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February 2023 Newsletter

February 2023

Reap Tax Rewards for Business Property
Section 179 provides immediate benefit

There is a unique tax break for business entities of all sizes contained in Section 179 of the Internal Revenue Code. Under this section, a business can elect to “expense,” or currently deduct, the cost of qualified property placed in service during the year, up to an annual maximum. It is near-instant tax gratification.

Although the maximum deduction has gradually increased over time, the Tax Cuts and Jobs Act (TCJA) of 2017 significantly sweetened the pot by doubling the amount from $500,000 to $1 million, subject to inflation indexing. Icing on the cake: Unlike many other changes in the TCJA, this provision is permanent.

Background: When your business acquires qualified property (e.g., equipment or machinery), it generally can recover the costs over time through depreciation deductions under the Modified Accelerated Cost Recovery System (MACRS). For instance, if your company buys computers for the business, it may be able to write off the cost over five years. Other types of business property have longer recovery periods.

With Section 179, you do not have to wait as long. This special provision enables you to claim a deduction of up to $1.16 million for the cost of property placed in service in 2023, up from $1.08 million in 2022. (The latter is the maximum you can claim on your 2022 return.) The property may be new or used.

Furthermore, the Section 179 election is available to most business taxpayers ranging from corporate giants to self-employed individuals. But there are two important rules that may limit deductions.

Annual business income limit: The expensing deduction cannot exceed the net taxable income from all the businesses you actively operate. For this purpose, net income is figured without regard to expensing, the 50% deduction for self-employment tax and any net operating loss (NOL) carryforwards or carrybacks.

Annual dollar cap: If the total cost of qualified property placed in service during the year exceeds an annual threshold, the maximum expensing allowance is reduced on a dollar-for-dollar basis. The TCJA raised the threshold from $1 million to $2.5 million. As with the maximum annual deduction, this threshold is indexed for inflation. For 2023, it is $2.89 million, up from $2.7 million in 2022.

Note that the property may also be eligible for first-year bonus depreciation if the Section 179 deduction is limited. For instance, bonus depreciation may be claimed for property with a cost recovery period of 20 years or less. But bonus depreciation is being gradually phased out over five years. It drops from 100% in 2022 to 80% in 2023. Finally, regular MACRS deductions may cover any remainder.

Other special rules may apply to specific types of business property. For example, deductions for vehicles may be limited by the so-called “luxury car” rules, although the TCJA recently enhanced these write-offs.

Reminder: Taxes are an important factor when you consider an acquisition of business property. Be aware of how the tax law limits may affect your Section 179 deductions. Your professional tax advisors can provide guidance.

Keying in on Home Sale Records

Maximize home sale exclusion

It has often been said the home sale exclusion is one of the “biggest and best” tax breaks on the books. But the exclusion may not completely shelter your taxable gain due to the upswing in housing prices in many parts of the country in recent years.

Fortunately, you can minimize any capital gains tax that is due, or even eliminate it entirely, if you have the proper records.

Background: If you have owned and used your home as your principal residence for at least two of the previous five years, you can elect to exclude from tax up to $250,000 of home sale gain if you are a single filer or $500,000 if you are joint filer. There is no limit on the number of times you can claim the exclusion.

The taxable amount for purposes of the exclusion is essentially the difference between the selling price and your adjusted basis in the home. For example, your basis may have been reduced to reflect rollovers from prior home sales. On the other hand, certain home improvements increase your basis, thereby reducing your taxable gain.

Simplified example: Say you bought your principal residence 15 years ago for $250,000. Now you’re planning to sell the home for $850,000, or $600,000 more than what you paid for it. You are married and file a joint return each year.

In the intervening years, you have added improvements costing a total of $200,000. So your basis for calculating taxable gain is $450,000 ($250,000 + $200,000). This reduces your taxable gain to $400,000 ($850,000 – $450,000). Result: The exclusion covers the entire taxable gain.

Any gain that is subject to tax is favorably-taxed long-term capital gain if you have owned the home longer than a year. The maximum long-term capital gain rate is 20%.

What types of expenses are treated as home improvements? As a general rule, a home improvement adds to your home’s value or prolongs its useful life. The list includes the following:

Finishing a basement or attic;
New plumbing, heating or air conditioning system;
Adding a fireplace or new room;
Outside improvements such as a patio, deck or swimming pool;
Installing aluminum or vinyl siding or storm windows and doors; and
New landscaping.

But note that the cost of repairs—such as expenses for painting, fixing gutters, plastering walls and replacing broken windows—cannot be added to your basis.

Also, you can reduce your sales price for tax calculation purposes by the amount of certain home selling expenses. This includes the following:

Real estate broker’s commission;
Appraisal fees;
Attorney’s fees;
Closing and settlement fees;
Document preparation fees;
Advertising expenses;
Escrow fees;
Mortgage satisfaction fees;
Notary fees;
Title search fees; and
Transfer taxes charged by a city, county or state government.

Generally, these expenses are reflected in the closing statement you receive when you sell the home. All the grunt work is done for you.

Final words: Consult with your tax professional before you sell your home so you fully understand the tax consequences.

Don’t Ignore the Threat from Within

Protecting business from embezzlement

It is not enough for a small business owner to be concerned with hackers or other outsiders who may try to invade your computer system or vandalize your business premises. The potential threat of embezzlement from inside your company is just as a real. You may see it played out often in local news reports.

In fact, according to recent statistics, about 75% of employees have committed a theft, while 95% of companies have been victimized by embezzlement. So do not think that your business is immune.

How can you best protect your company? A good place is to start with a thorough examination of your bookkeeping procedures. Be sure to completely separate the accounts payable from the accounts receivable. Also, whether wages are paid by check or electronically, have at least two employees handle payroll—one to authorize payment and the other to disburse funds. If only one person is assigned both of these critical jobs, it may create an irresistible temptation to embezzle.

Furthermore, the owner of a small business should approve payments over a certain amount. Payments should be made with an original invoice, not a copy. Have all bank statements reconciled and audits performed periodically.

Even with these safeguards in place, there is no guarantee that you will not be victimized. What should you do if you find out an employee has embezzled from the company?

Following are several practical suggestions to follow:

Consult with an attorney to find out the civil and criminal legal remedies that may be available to you. For instance, you might sue the employee to recover the embezzled money.

Contact the authorities. Frequently, owners feel partly to blame for allowing the theft to take place, but hiding it does no good. In most cases, the employee will then move on to the next victim and you will be left holding the bag.

Try to recover the funds. Reporting the crime does not mean you will be reimbursed in full. Before paying claims, insurance companies want solid proof of embezzlement, which is not always easy to provide. For example, when inventory is stolen, it is hard to show that the loss is actually theft and not an inventory mistake by an employee.

