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

March 10, 2025 by admin

Interest rate finance and mortgage rates. Wooden block with percentage sign on many level of stack of coin. Financial growth, interest rate increase, inflation, sale price and tax rise concept. 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.

Is Your Favorite Pastime Turning Into a Small Business? The IRS Wants to Know.

February 10, 2025 by admin

If you’re making $400 or more on your hobby, it’s time to start declaring it on your income taxes.

We take on hobbies because we enjoy them. But at some point, we sometimes get enough people wanting the woven towels or the birdhouses or the Christmas ornaments we make that it’s time to start charging for them. Supplies cost money, and your time is certainly worth something.

A lot of people get started that way. Before you know it, they’ve set up a shop on Etsy and started exhibiting at craft shows. At what point does this become a business, they may ask themselves.

If you’re bringing in $400 or more per year on your side gig, you should know that there are two good reasons why you should be reporting your business on your Form 1040:
• You’ll be able to deduct at least some of your expenses, and,
• The IRS mandates it.

8 Questions

When your hobby becomes a small business, you’ll have to complete and file a Schedule C with your 1040.

If your personal enterprise has turned a profit in three of the last five years, it’s quite likely that your creative endeavors have become something that requires a Schedule C along with your 1040. The IRS suggests that you ask yourself eight questions to help determine whether it considers you a business and not a hobby. They go something like this:

1. Does the time and effort you put into the activity show you intend to make a profit?

2. Does the activity make a profit in some years, and if so, how much profit does it make?

3. Can you expect to make a future profit from the appreciation of the assets used in the activity?

4. Do you depend on income from the activity for (at least part of) your livelihood?

5. Are any losses due to circumstances beyond your control or are the losses normal for the startup phase of your type of business?

6. Do you change your methods of operation to improve profitability?

7. Do you carry out the activity in a businesslike manner and keep complete and accurate books and records?

8. Do you and any advisors you might work with have the knowledge needed to carry out the activity as a successful business?

How Will You Report Your Income?

Depending on how much money you make and where/how you sell your products, you may receive a 1099 of some sort. If you accept credit cards, it will most likely be the 1099-K: Payment Card and Third-Party Network Transactions. If you take checks and cash, you’ll have to add it all up yourself. Keep any documentation you have if this is the case. You’ll report this on your Schedule C.

How Will You Know If An Expense Is Deductible?

Some business expenses are obvious. If you’re making birdhouses, for example, everything you buy to assemble them should be considered part of your Cost of Goods Sold. If you’re buying products wholesale and reselling them, that should be deductible, too.

But there’s a lot of gray area. The IRS says that legitimate business expenses are those that are “ordinary and necessary.” An ordinary expense is one that is typical and widely accepted in your industry. A necessary expense, on the other hand, is one that is useful and appropriate for your business operations. An expense doesn’t need to be essential to qualify as necessary.

Some small business owners really stretch the interpretation of “ordinary and necessary.” There’s a famous case where a company that had a warehouse tried to deduct the cost of cat food. The contents of the warehouse were attracting rodents and snakes, and they wanted to feed stray cats who would keep the population of unwanted visitors down. The IRS accepted it as a legitimate business expense.

Our point here is not that you should try to find some outlandish business expenses to deduct. But we want you to really think about what it costs you to do business. If you’re ever audited, you’ll have to make a case to the IRS about why you claimed a particular purchase as necessary for your business. Keep meticulous records of your purchases.

On to a New Year

Keep these things in mind as we move into a new year – and tax preparation season. You may want to consider reclassifying your hobby as a business and filing a Schedule C with your 1040. We’re not IRS auditors, of course, so we can’t tell you whether a certain purchase will be considered a deductible business expense. But we can help you deal with the tax-related issues you’ll face should you decide it’s time for you to start claiming income and expenses for your pastime-turned-business.

How to Set Up a Bookkeeping Cycle in QuickBooks Online

January 10, 2025 by admin

Young female financier with calculator working inside office at workplace, businesswoman behind paper work satisfied smiling, good achievement results, working with contract, accounts and charts. Do you have a regular schedule you follow with your QuickBooks Online work? It can be a good strategy.

Bookkeeping is cyclical. You tend to do the same things over and over, which may get to be a bit of a drag for you. QuickBooks Online can automate some processes, and it certainly helps minimize duplicate data entry, but you’ll undoubtedly find yourself growing weary of repetitive tasks.

