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Minimize Taxes – Boost Retirement Funds

Are you looking for another way to minimize your 2023 taxable income for better tax results? Max out your annual contribution to your 401(k) retirement plan account if you haven’t already. This strategy is a two-for-one winner.

In 2023, you can contribute as much as $22,500 to your 401(k) plan account, $30,000 if you’re age 50 or older. For every additional $1,000 you defer to your account before year-end, you potentially may reduce your federal income tax by $240 if you’re in a 24% bracket, $320 in a 32% bracket, $350 in a 35% bracket, and $370 in a 37% bracket.

As for your retirement savings, here’s what each additional $1,000 you contribute this year invested at an average annual return of 7% compounded monthly could give you at retirement.

  • $1,000 in 10 Years = $2,010
  • $1,000 in 20 Years = $4,039
  • $1,000 in 30 Years = $8,116

Remember, that’s just $1,000 more for one year. Think of what you could save for retirement if you contributed more every year.

Source: LTM Client Marketing, 2023

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Year-End Tax Planning

The more your business minimizes its tax liability, the better your bottom line. So, let’s look at some things you may be able to do between now and year-end to possibly lower your tax bill in April.

OPTIMIZE DEDUCTIONS AND CREDITS

The more deductions you claim, the lower your taxable income and taxes. The IRS makes several rules available to businesses to accelerate deductions. Use the Sec. 461 recurring items exception to accelerate deductions of certain liabilities, such as warranty costs, rebates, product returns, state income tax, and real and personal property taxes, into 2023. You also may be able to move more deductions to this year by paying annual business expenditures — insurance premiums and software maintenance, for instance — before year-end.

BUSINESS PROPERTY

Plan to purchase business property in the near future? Don’t wait. The IRS’s Section 179 rule lets you take advantage of special depreciation provisions for qualifying business property and equipment purchased before year-end. This year, businesses can deduct the full cost of qualified property and equipment, up to $1,160,000. Restrictions may apply.

Take advantage of the General Business Credit and any other tax credits your business qualifies for. Deductions offset taxable income. Credits apply dollar for dollar against taxes.

RIGHT COVID SETBACKS

If the business slowdown saddled you with bad business debts, know you may be able to write them off wholly or partially this year. Complete write-off requires you to prove the debt became wholly uncollectible by year-end.

NET OPERATING LOSSES

Also, take advantage of any net operating losses (NOLs) from Covid years. The IRS Net Operating Loss (NOL) provision allows businesses suffering losses in one year to carry forward those losses and deduct them from future years’ profits. NOLs may be used to offset up to 80% of current-year profits.

Be aware that these are only a few tax-reducing strategies that may be available to you and that they should be pursued only with the advice of your professional tax advisor.

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IRS Upgrades for Small Businesses

No need for a crystal ball to discern what small businesses may see ahead from the IRS. It’s in the Service’s most recent Strategic Operating Plan. *Some of the upgrades the IRS has on the list include:

  • The recently launched Online Portal for Businesses to e-file 1099 series information returns (https://www. irs.govfiling/e-file-forms-1099-with-iris) and respond to certain notices online, including LTR0143C “Signature Missing.”
  • Having the Small Business Online up and running by next tax season. So, your business will be able to see its tax information, track refunds, and schedule and track payments.
  • Simplified and mobile-friendly Forms 940, 941, and 944 available in multiple languages.
  • The ability for you to respond to the correction of self-employment income, employment-related-ID- theft notifications, and other online notices. Notice language will be simplified.
  • Further digitalization of paper forms to include the most popular forms—the 1040 and 941.

Don’t hesitate to touch base with us if you have questions about the upgrades and using them or the IRS’s Strategic Operation Plan.

*IRS Strategic Operating Plan, https://www.irs.gov/pub/irs-pdf/

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October 2023 Client Line Newsletter

Year-End Tax Planning – the more your business minimizes its tax liability, the better your bottom line.

Minimize Taxes – Boost Retirement Funds – max out your annual contribution to your 401(k) retirement plan.

Is It Time for That Talk – if you haven’t had that talk or it’s been a while, there’s not time like the present to discuss expectations.

October 2023 Client Profile

Beware the Wash Sale Rule – sell securities in which you have a tax loss, claim the loss and repurchase the assets.

IRS Upgrades for Small Businesses – no need for a crystal ball to discern what small businesses may see ahead from the IRS.