Notify the IRS about the embezzlement. This becomes an added incentive for the employee to make restitution, since embezzled funds are considered to be taxable income. If you report the crime to the IRS, the employee will owe tax on the total amount stolen. This amount will be reduced to the extent that the employee makes restitution.

Be fully aware of the risks. Do what you can to discourage potential problems before they occur. Finally, keep your eyes and ears wide open at all times.

Three Ways to Leave Gifts to Charity

Tax-smart donations from an estate

Giving to a charity through your estate can create a lasting legacy, yet this concept is not limited to the “rich and famous.” There are several possible tax-wise ways to accomplish your goals. Consider these three basic techniques.

Direct gifts: The easiest way to donate through an estate is to make an outright gift by will. Direct gifts do not provide any income tax benefits, but they reduce the size of your taxable estate. Upon death, the estate tax exemption can shelter from estate tax up to $10 million of assets bequeathed to non-spouse beneficiaries (indexed to $12.92 million for 2023). In addition, the estate of a surviving spouse may utilize any unused portion of the deceased spouse’s exemption. The direct gift technique gives your estate even more flexibility.

Retirement plan assets: Donating assets in a retirement plan account is another relatively simple way to give to a charity. All you have to do is to designate the charitable recipient as a beneficiary on your plan documents. Because the charity is exempt from income and estate taxes, it receives the full value of the amount transferred. Keep other assets for your heirs.

Split-interest gifts: The third technique is more complicated than the other two. With a split-interest gift, you open up a trust and fund it with a lifetime gift. As a result, you are entitled to a charitable deduction at the time of the transfer. This enables you to retain some rights to the assets. Nevertheless, you still reduce the size of your taxable estate and avoid potential capital gains tax on assets transferred to the trust. Here are a few variations on the theme.

With a charitable remainder trust (CRT), you transfer assets to a trust and name an income beneficiary, such as yourself or your spouse, to receive either a fixed payment or percentage payment for the trust term (subject to certain limits). The beneficiary pays tax on the CRT amounts. When the trust expires, the assets go to a designated charity. As the donor, you are entitled to a tax deduction in the year of the transfer.

A charitable lead trust (CLT) is the opposite of a CRT. In this case, the charity receives annual income while the remainder goes to your heirs at the end of the trust term. A CLT may be preferable to a CRT if you do not need current income. Again, the donor is entitled to a current tax deduction.

A pooled income fund (PIF) is a trust maintained by a charity. In effect, it is like a CRT with the charity administering the trust. As with a CRT, the donor may receive annual income with the remainder going to charity. PIF contributions qualify for a current tax deduction.

Which technique, if any, is best for you? It depends on your personal circumstances. Be sure to talk matters over with your family before you make a determination.

IRS Issues New Mileage Rates

The IRS has announced the standard mileage rates that may be used in 2023 instead of deducting actual expenses. The new rates are as follows:

For business driving, the rate is 65.5 cents per mile (up from 62.5 cents in the second half of 2022).
For medical and moving expenses, the rate is 22 cents per mile (the same it was in 2022).
For charitable travel, the rate is 14 cents per mile (the same as it was in 2022).

Note that you can add related tolls and parking fees to these flat IRS-approved rates.

Facts and Figures

Timely points of particular interest

Payroll Tax Break—Certain start-up companies are in line for a bigger payroll tax break in 2023. Under the Inflation Reduction Act (IRA), a business with less than 100 full-time employees can use up to $500,000 in research credits to offset payroll taxes instead of income tax. The IRA doubled the amount from $250,000 in 2022. This election is available to a business with annual gross receipts of $5 million or less that did not have income prior to the last five years.

No Kidding—The “kiddie tax” generally applies to investment income received by a child you support who is under age 19 or a full-time student under age 24. Essentially, the excess above an annual threshold is taxed at the top tax rate of the child’s parents. The threshold for 2022 returns is $2,300. It is increasing to $2,500 in 2023. Note: The kiddie tax does not apply to earned income like wages from a child’s summer job.

January 2023 Newsletter

January 2023

Introduction to Secure Act 2.0
Key provisions in new law

First, Congress approved the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019, affecting qualified retirement plans and IRAs. Now the president has signed into law “SECURE Act 2.0” as part of a spending measure. Following are several key provisions in this new legislation.

• RMD age threshold: Generally, participants in qualified plans and IRAs must take required minimum distributions (RMDs) after reaching age 72 (raised from 70½ by the first SECURE Act). The new law raises the threshold to age 73 beginning in 2023. In 2033, it will increase to age 75.

• RMD penalty: Previously, the penalty for failing to take an RMD was equal to 50% of the required amount. The new law drops it to 25%, effective for tax years beginning after the date of enactment. The penalty is further reduced to 10% if the error is corrected in a timely fashion.

• Emergency distributions: Beginning in 2024, you can take emergency distributions from a retirement account to cover unforeseen or immediate financial needs without incurring the usual 10% early withdrawal penalty. The amount is limited to $1,000 a year. If you do not repay the distribution within a certain time, you cannot take another emergency distribution for three years.

• Catch-up contributions: Currently, you can make catch-up contributions to 401(k) and certain other qualified plans, subject to an annual limit, if you are age 50 or older. Beginning in 2025, the new law increases the limit from $7,500 to the greater of $10,000 or 50% more than the regular catch-up amount for someone between age 60 and 63. After 2025, these amounts will be indexed for inflation. (Other changes apply to catch-up contributions for IRAs and SIMPLE plans.)

• Roth catch-up contributions: Beginning in 2024, catch-up contributions to employer retirement plans must be made to Roth-type accounts for certain employees. These contributions are made with post-tax dollars that may be withdrawn tax-free in retirement. The new requirement applies to employees with compensation above $145,000 (indeed for inflation). Also, RMDs will not be required for these employer plan accounts, beginning in 2024.

• Automatic enrollment: To encourage greater participation in 401(k) and 403(b) plans, a business or nonprofit entity will be required to provide automatic enrollment to eligible employees. Employees could then choose to opt out. This provision will apply to new plans adopted after 2024 with certain limited exceptions.

• Retirement saver’s match: Beginning in 2027, SECURE Act 2.0 replaces the retirement saver’s credit with a “matching” contribution by the government to your qualified plan or IRA. The match will equal 50% of the amount contributed to your retirement account, up to $2,000 per individual. However, certain income limits and a phase-out rule will apply.

• Student loan match: Under the new law, your employer may elect to make a matching contribution to your retirement plan account based on your student loan obligations, beginning in 2024. This creates an incentive for student loan debtors to save for retirement.

• Qualified charitable distributions: An individual age 70½ or older can transfer up to $100,000 directly from an IRA to a charity tax-free. Beginning in 2023, you may elect as part of this qualified charitable distribution (QCD) a one-time gift up to $50,000 to a charitable remainder trust or charitable gift annuity. This amount will be adjusted for inflation.

