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Business Tax Planning

Business Growth, Business Tax Planning

Alleviating Cash Flow Management Pains for San Francisco Bay Area Businesses

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[1] Because we’re talking cash flow management today… with a recession looming on the horizon and the effects of inflation being felt so hard in everyday life, it’s difficult not to freak out over what lies ahead for your San Francisco Bay Area small business.  But, some think a recession might not be all that bad for small businesses… even helpful. While that remains to be seen, one thing I can say is, don’t panic. There is a way forward – when you have a plan and good advice along the way. If you’re not able to see the path forward through the muck of it all, or you just need a little more support and guidance — I suggest grabbing a time with us and our team. That’s what we’re here for.Patti (408) 775-7790   Gale 408-775-7800 Now, one thing that you want to pay extra close attention to when lows strike is what’s happening within your cash flow. Knowing where it’s at, plus figuring out how to make it last, especially if you’re in a seasonal business (we understand that kind of reality), well, this sometimes takes some specially-devoted effort and planning. Many business owners avoid this and prefer to “wing it” … and occasionally to disastrous results. So that’s what I want to jump into today…  Alleviating Cash Flow Management Pains for San Francisco Bay Area Businesses“Standards are always out of date. That’s what makes them standards.” – Alan Bennett You love your business and you love when cash flow management goes smoothly. Who doesn’t? But if your company is seasonable, a steady income can be hard to come by.  Boy, we hear you. We’re accountants, and the weeks after Tax Day can be slow. I remember feeling horrible that my family suffered so much because my industry happened to trail off for a while after people finished filing their taxes.  As a San Francisco Bay Area business owner, financial lows usually hit you the most. You probably dig into your profit and take-home pay to make sure your employees and operations don’t hurt (especially these days). That’s only natural – and responsible of you.  But you can fight the unpredictability of seasonal cash flow, smoothing out those highs and lows. We can help you ease the pain. Here’s how.   Your initial questions Cash flow management is all about details. You know more about tackling this problem than you think. You’ve got three good tools right off: your company’s records, your experience in your industry, and your common sense.  Even if you don’t have an official profit-and-loss statement, you probably have a trove of recorded info about your business. Look at your past few seasonable ups and downs. Any stand out? What happened in those periods? That could give you a good idea of what to repeat – or avoid.  What are the cycles of your company and industry? What factors like weather or the local economy impact your business? What can you predict is coming down the pike? This can give you a better idea of how much to budget and how far out to plan.  Are your income sources sustainable? During your busy season, make sure you get paid as fast as possible: Send double-checked invoices to clients as soon as you’ve completed the work, don’t be shy about reminders, and give them a clear deadline for payment – smoothing year-round cash flow is one thing, but you don’t want customers’ unpaid bills spilling into your off-season.  Look at your expenses, too. Are your biggest ones justified? Are there ways to reduce them? Regarding biz real estate, some landlords might be open to you paying more rent in the busy season and less in the slow times. If you own your business property, can you rent it out during the off-season?  Year-round strategies We all know about saving for a rainy day. Your off-season isn’t rainy, exactly, but it’s close enough. Set aside a percentage of your high-season profits for the downtimes – and be disciplined about it. (We’d be happy to talk you through more details of this idea.)  Try off-season work that dovetails with your primary business. Accountants offer financial advising, for example, during those months when people aren’t filing tax returns. Let’s say you’re a landscaper or a pool maintenance company working hard in the warm months. Consider snow removal or a similar winter business to bring in a little cash and keep your name in front of customers.  While we’re on the subject, smart and constant marketing is the best way to keep the pipeline flowing. Do your competitors hibernate off-season? Then market when they don’t. Work up a list of your anchor clients and pitch them with deals for early registration for your high-season services. Offer them this year’s price on a few items if they register early for next year – in the middle of our terrible inflation, they’re sure to notice that. Upsell them on other items if you have to, and constantly ask for referrals. In accounting, we use social media and e-newsletters off-season a lot. Give us a buzz and we can talk about this strategy.  Prep work A lot of businesses would love to have a slow time to work carefully on improving their operation and bottom line. This breather has landed in your lap. Go over those budgeting items we mentioned, then go over them again.  Take time to study your business and the money that makes it go. What procedures have you always wanted to improve? Satisfied that you take all the payment methods you need (these evolve all the time, you know …)?  One huge part of prepping for your busy season is finding the right workers (some accounting firms start looking for tax-time help the fallbefore). You’ve got time to look for the right people – again, don’t forget referrals – and to fine-tune or expand your training.  If you’ve got a solid bank of temporary staffers from the previous season, think about honing them. Who deserves a

