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Education Planning & Tax Benefits

There are a number of tax saving options and strategies to help you save for college expenses. Below is an overview of some of the most important options available to you. For additional information, please view the IRS’ Q&A on education credits and IRS Publication 970 – Tax Benefits for Education.

Tuition Tax Credits

There are tax credits available for qualified expenses (such as tuition, course-related books, supplies, and equipment) that are needed for attending college courses. The American Opportunity Tax Credit (AOTC) allows eligible taxpayers to receive up to $2,500 in tax savings (a portion of the credit can also be refunded to you if you don’t have a tax liability). There are income limits that apply to claiming this credit. For taxpayers using the single filing status, the amount of the credit is reduced if your income (modified AGI) is greater than $80k. For taxpayers using the married filing jointly filing status, the amount of the credit is reduced if your income (modified AGI) is greater than $160k.

Scholarships & Grants

There are a number of scholarships available to students for a range of different criteria. The amount of scholarships received will reduce the amount of educational costs eligible for tax credits, but it’s better to not pay for the educational costs rather than receiving a tax break for only a portion of these costs.

529 College Saving Plans

529 College Saving Plans allow taxpayers to save for college costs over a number of years. There are various state and private 529 plans available. Some 529 plans allow you to prepay for courses at today’s prices and some others allow you to invest in the 529 plan to save for educational costs you incur in later years. 529 plans can be used for tuition, room & board, books, supplies, and required equipment. If 529 plans are used for something other than qualified educational costs, or if you withdraw more from the plan that you incurred in qualified educational costs, you can face a penalty and income taxes on a portion of the amount withdrawn. Amounts withdrawn from 529 College Saving Plans cannot be used for the same educational costs used for the tuition tax credit when excluding the earnings on amounts withdrawn from taxable income (see details below on combining strategies).

529 Plans – Tax-Free Growth

Some 529 plans allow you to invest is stocks, mutual funds, and/or index funds in the plan. A major tax benefit of these plans is the earnings grow tax-free. If you were to save for college expenses by investing outside of a 529 plan you would owe income taxes on gains from stock sales, dividends, and capital gain distributions. When the funds are used for qualified educational costs such as tuition, room & board, books, supplies, and required equipment, you can avoid owing penalties and income taxes on the amount withdrawn. As with all investing, it’s best to start early to maximize the growth of investments.

529 Plans – Tax Deductions

Some states allow you to deduct contributions to their own state’s 529 plans. For example, if you are a Maryland resident, you can contribute to a Maryland 529 plan and receive a tax deduction on your Maryland tax return for the contributions. This can result in immediate tax savings by saving for educational costs you expect down the road. Combined with the tax-free growth on the investments, you can minimize the financial burden of these costs. States have varying rules about how much of the 529 plan contributions can be deducted each year. Generally, if you contribute more than the allowable deduction for the current year, the excess is carried-forward and can be deducted on the state return in later years. For some states, married taxpayers can benefit from setting up multiple 529 plans, one in each spouses’ name, to deduct a larger portion of the contributions earlier on. For instance, each spouse contributing $2k, rather than one spouse contributing $4k.

Combining Strategies

It’s generally best to combine these strategies as applicable. For instance, if your income is expected to be below the income limits that apply to the tuition tax credits, you’ll want to pay for up to $4k of tuition expenses out-of-pocket (meaning not paid from a 529 plan or other educational savings plan) in order to have these costs qualify for the maximum amount of the AOTC. Pulled from the IRS’ Q&A on education credits, “You calculate the AOTC based on 100 percent of the first $2,000 of qualifying expenses, plus 25 percent of the next $2,000, paid during the tax year.” Additional educational costs can be paid using amounts withdrawn from 529 or other education savings plans. Since room & board does not qualify for the tuition tax credits, it is generally a good idea to pay this amount from an education savings plan. I recommend taking out the same amount from education savings plans as used for educational costs during the year (excluding amounts used for the tuition tax credit) to avoid having to pay penalties and income taxes on earnings from education savings plans.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

Should your business be an S-Corporation?

