Volume 9

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Meet the Team Behind DB&C Advisors: More Than Just Financial Professionals

At DB&C Advisors, exceptional service is not just about delivering tailored wealth management solutions; it’s about the heart of our practice—the people behind it. Our advisors don’t just bring financial expertise to the table; they bring their personalities, passions, and life experiences, making every client relationship personal and meaningful. In this blog, we’re excited …

At DB&C Advisors, exceptional service is not just about delivering tailored wealth management solutions; it’s about the heart of our practice—the people behind it. Our advisors don’t just bring financial expertise to the table; they bring their personalities, passions, and life experiences, making every client relationship personal and meaningful. In this blog, we’re excited to highlight three key team members who embody the spirit of DB&C: Deanna Sears, Shannon Simon, and Dan O’Mealey.

Deanna Sears – Client Services Associate

Family as a Driving Force

Deanna’s close-knit family has always inspired her, instilling in her the importance of love and connection, no matter the distance. This personal value translates directly into her work at DB&C Advisors, where helping clients plan for their families’ futures is a cornerstone of her role. Deanna sees financial planning as a way of protecting and nurturing relationships, much like she does with her own family.

Finding Balance Through Nature and Connection

Outside of the office, Deanna recharges through a variety of activities that connect her to both nature and community. She enjoys walking her dogs in the woods, gardening, and relaxing on the beach. When the weather isn’t cooperating, you’ll find her reading, sewing, or catching up with friends and family. Deanna’s philosophy is centered around balance—whether through quiet reflection, exercise, or shared laughter—helping her bring a positive, grounded energy into her work each day.

A Philosophy Rooted in Positivity

For Deanna, a smile goes a long way. Even when clients can’t see her, she believes they can sense the positivity in her voice. Her service philosophy is simple: stay upbeat and always approach life with kindness. This attitude resonates in her interactions with clients and colleagues alike, creating an environment where people feel supported, valued, and genuinely cared for.

The DB&C Family Atmosphere

One of Deanna’s favorite aspects of working at DB&C Advisors is the sense of family she feels with her team. Every day, she connects with clients and colleagues, forming relationships that go beyond transactions. For Deanna, it’s these connections that make her work so fulfilling.

Shannon Simon, BFA ®, CWS ® – Wealth Advisor

Client-Centered Relationships and a Family-First Philosophy

Shannon’s family plays a significant role in both his personal and professional life. His daughter is a teacher in Louisiana, and his son works for an airline in Michigan. Shannon’s focus on family mirrors his approach to working with clients, ensuring that every financial plan is deeply personal and rooted in each client’s life goals. He emphasizes, “It’s important to meet people where they are in their life’s journey—retirement, mid-career, or just starting out—and understand their goals and the steps they’ve taken toward achieving them.”

Enjoying Michigan Summers and Southern Cooking

Outside the office, Shannon enjoys spending quality time with his family, golfing (although not as much as he’d like), and fishing. As a native of Louisiana, he also loves cooking, particularly the foods he grew up eating, like gumbo, jambalaya, and barbeque. His time outdoors and in the kitchen helps him stay balanced and energized, allowing him to bring that same level of energy to his work.

Fostering Client Relationships as Family

For Shannon, DB&C Advisors feels like more than just a workplace—it’s a family. He notes that, “No matter what team or division you’re with, it feels like you are part of the family. Our goal is to extend that feeling to our clients, so we become an important part of their family as well.” He believes in creating strong, trust-based relationships with clients, helping them navigate challenges, and offering guidance through life’s significant events.

Dan O’Mealey, CFP ® – Chief Compliance Officer & Director of Financial Services

A Commitment to Setting a Good Example

Dan’s dedication to his family is mirrored in his professional life. As a father, he strives to set a strong example for his children, both in his career and in the way he approaches life. This commitment is reflected in how he engages with his clients, ensuring their needs are always the top priority.

Staying Energized Through Fitness and Fun

Dan’s life outside of the office is filled with a variety of activities that keep him balanced and energized. Whether it’s CrossFit, yoga, or spending time outdoors with family, Dan believes that staying active helps him maintain the focus and stamina necessary to serve his clients well. Summertime cookouts and travel are also significant parts of Dan’s life, providing the perfect way to unwind and recharge.

A Philosophy of Client-First Service

Dan’s personal service philosophy is straightforward: always put the client first. He believes that by focusing on the needs of his clients, everything else will naturally fall into place. This client-first mindset is at the core of how he approaches financial planning and is a key reason why he enjoys helping clients navigate both expected and unexpected challenges.

From Southeast Alaska to Wealth Management

One surprising fact about Dan is his unique background—he grew up in a fishing village on an island in Southeast Alaska. Before entering the world of financial planning, he spent ten years as a tool and die maker. This hands-on experience gives him a practical approach to problem-solving, which he applies to his financial planning strategies today.

Building Strong Client Relationships

For Dan, the best part of his job is getting to know the clients he serves. Whether it’s solving a small challenge or helping them navigate life’s big surprises, he values the trust his clients place in him and feels fortunate to be part of their journey.

DB&C Advisors is more than just a team of financial planners; we are a family of professionals who genuinely care about the people we work with. Deanna, Shannon, and Dan – along with the rest of the team, bring their full selves into their roles—combining technical expertise with authentic, human connections. When you work with DB&C Advisors, you’re not just getting a service; you’re gaining a partnership rooted in trust, integrity, and shared values.

Protecting Our Seniors: Understanding and Preventing Scams

As our population ages, seniors increasingly become targets for a variety of scams. These fraudulent schemes can have devastating financial and emotional impacts on older adults, who may be more vulnerable due to factors such as isolation, cognitive decline, or simply a trusting nature. The Internal Revenue Service (IRS) has been proactive in issuing …

As our population ages, seniors increasingly become targets for a variety of scams. These fraudulent schemes can have devastating financial and emotional impacts on older adults, who may be more vulnerable due to factors such as isolation, cognitive decline, or simply a trusting nature. The Internal Revenue Service (IRS) has been proactive in issuing warnings and providing guidance to help protect seniors from these threats. This article will delve into the nature of scams targeting seniors, what to be on guard for, awareness and protection strategies, IRS advice, and steps to take if one falls victim to a scam.

