Tax Services

Is Switching to an S-Corp Right For You? A Tax Guide For Business Owners
Is Switching to an S-Corp Right For You? A Tax Guide For Business Owners 850 500 smolinlupinco

The type of business you run (sole proprietorship, partnership, limited liability company or LLC, C corporation, or S corporation) can greatly impact your tax bill. Choosing the right one is important from the get-go, but you can switch from one entity to the other if it makes sense to maximize your tax benefits.

For instance, S corporations commonly provide substantial tax benefits over C corporations; however, there is the potential for costly tax issues that should be considered before making a decision on whether or not to convert from a C corporation to an S corporation.

Here are four considerations to help guide your decision:

1. LIFO Inventory Tax: If your C corporation uses a last-in, first-out (LIFO) inventory method, converting to an S corporation can trigger a tax payment on benefits gained by using LIFO. While this tax can be paid over four years, you should weigh it against any potential tax gains you’ll receive by converting to S status.

2. Built-in Gains Tax: S corporations generally do not pay taxes on their profits. However, if your business was formerly a C corporation, you could be taxed on certain profits (like appreciated property) that were already owned before the switch. This tax applies if those assets were sold within five years of the switch to being an S corp. While this tax is a drawback, there are situations where the tax benefits of an S election outweigh this cost.

3. Passive Income: S corporations with a history as C corporations may face a special tax on passive investment income (such as dividends, interest, rents, royalties, and stock sale gains) that exceeds 25% of their overall income, and they carried over profits from their C corporation years. Owing this tax for three consecutive years can cancel the S corporation status! There are ways to avoid this tax, like distributing accumulated earnings and profits to shareholders or limiting passive income. 

4. Unused Losses: If your C corporation has accumulated losses, they cannot be used to offset the S corporation’s income, nor can they be passed through to shareholders. If the losses can’t be carried back to an earlier C corporation year, you need to weigh the cost of giving up the losses against the potential tax savings of becoming an S corporation.

Beyond Taxes: Other Considerations

These are just some of the factors to consider when switching from C to S status. For example, employee-owners of S corporations may not qualify for all the tax-free benefits available to C corporations. There can also be complications for shareholders who have outstanding loans from their qualified plans. These factors need to also be taken into account to have a clear picture of the implications when making your decision.If you’re considering changing your business structure, reach out to a Smolin Advisor. We can explain your options and potential strategies that can minimize your tax burden. 

Q3 Tax Deadlines for Businesses
Q3 Tax Deadlines for Businesses 850 500 smolinlupinco

Can you believe the third quarter is already here? We’ve compiled a list of key tax-related deadlines that might affect your business and employees to give you a leg up as we head into Q3. Keep in mind that this list isn’t all-inclusive and there could be other deadlines that apply to you. 

July 15

  • Employers with monthly tax deposit rules must submit Social Security, Medicare, and withheld income taxes along with nonpayroll withheld income taxes for June.

July 31

  • Report and pay second quarter taxes: Report income tax withholding and FICA taxes for employees paid in April, May, and June using Form 941. Be sure to pay any tax due by this date. (See the exception below, under “August 12.”)
  • File or request an extension for retirement plan report (if applicable): File your 2023 calendar-year retirement plan report using Form 5500 or Form 5500-EZ or request an extension.

August 12

  • Report income tax withholding and FICA taxes for second quarter 2024 using Form 941, if you deposited on time and in full all associated taxes due.

September 16

  • Calendar-year C corporation be sure to pay the third installment of 2024 estimated income taxes.
  • Calendar-year S corporation or partnership that filed an automatic six-month extension:
    • File a 2023 income tax return with Form 1120-S, Form 1065 or Form 1065-B and pay any tax, interest and penalties due.
    • Make contributions for 2023 to certain employer-sponsored retirement plans.
  • Employers should deposit Social Security, Medicare and withheld income taxes for August if monthly deposit rules are applicable. Include non-payroll withheld income tax for August if subject to monthly deposits.

Contact your Smolin Advisor to ensure you’re meeting all applicable deadlines and filing requirements.

Answers to 3 Common Questions After Filing Your Tax Return

Answers to 3 Common Questions After Filing Your Tax Return
Answers to 3 Common Questions After Filing Your Tax Return 850 500 smolinlupinco

The 2023 federal tax filing deadline has come and gone. (Unless, of course, you filed for an extension until October 15.) Whether you’ve already filed or you’re still working on your return, you might have some questions once it’s been filed.

