Services

Listing home vacation rental tax impacts

Listing your home as a vacation rental? Here are the tax impacts to watch for
Listing your home as a vacation rental? Here are the tax impacts to watch for 850 500 smolinlupinco

Whether in the mountains or a waterfront community, many Americans dream of owning their perfect vacation home. If you already own a second house in a desirable area, you might consider renting it out for part of the year.

Before you post that listing, though, take a moment to learn about the tax implications. Taxes for these transactions can be complicated. They are determined based on how many days the home is rented, as well as a few other factors.

Vacation use by yourself and family members (even if you charge them rent) may impact that amount of taxes you pay. Use by nonrelatives will also affect your rate if market rent isn’t charged.

Tax rates for short-term rentals

Did you know that if you rent a property out for less than 15 days during the year, it’s not treated as “rental property” at all? For tax purposes, any rent you receive for this timeframe won’t be included in your income. This can lead to revenue and significant tax benefits in the right circumstances.

There is a drawback to this, though. You can only deduct property taxes and mortgage interest—not depreciation or operating costs. (Mortgage interest is deductible on your principal residence and one other home, subject to certain limits.)

Tax rates for longer rentals

You must include rent received for property rented out more than 14 days in your income for tax purposes. In this scenario, you may deduct part of your depreciation and operating expenses (subject to certain rules). 

However, navigating the numbers can prove challenging. You must allocate which portion of certain expenses are incurred via personal use days vs. rental days, such as: 

  • Maintenance
  • Utilities
  • Depreciation allowance 
  • Taxes
  • Interest

Both the personal use portion of taxes and the personal use part of interest on your second home may be deducted separately. To be eligible, the personal use part of interest must exceed the greater of 14 days or 10% of the rental days. Depreciation on the personal use portion of time is not deductible. 

Losses may be deductible

If allocable deductions are lower than your rental income, you must report the deductions and the rent to determine the amount of rental income you should add to your other income. If expenses exceed the income, it may be possible to claim a rental loss.

The number of days you use the house for personal purposes is important here. If you used the home for more than the greater of 14 days or 10% of the rental days, you used it “too much” to claim your loss.

In this instance, you may still be able to wipe out the rental income using your deductions. However, you can’t create a loss. Deductions you can’t claim will be carried forward, and you may even be able to use them in future years. 

If you can only deduct rental expenses up to the amount of rental income you received, you must prioritize the following deductions:

  • Interest and taxes
  • Operating costs
  • Depreciation

Even if you “pass” the personal use test, you must still allocate your expenses between the personal and rental portions. In this case, though, rental deductions that exceed rental income may be claimed as a “passive” loss (and will be limited under passive loss rules.) 

Questions? Smolin can help.

Tax rules regarding vacation rental homes can be confusing. We only discuss the basic rules above, and additional rules may apply to you if you’re considered a small landlord or real estate professional.

That’s why it’s best to consult with a tax professional before planning your vacation home use. Contact the friendly tax experts at Smolin to learn more.

Key Q4 Deadlines Employers Businesses

Key Q4 Deadlines for Employers and Businesses 
Key Q4 Deadlines for Employers and Businesses  850 500 smolinlupinco

In the fourth quarter of 2023, businesses and employers should be aware of these key tax-related deadlines.

(Note: Additional deadlines may apply. Please contact your accountant directly to ensure you’re meeting all filing requirements.) 

While certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have businesses in federally declared disaster areas, the following dates act as a general guideline: 

October 2 (Monday): Final day to set up a SIMPLE IRA plan

If you (or a predecessor employer) did not previously maintain a SIMPLE IRA plan, October 2nd is the final day to initially set up one.

Exception: If you’ve become a new employer after October 1st, you can establish a SIMPLE IRA as soon as administratively feasible after your business is established. 

October 16 (Monday): C Corporations and automatic six-month extensions

If you run a C corporation, this is your final date to:

  • Establish and contribute to a SEP for 2022, (if an automatic six-month extension was filed)
  • Make contributions to certain employer-sponsored retirement plans for 2022
  • File a 2022 income tax return (Form 1120) and settle any remaining tax, interest and penalties due.