Understanding the Threats – Scammers employ a range of tactics to deceive seniors, often posing as representatives from government agencies, familiar businesses, or charities. The IRS, in its news release IR-2024-164, highlights the rising threat of impersonation scams targeting older adults. These fraudsters use fear and deceit to exploit their victims, often pressuring them into making immediate payments through unconventional methods such as gift cards or wire transfers.

Common Scams Targeting Seniors

  • Impersonation of Known Entities: Fraudsters often pose as representatives from government agencies like the IRS, Social Security Administration, or Medicare. By spoofing caller IDs, they can deceive victims into believing they are receiving legitimate communications. These scammers may claim that the victim owes money, is due a refund, or needs to verify personal information.
  • Claims of Problems or Prizes: Scammers frequently fabricate urgent scenarios, such as outstanding debts or promises of significant prize winnings. Victims may be falsely informed that they owe the IRS money, are owed a tax refund, need to verify accounts, or must pay fees to claim non-existent lottery winnings.
  • Pressure for Immediate Action: These deceitful actors create a sense of urgency, demanding that victims take immediate action without allowing time for reflection. Common tactics include threats of arrest, deportation, license suspension, or computer viruses to coerce quick compliance.
  • Specified Payment Methods: To complicate traceability, scammers insist on unconventional payment methods, including cryptocurrency, wire transfers, payment apps, or gift cards. They often require victims to provide sensitive information like gift card numbers.

Awareness and Protection Strategies

Awareness is the first line of defense against scams. Seniors and their caregivers should be educated about the common tactics used by scammers and the red flags to watch for. Tips for Seniors:

  • Verify the Source: Always verify the identity of the person or organization contacting you. If you receive a call, email, or text message claiming to be from the IRS or another government agency, do not provide any personal information. Instead, contact the agency directly using a verified phone number or website.
  • Be Skeptical of Unsolicited Communications: Be cautious of unsolicited communications, especially those that request personal information or immediate payment. Legitimate organizations will not ask for sensitive information through unsecured channels.
  • Do Not Rush: Scammers often create a sense of urgency to pressure victims into making hasty decisions. Take your time to verify the legitimacy of the request and consult with a trusted family member or friend before taking any action.
  • Use Secure Payment Methods: Avoid making payments through unconventional methods like gift cards, wire transfers, or cryptocurrency. Legitimate organizations will not request payment using these procedures.
  • Monitor Financial Accounts: Regularly monitor your bank and credit card statements for any unauthorized transactions. Report any suspicious activity to your financial institution immediately.

Tips for Caregivers

  • Educate and Communicate: Regularly discuss potential scams with the seniors in your care. Ensure they understand the common tactics used by scammers and encourage them to reach out to you if they receive any suspicious communications.
  • Set Up Protections: Help seniors set up protections such as fraud alerts on their credit reports and two-factor authentication on their online accounts.
  • Monitor Communications: If possible, monitor the mail, phone calls, and emails that the senior receives. This can help identify potential scams before any damage is done.
  • Encourage Reporting: Encourage seniors to report any suspicious activity to the appropriate authorities. Reporting scams can help prevent others from falling victim to the same schemes.

IRS Advice and Resources – The IRS has been actively engaged in efforts to protect taxpayers, including seniors, from scams and identity theft. The Security Summit partnership between the IRS, state tax agencies, and the nation’s tax professional community has been working since 2015 to combat these threats. Remember that:

  • The IRS will never demand immediate payment via prepaid debit cards, gift cards or wire transfers. Typically, if taxes are owed, the IRS will send a bill by mail first.
  • The IRS will never threaten to involve local police or other law enforcement agencies.
  • The IRS will never demand payment without allowing opportunities to dispute or appeal.
  • The IRS will never request credit, debit or gift card numbers over the phone.

Key IRS Recommendations

  • Know the IRS Communication Methods: The IRS will never initiate contact with taxpayers by email, text message, or social media to request personal or financial information. Initial contact is typically made through a mailed letter.
  • Questions or Concerns About Your Taxes: Contact your tax professional.
  • Report Scams: If you receive a suspicious communication claiming to be from the IRS, report it to the IRS at phishing@irs.gov. You can also report scams to the Federal Trade Commission (FTC) at www.ftc.gov/complaint.
  • Protect Personal Information: Be cautious about sharing personal information. The IRS advises taxpayers to use strong passwords, secure their devices, and be wary of phishing attempts.
  • Seek Professional Help: If you believe your identity has been compromised, contact this office immediately. The IRS has special provisions for victims of identity theft to protect their tax filings.

What to Do if Scammed – Despite all precautions, scams can still happen. If you or a loved one falls victim to a scam, it’s important to act quickly to minimize the damage. Immediate steps to take:

  • Stop Communication: Cease all communication with the scammer immediately. Do not provide any further personal information or make any additional payments.
  • Report the Scam: Report the scam to the appropriate authorities. This includes the IRS, the FTC, and your local law enforcement. Reporting the scam can help authorities track down the perpetrators and prevent others from being victimized.
  • Contact Financial Institutions: Notify your bank, credit card companies, and any other financial institutions involved. They can help you monitor your accounts for fraudulent activity and take steps to protect your assets.
  • Place Fraud Alerts: Place a fraud alert on your credit reports with the major credit bureaus (Equifax, Experian, and TransUnion). This can help prevent further identity theft.
  • Review Credit Reports: Obtain and review your credit reports for any unauthorized accounts or activities. You are entitled to a free credit report from each of the major credit bureaus once a year through www.annualcreditreport.com. You may even want to put a freeze on your credit, which will help prevent fraudsters from opening credit accounts in your name or accessing your credit reports. To do so you’ll need to contact the three major consumer credit bureaus. The drawback to doing so is the inconvenience of contacting the credit bureaus again if you need to lift the freeze on your credit card(s).
  • Secure Personal Information: Change passwords and security questions on your online accounts. Consider using a password manager to create and store strong, unique passwords.

