ediaz - KSDT CPA

Maximize Your 2025 Tax Savings: Double Benefits with Heavy Vehicles and Home Offices

ediaz — Tue, 14 Jan 2025 16:50:26 +0000

New and used “heavy” SUVs, pickups and vans placed in service in 2025 are potentially eligible for big first-year depreciation write-offs. One requirement is you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you may be able to deduct that percentage of the cost in the first year. The write-off will reduce your federal income tax bill and your self-employment tax bill, if applicable. You might get a state tax income deduction too.

Setting up a business office in your home for this year can also help you collect tax savings. Here’s what you need to know about the benefits of combining these two tax breaks.

First, buy a suitably heavy vehicle

The generous first-year depreciation deal is only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). First-year depreciation deductions for lighter vehicles are subject to smaller depreciation limits of up to $20,400 in 2024. (The 2025 amount hasn’t come out yet.)

It’s not hard to find attractive vehicles with GVWRs above the 6,000-pound threshold. Examples include the Cadillac Escalade, Jeep Grand Cherokee, Chevy Tahoe, Ford Explorer, Lincoln Navigator, and many full-size pickups. You can usually find the GVWR on a label on the inside edge of the driver’s side door.

Take advantage of generous depreciation deductions

Favorable depreciation rules apply to heavy SUVs, pickups and vans that are used over 50% for business because they’re classified as transportation equipment for federal income tax purposes. Three factors to keep in mind:

First-year Section 179 deductions. Many businesses can write off most or all of the business-use portion of a heavy vehicle’s cost in year 1 under the Section 179 deduction privilege. The maximum Sec. 179 deduction for tax years beginning in 2024 is $1.25 million.
Limited Sec. 179 deductions for heavy SUVs. There’s a limit on Sec. 179 deductions for heavy SUVs with GVWRs between 6,001 and 14,000 pounds. For tax years beginning in 2025, the limit is $31,300.

First-year bonus depreciation. For heavy vehicles placed in service in 2025, the first-year bonus depreciation percentage is currently 40%, but future legislation may allow a bigger write-off. There are several limitations on Sec. 179 deductions but no limits on 40% bonus depreciation. So, bonus depreciation can help offset the impact of Sec. 179 limitations, if applicable.

Then, qualify for home office deductions

Again, the favorable first-year depreciation rules are only allowed if you use your heavy SUV, pickup, or van over 50% for business.

You’re much more likely to pass the over-50% test if you have an office in your home that qualifies as your principal place of business. Then, all the commuting mileage from your home office to temporary work locations, such as client sites, is considered business mileage. The same is true for mileage between your home office and any other regular place of business, such as another office you keep. This is also the case for mileage between your other regular place of business and temporary work locations.

Bottom line : When your home office qualifies as a principal place of business, you can easily rack up plenty of business miles. That makes passing the over-50%-business-use test for your heavy vehicle much easier.

How do you make your home office your principal place of business? The first way is to conduct most of your income-earning activities there. The second way is to conduct administrative and management chores there. But don’t make substantial use of any other fixed location (like another office) for these chores.

Key points : You must use the home office space regularly and exclusively for business throughout the year. Also, if you’re employed by your own corporation (as opposed to being self-employed), you can’t deduct home office expenses under the current federal income tax rules.

Double tax break

You can potentially claim generous first-year depreciation deductions for heavy business vehicles and also claim home office deductions. The combination can result in major tax savings. Contact us if you have questions or want more information about this strategy.

The post Maximize Your 2025 Tax Savings: Double Benefits with Heavy Vehicles and Home Offices first appeared on KSDT CPA.

Corporate Transparency Act Update 12-23

ediaz — Thu, 26 Dec 2024 21:06:27 +0000

The Fifth Circuit has reinstated the Corporate Transparency Act (CTA) filing requirements, with most entities required to file by January 1, 2025, unless exempt or already filed.

However, several updates and extensions may affect your filing deadline:

1. Florida Entities in Disaster Zones:

Most entities in Florida may qualify for a six-month extension due to disaster relief for areas impacted by hurricanes Debby, Helene, and Milton. If your entity is located in a federally recognized disaster zone, this extension likely applies to you.