S-Corporations are one of the most commonly recommended forms for new business owners to save taxes, however; it’s important not to rush into structuring your business as an s-corporation as you may not realize these benefits until your business reaches significant profitability. You should weigh the tax savings of having an s-corporation with the additional costs associated with the business.

Tax Savings

The S-Corporation structure allows business owners to avoid self-employment taxes on the net income from their businesses.

What are Self-Employment taxes? These are Social Security & Medicare taxes on the net income of self-employed individuals. These same taxes, at the same rates, apply to employees’ wages but with some important differences. With employees, the employer withholds the employee share of Social Security tax (6.2%) and Medicare tax (1.45%) of the employees wages and pays the employer share of these same taxes at the same rates on the employees’ wages. Self-employed individuals, on the other hand, pay both the employee share and employer share on the net income of their businesses. This adds up to a significant amount, 15.3% of the net income from their businesses. Further, these taxes are in addition to income taxes on this income.

Understandably, if you can avoid giving up 15.3% of your net income it would be a no-brainer to do it. However, you shouldn’t rush into structuring your business as an s-corporation as there are additional costs associated with having an s-corporation. You should make sure the tax savings of the s-corporation structure outweigh the additional costs.

There is a limit on Social Security taxes that apply to employees’ wages as well and self employed individuals’ net income. The wage limit for 2025 is $176,100. This means the 12.4% tax savings on Social Security taxes included in self-employment taxes only applies on net income up to this amount. As discussed in more detail later, s-corporation owners are required to pay themselves wages for services performed in their s-corporations that will be subject to payroll taxes including Social Security and Medicare taxes, further reducing the tax savings.

Costs of S-Corporations

Increased tax preparation Fees: Having an s-corporation makes your tax situation more complex compared to sole proprietorships. With a sole proprietorship, the activity for your business is reported directly on your personal tax return on a Schedule C. With an s-corporation, your business is required to file an s-corporation tax return, separate from your personal tax return. This will result in additional tax prep fees and cost to meet compliance.

State formation and annual registration fees: An S-Corporation requires you to have either an LLC or a corporation that elects to be taxed as an s-corporation with the IRS. This means additional costs in fees paid to your state to form the business as well as annual fees your state charges in order for your business to stay registered with your state. Additionally, aspiring business owners often pay professionals to help them with forming their business and obtaining tax ID numbers, payroll accounts, and other registrations for their future businesses as it’s typically less costly to do things correctly the first time around.

Payroll Costs: owners of s-corporations are required to be paid wages for services they perform in their businesses. This requires using a payroll service to file payroll reports and making payroll tax payments for the s-corporation.

What if my business has a loss?

Many new businesses are not profitable their first year in business. If there is no net income, there are no self-employment taxes that would be due. The additional costs of having an s-corporation compared to a sole proprietorship can weigh heavy on a new business owner that does not yet have a profitable business.

Compliance Requirements of S-Corporations

Owners that perform services in their s-corporations are required to pay themselves a reasonable salary for the services they perform in the business. A good rule of thumb to use for determining how much of a salary is reasonable is to ask, “How much would I have to pay someone with the necessary experience to perform the services I perform in my business?” You should take into account the same factors that would apply to compensating any employee, such as educational background, professional experience, the type of services you perform, the hours you work, and the cost of living for your area.

Is an S-Corporation Owner able to Limit their Wages to the Net Income of the Business?

Yes, you’re not required to create a loss in your business just to pay yourself enough wages to meet the compliance requirement of paying yourself a reasonable salary.

When to Treat Your Business as an S-Corporation

As you may expect, you should make the switch when the tax savings of the s-corporation structure outweighs any costs of having the s-corporation. This means waiting to reach a level of profitability in your business that exceeds the reasonable salary you would be required to pay yourself for services you perform in your business.