Long-Term Steps

  • Monitor Accounts: Continue to monitor your financial accounts and credit reports regularly for any signs of fraudulent activity.
  • Educate Yourself: Stay informed about the latest scams and fraud prevention strategies. The IRS and other organizations regularly update their websites with new information and resources.
  • Seek Support: Falling victim to a scam can be emotionally distressing. Seek support from family, friends, or professional counselors if needed.
  • Legal Assistance: In some cases, it may be necessary to seek legal assistance to resolve issues related to identity theft or financial fraud.

Scams targeting seniors are a growing concern, but with awareness and proactive measures, older adults can be protected from these threats. By staying informed, verifying communications, and taking swift action, when necessary, seniors and their caregivers can safeguard against fraud and ensure financial security.

Remember, if you or a loved one is ever in doubt about a communication or request, it’s always better to be safe than sorry. Reach out to trusted family members, friends, or professionals for advice and support. Together, we can create a safer environment for our seniors and help them enjoy their golden years without the fear of falling victim to scams.

Self-Employment Tax: Who Really Needs to Pay and Why You Can’t Afford to Ignore It

In the realm of taxes, understanding who is required to pay self-employment tax and who is exempt is crucial for individuals navigating their financial responsibilities. Whereas employees have Social Security and Medicare taxes withheld from wages–often referred to as FICA taxes– individuals who work for themselves are subject to self-employment (SE) tax, which they …

In the realm of taxes, understanding who is required to pay self-employment tax and who is exempt is crucial for individuals navigating their financial responsibilities. Whereas employees have Social Security and Medicare taxes withheld from wages–often referred to as FICA taxes– individuals who work for themselves are subject to self-employment (SE) tax, which they pay in lieu of the Social Security and Medicare taxes employees pay via payroll withholding. Employees and employers share the employee’s liability, while self-employed individuals pay both the employer and employee liability.

 

Understanding Self-Employment Tax – Before diving into the specifics of who must pay self-employment tax, it’s essential to understand what it entails. Self-employment tax is governed by the Self-Employment Contributions Act (SECA), under which individuals who earn income directly from their business activities, rather than as employees, are required to contribute to Social Security and Medicare. This tax is calculated as a percentage of net earnings from self-employment.

 

For 2024, the self-employment tax rate is 15.3%, comprised of 12.4% for Social Security contributions on the first $168,600 of net earnings and 2.9% for Medicare contributions on all net earnings. Unlike employees, who share these tax responsibilities with their employers, self-employed individuals bear the full burden. An additional Medicare tax of 0.9% of net self-employment income applies for those with SE income above the following thresholds: $250,000 married joint, $125,000 married separate and $200,000 all others 

 

Who is Required to Pay Self-Employment Tax? – Generally the following are subject to self-employment tax:

  • Sole Proprietors and Independent Contractors – Individuals operating their businesses or offering services as sole proprietors or independent contractors are required to pay self-employment tax on their net earnings if they exceed $400 in a tax year.
  • Partners in a Partnership – Members of a partnership that conducts a trade or business are subject to self-employment tax on their share of the partnership’s income.
  • Members of a Limited Liability Company (LLC) – Depending on the election made by the LLC, members may be treated as sole proprietors or partners for tax purposes and thus be required to pay self-employment tax on their share of the LLC’s profits.
  • Clerics – A cleric is required to pay self-employment tax on income from services as a minister unless the individual has taken a vow of poverty. The following are examples of common situations related to the self-employment income of clerics:
    • W-2 Income – from the Church is subject to income tax, and self-employment tax. It’s important to note that the church does not withhold FICA taxes for this income.
    • Self-employment Income – Clerics who do not work for a specific church or who receive income for presiding over weddings, funerals, etc., have non-employee income that is taxable and subject to self-employment tax, based on the net profit from the self-employment activity.
    • Schedule C – This is the IRS form on which clerics report their SE income, which can be offset by associated expenses, resulting in the net profit that’s subject to SE taxes.
    • Most clerics receive a Housing (Parsonage) Allowance from the church they work for. To the extent allowed by law, this income is not subject to income tax but is subject to self-employment tax.

 

Who is Exempt from Paying Self-Employment Tax? – While the scope of self-employment tax is broad, there are specific exemptions and special cases:

  • Employees: Individuals who work as employees and receive a W-2 form are not subject to self-employment tax on their wages, as their employers withhold Social Security and Medicare taxes throughout the year that the employer pays over to the government.
  • Rental Income: Generally, income derived from renting out property is not subject to self-employment tax unless the individual is engaged in a rental business that provides services for the convenience of tenants.  This generally includes rents paid in crop shares.
  • Limited Partners: Limited partners in a partnership may be exempt from self-employment tax on certain income distributions, as their involvement in the business is typically passive, i.e., more in the nature of an investment.
  • Certain Business Owners: Owners of corporations, including S corporations, may not be subject to self-employment tax on their share of the corporation’s profits, though they must pay themselves reasonable compensation subject to the FICA employment taxes.
  • Commissions Allowed by the Probate Court – Commissions (fees) allowed to nonprofessional fiduciaries (such as an estate executor or trustee) by a probate court under local law generally aren’t considered self-employment earnings. However, if the fees relate to active participation in the operation of the estate’s business, or the management of an estate that required extensive management activities over a long period of time, the fees would be SE income to the extent they represents a special payment for operating the business. 
  • Termination Payments of Former Insurance Salespeople – The law provides that net earnings from self-employment don’t include any amounts received from an insurance company for services performed by an individual as an insurance salesperson for the company if certain conditions are met.
  • Religious Exemptions – Ministers, Christian Science practitioners, and members of religious orders who have taken a vow of poverty may get an exemption from self-employment tax on their earnings if certain requirements are met.  To get the exemption, Form 4361 must be filed with the IRS.