Let’s take a look at three of the most common ones.

1. When can I expect to receive my tax refund?

If you waited until the final hour to file, you may still be waiting for your return. The IRS says nine out of ten taxpayers should see their refunds within 21 days.

If you’re concerned that it’s taking too long, the IRS has an online tool that can help. Just type irs.gov into your browser and click on “Get your refund status.”

Make sure you’re prepared, though. You’ll need: 

  • Your social security number or individual taxpayer identification number 
  • Filing status 
  • Exact refund amount 

2. How do I need to keep tax records?

Typically, the statute of limitations for the IRS to audit your return or assess additional taxes is three years after you file your return. Thus, it’s a good idea to hold onto tax records related to your return for at least this long.

However, the statute of limitations is actually six years for taxpayers who underreport their gross income by more than 25%.

It’s a good rule of thumb to keep your actual tax returns indefinitely. That way, you can prove that you filed a legitimate return if needed. (No statute of limitations applies for an audit if you didn’t file a return or you filed a fraudulent one.) 

Retirement account records should be kept until three or six years after you’ve depleted the account and reported the last withdrawal on your tax return.

Real estate or other investment records should be kept for as long as you own the asset or until three or six years after you sell it and report the sale on your tax return. 

3. What do I do if I fail to report something? 

In most cases, you can file an amended tax return on Form 1040-X and claim your refund. You’ll need to do this within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later.

For example, if you filed a 2023 tax return on April 15, 2024, you’d be able to file an amended return until April 15, 2027.

There are some circumstances in which you could have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. Typically, you can amend a tax return to claim a bad debt for seven years after the due date of the tax return for the year that the debt became worthless. 

Questions? Smolin can help

Questions about filing an amended return, or accessing your refund? We’re here to help—and not just during tax season! Feel free to contact your Smolin accountant for guidance year-round.

Retirement Account Required Minimum Distribution (RDM) Laws Are Evolving

Retirement Account Required Minimum Distribution (RDM) Laws Are Evolving
Retirement Account Required Minimum Distribution (RDM) Laws Are Evolving 850 500 smolinlupinco

Do you have a tax-favored retirement account, such as a traditional IRA? If so, that account will be subject to the federal income tax required minimum distribution (RMD) rules once you reach a certain age. (This applies even if you acquired the tax-favored retirement via an inheritance.)

These rules mean you’ll have to:

A) Make annual withdrawals from the account(s) and pay any resulting income tax
B) Lower the balance of your inherited Roth IRA sooner than you may have planned

But even if this information isn’t news to you, recent tax law changes could impact the way you approach these accounts. Let’s take a deeper look at the most recent rules. 

What to know about Required Minimum Distribution (RMD) 

Under RMD rules, affected individuals need to take annual withdrawals (required minimum distributions) from tax-favored accounts. Unless the RMD meets the definition of a tax-free Roth IRA distribution, doing this will typically trigger a federal income tax bill. A state tax bill is also possible.

There is a favorable exception for original owners of Roth IRA accounts, who are exempt from RMD rules during their lifetimes. However, RMD rules do come into play for inherited IRAs, including Roth IRAs.

Starting age delayed

Enacted in 2022, the SECURE 2.0 law adjusted the age at which account owners must start taking RMDs. Instead of taking RMDs for the calendar year in which you turn age 72, you may now decide to wait to take your initial RMD until April 1 of the year after you turn 72.

SECURE 2.0 also increased the starting age for RMDs to 73 for account owners who turn 72 between 2023 and 2032. So, if you turned 72 in 2023, you’ll be 73 in 2024, and your initial RMD will be for calendar 2024. You must take that initial RMD by April 1, 2025. Otherwise, you could face a penalty for failure to follow the RMD rules.

The tax-smart strategy is to take your initial RMD, which will be for calendar year 2024, before the end of 2024 instead of in 2025 (by the April 1, 2025, absolute deadline). Then, take your second RMD, which will be for calendar year 2025, by Dec. 31, 2025. With this approach, you avoid having to take two RMDs in 2025 and paying double the taxes in that year.

Penalty reduced

The IRS can assess an expensive penalty if you fail to withdraw at least the RMD amount for the year. Prior to the enactment of SECURE 2.0, this penalty was 50% on the shortfall. That penalty is now 25%, or 10% if you withdraw the shortfall within the designated  “correction window.”