Business Growth, Business Tax Planning

Patti ONeill and Gale Bergado’s C Corp Pros and Cons

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Before I dive into discussing thepros and cons of a C corp, I briefly want to touch on some other things relevant to you as a San Francisco Bay Area small business owner. Recession.  The threat of it hangs in the air like a midwest thunderstorm. And as you anticipate it, you don’t have to wait idly for it to hammer your business. There are recession-proof moves you can make (choosing the right business entity structure being among them) to help your business. Even Congress is trying to make an impact. The passing of the Inflation Reduction Act could actually mean good things for your business. Advising you on the right moves to make is something I live for at ONeill & Bergado. If you’re in need of some guidance in your business to prepare for more stormy weather on the horizon, well, I’ve got you covered.  Let’s talk: (408) 775-7790  Now, last week, I gave you an overview of the various business entity types. So this week, I want to start diving into the most popular one – the C corp – to help you determine which one is right for your San Francisco Bay Area business.  Let’s dive in, shall we? Patti ONeill and Gale Bergado’s C Corp Pros and Cons“The secret of getting ahead is getting started.” – Mark Twain It’s only natural that you might want to pick the corporate structure of your company based on the one you’ve heard the most about: C corporations. The C corp is a prevalent corporate structure it’s true, but what are its plusses and minuses?  This decision is huge for your company, so make sure the C corp is right for you. Here’s what to know.   The basics The C corporation – named after the subchapter of the Internal Revenue Code that covers its tax designation – is a legally formed separate entity that insulates its owners/shareholders from its debts, among other benefits. It can borrow money, sell stock and engage in investment contracts. For federal income tax purposes, a C corp is recognized as a separate taxpaying entity.  Generally, a corporation conducts business, realizes net income or loss, pays taxes, and distributes profits to shareholders. The profit is taxed to the corporation – the current corporate rate is 21%, though that might go up – and then the shareholders pay income tax on it when the profit is distributed as dividends.  And you’re right: This can create a double tax. The corporation also doesn’t get a tax deduction when it distributes dividends to shareholders, and shareholders can’t deduct any loss from the corporation.  You form a C corp by, among other tasks, filing with your state. These corporations operate according to state law; rules vary from state to state. Your best bet is to set up the corporation in the state where your operation is based.  The pros C corps may not be best for all small business owners (see below) but if you’ve been in business long enough to want flexibility and the chance to responsibly raise capital, C might be the way to go. (A surprising number of C corps also have fewer than 500 employees.) Here are some advantages… Limited Personal Liability. This is one of the biggest draws.Forming a C corp turns your business into a legal entity separate from you and your personal assets – meaning they can’t be seized in a lawsuit that relates to your business or by creditors looking to square a business debt. In short, no shareholder, officer, or director is liable for debts of the corporation unless corporate law is breached or a personal guarantee given.  (Judges have been known to rule that a C corp structure just masks shady business doings, but this is rare and unlikely to apply to you and your business.)  Investors. A C corporation can sell stock or shares, either common or preferred, and there’s no limit to the number of shareholders (see below); you can also have international shareholders. C corps can go public – the glorious IPOs – and offer employees a stock option plan.  Investors and venture capitalists (there’s no limit to the latter you can approach, either) tend to view C corps as more reliable and ultimately more profitable companies. Lenders and other types of financers tend to as well.  Flexibility on taxes. C corps have more tax options than sole proprietorships, LLCs, LLPs, and S corps do. Yes, C corp business profits can become subject to double taxation, as we mentioned. But there are ways to trim this burden: Shareholders can be given a salary, for instance, and the corporation can write this money off as a business expense. Portions of startup costs are also deductible, and you can divide profits and losses between the business and the owners to create an overall lower tax rate. (Check with us on other tax-saving tactics.)  Legal precedents. Corporate law is well-established, and C corps have been around a while and been the subject of many decisions. Should you find yourself in court regarding your company, your outcomes will likely be much less surprising.  The cons No decision is one-sided in business, and picking a C corp has its potential wrinkles.  Higher costs. The double taxation we covered (you also can’t write off business losses on your personal return). You pay various state and federal filing fees, plus your tax situation can be more complicated, as we said. Fees can be repeated, and tax filing is more involved. This means you need additional skilled professionals, such as lawyers, to help you.  More paperwork. You have to file a number of documents, including Articles of Incorporation, corporate bylaws, corporate minutes, certificates of good standing, and, when the C corp gets enough shareholders, registration with the U.S. Securities and Exchange Commission. Again, you’ll have to pay for expert advisors to handle all this.  More structure. This isn’t a business entity you run off your dining room table. For one, you have to hold formal shareholder meetings every year and keep detailed records of those meetings.  Even

Business Tax Planning

San Francisco Bay Area SMBs: Note These Changing Business Tax Deductions

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This year has been a rollercoaster for San Francisco Bay Area business owners like you. Heck, the last few years have been. After all of the junk in 2020 and 2021, “inflation” and “supply chain shortages” have been the recent flavor of our wild ride together. Though that said, there does seem to be some easing on both of these fronts – and not necessarily because of the “Inflation Reduction Act” (more on that and business tax deductions in a minute). It can be difficult to see your way through it all and keep your business afloat. And actually, you want it to THRIVE. And so do we. Which is one of the reasons we write these articles regularly – to not only “get you through” but also to help you and your business move into new areas of fundamental strength. And more than that, we are just an appointment away if you want that insight and strategy to get stronger in your business:Patti (408) 775-7790  Gale 408-7800 We’ll speak more about the contents of the recently-passed Inflation Reduction Act soon. It remains to be seen if the act will actually do what it purports to do (reduce inflation). But, regardless, you’re going to want to make sure your San Francisco Bay Area business isn’t vulnerable to new regulatory and tax pressure. With increased funding to the IRS and increased chatter about “tax dodging,” small businesses truly are in the crosshairs during this cultural moment. Furthermore, a smart owner will want to go beyond “compliance with regulations.” Tax planning in your business needs to become a priority. Because there are moves you can make during the year to make more efficient use of tax deductions, to help reduce your liability, and to keep you worry-free come deadline time. So, let’s take a closer look at the changes to business tax deductions and how they will affect your business…  (Note: these are in place NOW – the Inflation Reduction Act (IRA for short) will add new layers to some of these in the future. And we will guide you through those, as well.) San Francisco Bay Area SMBs: Note These Changing Business Tax Deductions“I just taught my kids about taxes by eating 38% of their ice cream.” – Conan O’Brien Any change that can help your business survive is a good one these days, and the folks at the IRS have recently tweaked some of the most valuable business deductions. And believe it or not, some deductions have been tweaked in your favor.  Here’s a look at some of the recent changes, along with some old standby deductions you should use if you can.  Business Tax Deductions: Meals and mileage The rest of this year features a couple of revamped tax breaks for businesses. One of the most significant helps companies in general and an industry particularly battered by the pandemic: restaurants. Through the rest of 2022, businesses can generally deduct the full cost of business-related food and drink from a restaurant. (The limit is usually 50% of the cost of the meal.) To qualify, you or one of your employees must be there when the food or beverages are provided. Another caution: According to the IRS, the expense can’t be “lavish or extravagant” and has to be reasonable. Yes, this strikes us as a gray area, too. Check with us with questions …  Grocery stores, convenience stores, and other businesses that primarily sell pre-packaged goods not for immediate consumption don’t qualify for your deduction purposes. If your company has a cafeteria on-premises, you also can’t treat that as a “restaurant” for this deduction (even if it’s operated by a third party).  You can see more about this deduction in IRS Publication 463, and we’d be happy to talk it over, too.  High gas prices have also stirred the IRS to raise the standard mileage rate for the rest of this year. (The IRS hasn’t changed the mileage rate in mid-year for 11 years.) For the second half of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate at the start of the year.  This rate is optional; you can use it to figure out the deductible costs of operating an automobile for business use instead of tracking actual costs. Other items impact deductions for mileage such as depreciation, insurance, and other costs. Again, check with us with any questions.  Working from home? No, just remote working for your boss doesn’t qualify you for the famous home-office deduction. But if you’re a biz owner now working from home, you might qualify. Usually, you must use a room (or what the IRS calls “other identifiable portion” of your home) exclusively and regularly for business.  You figure the deduction using one of two formulas:  Regular. You need IRS Form 8829, which generally divides the expenses of operating your home between personal and business use. Direct business expenses are fully deductible. The portion of indirect expenses – real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs – that you can deduct is, as you might guess, based on the percentage of your home that you use for business.  Simplified. The 8829 has dozens of lines; the home office deduction worksheet on Schedule C, the tax form for sole proprietors, has way fewer. This worksheet gives you a rate of five dollars per square foot for business use of the home, with a maximum deduction for 300 square feet. Choosing this option means you can’t depreciate the portion of your home used for business but you can still claim allowable home mortgage interest, real estate taxes, and casualty losses as itemized deductions on Schedule A.  Miscellaneous business tax deductions – but still valuable Insurance. You can generally deduct premiums for some insurance for your business: fire, theft, flood, or similar; insurance that covers losses from bad debts; group hospitalization and medical insurance for employees; liability and malpractice insurance; and some workers’ comp.  You can also deduct contributions to a state unemployment insurance fund if they’re considered taxes under state law; overhead insurance that pays for business overhead expenses during long