Retired clergy receiving parsonage or rental allowances are not subject to self-employment tax. 

  • Notary Public – The fees for the services of a notary public are exempt from the self-employment tax.
  • Nonresident Aliens – Nonresident aliens engaged in a trade or business within the United States may be subject to self-employment tax, with specific exemptions based on tax treaties.
  • Miscellaneous Income from an Occasional Act or Transaction – Income from an occasional act or transaction, absent proof of efforts to continue those acts or transactions on a regular basis, isn’t income from self-employment subject to the SE tax.  An example is a nonprofessional fiduciary who manages the estate of a relative or friend.  However, professional fiduciaries are subject to self-employment tax

 

Special Situations

  • Self-employment Tax Deduction – Self-employed individuals can deduct half of their self-employment tax when calculating their adjusted gross income, providing some relief. The purpose of this deduction is to make up for the self-employed person having to pay both sides of the Social Security and Medicare taxes. However, this is not a deduction on the individual’s business form, such as Schedule C. It is deductible whether the individual itemizes their deductions or claims the standard deduction.
  • Optional Methods – There are two methods – one for farmers and another for nonfarmers – that can be used when net self-employment earnings are less than $400 and paying SE tax isn’t required.  Use of these methods allows a taxpayer to continue accruing credit toward their Social Security coverage in years when profits are small (or even when there is a loss). Using the optional method may also allow the individual to qualify for the earned income credit and certain other credits, or to receive a larger credit. These individuals are subject to special rules for self-employment tax, with different thresholds and rates applying to their net earnings.

 

Understanding the intricacies of self-employment tax is vital for anyone earning income outside of traditional employment. While the responsibility to pay rests on many self-employed individuals, exemptions and special cases exist. 

 

Contact our office with questions regarding self-employment tax and how it may apply in your specific circumstances.

September Individual and Business Due Dates

September 2024 Individual Due Dates September 1 – 2024 Fall and 2025 Tax Planning Tax Planning Contact this office to schedule a consultation appointment.September 10 – Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer …

September 2024 Individual Due Dates

September 1 – 2024 Fall and 2025 Tax Planning 

Tax Planning Contact this office to schedule a consultation appointment.

September 10 – Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer on IRS Form 4070 no later than September 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

September 16 – Estimated Tax Payment Due

The third installment of 2024 individual estimated taxes is due. Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

  • Payroll withholding for employees;
  • Pension withholding for retirees; and 
  • Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

  • The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.

  • The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

 

September 2024 Business Due Dates

September 16 – S Corporations

File a 2023 calendar year income tax return (Form 1120-S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension. Provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1120-S) or substitute Schedule K-3 (Form 1120-S).

September 16 – Corporations 

Deposit the third installment of estimated income tax for 2023 calendar year

September 16 – Social Security, Medicare and withheld income tax

If the monthly deposit rule applies, deposit the tax for payments in August.

September 16 – Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in August.

September 16 – Partnerships

File a 2023 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each partner with a copy of K-1 (Form 1065) or a substitute Schedule K-1.

September 30 – Fiduciaries of Estates and Trusts

File a 2023 calendar year return (Form 1041). This due date applies only if you were given an extension of 5 1/2 months. If applicable, provide each beneficiary with a copy of K-1 (Form 1041) or a substitute Schedule K-1.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations 

Think Twice Before Tossing:  The Critical Timing for Disposing of Your Tax Records Safely 

Now that your taxes are complete and filed for last year, you are probably wondering what old tax records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. To determine how to proceed, it is helpful to understand why the records …

Now that your taxes are complete and filed for last year, you are probably wondering what old tax records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. To determine how to proceed, it is helpful to understand why the records needed to be kept in the first place. Generally, we keep “tax” records for several reasons: 

Audit Defense: In the event of an IRS audit, taxpayers are required to present documentation supporting the claims made on their tax returns. Without proper records, defending against audit adjustments becomes significantly challenging.

Amending Returns: If taxpayers need to amend a return due to discovered errors or overlooked deductions, having detailed records makes the process smoother and ensures that all adjustments are accurate.

Claiming Refunds: For claiming refunds, especially those related to overpaid taxes, detailed records are necessary to substantiate the claim.

Tax Basis: When capital assets, such as stock, business assets, rentals and other investments are disposed of it is necessary to determine for tax purposes if there was a gain or loss from the transaction. The tax basis is what the asset cost plus or minus adjustments such as the cost of improvements which increase the tax basis, depreciation (reduces basis), casualty losses, or tax credits which decrease the tax basis. 

Duration for Keeping Tax Records – The general rule of thumb is to keep tax records until the statute of limitations for the tax return in question expires. The statute of limitations is the period during which the taxpayer can amend their tax return to claim a credit or refund, or the IRS can assess additional tax. 

Federal Statute of Limitations on Tax Refunds: The statute of limitations on tax refunds is a set of rules defined by the Internal Revenue Code that determines the time frame within which a taxpayer can claim a credit or refund for overpaid taxes. This statute serves two main purposes:

  • It specifies how long an individual has to file a claim for a refund or an amended return after the original return was filed or the tax was paid.
  • It sets limits on the amount of refund or credit that can be claimed, based on certain conditions.

    Some states have longer statutes, typically 4 years, so they have more time to piggyback on any federal audits and adjustments.

