Category: General

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2024.

Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. Note: Certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have a business in a federally declared disaster area.

Tuesday, October 1 — The last day you can initially set up a SIMPLE IRA plan, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that comes into existence after October 1 of the year, you can establish a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence.

Tuesday, October 15 — If a calendar-year C corporation that filed an automatic six-month extension: File a 2023 income tax return (Form 1120) and pay any tax, interest and penalties due. Make contributions for 2023 to certain employer-sponsored retirement plans.

Thursday, October 31 — Report income tax withholding and FICA taxes for third quarter 2024 (Form 941) and pay any tax due. (See exception below under “November 12.”)

Tuesday, November 12 — Report income tax withholding and FICA taxes for third quarter 2024 (Form 941), if you deposited on time (and in full) all the associated taxes due.

Monday, December 16 — If a calendar-year C corporation, pay the fourth installment of 2024 estimated income taxes. Contact us if you’d like more information about the filing requirements and to ensure you’re meeting all applicable deadlines. © 2024

Are you a small business owner looking to reduce your 2024 tax bill? Thanks to the Tax Cuts and Jobs Act, owners of pass-through entities may be able to claim tax deductions based on their qualified business income (QBI) and certain other income. This deduction can be up to 20% of your QBI, subject to limits that apply at higher income levels. Because of those limitations, be aware that some tax planning strategies can increase or decrease your allowable QBI deduction for 2024.

Contact us for help optimizing your overall tax results.

Note: The QBI deduction is scheduled to expire at the end of 2025 unless Congress acts to extend it.

Many employees began working remotely during the pandemic and continue doing so today. Remote work has many advantages for employers and employees, and as a result, it’s here to stay in many industries. But it may also lead to some tax surprises, especially if workers cross state lines. Double taxation may occur It’s not unusual for employees to work remotely for an employer in another state. For some businesses, remote work has become a permanent arrangement that allows employees to live and work further away from a physical office.

If you live in one state and work remotely for an employer in another state, familiarize yourself with the tax laws in both states and determine how they may affect you. For example, you may need to file income tax returns in both states, which could result in increased — or even double — taxation.

Here’s the problem: A state generally has the power to tax the incomes of people who are domiciled in it as well as people who reside there. Domicile is a state of mind and is often based on a person’s intent to make a location his or her “true, fixed, permanent home.” Residency is based on physical presence in a state for a certain amount of time (typically, 183 days per year). It’s possible to be domiciled in one state and a resident of another. For example, let’s say you have a permanent home in one state where your job is located and a vacation home in another state. Your employer allows employees to work remotely, so now you spend more than 200 days per year living and working at your vacation home. The state where your permanent home is located considers you to be domiciled there, but the state where your vacation home is located views you as a resident. So you may be subject to taxes on the same income in both states.

You could avoid double taxation if one or both states provide credit for tax paid to other states. But your tax bill may still increase if, for example, one state’s income tax rate is significantly higher than the other state’s rate. Complications for employers From an employer’s perspective, allowing employees to work remotely may create obligations to withhold and remit income and payroll taxes in several states. Plus, having employees in other states may be sufficient to establish “nexus” with those states, potentially triggering liability for their income, franchise, gross receipts, or sales and use tax. In addition to the expense of tax reporting in multiple states, this may increase an employer’s overall tax liability. There are other complications as well. Business expense deductions Under current law, employees generally can’t deduct unreimbursed job-related expenses.

Years ago, employees could claim certain costs as miscellaneous itemized deductions, which are deductible to the extent they exceed 2% of adjusted gross income. But those deductions were eliminated for 2018 through 2025. Remote workers typically aren’t eligible for the home office deduction either. That deduction is generally limited to self-employed business owners. Prior to 2018, employees could claim the deduction if, among other things, they worked at home “for the convenience” of their employers. But that deduction was also eliminated for 2018 through 2025.

Employers may reimburse remote workers for their business expenses according to an “accountable plan” that requires employees to substantiate expenses and meet other requirements. Properly reimbursed expenses are deductible by an employer and excludable from an employee’s income. Be aware of the consequences If you’re a remote worker or own a business that employs remote workers, be sure you understand the tax implications.

In some cases, you may be able to take steps to minimize them. But even if you can’t, it’s important to know what to expect. Contact us for more information.© 2024

Choosing the right business entity is a key decision for any business. The entity you pick can affect your tax bill, your personal liability and other issues. For many businesses, a limited liability company (LLC) is an attractive choice. It can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes. This duality may provide the owners with several benefits. Like the shareholders of a corporation, the owners of an LLC (called members rather than shareholders or partners) generally aren’t liable for business debts except to the extent of their investment. Therefore, an owner can operate a business with the security of knowing that personal assets (such as a home or individual investment account) are protected from the entity’s creditors.

This protection is far greater than that afforded by partnerships. In a partnership, the general partners are personally liable for the debts of the business. Even limited partners, if they actively participate in managing the business, can have personal liability. Electing classification LLC owners can elect, under the “check-the-box rules,” to have the entity treated as a partnership for federal tax purposes. This can provide crucial benefits to the owners. For example, partnership earnings aren’t subject to an entity-level tax. Instead, they “flow through” to the owners in proportion to the owners’ respective interests in the profits and are reported on the owners’ individual returns and taxed only once. To the extent the income passed through to you is qualified business income (QBI), you’ll be eligible to take the QBI deduction, subject to various limitations.