2. Revised Filing Deadlines from FinCEN:

Following the December 23, 2024, federal Court of Appeals decision, the Department of the Treasury has provided the following adjustments:

– Reporting Companies Created/Registered Before January 1, 2024: Deadline extended to January 13, 2025.

– Reporting Companies Created/Registered Between September 4, 2024, and December 23, 2024:

– If your original deadline fell between December 3 and December 23, 2024, you now have until January 13, 2025.

– Companies registered during this period have an additional 21 days from their original deadline.

– Entities Created/Registered On or After January 1, 2025: Must file within 30 days of creation or registration notice.

This situation remains fluid. We anticipate additional commentary and possibly further interventions from higher courts, which could result in further changes. While this is the current status, we strongly recommend staying prepared and keeping informed of updates.

If you have questions or need assistance with your specific filing obligations, please don’t hesitate to reach out.

We recommend leveraging USRA for these services, given their experience in regulatory compliance. To initiate the process, simply click the link below:

The post Corporate Transparency Act Update 12-23 first appeared on KSDT CPA.

Now or Later? The Critical Role of Timing in Financial Reporting

ediaz — Tue, 17 Dec 2024 15:44:04 +0000

Timing is critical in financial reporting. Under accrual-basis accounting, the end of the accounting period serves as a “cutoff” for when companies recognize revenue and expenses. However, some companies may be tempted to play timing games, especially at year end, to boost financial results or lower taxes.

Observing the end-of-period cutoffs

Under U.S. Generally Accepted Accounting Principles (GAAP), revenue should be recognized in the accounting period it’s earned, even if the cash is received in a subsequent period. Likewise, expenses should be recognized in the period they’re incurred, not necessarily when they’re paid. And expenses should be matched with the revenue they generate, so businesses should record expenses in the period they were incurred to earn the corresponding revenue.

However, some companies may interpret the cutoff rules loosely to present their financial results more favorably. For example, suppose a calendar-year car dealer allows a customer to take home a vehicle on December 28, 2024, to test drive for a few days. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to discuss the purchase with his spouse. He plans to return on January 2 to close the deal or return the vehicle and walk away. Under accrual-basis accounting, should the sale be reported in 2024 or 2025?

Alternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 31, 2024. Rent is due on the first day of the month. Under accrual-basis accounting, can the store deduct an extra month’s rent from this year’s taxable income?

As tempting as it might be to inflate revenue to impress stakeholders or defer taxable income to lower the current year’s tax bill, the cutoff for a calendar-year, accrual-basis business is December 31. So in both examples, the transaction should be reported in 2025.

Auditing cutoffs

Auditors use several procedures to test for compliance with cutoff rules. For example, to ensure revenue is recorded in the correct accounting period, auditors may review:

Shipping documents and customer invoices,
Sales transactions near the cutoff date, and
Returns and allowances near the cutoff date.

Similarly, to ensure expenses are recorded in the correct accounting period, auditors may inspect contracts and invoices near the cutoff date. They also check that expenses are matched with the revenue they help generate, in accordance with the matching principle. An accrual (a liability) is recorded for expenses incurred in the current period that still need to be paid later. Conversely, prepaid assets represent expenses paid in the current period that will be reported later when they’re used to generate future revenue. Auditors also may perform analytical procedures that compare expenses as a percentage of sales from period to period to identify timing errors and other anomalies.

It’s important to note that updated guidance for reporting revenue went into effect for calendar-year public companies in 2018 and for calendar-year private businesses starting in 2019. Under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”

Although this guidance has been in effect for several years, implementation questions linger, especially among smaller private entities. The guidance requires management to make judgment calls each reporting period about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises and estimating variable consideration. The risk of misstatement and the need for expanded disclosures have caused auditors to focus greater attention on companies’ recognition practices for revenue from long-term contracts. During audit fieldwork, expect detailed questions about your company’s cutoff policies and extensive testing procedures to confirm compliance with the accounting rules.

Now or later?

As year end approaches, you may have questions about the cutoff rules for reporting revenue and expenses. Contact us for answers. We can help you comply with the rules and minimize audit adjustments.