• Section 529 rollovers: Funds remaining in a Section 529 account for higher education expenses may be rolled over into a Roth IRA, up to a lifetime cap of $35,000, without any tax or penalty. However, the 529 account must have been open for at least 15 years. This provision takes effect in 2024.

• Plan start-up credit: Under the first SECURE Act, a business with 100 or fewer employees could claim a tax credit for three years for 50% of the cost of starting up a qualified retirement plan, up to $5,000 (increased from $500). Beginning in 2023, employers with 50 or fewer employees can qualify for a credit equal to 100% of the cost, up to $1,000, subject to phase-outs.

• Retirement database: Finally, the new law creates a veritable “lost and found” database where you can search for retirement plan assets you have lost track of. The government has two years from the date of enactment to complete this task.

Reminder: This brief article only covers some of the highlights of SECURE Act 2.0. We will provide additional insights throughout the year.

How to Revise Your Business Budget
Five steps for making improvements

2023 is here. Whether your business has been around for generations or you are at the helm of a fledgling company, you should develop a budget for the coming year. This can make it easier to operate the business and possibly head off potential problems. It is an annual ritual that continues to make sense.

But note that the budget should account for your current circumstances. Simply doing things the way they have always been done, or at least the way that they have been done the last few years, can be a recipe for disaster. Consider these five practical suggestions for improving the process.

1. Get real. Important business decisions should depend on a realistic business plan. However, the traditional methods used for an annual budget can be suspect if you play things fast and loose. You must be precise about the numbers factored into the equation.

Review the budget periodically. When significant factors change—such as interest rates, fuel costs or direct competition—you may need to adapt on the fly. Build this flexibility into your budget.

2. Be both proactive and reactive. Initial allocations are difficult, but once they are made, they do not have to be etched in stone. Just because more resources are needed does not necessarily mean you should not do it. Additional budget allocations may be allowed during the year.

When it is not feasible to have an in-depth review, you might ease some financial constraints. If you have good people on staff, trust them to make sound decisions without micro-managing the situation.

3. Adjust thinking on performance evaluation. It usually does not make sense to judge performance based on target numbers and principles that have become outdated. Furthermore, basing pay on budgets that the managers set for themselves encourages them to lower expectations to provide a better chance of meeting their goals.

If possible, keep performance evaluations separate from the planning procedures. Managers should be judged based on how their units actually perform during the measurement period.

4. Develop other metrics. Financial results do not have to be the only measuring sticks for business units and their managers. You might supplement the financial measures with metrics specific to each organizational segment, some of which are leading indicators of future financial performance. Depending on the operation, these could include attaining significant new clients or customers, success in research and development, or improvements in production, customer satisfaction or employee moral.

5. Revise your assumptions. Frequently, budgets are defined by exceeding a threshold, so no bonuses may be paid if the goal is not achieved. This arrangement encourages managers who could be denied a bonus to manipulate the results. If your company shies away from this approach, there will be less temptation to “work the system” and greater emphasis on doing what is best for the company.

In summary: These five steps may spur growth within your company and lead to sustained success. Managers can make better decisions based on updated information. Budgeting will still be somewhat time-consuming, but it should be time well spent.

IRS Maps Out New Per Diem Rates
Approved shortcut for business travel

The IRS often pays close attention to deductions claimed for business travel expenses. Both employers and employees must meet strict recordkeeping requirements or face the consequences. Fortunately, however, you can obtain some relief by using IRS-approved per diem allowances in lieu of accounting for every expense.

The per diems are actually the allowances approved for travel by U.S. government employees, but they can be used by regular business operations. These per diem rates were recently updated for the government’s fiscal year 2023 (FY2023) spanning October 1, 2022 through September 30, 2023. Thus, the new rates took effect at the end of last year.

Background: As long as employees properly account for their business travel expenses, including the cost of meals and lodging, employer-paid reimbursements are tax-free to the employees and deductible by the company. But this can lead to a recordkeeping nightmare. With a per diem allowance, employees don’t have to keep receipts for all of their travel expenses. The employer simply pays the government-approved allowance—no muss, no fuss.

Employees do not even have to report the payments on their tax return. However, they still must substantiate the time, place and business purpose of their business travel.

Important: A business owner cannot use per diem allowances if they own 10% or more of the company, although that does not restrict your business from using the rates for other eligible employees.

Notably, the government annually establishes a higher rate for certain “high-cost areas.” The list of high-cost areas includes established metropolitan centers like New York, Chicago and Los Angeles. In addition, some areas may be included on a seasonal basis, such as Aspen in the winter or Ocean City in the summer. All other locations in the continental U.S. fall into the “low-cost” category.

New directions: According to the recent announcement, the new per diem rate for high-cost areas is $297 (up from $296 in FY2022). The per diem for all other localities is $204 (up from $202).

As usual, the list of high-cost areas was also tweaked. For FY2023, the destinations added to the list of high-cost areas include Gulf Shores, Alabama; Phoenix/Scottsdale, Arizona; San Luis Obispo, California; Durango and Steamboat Springs, Colorado; Bradenton, Cocoa Beach, Gulf Breeze, Panama City, Pensacola, Punta Gorda, Sarasota, Sebring and Stuart, Florida; Sun Valley/Ketchum, Idaho; Portland, Maine; Mackinac Island, Michigan; Duluth, Minnesota; Kalispell/Whitefish, Montana; Toms River, New Jersey; Glens Falls, New York; Kill Devil Hills, North Carolina; Lincoln City, Oregon; Myrtle Beach, South Carolina; Moab, Utah; Manchester, Vermont; and Port Angeles/Port Townsend, Washington.

Conversely, Crested Butte/Gunnison, Colorado was removed from the list of high-cost areas for FY2023.

In summary: This can be a valuable time-saver for employers and employees alike. Consult with your professional tax advisors concerning your company’s situation.

Seven Issues for Surviving Spouses
When there’s an unexpected loss

It is difficult enough to plan ahead when a spouse faces a life-threatening illness, but it is even tougher when your loved one unexpectedly passes away. Besides the emotional turmoil, there are numerous financial decisions for a surviving spouse to make and obligations and deadlines to meet.

Unfortunately, time is rarely on your side in these situations, but you do not want to make any rash decisions either. Here are seven important areas to address.

1. Notifications: For starters, you will need to notify a wide range of parties, including any employers; life insurance companies; credit card companies; the Social Security Administration (SSA); the state office for inheritance tax (when applicable); and your tax, legal and financial advisors.

2. Retirement accounts: Examine employer-sponsored accounts, like 401(k) plans and pension plans, as well as traditional and Roth IRAs. You may face options such as taking a lump-sum or partial distribution, rolling funds over into another tax-sheltered account or leaving the plan assets where they are, at least for the time being. Seek professional guidance for the hard choices.

3. Insurance: Do not assume that all your insurance policies can simply continue as before. This is a good time to review coverage—including life, health, disability income, homeowner’s, auto, long-term care and umbrella insurance—to determine if they meet your changing needs. Also, amend your life insurance policy if your spouse was a named beneficiary.

