What to Do if Your Business’s Data Security Is Breached

Group of businesspeople depressed from financial crisis. man checking business information in a laptop with woman brainstorm meeting to solve problem together in the office

Most businesses store sensitive information about employees and customers, such as names, addresses, Social Security numbers (SSNs), banking information and more. If lost or stolen, this data could put individuals at risk for identity theft and other types of damage.

What should you do if this happens to your business? The IRS recommends these steps to take:

  1. If a breach could pose harm to a person or business, notify local police and report the potential risk of identity theft.
  2. If a breach includes names and SSNs or could affect other businesses, contact the major credit bureaus and notify the businesses.
  3. If the breach puts individuals at risk, notify those individuals so they can take steps to mitigate the misuse of their data, including checking out the IRS Taxpayer Guide to Identity Theft.

For that Guide and more, click here: https://www.irs.gov/identity-theft-fraud-scams/has-your-business-become-the-victim-of-a-data-security-breach

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The Advantages of Hiring Your Minor Children for Summer Jobs

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If you’re a small-business owner and you hire your children this summer, you may be able to secure tax breaks and other nontax benefits. The kids can gain bona fide on-the-job experience, save for college and learn how to manage money. You may be able to shift some of your high-taxed income into tax-free or low-taxed income, and, depending on the situation, you may realize payroll tax savings. Perhaps best of all, your kids will spend time with you.

A Legitimate Job and Tax Savings, Too

If you hire your child, you’ll get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill and possibly your self-employment tax bill and your state income tax bill if they apply. However, for the wages to be a deductible business expense, the work performed by the child must be legitimate and the child’s pay must be reasonable.

Let’s say you operate as a sole proprietor in the 37% tax bracket. You hire your 16-year-old daughter to help with office work full-time during the summer and part-time in the fall. She earns $10,000 during 2024 and doesn’t have any other earnings.

You save $3,700 (37% of $10,000) in income taxes at no tax cost to your daughter. That’s because she can use her $14,600 standard deduction for 2024 to completely shelter her earnings.

Your family’s taxes are lower even if your daughter’s earnings exceed her standard deduction. Why? The unsheltered earnings will be taxed to her beginning at a rate of 10% instead of being taxed at your higher rate.

Reduced Payroll Taxes

If your business isn’t incorporated and certain conditions are met, your child’s wages are exempt from Social Security, Medicare and federal unemployment taxes. Your child must be under age 18 for this to apply (or under age 21 for the federal unemployment tax exemption). Contact the office to learn how this works.

Be aware that there’s no payroll tax exemption for employing your child if your business is incorporated or is a partnership that includes nonparent partners. And payments for the services of your child are subject to income tax withholding, regardless of age, no matter what type of entity you operate.

Extra Time to Make Your Child’s Retirement Garden Grow

An early start on saving for retirement can be key to building wealth. A child who earns income from a job can contribute to a traditional IRA or a Roth IRA and begin funding a nest egg. For the 2024 tax year, a working child can contribute the lesser of his or her earned income or $7,000 to a traditional or Roth IRA. And the money may be tapped penalty-free for certain eligible reasons, such as paying education costs and making a down payment of up to $10,000 on a first home.

What if your business has a retirement plan? Depending on its terms, your child may qualify to begin earning retirement benefits that can grow for many decades.

The Importance of Accurate Records

Hiring your child can be a tax-smart idea. Be sure to keep the same records (such as timesheets and job descriptions) as you would for other employees to substantiate the hours worked and duties performed. Also issue your child a Form W-2. Contact the office with questions about how these rules apply to your situation.

408-252-1800

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3 Ways Your Business Can Uncover Cost Cuts

Every business wants to cut costs, but it isn’t easy. We’re talking about clear and substantial ways to lower expenses, thereby strengthening cash flow and giving you a better shot at strong profitability.

Obvious places to slash costs (such as wages, benefits and overhead) often aren’t viable options because the very stability of your operation may depend on them. But there might be other ways to lower expenses if you dig deeply enough. Here are three possibilities.