Business Tax Planning

Which Bills to Pay First in Your San Francisco Bay Area Business

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Holiday creep. It’s real. Here we are in early November, and it feels like Christmas decorations and other holiday chicanery have already been upon us. San Francisco Bay Area retailers are buckling in for what looks to be a rough shopping season, given current economic factors… BUT per the U.S. Chamber of Commerce, over 30% of consumers got a head start on their holiday shopping in October. What have you noticed? How is your holiday revenue rhythm looking relative to other years? Would love to get a feel from my own contacts about this. By the way, here’s a good rundown of how big corporations are approaching this season. But back to you, and to us. We can take a look at your cash flow, and pricing structures to help you have a clear picture of where things are at and how to get them holiday season ready. That’s just one of the things we can discuss. Use this: Patti (408) 775-7790  Gale 408-775-7800 So I wanted to offer a quick primer on how to handle things when you’re facing difficult choices about your cash flow including which bills to pay when. And again, if this matches your circumstances, we might should talk. There are probably some things that we could do to help. Which Bills to Pay First in Your San Francisco Bay Area Business“A lot of talented actors still have to pay their bills.” – Mark Wahlberg Sometimes it seems like bills come through the door as much as customers do … And knowing which bills to pay in which specific order can be difficult.  And just like some customers are worth more than others to your small business, some bills need quicker attention than others as well. You put things in priority order for your company every day. You should do the same for your expenses.  We’ve got some thoughts on how to do that.  Which bills to pay first and why You’ve heard about keeping the lights on? It’s true. Whether your business relies on the internet, machinery, handwashing, or heating, your utility bills have to be near the top – if not always first – on your pay list. You also need a place to work – there’s no debate if you arrive at the office one morning and find the door padlocked. Pay your rent.  Now for bills that can have wiggle room (but precious little of it):  A couple notes: Not all debt is created equal. Credit card debt can require a judgment against you for collection – a long process for most creditors. Large bills do more harm to your credit score if they go long overdue.  Your responsibility for debt can vary in severity depending on your business entity. If you have a sole proprietorship or partnership, for instance, you’re personally liable for all your business debts – assets such as your home might be on the line. If your business is a corporation or LLC, you’re only liable for the debts that you personally guaranteed. Collateral on loans is another matter.  Strategies Communication and payment plans can be your best friends when you’re trying to pay off bills.  Utilities. Most utilities are open to the idea of a payment plan, particularly if you’ve paid your bills regularly in the past. Be advised to monitor your energy use going forward and cut back wherever you can (like turning down the heat or not leaving windows open with the air conditioning on).  Is your plan based on your future usage or on an average? Make sure that you aren’t shocked with a huge bill for excess energy use at the expiration of a payment plan.  Taxes.Much as tax authorities have broad powers to seize just about anything, they also have a variety of payment options for tax debt, including installment plans, negotiation tools like a federal offer in compromise (if your debt’s big enough and if you qualify), and avenues to dispute your debt. (We can help you find these.) Rent.Maybe your landlord has a kind heart. Failing that, maybe your area has a rent assistance program for businesses that have fallen on hard times. These exist on the federal but just as often on the state, county, and city level. We can help you find one you qualify for. Payroll. Aside from pay cuts, one of your next options for saving on payroll is layoffs. The savings are quick and obvious, and you may be able to redirect your payroll costs toward new and cheaper or part-time staffers. On the other hand, layoffs can make remaining employees jittery and insecure – and eager to look for a new job. They also open the door to poorer customer service and even discrimination lawsuits.  Finally, what can you cut back on? One possible expense: insurance. Your business may not be able to function without certain coverage, such as professional liability, but missing one premium isn’t likely to torpedo your entire policy. And longer term, rare is the policy price that can’t be improved with negotiation, bundling, or research into cheaper options. Getting your bills paid is an essential part of doing business. And figuring out which bills to pay when is an essential part of your San Francisco Bay Area business’s financial well-being, especially when we approach busy seasons like this one. Every business’s situation is unique, and figuring out what’s right for yours takes some thoughtfulness. If you need a little mental support on that front, we’re right here. You can depend on us, Patti ONeill and Gale Bergado(408) 241-4100ONeill & Bergado