The post Now or Later? The Critical Role of Timing in Financial Reporting first appeared on KSDT CPA.

Unlocking Your Business Potential with Outsourced Bookkeeping

ediaz — Mon, 09 Dec 2024 22:07:22 +0000

Running a closely held business is challenging. Owners usually prioritize core business operations — such as managing employees, serving customers and bringing in new sales — over tedious bookkeeping tasks. Plus, the accounting rules can be overwhelming.

However, access to timely, accurate financial data is critical to your business’s success. Could outsourcing bookkeeping tasks to a third-party provider be a smart business decision? Here are five reasons why the answer might be a resounding “Yes!”

1. Lower costs and scalability

Your company could hire a full-time bookkeeper, but the expenses of hiring an employee go beyond just his or her salary. You also need to factor in benefits, payroll taxes, office space and equipment. It’s one more employee for you to manage — and accounting talent may be hard to find these days, especially for smaller companies. Plus, your access to financial data may be interrupted if your in-house bookkeeper takes sick or vacation time — or leaves your company.

With outsourcing, you pay for only the services you need. Outsourcing firms offer scalable packages for these services that you can dial up (or down) based on the complexity of your business at any given time. Outsourcing also involves a team of bookkeeping professionals, so you have continuous access to bookkeeping services without worrying about staff absences or departures.

2. Enhanced accuracy

Do-it-yourself bookkeeping can be perilous. Mistakes in recording transactions can have serious consequences, including tax assessments, cash flow problems and loan defaults.

Professional bookkeepers are trained to pay close attention to detail and follow best practices, minimizing the risk of errors. Outsourcing firms work with many companies and are aware of common pitfalls — and how to steer clear of them. They’re also familiar with the latest fraud schemes and can help your business detect anomalies and implement accounting procedures to minimize fraud risks.

3. Expanded access to expertise

The accounting rules and tax regulations continually change. It may be difficult for you or an in-house bookkeeper to stay updated.

With outsourcing, you have experienced professionals at your disposal who specialize in bookkeeping, accounting and tax. This helps ensure you comply with the latest rules, accurately report financial results and minimize taxes. In addition, as you encounter special circumstances, such as a sales tax audit or a merger, you can quickly call on other professionals at the same firm who can help manage the situation. If your provider lacks the necessary in-house expertise, the firm can refer you to another reputable professional to meet your special needs.

4. Improved timeliness

Timely financial data helps you identify problems before they spiral out of control — and opportunities you need to jump on before your competitors do. Outsourcing professionals typically use cloud-based platforms and set up automated processes for routine tasks, like invoicing and expense management. This improves efficiency and gives you access to real-time financial data to make better-informed decisions.

5. Reliable security protocols

Cyberattacks are a serious threat to any business. Stolen data can lead to monetary losses, operational downtime and reputational damage.

Many business owners are understandably cautious about sharing financial data with third parties. Reputable outsourced bookkeeping providers use advanced security measures, encryption and secure software to protect your financial data and client records from hackers. However, not all providers have the same level of security. So, it’s essential to carefully vet outsourcing firms to ensure that your company’s data is adequately protected.

Work smarter, not harder

At any given moment, business owners are being pulled in multiple directions by customers, employees, lenders, investors and other stakeholders. Outsourcing your bookkeeping helps alleviate some of that stress by ensuring your financial records are up-to-date, accurate and secure. Contact us for more information.

The post Unlocking Your Business Potential with Outsourced Bookkeeping first appeared on KSDT CPA.

Understanding the Human Capital Cost Ratio to Revenue: A Strategic Overview for C-Suite Leaders

ediaz — Fri, 15 Nov 2024 12:50:29 +0000

In today’s competitive business landscape, controlling costs while investing in talent has become a delicate balance. For C-suite executives, Human Capital Cost Ratio (HCCR) is a critical metric in assessing the relationship between workforce expenses and revenue. This metric provides insights into how efficiently a company leverages its human resources to drive financial performance. Understanding HCCR and its implications enables leaders to make strategic decisions about labor investment, optimize workforce structure, and improve overall profitability.

What is Human Capital Cost Ratio (HCCR)?