1. Study Your Suppliers

Many companies find that just a few suppliers account for the bulk of their spending. By identifying these vendors and consolidating spending with them, you may be able to put yourself in a stronger position to negotiate volume discounts. This may also help to streamline the purchasing process.

On a related note, how well do you know your suppliers? It might be a good idea to conduct a supplier audit. This involves collecting key data regarding a supplier’s performance to manage quality control and ensure you’re getting an acceptable return on investment.

2. Go Green

Operating an environmentally friendly company is generally a good idea, and it might save you money. Instead of purchasing brand-new computers and office equipment, you may find refurbished items at substantial savings that still fully meet your business’s needs. And when you no longer need certain equipment and office furniture, consider selling it to a liquidator or dealer. You’ll not only make some money, but also free up the space you’re using to store and maintain them.

In addition, if you own the property on which you operate, research energy-efficient upgrades to the HVAC and lighting systems. Naturally, there will be an initial cost outlay, but over the long term, you may lower your energy costs. You might also qualify for tax credits for installing certain items.

3. Explore Outsourcing and Tech Upgrades

Many business owners try to economize by doing everything in-house, from accounting to payroll to HR. But if the staffing and expertise just aren’t there, these companies often suffer losses because of mistakes, mismanagement and wasted time. Although you’ll incur costs when outsourcing, the time and labor it saves you could end up being a net gain.

Carefully chosen and implemented technology upgrades can serve a similar purpose. Many products on the market today are so robust and fully featured that upgrading to them may be almost comparable to outsourcing. The same may be true with a customer relationship management system that can help generate sales leads and allow you to focus on your most profitable existing customers. Again, there will be an initial cost that could eventually lower your cost of doing business.

Snip, Snip, Snip

Lowering expenses is difficult, but keeping an eye out for ways to do it is important, especially now that inflation is a major factor in the economic landscape. Please contact the office for help identifying and lowering your company’s most “cuttable” costs.

408-252-1800

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Is Your Business Closing? Here Are Your Final Tax Responsibilities

Businesses shut down for many reasons. Examples include an owner’s retirement, a lease expiration, staffing shortages, partner conflicts and increased supply costs. If you’ve decided to close your business, you might need assistance with some steps in the process, including handling various tax obligations.

Tax Return and Forms

A final income tax return and related forms must be filed for the year of closing. The correct return to file depends on the type of business.

Here’s a rundown of the requirements.

Sole proprietorships:

You must file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year of closing. You may also need to report self-employment tax.

Partnerships:

A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year of closing and report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, “Partner’s Share of Income, Deductions, Credits, etc.”

All corporations:

Form 966, “Corporate Dissolution or Liquidation,” must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.

C corporations:

File Form 1120, “U.S. Corporate Income Tax Return,” for the year of closing. Report capital gains and losses on Schedule D. Indicate this is the final return.

S corporations:

File Form 1120-S, “U.S. Income Tax Return for an S Corporation” for the year of closing. Report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.

All businesses:

If you sell your business, other forms may need to be filed to report the sales.

Worker-Related Duties

Businesses with employees must pay the final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit all employment taxes due can result in severe penalties.

Generally, payments of $600 or more to contractors during the calendar year of closure must be reported on Form 1099-NEC, “Nonemployee Compensation.”

More Tax Issues to Consider

The list of tax issues related to closing a business is long and often complex, and you may need to be guided through the steps. For example, a business that has an employee retirement plan will need to terminate the plan and distribute the benefits to participants. Flexible Spending Accounts and Health Savings Accounts must also be terminated.

There may be debt cancellation issues to wrestle with. Other possibilities include dealing with net operating losses, passive activity losses, depreciation recapture and possible bankruptcy issues.

You need to be aware of how long to retain business records. And finally, you may need to know how to navigate payment options if your business is unable to pay the remaining taxes owed.

Closing a business typically brings up a lot of questions. Contact the office for answers.