10-year liquidation rule draws controversy

Under the original SECURE Act, most non-spouse IRA and retirement plan account beneficiaries are required to empty inherited accounts within ten years of the account owner’s death. Otherwise, they may face a penalty tax for failing to comply with the RMD rules.

According to IRS proposed regulations issued in 2022, beneficiaries who are subject to the original SECURE Act’s 10-year account liquidation rule must take annual RMDs, calculated in the usual fashion — with the resulting income tax. The inherited account must still be empty at the end of the 10-year period. This means beneficiaries can’t just wait ten years and then empty the inherited account.

This requirement to take annual RMDs during the ten-year period has drawn much debate. And, as a result, the IRS stated in Notice 2023-54 that beneficiaries subject to the ten- year rule who did NOT take RMDs in 2023 will not be penalized. The Notice also explains that the IRS will issue new final RMD regulations, which won’t take effect until sometime in 2024 (at the earliest). 

Questions? Smolin can help

Required Minimum Distribution rules can be confusing, especially for beneficiaries. However, breaking these rules can be costly. Contact your accountant for the most up-to-date advice on the best tax-wise RMD strategy for your unique situation. 

2024 Q2 Tax Deadlines for Businesses and Employers

Key 2024 Q2 Tax Deadlines for Businesses and Employers
Key 2024 Q2 Tax Deadlines for Businesses and Employers 850 500 smolinlupinco

The second quarter of 2024 has arrived! If you’re a business owner or other employer, add these tax-related deadlines to your calendar. 

April 15

  • Calendar-year corporations: File a 2023 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004) and pay any tax due.
  • Corporations: Pay the first installment of estimated income taxes for 2024. Complete Form 1120-W (worksheet) and make a copy for your records.
  • Individuals: File a 2023 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868). Pay any tax due.
  • Individuals: pay the first installment of 2024 estimated taxes (Form 1040-ES), if you don’t pay income tax through withholding.

April 30

  • Employers: Report FICA taxes and income tax withholding for the first quarter of 2024 (Form 941). Pay any tax due.

May 10

  • Employers: Report FICA taxes and income tax withholding for the first quarter of 2024 (Form 941), if they deposited on time, and fully paid all of the associated taxes due.

May 15

  • Employers: Deposit withheld income taxes, Medicare, and Social Security for April if the monthly deposit rule applies.

June 17

  • Corporations: Pay the second installment of 2024 estimated income taxes.

Questions? Smolin can help

This list isn’t all-inclusive, which means there may be additional deadlines that apply to you. Contact your accountant to ensure you’re meeting all applicable tax deadlines and learn more about your filing requirements.

Can Social Security Benefits Be Taxed?

Can Your Social Security Benefits Be Taxed?
Can Your Social Security Benefits Be Taxed? 850 500 smolinlupinco

Did you know that Social Security benefits can be federally taxed? It’s true. Depending on your income, up to 85% of your benefits could be impacted by federal income tax.

Understanding provisional income

How do you determine the amount of Social Security benefits to report as taxable income? That depends on your “provisional income.”

To calculate provisional income, begin with your adjusted gross income (AGI). You can find it on Page 1, Line 11 of Form 1040. Next, subtract your Social Security benefits to arrive at your adjusted AGI for this purpose.

Next, add the following to that adjusted AGI number:

  1. 50% of Social Security benefits
  2. Any tax-free municipal bond interest income
  3. Any tax-free interest on U.S. Savings Bonds used to pay college expenses
  4. Any tax-free adoption assistance payments from your employer
  5. Any deduction for student loan interest
  6. Any tax-free foreign earned income and housing allowances, and certain tax-free income from Puerto Rico or U.S. possessions

Now you know your provisional income. 

Determine your tax scenario

After calculating your provisional income, it’s time to determine which of the following three scenarios you fall under.

  1. All benefits are tax free

If your provisional income is $32,000 or less…

and you file a joint return with your spouse, your Social Security benefits won’t be subject to federal income tax. You may still need to pay state tax. 

If your provisional income is $25,000 or less…

and don’t file jointly, your Social Security benefits are generally federal-income-tax-free. However, if your spouse lived with you at any time during the year and you filed separately, you’ll need to report up to 85% of your benefits as income UNLESS your provisional income is zero or negative.