Planning the Switch to Treat Your Business as an S-Corporation

You can start with a different business structure, such as a sole proprietorship, and make the decision to form an LLC or corporation in a later year, when the business reaches a level of profitability that makes sense for the business to be treated as an s-corporation.

By default, an LLC that has only one owner is treated as a sole proprietorship for tax purposes until electing to be an s-corporation. This can result in a number of advantages; you won’t be required form a new entity later on when you decide to make the switch to an s-corporation, you’ll start with a business structure that may offer limited legal liability in the case of legal issues, and it keeps your tax returns simple and associated tax prep fees down since the activity is reported directly on your personal tax return until making the switch to be an s-corporation.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

Income Tax Changes in the One Big Beautiful Bill Act

Here is a condensed breakdown of income tax changes as a result of the 2025 One Big Beautiful Bill Act. The following breakdown focuses on changes applicable to individual taxpayers and small businesses that I typically serve. This information has been aggregated from various articles and resources. Since this major tax reform is recent and the public is still learning the details, the information below may require some corrections that I’ll be sure to make as additional information is discovered.

Individual Income Tax Changes

Lower Tax Rates made Permanent

The personal income tax brackets that you are familiar with from the last several years under the 2017 Tax Cuts and Jobs Act have been made permanent. The income ranges are adjusted annually for inflation.

Here’s a link to an article with the 2025 personal federal income tax brackets: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets

Larger Standard Deduction made Permanent

The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, but was set to return to the lower amount. However, the OBBB made the increased standard deduction permanent.

Additionally, the standard deduction for tax year 2025 for all filing statuses has increased:

Single and MFS$15,750 ($750 increase)
Married Filing Jointly$31,500 ($1,500 increase)
Head of Household$23,625 ($1,125 increase)
Deduct Interest on Personal Vehicles

For tax years 2026 through 2028, interest paid on car loans for qualifying vehicles is tax deductible.

This deduction applies to personal use vehicles, not vehicles used for business.

Only new vehicles (not used) purchased in 2025 through 2028 qualify.

Only vehicles that have final assembly in the US qualify.

The deduction is limited to up to $10,000 of interest per year.

There is an income limit phaseout starting at $100k for single filers and $200k for married couples filing jointly. The phaseout is $200 for every $1k your income exceeds the starting phaseout range. The deduction is fully phased out if your modified AGI exceeds $149k for single filers or $249k for married couples filing jointly.

This is not an itemized deduction. Eligible taxpayers that make qualifying purchases can claim this deduction regardless of whether they elect to itemize or claim the standard deduction.

SALT Cap Temporarily Raised from $10k to $40k

The SALT deduction refers to an itemized deduction for state and local taxes, which includes state income taxes, property taxes on a home, and property taxes on the value of vehicles (if applicable for where you live).

This is a temporary change that applies to tax years 2025-2029.

The SALT cap has been temporarily raised from $10k to $40k.

The SALT cap reverts to $10k permanently after 2029.

The $40k cap is increased by 1% annually until it reverts back to $10k.

There is an income limit phaseout starting at $500k. The increased cap is fully phased out at $600k of income.

Taxpayers with incomes that exceed the phaseout range will be limited to deducting $10k for their state and local income taxes.

Home Mortgage Interest Deduction

The $750k principal mortgage limit was made permanent. You can continue to deduct interest on a home loan with a principal balance up to $750k. For loans with balances greater than $750k, a pro-rata portion of the interest is deductible.

Private Mortgage Insurance

Starting in tax year 2026, private mortgage insurance premiums are tax deductible as home interest expense as an itemized deduction again.

Previously, PMI was not tax deductible in recent years.

Charitable Contributions

Starting in tax year 2026: If you itemize deductions, there is a 0.5% floor on charitable contributions. For example, if your income is $200k, the first 0.5% (or $1,000) of charitable contribution deductions is disallowed.