The Human Capital Cost Ratio (HCCR) measures the proportion of revenue spent on human capital expenses, including direct wages, benefits, training, and other employee-related costs. Expressed as a percentage, it answers a key question: “How much of every dollar earned is spent on workforce costs?”

HCCR Formula

Human Capital Cost Ratio (HCCR)=Total Human Capital CostTotal Revenue×100\text{Human Capital Cost Ratio (HCCR)} = \frac{\text{Total Human Capital Cost}}{\text{Total Revenue}} \times 100Human Capital Cost Ratio (HCCR)=Total RevenueTotal Human Capital Cost×100

Example: If a company generates $100 million in revenue and incurs $40 million in human capital costs, the HCCR is 40%.

This calculation is simple but powerful, providing immediate insight into workforce cost efficiency. Typically, industries with high human capital dependence—such as healthcare and hospitality—have higher HCCRs, while technology and finance sectors, with high revenue per employee ratios, exhibit lower HCCRs.

Breakdown of Human Capital Costs

Human capital costs generally fall into four main categories:

1. Direct Compensation: Salaries, hourly wages, and bonuses that form the bulk of employee compensation.

2. Benefits and Perks: Health insurance, retirement plans, and wellness programs.

3. Training and Development: Investments in employee growth, skill-building, and compliance-related training.

4. Overhead and Administrative Expenses: Recruiting, onboarding, and other HR operational costs.

Each of these categories contributes to overall human capital expenses and, consequently, affects HCCR. Managing these components efficiently can lead to significant cost savings without compromising employee satisfaction.

Why Human Capital Cost Control Matters to the C-Suite

For senior executives, understanding and controlling human capital expenses are critical for several reasons:

1. Profitability Impact

· Direct Cost Control: Every dollar saved in human capital costs positively impacts profitability. A reduced HCCR means more resources can be allocated to revenue-generating activities.

· Efficiency Gains: A balanced approach to workforce costs ensures that investments in people yield optimal returns in terms of productivity, innovation, and engagement.

2. Strategic Resource Allocation

· Data-Driven Decisions: HCCR provides a data-backed foundation for deciding where to allocate resources for maximum impact, whether through hiring, training, or technology investment.

· Investment in High-Impact Areas: By evaluating HCCR, executives can allocate budgets to areas that drive the highest returns. For example, technology investments may reduce labor costs, leading to a lower HCCR and increased operational efficiency.

3. Workforce Optimization

· Right-Sizing the Workforce: By analyzing HCCR alongside other KPIs, leaders can assess whether the workforce structure aligns with the company’s goals. Adjustments in headcount or workforce distribution (such as part-time vs. full-time or contractor usage) can be made to optimize the ratio.

· Balancing Compensation and Talent Retention: Maintaining competitive compensation is crucial to retaining talent, but HCCR ensures that these costs remain within sustainable limits.

4. Benchmarking and Industry Comparison

· Competitive Edge: Companies can compare HCCR to industry standards to assess competitive positioning. Understanding where one stands relative to peers helps inform strategic adjustments to maintain or achieve a cost advantage.

· Attractiveness to Investors: Investors view HCCR as an indicator of operational efficiency. A balanced ratio signals effective human capital management, potentially improving a company’s appeal to stakeholders.

Trends Influencing Human Capital Cost Ratio

Various external and internal factors impact the HCCR, and recent trends are shaping how companies manage these costs:

1. Post-Pandemic Workforce Restructuring

· Many organizations have restructured work models to adapt to post-pandemic norms, shifting to hybrid and remote work models. This change has reduced certain fixed costs associated with physical offices and, in some cases, allowed a reduction in human capital expenses through outsourced or remote roles.

· However, rising demand for skilled labor in certain sectors has driven up wages, impacting HCCR and creating pressure on the bottom line.

2. Technology and Automation

· Automation: Increased automation in processes like data entry, customer support, and logistics has allowed companies to reduce dependence on labor, thereby lowering HCCR in the long term.

· Augmented Roles: Rather than replacing roles, technology in some cases augments human workers, increasing efficiency and reducing overall labor costs, ultimately optimizing HCCR.