408-252-1800

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Retirement Saving Options for Your Small Business

If you’re looking for a retirement plan for yourself and your employees but worried about the financial commitment and administrative burdens involved, there are some options to consider. One possibility is a Simplified Employee Pension (SEP). This plan, which comes with relative ease of administration and the discretion to make or not make annual contributions, is especially attractive for small businesses.

There’s still time to see tax savings on your 2023 tax return by establishing and contributing to a 2023 SEP, right up to the extended due date of the return. For example, if you’re a sole proprietor who extends your 2023 Form 1040 to October 15, 2024, you have until that date to establish a SEP and make the initial contribution, which you can then deduct on your 2023 return.

SEP Involves Easy Setup

You can set up a SEP easily using the IRS model SEP, Form 5305-SEP. This form, which doesn’t have to be filed with the IRS, satisfies the SEP requirements. (You can opt for an individually designed SEP instead, depending on your needs.)

As the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement.

The maximum deductible contribution that you can make to a SEP-IRA, and that can be excluded from taxable income, is the lesser of: 1) 25% of compensation, or 2) $69,000 for 2024 (up from $66,000 for 2023) per employee. Note, however, that if you, as the business owner, don’t receive a W-2 from the business (for instance, you’re an unincorporated sole proprietor), the calculation for the contribution to be made on behalf of yourself varies slightly. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA.

Your employees control their individual SEP IRAs and the investments in them as well as the tax-deferred earnings. However, they can’t contribute.

There are other requirements you’ll have to meet to be eligible to establish and make contributions to a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified retirement and profit-sharing plans.

SEPS don’t require the detailed records that traditional plans must maintain. Also, there are no annual reports to file with the IRS, and the recordkeeping that is required can be done by a trustee of the SEP-IRA, usually a bank or mutual fund.

Another Option: SIMPLEs

If your business has 100 or fewer employees, you may want to consider a Savings Incentive Match Plan for Employees (SIMPLE). An advantage is that employees can also contribute. A disadvantage is that you, as the employer, are required to make certain annual contributions. Also, a SIMPLE has more limitations on when it can be set up and when it can be contributed to than a SEP.

You establish a SIMPLE IRA for each eligible employee, generally making matching contributions based on amounts elected by participating employees under a qualified salary reduction arrangement. The SIMPLE is also subject to much less stringent requirements than traditional qualified retirement plans.

Another option: An employer can adopt a SIMPLE 401(k) plan, with similar features to a SIMPLE IRA. It’s not subject to the otherwise complex nondiscrimination rules that apply to regular 401(k) plans.

For 2024, SIMPLE employee deferrals are limited to $16,000 (up from $15,500 for 2023). Additional $3,500 catch-up contributions are also allowed for employees ages 50 and older.

More Information

Additional rules and limits apply to both SEPs and SIMPLEs. Contact the office for more information.

408-252-1800

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Hiring? How to Benefit from the Work Opportunity Tax Credit

If you’re a business owner or manager who is seeking to hire, you should be aware of the details of a valuable tax credit for hiring individuals from one or more targeted groups. Employers can qualify for the Work Opportunity Tax Credit (WOTC), which is worth as much as $2,400 for most eligible employees (higher or lower for certain employees). The credit is limited to eligible employees who begin work for an employer before January 1, 2026.

Who is Eligible?

Generally, an employer is eligible for the WOTC only for qualified wages paid to members of a targeted group. These groups are:

  1. Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
  2. Qualified veterans,
  3. Qualified ex-felons,
  4. Designated community residents,
  5. Vocational rehabilitation referrals,
  6. Qualified summer youth employees,
  7. Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP),
  8. Qualified Supplemental Security Income recipients,
  9. Long-term family assistance recipients, and
  10. Long-term unemployed individuals.

To claim the WOTC, an employer must first get certification that the person hired is a member of one of the targeted groups above. An employer can do so by submitting Form 8850, Pre-Screening Notice and Certification Request for the WOTC, to their state agency within 28 days after the eligible worker begins work.

You Must Meet Certain Requirements

There are several requirements to qualify for the credit. For example, each employee must have completed a specific number of hours of service for the employer. Also, the credit isn’t available for employees who are related to or who previously worked for the employer.