  1. Up to 50% of your benefits are taxed

If you file jointly with your spouse and have a provisional income between $32,001 and $44,000, you must report up to 50% of your Social Security benefits as income on Form 1040.

If your provisional income is between $25,001 and $34,000, and you don’t file a joint return, you must report up to 50% of your benefits as income.

  1. Up to 85% of your benefits are taxed

If you file jointly with your spouse and your provisional income is above $44,000, you must report up to 85% of your Social Security benefits as income on Form 1040.

If you don’t file a joint return and your provisional income is above $34,000, you will likely need to report up to 85% of your Social Security benefits as income.

Unless your provisional income is zero or a negative number, as mentioned earlier, you’ll also need to report up to 85% of your benefits if you’re married and file separately from a spouse who lived with you at any time during the year.

Questions? Smolin can help

Believe it or not, this is only a very simplified explanation of how Social Security benefits are taxed. Many nuances are involved, and the best way to learn how much, if any, Social Security you’ll need to report as income is to consult with your accountant.

Read This Before Listing Your Property as a Vacation Rental

Read This Before Listing Your Property as a Vacation Rental
Read This Before Listing Your Property as a Vacation Rental 850 500 smolinlupinco

Whether you own a lakefront cottage, vacation beach home, or ski chalet, renting out your property for part of the year can have significant tax impacts.

Here’s what you need to know.

Your level of personal use impacts your taxes

The number of days the property is rented has a direct impact on your taxes.

However, there are certain scenarios that don’t count towards this total since your official “personal use” of the property includes more than your own vacations. It also includes vacation use by your relatives—even if you charge them market-rate rent. It also includes use by nonrelatives if you don’t charge them a market rate rent.

This is important because if you rent the property out for less than 15 days during the year, it’s not treated as “rental property” at all.

Under these circumstances, you could see significant tax benefits since even a significant amount of rental income received won’t be included in your income for tax purposes. However, you also won’t be able to deduct operating costs or depreciation﹘only property taxes and mortgage interest. 

(Mortgage interest is deductible on your principal residence and one other home, subject to certain limits.)

If you do rent the property out for nonpersonal use for more than 14 days, the rent received must be included in your income and you will be able to deduct operating costs and depreciation (subject to several rules). To do this, you’ll need to allocate expenses between rental days and personal use days.

For example, if the house is rented for 90 days and used personally for 30 days, then 75% of the use is rental (90 days out of 120 total days). You would allocate 75% of your maintenance, utilities, insurance, etc. costs to rental. Additionally, you would allocate 75% of your depreciation allowance, interest and taxes for the property to rental. The personal use portion of taxes is separately deductible. If the personal use exceeds the greater of 14 days or 10% of the rental days, the personal use portion of interest on a second home will also be deductible. In this case, though, depreciation on the personal use portion isn’t allowed.

Income and expenses

When rental income is greater than allocable deductions, you’ll need to report both in order to determine how much rental income you should add to your other income for tax purposes. 

When you may claim a loss

If the income is lower than the expenses and you don’t use the property personally for more than 14 days or 10% total percent of rental days, you could be able to claim a rental loss.

When calculating the loss, though, you must allocate your expenses between the rental and personal portions. It’s also important to keep in mind that the loss will be considered “passive” and may be limited under the passive loss rules.

When you cannot claim a loss

If rental income is higher than expenses or if the house is used personally for 10% of rental days or more than 14 days total (whichever is greater), you won’t be able to claim a loss. However, you’ll still be able to use your deductions to balance out rental income. Any unused deductions will be carried forward. This could be usable in future years.

While there are still multiple deductions up to the amount of rental income you can claim, you must use them in this order: 

  • Interest and taxes
  • Operating costs
  • Depreciation

Questions? Ask Smolin

Tax rules for vacation rentals can be complicated. If you plan to rent out your property, it pays to plan ahead. Contact your Smolin accountant to learn how you may be able to maximize deductions in your unique situation.

Can the Research Credit Help Your Small Business Save On Payroll Taxes

Can the Research Credit Help Your Small Business Save On Payroll Taxes?
Can the Research Credit Help Your Small Business Save On Payroll Taxes? 850 500 smolinlupinco

Often called the R&D credit, the research and development credit for increasing research activities offers a valuable tax break to many eligible small businesses. Could yours be one of them? 