3. Globalization and Labor Market Dynamics

· Outsourcing and Offshoring: Companies increasingly rely on outsourcing and offshoring to manage costs. By accessing talent in lower-cost regions, organizations can reduce their HCCR without sacrificing operational effectiveness.

· Talent Shortages and Wage Inflation: Talent shortages in fields like IT and healthcare have led to wage inflation, which affects HCCR as companies pay a premium for specialized skills. Strategic talent planning is essential to mitigate these rising costs.

Strategies for Optimizing Human Capital Cost Ratio

Executives aiming to control human capital costs can consider several strategies to strike the right balance between cost efficiency and employee satisfaction.

1. Invest in Workforce Planning

· Forecasting and Analytics: Predictive analytics enables companies to anticipate workforce needs and avoid overstaffing or understaffing, ensuring that human capital costs remain aligned with business needs.

· Agile Workforce Management: Use of flexible staffing options, such as part-time, freelance, and contingent workers, helps manage costs while meeting demand fluctuations.

2. Optimize Compensation and Benefits

· Benchmarking: Regular benchmarking ensures compensation aligns with market rates without overspending.

· Incentives over Raises: Performance-based incentives can help manage costs more effectively than across-the-board raises, as they directly tie compensation to individual and organizational performance.

3. Focus on Upskilling and Internal Mobility

· Upskilling: By investing in training and development, companies can fill skill gaps internally rather than resorting to external hires at higher market rates.

· Internal Mobility Programs: Encouraging employees to shift into new roles within the organization can reduce recruitment costs and turnover-related expenses.

4. Leverage Technology for Efficiency

· Automation and AI: By investing in automation, companies can lower human capital costs associated with repetitive tasks, while AI can aid in functions like customer service and data analysis.

· HR Technology: Tools for performance management, recruitment, and payroll processing streamline HR functions and reduce administrative overhead.

5. Evaluate Outsourcing Opportunities

· Selective Outsourcing: Identifying tasks that can be outsourced allows companies to tap into cost-effective labor markets, lowering overall HCCR.

· Focus on Core Functions: By outsourcing non-core activities, organizations can allocate more resources to high-impact functions, maximizing the return on human capital investment.

Conclusion

For the C-suite, understanding and controlling the Human Capital Cost Ratio is critical in navigating today’s competitive landscape. This metric provides a clear view of workforce efficiency relative to revenue, guiding leaders in strategic decisions around talent investment and operational spending. By embracing data-driven workforce planning, selective outsourcing, and technology, organizations can optimize their HCCR, enhance profitability, and build a more agile, sustainable workforce. Effective HCCR management ultimately serves as a cornerstone of financial discipline, enabling leaders to allocate resources strategically and foster long-term business resilience.

The post Understanding the Human Capital Cost Ratio to Revenue: A Strategic Overview for C-Suite Leaders first appeared on KSDT CPA.

Maximizing Tax, Liability, and Estate Planning Benefits: The Case for Separating Real Estate from Your Business

ediaz — Wed, 13 Nov 2024 12:41:33 +0000

Does your business require real estate for its operations? Or do you hold property titled under your business’s name? It might be worth reconsidering this strategy. With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a wise choice.

How taxes affect a sale

Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they’re incurred.

However, when the business sells the real estate, the profits are taxed twice — at the corporate level and at the owner’s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate is transferred to a pass-through entity instead, the profit upon sale will be taxed only at the individual level.

Safeguarding assets

Separating your business ownership from its real estate also provides an effective way to protect the real estate from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can’t touch property owned by another entity.

The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can’t recover real estate owned separately unless it’s been pledged as collateral for credit taken out by the business.

Estate planning implications

Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but all members of the next generation aren’t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one member and the real estate to another.

Handling the transaction

If you’re interested in this strategy, the business can transfer ownership of the real estate and then the transferee can lease it back to the company. Who should own the real estate? One option: The business owner can purchase the real estate from the business and hold title in his or her name. One concern though, is that it’s not only the property that’ll transfer to the owner but also any liabilities related to it.

In addition, any liability related to the property itself may inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.

An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.

An LLC is more commonly used to transfer real estate. It’s simple to set up and requires only one member. LLPs require at least two partners and aren’t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.