    Example: Sue filed her 2023 tax return before the due date of April 15, 2024. She will be able to safely dispose of most of her records after April 15, 2027. On the other hand, Don files his 2023 return on June 2, 2024. He needs to keep his records at least until June 2, 2027. In both cases, the taxpayers should keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.

Tax Return Omissions: In certain situations, such as when a taxpayer does not report income that they should report, and it is more than 25% of the gross income shown on the return, the IRS suggests keeping records for six years.

Of course, the statute doesn’t begin running until a return has been filed. There is no limit on the assessment period where a taxpayer files a false or fraudulent return to evade tax.

Indefinite Retention: For records related to property, the IRS recommends keeping them for as long as the property is owned and for at least three years after filing the return reporting the sale or other disposition of the property. This is crucial for calculating depreciation, amortization, or gains or losses on the property.

Financially Disabled – Additionally, the time periods for claiming a refund are suspended for taxpayers who are “financially disabled”. A taxpayer is financially disabled if they are unable to manage their financial affairs because of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. For a joint income tax return, only one spouse need be financially disabled for the time to be suspended. However, a taxpayer is not treated as financially disabled during any period their spouse, or any other person, is authorized to act on their behalf in financial matters. 

The Big Problem! The problem with discarding records indiscriminately for a particular year once the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets such as stocks, bonds, and real estate. These documents need to be separated, and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into this category: 

Stock Acquisition Data — If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed to prove the amount of profit (or loss) you had on the sale. And if the result of those sales, and sales of other capital assets, is a loss that you’ll be carrying forward to future tax returns – loss exceeds $3,000 ($1,500 if filing as married separate) – keep the purchase and sale records for four years after filing the return on which the last of the loss is used up.

Stock and Mutual Fund Statements — Many taxpayers use the dividends that they receive from a stock or mutual fund to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gains when the stock is finally sold. Keep statements for at least four years after the final sale.

Tangible Property Purchase and Improvement Records — Keep records of home, investment, rental property or business property acquisitions, AND related capital improvements for at least four years after the underlying property is sold.

In addition, if you own a business that has a loss that creates a net operating loss (NOL) that you’ll be carrying forward to deduct in future years, you should keep all the business’s records that substantiate income and expenses from the loss year for at least four years after filing the return on which the NOL deduction is used up. 

The 10-Year Statute of Limitations on Collections – Although this has nothing to do with the theme of his article, “how long does the IRS have to collect unpaid tax?” is an often-asked question. The tax code puts a 10-year limit on the time period the IRS can pursue the collection of a tax debt. This statute of limitations begins from the date the tax was assessed and not from the tax year for which the debt was incurred. Understanding this limitation is crucial for taxpayers for several reasons: 

Collection Activities: The IRS has various collection activities at its disposal, including tax liens, levies, and wage garnishments. However, these activities are bound by the 10-year statute of limitations.

Installment Agreements: When a taxpayer owes federal tax and can’t immediately pay it, they may enter into an installment payment agreement with the IRS. In this case the clock on the 10-year statute does not stop. This means the IRS must collect the full amount owed within the original 10-year period unless specific conditions extend this period.

Have questions about whether to retain certain records? Give one of our offices a call before tossing out those documents. It is better to be sure before discarding something that might be needed down the road.

Living Below Your Means:  A Key to Entrepreneurial Success

Starting a business is a thrilling adventure, filled with dreams of innovation, independence, and financial success. However, the reality of entrepreneurship often involves long hours, relentless challenges, and financial uncertainty. As tax and accounting professionals, we have seen firsthand the struggles that startups face. One of the most critical lessons for new entrepreneurs is …

Starting a business is a thrilling adventure, filled with dreams of innovation, independence, and financial success. However, the reality of entrepreneurship often involves long hours, relentless challenges, and financial uncertainty. As tax and accounting professionals, we have seen firsthand the struggles that startups face. One of the most critical lessons for new entrepreneurs is understanding the importance of living below your means to ensure the growth and sustainability of your business.

The Harsh Reality of Business Failures

Let’s start with some sobering statistics. According to the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail within the first year, and about 50% fail by their fifth year. These numbers can be daunting, but they highlight the importance of careful financial planning and prudent spending.

The Temptation to Overspend

It’s natural to feel a sense of accomplishment and entitlement when you finally launch your own business. After all, you’ve taken a significant risk and invested countless hours into making your dream a reality. However, this sense of achievement can sometimes lead to the temptation to pay yourself a hefty salary or indulge in luxuries your business can’t yet afford.

The Importance of Living Below Your Means

Living below your means is a concept that applies to personal finance, but it’s even more crucial for entrepreneurs. Here’s why:

  1. Cash Flow Management: Cash flow is the lifeblood of any business. By keeping your personal expenses low, you can ensure that more money stays within the business, allowing you to reinvest in growth opportunities, cover unexpected expenses, and weather financial downturns.
  2. Investor Confidence: If you’ve raised outside capital, your investors expect you to be a good steward of their money. Paying yourself an exorbitant salary can erode their confidence and potentially jeopardize future funding rounds. Demonstrating financial discipline shows that you are committed to the long-term success of the business.
  3. Sustainable Growth: Rapid growth can be exciting, but it can also be risky if not managed properly. Living below your means allows you to grow your business at a sustainable pace, ensuring that you have the resources to support expansion without overextending yourself financially.

Practical Tips for Living Below Your Means

  1. Set a Modest Salary: Determine a reasonable salary for yourself based on your business’s financial health and industry standards. Remember, your goal is to ensure the business’s survival and growth, not to maximize your personal income in the short term.
  2. Separate Personal and Business Finances: Keep your personal and business finances separate to avoid the temptation to dip into business funds for personal expenses. This also simplifies accounting and tax reporting.
  3. Create a Budget: Develop a detailed budget for both your personal and business expenses. Track your spending meticulously and look for areas where you can cut costs.
  4. Reinvest Profits: Instead of taking large distributions, reinvest profits back into the business. This could mean upgrading equipment, hiring additional staff, or expanding your marketing efforts.
  5. Plan for the Future: Build an emergency fund for your business to cover unexpected expenses or downturns. This financial cushion can provide peace of mind and stability during challenging times.