There are different rules and credit amounts for certain employees. The maximum credit available for first-year wages generally is $2,400 per employee. But it’s $4,000 for long-term family assistance recipients, and it’s $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.

For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.

An eligible employer claims the WOTC on its federal income tax return. The credit value is limited to the business’s income tax liability.

A Valuable Credit

There are additional rules and requirements. In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers hiring from targeted groups, the credit can be worthwhile. Contact the office with questions or for more information about your situation.

408-252-1800

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Traveling for Business in 2024? What’s Deductible?

If you and your employees will be traveling for business this year, there are many factors to keep in mind. Under the tax law, certain requirements for out-of-town business travel within the United States must be met before you can claim a deduction. The rules apply if the business conducted reasonably requires an overnight stay.

Note: Under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses through 2025 on their own tax returns. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025. Self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.

Rules That Come Into Play

The actual costs of travel (for example, plane fare and cabs to the airport) are generally deductible for out-of-town business trips. You’re also allowed to deduct the cost of lodging. And a percentage of your meals is deductible even if the meals aren’t connected to a business conversation or other business function. For 2024, the law allows a 50% deduction for business meals.No deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that generally means “unreasonable.” Also, personal entertainment costs on trips aren’t deductible, but business-related costs such as those for dry cleaning, phone calls and computer rentals can be written off.

Mixing Business With Pleasure

Some allocations may be required if the trip is a combined business/pleasure trip; for example, if you fly to a location for four days of business meetings and stay on for an additional three days of vacation. Only the costs of meals, lodging and so on incurred during the business days are deductible, not those incurred for the personal vacation days.

On the other hand, with respect to the cost of the travel itself (for example, plane fare), if the trip is primarily for business purposes, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (though this isn’t the sole factor).

Suppose a trip isn’t for the actual conduct of business but is for the purpose of attending a convention or seminar. The IRS may check the nature of the meetings carefully to make sure they aren’t vacations in disguise, so retain all material helpful in establishing the business or professional nature of this travel.

Also, personal expenses you incur at home related to the trip aren’t deductible. This might include costs such as boarding a pet while you’re away.

Is Your Spouse Joining You?

The rules for deducting the costs of a spouse who accompanies you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of yours or of your company. If that isn’t the case, then even if there’s a bona fide business purpose for having your spouse make the trip, you probably won’t be able to fully deduct his or her travel costs (though you can deduct some costs).

Specifically, the restrictions apply only to additional costs incurred by having your non-employee spouse travel with you. For example, the expense of a hotel room or for traveling by car would likely be fully deductible since the cost to rent the room or to travel alone or with another person would be the same, even in a rented car.

Before You Hit the Road

Contact the office with any questions you may have about travel deductions to help you stay in the right lane.

408-252-1800

Photo Credit to https://homethods.com/.

Beneficial Ownership Information Reporting

Beneficial Ownership Information Reporting - hands typing on a keyboard.

In 2021, The Financial Crimes Enforcement Network (FinCEN) established a beneficial ownership information requirement (BOI). Most U.S entities will now be required to report information relating to individuals who directly or indirectly own a company.

This post is to bring to your attention a new requirement that begins in 2024 and which may affect you and your business. We’ll discuss which entities are require to file, the filing requirements and due dates, and penalties if filing is not completed. This filing is NOT a part of your annual tax return and so it is important that you take steps to comply with these new rules. The following is important information to assist you with compliance.

WHEN DO YOU NEED TO FILE?

Filing due dates for the beneficial ownership report depend on when the company was founded:

  • For entities founded before 1/1/24, the filing is due by 1/1/25.
  • For entities founded between 1/1/24 and 12/31/24, the filing is due 90 days after the company filed formation documents.
  • For entities founded after 1/1/25, the filing is due 30 days after the company filed formation documents.

The company applicant report has the same filing due dates as the beneficial ownership report, except for entities founded before 1/1/24. For entities founded before 1/1/24 there is no filing requirement for the company applicant.