Tread carefully

It isn’t always advisable to separate the ownership of a business from its real estate. If it’s a valuable move, the right approach will depend on your individual circumstances. Contact us to help determine the best way to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.

The post Maximizing Tax, Liability, and Estate Planning Benefits: The Case for Separating Real Estate from Your Business first appeared on KSDT CPA.

The Importance of Proper Cutoffs in Year-End Financial Reporting

ediaz — Thu, 10 Oct 2024 16:23:59 +0000

Observing the end-of-period cutoffs

Under U.S. Generally Accepted Accounting Principles (GAAP), revenue should be recognized in the accounting period it’s earned, even if the cash is received in a subsequent period. Likewise, expenses should be recognized in the period they’re incurred, not necessarily when they’re paid. And expenses should be matched with the revenue they generate, so businesses should record expenses in the period they were incurred to earn the corresponding revenue.

However, some companies may interpret the cutoff rules loosely to present their financial results more favorably. For example, suppose a calendar-year car dealer allows a customer to take home a vehicle on December 28, 2024, to test drive for a few days. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to discuss the purchase with his spouse. He plans to return on January 2 to close the deal or return the vehicle and walk away. Under accrual-basis accounting, should the sale be reported in 2024 or 2025?

Alternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 31, 2024. Rent is due on the first day of the month. Under accrual-basis accounting, can the store deduct an extra month’s rent from this year’s taxable income?

As tempting as it might be to inflate revenue to impress stakeholders or defer taxable income to lower the current year’s tax bill, the cutoff for a calendar-year, accrual-basis business is December 31. So in both examples, the transaction should be reported in 2025.

Auditing cutoffs

Auditors use several procedures to test for compliance with cutoff rules. For example, to ensure revenue is recorded in the correct accounting period, auditors may review:

Shipping documents and customer invoices,
Sales transactions near the cutoff date, and
Returns and allowances near the cutoff date.

It’s important to note that updated guidance for reporting revenue went into effect for calendar-year public companies in 2018 and for calendar-year private businesses starting in 2019. Under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”

Although this guidance has been in effect for several years, implementation questions linger, especially among smaller private entities. The guidance requires management to make judgment calls each reporting period about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises and estimating variable consideration. The risk of misstatement and the need for expanded disclosures have caused auditors to focus greater attention on companies’ recognition practices for revenue from long-term contracts. During audit fieldwork, expect detailed questions about your company’s cutoff policies and extensive testing procedures to confirm compliance with the accounting rules.

Now or later?

As year end approaches, you may have questions about the cutoff rules for reporting revenue and expenses. Contact us for answers. We can help you comply with the rules and minimize audit adjustments.

The post The Importance of Proper Cutoffs in Year-End Financial Reporting first appeared on KSDT CPA.

It’s time for your business to think about year-end tax planning

ediaz — Thu, 26 Sep 2024 16:39:18 +0000

With Labor Day in the rearview mirror, it’s time to take proactive steps that may help lower your small business’s taxes for this year and next. The strategy of deferring income and accelerating deductions to minimize taxes can be effective for most businesses, as is the approach of bunching deductible expenses into this year or next to maximize their tax value.

Do you expect to be in a higher tax bracket next year? If so, then opposite strategies may produce better results. For example, you could pull income into 2024 to be taxed at lower rates, and defer deductible expenses until 2025, when they can be claimed to offset higher-taxed income.

Here are some other ideas that may help you save tax dollars if you act soon.

Estimated taxes

Make sure you make the last two estimated tax payments to avoid penalties. The third quarter payment for 2024 is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

QBI deduction

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income (QBI). For 2024, if taxable income exceeds $383,900 for married couples filing jointly (half that amount for other taxpayers), the deduction may be limited based on whether the taxpayer is engaged in a service-type business (such as law, health or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in.

Taxpayers may be able to salvage some or all of the QBI deduction (or be subject to a smaller deduction phaseout) by deferring income or accelerating deductions to keep income under the dollar thresholds. You also may be able increase the deduction by increasing W-2 wages before year end. The rules are complex, so consult us before acting.