Road to Success

Being an entrepreneur is not just about having a great idea or a passion for your industry. It’s about making smart financial decisions that ensure the longevity and success of your business. By living below your means, you can create a solid foundation for growth, maintain investor confidence, and navigate the inevitable ups and downs of entrepreneurship.

Remember, the sacrifices you make today can lead to greater rewards in the future. Stay disciplined, stay focused, and keep your eye on the long-term vision for your business. Your future self—and your business—will thank you.

Get Those Kids a Job: The Tax Advantages of Securing Summer Jobs for Your Children

Children who are dependents of their parents are subject to what is commonly referred to as the kiddie tax. This generally applies to children under the age of 19 and full-time students over the age of 18 and under the age of 24.The kiddie tax originated many years ago as a means to close …

Children who are dependents of their parents are subject to what is commonly referred to as the kiddie tax. This generally applies to children under the age of 19 and full-time students over the age of 18 and under the age of 24.

The kiddie tax originated many years ago as a means to close a tax loophole where parents would put their investments under their child’s name and social security number so that their investment income would be taxed at lower tax rates. Enter the kiddie tax, under which unearned income (investment income) more than a minimum amount is taxed at the parent’s highest marginal tax rate.

Tax-Free Income – On the bright side, a child’s earned income (income from working) is taxed at single rates, and the standard deduction for singles is $14,600 for 2024. This means that your child can make $14,600 from working and pay no income tax (but will be subject to Social Security and Medicare payroll taxes), and if the child is willing to contribute to a traditional IRA, for which the 2024 contribution cap is $7,000, the child can make $21,600 from working—federal income tax free.

Even if your child is reluctant to give up any of their hard-earned money from their summer or regular employment, if you, a grandparent, or others have the financial resources, the amount of an IRA contribution could be gifted to the child, giving your child a great start toward their retirement savings and hopefully a continuing incentive to save for their retirement.

Employing Your Child – If you are self-employed (an unincorporated business), a reasonable salary paid to your child reduces your self-employment (SE) income and your income tax by shifting income to the child.

For 2024, when a child under the age of 19 or a student under the age of 24 is claimed as a dependent of the parents, the child is generally subject to the kiddie tax rules if their investment income is upward of $2,600. Under these rules, the child’s investment income is taxed at the same rate as the parent’s top marginal rate using a lower $1,300 standard deduction. However, earned income (income from working) is taxed at the child’s marginal rate, and the earned income is reduced by the lesser of the earned income plus $400 or the regular standard deduction for the year, which is $14,600. If a child has no other income, the child could be paid $14,600 and incur no income tax. If the child is paid more, the next $11,600 he or she earns is taxed at 10%.

Example: You are in the 22% tax bracket and own an unincorporated business. You hire your child (who has no investment income) and pay the child $16,500 for the year. You reduce your income by $16,500, which saves you $3,630 of income tax (22% of $16,500), and your child has a taxable income of $1,900 ($16,500 less the $14,600 standard deduction) on which the tax is $190 (10% of $1,900). The net income tax saved by the family is $3,440 ($3,630 – $190).

If the business is unincorporated and the wages are paid to a child under age 18, he or she will not be subject to FICA – Social Security and Hospital Insurance (HI, aka Medicare) – taxes since employment for FICA tax purposes doesn’t include services performed by a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee’s share of the FICA taxes, and the business won’t have to pay its half either. In addition, by paying the child and thus reducing the business’s net income, the parent’s self-employment tax payable on net self-employment income is also reduced.

Example: Using the same circumstances as the example from above, and assuming your business profits are $180,000, by paying your child $16,500, you not only reduce your self-employment income for income tax purposes, but you also reduce your self-employment tax (HI portion) by $442 (2.9% of $16,500 times the SE factor of 92.35%). But if your net profits for the year were less than the maximum SE income ($168,600 for 2024) that is subject to Social Security tax, then the savings would include the 12.4% Social Security portion, $1,889 (12.4% of $16,500 x 92.35%), in addition to the 2.9% HI portion for a total savings of $2,331 ($442 + $1,889).

A similar but more liberal exemption applies for FUTA, which exempts from federal unemployment tax the earnings paid to a child under age 21 while employed by their parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of the child’s parents. However, the exemptions do not apply to businesses that are incorporated or a partnership that includes non-parent partners. Even so, there’s no extra cost to your business if you’re paying a child for work that you would pay someone else to do anyway.

Retirement Plan Savings – Additional savings are possible if the child is paid more and deposits the extra earnings into a traditional IRA. For 2024, the child can make a tax-deductible contribution of up to $7,000 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child’s age, and the number of hours worked. By combining the standard deduction of $14,600 and the maximum deductible IRA contribution of $7,000 for 2024, a child could earn $21,600 of wages and pay no income tax.

However, referring back to our original example, the child’s tax to be saved by making a $7,000 traditional IRA contribution is only $190, so it might be appropriate to make a Roth IRA contribution instead, especially since the child has so many years before retirement and the future tax-free retirement benefits will far outweigh the current $190 savings.

If you have questions about the information provided here and other possible tax benefits or issues related to hiring your child, please give one of our offices a call.

Navigating the Tax Implications of Remote Work for SMBs: A Comprehensive guide

In the wake of the pandemic, remote work has become the new norm for many American workers. As businesses across a wide range of industries have shifted to a remote model, employees and employers alike have experienced numerous benefits such as reduced overhead costs, increased employee satisfaction, and access to a broader talent pool. …

In the wake of the pandemic, remote work has become the new norm for many American workers. As businesses across a wide range of industries have shifted to a remote model, employees and employers alike have experienced numerous benefits such as reduced overhead costs, increased employee satisfaction, and access to a broader talent pool. However, it has also introduced a complex web of tax implications, particularly for small and medium-sized businesses (SMBs). 