In addition to the tax credit itself, the R&D credit offers two additional features of note for small businesses: 

  • Small businesses with $50 million or less in gross receipts for the three prior tax years can claim the credit against their alternative minimum tax (AMT) liability 
  • Smaller startup businesses may also claim the credit against their Medicare tax liability and Social Security payroll 

This second feature, in particular, has been enhanced by the Inflation Reduction Act (IRA), which

1. Doubled the amount of payroll tax credit election for qualified businesses
2. Made a change to the eligible types of payroll taxes the credit can be applied to

Payroll election specifics

Limits to claiming the R&D credit do apply. Your business might elect to apply some or all of any research tax credit earned against payroll taxes rather than income tax, which may make increasing or undertaking new research activities more financially favorable.

However, if you’re already engaged in these activities, this election may offer some tax relief.

Even if they have a net positive cash flow or a book profit, many new businesses don’t pay income taxes and won’t for some time. For this reason, there’s no amount against which the research credit can be applied.

Any wage-paying business, however, does have payroll tax liabilities. This makes the payroll tax election an ideal way to make immediate use of the research credits you earn. This can be a big help in the initial phase of your business since every dollar of credit-eligible expenses holds the potential for up to 10 cents in tax credit. 

Which businesses are eligible? 

Taxpayers may only qualify for the payroll election IF:

  • Gross receipts for the election year total less than $5
  • Their business is no more than five years past the start-up period (for which it had no receipts)

To evaluate these factors, an individual taxpayer should only consider gross receipts from the individual’s businesses. Salary, investment income, and other types of earnings aren’t taken into account.

It’s also worth noting that individuals and entities aren’t permitted to make the payroll election for more than six years in a row. 

Limitations

Prior to an IRS provision that became effective in 2023, taxpayers were only allowed to use the credit to offset payroll tax against Social Security. However, the research credit may be now applied against the employer portion of Medicare and Social Security. That said, you won’t be able to use it to lower FICA taxes that are withheld on behalf of employees.

You also won’t be able to make the election for research credit in excess of $500,000. This is a significant uptick compared to the pre-2023 maximum credit of $250,000.

A C corporation or individual may only make the election for research credits that would have to be carried forward in the absence of an election—not to reduce past or current income tax liabilities. 

Questions? Smolin can help. 

We’ve only covered the basics of the payroll tax election here. It’s important to keep in mind that identifying and substantiating expenses eligible for the research credit—and claiming the credit—is a complicated process that involves extensive calculations.

Of course, we’re here to help! Contact your Smolin accountant to learn more about whether you can benefit from the research tax credit and the payroll tax election. 

What’s the Difference Between Filing Jointly or Separately as a Married Couple a Business as a Sole Proprietor Here’s How It Could Impact Your Taxes

What’s the Difference Between Filing Jointly or Separately as a Married Couple?
What’s the Difference Between Filing Jointly or Separately as a Married Couple? 850 500 smolinlupinco

You know that you must choose a filing status when you file your tax return, but do you know what your choice really means?

Picking the right filing status matters because the status you select will influence your tax rates, eligibility for certain tax breaks, standard deduction, and correct tax calculation.

And there are plenty of filing statuses to choose from: 

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household
  • Qualifying surviving spouse

Married individuals may wonder whether filing a joint or separate tax return will yield the lowest tax. That depends. 

If you and your spouse file a joint return, you are “jointly and severally” liable for the tax on your combined income. That means you’re both on the line for getting it right and settling up. You’ll also both be liable for any additional tax the IRS assesses, including interest and penalties.

In other words, the IRS can pursue either you or your spouse to collect the full amount you owe. 

“Innocent spouse” provisions may offer some relief, but they have limitations. For this reason, some people may still choose to file separately even if a joint return results in less tax overall. For example, a separated couple may not want to be legally responsible for each other’s tax obligations. Still, filing jointly usually offers the most tax savings, especially when the spouses have different income levels.

While combining two incomes may put you in a higher tax bracket, it’s important to recognize that filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. These rates are less favorable than the single rates.

Still, there are situations where it’s possible to save tax by filing separately. For example, medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in a larger total deduction.

Tax breaks only available on a joint return

Some tax breaks are only available to married couples on a joint return, including: 

  • Child and dependent care credit
  • Adoption expense credit
  • American Opportunity tax credit
  • Lifetime Learning credit 

If you or your spouse were covered by an employer retirement plan, you may not be able to deduct IRA contributions if you file separate returns. Nor will you be able to exclude adoption assistance payments or interest income from Series EE or Series I savings bonds used for higher education expenses.