Business Growth, Business Tax Planning

Our (Early) End of Year Checklist for San Francisco Bay Area Businesses

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When I think about the holiday season, I think “calm before the storm.” That’s because in my profession, once mid-December hits, we’re scrambling to handle EOY matters. And then when the new year strikes, we’re holding our breath for a few weeks … and then tax season is upon us. We are very “calendar-driven” in the accounting profession. For “normal” San Francisco Bay Area business owners, this season can mean all different kinds of crazy. (But hey — we can still enjoy the smells, like turkeys roasting, cookies baking, and evergreen wreaths). And as you prepare to fill your houses with holiday cheer, and prepare for the crazy, I really am here to help. In my opinion, you need to carve more than just the turkey … you need to carve out some time to examine where things are at in your business and what you still need to get done before the stroke of midnight on December 31st.  Of course, besides the helpful end of year checklist I’m bringing to you today, we can always sit down and do a once-over and find what to prioritize to lighten your tax burden and your other business burdens: Patti (408) 775-7790  Gale 408-775-7800 But, let’s start here. This is a good rundown of what you can still do over the next 6 weeks to get your business in shape and ready for a new year. Our (Early) End of Year Checklist for San Francisco Bay Area Businesses“It does not do to leave a live dragon out of your calculations if you live near one.” – J.R.R. Tolkien The close of the year is a natural time to take stock of all things, and one of them should be your business. Your money – as well as your plans for it – should be top of the list.  From your people to your payroll taxes, budgets to your bank: Though financial assessment can seem to be a big basket, with proper planning you can tick off one item at a time and set yourself up for 2023.  So, let’s take a look at this end of year checklist I like to share with San Francisco Bay Area business owners. End of Year Checklist Category #1: Financials Give a once-over to your key financial documents, such as your balance sheet (assets, liabilities, and shareholder equity), income statement/P&L, and cash flow statement. What to look for:  Balance sheet: Are your receivables and debts in line with total assets? Higher inventories can reflect lower sales, and double-check for contingent liabilities and their due-dates. Income statement: Unexplained drops in sales and marketing expenditures: Do they correlate? If not, look back to see what went wrong. Did operating costs ever rise occasionally without a corresponding rise in revenue? Again, what happened?  Cash flow statement: Operating activities should be your biggest category. Too many big but infrequent payments from just a few clients? Delayed receivables?  Prepare a budget for 2023. Go over your A/R past-dues and look ahead to factor in upcoming capital improvements in addition to regular operating expenses. Check your inventory and pre-pay if possible for items and services such as insurance, professional dues, or rent that you’ll need next year. Use last year’s budget as a guide, but not as an ironclad roadmap: Every year is different. With inflation and ongoing supply-chain messes likely into 2023, it pays to plan and now.  End of Year Checklist Category #2: Third parties Aside from suppliers, two of the biggest outside businesses impacting your company are your bank and your insurer.  Banking: Simply, are you getting all the services you need, such as employee company credit cards? Is your access to your bank sufficient (either through in-person branches or online)? Are fees too high? Are they meeting all your credit needs (including for Small Business Administration loans)? Can you get better support or perks elsewhere?  Insurance: Make sure your policy is renewed and up to date. Looking ahead to 2023 developments that you expect for your small business, do you have coverage for those changes? Need any policy riders? See if bundling coverage will save on premiums.   End of Year Checklist Category #3: Employees Aside from making sure everybody checks the new calendar to slot vacations ASAP, perks and taxes are two big details to check before the new year.  Retirement plans. Review reporting requirements based on the size of your plan and its participant numbers. Some businesses give end-of-year bonuses or retirement contributions to employees, which can come with a tax break.  If you don’t have a retirement plan for workers, look at options for creating one in 2023 – even small companies (100 or fewer employees) can easily set up a SIMPLE (Savings Incentive Match PLan for Employees) IRA. We can help you do this.  Review payroll. Double check with us if you have questions in this area, which frequently changes. Starting next year, for instance, the base annual wage for computing Social Security tax will increase to 160,200 dollars, up from 2022. Did you get any pandemic relief for payroll in the past? Make sure that such credits and loans are wrapped up heading into 2023.  End of Year Checklist Category #4: Operations Tax documents. It’s never too early. Start with the financials we mentioned before and check with us about having to fill out any additional forms: Examples might include W-2s or W-3s; quarterly, state, and federal returns; or IRS Form 1099-NEC – this year, the latter kicks in for just $600 in payments to most independent contractors. Assemble your paperwork for deductions; we’d like to look at it sooner rather than later to get you all the money back that we can.  Debt, income, and expenses. Generally, try to rattle debtors’ cages and get your outstanding A/R by the end of the year – cash in hand always makes bookkeeping easier. There may be times when deferring income into the new year makes tax sense. Ditto for deductible expenses: Taking a major business deduction (for capital equipment, say) can make a big difference for your company’s taxes in one year but