Starting in tax year 2026: if you take the standard deduction, you can claim a deduction for charitable contributions up to $1k (up to $2k for married couples).

Tax Exemptions for Overtime Pay

Applicable for tax years 2025 through 2028, taxpayers are able to claim a deduction for overtime pay. The deduction is limited to $12,500 (or $25k for married couples filing jointly).

There is an income limit phaseout starting at $150k ($300k if married filing jointly). The deduction is fully phased out for incomes over $275k ($550k if married filing jointly)

Tax Exemptions for Tip Income

Applicable for tax years 2025 through 2028, taxpayers are able to claim a deduction for cash tips. The deduction is limited to $25k per return (no increase for married couples).

There is an income limit phaseout starting at $150k ($300k if married filing jointly). The deduction is fully phased out for incomes over $400k ($550k if married filing jointly)

Seniors Receive an Additional $6k Deduction

Applies to tax years 2025-2028.

Applies regardless of whether you itemize or take the standard deduction.

This is a new tax deduction of $6k for each qualifying individual that is 65 years of age or older.

There is an income limit phaseout that starts at $75k (or $150k for married couples filing jointly). The deduction is completely phased out for incomes that reach $175k (or $250k for married couples filing jointly).

Social Security Benefits

No changes have been made to the calculation of the taxable amount of Social Security benefits. However, there is an additional deduction of $6k for taxpayers 65 years of age or older that is included on this list, which may indirectly lower the taxable portion of Social Security benefits for some taxpayers.

90% Gambling Loss Limit

Starting in 2026, there is a 90% limit on deducting gambling losses. Previously, gambling losses could be deducted as an itemized deduction up to 100% of winnings. This change limits the deduction to the lesser of 90% of winnings or the amount of the losses.

Credit for Electric Vehicles Being Eliminated

After September 30, 2025, taxpayers will no longer be able to claim a credit for purchasing an electric vehicle. Previously, the credit was up to $7,500 for a new electric vehicle or up to $4k for a used electric vehicle.

Since 2024, car buyers have been able to claim this credit at the point of sale, rather than waiting until they file their income tax returns. The credit was introduced as part of the Inflation Reduction Act of 2022 and was expected to be in effect through 2032.

There are income limits of $150k ($300k for married couples). Car buyers can qualify based on their federal AGI for the year of purchase or their federal AGI in the tax year immediately prior to the year of purchase.

Credit for Electric Vehicle Charging Equipment Being Eliminated

The credit for installing electric vehicle charging equipment at your home is being eliminated for equipment placed into service after June 30, 2026

Credit for Residential Energy Products Being Eliminated

Starting in 2026, the Energy Efficient Home Improvement Credit is eliminated. Since 2023, homeowners have been able to claim a tax credit worth up to $3,200 for making energy efficient home improvements. Though initially set to expire after 2032, taxpayers will no longer be able to claim the credit after December 31, 2025.

This IRS page has information on the Energy Efficient Home Improvement Credit: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit

Credit for Solar Panels on a Home Being Eliminated

Additionally, the credit for installing solar panels on your home will be eliminated after December 31, 2025.

Trump Accounts

This is an entirely new type of incentive.

Trump Accounts are a tax advantaged investment account. Earnings grow tax-free. Withdrawals are taxable, even when used for qualified expenses.

Starting January 1, 2026, parents of any child under 18 (by the end of the year) may open a Trump Account for their child.

The accounts allow contributions up to $5k/year that can grow tax-free until the beneficiary turns 18, at which point the account becomes an IRA account

Contributions from parents are allowed after July 5, 2026.

There will be a $1k payment from the federal government to Trump Accounts for children born from January 1, 2025 through December 31, 2028.

Withdrawals for qualified expenses are taxed at the long-term capital gains tax rate.

