Murray Wells Wendeln & Robinson - Accountants & Advisors

If you own a small business with no employees (other than your spouse) and want to set up a retirement plan, consider a solo 401(k) plan. This is also an option for self-employed individuals or business owners who wish to upgrade from a SIMPLE IRA or SEP plan. For 2024, you can make an elective deferral contribution of up to $23,000 of your net self-employment (SE) income ($30,500 if you’ll be 50 or older as of Dec. 31, 2024). On top of the elective amount, an extra contribution of up to 20% of your net SE income is allowed for solo 401(k)s. For 2024, the combined elective and extra contributions can’t exceed $69,000 ($76,500 for 50 or older) or 100% of net SE income. Questions? Contact us.

Have you ever considered growing your business by acquiring a struggling company? Although “turnaround acquisitions” can yield substantial rewards, they come with considerable risks. Look for a target with hidden value, such as untapped market potential, replaceable leadership or cuttable costs. Determine whether the return on investment will likely exceed the acquisition costs and risks. Don’t rush or let emotions cloud your judgment. Conduct due diligence to understand the target’s profit drivers and roadblocks, as well as its cash inflows and outflows. If you decide to proceed, pay close attention to the deal’s structure and tax impact. Contact us for further information and help.

It’s common for individual and business taxpayers to lose financial records during a natural disaster. Unfortunately, you usually need such records to document losses for your insurance company and to qualify for federal assistance. But if you visit the IRS’s website (https://bit.ly/4dQ3XA7), you can view or obtain copies of your historical tax returns, wage and income statements, and other tax account information. Requesting online access to your records is the fastest method, but even physical transcripts can be expected to arrive in the mail within 10 calendar days. Call your bank, credit card issuers and other financial service providers for copies of other needed documents.

Earlier this year, the U.S. Department of Labor announced a new final rule on the minimum annual salary threshold that partly determines whether employees are exempt from overtime pay. For employers, it renewed focus on compliance with the Fair Labor Standards Act. One way to ensure your organization complies with the law is to conduct voluntary “wage and hour” audits. These methodically review your compensation and labor practices, including employee classification, payroll records, timekeeping methods, rest and meal breaks, and wage deductions. Remember, if just one employee files a complaint with a government agency, you could be subject to a much more arduous involuntary audit.

For more than 70 years, the U.S. tax code allowed companies to currently deduct certain research and development (R&D) expenses. This benefitted manufacturers and businesses in other industries. However, under the Tax Cuts and Jobs Act, since 2022, companies have had to amortize R&D costs over a period of years. Specifically, R&D expenses covered under Sec. 174 include researchers’ wages, research supply costs and facility operating costs. The good news is there’s bipartisan support for proposals in Congress to bring back the immediate deduction for R&D expenses. However, the chances of one of these proposals becoming law depends largely on the outcome of the November election. Stay tuned.

Let’s say you have a sideline activity that you consider a business. Perhaps you offer photography services or sell handmade items online. Will the IRS agree that your venture is a business, not a hobby? It’s an essential question for tax purposes. If the expenses from an activity exceed the revenues, you have a net loss. You can’t necessarily deduct that loss on your federal income tax return. The IRS often claims that money-losing sidelines are hobbies rather than businesses, and the tax rules for hobbies aren’t favorable. However, we may be able to help you prove your money-losing activity is really a for-profit business that hasn’t paid off yet. That way, you can deduct the losses.

For businesses to stay operational and attain profitability, liquidity is key. The good news is that working capital management is a tried-and-true way to tackle this challenge. Working capital is a metric (current assets minus current liabilities) that measures liquidity. Regularly calculating it can help you and your leadership team determine, among other things, whether you have enough current assets to cover current obligations. The amount of working capital your company needs is known as its working capital requirement. To optimize your working capital requirement, focus primarily on three key areas: 1) accounts receivable, 2) accounts payable and 3) inventory. Contact us for help.

Are you familiar with Health Savings Accounts (HSAs)? These are accounts that participants, their family members and employers can contribute to on a tax-advantaged basis. Such contributions are considered employer-provided coverage of medical costs and are therefore excludable from the employer’s income. The 2024 limit for employee and employer contributions combined is $4,150 for individual accounts and $8,300 for family HSAs. These limits will rise in 2025 to $4,300 and $8,550, respectively. Note that a business generally can offer an HSA to an employee covered under a high-deductible health plan but no other health insurance. Contact us for specific details.

If you have a child or grandchild planning to attend college, you may wonder about investing in a qualified tuition program or 529 plan. You don’t get a federal tax deduction for contributions, but the earnings aren’t taxed while the funds are in the program. (There may be a state deduction in your state.) You can change the beneficiary without income tax consequences. Distributions are tax-free up to the amount of the qualified higher education expenses. These include tuition (up to $10,000 for an elementary or secondary public school), fees, books, supplies and required equipment. Room and board are also qualified expenses if enrolled at least half time. Contact us to learn more.

Donating property for a conservation easement is a way to preserve land for the future. It can also bring the donor hefty tax breaks, which is why the IRS closely scrutinizes such donations. To qualify for tax deductions, donations must meet specific reporting and disclosure requirements and a qualified appraisal must establish the donation’s value. One Georgia-based firm donated 64.7 acres of undeveloped land and claimed a related tax deduction for $16,745,000. The U.S. Tax Court disallowed the deduction, stating it was well over the actual value of $93,690. The court also added a 40% penalty for gross misstatement of value, a 20% accuracy penalty and other penalties. (TC Memo 2024-93)