May is No Time for Taxation Relaxation
Oh, did you think tax season ended on April 18th? Sorry to report that it is always tax season.
In this month’s newsletter we provide you with important information about upcoming deadlines for the California Passthrough Entity Tax Election. Most people still don’t know whether this election is beneficial to them. We urge you to consult with your tax professional to see if you are eligible to take advantage of it.
This is also to inform you that all employers with 5 or more employees are required to offer a Retirement Savings Program to their employees. The deadline to do so is June 30, 2022. We have some ideas you may wish to consider on how to avoid penalties associated with failing to comply. Finally, we offer you some questions that every business owner should consider on a regular basis along with some practical tax information.
As always, please do not hesitate to reach out to us. We look forward to hearing from you.
Please call if you would like to discuss how this information could impact your situation. If you know someone who could benefit from this newsletter, feel free to send it to them.
– Mother’s Day
– Memorial Day
– PTE payments due
– 2nd quarter estimated tax payments due
– Deadline for employers to register with CalSavers
In This Issue
- PTE Payments Due June 15th for Tax Year 2022
- Employers With 5 or More Employees Required to Offer Retirement Savings Program by June 30, 2022
- 9 Questions Every Business Owner Should Ask Themselves Yearly
- Accountability Plans- Maximize Your Tax Deductions, Minimize Your Audit Risks
- Moskowitz LLP Resources for You
PTE Payments Due June 15th for Tax Year 2022
The pass-through entity (PTE) tax allows certain California pass-through entities to pay state income tax at the entity level. In return, qualified taxpayers can get a nonrefundable tax credit for their share of state tax paid at the entity level, thus reducing their individual income tax liability.
It is important to keep in mind that for tax years beginning 2022 through 2025, to be eligible to make the PTE tax election, a qualified entity must pay estimated taxes on or before June 15th, 50% of the elective tax paid during the prior tax year, or $1,000, whichever amount the greater. Failure to make the June 15th payment will bar the entity from making the election
Because this PTE tax election is new and this payment requirement can be easily overlooked, Moskowitz LLP encourages all Pass-through entity owners to discuss the election with their tax professional and properly plan for any estimated payments required.
Employers with 5 or more Employees Required to Offer Retirement Savings Program by June 30, 2022
California law requires small employers with 5 to 50 California-based employees to offer a retirement savings program or enroll as a participating employer in the CalSavers Retirement Savings Program by June 30, 2022. The requirement is based on a company’s having California-based employees, regardless of the company’s state of incorporation or headquarters location.
Small employers that sponsor their own retirement savings program are required to register as exempt from the CalSavers program by the June 30 deadline. Information about the CalSavers program and employer registration may be found on the CalSavers program’s employer website.
While the CalSavers program may meet your legal requirements, there may be a better plan or plans for you to offer. Moskowitz LLP provides consultation to businesses to determine the best type of employee plan to offer from a tax and employee benefit perspective. Read more on our thoughts on Employee Benefit/Retirement Planning here.
9 Questions Every Business Owner Should Ask Themselves Yearly
Below are a few questions every business owner and shareholder should consider on a regular basis. Moskowitz LLP Business Services is ready and able to consult with you on these questions and help you ensure that you are maximizing all the benefits of your business entity(ies).
- Are your employee and self compensation plans in compliance with federal, state and local law?
- Are you required to have a pension plan in place by State Law?
- Have I discussed Passthrough Tax Entity Elective Tax Status thus can lowering my federal tax liability with my tax preparer?
- If you become disabled or die unexpectedly, do you know who will run your business?
- Does your Buy-Sell Agreement provide for:
- Loss of License
- Failure to perform duties
- Business Valuation models
- Is your Buy-Sell agreement adequately funded?
To be of any value, your Buy-Sell Agreement must be funded. The most common funding methods are:
- Installment sale based on the current earnings of the business
- Capital from the business is invested for future purchase (sinking fund)
- Loan at the date of purchase
- Life insurance
- Have you minimized the impact of taxes on your business? How do you know? Do you have Moskowitz LLP’s tax planning report to reference?
- Is your estate plan integrated with your business plan?
Is your estate plan integrated with your business plan?
Your estate plan and business plan must be carefully designed and integrated for your plan to work. It must work while you are alive and well, upon disability, upon death, to the next generation and beyond.
- Are your formalities up to date?
- Statement of Information
- Title to Assets and Policies
- Tax Returns, Tax Accounting, and Backup documentation
- Capitalization, Basis, and Executive Compensation
- Meetings, Minutes, Resolutions
- Accountability Plans
Accountability Plans – Maximize your Tax Deductions, Minimize Your Audit Risks
How an Accountability Plan can assist you with Tax Deduction like the Home Office Deduction.
With more people working from home, you may be wondering if and how the home office deduction applies to you.
What is the Home Office Deduction?
The home office deduction allows qualified taxpayers to deduct certain home expenses when they file taxes. To claim the home office deduction, taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business. There is no requirement that you own the property.
Note: Claiming the home office deduction will affect your itemized deductions and taking the home office deduction can limit the tax-free gain on the future sale of your home.
Who is eligible for the Home Office Deduction?
Beginning in 2018, generally, the home office deduction is a tax deduction only for those who are self-employed, independent contractors or gig workers; i.e., not w-2 employees, even if you are a W2 employee working solely from home. However, S-corp shareholders, multi-member partnerships should take special notice of this article as there may be options available to you.
Sole Proprietorships & Single Member LLC and the Home Office Deduction
Self-employed individuals whose businesses are set up as sole proprietorships or single member LLCs routinely use the home-office deduction for expenses related to the business use of their homes. The deduction is available to those who use a portion of their homes regularly and exclusively for conducting business and for whom the home is their principal place of business.
S-Corp and Multi Member LLCs and the Home Office Deduction
For shareholders of an S corporation or members of a partnership or multi-member LLC, while the calculation of the dollar amount is pretty much the same as the sole proprietorship, how it is treated on the shareholders’ or members’ personal tax returns differs.
An S corporation shareholder-employee, partnership, or multi-member LLC could adopt an Accountability Plan and have the entity reimburse the expenses properly allowable to the business use of the home.
An accountable plan must meet three requirements to pass IRS muster:
- The expenses must have a business connection. The expenses must be incurred while the employee is performing work for the company and must be ordinary and necessary expenses. These can include mileage for business-related driving, meals with clients and out-of-pocket travel expenses. They can also include a portion of mixed-use expenses – that is, those with a personal and business component, such as home office expenses, cell phones and home internet.
- There must be substantiation to support the deduction. This can be easily accomplished by submitting a detailed monthly or quarterly expense report syncing it with your bookkeeping.
- Any excess reimbursements over actual expenses must be repaid promptly. If the S corporation provides an advance to the shareholder for travel expenses, any excess over actual expenses must be repaid within 120 days.
Without an accountable plan in place, these reimbursements are taxable income to the shareholder or member and should be reported on their W-2.
When performing your entity formalities, be sure to review your accountability plan to support your tax deductions. Contact Moskowitz LLP for more information or to discuss your formalities.
Moskowitz LLP Resources for You
We are striving to offer you relevant and timely resources to assist you. Please check out our recent additions: