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The team at SWC simplifies complex tax issues, helps you build and leverage your wealth to enhance your personal and financial freedom, and offers unparalleled peace of mind at every step along the way.

Avoid Costly Mistakes with Pass-Through Entity Tax Payments

By |2025-01-23T12:18:32-08:00January 23, 2025|Categories: Business Taxes|Tags: , , , |0 Comments

If you use the State of California’s Franchise Tax Board (FTB) website to make an electronic payment for an elective pass-through entity, you should know ahead of time that it’s easy to make a mistake and get mixed up over personal and business payments.

Here at SWC, a San Diego-based tax planning and financial strategy firm for entrepreneurs and small business owners, real estate investors, and high-net-worth individuals, we see this happening all too often. And that’s why in this post, we explain how California’s version of the elective pass-through entity tax works and provide guidance on how to avoid making costly mistakes when paying your elective tax.

Graphic for Pass Thru Entity Tax Payments

To start us off, if you’re unfamiliar with the elective pass-through entity tax, here’s what we want you to know.

Understanding the Elective Pass-Through Entity Tax

The Tax Cuts and Jobs Act (TCJA), which some have described as “the most sweeping tax overhaul in decades,” was signed into law on Dec. 22, 2017, just 50 days after it was first introduced in the U.S. House of Representative. Once enacted on Jan. 1, 2018, the TCJA limited the amount of state and local taxes (income taxes, sales taxes, and property taxes) that taxpayers are allowed to deduct when filing their federal income tax returns. This resulted in the cap being $10,000 for married couples and $5,000 for individuals (or married individuals who choose to file separately).

For example, suppose you’re a married couple living in California, and you paid $7,000 in state income taxes and $6,000 in property taxes. That’s $13,000 total. Under the TCJA, when you’re filing your federal income tax return, you would be able to deduct only $10,000 from your taxable income, not the full $13,000.

Understanding that this cap could be especially burdensome for taxpayers in states with high income taxes and/or high property taxes, some states, such as California, enacted an elective pass-through entity tax as a workaround. In California, this workaround is detailed in California Assembly Bill 150 — the Sales and Use Tax Law: Personal Income Tax Law: Corporation Tax Law: Budget Act of 2021.

A pass-through entity (PTE) is a legal business structure wherein income flows through to the business entity’s owners and investors, rendering the income of the entity as the income of the owners or investors. Pass-through entities include sole-proprietorships, limited liability companies (LLCs), partnerships, and S-corporations.

How California Elective Pass-Through Entity (PTE) Tax Works

California’s elective pass-through entity (PTE) tax isn’t very complicated, and here’s how it works: Continue reading… Continue reading… Continue reading…

10 New California Laws That Could Impact Your Taxes in 2025

By |2025-01-15T16:10:34-08:00January 15, 2025|Categories: Legislation|Tags: , , |0 Comments

As we enter 2025, a host of new laws are taking effect in California, many that could directly influence your tax planning and finances. From reforms in banking and food delivery to freelancer protections and new insurance mandates, these changes could play a role in how you approach your tax planning.

Here’s what you need to know:

Ban on Certain Bank Fees

California Assembly Bill (AB) 2017 prohibits state-chartered banks and credit unions from charging fees for declined ATM withdrawals due to insufficient funds. Effective Jan. 1, 2025, this new law could save you from unexpected penalties.

  • Tax Planning Impact: Reduced banking fees mean fewer deductions for penalty-related costs. While this may not affect you, it’s a healthy reminder to evaluate other areas of tax planning where savings or reduced deductions might come into play.

Image of California

Paid Family Leave Expansion

Starting Jan. 1, AB 2123 (Changes in Managing Employee Leave under Paid Family Leave Act) ensures that employers can no longer require workers to use accrued vacation time before accessing the state’s Paid Family Leave Program.

  • Tax Planning Impact for Individuals: If you plan to take Paid Family Leave, remember that benefits from the state program may be taxable. Here at SWC, we recommend that you consider setting aside funds for potential tax liabilities to adjust your withholding or estimated tax payments.
  • Tax Planning Guidance for Business Owners: We recommend that you review your policies and payroll processes to ensure compliance with the new rule. Consider how this change may affect your labor costs or employee coverage needs and ask us for help in updating your tax strategy accordingly, if you’re unsure what to do.

Freelancer Protections Against Late Payments

Under California Senate Bill (SB) 988 (Freelance Worker Protection Act), effective Jan. 1, companies must pay independent contractors by the date specified in their contracts — or within Continue reading… Continue reading… Continue reading…

Breaking: New Deadlines for Beneficial Ownership Reporting Announced

By |2026-08-12T11:04:29-07:00December 24, 2024|Categories: Tax Planning|Tags: , , |0 Comments

Editor’s Note (August 2026): Since this post was originally published, the federal government has changed the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act. U.S.-formed companies are now exempt from BOI reporting requirements. The reporting rules generally apply only to certain entities formed under foreign law that are registered to do business in the United States. As a result, the BOI filing requirements described below no longer apply to U.S.-formed businesses. For additional details on the ruling, read the U.S. Department of Treasury’s Beneficial Ownership Information Reporting Requirement Revision (PDF file).

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The world of compliance and financial reporting is complex, and staying informed of recent changes in rules and regulations is essential to protecting your business and avoiding costly fines.

Recent court decisions surrounding the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting rule have reshaped the reporting landscape yet again. Yesterday, another court weighed in on the BOI. Here’s what you need to know to stay ahead.

What Happened with the BOI and How Does It Affect Your Business?