Cash vs. accrual accounting

More small businesses are able to use the cash (rather than the accrual) method of accounting for federal tax purposes than were allowed to do so in previous years. To qualify as a small business under current law, a taxpayer must (among other requirements) satisfy a gross receipts test. For 2024, it’s satisfied if, during the three prior tax years, average annual gross receipts don’t exceed $30 million. Cash method taxpayers may find it easier to defer income by holding off on billing until next year, paying bills early or making certain prepayments.

Section 179 deduction

Consider making expenditures that qualify for the Section 179 expensing option. For 2024, the expensing limit is $1.22 million, and the investment ceiling limit is $3.05 million. Expensing is generally available for most depreciable property (other than buildings) including equipment, off-the-shelf computer software, interior improvements to a building, HVAC and security systems.

The high dollar ceilings mean that many small and midsize businesses will be able to currently deduct most or all of their outlays for machinery and equipment. What’s more, the deduction isn’t prorated for the time an asset is in service during the year. Even if you place eligible property in service by the last days of 2024, you can claim a full deduction for the year.

Bonus depreciation

For 2024, businesses also can generally claim a 60% bonus first-year depreciation deduction for qualified improvement property and machinery and equipment bought new or used, if purchased and placed in service this year. As with the Sec. 179 deduction, the write-off is available even if qualifying assets are only in service for a few days in 2024.

Upcoming tax law changes

These are just some year-end strategies that may help you save taxes. Contact us to customize a plan that works for you. In addition, it’s important to stay informed about any changes that could affect your business’s taxes. In the next couple years, tax laws will be changing. Many tax breaks, including the QBI deduction, are scheduled to expire at the end of 2025. Plus, the outcome of the presidential and congressional elections could result in new or repealed tax breaks.

The post It’s time for your business to think about year-end tax planning first appeared on KSDT CPA.

Strong internal controls and audits can help safeguard against data breaches

ediaz — Wed, 04 Sep 2024 14:39:59 +0000

The average cost of a data breach has reached $4.88 million, up 10% from last year, according to a recent report. As businesses increasingly rely on technology, cyberattacks are becoming more sophisticated and aggressive, and risks are increasing. What can your organization do to protect its profits and assets from cyberthreats?

Recent report

In August 2024, IBM published “Cost of a Data Breach Report 2024.” The research, conducted independently by Ponemon Institute, covers 604 organizations that experienced data breaches between March 2023 and February 2024. It found that, of the 16 countries studied, the United States had the highest average data breach cost ($9.36 million).

The report breaks down the global average cost per breach ($4.88 million) into the following four components:

$1.47 million for lost business (for example, revenue loss due to system downtime and costs related to lost customers, reputation damage and diminished goodwill),
$1.63 million for detection and escalation (such as forensic and investigative activities, assessment and audit services, crisis management, and communications to executives and boards),
$1.35 million for post-breach response (including product discounts, regulatory fines, legal fees, and costs related to setting up call centers and credit monitoring / identity protection services for breach victims), and
$430,000 for notifying regulators, as well as individuals and organizations affected by the breach.

A silver lining from the report is that the average time to identify and contain a breach has fallen to 258 days from 277 days in the 2023 report, reaching a seven-year low. One key reason for faster detection and recovery is that organizations are giving more attention to cybersecurity measures.

Implementing cybersecurity protocols

Cybersecurity is a process where internal controls are designed and implemented to:

Identify potential threats,
Protect systems and information from security events, and
Detect and respond to potential breaches.

The increasing number of employees working from home exposes their employers to greater cybersecurity risk. Many companies now have sensitive data stored in more places than ever before — including laptops, firm networks, cloud-based storage, email, portals, mobile devices and flash drives — providing many potential areas for unauthorized access.

Targeted data

When establishing new cybersecurity protocols and reviewing existing ones, it’s important to identify potential vulnerabilities. This starts by inventorying the types of employee and customer data that hackers might want to steal. This sensitive material may include:

Personally identifiable information, such as phone numbers, physical and email addresses and Social Security numbers,
Protected health information, such as test results and medical histories, and
Payment card data.

Companies need to have effective controls over this data to comply with their obligations under federal and state laws and industry standards.

Hackers may also try to access a company’s network to steal valuable intellectual property, such as customer lists, proprietary software, formulas, strategic business plans and financial data. These intangible assets may be sold or used by competitors to gain market share or competitive advantage.