There will be a 10% penalty and income tax on withdrawals taken before 59 ½ years of age, unless the funds are used for higher education, a disability, or natural disaster costs. Beneficiaries can also withdraw up to $10k for a new home purchase and $5k for a baby of their own.

Normally, for contributions to an IRA account, the child would have to have earned income, such as wages or self-employment income. Trump Accounts allow parents to contribute to their child’s Trump Account without the child needing to have earned income.

Child and Dependent Care

Starting in 2026: the limit for dependent care (a reduction to taxable wages) is $7,500. This is an increase of $2,500 from the previous limit of $5k.

Child Tax Credit

Starting in 2026, the Child Tax Credit is increased from $2k to $2,200

The refundable portion of the credit remains at $1,700.

Both the total credit and the refundable portion of the credit will be indexed for inflation, starting in 2026.

529 College Savings Plans

Starting in 2026, more types of expenses are eligible to be paid out of a 529 plan.

Starting in 2026, the annual limit for qualifying withdrawals from a 529 plan for kindergarten through high school has been increased to $20k. This is an increase of $10k from the previous $10k limit.

Credit for Private School Scholarship Donations

Beginning in tax year 2027, taxpayers can claim a credit worth up to $1,700 for qualified donations to nonprofit organizations that support scholarships for K-12 private school education.

Alternative Minimum Tax

The increase to the AMT exemption has been made permanent.

The AMT exemption phaseout thresholds revert to $500k ($1 million for joint filers), indexed for inflation.

Eliminated Deductions that were Set to Return

The deduction for moving expenses is now permanently eliminated for most people, other than members of the armed forces and certain members of the intelligence community. 2017 Tax Cuts and Jobs Act temporarily suspended the deduction, but now it’s permanent.

The personal exemption has been permanently eliminated.

The miscellaneous itemized deductions category has been permanently eliminated.

1% Remittance Tax on Overseas Transfers

This is not directly tied to income taxes, but I’m including this on the list nevertheless.

Starting in 2026, there is a 1% Remittance Tax on transfers of money that people in the US send to people abroad. This is for non-commercial transfers of money.

Business Income Tax Changes

100% Bonus Depreciation

Effective for tax year 2025, businesses are able to claim an upfront deduction on qualifying asset purchases for up to 100% of the cost.

For example, an SUV or truck with a gross vehicle weight of 6,000 pounds or more can be deducted in full in the year of purchase, limited to the extent the vehicle is used for business based on mileage (e.g. if the vehicle is used 80% for business based on mileage, up to 80% of the purchase price can be deducted via depreciation).

Section 179 Expense

The Section 179 expense cap increased to $2.5 million with phasedown starting when the cost of qualifying property exceeds $4 million.

Qualified Business Income Deduction

The Qualified Business Income Deduction has been made permanent.

Additionally, the income phaseout limits have been raised.

An overly simplified explanation of the QBI deduction is: business owners (of businesses other than those taxed as C-Corps), can deduct up to 20% of the net income of their business to reduce their federal taxable income.

FICA Tip Credit

Starting in 2026, the FICA tip credit will also apply to beauty service establishments. Previously, the FICA credit was limited to the restaurant industry (providing, serving, or delivering food or beverages).

1099-K Threshold

Starting in 2026, the threshold that requires filing a form 1099-K reverts to $20k and 200 transactions. The threshold was supposed to be $2,500 for 2025 and was set to drop to $600 for 2026 and beyond.

I often see this incorrectly reported as the threshold at which you need to report the income on your income tax returns, however you’re supposed to report the income on your income tax return no matter the amount and no matter whether a form 1099-K is issued to you. The only change here is whether the form 1099-K is required to be issued based on the total of the payments and the number of transactions.

Pass-Through Entity Elective Tax Payments Remain

Business owners of pass-through entities, such as those taxed as s-corporations and partnerships, can continue opting-in to pay state income taxes on the profits of their businesses at the business level, thereby reducing their federal taxable income and avoiding the itemized deduction limit for state and local taxes.