October 2023 Question and Answer

A Look at Social Media Advertising Statistics

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Business Takes On Financial Challenges

Prior 12 Months
(% of employer firms with financial challenges)

Raised prices the business charges – 56%
Used personal funds – 53%
Used cash reserves – 53%
Obtained funds that must be repaid – 42%
Cut staff, hours, and/or downsized operations – 32%
Made a late payment or did not pay – 23%
Obtained funds that do not have to be repaid – 18%
No action – 5%

Source: 2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey

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Improve Your Credit Scores

Everyone’s goal should be an excellent personal and business credit score. Here’s some simple guidance on how you may be able to improve yours.

Pay your bills on time. According to credit agencies, your credit history is the most influential factor in determining your credit score. Also, keep track of your credit balances versus your credit lines. Some experts recommend a 10% credit utilization as ideal.

The recommendation to keep open credit accounts you’ve paid off ties into this utilization guide by maximizing your credit lines. How many accounts you have and how long they’ve been open are essential factors in your score. The longer you’ve had an account, the better. Another important tip is to not jump on credit offers you receive to see if you get approved. Make sure you need the credit before you apply because each application you make can lower your credit score. Finally, periodically monitor your credit scores and be patient. Newly established good credit habits may take a while to show up in your numbers.

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Don’t Overlook Your Digital Estate Assets

A digital or online presence has become a part of daily life for most people. That digital presence also should be a part of your estate plan. If it isn’t, here’s how to get things together to include those assets in your planning.

First, list your electronic and virtual accounts and assets, including account names, usernames and passwords. Review and update periodically. Things to include:

  • Email accounts (personal and business)
  • Online banking accounts
  • Social media accounts
  • Photos and text, graphic, and audio files stored on your computer or in the cloud
  • Cellphone apps
  • Utility accounts
  • Loyalty program benefits such as credit card rewards
  • Online store accounts
  • Gaming accounts
  • Cryptocurrency keys
  • E-commerce accounts
  • Domain names, including blogs

Your professional advisor can help ensure you’ve listed all your digital assets and advise you on the next step, which is to decide how you want your digital assets handled. Most social media companies have specific policies for accessing and dealing with deceased members’ accounts. Other companies may as well, with some allowing you to authorize a person to access your digital account and some prohibiting the transfer of digital assets to another person or account. Knowing the policies for all of your accounts is imperative to direct how you want them handled.

Next, pick a digital executor. Weigh whether your named estate executor is the logical choice or if someone else—a family member or close friend—would be a better choice for your digital assets. Make sure your choice (or choices) understand their tasks and responsibilities before they accept the designation. You can refer to your digital assets document and name a digital executor in your traditional will.

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Higher 2024 HSA and HDHP Limits

There’s good news for you and your employees if you offer a high-deductible health plan (HDHP) and health savings accounts (HSAs). In one of the largest jumps in recent years (7.8%), the HSA contribution limits for 2024 will rise to $4,150 (from $3,850 in 2023) for employees with single health plan coverage and to $8,300 (from $7,750) for those with family coverage. Workers aged 55 and older can contribute an extra $1,000 (unchanged from 2023). So an older married couple will be able to contribute $10,300 in 2024.

Your high deductible health care plan will qualify if the 2024 annual deductible is at least $1,600 for self-coverage or $3,200 for family coverage.

Employee out-of-pocket expenses (deductibles, copayments, coinsurance, and some uncovered services) cannot exceed $8,050 (self-only) or $16,100 for family coverage.

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September 2023 Question and Answer

QUESTION:

Our engineering firm could use new office furniture. Is now a good time to buy?

ANSWER:

The third quarter of the year isn’t the best time to purchase office furniture if you’re watching costs. Generally, the furniture industry releases new models twice a year – in the spring and fall. It would be best to buy new furniture in the off-season to get your best deals. Some better times:

January: Vendors may discount 2023 furniture to make way for 2024 models.

April-May: For furniture retailers, Memorial Day sales rival Black Friday sales.

August: Back-to-school shopping deals can expand to include furniture.

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A Checklist for Selling Your Business

Okay, so you’ve decided to sell your business and retire (or for another well-throught-out reason). You’ve discussed it with your family, and everyone is on board. You don’t want any family glitches to delay and possibly torpedo a sales deal you work out. So, what’s next?

  • Put together your sales team: your accountant, an attorney experienced in business transactions, and a business broker
  • Have your business evaluated.
  • Develop an exit plan if you haven’t already.
  • Come up with an idea of your “perfect” buyer and share it with your broker before you sign the legally binding contract to list the business for sale.
  • Provide the broker with detailed information about the business: history, product/service mix, organizational chart, growth opportunities, and anything else you think is of value to potential buyers.
  • Prepare for due diligence: gather your past three years financials, contracts, and licenses and prepare a disclosure statement. Your professional advisors can help with other items that may be needed.
  • Do any maintenance, painting, cleaning, and other sprucing up to improve the physical appearance of your business.
  • Negotiate and close the deal.