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Business Start-Up Costs — What’s Deductible?

August 11, 2020 by Admin

She is devoted to her careerLaunching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example: Gina spent $20,000 on start-up costs before her new business began on July 1, 2020. In the 2020 tax year, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2020 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

Send us an e-mail or call us today at 901-685-9411 to discuss your business needs with an experienced CPA. Or, request a free consultation online.

Filed Under: Business Tax

Protecting Your Company’s S Corporation Election

July 23, 2020 by Admin

Business team analyzing market researchLike many business owners, you may have structured your business as an S corporation because of the tax benefits it offers. An S corporation provides the same limited liability as a traditional C corporation, but it generally avoids the double taxation associated with a C corporation. You and the other shareholders (if any) pay income taxes on corporate income directly.

Once you have an S election in place, it’s important to make sure you avoid taking any action that would put the election in jeopardy. Your corporation’s failure to meet certain tax law requirements on an ongoing basis could result in the IRS’s termination of its S corporation status.

  • Ownership. An S corporation generally may not have a corporate shareholder. (Exception: An S corporation may be wholly owned by another S corporation.) All shareholders generally must be individuals, estates, certain trusts, or tax-exempt 501(c)(3) charitable organizations. However, a partnership may hold S corporation stock as a nominee for an eligible shareholder. Nonresident aliens may not be shareholders.
  • Number of shareholders. An S corporation may not have more than 100 shareholders. For purposes of this limit, a husband and wife are treated as one shareholder, as are certain other related individuals.
  • Stock. An S corporation may have only one class of stock. Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds.

We offer a FREE initial consultation to business owners. Email us or call us at 901-685-9411 today.

Filed Under: Business Best Practices

“Extender” Legislation Impacts Individuals and Small Businesses

June 1, 2020 by Admin

Rikard & Neal CPAsThe federal spending package that was enacted in the waning days of 2019 contains numerous provisions that will impact both businesses and individuals. In addition to repealing three health care taxes and making changes to retirement plan rules, the legislation extends several expired tax provisions. Here is an overview of several of the more important provisions in the Taxpayer Certainty and Disaster Relief Act of 2019.

Deduction for Mortgage Insurance Premiums

Before the Act, mortgage insurance premiums paid or accrued before January 1, 2018, were potentially deductible as qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI). The Act retroactively extends this treatment through 2020.

Reduction in Medical Expense Deduction Floor

For 2017 and 2018, taxpayers were able to claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses were greater than 7.5% of AGI. The AGI threshold was scheduled to increase to 10% of AGI for 2019 and later tax years. Under the Act, the 7.5% of AGI threshold is extended through 2020.

Qualified Tuition and Related Expenses Deduction

The above-the-line deduction for qualified tuition and related expenses for higher education, which expired at the end of 2017, has been extended through 2020. The deduction is capped at $4,000 for a taxpayer whose modified AGI does not exceed $65,000 ($130,000 for those filing jointly) or $2,000 for a taxpayer whose modified AGI is not greater than $80,000 ($160,000 for joint filers). The deduction is not allowed with modified AGI of more than $80,000 ($160,000 if you are a joint filer).

Credit for Energy-Efficient Home Improvements

The 10% credit for certain qualified energy improvements (windows, doors, roofs, skylights) to a principal residence has been extended through 2020, as have the credits for purchases of energy efficient property (furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditions, and circulating fans), subject to a lifetime cap of $500.

Empowerment Zone Tax Incentives

Businesses and individual residents within economically depressed areas that are designated as “Empowerment Zones” are eligible for special tax incentives. Empowerment Zone designations, which expired on December 31, 2017, have been extended through December 31, 2020, under the new tax law.

Employer Tax Credit for Paid Family and Medical Leave

A provision in the tax code permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. This credit has been extended through 2020.

Work Opportunity Tax Credit

Employers who hire individuals who belong to one or more of 10 targeted groups can receive an elective general business credit under the Work Opportunity Tax Credit program. The recent tax law extends this credit through 2020.

Call our Memphis, TN CPA now at 901-685-9411 to find out how we can decrease your tax obligations. We offer a free initial consultation to new clients so contact us today.

Filed Under: Business Tax

Will the SECURE Act Affect Your Retirement Planning?

May 19, 2020 by Admin

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) was signed into law on December 20, 2019. The Act will likely impact large numbers of working Americans as well those already retired. In general, the Act is intended to increase access to tax-advantaged retirement plans and to help prevent older Americans from outliving their assets. Here are some of the changes that could affect your planning.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) was signed into law on December 20, 2019. The Act will likely impact large numbers of working Americans as well those already retired. In general, the Act is intended to increase access to tax-advantaged retirement plans and to help prevent older Americans from outliving their assets.

Here are some of the changes that could affect your planning.

Delayed Deadline for Taking Required Minimum Distributions

Tax law has generally required individual retirement account (IRA) owners and retirement plan participants to begin taking required minimum distributions (RMDs) from their accounts once they reach age 70½. The new law pushes back the age at which these distributions must begin to age 72 for IRA owners and plan participants born on or after July 1, 1949. This change allows individuals to take advantage of their retirement account’s tax-deferred nature for a longer period.