We can’t help you avoid this drudgery completely, but we’d like to suggest a new, more organized way to attack your accounting tasks in 2025. It could be especially helpful if you’re a new QuickBooks Online user and don’t have a routine established yet. But even long-time users might find this routine helpful. It can keep things from slipping through the cracks and simply make you more productive and confident that you’re addressing all of your accounting issues.

Give it a try and see what you think.

What Should You Do Every Day?

Even if you don’t have expenses to enter or invoices to process, it’s a good idea to log into QuickBooks Online every day. If you’ve connected your online bank and credit cards to the site (which you absolutely should), there will probably be transactions to go over. So after you’ve taken a look at your Dashboard (especially your Tasks), hover your mouse over Transactions in the toolbar and click Bank transactions.

Click Update in the upper right to make sure you’re seeing the most recent transactions. If you’re doing this every day, it shouldn’t take long to go over the income and expenses that have been imported since you last logged in.

You should be looking at newly imported transactions daily and completing the fields provided as comprehensively as possible.

If you don’t know what Match or Record as transfer mean, we should schedule a session to go over transaction management in QuickBooks Online.

Every Week

You need to be monitoring your accounts receivable and payables on a weekly basis – at minimum. There are two ways to do this. You can:

Run reports.

• Click Reports in the toolbar and scroll down first to Who owes you. Run Accounts receivable aging summary. QuickBooks will display past-due transactions in several columns (Current, 1-30 days, 31-60 days, 61-90 days, and 91 and over). If you’re keeping up with your receivables, you shouldn’t be seeing numbers in most of the columns, unless you’re in a known collections process.

• Scroll down to What you owe and run Accounts payable aging summary. This works like the aging receivables report. Again, you shouldn’t be seeing much activity here unless you’re in a payment dispute with a vendor.

• You can also run the Open Invoices report to quickly see the Due date and Open balance entries here. Ditto the Unpaid Bills report.

Consult the All sales page.

Hover your mouse over Sales in the toolbar and click All sales. The colored bars and numbers at the top of the page show you the status of your sales. Click the orange bar in the middle to see a list of overdue invoices. If there are any, you can set a Send reminder by clicking the corresponding down arrow in the Action column. While you’re there, look at estimates and unbilled income and take any action needed.

Every Two Weeks (or more often, depending on product volume)

If you sell products and track inventory in QuickBooks Online, you should keep a close eye on your stock to see if you need to:

• Reorder,

• Bring in a larger supply because something is selling well, or,

• Discount or discontinue a product because it’s not selling.

Click Reports in the toolbar and run Product/Service List under Sales and customers and look at the Quantity on hand column.

Every Month

Reconcile your accounts (Transactions | Reconcile).

It’s really, really important that you reconcile your accounts every month. We can help you with this.

No one likes to do this, but it’s way easier to do regular reconciliations than it is to have to go back several months to track down a problem. If you’ve never done this in QuickBooks Online, it works similarly to how you used to reconcile your accounts by comparing a bank statement and your paper checkbook register. Only you’re comparing your bank or credit card statements to your accounts in QuickBooks Online. Before you start, make sure you’ve matched and categorized all of your downloaded transactions.

Run a Profit and Loss report for the last month.

Click Reports in the toolbar and click Profit and Loss under Business overview. Did you make a profit last month?

Every Quarter

If you’re planning to apply for a loan or looking for an investor, or if you just want a deeper understanding of how your business is doing, consider having us create and analyze standard financial reports for you, like the Balance Sheet and Statement of Cash Flows. You can run these yourself in QuickBooks Online, but it really takes an accountant’s eye to understand and interpret them.

If you decide that you want to work with us in any capacity, like helping you with reconciliation and/or modifying your Chart of Accounts, there’s another way we can help. If you ever have trouble categorizing an expense, select Uncategorized Expenses as the Category. If we’re meeting with you once a month, we can run a report on these and help you categorize them correctly.

Valuing Your Estate’s Assets

December 17, 2024 by admin

Estate planning abstract concept vector illustration. Real estate assets control, keep documents in order, trust account, attorney advise, life insurance, personal possession abstract metaphor. In estate planning, you often come across the term “fair market value.” However, some assets are easier to value than others.

The IRS defines fair market value as “the value at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

Some assets are easily valued. A stock, for example, that is listed on a major exchange can be valued simply by averaging the highest and lowest quoted selling price for that day. That price, multiplied by the number of shares you own, gives you the value of your stock on that day. Establishing value on most other property is not quite as easy, though. Let’s look at other forms of property and how they might be valued for estate tax purposes.