If there are any updates to owners or individuals who exercise substantial control the company needs to file updated reports within 30 days of the change.

WHICH ENTITIES MUST FILE?

Both Domestic and Foreign entities have filing obligations. Domestic reporting companies include corporations, LLCs, and any other entity created by filing a document with the Secretary of State or any similar office. Foreign reporting companies are entities formed under law of a foreign country but have registered to do business in the US. There are certain entities that are exempt from filing requirements:

  • Tax Exempt entities
  • Inactive entities
  • Other types of exempt entities:
    • Securities reporting issuer, governmental authority, bank, credit union, depository institution holding company, money services business, broker or dealer in securities, securities exchange or clearing agency, other Exchange Act registered entity, investment company or investment adviser, venture capital fund adviser, insurance company, state-licensed insurance producer, Commodity Exchange Act,  accounting firm, public utility, financial market utility, pooled investment vehicle, large operating company

What are the filing requirements?

There are two filing obligations: company applicant and beneficial ownership. Both filing obligations are submitted online to FinCEN. 

A company applicant report identifies the individual who filed the formation documents to create or register the entity. The company can have multiple applicants if there is more than one person involved in the creation or registration of the company. The company applicant can also be someone who is not an owner of the company, like a lawyer or a CPA, if they are the individual who registered the company.

A beneficial ownership report is filed for any individual who exercises substantial control over a company or owns at least 25% of the reporting company’s ownership interest. Substantial ownership includes anyone who is a senior officer, an individual who has authority to appoint or remove officers and any individual who is an important decision maker.

If you are unsure of the beneficial ownership of an entity you are associated with, we advise you to discuss this with council to assure that you are properly meeting the filing requirements.

What information is needed for the report?

Company information needed: 

  • Legal Name
  • Any trade names or DBA’s
  • Current street address of it’s principal place of business in the U.S.
  • Jurisdiction of formation or registration
  • Taxpayer identification number

Individual owner or Individual Company application information needed: 

  • Individual name
  • Date of Birth
  • Address
  • Identifying number from an acceptable identification document (Drivers license or passport) and the jurisdiction in which the identifying document was issued

What if I choose not to file?

The penalties are $500 per day with a maximum of $10,000 in penalties. Failure to file could also result in up to two years in prison.

The new reporting requirement will start in 2024.  Please feel free to contact Wheeler Accountants, LLP if you need assistance with navigating how to determine if you are required to complete this filing or have other questions.

408-252-1800

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Increase to California SDI Starting in 2024 – Opt Out May Be Available

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By Michael Sands

Senate Bill 951 became effective on January 1, 2024 and provides for increased short-term disability and Paid Family Leave benefits for covered employees. To pay for these benefits, the bill removes the wage cap for California’s State Disability Insurance tax, making all wages subject to SDI tax beginning in 2024.

For 2023, the SDI rate was 0.9% with a maximum wage base of $153,164.  For 2024, the SDI rate is increased to 1.1% with no maximum wage base. To give you an idea of the potential increase, an employee making a $1,000,000 salary would pay additional SDI tax of $9,622 compared to 2023. An employee making a $500,000 salary would pay additional SDI tax of $4,122 compared to 2023.

For most wage earners, the increase is unavoidable, but sole shareholders of private corporations (including married couples who own 100% of a corporation) who are also officers of the corporation may file an election to opt out of SDI coverage and instead purchase private disability insurance that may cost less.

The exemption is made by filing EDD form DE 459 and goes into effect in the calendar quarter filed. It remains irrevocable for the remainder of the year and at least two succeeding calendar years. Thereafter, it remains in effect until withdrawn, although changes in stock ownership or status as a corporate officer may terminate the exemption.

Shareholders who make the election should be aware that they will no longer qualify to receive SDI benefits (including Paid Family Leave) and should consider obtaining alternative disability insurance coverage. They should also notify their payroll companies that the election has been made and that Form DE9C should be coded with plan code “R” to designate the shareholder (and/or spouse) opt-out.   

If you have any questions or are curious to learn more about this planning opportunity, please contact our office.

408-252-1800

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