In addition, since you’re actively managing the business, you can deduct on your individual tax return your ratable shares of any losses the business generates. This, in effect, allows you to shelter other income that you (and your spouse, if you’re married) may have. An LLC that’s taxable as a partnership can provide special allocations of tax benefits to specific partners. This can be an important reason for using an LLC over an S corporation (a form of business that provides tax treatment that’s similar to a partnership).

Another reason for using an LLC over an S corporation is that LLCs aren’t subject to the restrictions the federal tax code imposes on S corporations regarding the number of owners and the types of ownership interests that may be issued. (For example, an S corp can’t have more than 100 shareholders and can only have one class of stock.) Evaluate the options To sum up, an LLC can give you protection from creditors while providing the benefits of taxation as a partnership.

Be aware that the LLC structure is allowed by state statute, and states may use different regulations. Contact us to discuss in more detail how use of an LLC or another option might benefit you and the other owners. © 2024

Federal estimated tax payments are designed to ensure that certain individuals pay their fair share of taxes throughout the year. If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you receive interest, dividends, self-employment income, capital gains, a pension or other income that’s not covered by withholding.

Individuals must pay 25% of a “required annual payment” by April 15, June 15, September 15, and January 15 of the following year, to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day. So the third installment for 2024 is due on Monday, September 16 because the 15th falls on a Sunday. Payments are made using Form 1040-ES.

The amount due

The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year. Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld by their employers from their paychecks. Those who make estimated tax payments generally do so in four installments. After determining the required annual payment, divide that number by four and make four equal payments by the due dates. But you may be able to use the annualized income method to make smaller payments. This method is useful to people whose income flow isn’t uniform over the year, perhaps because of a seasonal business. For example, if your income comes exclusively from a business operated in a resort area during June, July, and August, no estimated payment is required before September 15.

The underpayment penalty

If you don’t make the required payments, you may be subject to an underpayment penalty. The penalty equals the product of the interest rate charged by the IRS on deficiencies, times the amount of the underpayment for the period of the underpayment.

However, the underpayment penalty doesn’t apply to you if:

• The total tax shown on your return is less than $1,000 after subtracting withholding tax paid
• You had no tax liability for the preceding year, you were a U.S. citizen or resident for that entire year, and that year was 12 months
• For the fourth (January 15) installment, you file your return by that January 31 and pay your tax in full
• You’re a farmer or fisherman and pay your entire estimated tax by January 15, or pay your entire estimated tax and file your tax return by March 1.

In addition, the IRS may waive the penalty if the failure was due to casualty, disaster or other unusual circumstances and it would be inequitable to impose the penalty. The penalty can also be waived for reasonable cause during the first two years after you retire (and reach age 62) or become disabled.

Contact us if you need help figuring out your estimated tax payments or you have other questions about how the rules apply to you. © 2024

Get ready: The upcoming presidential and congressional elections may significantly alter the tax landscape for businesses in the United States. The reason has to do with a tax law that’s scheduled to expire in about 17 months and how politicians in Washington would like to handle it.

How we got here

The Tax Cuts and Jobs Act (TCJA), which generally took effect in 2018, made extensive changes to small business taxes. Many of its provisions are set to expire on December 31, 2025. As we get closer to the law sunsetting, you may be concerned about the future federal tax bill of your business. The impact isn’t clear because the Democrats and Republicans have different views about how to approach the various provisions in the TCJA. Corporate and pass-through business rates The TCJA cut the maximum corporate tax rate from 35% to 21%. It also lowered rates for individual taxpayers involved in noncorporate pass-through entities, including S corporations and partnerships, as well as from sole proprietorships.

The highest rate today is 37%, down from 39.6% before the TCJA became effective. But while the individual rate cuts expire in 2025, the law made the corporate tax cut “permanent.” (In other words, there’s no scheduled expiration date. However, tax legislation could still raise or lower the corporate tax rate.) In addition to lowering rates, the TCJA affects tax law in many other ways. For small business owners, one of the most significant changes is the potential expiration of the Section 199A qualified business income (QBI) deduction. This is the write-off for up to 20% of QBI from noncorporate entities. Another of the expiring TCJA business provisions is the gradual phaseout of first-year bonus depreciation. Under the TCJA,100% bonus depreciation was available for qualified new and used property that was placed in service in calendar year 2022. It was reduced to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and 0% in 2027.

Potential Outcomes

The outcome of the presidential election in three months, as well as the balance of power in Congress, will determine the TCJA’s future. Here are four potential outcomes:

• All of the TCJA provisions scheduled to expire will actually expire at the end of 2025.
• All of the TCJA provisions scheduled to expire will be extended past 2025 (or made permanent).
• Some TCJA provisions will be allowed to expire, while others will be extended (or made permanent).
• Some or all of the temporary TCJA provisions will expire — and new laws will be enacted that provide different tax breaks and/or different tax rates.