Auditing cyber risks

No organization, large or small, is immune to cyberattacks. As the frequency and severity of data breaches continue to increase, cybersecurity has become a critical part of the audit risk assessment.

Audit firms provide varying levels of guidance, both when assessing risk at the start of the engagement and when uncovering a breach that happened during the period under audit or during audit fieldwork.

We can help

Contact us to discuss your organization’s vulnerabilities and the effectiveness of its existing controls over sensitive data. Additionally, if your company’s data is hacked, we can help you understand what happened, estimate and disclose the costs, and fortify your defenses going forward.

The post Strong internal controls and audits can help safeguard against data breaches first appeared on KSDT CPA.

Understanding taxes on real estate gains

ediaz — Mon, 19 Aug 2024 14:30:50 +0000

Let’s say you own real estate that has been held for more than one year and is sold for a taxable gain. Perhaps this gain comes from indirect ownership of real estate via a pass-through entity such as an LLC, partnership or S corporation. You may expect to pay Uncle Sam the standard 15% or 20% federal income tax rate that usually applies to long-term capital gains from assets held for more than one year.

However, some real estate gains can be taxed at higher rates due to depreciation deductions. Here’s a rundown of the federal income tax issues that might be involved in real estate gains.

Vacant land

The current maximum federal long-term capital gain tax rate for a sale of vacant land is 20%. The 20% rate only hits those with high incomes. Specifically, if you’re a single filer in 2024, the 20% rate kicks in when your taxable income, including any land sale gain and any other long-term capital gains, exceeds $518,900. For a married joint-filing couple, the 20% rate kicks in when taxable income exceeds $583,750. For a head of household, the 20% rate kicks when your taxable income exceeds $551,350. If your income is below the applicable threshold, you won’t owe more than 15% federal tax on a land sale gain. However, you may also owe the 3.8% net investment income tax (NIIT) on some or all of the gain.

Gains from depreciation

Gain attributable to real estate depreciation calculated using the applicable straight-line method is called unrecaptured Section 1250 gain. This category of gain generally is taxed at a flat 25% federal rate, unless the gain would be taxed at a lower rate if it was simply included in your taxable income with no special treatment. You may also owe the 3.8% NIIT on some or all of the unrecaptured Section 1250 gain.

Gains from depreciable qualified improvement property

Qualified improvement property (QIP) generally means any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building is placed in service. However, QIP does not include expenditures for the enlargement of the building, elevators, escalators or the building’s internal structural framework.

You can claim first-year Section 179 deductions or first-year bonus depreciation for QIP. When you sell QIP for which first-year Section 179 deductions have been claimed, gain up to the amount of the Section 179 deductions will be high-taxed Section 1245 ordinary income recapture. In other words, the gain will be taxed at your regular rate rather than at lower long-term gain rates. You may also owe the 3.8% NIIT on some or all of the Section 1245 recapture gain.

What if you sell QIP for which first-year bonus depreciation has been claimed? In this case, gain up to the excess of the bonus depreciation deduction over depreciation calculated using the applicable straight-line method will be high-taxed Section 1250 ordinary income recapture. Once again, the gain will be taxed at your regular rate rather than at lower long-term gain rates, and you may also owe the 3.8% NIIT on some or all of the recapture gain.

Tax planning point: If you opt for straight-line depreciation for real property, including QIP (in other words, you don’t claim first-year Section 179 or first-year bonus depreciation deductions), there won’t be any Section 1245 ordinary income recapture. There also won’t be any Section 1250 ordinary income recapture. Instead, you’ll only have unrecaptured Section 1250 gain from the depreciation, and that gain will be taxed at a federal rate of no more than 25%. However, you may also owe the 3.8% NIIT on all or part of the gain.

Plenty to consider

As you can see, the federal income tax rules for gains from sales of real estate may be more complicated than you thought. Different tax rates can apply to different categories of gain. And you may also owe the 3.8% NIIT and possibly state income tax, too. We will handle the details when we prepare your tax return. Contact us with questions about your situation.

The post Understanding taxes on real estate gains first appeared on KSDT CPA.