4. Social Security benefits: Figure out how much you will receive in Social Security retirement benefits. Frequently, the maximum benefit will change due to the death of a higher-earning spouse. The information you need is readily available from the SSA. Factor this into the equation for retirement planning.

5. Investments: Assemble records of investments held by your spouse and those you owned jointly. Assess your current portfolio with an eye towards the future. This will likely require some adjustments relating to your personal objectives, time horizon for retirement and risk tolerance. Rely on guidance from your financial advisors.

6. Living expenses: Once emotions have calmed down, take stock of your current situation and try to project into the future. What do you need to pay now and how much money will you need the next five-to-ten years? Much depends on the stage of life that you are in. For example, more provisions will be required if you will be paying to send one or more children to college than you would need if you are near retirement or already retired.

7. Tax filings: Generally, if the estate is significant, a federal estate tax return for your spouse must be filed within nine months of death. In addition you have to file a federal income tax return by April 15 (or the next business day) of the following year, plus make timely filings of any applicable state tax returns.

Remember that you do not have to do it all alone. Your professional advisors can provide the assistance you need.

Coping With Employee Stress

The pandemic and other issues have resulted in increased severe mental stress for a sizeable segment of the workplace population. What can you do as employer?
At a minimum, follow these three steps.

• Pay close attention to the behavior of employees. Trust your instincts.

• Don’t just send an emotionally wrought employee home. Continue to monitor the situation.

• When things seems dire, call 9-1-1.

In this case, it is better to be safe than sorry. Do not hesitate to seek assistance from medical professionals.

Facts and Figures
Timely points of particular interest

Delayed Reporting—Do you receive business payments from third-party networks like Venmo and Pay Pal? 1099-K forms are sent to recipients if the business has 200 or more transactions during the year totaling more than $20,000. Under the American Rescue Plan Act (ARPA), the reporting requirement was modified for the 2022 tax year to cover transactions totaling $600 or more, but now the IRS has delayed this change for one year. Expect additional guidance from the IRS soon.

Tax Day—The due date for filing your annual individual tax return—often referred to as “Tax Day”—is April 18 this year. That is three days later than the usual deadline of April 15 because the 15th falls on a Saturday and the next business day, Monday, April 17, is the Emancipation Day holiday celebrated in Washington, D.C. The April 18 due date also applies to the estimated tax payment due for the first quarter of 2023. Note: S corporation and partnership returns are due on March 15.

December 2022 Newsletter

December 2022

How to Address Employee Turnover
Practical ideas for small businesses

We are in the midst of the “Great Resignation.” This is the name being used to describe the mass exodus of people, both young and old and in between, from the workplace. When you combine the development with the trend of “quiet quitting” where employees do the bare minimum of work until they eventually leave, your business may be understaffed for the upcoming year.

How can you reduce employee turnover? Although there are no guarantees, one overall idea is to improve the general work environment. For example, you might address some common concerns of your employees each Friday afternoon. Alternatively, you can try to schedule regular one-on-one meetings or Zoom calls on a monthly or quarterly basis to address employee concerns.

Some of the revelations resulting from these meetings may surprise you. You may find that an employee is bored by the day-to-day routine of a job. Perhaps the level of compensation is an issue. Or maybe you need to spell out better guidelines for job performance. Finally, others may have special problems relating to childcare or other family obligations.

Keeping that in mind, here are several practical suggestions for reducing turnover.

• Offer new challenges. No one wants to be caught in a rut. To avoid this problem, you may emphasize an employee’s strengths by creating new tasks. For instance, an innovative employee may be asked to look into new product development. Therefore, you might have to transfer the worker to a different department or group.

• Sharpen skills through training seminars. These seminars allow workers to expand their duties and identify how their particular talents can best be utilized. If you do not have the resources for in-house sessions, you may be able to arrange for private seminars or courses at a local university.

• Set flexible compensation standards. Obviously, it is easier to retain key employees if you pay them what they are worth. The problem often is rooted in an inflexible company policy. For instance, an employee who puts in extra hours may be frustrated by being tied to the same salary structure as someone who clocks in and out from nine-to-five every day. Result: An employer may have to throw out “the book” on compensation levels.

• Think outside the box. If the salary structure cannot be revised, your company may use other methods of compensation to retain valuable employees. A few examples are deferred compensation packages, stock options, bonuses, additional vacation pay or time off.

• Explain your standards to employees. Of course, a business manager must be able to recognize and appraise the work an employee does. But the responsibilities do not end there. Case in point: Employees should know what is expected of them and what constitutes satisfactory or excellent performance. It may be necessary to write out practical guidelines and discuss them periodically with your staff.

This last idea should be an on-going process that encourages communication between all parties. Otherwise, it could be a waste if employees do not receive any feedback from your discussions.

Eight Last-Minute Tax Strategies
Time is running out fast

Tick, tick, tick. The days left in the year are counting down to a precious few. We have previously covered several year-end tax planning strategies you might use, but here is a reminder about eight “last-minute” possibilities.

1. Charge it! Generally, you can take a current deduction for charitable donations made as late as the last day of the year, including monetary contributions made by credit card. As long as the charge is posted to your account before New Year’s Day, it is deductible in 2022—even if you do not actually pay off the credit card bill until 2023.

2. Harvest capital gains or losses. Remember that capital gains and losses offset each other. Any excess loss can then offset up to $3,000 of ordinary income. Depending on your situation, you may decide to sell securities late in December to realize a tax-valuable gain or loss.

3. Pre-pay your mortgage. If you pay your next monthly mortgage bill before January 1, 2023, you may deduct the qualified interest on your 2022 tax return if you itemize. In effect, you are thereby receiving the benefit of 13 monthly mortgage payments this year. Caveat: You then must pre-pay each succeeding year to avoid dropping down to eleven months’ worth of payments in a subsequent year. Consider all aspects of this technique.

4. Schedule year-end check-ups. The tax law allows you to deduct unreimbursed medical and dental expenses to the extent the annual total exceeds 7.5% of your adjusted gross income (AGI). If you have already cleared the 7.5%-of-AGI threshold for 2022, a routine physical exam or dental cleaning in December may increase your deduction.

5. Set up a Keogh plan. If you are self-employed, you have until your tax return due date for the current year, plus any extensions, to make deductible contributions to a Keogh plan. The deductible contribution limit for 2022 is generally the lesser of 25% of compensation or $61,000 ($67,500 if age 50 or over). Key point: The Keogh plan must be established before January 1, 2023 to qualify for 2022 deductions.

6, Pay your child’s tuition. Generally, you may claim one of two credits—the American Opportunity Tax Credit (AOTC) or the Lifetime Learning credit (LLC)—for amounts paid for a child in college. The maximum AOTC is $2,500 per student; $2,000 per family for the LLC. But the credits are phased out for certain taxpayers. If you still qualify, pay next semester’s tuition in December to increase a credit for 2022.