Business Tax Planning

Changes to Your San Francisco Bay Area Business’s Social Security Payroll Taxes

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Have you recovered from the electoral drama yet? Allow me to quickly remind you: No matter how you’re feeling about these results, what matters MOST is how you operate that which is under YOUR control. And I say that as somebody whose entire work is driven by decisions made by Congress and the IRS. So, let’s keep on trucking towards our goals, and keep this stuff where it belongs – as background noise.  You’ve been faced with a lot of changes the past year… two years – ok, three years. I have to take a second to really commend you on your resilience in these times. As a business owner, being able to take a few hard-landing punches and still stay in the fight takes grit.  And I like to consider myself your ringside coach in this fight. And more than just a little “attaboy,” I’m here to help you strategize and come out with the win in your San Francisco Bay Area business. So as the year hurtles towards its end, that means thinking about the last moves you can make to see those goals you had get checked off your list. Ready to get a little “ringside” chat in? I’m right here: (408) 775-7790 Now, speaking of one of those changes, you may have to help your employees navigate a change that’s coming to social security payroll taxes starting 1/1/2023… And if payroll is something you want us to help you with, drop me a note. Changes to Your San Francisco Bay Area Business’s Social Security Payroll Taxes“It’s not the load that breaks you down, it’s the way you carry it.” – Lou Holtz You may have heard about the recent increases coming to Social Security benefits: the biggest hike in decades. Seems inflation’s getting into everything, including taxes for your employees.  Starting next year, your workers will have to earn more before they’re exempt from having Social Security taxes taken out of their paycheck.  Here’s what to know about the changes to social security payroll taxes.  The up and up Most people have heard by now that Social Security recently gave benefits recipients the biggest cost-of-living adjustment (COLA) since 1981 – good news for a lot of folks fighting inflation. But increases were also reflected in another Social Security formula, this one affecting your San Francisco Bay Area company.  Starting next year, the base annual wage for computing Social Security tax will increase to $160,200 – up from $147,000 for 2022. Wages and self-employment income above this threshold won’t be subject to Social Security tax.  As a reminder, employers, employees, and self-employed workers have to deal with two taxes from the Federal Insurance Contributions Act (FICA): Social Security (aka the old age, survivors, and disability insurance taxes), and Medicare (the “hospital insurance” tax). For almost a century now, FICA has partly funded Social Security programs. Social Security benefits recently bumped with the big COLA are funded from the general tax base, not specifically by FICA payments. Medicare was added to paycheck withholdings in the 1960s.  The Social Security tax has a maximum; the Medicare tax doesn’t.For 2023, the FICA tax rate for employers remains the same as this year: 7.65%, broken down into 6.2% for Social Security and 1.45% for Medicare. That makes your workers’ maximum Social Security tax $9,932.40 for 2023.  If you’re self-employed, your Social Security tax of the full 12.4% on the first $160,200 of SE income translates into a maximum for 2023 of $19,864.80.  Just to review… You withhold a 6.2% Social Security tax from your employees’ wages and you pay an additional 6.2% (your “employer share”) – which combined makes the full 12.4%. You as an employer also withhold a 1.45% Medicare tax from your employee’s wages, and you pay an additional 1.45% employer share for a total of 2.9%.  As an employer, you do not pay a portion of the 0.9% Medicare surtax (aka the Additional Medicare Tax) for your high-earning workers ($200,000, for instance, for an employee who files his or her taxes using the status of Single), though you do withhold this amount when employees hit that pay threshold. And once you begin withholding that surtax, you withhold it every pay period until the end of the calendar year. A few questions about social security payroll taxes Compliance with FICA and employer’s taxes is nothing to fool with. Here are some good questions to ask yourself before the calendar flips. Does one of my employees also have other jobs?Not an uncommon situation these days. You might want to check this with your workers. Each employer must withhold Social Security taxes from that person’s wages even if the combined withholding exceeds the yearly limit. (When they file their tax return the following year, the employee can seek a credit for the extra that was paid in.) What if my employees make tips? Employees who get 20 bucks or more in tips in a calendar month should be reporting them to you the following month. You’re responsible for withholding employee income tax and the employee’s share of FICA taxes and paying the employer’s share. But check with us about the FICA tip credit you might get against the income taxes for FICA taxes paid on certain tip wages.  What’s “Medicare mismatch?” This applies to that 0.9% Medicare withholding for high earners on your staff. You’re obligated to withhold that amount (but again, not pay an equal share) regardless of whether your employee will owe the surtax depending on their filing status and what their spouse makes if they’re married (and, for that matter, whether their spouse also works for your company).  If misunderstood, this can make for over- or under-withholdings.  How do I keep track of the changes? Your payroll software should automatically update a change this significant. Now’s the time for you to make sure, while there’s still some 2022 left. Now changes like these can have you sitting back and wondering what to do to absorb them and work with them.  That’s why I write to you. If you’ve got questions about the changes to social security payroll

