learn almost everything you need to know about these transactions here: “Template Name”, “Type”, “Transaction Type”, “Interval”, “Previous Date”, “Next Date”, “Customer/Vendor”, and “Amount”.

The last column in the table, labeled “Action”, opens a menu with different options depending on the type of transaction. For our “Reminder” example, you can:

• Edit (edit the template, not the transaction)
• Use (open the original transaction that you can edit, save, and send)
• Duplicate (duplicate the template)
• Pause (temporarily stop sending reminders)
• Skip next date
• Delete

Looking Ahead

As you dive into the rest of 2024, consider whether QuickBooks Online is meeting all your needs. If you’re starting to outgrow your current version, we’d be happy to discuss the benefits of upgrading to another service level, such as Essentials, Plus, or Advanced.

Alternatively, if your current version has features you need but you can’t quite figure them out, let us know. Our goal is to make the second half of 2024 productive and stress-free for you, ensuring your accounting processes are as efficient and painless as possible.