Understanding these implications is crucial for SMBs to avoid potential penalties and ensure compliance with tax laws. Understanding the concept of a tax nexus is one of the most significant challenges for many business owners. A tax nexus is a specific kind of legal relationship between a taxing jurisdiction, such as a municipality or state, and a business. It is established when a business has a sufficient physical presence in a state, triggering tax obligations. 

In the context of remote work, an employee working from a different state can create a nexus, making the employer liable for additional state taxes in the state where the employee resides. This can often come as a surprise to many SMBs, who may not be aware of the tax obligations associated with remote work.

Employer Federal Responsibilities

As an employer, you should be aware of the following U.S. payroll taxes and your responsibilities when it comes to withholding taxes for all full-time (or W-2) employees. This includes all employees working remotely from another state permanently. Employers must withhold federal income taxes and pay payroll taxes, which consist of:

  1. Federal Unemployment Tax (FUTA):
    This tax is only paid by employers and aims to provide financial support to individuals with temporary job loss.
  2. Social Security and Medicare Taxes:
    These taxes are shared equally between employers and workers and enforced by the Federal Insurance Contribution Act, otherwise known as FICA. FICA assists retirees over 65, children, and those with disabilities in healthcare and hospitalization.

Employer State Responsibilities

Employers must withhold state income taxes, where applicable. For example, Washington doesn’t have a state income tax but has unique employment taxes and mandatory benefits such as paid family, medical, and sick leave. State-wise, payroll taxes may consist of: 

  1. State Unemployment Tax (SUTA):
    This tax is paid by employers in all states except Alaska, New Jersey, and Pennsylvania, where employees are also required to pay. It is meant to provide financial support to individuals with temporary job loss.
  2. Disability Fund Tax:
    This tax is used to fund state programs that provide benefits to workers who become disabled and cannot work.
  3. Worker’s Compensation Tax:
    This tax funds state programs that provide benefits to workers who get injured or become ill due to their jobs.

No State Income Taxes States

In the U.S., some states do not impose state income taxes. If your employee lives in one of these states, you won’t have to worry about withholding state income taxes. Currently,  the states that do not levy income tax are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. In addition, New Hampshire doesn’t tax earned wages. While these states don’t impose a state income tax, they make up for this lost revenue with other taxes – such as property taxes – or offer fewer public services.

Convenience Rule States

In the United States, there’s a convenience rule designed to simplify taxes for both employers and employees while preventing them from being taxed twice for the same income. These states are Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania. This rule can have different implications depending on whether the remote work is for the employer’s convenience or the employee’s convenience. 

Navigating the Tax Landscape

To avoid future penalties, it’s essential to have clear communications with your employees about their work locations and any changes they make. It’s easy for employees to assume that the flexibility of remote work means their location doesn’t affect their employer’s tax obligations. However, this assumption can lead to unexpected tax liabilities at the end of the year.

If your SMB includes remote workers, or you plan on offering remote work as an option in the future, it’s advisable to consult with this office. We can help you navigate the complex tax landscape associated with remote work and ensure you’re in full compliance with all relevant tax laws.

While remote work offers many benefits, it also comes with its share of challenges, particularly in the realm of taxation. SMBs must be proactive in understanding and managing these tax implications to avoid unexpected liabilities and ensure compliance. If you need assistance navigating these complexities, don’t hesitate to reach out to our office. Our team of professionals is ready to help you navigate the tax implications of remote work and ensure your business remains compliant now and for years to come. If you have questions about how this tax benefit might apply in your situation, please give our office a call.

Saver’s Credit Can Help You Save for Retirement

Low- and moderate-income workers can take steps to save for retirement and earn a special tax credit. The saver’s credit, also called the retirement savings credit, helps offset part of the first $2,000 workers voluntarily contribute to traditional or Roth individual retirement arrangements (IRAs), SIMPLE IRAs, SEPs, 401(k) plans, 403(b) plans for employees of …

Low- and moderate-income workers can take steps to save for retirement and earn a special tax credit.

The saver’s credit, also called the retirement savings credit, helps offset part of the first $2,000 workers voluntarily contribute to traditional or Roth individual retirement arrangements (IRAs), SIMPLE IRAs, SEPs, 401(k) plans, 403(b) plans for employees of public schools and certain tax-exempt organizations, 457 plans for state or local government employees, and the Thrift Savings Plan for federal employees. The saver’s credit is available in addition to any other tax savings that apply as a result of contributing to retirement plans. Self-employed individuals may also enjoy the benefit of the credit.

Credits are determined from the tables shown below and are based upon both filing status and income (AGI). Each year the tables are adjusted for inflation and the tables for 2023 and 2024 are illustrated below.

2023 PHASE-OUTS

Modified Adjusted Gross Income*

Joint Return

Head of Household

Others

Applicable Percentage

Over

Not Over 

Over

Not Over

Over

Not Over

  

$ 0

$43,500

$ 0 

$30,750

$ 0

$21,750

50

$43,500

$47,500

$32,625

$33,000

$21,750

$23,750

20

$47,500

$73,000

$35,625

$51,000

$23,750

$36,500

10

$73,000

  

$54,750

  

$36,500

  

0

 

2024 PHASE-OUTS

Modified Adjusted Gross Income*

Joint Return

Head of Household

Others

Applicable Percentage

Over

Not Over 

Over

Not Over

Over

Not Over

  

$ 0

$46,000

$ 0 

$30,750

$ 0

$23,000

50

$46,000

$50,000

$34,500

$33,000

$23,000

$25,000

20

$50,000

$76,500

$37,500

$51,000

$25,000

$38,250

10

$76,500

  

$57,375

  

$38,250

  

0

 

* Modified AGI is determined without regard to the foreign earned income exclusion (also applies to US possessions) and foreign housing exclusion or deduction.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples if both spouses contribute to a plan), taxpayers are cautioned that it is often much less and, due in part to the impact of other deductions and credits and may in fact be zero for some taxpayers.

