For many businesses, a limited liability company (LLC) is an enticing choice. It can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes. This may provide the owners with several advantages. Like corporate shareholders, LLC owners or members generally aren’t liable for business debts except to the extent of their investment. Plus, there may be tax benefits. For example, earnings aren’t subject to entity-level tax. Instead, they flow through to owners in proportion to their interests in the profits. They’re reported on the owners’ individual returns and taxed only once. Contact us to discuss whether an LLC is the best option for you.
If you’re a business owner working from home or an entrepreneur with a side gig, you may qualify for home office deductions. On the other hand, employees who work remotely can’t deduct home office expenses under current federal tax law. To be eligible for a deduction, you must use part of your home regularly and exclusively as your principal place of business, or a place to meet with customers, clients or patients in the normal course of business. Typically, the business use percentage is determined by your home office’s square footage, but other methods exist. We can address questions about the best way to compute home office deductions and the tax implications when you sell your home.
There are ways to collect income and gains free from federal income tax. For example, if you receive a gift or inheritance, the amount generally isn’t taxable. And unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are free from federal income tax. A qualified withdrawal is one taken after you reach age 59½ and have had a Roth IRA open for over five years, or you are disabled or deceased. Also, you can have a decent income and still owe 0% for long-term gains and dividends. In 2024, single taxpayers can have up to $47,025 in taxable income ($94,050 for married couples filing jointly) and be in the 0% bracket. Contact us. Advance planning may lead to better tax results.
Buckle up: We’re likely to see major federal tax changes within the next year or two. The reason has to do with the upcoming elections and provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on Dec. 31, 2025. Here are 4 possible scenarios: 1) All TCJA provisions that are scheduled to expire will expire. 2) All TCJA provisions that are set to expire will be extended or made permanent. 3) Some provisions will expire while others will be extended or made permanent. 4) Some or all expiring TCJA provisions will expire and new laws will be enacted that provide different tax breaks and/or rates. What will happen to YOUR taxes depends on which scenario becomes reality.
Employees, self-employed people and employers pay Social Security tax. If you’re an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half of the Social Security tax (6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see it. The Social Security tax wage ceiling for 2024 is $168,600 (up from $160,200 for 2023). If your wages meet or exceed that ceiling, the Social Security tax for 2024 will be $20,906 (12.4% x $168,600). Half comes out of your paychecks and your employer pays the other half. The wage ceiling is projected to go up to $174,900 in 2025 and up to $242,700 by 2033.