7. Transfer IRA funds to charity. Under a special tax law provision, you may transfer up to $100,000 directly from an IRA to a qualified charitable organization without paying any tax on the transfer. This tax break applies only to individuals age 70½ or over. Added benefit: This counts as a required minimum distribution (RMD) from your IRA. Failure to take an RMD may result in a hefty penalty.

8. Be generous at the holidays. The annual gift tax exclusion allows you to give each recipient gifts valued at up to $16,000 in 2022 without incurring any gift tax liability. The exclusion is effectively doubled to $32,00 per recipient for gifts by a married couple. Note: The exclusion jumps to $17,000 per recipient in 2023.

Obtain professional tax guidance concerning your situation.

Tax Relief for Business Bad Debts
Secure a deduction at year-end

In this difficult economic environment, some of your clients may have difficulty paying their bills. Others have not fully recovered from the pandemic. As a result, you may have trouble getting paid for your goods or services on time—or even at all.

Saving grace: You may be able to salvage a bad business debt deduction on your 2022 tax return. But this tax treatment is not automatic—far from it. To qualify for tax relief, ramp up your collection efforts before the end of the year.

The rules in this area are complicated, so we will briefly review the basics.

If you are a cash-basis taxpayer, like many self-employed individuals and other small business owners, you are entitled to deduct a business bad debt only if the amount that was owed was previously included in gross income. This applies to amounts owed from all sources of taxable income.

However, if the business operates on the accrual method instead, it generally reports income as it is earned. Thus, the business can claim a bad debt deduction for an uncollected receivable that was previously included in gross income.

Notably, you must establish that the debt is legitimate and cannot be recovered from the debtor. To satisfy this requirement, take steps to secure payment. Although you do not necessarily have to go as far as filing a lawsuit against the debtor, simply reaching out with a single phone call or email is not enough either.

As a general rule, a business will use the specific charge-off method for bad debts. Accordingly, you must identify debts as being partially or completely worthless. Assuming you are using the specific charge-off method, you may deduct those business bad debts that become either partially or totally worthless during the year.

• Partially worthless debts: In this case, the deduction is limited to the amount charged off during the year. You are not required to charge off partially worthless debts annually, so you may delay this until a subsequent year. Caution: You cannot deduct any part of a debt after the year in which it becomes totally worthless.

• Totally worthless debts: If a debt becomes totally worthless in the current tax year, you may deduct the entire amount (less any amount deducted in an earlier tax year when the debt was only partially worthless).

Note: You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. However, if the IRS then determines that the debt is only partially worthless, you will not be able to deduction a debt in that tax year. Reason: A deduction of a partially worthless bad debt is limited to the amount actually charged off.

Final words: Winter is approaching but spring into action now. Follow through on your previous collection activities. Try to wrap up matters before 2023 to qualify for a deduction for 2022.

Coping With Stock Market Volatility
Riding out the ups and downs

This year has been a wild rollercoaster ride for the stock market. Notably, declines of several hundreds of points in the Dow Jones Industrials Average (DJIA) have become almost routine, as have significant bounce-backs. The economic data and inflation have contributed to the uncertainty, as have other domestic and global events.

And the year is not over yet. Who knows what will happen next or even from the time this is being written to the time you are reading it?

Practical approach: Develop a comprehensive investment plan designed to help smooth out some of the typical ups and downs of the stock market. Following are several “common sense” ideas to consider.

• Plan for the long term. It is tempting to jump on the bandwagon when the bulls are running wild and easy to panic when the bears take over. Do not let emotion rule your investment decisions. Know your time horizon and develop a plan that emphasizes your long-term goals…and then stick to it.

• Do not ignore liquidity needs. On the other hand, you may not be able to invest the bulk of your assets in equities over the long term if you need some of the money to pay for daily expenses. This may include outlays for the monthly mortgage, a child’s education or health and life insurance. Make sure you are liquid enough to live comfortably without tying up all your cash.

• Stick to the investment fundamentals. Of course, there are no absolute guarantees, but the tried-and-true principles of asset allocation and diversification are worthy of your consideration. By finding the proper balance of assets for your portfolio, and classes within those assets, you are far more likely to avoid any dire consequences. At the very least, do not put all of your eggs into any one basket.

• Think international. The days of limiting yourself to domestic equities are long gone for astute investors. In this global economy, it only makes sense to include assets from foreign countries in the mix. This is a variation on the theme of asset allocation mentioned above. Naturally, you can apply the same economic analysis for foreign investments as you do for U.S.-based equities.

• Educate yourself. The more you understand about how the markets work, and what makes them move up or down, the more you will be able to tolerate the inevitable swings. Read everything you need to know about a particular investment before you buy or sell it. Surprisingly, many investors will own stocks or bonds or other assets without really knowing what they are.

There is no need to be scared by the inherent volatility in equities nor should you overreact when the market turns in your favor. The start of a new year is a good time to review your portfolio and make any necessary adjustments. Do not hesitate to seek professional guidance relating to your investments and potential tax consequences.

IRS Hikes Retirement Plan Limits

The IRS recently announced cost-of-living adjustments (COLAs) for certain retirement plans in 2023. Due to rising inflation, the increases are greater than usual, as shown below. For instance, the limit for 401(k) plan contributions jumps by $2,000.

2022 December Newsletter

Note: The annual limit for contributions to traditional and Roth IRAs is also increasing from $6,000 for 2022 ($7,000 if you age 50 or over) to $6,500 for 2023 ($7,500 if age 50 or over). The phase-out levels for IRA and Roth contributions have also been adjusted upward.

Facts and Figures
Timely points of particular interest

Rising Wage Base-Buckle up, the Social Security wage base will much be higher next year. The Social Security Administration (SSA) has announced that the wage base for purposes of the 6.2% Social Security ase—portion of federal payroll tax is increasing to $160,200 in 2023, up from $147,000 in 2022. That is a precipitous hike of $13,200. The 1.45% Medicare portion of federal payroll tax continues to apply to all wages earned during the year.

Earnings Test-The “earnings test” for Social Security benefits is also going up significantly. For those attaining normal retirement age (NRA) after 2023, the threshold in 2023 is $21,240, up from $19,560. They lose $1 of benefits for every $2 of earnings above the limit. For those attaining NRA in 2023, the threshold is $56,520, up from $51,960. (This only applies to earnings in months prior to attaining NRA.) They lose $1 of benefits for every $3 over the limit.

November 2022 Newsletter

November 2022

Top Tax Strategies for Individuals
Tax-saving ideas at year-end

As the year rapidly draws to a close, you can take steps to improve your tax picture for 2022 based on the latest laws of the land, including the new Inflation Reduction Act (the IRA). Following are several frequently-used strategies.