October 31 (Tuesday): 3rd quarter reporting

This is the last day to report third-quarter 2023 income tax withholding and FICA taxes using Form 941 and pay any remaining tax due.

(See exception below under “November 13.”)

November 13 (Monday): Exception for 3rd quarter reporting

If you deposited on time (and in full) all of the associated taxes due, this is the last day to report income tax withholding and FICA taxes for third quarter 2023 using Form 941. 

December 15 (Friday): 4th installment of 2023 estimated income taxes

Calendar-year C corporation must pay the fourth installment of 2023 estimated income taxes by this date.

Questions? Smolin can help.

For more information about filing requirements and personal guidance on the deadlines applicable to your business, contact the friendly accountants at Smolin.

Running business spouse Tax issues

Running a business with your spouse? Watch out for these tax issues.
Running a business with your spouse? Watch out for these tax issues. 850 500 smolinlupinco

For many spouses who run a profitable, unincorporated small business together, filing taxes can be confusing.

Here are some of the most common challenges to look out for.

Classification: the partnership issue

In many cases, the federal government classifies unincorporated businesses owned by two spouses as a partnership. This means you’ll need to file an annual partnership return on Form 1065.

In order to allocate the partnership’s taxable income, deductions, and credits, you and your spouse must also both be issued separate Schedule K-1s.

Once that paperwork is covered, you should also expect to complete additional compliance-related tasks. 

Calculating self-employment (SE) tax 

The government collects Medicare and Social Security taxes from self-employed people via self-employment (SE) tax.

This year, you should expect to owe 12.4% for Social Security tax on the first $160,200 of your income, as well as an additional 2.9% Medicare tax.

Beyond that $160,200 ceiling, you won’t owe additional Social Security tax. But the 2.9% Medicare tax component continues before increasing to 3.8%—thanks to the 0.9% additional Medicare tax—if the combined net SE income of a married couple that files jointly exceeds $250,000.

You must include a Schedule SE with your joint Form 1040 to calculate SE tax on your share of the net SE income passed through to you by your spousal partnership. In addition, you’ll need to submit a Schedule SE for your spouse to calculate their share of net SE income.

All in all, this can result in a larger SE tax bill than you might expect.

For example, say you and your spouse each have a net SE income of $150,000 ($300,000 total) in 2023 from your profitable 50/50 partnership business. The SE tax on your joint tax return is a whopping $45,900 ($150,000 x 15.3% x 2). That’s on top of regular federal income tax.

Potential tax saving solutions

Option 1: Minimize SE tax in a community property state via an IRS-approved method

IRS Revenue Procedure 2002-69 allows you to treat an unincorporated spousal business in a community property state as a sole proprietorship operated by one of the spouses for tax purposes.

This allocates all of the net SE income to one spouse, so that only the first $160,200 of net SE income from your business will be subject to the 12.4% Social Security tax.

This can dramatically reduce your SE tax bill.

Option 2: Make your business into an S-Corp that pays you and your spouse modest salaries as shareholder-employees

If you don’t live in a community property state, you still have options. By converting your business to an S-Corporation, you can lessen the amount of Social Security and Medicare taxes you’ll owe.

Only the salaries paid to you and your spouse will be hit by the Social Security and Medicare tax, collectively called FICA tax. From there, you can pay out most or all remaining corporate cash flow to yourselves as FICA-tax-free cash distributions. 

Option 3: End your partnership and hire your spouse as an employee

For some couples, running the operation as a sole proprietorship operated by one spouse may make more sense than continuing with a spousal partnership.

In this scenario, you’d hire your spouse as an employee of the proprietorship with a modest cash salary and withhold 7.65% of that salary to cover their share of the Social Security and Medicare taxes. The proprietorship must also pay 7.65% as the employer’s half of the taxes.

As long as the employee-spouse’s salary is modest, the FICA tax will also be modest.