How your tax bill will be affected in 2026 will partially depend on which one of these outcomes actually happens and whether your tax bill went down or up when the TCJA became effective years ago. That was based on a number of factors including your business income, your filing status, where you live (the SALT limitation negatively affects taxpayers in certain states), and whether you have children or other dependents. Your tax situation will also be affected by who wins the presidential election and who controls Congress because Democrats and Republicans have competing visions about how to proceed.

Keep in mind that tax proposals can become law only if tax legislation passes both houses of Congress and is signed by the President (or there are enough votes in Congress to override a presidential veto). Look to the future As the TCJA provisions get closer to expiring, and the election gets settled, it’s important to know what might change and what tax-wise moves you can make if the law does change. We can answer any questions you have and you can count on us to keep you informed about the latest news. © 2024

Are you buying a business that will have one or more co-owners? Or do you already own one fitting that description? If so, consider installing a buy-sell agreement. A well-drafted agreement can do these valuable things: transform your business ownership interest into a more liquid asset, prevent unwanted ownership changes, and avoid hassles with the IRS.

Agreement Basics

There are two basic types of buy-sell agreements: cross-purchase agreements and redemption agreements (sometimes called liquidation agreements). A cross-purchase agreement is a contract between you and the other co-owners. Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the remaining co-owners if a triggering event, such as a death or disability, occurs. A redemption agreement is a contract between the business entity and its co-owners (including you). Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the entity if a triggering event occurs.

Triggering Events

You and the other co-owners specify the triggering events you want to include in your agreement. You’ll certainly want to include obvious events like death, disability and attainment of a stated retirement age. You can also include other events that you deem appropriate, such as divorce.

Valuation and Payment Terms

Make sure your buy-sell agreement stipulates an acceptable method for valuing the business ownership interests. Common valuation methods include using a fixed per-share price, an appraised fair market value figure, or a formula that sets the selling price as a multiple of earnings or cash flow. Also ensure the agreement specifies how amounts will be paid out to withdrawing co-owners or their heirs under various triggering events.

Life Insurance to Fund the Agreement

The death of a co-owner is perhaps the most common, and catastrophic, triggering event. You can use life insurance policies to form the financial backbone of your buy-sell agreement. In the simplest case of a cross-purchase agreement between two co-owners, each co-owner purchases a life insurance policy on the other. If one co-owner dies, the surviving co-owner collects the insurance death benefit proceeds and uses them to buy out the deceased co-owner’s interest from the estate, surviving spouse or other heir(s).

The insurance death benefit proceeds are free of any federal income tax, so long as the surviving co-owner is the original purchaser of the policy on the other co-owner. However, a seemingly simple cross-purchase arrangement between more than two co-owners can get complicated, because each co-owner must buy life insurance policies on all the other co-owners. In this scenario, you may want to use a trust or partnership to buy and maintain one policy on each co-owner. Then, if a co-owner dies, the trust or partnership collects the death benefit proceeds tax-free and distributes the cash to the remaining co-owners. They then use the money to fund their buyout obligations under the cross-purchase agreement. To fund a redemption buy-sell agreement, the business entity itself buys policies on the lives of all co-owners and then uses the death benefit proceeds buy out deceased co-owners.

Specify in your agreement that any buyout that isn’t funded with insurance death benefit proceeds will be paid out under a multi-year installment payment arrangement. This gives you (and any remaining co-owners) some breathing room to come up with the cash needed to fulfill your buyout obligation. Create certainty for heirs If you’re like many business co-owners, the value of your share of the business comprises a big percentage of your estate.

Having a buy-sell agreement ensures that your ownership interest can be sold by your heir(s) under terms that you approved when you set it up. Also, the price set by a properly drafted agreement establishes the value of your ownership interest for federal estate tax purposes, thus avoiding possible IRS hassles. As a co-owner of a valuable business, having a well-drafted buy-sell agreement in place is pretty much a no-brainer. It provides financial protection to you and your heir(s) as well as to your co-owners and their heirs. The agreement also avoids hassles with the IRS over estate taxes. Buy-sell agreements aren’t DIY projects.

Contact us about setting one up. © 2024

Arkansas

Beginning at 12:01 a.m. on Saturday, August 3, 2024, and ending at 11:59 p.m. on Sunday, August 4, 2024, the state of Arkansas will hold its sales tax holiday allowing shoppers the opportunity to purchase certain electronic devices, school supplies, school art supplies, school instructional materials, and clothing free of state and local sales or use tax. Click the link for more information.

Tennessee

Tennessee’s sales tax holiday on clothing, school supplies, and computers begins at 12:01 a.m. on Friday, July 26, 2024, and ends at 11:59 p.m. on Sunday, July 28, 2024.

During this time clothing, school supplies, and computers may be purchased tax-free; certain restrictions apply.  Items sold online are also eligible.  Items must be purchased for personal use, not for business or trade.  Follow the link for the full details of Tennessee’s 2024 sales tax holiday.

 Kentucky

*Sales tax holiday does not apply to the state of Kentucky.

For questions on sales tax holiday information in the states that ATA resides in, reach out to your local ATA representative.