The amount of a taxpayer’s saver’s credit is based on his or her filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement programs.

Examples

Eric’s 401(k) contribution was $3,000, but only the first $2,000 can be used

$2,000

Heather’s IRA contribution was $500, so it can all be used

500

Total qualifying contributions

2,500

Credit percentage for a joint return with AGI of $40,000 from the table

X.20

Saver’s credit

$500

 

This example illustrates how the credit phases out for higher-AGI taxpayers. In this example, the couple’s AGI of $44,000 limits the credit to 20% of their qualifying contributions. Had their AGI been $43,500 or less, their credit percentage would have been 50% of their qualified contributions, for a credit of $1,250.

The saver’s credit supplements the other tax benefits available to people who set money aside for retirement. Generally, except for Roth IRA contributions, workers’ contributions to retirement plans are tax deductible, either in the form of a deduction on their tax return (traditional IRAs and certain self-employed retirement plans) or through a reduction of wages that would otherwise be taxable (such as pre-tax contributions to a 401(k), 403(b), etc.). So, in addition to the saver’s credit, contributions to retirement plans provide a tax deduction for traditional IRAs or income reductions for certain other plans, which lowers an individual’s tax before the credit is applied. The credit itself can only be used to reduce taxes (income and alternative minimum taxes only) to zero, and any amount in excess of a taxpayer’s tax liability is lost.

Other special rules that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A full-time student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a full-time student.

The credit is provided to encourage taxpayers to save for retirement. To prevent taxpayers from taking distributions from existing retirement savings and re-depositing them to claim the credit, qualifying retirement contributions used to figure the credit are reduced by any retirement plan distributions taken during a “testing period.” The testing period includes the prior two tax years, the current year, and the subsequent tax year before the due date (including extensions) for filing the taxpayer’s return for the tax year of the credit.

As you can see, qualifying for and using this credit involves following a complicated set of rules, but the credit can be very beneficial. If you are not sure you can afford to fund your retirement plan, contributions to an IRA or a self-employed retirement plan (SEP) can be made after the close of the year, allowing you time to determine the tax benefit of the saver’s credit and your overall tax refund before you make a contribution to one of those plans. For example, IRA contributions for 2023 can be made up to April 15, 2024, while SEP contributions can be made until October 15, 2024, if your return is on extension.

If you have questions about how this tax benefit might apply in your situation, please give this office a call.

2024 Standard Mileage Rates Announced

As it does every year, the Internal Revenue Service recently announced the inflation- adjusted 2024 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.Beginning on Jan. 1, 2024, the standard mileage rates for the use of a car (or a van, pickup …

As it does every year, the Internal Revenue Service recently announced the inflation- adjusted 2024 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

Beginning on Jan. 1, 2024, the standard mileage rates for the use of a car (or a van, pickup or panel truck) are:

  • 67 cents per mile for business miles driven (including a 30-cent-per-mile allocation for depreciation). This is up from 65.5 cents per mile in 2023;
  • 21cents per mile driven for medical or moving purposes, down from 22 cents per mile in 2023; and
  • 14 cents per mile driven in service of charitable organizations.

The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by Congressional action) and has been 14 cents per mile for over 25 years.

When using a personal vehicle while performing services for a charitable organization, and instead of using the 14 cents a mile method, a taxpayer who itemizes their deductions can deduct directly-related out-of-pocket expenses, such as the cost of gas and oil. However, the expenses of general repair and maintenance, depreciation, registration fees, or the costs of tires or insurance aren’t deductible.

Important Considerations for Business Use of a Vehicle – Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to volatile fuel prices, the bonus depreciation as well as increased depreciation limitations for passenger autos may make using the actual expense method worthwhile during the first year a vehicle is placed in business service. While the bonus depreciation rate had been 100% during 2018-2022, it was 80% for 2023, and will be 60% for vehicles put in service in 2024.

However, the standard mileage rates cannot be used if you have used the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles simultaneously.

What business owners using the standard mileage rate frequently overlook is that parking and tolls, as well as state and local property taxes paid for the vehicle and attributable to business use, may be deducted in addition to the standard mileage rate.

Employer Reimbursement – When employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.

The Tax Cuts and Jobs Act eliminated employee business expenses as an itemized deduction, effective for 2018 through 2025. Therefore, during these years employees may not take a deduction on their federal returns for unreimbursed employment-related use of their autos, light trucks, or vans.

However, self-employed taxpayers can still deduct the business use of a vehicle. Regardless of whether the standard mileage rate or actual expense method is used, a self-employed taxpayer may also deduct the business use portion of interest paid on an auto loan on their Schedule C.

Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) – Many of today’s SUVs weigh more than 6,000 pounds and are therefore not subject to the limit rules on luxury auto depreciation; taxpayers with these vehicles can utilize both the Section 179 expense deduction (up to a maximum of $30,500 in 2024) and the bonus depreciation (the Section 179 deduction must be applied before the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle before the end of the 5-year period, as many do, a portion of the Section 179 expense deduction will be recaptured and must be added back to the taxpayer’s income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using Section 179 should be considered.

If you have questions related to the best methods of deducting the business use of your vehicle or the documentation required, please give this office a call.

About us

De Boer, Baumann & Company provides professional accounting, tax, and business advisory services to individuals and businesses in West Michigan and the surrounding areas. With expertise in a variety of industries, DBC specializes in comprehensive and innovative solutions to help clients achieve their financial goals.