• Capital gains and losses: Under longstanding tax rules, investors may use capital gains and losses to offset each other. For example, you might realize capital gains from sales of securities to absorb capital losses from earlier in the year or realize losses to offset capital gains plus up to $3,000 of ordinary income in 2022. Note: The maximum tax rate on long-term capital gain for assets held longer than a year remains at 15% (20% for certain high-income taxpayers).

• Charitable donations: If you itemize deductions, you can boost your charitable deduction by donating money or property to charity at year-end. For 2022, the annual limit on your deduction for monetary gifts is equal to 60% of your adjusted gross income (AGI), down from 100% in 2021. Note: You may deduct the current fair market value of gifts of property that would have qualified for long-term capital gain treatment if sold.

• Electric vehicle credits: The IRA revises the existing tax credit for electric vehicles (EVs) and plug-in hybrids. Notably, you may be eligible for a credit for up to $7,500 for the cost of buying a new qualified EV if certain requirements are met. Alternatively you may qualify for a credit of up to $4,000 if you buy a used EV. Note: The credit for used EVs is not available until 2023.

• Required minimum distributions: Normally, if you are age 72 or older (recently increased from age 70½), you must take annual required minimum distributions (RMDs) from traditional IRAs and qualified plans like a 401(k). Otherwise, you are hit with a 50% tax penalty in addition to regular income tax liability. Note: RMDs are based on life expectancy tables and the balance in your account on December 31 of the prior year.

• Medical expenses: An itemizer can deduct unreimbursed medical expenses above an annual threshold of 7.5% of AGI (recently lowered from 10% of AGI). Thus, if you are near or over the 7.5%-of-AGI threshold for 2022, you might accelerate non-emergency expenses, such as physical exams or dental cleanings, from 2023 into 2022. Note: Different rules may apply on the state income tax level.

• Residential energy credits: The IRA expands and extends the rules for residential energy credits. Generally you may qualify for a 30% “residential clean energy credit” for installing solar panels or other equipment to harness renewable energy this year. Also, a 30% “nonbusiness energy property credit” of up to $1,200 is available for the cost of qualified energy-efficient improvements: Note: Dollar caps may limit credits for certain specific items.

• Estimated tax: If you underpay income tax during the year, you could be liable for an estimated tax penalty. When it is appropriate, take advantage of one of two “safe harbor” exceptions. Generally, you can avoid the penalty by paying at least 90% of your current tax liability or 100% of the prior year’s tax liability. Note: The latter safe harbor is increased to 110% of the prior year’s tax liability if your AGI exceeded $150,000.

Reminder: These are just several possibilities to consider. With assistance from your professional advisor, you can develop a tax plan personalized for your situation.

Top Tax Strategies for Small Businesses
Tax-saving ideas at year-end

Of course, tax planning is not just for individuals. Your small business may also benefit from implementing year-end tax strategies. Following are several ideas to consider.

• Business property: Section 179 of the tax code allows a business to expense (i.e., currently deduct) up to $1.08 million of qualified business property placed in service in 2022.This amount begins to phase out above a threshold of $2.7 million. Furthermore, a business may be able to claim 100% first-year “bonus depreciation” on any remaining cost. Note: 100% first-year bonus depreciation begins to phase down after 2022.

• Payroll tax deferral: Under recent legislation, an employer could defer its share of the Social Security tax portion of certain payroll taxes due in 2020. (This tax deferral break was subsequently extended through 2021.) The first half of the deferred amount was due at the end of 2021. Be careful to pay the portion of tax that is due by January 3, 2023. Note: If your business does not remit the payroll taxes in time, the penalty is equal to 10% of the entire deferral amount.

• Start-up costs: Did you undertake a new business venture in 2022? Normally, start-up costs must be amortized over 180 months, but you can currently deduct up to $5,000 of qualified expenses. This includes costs normally deductible by an active business. Make sure you are “open for business” before 2023 to qualify for this tax break in 2022. Note: The special deduction is phased out for costs above $50,000.

• Work Opportunity Tax Credit: An employer needing more staff at year-end may claim the Work Opportunity Tax Credit (WOTC) for hiring disadvantaged workers from one of several target groups. Generally, the WOTC equals 40% of the first-year wages of up to $6,000 per employee, for a maximum of $2,400. Note: For certain veterans, the credit is available for up to $24,000 in wages, for a maximum of $9,600 per employee.

• Business meals: Despite a recent tax law crackdown on deductions for business entertainment expenses, you can still deduct 50% of the cost of certain business meals. This includes expenses for food and beverages associated with entertainment if those amounts are invoiced separately. Note: Recent legislation increases the usual 50% deduction to 100% for food and beverages provided by restaurants in 2021 and 2022.

• Business repairs: Generally, an employer can currently deduct the cost of minor repairs to the business premises made before the end of the year, but the cost of major improvements must be capitalized. Under IRS regulations, you may benefit from a safe harbor election to currently deduct certain expenses. Note: If repairs are lumped in with improvements, they may have to be capitalized.

Other tax benefits may be available at year-end. Discuss your situation with your professional tax advisors.

New IRS Ruling Spotlights Inherited IRAs
Future clarification needed on RMDs

The IRS has issued new guidance that provides a reprieve to certain non-spouse beneficiaries who recently inherited IRAs. Notably, they will not be penalized for failing to take required minimum distributions (RMDs) that would normally be mandated for 2021and 2022. This relates to provisions included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Background: In the usual course of events, you must start taking RMDs from IRAs after you have reached the required beginning date (RBD) of age 72 (increased from age 70½ by the SECURE Act). The amount of the annual RMD is based on life expectancy tables and the value of the account on the last day of the previous year. For example, a 2022 RMD reflects the account balance as of December 31, 2021.

If you do not comply with these rules, the IRS may impose a penalty equal to 50% of the amount that should have been withdrawn (or the difference between the required amount and a lesser amount actually withdrawn). The penalty is added to the regular income tax that is due for the RMD.

Comparable rules apply when someone inherits an IRA from a person who has already reached the RBD. However, in the past, taxpayers could stretch out RMD payments by basing the amounts on their own life expectancies. Thus, by using these so-called “stretch IRAs,” tax deferral could continue for decades and result in more accumulated savings.

Key change: Under the SECURE Act, IRA beneficiaries (other than surviving spouses) are generally required to empty out the account over a ten-year period. Thus, stretch IRAs were effectively eliminated. Earlier this year, the IRS issued proposed regulations that provided that beneficiaries could not effectively back-load RMDs if the original account owner died after reaching their own RBD.

But these rule changes led to considerable confusion among taxpayers and tax professionals alike. Recognizing the problems, the IRS acted before the end of the year. In new Notice 2022-53, the IRS establishes that taxpayers in this situation will not be penalized for failing to take RMDs from inherited accounts that would normally have been due for 2021 or 2022.

