“Thousands of people have lost millions of dollars and their personal information to tax scams,” according to the IRS. The scams may come in through email, text messages, telephone calls or regular mail. Criminals regularly target both individuals and businesses and often prey on the elderly. Important: The IRS will never contact you by email, text or social media channels about a tax bill or refund. Most IRS contacts are first made through regular mail. Be on guard for any suspicious messages. Don’t open attachments or click on links. Contact us if you get an email about a tax return we prepared. You can also report suspicious emails that claim to come from the IRS at phishing@irs.gov.
If you operate your small business as a sole proprietorship, you may have thought about forming an LLC to protect your assets. Like corporate shareholders, LLC owners (or members) generally aren’t liable for the debts of the business except to the extent of their investments. So their personal assets are protected from the entity’s creditors. Plus, partnership earnings aren’t subject to an entity-level tax. Instead, they “flow through” to the owners (in proportion to their interests), are reported on the owners’ individual returns and taxed only once. To the extent the income passed through to you is qualified business income, you can claim the pass-through deduction, subject to limitations.
If you’re age 50 or older, you can probably make extra catch-up contributions to your tax-favored retirement account(s). It is worth the trouble? Yes! Eligible taxpayers can make extra catch-up contributions of up to $1,000 annually to a traditional or Roth IRA. If you’ll be 50 or older as of Dec. 31, 2023, you can make a catch-up contribution for 2023 by April 15, 2024. However, there are income limits on the privilege. You also have to be age 50 or older to make extra salary-reduction catch-up contributions to an employer 401(k), 403(b), or 457 retirement plan (assuming the plan allows them and you signed up). You can make extra contributions of up to $7,500 to these accounts for 2023.
If you own an unincorporated small business, you know your self-employment (SE) tax bills are high. In 2023, SE tax is imposed at a rate of 15.3% on the first $160,200 of net SE income. This includes 12.4% for Social Security tax and 2.9% for Medicare tax. Above $160,200, Medicare tax continues at a 2.9% rate on all income before increasing to 3.8% at higher income levels due to the 0.9% additional Medicare tax. In some circumstances, you may want to become an S corp. to save on employment taxes You can then pay modest, but justifiable, salaries to shareholder-employees and pay out most or all remaining corporate cash flow in federal-employment-tax-free shareholder distributions.
Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). Entrepreneurs often don’t know that many start-up expenses can’t be currently deducted. Some likely have to be amortized over time. You might be able to elect to deduct up to $5,000 currently, but the deduction is reduced by the amount by which your total start-up costs exceed $50,000. You can also deduct $5,000 of the organizational costs of creating a corporation or partnership. Contact us if you have tax questions about a start-up business.