With this strategy, you file only one Schedule SE with your joint tax return (for the spouse treated as the proprietor). A maximum of $160,200 (for 2023) will be exposed to the 12.4% Social Security portion of the SE tax.

Questions? Smolin can help.

If you’re looking for tax-saving strategies for your small business, contact Smolin. We’ll help you determine how to minimize compliance headaches and high SE bills so you can get back to running your business with less tax-induced stress.

Understanding Percentage-of-Completion Method

Understanding the Percentage-of-Completion Method
Understanding the Percentage-of-Completion Method 850 500 smolinlupinco

If your business handles projects that take longer than a year to complete, you’ll need the “percentage-of-completion” method to recognize the associated revenue.

Let’s get into how and why to do this.

Percentage-of-completion vs. completed contract

Individuals and businesses who perform work on long-term contracts—like developers, engineering firms, creative agencies, and homebuilders—typically report financial performance with one of the two following methods:

  • Percentage-of-completion: Revenue recognition is tied to the incurrence of job costs.
  • Completed contract: Revenue and expenses are recorded upon completion of the contract terms.

Per U.S. Generally Accepted Accounting Principles (GAAP), companies that can make a “sufficiently dependable” estimate must use the more complicated percentage-of-completion method.

Those who use this method for reporting typically use the same method for taxes, as well. 

However, the federal tax code makes an exception for certain small contractors with average gross receipts of less than a certain amount over the previous three years.

For 2023, this amount is $29 million, and the number is adjusted annually for inflation. 

Estimating percentage-of-completion

Typically, companies that use the percentage-of-completion method report income sooner than those that use the completed contract method.

To estimate how much of a project is complete, companies usually compare the actual costs incurred to their total expected cost. Job cost allocation policies, change orders, and changes in estimates can complicate the process.

As an alternative, some companies choose to estimate the percentage completed via an annual completion factor.

In either scenario, the IRS requires detailed documentation to support estimates used in the percentage-of-completion method. 

Balance sheet impacts 

If your company uses the percentage-of-completion method, you’ll see an impact on your balance sheet.

You’ll report an asset for costs in excess of billings if you underbill customers based on the percentage of costs incurred. On the other hand, you’ll report a liability for billings in excess of costs if you overbill based on the costs incurred.

Imagine you’re working on a two-year projected valued at $1 million. You incur half of the expected costs in Year 1 ($400,000) and bill the customer $450,000. From a cash perspective, it appears as if you’re $50,000 ahead because you’ve collected more than the costs you’ve incurred. In reality, you’ve underbilled based on the percentage of costs incurred.

At the end of Year 1, you would have reported $500,000 in revenue, $400,000 in costs, and an asset for costs in excess of billings of $50,000. However, if you’d billed the customer $550,000, you’d report a $50,000 liability for billings in excess of costs.

Questions? Smolin can help.

The percentage-of-completion method can be complicated. Still, if your estimates are reliable, this method provides a more accurate picture of the financial performance of your long-term contracts.

If you’d like extra help navigating the percentage-of-completion method and interpreting the insights it provides, contact the helpful team at Smolin.

Is QuickBooks Right for your Nonprofit?
Is QuickBooks Right for your Nonprofit? 1275 750 smolinlupinco

Nonprofit organizations are created to serve nonfinancial or philanthropic goals rather than to make money or build value for investors. But they still need to keep track of their financial health, paying attention to factors like:

  • How much funding is coming in from donations and grants
  • How much the organization is spending on payroll
  • How much it’s spending on rent and other operating expenses

Many nonprofits use QuickBooks® for reporting their results to stakeholders and handling their finances more efficiently. Here’s an overview of QuickBooks’ specialized features for nonprofits.

Features of QuickBooks for nonprofits

Terminology and functionality. QuickBooks for nonprofits incorporates language used in the nonprofit sector to make it more user-friendly for nonprofits.

For example, the software comes with templates for donor and grant-related reporting. Accounting team members can also use it to assign revenue and expenses to specific funds or programs.

Expense allocation and compliance reporting. Many nonprofits often receive donations and grants with particular requirements regarding the expenses that can be applied. 