On December 23, 2024, a panel of Fifth Circuit judges granted the government’s motion to stay a December 3, 2024, nationwide preliminary injunction ordered in the Texas Top Cop Shop, Inc., v. Garland case. What that means is the court reinstated the reporting requirements for beneficial ownership information (BOI) with the Financial Crimes Enforcement Network (FinCEN).

Going back a bit further, the CTA, which was established by Congress as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, seeks to combat financial crimes by increasing transparency surrounding corporate ownership. When the legislation was sent to the President to sign into law in December of 2020, he vetoed it, after which the U.S. House of Representatives and the United States Senate both voted to override the veto, making the Act’s beneficial ownership information requirement effective as of Jan. 1, 2021.

For now, as a result of yesterday’s ruling, most businesses are required to comply with the CTA’s reporting requirements, with extended deadlines to account for the injunction’s temporary impact.

Updated Deadlines You Need to Know About

To give businesses time to adjust to the reinstated reporting requirements, the U.S. Department of the Treasury has extended several deadlines:

  1. For Companies Created or Registered Before January 1, 2024:
    • New Deadline: January 13, 2025
      (Previously, these companies would have had to report by January 1, 2025.)
  2. For Companies Created or Registered Between September 4, 2024, and December 23, 2024:
    • New Deadline: January 13, 2025
  3. For Companies Created or Registered Between December 3, 2024, and December 23, 2024:
    • New Deadline: 21 days after their original filing deadline.
  4. For Disaster Relief-Eligible Companies:
    • Deadline: The later of January 13, 2025, or the extended deadline specified for disaster relief.
  5. For Companies Created or Registered After January 1, 2025:
    • Deadline: 30 days after receiving notice that their registration or creation is effective.

Why These Deadlines Matter Continue reading… Continue reading… Continue reading…

Using an S Corporation to Reduce Your Income Tax

By |2024-11-20T12:30:02-08:00November 20, 2024|Categories: Tax Planning|Tags: , , |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).

Photo for Using an S Corporation to Reduce Your Income Tax

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 |2025-07-10T10:34:21-07:00November 13, 2024|Categories: Tax Credits, Tax Planning|Tags: , , , , |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.

Graphic for Tax planning in the 2nd Trump presidency

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 Individual Taxpayers to Reduce 2024 Federal Income Tax

By |2024-11-06T11:36:43-08:00November 5, 2024|Categories: Tax Planning|Tags: , |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.

individual taxpayer tax strategies 2024

 

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…

Divorce and Social Security: What You Need to Know

By |2024-10-16T12:24:31-07:00October 16, 2024|Categories: Divorce and Taxes|Tags: , |0 Comments

Perhaps surprising to most people, California boasts among the lowest divorce rates in the nation, ranking seventh behind Illinois, New York, Minnesota, Alaska, New Jersey and Vermont.

Of course, that doesn’t mean Californians are immune from marital discord, discontent, or total breakdown. In fact, the most recent data from the U.S. Census Bureau’s American Community Survey shows that divorce rates are trending upward. Also eyebrow-raising? Nowhere is that truer than among those couples who are 50 years old and older. It’s so common now among that demographic that there’s even a term for it — “gray divorce,” which according to The Journals of Gerontology: Series B, accounts for 36 percent of all divorces in the United States.

Photo for divorce and social security

If you or someone you know is age 50 or over, with a divorce on the horizon, or in progress, or that recently occurred, here’s what we want you to know about divorce and Social Security.

Divorce and Social Security

If you are divorced, it might benefit you financially to collect Social Security retirement or disability benefits based on your ex’s earnings instead of your own. For you to qualify, all of the following six conditions must be met:

  • You’re 62 years or older.
  • You were married to your ex-spouse for at least 10 years.
  • You have been divorced from this ex-spouse for at least two years. (This condition applies only if you are claiming benefits before your ex-spouse has claimed benefits.)
  • You aren’t currently married. (If you marry someone else, you cannot claim benefits based on your ex-spouse’s work record unless the new marriage ends in divorce, death, or annulment.)
  • Your ex-spouse is currently entitled to receive Social Security retirement or disability benefits.
  • Your benefit amount, based on your own earnings record, is not equal to or greater than half of your ex-spouse’s Social Security benefit.

After a divorce, you have a choice: Continue reading… Continue reading… Continue reading…

The Top 10 Reasons Why Business Owners Need to Meet With a CPA This Summer

By |2024-06-13T12:12:39-07:00June 13, 2024|Categories: Business Taxes|Tags: , , , , , |0 Comments

A few days ago here on the SWC blog, we shared why it’s important for individual taxpayers to meet with their CPA over the summer. It basically boils down to being prepared. No one wants to learn in the first quarter of 2025 that their state or federal tax liability could have been dramatically reduced or altogether eliminated had they just met with their CPA for one hour in June, July, or August.

As a business owner, the same logic applies. Below are the top 10 reasons why you as a business owner, entrepreneur, or an investor with an ownership stake in a business should schedule a mid-year meeting with your CPA this summer.

Marni Walker of SWC

  1. Take Advantage of Depreciation Tax Breaks: Current tax laws offer generous depreciation deductions for qualifying assets. By discussing your plans with us, we can help you maximize your Section 179 deductions and first-year bonus depreciation, potentially saving you significant amounts on your tax return.
  1. Time Business Income and Deductions: Strategically timing your business income and deductions can lead to substantial tax savings. Whether it’s deferring income or accelerating expenses, we’ll help you make the right moves to align with your financial goals.
  1. Maximize the Qualified Business Income (QBI) Deduction: The QBI deduction can be a significant tax saver for owners of pass-through entities. We’ll ensure you understand the complexities and limitations of this deduction, helping you plan to maximize your benefits.

Continue reading… Continue reading… Continue reading…

© 2014- Stees, Walker & Company, LLP (SWC). All rights reserved.
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