No Age Limit for Making Traditional IRA Contributions

Beginning with the 2020 tax year, the new law eliminates the 70½ age limit for making annual contributions to traditional IRAs. This is a plus for those people who continue to work past age 70½ and want to keep saving for retirement on a tax-deferred basis.

Penalty-Free Birth and Adoption Distributions

The new law also expands the exceptions to the 10% penalty for early withdrawals from IRAs and other tax-deferred retirement plans by adding an exception for “qualified birth or adoption distributions” up to $5,000. The new law defines a “qualified” birth or adoption distribution as a withdrawal from an IRA or other eligible retirement plan made during the one-year period beginning on the date the IRA owner’s or the plan participant’s child is born or the adoptee’s adoption is finalized. If desired, parents may replenish their retirement savings by repaying the amount distributed.

Restrictions on Stretch IRAs

The new law places severe restrictions on the use of “stretch” IRAs. A stretch IRA generally permitted beneficiaries to take their RMDs from an inherited IRA over their life expectancy. Thus, beneficiaries were able to stretch payments from the inherited IRA over many years and potentially pass on the inherited IRA to their own beneficiaries. The SECURE Act changes the RMD rules for beneficiaries of IRA owners (and plan participants) who pass away in 2020 or later. Under the SECURE Act, the use of stretch IRAs is restricted to a limited group of IRA beneficiaries. The specific details on who is eligible to use stretch IRAs is complex, and IRA owners who base their estate plans on the use of a stretch IRA should consult with a financial professional to see how they might be impacted.

Small Business Retirement Plans

Good news if you own a small business — the SECURE Act provides incentives to make it easier for you to establish a retirement plan. Starting in 2020, eligible employers that establish a 401(k) or SIMPLE IRA plan with automatic enrollment may qualify for a new tax credit of $500 per year for up to three years. In addition, the existing credit for small employer plan startup costs has increased to as much as $5,000 per year for three years. Previously, the annual credit maximum was $500. Employers also have more time to establish a qualified retirement plan. Previously, a qualified plan, such as a profit sharing plan, had to be adopted by the last day of the employer’s tax year to be effective for that year. The SECURE Act allows a qualified plan to be adopted as late as the employer’s tax filing deadline (plus extensions).

Don’t get left behind. We offer a free initial consultation for business owners. Call us at 901-685-9411 to discuss your specific needs.

Filed Under: Business Tax

Filing Taxes Remotely Goes Viral in Wake of Coronavirus

March 18, 2020 by Admin

coronavirusCoronavirus continues to affect day to day life, and the new concern is it could potentially threaten conventional in-person tax-filing activities, such as heading to your local tax return center to review your tax documents and sort out your tax return.

If the spread of the virus worsens, this could result in more people staying home for weeks on end, and tax office visits may not be possible. This makes it particularly taxing for those tax filers with complicated returns, or who may have questions about their return.

Now may be a good time to consider filing remotely with a tax professional. Additionally, taxpayers are urged to file before the deadline to avoid any delays with their tax return. Some professional tax services provide remote services, allowing taxpayers to securely upload documents, electronically sign their tax return, and file the return securely and safely from the comfort of their home. Whether you are an individual, or a business, it’s a good idea to play it safe and file remotely with the assistance of a qualified tax professional.

Filed Under: Business Tax

Reviewing Last Year’s Business Records Gives You an Idea of What Worked and What Didn’t

February 27, 2020 by Admin

Rikard & Neal - Best Business PracticesBusy is good. Most small business owners would rather things were too hectic than too slow. As the year winds down, though, let your staff handle the busy-ness while you look at the business — where you are, what you’ve accomplished in the past year and where you’re headed in the new year and beyond.

Your Bottom Line

The quickest way to figure out where you are is to check your bottom line. Are you making money? Are profits better or worse than they were last year at this time? Are you meeting your expectations? If not, why not?

Your Business Plan

Change is inevitable. And businesses have a way of outgrowing their business plans. But if you don’t have a current plan, you don’t have a way of measuring your progress. So if you’ve been “off road” without a plan for a while, it’s time to formalize a plan that reflects past growth and sets new goals for the next several years.

Your Competition

The more you know about your competition, the better. Who are they? How are they different? How are they the same? Where do you overlap each other? Understanding their business model will help you prepare strategically for possible changes in the marketplace.

Your Secret Weapon

Your workforce is your secret weapon, especially if you’re in a competitive market. Dedicated, well-trained employees providing top-notch customer service can help put you out front of even the largest competitor. A rich, competitive benefits package will help you attract — and retain — a high-caliber workforce. Health insurance and retirement plans are highly valued benefits. You can offer a variety of other benefits to suit your employees’ needs and your budget. Ask your financial professional for information.

Your Future

Do you have a formal succession plan? Are you grooming someone to take over? A well-trained successor could help in the successful — and profitable — transfer of your business. And you can use life insurance to prefund all or part of the sale.

Don’t get left behind. We offer a free initial consultation for business owners. Call us at 901-685-9411 to discuss your specific needs.

Filed Under: Business Best Practices

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