Business Tax Planning

The New Congress and Your San Francisco Bay Area Business

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This time of year means big things for San Francisco Bay Area businesses like yours… and big-red-bow-on-top opportunities thanks to the post-Thanksgiving, pre-Christmas buying euphoria.  Early indicators are that this has been a tepid start to the consumer holiday season, but one consistent thing I’ve observed among my SMB clientele — nothing happens unless you do something to make it happen. One thing that should also be on your radar: Year-end moves that will affect your 2022 tax positions. Whether it’s spending, saving, asset structure, etc … we only have one more month (or so) before the books close.  After 12/31/22 … we’re mostly confined to “historical” work on your tax files. Shall we talk about it?Patti (408) 775-7790  Gale 408-775-7800 But leaving all of that aside, I wanted to help sort through the mucky aftermath of post-election results and offer a clearer picture of what lies ahead for your business as we face a new Congress in Capitol Hill. So let’s dive in. The New Congress and Your San Francisco Bay Area Business“I have come to the conclusion that one useless man is called a disgrace, that two are called a law firm, and that three or more become a Congress.” – John Adams, 1776 The midterm elections are finally over. Now you face the challenge of doing business amid a new potential wave of tax changes — on top of such economic trends as inflation, economic change, and leftover pandemic problems like the supply chain.  What to pay attention to first?  Here are 7 takeaways for you regarding the new congress and their effect on your San Francisco Bay Area business. Coopetition #1 – The lights must stay on. A Republican-controlled House of Representatives and a Democratic-controlled Senate (and of course a Democratic White House, with its veto power) mean that most major tax and economic legislation will likely be logjammed through the coming months, at least until the next national election. Nevertheless, some things will have to be done in the new congress lame-duck session, such as appropriations to keep the government running (never a gimme anymore) and money for such outlays as national defense and disaster funding. Further out, both parties will probably have to set aside big parts of their agendas or somehow learn to work together. Taxes #2 – To repeal or delay? Some business tax breaks and conditions are on the block to be repealed or delayed — and could find their way into year-end extender deals. Among them: computation of Section 163(j) current-year business interest limitation; and phase out of bonus depreciation beginning on January 1. A possible repeal of a tax code change that requires amortization of research and development tax breaks could also pass if Republicans allow Democrats to expand the Child Tax Credit (see below). #3 – IRS funding and more agents. The federal Inflation Reduction Act passed last summer pumps 80 billion dollars to the Internal Revenue Service, which will use part of the money to upgrade technology and hire some 87,000 new agents. Republicans in the House have made an early vow to block that money for the IRS pending more organized oversight on spending.  #4 – R&D tit for tat. A new congress split along party lines may get its first taste of wheel-dealing when Republicans push to reverse, forcing companies to amortize their tax break for research and development (R&D) over five years. If Democrats agree, Republicans might bend on expanding and extending the Child Tax Credit for families.  Some Congressional leaders have said both should pass. Inflation and the economy #5 – Cementing the TCJA. Republicans have brought legislation to the House to make the tax cuts, lower rates, and larger standard deductions of the Tax Cuts and Jobs Act of 2017 permanent. Republicans have also pledged in their “Commitment to America” to battle inflation (now running about 7.7%) and lower the cost of living in part through what they describe as a “pro-growth tax economy.”  The Republicans’ TCJA Permanency Act keeps in place today’s tax rates for individuals and families and preserves the 20% deduction for small businesses. Proponents say that the Act provides tax certainty to facilitate costly investments in items with long productive lives. That in turn, Republicans claim, will help tame inflation by helping supply meet demand. Details remain sketchy right now, though, and President Biden would still have the power of veto with an override vote unlikely from a divided Congress.  #6 – The economy at large. Congress (especially a new Congress) can’t directly do much about inflation; the Federal Reserve has the best tools, in the form of interest rates. About the most Congress can do is put more money in the pockets of Americans through tax breaks and stimulus payments. If one party was squarely in control, the path might be clearer. As it is, we are likely to see the push/pull of Democrats advocating stimulus and individual credits and Republicans pushing for tax cuts for business. Capitol Hill does continue to try to attack supply chain problems, most recently with the Ocean Shipping Reform Act of 2022. The new law has had questionable effectiveness so far, but at least it was bipartisan — so there’s hope Congress will do more for the supply chain. Across the great divide #7 – One bipartisan bright spot for the lame-duck session. The EARN Act, related to SECURE 2.0 and one of the flurry of bipartisan legislation aimed at retirement savings, would make several changes to employer-matching contributions to various retirement plans. You’d be able to match employee contributions on a Roth on an after-tax basis, for instance, or contribute more for SIMPLE IRAs and SIMPLE 401(k) plans, among other changes. It would also make it easier for part-time workers to participate in retirement plans.  (Other changes would be an expanded saver’s credit for low and middle-income workers, easier withdrawal penalties, and a higher age for taking required minimum distributions).  EARN (or something like it) stands an excellent chance of passing even this Congress. Nothing ever stays the same for your business or

Business Growth, Business Tax Planning

Employee Gifts: Some Ideas for San Francisco Bay Area Business Owners

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Time is counting down until the year is up and your tax impact opportunity window closes. And even if this is the busiest (and perhaps most profitable) part of the year for your San Francisco Bay Area business, opening up a little space in your calendar to talk about some year-end tax moves is only going to mean good things for it.  Let’s make sure you’re set up to get some potential last-minute tax savings. Grab a time with us here:Patti (408) 775-7790  Gale 408-775-7800 Another thing you’re probably thinking about this time of year is how you’re going to express your gratitude to your awesome staff via a year-end bonus or some such.  Of course, this isn’t an area where you shouldn’t merely be optimizing your bottom line. This is a chance to create some joy around your business – I suggest you take it. But with our macroeconomic picture growing ever tighter, finding the right way to let your employees know you appreciate them without shelling out a crazy amount might call for some creativity.  I’ve got some ideas for you on the year-end employee gifts front… Employee Gifts: Some Ideas for San Francisco Bay Area Business Owners“Feeling gratitude and not expressing it is like wrapping a present and not giving it.” – William Arthur Ward That time of year again. Trouble for some small companies is, it’s that time in what may be yet another year of struggling on the bottom line. Still, you want to thank your employees for their hard work. How do you give EOY employee gifts without breaking the bank?  There are many ways to say “thank you” quickly (even as 2022 runs out), even if you’re cash-strapped.  Hint: Go for more bang than buck. EOY Employee Gifts: Tax considerations If you give gifts as part of doing business — including thank yous for employees — you may be able to deduct all or part of the cost, but no more than 25 dollars for business gifts to each person during your tax year. Incidental costs — engraving, decorating, packaging, mailing — are generally not included in that limit. Holiday gifts fall under de minimis benefits — what the IRS terms an item “considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.” (The IRS has previously ruled that individual items worth more than 100 dollars aren’t de minimis, just so you know.)  Cash or cash equivalent items (gift cards and the like) are never excludable from income. Gift certificates that allow your employee to receive an item that’s minimal in value, provided infrequently, and is “administratively impractical to account for” may be excludable as a de minimis benefit, depending on facts and circumstances, IRS says.  Whenever everybody’s favorite federal agency starts using phrases like “depending on facts and circumstances,” it’s only sensible to have a few questions. Feel free to check with us. EOY Employee Gifts: What to give Gift cards. These are first to mind these days, and they offer a lot of pluses for both giver and receiver as an appreciation gift: flexible amounts (easy on your bottom line), fast delivery (whether plastic or electronic), and available for a lot of products from electronics to gas to food to clothes.  If you’re trying to say thanks while watching your budget, the thought really counts. If your staff size allows, try to get each person something they as an individual would like. Maybe one of your folks is always talking (when they should be working, but that’s a story for another time of year …) about the movie they just went to. Maybe another staffer shops at Target every single weekend. Tailoring a gift card to such folks is easy, and they’ll appreciate even a smaller gift if they think you devoted thought to it.  Name brands might also buy you more appreciation than embossing. Is the expense of putting your company name on something really going to impress an employee more than a retail name they respect (Yeti tumblers and mugs, for instance, or a North Face beanie)? Work-related. Too often all of us fall back on a coffee mug with the company name. That can work of course, but what about comfort at work? Use your eyes and ears for a few days and see if somebody would like a blanket to keep at their desk. Or a recharging station, a lunch box or bag, a desk fan, or a smartphone pop socket. Do they eat lunch at their desk? How about a desktop vacuum cleaner?  You can get many of these for little more than a $20 bill — and every time your folks ward off a chill or cool down after coming in from lunch, they’ll think of you. With fondness. And that’s one of the big points. (These gifts work for either remote or in-office situations, by the way.) For the individual. Again, if staff size allows, think for a sec or ask a few questions discreetly of co-workers. Does your staffer love or despise candy, honey, chocolate, or cookies? Don’t leap at these choices just because they’re familiar. Does the worker embrace green living(stainless steel straws)? Spend a lot of time outdoors (sunscreen, lip balm, or touchscreen gloves)? Travel a lot (sleep mask, neck pillow, or packing cubes)?  A last point: Give the gifts in a way that embarrasses no one. Maybe leave it on their desk with a nice wrap job and card when they’re not looking. Email them the electronic gift card on the weekend.  A little effort can help make sure the delivery is part of the gift, discreet, and individual. After all, that doesn’t cost anything. Maybe the employee gifts puzzle isn’t as much a money and tax matter as other questions, but we’re ready to advise on all your San Francisco Bay Area business needs. In your corner, Patti ONeill and Gale Bergado