These organizations can use QuickBooks to establish approved expense types and track budgets for specific funding sources. They can also use the software to satisfy compliance-related accounting and reporting regulations.

Streamlined donation processing. Everyone likes convenience, and donors to nonprofits are no exception. The easier it is to donate to a nonprofit, the more likely it is that people will do so. 

QuickBooks allows for electronic payments from donors. The software also integrates with charitable giving and online fundraising sites, enabling nonprofits to process in-kind contributions, such as office furniture and supplies.

Tax compliance and reporting. Failure to comply with IRS reporting regulations could cause an organization to lose its tax-exempt status. QuickBooks provides a customized IRS reporting solution for nonprofits, which includes the ability to create Form 990, “Return of Organization Exempt from Income Tax.”

Donor management. With QuickBooks, nonprofits can store donor lists. This function includes the ability to divide the data according to location, contribution, and status.

Using these filters can make connecting with and nurturing donors who meet specific criteria easier. One example is reconnecting with significant donors who’ve stopped making regular contributions to your organization.

Data security. Data security is critical to building trust and encouraging donors to support your organization again in the future. 

QuickBooks protects donors’ personal identification and payment information by allowing the account administrator to limit access for viewing, editing, or deleting donor-related data. 

With QuickBooks, team members can only access and share data with the administrator or owner’s permission.

Not just for for-profit businesses

QuickBooks may be known as an accounting solution for small and medium-sized companies, but it also provides solutions for the nonprofit sector. 

From streamlined processes and third-party integrations to security management and robust reporting, Quickbooks can help nonprofits improve their financial management and fulfill the mission of their organization.

Have questions? Smolin can help

If you’re unsure of whether QuickBooks is right for your organization or you require other accounting services, contact the knowledgeable team at Smolin, and we’ll help you choose the best option for your nonprofit.

Reporting Non-GAAP Measures
Reporting Non-GAAP Measures 1275 750 smolinlupinco

Generally Accepted Accounting Principles (GAAP) is commonly known as the benchmark for financial reporting in the United States. However, both public and private entities occasionally use non-GAAP metrics in their press releases and disclosures or when seeking financing.

GAAP vs. Non-GAAP

GAAP comprises a framework of rules and procedures that accountants typically follow to record and summarize business transactions. These guidelines establish the basis for consistent, accurate, and fair financial reporting. While private companies are not generally obligated to comply with GAAP, many choose to do so. Public companies, on the other hand, have no choice—they’re required by the Securities and Exchange Commission to follow GAAP. 

The use of non-GAAP measures has grown over the years, and some executives and investors maintain that certain unaudited figures provide a more meaningful representation of financial performance compared to customary earnings figures reported under the GAAP. With that said, it’s crucial to understand what’s included and excluded to avoid making misinformed investment decisions.

Spotlight on EBITDA

One prominent example of a non-GAAP metric is earnings before interest, taxes, depreciation, and amortization (EBITDA). This metric was created in the 1970s to help investors assist in forecasting a company’s long-term profitability and cash flow. EBITDA is considered one of the most valuable benchmarks investors use when evaluating a company that is being bought or sold. 

Unfortunately, some companies manipulate EBITDA figures by omitting certain costs, such as stock or options-based compensation, which are undeniably a cost of doing business. This practice has made it difficult for investors and lenders to make accurate comparisons and understand the items that have been removed.

Last year, the Financial Accounting Standards Board (FASB) added a project to its research agenda to explore the standardization of key performance indicators (KPIs) within the existing regulatory framework, including the development of a standardized definition for EBITDA. During a March meeting of the Financial Accounting Standards Advisory Council, senior accountants assessed the feasibility of establishing a GAAP definition of EBITDA for use as either a one-size-fits-all formula or as a starting point for companies to make adjustments based on their specific business requirements.

For instance, a company might tailor its EBITDA calculation to align with the definition specified in its loan agreements. Any modifications to EBITDA would need to be transparently disclosed in the company’s footnotes.