Unless you and your spouse lived apart for the entire year, you won’t be able to take the tax credit designated for the elderly or the disabled, either. 

Social Security benefits

When married couples file separately, Social Security benefits may be taxed more.

Benefits are tax-free if your “provisional income” (AGI with certain modifications, plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return but zero on separate returns (or $25,000 if the spouses didn’t live together for the whole year).

Questions? Contact your accountant

Choosing a filing status impacts your state or local income tax bill, in addition to your federal tax bill. It’s important to evaluate the total taxes you might owe before making a final decision.

Considering these factors and deciding whether to file jointly or separately may not be as straightforward as you’d think. That’s where we come in. Contact your Smolin accountant for a fuller picture of the potential tax impacts of each option.

sole proprietor business tax impacts

Starting a Business as a Sole Proprietor? Here’s How It Could Impact Your Taxes
Starting a Business as a Sole Proprietor? Here’s How It Could Impact Your Taxes 850 500 smolinlupinco

It’s not uncommon for entrepreneurs to launch small businesses as sole proprietors. However, it’s crucial to understand the potential tax impacts first.

Here are 9 things to consider. 

1. The pass-through deduction may apply

If your business generates qualified business income, you could be eligible to claim the 20% pass-through deduction. (Of course, limitations may apply.)

The significance of this deduction is that it’s taken “below the line”. It reduces taxable income, as opposed to being taken “above the line” against your gross income.

Even if you claim the standard deduction instead of itemizing deductions, you may be eligible to take the deduction. Unless Congress acts to extend the pass-through deduction, though, it will only be available through 2025. 

2. Expenses and income should be reported on Schedule C of Form 1040

Whether you withdraw cash from your business or not, its net income will be taxable to you. Business expenses are deductible against gross income, rather than as itemized deductions.

If your business experiences losses, they’ll be deductible against your other income. Special rules may apply in relation to passive activity losses, hobby losses, and losses from activities in which you weren’t “at risk”. 

2. Self-employment taxes apply

In 2024, sole proprietors must pay self-employment tax at a rate of 15.3% on net earnings from self-employment up to $160,600. You must also pay a Medicare tax of 2.9% on any earnings above that. If self-employment income is in excess of $250,000 for joint returns, $125,000 for married taxpayers filing separate returns, or $200,000 in other cases, a 0.9%
Medicare tax (for a total of 3.8%) will apply to the excess. 

Self-employment tax is charged in addition to income taxes. However, you may deduct half of your self-employment tax as an adjustment to income. 

4. You’ll need to make quarterly estimated tax payments

In 2024, quarterly estimated tax payments are due on April 15, June 17, September 16, and January 15. 

5. 100% of your health insurance costs may be deducted as a business expense

This means the rule that limits medical expense deductions won’t apply to your deduction for medical care insurance. 

6. Home office expenses may be deductible.

If you use a portion from your home to work, perform management or administrative tasks, or store product samples or inventory, you could be entitled to deduct part of certain expenses, such as: 

  • Mortgage
  • Interest 
  • Rent 
  • Insurance
  • Utilities 
  • Repairs 
  • Maintenance 
  • Depreciation

Travel expenses from a home office to another work location may also be deductible. 

7. Recordkeeping is essential

Keeping careful records of expenses is key to claiming all of the tax breaks to which you’re entitled. Special recordkeeping rules and deductibility limits may apply to expenses like travel, meals, home office, and automobile costs. 

8. Hiring employees leads to more responsibilities 

If you’d like to hire employees, you’ll need a taxpayer identification number and will need to withhold and pay over payroll taxes. 

9. Establishing a qualified retirement plan is worth considering

Amounts contributed to a qualified retirement plan will be deductible at the time of the contributions and won’t be taken into income until the money is withdrawn.

Many business owners prefer a SEP plan since it requires minimal paperwork. A SIMPLE plan may also be suitable because it offers tax advantages with fewer restrictions and administrative requirements. If neither of these options appeal to you, you may still be able to save using an IRA.

Questions? Smolin can help.

For more information about the tax aspects of various business structures or reporting and recordkeeping requirements for sole proprietorships, please contact your Smolin accountant. 

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