Business Tax Planning

Patti ONeill and Gale Bergado’s 8 “Right Now” Business Tax Moves

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Ready for some yuletide cheer? Inflation might have hit its peak this year. So say the “experts.”  That particular category of people hasn’t exactly covered itself with glory of late … so, we’ll see how that actually plays out for businesses in the coming months.  What’s the price environment looking like for you within your industry right now? Curious to hear what you’d have to say. We’d actually love to hear a broader picture about how your San Francisco Bay Area business is faring after the past couple of years of rising supply costs across the board. Do you need help examining where the dollars are going out and coming in? We can take a look with you to shore things up for success (and survival) in 2023. Schedule a time with us here: Patti (408) 775-7790  Gale 408-775-7800 And, while we’re at it, we can also talk about how to help lessen your 2022 tax bill. Let’s start right here with these year-end business tax moves you can make before December 31st… Patti ONeill and Gale Bergado’s 8 “Right Now” Business Tax Moves“Time is money.” – Ben Franklin It’s been yet another … interesting, to say the least, year to run a small business. We’ve tried to be there for you every minute — and we’re here today to let you know that it’s really not too late to improve your business tax situation for 2022.  Even now, you can make (or change) moves that you’ll thank us and yourself for when you file this year’s taxes for your company in 2023.   8 business tax moves to make RIGHT NOW 1.) Employee bonuses. Amid the holiday exuberance, take another pass at those holiday bonuses before you hand them out. You want to show gratitude, sure, but are you certain those bonuses won’t eat up cash you’ll need in 2023?  2.) Examine deductions. We urge you (and we’re happy to help) to review all your business activities for potential deductions in 2022. Use a fine-toothed comb and tune your eye to detail. Mention them to us — we make no guarantee, but you don’t want to leave any legit deduction on the table.  Ditto for tax credits like for research and development or, specific to some industries, energy credits or FICA tip credits. If you have real estate, start looking into cost segregation or, down the road, a like-kind 1031 exchange. It might be tough to pull the needed documents together in the days left this year, but at least we can start thinking about these questions.  3.) Equipment and Sec. 179. Buying equipment or machinery and putting it in service before this December 31 can get you a 2022 deduction under Sec. 179 (potentially a big one, too — but this isn’t always automatic and there can be conditions, so check with us).  4.) Tax-smart use of credit cards. Deductions can be taken as of the day of the purchase for credit cards used by a single-member LLC, by a sole proprietor who files a Schedule C, and by a corporation that uses a card that is in the corporate name.  If your San Francisco Bay Area business is a corporation and you are the personal owner of the credit card, the corporation has to reimburse you, and (for tax purposes) the deduction takes effect on the date of the reimbursement. Will that be before this December 31?   5.) Accelerate or defer. The tail-end of a year brings up a time-honored tactic: accelerating expenses and spending while cutting back on billing to defer income into next year. Thoroughly review your expenses. Which ones can you speed up? Were you planning on large outlays in early 2023 anyway? If so, moving them up a month or so could be workable. This is especially effective if your business uses cash-basis accounting.  (In fact, if you do use this accounting method and you can afford the money upfront, the IRS has a safe-harbor “12-month rule” that lets you deduct a prepaid future expense in the current year — but it can be tough to qualify for.)  A simpler and more common tactic: Don’t bill until January (assuming most of your clients and customers don’t pay until they’re billed). This defers income into the next tax year.  6.) Retirement and medical plans. It may not be too late to establish your company’s retirement plan. One of your quickest options might be a Simplified Employee Pension plan. You can deduct the lesser of your contributions (up to 61 grand per employee for 2022) or a quarter of the employee’s compensation.  Regarding your company’s medical plan, make sure as 2022 runs out that you have health insurance reimbursements recorded properly for tax deductions or credits. 7.) Pandemic loans and credits. The IRS says that if your Paycheck Protection Program (PPP) was forgiven based on “misrepresentations or omissions,” you can’t exclude the amount from your taxable income. Think now about an amended return. Ditto if you have any doubts about your eligibility for the legendary Employee Retention Credit that you might have applied for. Call us, please.  8.) Qualified Improvement Property. A QIP, if you have one, is a property eligible for special tax consideration. But to secure the QIP deduction in 2022, you need to place the property in service on or before December 31. Also, if you filed a 2019 return that you haven’t amended and that involves the QIP, you still have a little time … but let us know. It’s never too late — or early — to get the most out of your business tax situation. Before your San Francisco Bay Area company heads into another great new year, let us help you… Finish strong, Patti ONeill and Gale Bergado