The IRS also states that it will be issuing final regulations in the near future that address the rule changes. The final regulations will replace the proposed regulations that can now be ignored.

What it all means: You can take a deep breath. The new regulations are expected to clarify whether RMDs can be back-loaded over the ten-year period. At the very least, this gives these IRA beneficiaries more time for planning future distributions. We will keep you up-to-date on any new developments.

How to Give Employees Negative Feedback
Seven ideas for positive reinforcement

It is not easy to come down hard on an employee during their annual review at the end of the year. But it could be even worse for a business manager if an employee is totally blindsided and ends up filing a lawsuit against the company. In the worst-case scenario, this could put the business in jeopardy.

However, major legal and logistical problems—not to mention the resulting costs, time and energy spent on these matters—may be avoided by providing regular feedback to employees.

This requires you to impart negative comments to an employee in a way that will identify areas where the employee needs to improve, and the actions they can take, without triggering an outburst or raising legal threats. Fortunately, you may be able to diffuse a potentially explosive situation by following these seven steps.

1. Be straightforward. Don’t try to “talk around” around the main issues. Come right out and tell the employee what the problems are and what needs to be done. Sugarcoating the situation is not likely to produce the desired results.

2. Provide input as soon as possible. It will be more useful to speak to an employee right after an incident occurs rather than waiting an extended period of time. This way, it will be fresh in everyone’s minds and the employee may be able to correct the behavior immediately.

3. Paint a clear picture. Try to be objective, not subjective, in your evaluation. Focus on specific events. If you are vague in your assessment, it will be harder for the employee to address your concerns.

4. Explain the consequences of actions. Make sure an employee understands the importance of these issues. For example, letting an employee know that a customer or client is threatening to take their business elsewhere can help “connect the dots.”

5. Give credit when it is warranted. It can beneficial to balance negativity with some positive feedback when it is warranted (e.g., if an employee has started correcting behavior). The employee will know that you appreciate their efforts and will be more likely to continue along the same path.

6. Reinforce your expectations. One of the critical aspects of providing feedback is to have the employee understand and recognize the problems. Continue to stress what it will take to be successful.

7. Take the opportunity to reward, not punish. Strive to achieve positive results instead of accentuating a downward spiral. Remember that the “end game” is to improve performance. You do not want to wind up on opposite sides of a courtroom.

Naturally, there are no guarantees that following these seven steps will completely cut off confrontations. When it is appropriate, seek additional professional guidance pertaining to these or other employment-related issues.

New Estate and Gift Tax Thresholds

On October 18, the IRS announced a number of inflation adjustments for the 2023 tax year. Two key changes affect estate and gift taxes.

1. The annual gift tax exclusion is increasing from $16,000 per recipient to $17,000 per recipient.

2. The unified estate and gift tax exemption is increasing from $12.06 million to $12.92 million.

We will provide information on other inflation adjustments in upcoming issues.

Facts and Figures
Timely points of particular interest

Not So FAST—Are you planning a trip to a foreign country? Make sure your federal income taxes are all paid up. Under the Fixing America’s Surface Transportation (FAST) Act, a passport may be denied, revoked or otherwise limited if you have a “seriously delinquent tax debt” exceeding $55,000 in 2022, barring any special exception. One such exception is if you have installment agreement worked out with the IRS.

Cash Is King—Frequently, small business owners have difficulty managing cash flow. It is important to balance “inflow” from sales of goods and services, loans, lines of credit and asset sales against “outflow” such as regular expenditures, loan payments and business property purchases. Without adequate systems in place, everyday operations may be adversely affected. Do not ignore the potential cash flow dangers.

October 2022 Newsletter

October 2022

Observe New Tax Rules of the Road
New law revamps electric vehicle credits

Are you thinking about purchasing an electric vehicle (EV) or plug-in hybrid? The new Inflation Reduction Act (the IRA) green lights tax credits for many taxpayers who buy EVs in 2023. However, other individuals may hit some unexpected roadblocks.

Background: Currently, a tax credit is available for EVs, including plug-in hybrid vehicles, that meet certain energy consumption standards. The maximum credit is $7,500, regardless of cost. The credit is claimed on the tax return for the year in which you purchase the vehicle.

In addition, you must meet other technical requirements, including a limit on the gross vehicle weight rating (GVWR). Also, the vehicle has to be used predominantly by its original purchaser. In other words, the credit cannot be claimed on a resale.

The IRS regularly updates the list of vehicles that qualify for the credit. Visit its website for more detailed information about the various models.

Caution: Under prior law, the credit begins to phase out for a manufacturer’s vehicles when it has sold at least 200,000 qualifying vehicles for domestic use. Tesla, GM and Toyota have already exceeded this limit.

Furthermore, the credit is nonrefundable. For example, if you show $5,000 in tax liability on your 2022 return and you qualify for a $7,500 credit, it is limited to $5,000. Finally, the credit is only available to the owner of the vehicle. Lessees do not qualify.

New rules: The IRA includes the following key provisions relating to tax credits for EVs.

• The credit cannot be claimed by single filers with a modified adjusted gross income (MAGI) above $150,000 or an MAGI or $300,000 for joint filers.

• The credit is not available for most passenger vehicles that cost more than $55,000. The limit is $80,000 for vans, sports utility vehicles (SUVs) and pickup trucks.

• The vehicle must be powered by batteries whose materials are sourced from the U.S. or its free trade partners and must be assembled in North America.

• The 200,000-vehicle threshold for manufacturers is eliminated. However, this restriction still applies for vehicles purchased in 2022.

• If you qualify for the credit, you may get instant gratification though a price reduction at the time of purchase. But it appears that this tax break will not be implemented until 2024. The IRS is expected to issue guidance shortly.

Tax break for used vehicles: Notably, the IRA also provides a credit of up to $4,000 for purchasers of used vehicles under a separate set of rules. For example:

• The credit is available to single filers with a MAGI of no more than $75,000 or $150,000 for joint filers.

• The vehicle cannot cost more than $25,000.

• The vehicle must be at least two years old.

• The purchase must be the first sale of the used vehicle by a licensed dealer.

• You can only claim the credit once every three years.

As you might imagine, the new IRA rules complicate matters for potential purchasers of EVs. Besides getting all the car facts, find out the tax facts for your situation. Your professional advisors can provide the “roadside assistance” you need.

Handing Over the Business Reins
Tips for anointing a succesor

If you have spent years building up a small family business, you may finally be preparing to step away from it or at least scale back your workload. After all, you deserve it. But who will you pick to run the operation when you are not around on a full-time basis?

Caution: Finding someone to “fill your shoes” may not be an easy task. You will probably want someone to carry on your legacy. Frequently, this will be another family member, but it might be a long-time employee who knows the business inside-and-out. Either way, you do not want to throw the business into a tailspin or damage any family relationships.

Here are several suggestions you might follow in choosing a business successor.

