Sometimes small is better: Your small business may be eligible for tax breaks that aren’t available to large businesses. For example, the qualified business income (QBI) deduction is available to eligible individuals but not to C corporations or their shareholders. The deduction can be up to 20% of: 1) QBI earned from a sole proprietorship or single-member LLC treated as one for federal income tax purposes, plus 2) QBI passed through from a pass-through business, meaning a partnership, S corp or LLC classified as a partnership. Pass-through businesses report tax items to their owners, who then take them into account on their own returns. The rules are complex. Contact us with questions.
When you filed your federal tax return this year, were you surprised to find you owed money? Or did you wind up getting a large refund? Either situation might mean it’s time to review and adjust your withholding. This might be necessary because something in your life is different this year (for example, you got married, divorced, had a child, purchased a home or had changes in your income). The IRS has a withholding calculator where you can perform a paycheck checkup. You can access the calculator at https://bit.ly/33iBcZV. Contact us if you need help determining whether you should adjust your 2022 withholding.
If you’re a partner in a business, you may have come across a situation that’s puzzling. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner. Why? It’s due to the way partnerships and partners are taxed. Unlike C corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on partnership earnings whether or not they’re distributed. And if a partnership has a loss, it’s passed through to partners. (However, various rules may prevent partners from currently using their share of a partnership’s loss to offset other income.) Contact us if you’d like to discuss how a partner is taxed.
What are the tax consequences of selling property used in your business? Many rules may apply. Let’s assume the property you want to sell is land or depreciable property used in your business and has been held by you for more than a year. Gains and losses from sales of business property are netted against each other. The net gain or loss qualifies for tax treatment as follows: 1) If the netting of gains and losses results in a net gain, long-term capital gain treatment results, subject to “recapture” rules. Long-term capital gain is generally more favorable than ordinary income. 2) If the netting of gains and losses results in a net loss, the loss is fully deductible against ordinary income.
If you donate valuable items to charity, you may be required to get an appraisal. The IRS requires donors and charitable organizations to supply certain information to prove their right to deduct charitable contributions. If you donate an item of property (or a group of similar items) worth more than $5,000, certain appraisal requirements apply. You must: get a “qualified appraisal;” attach an “appraisal summary” to the first tax return on which the deduction is claimed; include other information with the return; receive the qualified appraisal before your tax return is due; and maintain certain records. Other rules apply to larger gifts and there are exceptions. Contact us with questions.
