November 2024

Using an S Corporation to Reduce Your Income Tax

By Office Staff|2024-11-20T12:30:02-08:00November 20, 2024|Categories: Tax Planning|Tags: Business Taxes, S Corp, Tax Strategy|0 Comments

If you’re an entrepreneur or small-business owner, you may be aware of a common tactic for reducing your income tax: You form an S corporation and then use it to pay yourself a combination of wages and distributions. Put simply, an S corporation is a corporation that chooses to be taxed as a pass-through entity (a business structure where the profits and losses “pass through” directly to the owners, who report them on their personal tax returns, instead of the business paying corporate taxes).

Under this plan, you pay income tax on both wages and distributions, but you pay self-employment tax — Social Security and Medicare — only on wages. Income from distributions is not subject to Social Security and Medicare withholding.

On its surface, this tactic saves you about 15.3 percent in taxes on the amount you pay yourself in distributions, because as an employer/employee, you’re responsible for paying both halves of Social Security and Medicare. As an employer, you pay 6.2 percent Social Security and 1.45 percent Medicare, and an amount equivalent to that as employee. If you crunch the numbers, that’s 6.2 percent + 1.45 percent = 7.65 percent x 2 = 15.3 percent.

However, you need to be aware of three important considerations: Continue reading… Continue reading… Continue reading…

Tax Planning for a Second Trump Presidency

By Office Staff|2025-07-10T10:34:21-07:00November 13, 2024|Categories: Tax Credits, Tax Planning|Tags: Estate Tax, Tariffs, Tax Cut and Jobs Act, Tax Policy, Trump|0 Comments

The votes are in, the winner has been declared. Now’s the time to start planning your taxes around the second Trump presidency (2025-2028). Of course, taxes aren’t entirely within the purview of the President of the United States — only Congress has the power to change the tax code. However, the president has tremendous influence over it.

For his part, the president proposes tax policies that can influence public opinion, rallies Congress to pass tax legislation, and has the power to veto any tax legislation proposed by Congress. And while the president can’t change the tax code through executive orders, he can direct agencies to implement certain tax policies or interpretations and pay less attention to others.

So, what changes to the tax code can we expect from a second Trump presidency? In many ways, we can expect to see more of the same — an extension of many of the provisions in the Tax Cut and Jobs Act (TCJA) that Congress approved in late 2017 near the middle of the first Trump presidency. In addition, we can likely count on additional tax relief to promote growth and increase take-home pay for workers.

In this post, we review key provisions of the TCJA, which will expire at the end of 2025 unless Congress acts to extend them, and we highlight changes to the tax code that Trump proposed during his campaign.

Tax Cut and Jobs Act Provisions That Are Set to Expire in 2025

Many of the TCJA provisions were intended to be temporary. Unless Congress acts to extend them, the following provisions are set to expire at the end of 2025: Continue reading… Continue reading… Continue reading…

Last-Minute Moves for Small Businesses to Reduce 2024 Federal Income Tax

By Office Staff|2024-11-06T11:53:01-08:00November 6, 2024|Categories: Business Taxes|Tags: Individual Retirement Account, Qualified Business Income Deduction, Tax Planning, Year-end Tax Planning|1 Comment

As the clock ticks down toward the end of the 2024 tax year, tax-saving opportunities are about to disappear. If you’re a business owner or entrepreneur, you still have time to implement a few tax-saving strategies, but you’d better hurry — time is running out.

In this two-part series, we share tax-saving strategies you can implement prior to the end of the tax year to reduce your tax obligation for 2024. In Part 1, we focused on strategies for individual taxpayers. In Part 2 of this series, we shift our focus to tax-saving strategies for business owners, starting with tax-favored retirement plans.

Contribute to a Tax-Favored Retirement Plan

By contributing to a tax-favored retirement plan, you can reduce your business’s taxable income and allow your contributions to grow tax-free until you withdraw the money. As a business owner, you have several options:

Contribute to an Individual Retirement Account (IRA). This is the simplest option, but it also has the lowest cap at $7,000 for 2024. If you’re over the age of 50, you can make an additional $1,000 catch-up contribution.
Create a Simplified Employee Pension (SEP) plan. With a SEP, you can contribute up to 20 percent of your net self-employment income for 2024. If you are employed by your own corporation, you can contribute up to 25 percent of your salary. The maximum contribution in either case is $69,000.
Establish a 401(k) plan. A 401(k) plan offers the same benefits as a SEP plan but also allows for matching employer contributions, meaning you can move more pre-tax money into the plan.
Use a SIMPLE IRA. SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE IRA (Individual Retirement Account) can be a good choice if your business income is modest.

Contact us for information about your options for 2024 and to explore long-term solutions that may reduce your tax bill and accelerate the rate at which you build wealth in the future.

Remember: If your business has employees, you may need to cover them too.

Participating in a Tax Projection Meeting in November or December can help you estimate your 2024 tax liability and adjust your withholding or calculate an estimated tax payment to minimize any potential underpayment penalty.

To schedule a year-end Tax Projection Meeting with SWC Founding Partner Marni Walker, please call our office at (858) 487-4580.

To schedule with Founding Partner Laura Stees, visit www.SWC.cpa/Contact, click “Schedule an Appointment,” then select “Tax Projection” to choose a convenient day and time.

Maximize your Section 179 Deductions

If you need equipment or software for your business, you can write off the cost up to the Section 179 deduction limit of $1.22 million for 2024. Most types of personal property and off-the-shelf software used for business are eligible for Section 179 deductions.

Section 179 deductions also can be claimed for the following: Continue reading… Continue reading… Continue reading…

Last-Minute Moves for Individual Taxpayers to Reduce 2024 Federal Income Tax

By Office Staff|2024-11-06T11:36:43-08:00November 5, 2024|Categories: Tax Planning|Tags: Income Tax, Individual Taxpayers|0 Comments

With only two months remaining in the tax year, the time has come to get serious about reducing your 2024 federal income tax bill. The good news is that it’s not too late. The bad news is that you’re running out of time.

In this two-part series, we share tax-saving strategies you can implement prior to the end of this year to reduce your tax obligation for 2024. In Part 1, we focus on strategies for individual taxpayers. In Part 2, we shift our focus to tax-saving strategies for business owners.

Note: For now, we’re assuming that the tax law currently in effect for 2024 will remain in place. If anything changes due to the outcome of the upcoming election, we will certainly let you know. However, any changes to the tax code that would apply retroactively to 2024 would require an act of Congress, which isn’t likely.

Check Your Tax Withholding and Estimated Payments

To avoid any underpayment penalty, make sure the Federal Income Tax (FIT) withheld from your paychecks plus any estimated tax payments for 2024 is equal or greater than:

Your 2023 tax liability, or 110 percent of your 2023 tax liability if your 2023 adjusted gross income (AGI) exceeded $150,000 if you file as Married Filing Jointly (or $75,000 if you file as Married Filing Single), or
90 percent of your 2024 tax liability

Participating in a Tax Projection Meeting in November or December can help you estimate your 2024 tax liability and adjust your withholding or calculate an estimated tax payment to minimize any potential underpayment penalty.

To schedule a year-end Tax Projection Meeting with SWC Founding Partner Marni Walker, please call our office at (858) 487-4580.

To schedule with Founding Partner Laura Stees, visit www.SWC.cpa/Contact, click “Schedule an Appointment,” then select “Tax Projection” to choose a convenient day and time.

Consider Bunching Itemized Deductions

Each year, you can deduct the greater of your itemized deductions (mortgage interest, charitable contributions, medical expenses, and taxes) or the standard deduction. The 2024 standard deduction is as follows:

$29,200 for couples who are married filing jointly (MFJ)
$14,600 for singles and for individuals who are married filing separately (MFS)
$21,900 for those who file as head of household (HOH).

If your total itemized deductions exceed your standard deduction every year, itemizing every year is best. However, if your total itemized deductions are close to the standard deduction without exceeding it, you may be able to save money by “bunching” your itemized deductions, so they exceed your standard deduction every other year.

For example, if you file a joint return and your itemized deductions are steady at around $28,000 per year, you will end up claiming the standard deduction in both 2024 and 2025. However, if you can bunch expenditures so that you have itemized deductions of $32,000 in 2024 and $24,000 in 2025, you could itemize in 2024 and get a $32,000 deduction versus a $29,200 standard deduction. In 2025, your itemized deductions would be below the standard deduction, so you’d claim the standard deduction.

Here are a few ways you can bunch deductions by moving them into an earlier tax year: Continue reading… Continue reading… Continue reading…