Business Tax Planning

Federal Spending Impact on San Francisco Bay Area Businesses

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I don’t know about you, but after the holidays (and I hope yours were filled with good things and happy times with loved ones), I’m always a bit tapped out on the spending.  But in true governmental fashion, Uncle Sam is piling it on. Seems like Congress missed the post-holiday “no spending” cue. One little holiday tidbit that you might have missed: The IRS is delaying the implementation of the 1099 requirement for Paypal, Cashapp, Venmo, et al. Here at ONeill & Bergado, we have been talking to various San Francisco Bay Area clients about this, and have been advising a stance of “cautious preparation” – cautious because having seen these machinations get gummed up in the past, I maintained a believe-it-when-I-see-it perspective. After all, we’re talking about the same agency that can barely staff NORMAL operations right now … and they were going to track EVERY $600+ transaction on these platforms? The sheer manpower and logistical lift for this was (and is) mindblowing. So … the can gets kicked down the road, and we wait and see if this thing ever lands. Your San Francisco Bay Area bookkeeper can breathe a sigh of well-earned relief. One thing to keep in mind: The IRS will be ever (and always) aggressive about bringing in more revenue. This is, after all, their stated mission. And they BETTER be aggressive, because Congress seems to feel no pain when it comes to spending. See below. Naturally, you’ll have questions about some of this beyond what I’m breaking down today. If you want to talk through any of the federal spending things happening in Washington, I’m here for you:Patti (408) 775-7790 Gale 408-775-7800 So, here’s what should be on your business radar … Federal Spending Impact on San Francisco Bay Area Businesses“It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.” – P.J. O’Rourke You might have heard about all the federal funding and spending bills flying around Washington. Will any of them affect you and your small business?  Yes, maybe quite a bit, especially when it comes to retirement plans.  Capitol Hill appears ready to sign a 1.7 trillion-dollar spending package that will keep lights on in the federal government. Certain tax credits for individuals and for businesses didn’t survive Congressional backrooms.  Other measures, added at the last minute, stand to change how a lot of companies offer retirement plans, among other changes. Then there’s the landmark Inflation Reduction Act that became law last summer and that has given billions of dollars to the Internal Revenue Service, which promises a sharper look at some biz practices.  Here’s what we know about the federal spending impact on your business at the moment.  Future security One of the federal funding plan’s biggest impacts on small businesses will stem from the last-second addition of retirement changes of the SECURE Act 2.0 (the latest version of the Setting Every Community Up for Retirement Enhancement Act). SECURE 2.0 contains changes that proponents have wanted for a long time.  If you have workers, you’ll want to know these points:  1. To get small businesses to create retirement plans, SECURE Act 2.0 in the omnibus bill will increase the 50% tax credit for startup and administrative costs of plans to 100% annually for employers with up to 100 employees. 2. Simplified and streamlined paperwork and reporting requirements for employers’ retirement plans and a starter initiative for companies to start offering 401(k)s. 3. The requirement to automatically enroll opt-in employees in their 401(k) plan at a rate of at least 3% but not more than 10%. Some exemptions exist for businesses with 10 or fewer workers and companies in business for less than three years. 4. Eligibility to enter the company 401(k) for part-timers who’ve logged 500 to 999 hours for two consecutive years. 5. Simplified red tape and new tax incentives for small-business employee stock ownership plans.  A couple other points might be good hiring incentives for you. – You’ll be able to set up emergency savings accounts for your workers through automatic payroll deductions, capped at $2,500 – they’ll be able to dip into this free of the familiar tax penalties for early withdrawal.  – You’ll also be able to make matching contributions to a retirement plan for employees who are paying off student loans.  Your employees (and you) will also see other changes:  The age when you have to take required minimum distributions go from 72 now to 73 next year, and then to age 75 by 2033. The penalty for failing to take RMDs drops from 50% to 25% and even 10% and catch-up contributions will increase to 10 grand annually, among other changes.   Less-than-pleasant news regarding federal spending Last summer the Inflation Reduction Act became law – and it allotted 80 billion bucks to the IRS over the next 10 years. The agency will spend a good slice of that on modernizing its technology and improving customer/taxpayer service for calls, correspondence, and return processing. Fingers crossed.  The IRS – for years underfunded and leaking employees – also plans to sign on 87,000 new revenue agents and has pledged to beef up enforcement of some business tax practices. (The Treasury Department notes that over the past decade the IRS has lost 40% of agents who handled complicated returns, such as those of businesses and corporations.)  Among possible new targets:  S corp compensation: Following a scathing report on piddling audit rates from the Treasury Inspector General for Tax Administration, the IRS will sharpen efforts to collect employment taxes from S corp officers, ditto partnerships, and multi-member LLCs. The latter are rarely audited, a policy the IRS has publicly said it intends to change when self-employment tax exemptions become involved.  Micro-captive insurance: The IRS is likely to pay attention to its own annual “Dirty Dozen” list of tax scams – and here’s a popular one. Owners of closely held entities are frequently enticed into schemes where coverages may “insure” implausible risks, fail to

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