business - Linkenheimer LLP CPAs & Advisors

What’s the Best Accounting Method Route for Business Tax Purposes?

Businesses basically have two accounting methods to figure their taxable income: cash and accrual. Many businesses have a choice of which method to use for tax purposes. The cash method often provides significant tax benefits for eligible businesses, though some may be better off using the accrual method. Thus, it may be prudent for your business to evaluate its method to ensure that it’s the most advantageous approach.

Eligibility to use the cash method

“Small businesses,” as defined by the tax code, are generally eligible to use either cash or accrual accounting for tax purposes. (Some businesses may also be eligible to use various hybrid approaches.) Before the Tax Cuts and Jobs Act (TCJA) took effect, the gross receipts threshold for classification as a small business varied from $1 million to $10 million depending on how a business was structured, its industry and factors involving inventory.

The TCJA simplified the small business definition by establishing a single gross receipts threshold. It also increased the threshold to $25 million (adjusted for inflation), expanding the benefits of small business status to more companies. For 2024, a small business is one whose average annual gross receipts for the three-year period ending […]

By Linkenheimer LLP|2024-02-14T17:04:53+00:00February 14th, 2024|accounting, business, cash, tax basis|0 Comments

9 Tax Considerations if You’re Starting a Business as a Sole Proprietor

When launching a small business, many entrepreneurs start out as sole proprietors. If you’re launching a venture as a sole proprietorship, you need to understand the tax issues involved. Here are nine considerations:

1. You may qualify for the pass-through deduction. To the extent your business generates qualified business income, you’re currently eligible to claim the 20% pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction. Be aware that this deduction is only available through 2025, unless Congress acts to extend it.

2. You report income and expenses on Schedule C of Form 1040. The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against […]

By Linkenheimer LLP|2024-02-07T16:00:34+00:00February 7th, 2024|business, small business|0 Comments

Important Update: The Corporate Transparency Act and Its Impact on Your Business

Starting January 1, 2024, a significant change will affect many businesses. The Corporate Transparency Act mandates corporations, limited liability companies (LLCs), limited partnerships, and other entities such as non-U.S. companies that register to do business in the U.S. through a filing with a Secretary of State to file a report with the Financial Crimes Enforcement Network (FinCEN). This report will disclose detailed information about the entity’s “beneficial owners.” Most entities must file these reports by January 1, 2025. However, new entities formed in 2024 must file the report within 90 days of the entity’s formation.

Key Points to Note:

Purpose: This federal initiative aims to combat money laundering and tax evasion by shedding light on the actual individuals behind corporate entities.
Reporting Requirements: The information required includes the legal name, residential address, date of birth, and an identification number (from a passport, driver’s license, or state ID) of the beneficial owners; the entity will also have to provide an image of any of these forms of documentation.
Penalties for Non-Compliance: Failing to report or update this information can lead to substantial fines, including fine of up to $500 per day until the violation […]

By Linkenheimer LLP|2024-01-04T17:01:35+00:00January 4th, 2024|business, llc, New Tax Laws, News, s corp|0 Comments

There Still May Be Time to Reduce Your Small Business 2023 Tax Bill

In the midst of holiday parties and shopping for gifts, don’t forget to consider steps to cut the 2023 tax liability for your business. You still have time to take advantage of a few opportunities.

Time deductions and income

If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2023 and deferring income into 2024 (assuming you expect to be taxed at the same or a lower rate next year).

For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2023 even though you don’t pay the credit card bill until 2024. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2023.

As for deferring income, wait until close […]

By Linkenheimer LLP|2023-12-05T17:41:49+00:00December 5th, 2023|business, small business, year-end|0 Comments

Key 2024 Inflation-Adjusted Tax Parameters for Small Businesses and Their Owners

The IRS recently announced various inflation-adjusted federal income tax amounts. Here’s a rundown of the amounts that are most likely to affect small businesses and their owners.

Rates and brackets

If you run your business as a sole proprietorship or pass-through business entity (LLC, partnership or S corporation), the business’s net ordinary income from operations is passed through to you and reported on your personal Form 1040. You then pay the individual federal income tax rates on that income.

Here are the 2024 inflation adjusted bracket thresholds.

10% tax bracket: $0 to $11,600 for singles, $0 to $23,200 for married joint filers, $0 to $16,550 for heads of household;
Beginning of 12% bracket: $11,601 for singles, $23,201 for married joint filers, $16,551 for heads of household;
Beginning of 22% bracket: $47,151 for singles, $94,301 for married joint filers, $63,101 for heads of household;
Beginning of 24% bracket: $100,526 for singles, $201,051 for married joint filers, $100,501 for heads of household;
Beginning of 32% bracket: $191,951 for singles, $383,901 for married joint filers, $191,951 for heads of household;
Beginning of 35% bracket: $243,726 for singles, $487,451 for married joint filers and $243,701 for heads of household; […]

By Linkenheimer LLP|2023-11-27T14:35:40+00:00November 27th, 2023|business, inflation|0 Comments