Richard Gilmartin Manhattan CPA

Why CFOs should spearhead digital transformation

Why CFOs should spearhead digital transformation The chief financial officer must play a crucial role in determining the strategy and tactics to automate and standardize key processes throughout the organization.

IRS warns of summertime tax scams

IRS warns of summertime tax scams The service is seeing a surge of scams hitting taxpayers via email and text messages touting tax refunds and quick fixes to their tax problems.

Federal Reserve launches instant payment system

Federal Reserve launches instant payment system The FedNow system allows financial institutions to instantly transfer money to customers any day, anytime.

If you’re the owner of an incorporated business, you know there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends.
There’s no simple way to determine what’s reasonable. If the IRS audits your tax return, it will examine the amount that similar companies would pay for comparable services under similar circumstances. Factors that are taken into account include the employee’s duties and the amount of time spent on those duties, as well as the employee’s skills, expertise and compensation history. Other factors that may be reviewed are the complexities of the business and its gross and net income.
There are four steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation:
Keep compensation in line with what similar businesses are paying their executives (and keep whatever evidence you can get of what others are paying to support what you pay).
In the minutes of your corporation’s board of directors’ meetings, contemporaneously document the reasons for compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was low, be sure that the minutes reflect this. (Ideally, the minutes for the earlier years should reflect that the compensation paid then was at a reduced rate.) Cite any executive compensation or industry studies that back up your compensation amounts.
Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by the IRS.
If the business is profitable, pay at least some dividends. This avoids giving the impression that the corporation is trying to pay out all of its profits as compensation.
You can avoid problems and challenges by planning ahead. Contact us for more information.

Are you getting ready to retire? If so, you’ll soon experience changes in your lifestyle and income sources that may have numerous tax implications. We can help maximize the tax breaks you’re entitled to so you can keep more of your hard-earned money. Contact us for more info.

May you enjoy this meaningful day with your loved ones! Happy freedom day to you and your family!

Whether you’re operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations. The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly. The tax rules regarding business losses are complex, especially when accounting for how NOLs can interact with other potential tax breaks. We can help you chart the best course forward.

If you’re starting a business with some partners and wondering what type of entity to form, an S corporation may be the most suitable form of business for your new venture. A big benefit of an S corp over a partnership is that as an S corp shareholder, you won’t be personally liable for corporate debts. If you expect the business to incur losses in its early years, an S corp is preferable to a C corp from a tax standpoint. C corp shareholders generally get no tax benefit from such losses but S corp shareholders can deduct their percentage share of the losses on their personal tax returns to the extent of their basis in the stock and in any loans made to the entity. Contact us to learn more.

If you’re buying or replacing a vehicle that you’ll use in your business, be aware that a heavy SUV may provide a more generous tax break this year than you’d get with a business car. New and used heavy SUVs, pickups and vans acquired and put in service in 2023 are eligible for 80% first-year bonus depreciation. However, you must use the vehicle more than 50% for business. If your business use is 51% or more, you can deduct that percentage of the cost in the first year the vehicle is placed in service. This tax break is available only if the manufacturer’s gross vehicle weight rating is above 6,000 pounds. Contact us to help evaluate if this is the right move for your business.

If you’re thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved, there are a couple of options to consider. Take a look at a SEP or a SIMPLE plan. When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s SEP-IRA. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of 25% of compensation and $66,000 for 2023. SIMPLE deferrals are up to $15,500 this year plus an additional $3,500 catch-up contributions for employees ages 50 and older.

If your business occupies a large structure and you need to increase space or move, keep the rehabilitation tax credit in mind. The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified building that’s also a certified historic structure and meets other requirements. A QRE is any amount chargeable to capital and incurred in connection with the rehab (including reconstruction) of a qualified building. QREs can’t include building enlargement or acquisition costs. The 20% credit is allocated ratably to each year in the five-year period beginning in the year in which the qualified building is placed in service. Contact us to discuss this and other tax breaks.

One popular fringe benefit is an education assistance program that allows employees to continue learning and perhaps earn a degree with financial assistance from their employers. An employee can receive, on a tax-free basis, up to $5,250 each year from his or her employer under a “qualified educational assistance program.” For this purpose, education means instruction or training that improves or develops an individual’s capabilities. Different rules apply if the education is job-related. In addition to education assistance, some employers offer student loan repayment assistance. Contact us to learn more about setting up an education assistance or student loan repayment plan.