Adopt a balanced approach

Many organizations opt to report EBITDA and other non-GAAP metrics to help stakeholders and investors make better-informed choices. However, it is crucial for these entities to avoid making assertions that could potentially mislead investors and lenders. 

Have questions? Smolin can help

If you’re unsure of how the regulations on reporting non-GAAP measures will affect your business, or if you want to know more about which reporting style works best for you, contact our team of professionals at Smolin and let us walk you through the ins and outs of these rules.

Beware of the Gray Areas in Accounting
Beware of the Gray Areas in Accounting 1275 750 smolinlupinco

Recent high-profile bank failures have raised concerns about the reliability of accounting auditing standards. U.S. government agencies are still investigating the reasons behind the collapses of Silicon Valley Bank and Signature Bank earlier this year. 

However, it’s likely that these banks exploited some gray areas in the accounting rules to make them appear more economically secure in their year-end financial statements than they actually were. 

Learning from Enron

Andrew Fastow often speaks publicly about issues concerning financial misstatement. A convicted felon, Fastow has a unique experience with fraud: He was the CFO of Enron in October 2001, when it the company became famous for the largest U.S. bankruptcy case of its time. 

Fasto recently addressed the Public Company Accounting Oversight Board (PCAOB), which was established by the Sarbanes-Oxley Act of 2002 to prevent future scandals like Enron. He recommended that the PCAOB consider revising the accounting and auditing rules to deter corporate fraud. 

Rather than solely focusing on detecting deliberate fraudulent activities, Fastow urged the PCAOB to pay attention to the “fraud that arises from exploiting loopholes resulting from the ambiguity and complexity of the rules.” According to Fastow, this scenario played out in the Enron case, where misleading information was often a consequence of exploiting the complexities of the rules rather than intentionally reporting false numbers.

Compliance vs. reality

To illustrate how companies can exploit the complexities of accounting rules, Fastow provided a good example of how financial statements that are fully compliant with regulations can deviate from economic reality. 

Here is that example: In 2014, the average price of oil was $95 per barrel, and although the price hovered around $110 for most of the year and dropped to $50 at the end of the year, companies were required under the accounting rules of that time to calculate an average based on the price on the first day of each of the preceding 12 months. This calculation resulted in an average of $95 per barrel despite the market price being $50 when oil and gas companies issued their financial statements.

All oil and gas companies followed this rule, reporting reserves based on $95 per barrel even though the market price had dropped precipitously to $50 by the end of the year. Consequently, they massively overstated their economically recoverable reserves, a critical metric used by Wall Street when evaluating independent oil and gas companies. 

Fastow concluded that the prevailing mindset was that as long as the rules were being followed, the misleading nature of certain financial statements was deemed inconsequential.

A complex problem

A founding member of the PCAOB, Charles Niemeier, has acknowledged that resolving the issue of financial reporting fraud extends far beyond simply revising auditing standards. The challenge becomes even more daunting when dealing with financial reporting matters that rely on subjective judgments.

For example, accounting estimates can be based on subjective or objective information involving varying degrees of measurement uncertainty. Some examples of accounting estimates include allowances for doubtful accounts, impairments of long-lived assets, and valuations of financial and nonfinancial assets. While certain estimates may be straightforward, many are inherently subjective or intricate.

Another area prone to manipulation is the going concern assessment, which forms the foundation of all financial reporting, according to the U.S. Generally Accepted Accounting Principles. 

The accounting rules grant company management the final responsibility for determining whether or not there is substantial doubt about the company’s ability to continue as a going concern and disclosing the related information in footnotes. The standard provides management with guidance that aims to reduce the inconsistencies in the timing and content of disclosure commonly found in footnotes.

Misrepresentation of finances can occur in a variety of ways when executives seek to exploit the ambiguous aspects of financial reporting for their own benefit, particularly as regulations have transitioned from historical cost in favor of fair value estimates.

Have questions? Smolin can help

When making subjective estimates and evaluating the going concern assumption, it’s important to step back and ask whether your institution’s financial statements, even while they are in compliance with regulations, could potentially mislead investors. 