Real property. There are numerous factors that have to be considered, such as the size, shape, and location of the property, zoning restrictions, its potential use, and the value of surrounding property. The value of the buildings depends on whether they are rental properties, the present cost of reproducing them, and their loss of value because of depreciation. Also, certain properties, such as farm or business property, have special valuation issues that must be considered for estate tax purposes.
Personal property. Property such as your car, furniture, jewelry, etc., will be valued according to the definition mentioned above. If you have a house full of possessions, each object will be valued separately. Professional appraisals may be necessary for items such as collectibles or one-of-a-kind possessions.
Life insurance. Whether or not life insurance will be included in your estate depends on a number of factors. Do you own the policy or policies? Did you hold any incidents of ownership at the time of your death or did you transfer the ownership or incidents of ownership within three years of your death? Also, any insurance proceeds payable to your estate will be included in your estate for estate tax purposes. The value of the insurance is generally the lump-sum amount of the insurance proceeds.
Stock of closely held corporations. A professional appraisal is usually required. This stock is not often traded and, as a result, is difficult to value. Factors in valuation include: the nature and history of the business, its financial condition, its future outlook, its goodwill, and the market price of the stock of corporations in a similar business.
Professional practice. This is more difficult to value than other types of businesses because so much is dependent on the professional’s expertise. If, for example, a dentist dies, his or her family can’t simply take over the practice unless a family member happens to be a licensed dentist. The valuation will depend to a great degree on the practice’s client base, fee structure, competition, source of payments, strength of staff, location, and assets.

Regularly putting a value on your estate is a good idea because it allows you to plan for the payment of bequests, debts, and estate taxes. But it is only one step in the estate planning process. Your legal, tax, and financial professionals can help you understand the steps you need to take.

Projects That Add to the Value of Your Home

November 19, 2024 by admin

Middle aged couple at home planning living room design You only have to look at the number of home remodeling shows on television to understand just how many people enjoy watching others upgrade their living spaces. These popular home remodeling shows have inspired many people to try their own hands at various remodeling projects.

If you are interested in having work done on your living space or doing it yourself, you should understand that some remodeling and construction projects will enhance the value of your home as well as its appearance. Other remodeling projects may be on your wish list and make you happy but won’t materially affect the value of your home.

What projects will add to the value of your home? According to the “2023 Cost vs. Value Report” conducted by Remodeling, a leading trade publication/platform, the top five renovations that increase — or come close to increasing — home value are as follows:

HVAC Conversion

Switching out your fossil-fuel burning furnace to a more environmentally friendly alternative — an electric heat pump — is an expensive undertaking but easily recoups its cost. Typically, the cost of converting a 2,000-square-foot home to an electric heat pump is estimated to be $17,747, but the report notes that it adds about $18,366 to the home’s resale value — a 103.5% return on the investment.

Garage Door Replacement

A new garage door definitely enhances a home’s curb appeal and easily recoups its initial cost. The report found that removing and disposing a 16- by 7-foot garage door and replacing it with four-section doors with heavy galvanized steel tracks would cost $4,302 on average but would boost the home’s resale value by $4,418, a 102.7% return on investment.

Manufactured Stone Veneer

Stone veneer has grown in popularity amongst homeowners looking to craft a warm and welcoming feel to their homes’ exterior. It costs an estimated $10,925 to install 36 linear feet of sills, 40 linear feet of corners, an address block, and other materials, including water-resistant and corrosion-resistant barriers. However, homeowners will recoup 102.3% of the project’s cost if they put their home on the market.

Replacing an Entry Door

New front doors can help improve a home’s energy efficiency as well as enhance its appearance. Replacing an old entry door with a new steel one will cost an average of $2,214 but will increase your home’s resale value by $2,235, recouping 102.9% of its original cost.

Replacing Siding

Replacing a home’s siding is an expensive undertaking, but it is one project that delivers immediate eye appeal. New siding refreshes a house’s appearance and adds to the neighborhood’s overall desirability. The report looked at the costs of installing both fiber-cement siding and vinyl siding. It found that the average cost of installing 1,250 square feet with fiber-cement siding would run a homeowner $19,361. The homeowner would expect to recoup 88.5% of the cost of the project, or $17,129. Installing new vinyl siding would be less costly than fiber-cement siding. Siding for a 1,250-square-foot house would cost an estimated $16,348, and the homeowner could expect to get back around 94.7% of that total cost at resale.

Be aware that labor costs vary from state to state and from community to community. The cost of materials fluctuates, sometimes considerably, depending on inflation, supply chain issues, and other economic and political forces.