• Make your future intentions clear to the rest of the family. Do not suddenly spring it on them that you have decided to walk away. Give them some time to get used to the idea.

• Do not make any hasty decisions. Draw up a list of the qualities that each individual brings to the table. Also consider each candidate’s negatives. Try to avoid preconceived notions and focus on actual performance.

• Schedule a family gathering over a long weekend to discuss the need for a successor. Give other family members a chance to express their opinions about who should be leading the company. To avoid the usual distractions, try to hold the gathering in a remote location, or at least far away from the main office. Include all family members, including in-laws, in the invitation.

• If a clear successor does not emerge right away, or if multiple family members are interested in taking the helm, develop a job description to cut down the emotional aspect of the decision. Describe what the job requires in terms of talent, expertise and personality.

• When there are no family members up to the task or when they do not want the responsibility, consider a non-family leader. Typically, your business will already employ a manager who understands your values and can be groomed to lead the company. If not, you might use an executive search firm to identify candidates.

• Seek advice from an outsiders such as professionals or consultants familiar with your business as well as succession planning.

Keep in mind that choosing the next leader is only part of a succession plan. For instance, you should have a “buy-sell agreement” drafted that establishes the value of the business. This is vital not only when you retire, but also if you decide to sell your business interest or if you should suddenly die or become disabled.

Similarly, a power of attorney can give your successor some flexibility in the event of an unexpected incapacitation. Also, secure adequate life insurance for yourself and other key executives. The proceeds from a life insurance policy could be used to pay for estate taxes and to meet other potential liquidity needs.

Final words: Coordinate aspects of your business succession plan with your estate plan. Your professional advisors can help you address the key issues and investigate ways to minimize the tax burden.

Avoid These Seven Financial Sins
Do not fall into common traps

Although you probably try to live your life the best way you can, you still may be guilty of some common “financial sins.” This is not necessarily linked to wrath, greed, sloth, pride, lust, envy or gluttony. However, the actions you take regarding your financial affairs may lead you astray, especially as they relate to investments.

Practical advice: Do not give into these inclinations. By avoiding the following seven financial sins, you are more likely to end up in a state of bliss.

Sin #1: You invest based on your emotions.

Do not let your emotions dictate financial strategies. For instance, when the stock market is booming, your desires can lead you to make bad decisions. On the flip side, if you are faced with a declining market, you cannot let fear overtake your financial sensibilities. Try to maintain an even keel.

Sin #2: You are overly optimistic about returns.

When the stock market was roaring years ago, investors took it for granted that they could generate annual returns averaging 10% or even higher. But that is not a realistic outlook in the current environment. If you lower your expectations, you can better position yourself for what might happen.

Sin #3: You pay excessive fees.

Of course, you usually “get what you pay for,” but that does not mean you should pay exorbitant fees in connection with investments. Rely on trusted financial advisors to steer you in the right direction.

Sin #4: You are not adequately insured.

Insurance is a key component of most financial plans. This includes various forms such as life insurance, health insurance, disability income insurance, etc. Try to have your needs quantified based on your current and future objectives.

Sin #5: Your risk exposure is too high.

It has been said often that there is an inherent risk in the investment markets. Recognize that it is possible to make money, lose money or stay in the same basic position. Do not risk more than you can reasonably afford to lose. Consider your “risk tolerance” as part of your investment decisions.

Sin #6: You do not keep an emergency fund.

It is generally recommended that you keep enough financial “cushion” to sustain your family through six to twelve months if financial disaster should strike. Consider an emergency fund that will last even longer if you are contemplating retirement or have already retired.

Sin #7: You do not obtain professional assistance.

This is not to say that you are not qualified to manage your own financial affairs. But almost everyone needs a little help now and then. As mentioned above, you should not pay excessive fees, yet that does not mean you should not obtain guidance when the situation calls for it. Do not let your ego get in the way or you could be guilty of the “deadliest” financial sin of all.

Follow Tax Blueprint for This Credit
Cutting costs of business renovations

If you are intending to bring more workers for your small business back on site, you may decide to move to smaller digs than you had prior to the onset of the pandemic. Or maybe you are inclined to make some renovations to your existing business premises. In either event, if you include special accommodations for disabled individuals, you may qualify for a special tax credit equal to as much as half of the cost.

Furthermore, this “disabled access credit” may apply to more expenses than you might think. It is not limited to installations of ramps and guardrails—although those count, too.

Background: A qualified small business is eligible to claim the disabled access credit for making business premises more accessible to disabled individuals. The credit is claimed as part of the general business credit.

For this purpose, a “qualified small business” is one with gross receipts of $1 million or less or one that did not employ more than 30 full-time employees in the preceding tax year. The credit maybe carried back for one year and forward for up to 20 years.

Assuming your business qualifies, the disabled access credit is equal to 50% of the first $10,000 of qualified expenses. (Technically, the first $250 of expenses is excluded, but the credit then applies to the first $10,250 of expenses.) In other words, the maximum credit is $5,000. Remember that this amount comes right of the top of your tax bill.

What expenses are covered? To qualify, the expense must be incurred to meet requirements under the Americans with Disabilities Act (ADA). For instance, a small business can claim the credit for the following costs:

• Removal of architectural, communication, physical, or transportation barriers that prevent a business from being accessible to, or usable by, disabled individuals;

• Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals;

• Providing qualified readers, taped texts and other effective methods of making visually delivered materials available to visually impaired individuals;

• Acquiring or modifying equipment or devices for disabled individuals; and

• Providing other similar services, modifications, materials or equipment.

Key point: The modification does not have to exclusively benefit disabled individuals. Plus, there is no limit on the number of times you can claim the credit. Thus, you may be eligible even if your business already benefitted from the credit in a prior tax year.

Make sure you fully understand the tax rules before you commence renovations. Consult with your professional tax advisors if you have any questions.

Last Call for 2021 Returns

Did you obtain a six-month filing extension for your 2021return? Time is running out—fast!

The extension only lasts until October 17, 2022. (October 15 is a Saturday, so the usual deadline is moved to the next business day.) Do not wait any longer to provide your tax return preparer with the documentation needed to complete the return,

Remember that a filing extension is not an extension for paying tax. Find out if you have any remaining tax liability.

Facts and Figures
Timely points of particular interest

IRS Upgrades—The IRS is getting a fresh influx of cash. Under the new Inflation Reduction Act (the IRA), its coffers will be boosted by an extra $79 billion over a ten-year period. The Treasury Department expects that taxpayers will notice dramatic improvements in wait times on phone calls and faster processing. Also, taxpayers may be able to respond to the IRS online by next tax filing season.

Things To Do—Do you want to become a more successful manager? Try meeting these three goals each day. (1) Get two to three important things done before noon. That will create a positive attitude for the rest of the day. (2) Break down projects into parts. Do the hardest parts first. (3) Tackle similar tasks at the same time. You are likely to produce more if you remain in the same mode.