If you have questions about these issues, contact our team of professionals at Smolin, and we’ll help you understand the rules and assess current market conditions.

Which Vehicles Are the Most Tax-Friendly for Business Owners?
Which Vehicles Are the Most Tax-Friendly for Business Owners? 850 500 smolinlupinco

If your business is preparing to replace a vehicle or buy a new one, you should know that a heavy SUV might provide a more substantial tax break this year than what you’d receive from a smaller vehicle. 

The reason? Larger business vehicles are depreciated differently on your tax returns than smaller ones. 

Depreciation guidelines

Compared to other depreciable assets, business vehicles are subject to more restrictive tax depreciation rules. 

Depreciation deductions are automatically capped under “luxury auto” rules. If a taxpayer decides to use Section 179 of the Internal Revenue Code to expense all or part of the cost of a vehicle, these caps can apply here as well, allowing an asset to be written off in the year it’s placed into service. Included in these rules are smaller trucks and vans built on truck chassis. 

For most vehicles that are subject to these caps and begin service in 2023, the expensing deductions or maximum depreciation are as follows:

  • First tax year in recovery period – $22,200
  • Second tax year – $19,500
  • Third tax year – $11,700
  • Every subsequent year – $9,960

Typically, this extends the number of years it takes to depreciate the business vehicle completely. 

Caps on deductions

Caps on expensing deductions and annual depreciation for passenger vehicles don’t apply to trucks or vans that weigh more than 6,000 pounds. This rule also includes large SUVs, which can sometimes cost over $50,000, so from a tax timing perspective, you may be better off replacing your business vehicle with a heavy SUV to avoid the restrictions on smaller cars.

In most instances, you’ll have the ability to write off a substantive amount of the cost of a heavy SUV that’s used for business purposes by taking advantage of the bonus and regular depreciation beginning from the year you put the vehicle into service. Bonus depreciation is currently available at 80% but will be reduced to zero over the coming years.

If you opt to expense all or part of the cost of a heavy SUV using Section 179, it’s essential to be aware that as of 2023, an inflation-adjusted limit of $28,900 (up from $27,000 in 2022) applies separately from the caps listed above. 

Please note that for all assets you elect to expense in a year, there’s an aggregate dollar limit that applies. Once you’ve completed the expensing election, you’ll need to depreciate the rest of the cost under the standard rules without regard to annual caps. 

It’s also important to be aware that the tax benefits listed above are subject to adjustment for non-business use. Additionally, the vehicle won’t be eligible for expensing if the business use of the SUV doesn’t exceed 50% of total use, meaning it would be required to be depreciated on a straight-line method over a period of six tax years.  

Trust your tax questions to Smolin

If you have questions or would like assistance with your tax return, the CPAs at Smolin can help. Contact us for more information about how to get the most tax write-offs from your company vehicle this tax season.

2023-tax-limits-answering-your-faqs

2023 Tax Limits: Answering Your FAQs
2023 Tax Limits: Answering Your FAQs 1600 941 smolinlupinco

With just a few weeks to file your 2022 individual tax return (unless you filed an extension), it’s understandable if your 2022 tax bills are of greater concern than your 2023 tax circumstances. 

But it’s still important to become familiar with tax amounts that may have changed for 2023—particularly because, due to inflation, many of these amounts have been raised more than in previous years. (Note, however, that not all tax figures are adjusted on an annual basis. Some only change upon the enactment of a new law.) 

Here are some common questions (and answers) about 2023 tax limits. 

Last year, I didn’t qualify to itemize deductions on my tax return. Will that change this year? 

A law was enacted in 2017 that increased the standard deduction and reduced or eliminated a variety of other deductions, eliminating the tax benefit of itemizing deductions for many people. 

For 2023, the standard deduction amount is: 

  • $13,850 for single filers (compared to $12,950 in 2022)
  • $27,700 for married couples filing jointly (compared to $25,900 in 2022)
  • $20,800 for heads of households (compared to $19,400 in 2022)

If the amount of your itemized deductions, including mortgage interest, is lower than the standard deduction amount, you will not qualify to itemize deductions for 2023. 

How much can I contribute to an IRA this year? 

In 2023, those who are eligible can contribute $6,500 per year up to 100% of their earned income (compared to $6,000 in 2022).  

Those aged 50 or older can make an additional “catch-up” contribution of $1,000 (no change from 2022). 

How much can I contribute to my 401(k) plan through my employer? 

In 2023, you can contribute up to: 

  • $22,5000 to a 401(k) or 403(b) plan (compared to $20,500 in 2022)
  • $7,500 in catch-up contributions if you’re over 50 years old (compared to $6,500 in 2022)

If I hire a cleaner, do I need to withhold and pay FICA tax? 

In 2023, the threshold for which domestic employers must withhold and pay FICA tax for babysitters, house cleaners, and other independent contractors is $2,600 (compared to $2,400 in 2022). 

How much do I need to earn to stop paying Social Security tax? 

In 2023, you will not owe Social Security tax on amounts earned above $160,200 (compared to $147,000 in 2022). However, you must still pay Medicare tax on all amounts earned. 

Can I claim charitable deductions if I don’t itemize? 

Generally, if you claim the standard deduction on your federal income tax return, you cannot deduct charitable donations. In 2020 and 2021, non-itemizers could claim a limited charitable contribution deduction, but this tax break is no longer applicable for 2022 and 2023. 

How much can I gift someone without worrying about gift tax? 

For 2023, the annual gift tax exclusion is $17,000 (compared to $16,000 in 2022). 

Work with a tax professional

These are only a few of the tax amounts that may apply to you in 2023. If you have questions or would like assistance with your tax return, the CPAs at Smolin can help. Contact us to get started. 

business-related-tax-limits-have-increased-for-2023

Business-Related Tax Limits Have Increased for 2023
Business-Related Tax Limits Have Increased for 2023 1488 875 smolinlupinco

A variety of tax limits that affect businesses are indexed on an annual basis. As a result of high inflation, many of these limits have increased more than usual for 2023. 

Here are a few that businesses should keep in mind for 2023:  

Social Security tax

For 2023, the amount of employee earnings subject to Social Security tax is capped at $160,200 (compared to $147,000 in 2022). 

Deductions

For Section 179 expensing, the limit has increased to $1.16 million (compared to $1.08 million), with a phaseout of $2.89 million (compared to $2.7 million).

Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at $364,200 for married couples filing jointly (compared to $340,100). For other filers, this amount is $182,100 (compared to $170,050). 

Retirement plans

Increases for retirement plans are as follows: 

401(k) plans

  • Employee contributions: $22,500 (compared to $20,500) 
  • Catch-up contributions: $7,500 (compared to $6,500) 

SIMPLE plans

  • Employee contributions: $15,500 (compared to $14,000) 
  • Catch-up contributions: $3,500 (compared to $3,000) 

Additional increases

  • Employer/employee contributions to defined contribution plans, not including catch-ups: $66,000 (compared to $61,000) 
  • The maximum compensation used to determine contributions: $330,000 (compared to $305,000) 
  • The annual benefit for defined benefit plans: $265,000 (compared to $245,000) 
  • The amount used to define a highly compensated employee: $150,000 (compared to $135,000) 
  • The amount used to define a key employee: $215,000 (compared to $200,000) 

Additional employee benefits

The qualified transportation fringe-benefits employee income exclusion is $300 monthly (compared to $280). 

Flexible Spending Account (FSA) healthcare contributions have increased to $3,050 (compared to $2,850). Note that the dependent care contribution limit of $5,000 has remained the same. 

Health Savings Account (HSA) contributions have increased as follows: 

  • Individual coverage: $3,850 (compared to $3,650) 
  • Family coverage: $7,750 (compared to $7,300) 

The catch-up contribution limit of $1,000 has remained the same. 

Questions? Smolin can help 

These are only some of the tax limits and deductions that could affect your business—and additional rules could apply. If you have questions, our CPAs can help. Contact us to get started. 

Start Typing
in NJ & FL | Smolin Lupin & Co.