Estate and Gift Tax Changes

While this is not a change to income taxes, I’m including this change on the list nevertheless.

For 2025, the federal estate tax exemption for someone that passes away is $13.99 million. The exemption is raised to $15 million in 2026 and is indexed for inflation.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

Choosing Between Roth and Pre-Tax Retirement Accounts

There are tradeoffs between Roth and Pre-Tax retirement accounts. The best choice depends on your situation. The guidance below can help you decide which is best for you, but contributing to either type of account over the course of your career is a great way to save for your future.

Roth Accounts:

-Greater long-term benefit if you’re younger (more years for growth on a retirement account balance you can distribute tax-free in retirement).

-Makes sense if you’re in a lower tax bracket now than you expect to be in later.

Watch out for income limits on Roth IRA contributions.

Pre-Tax Accounts:

-Upfront tax savings in the year of the contribution.

-Withdrawals are taxable, so it’s better if you expect to be in a lower bracket in retirement.

-Useful if you don’t have as many years left for compound growth.

Additional Info:

Having a combination of Pre-Tax accounts and Roth accounts over your career can be a good strategy. You can shift from Roth contributions to Pre-Tax contributions later in your career based on what’s best for you.

If your income is unusually low in a given year, you can consider a taxable Roth conversion (moving funds from a pre-tax account to a Roth account) while you are in a lower tax bracket.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

IRS.gov Account

Did you know that you can create an IRS.gov account to view information for your current and past federal income tax returns?

To create an account, go to IRS.gov and click Sign in to your account on the home page.

Select Individual to view information for your personal income tax returns.

You can log in with your ID.me account or create an account if you do not have one yet.

An IRS.gov account will allow you to:

  • View balances on previously filed federal tax returns.
  • Make federal tax payments securely.
  • Access IRS transcripts that provide information for your current and prior year tax returns.
  • Receive IRS notices and letters electronically.
  • Enroll in the Identity Protection PIN program, which requires an annual PIN number to e-file your personal federal tax return, and view your annual PIN online.

Estimated Tax Payments Due Jan 15

As a reminder, estimated tax payments for the 4th quarter of 2024 are due January 15, 2025.

Set Up Annual Recurring Calendar Reminders in Advance of these Federal Due Dates:

April 15 – First quarter estimated tax payments are due

June 15 – Second quarter estimated tax payments are due

September 15 – Third quarter estimated tax payments are due

January 15 – Fourth quarter estimated tax payments are due (15 days after year-end)

How to Pay:

I have instructions for making personal estimated tax payments for federal and states on my website here: https://jsuttoncpa.com/estimated-tax-payments/

1099-NEC Forms Due Jan 31

Businesses and self-employed individuals that pay individuals and businesses $600 or more for services are required to issue 1099-NEC forms. Formerly, these payments were reported for form 1099-MISC; however, the IRS created a new form solely for Non-Employee Compensation (form 1099-NEC).

Generally, two copies of 1099 forms are issued. One copy is filed with the IRS and the second copy is given to the individual/business that performed the services.

Certain Payments are Exempt from 1099-NEC Reporting. Exempt payments include:

  1. Payments below $600 (in aggregate for the entire calendar year)
  2. Payments made via debit card or credit card (the payment processor is responsible for issuing a different type of 1099, form 1099-K)
  3. Payments made via a payment processor where the payment processor is required to issue a 1099-K. You can typically find information on the payment processor’s website that indicates whether the payment processor issues a 1099-K form. For instance, this Zelle webpage says Zelle does not issue 1099 forms, meaning Zelle users are required to issue 1099-NEC forms for payments that require 1099-NEC reporting.
  4. Payments to corporations. You can typically tell if a business is a corporation if it has Inc, Corp, or Corporation in it’s name. Note that LLCs are not corporations and generally require 1099-NEC forms. Also note that payments to law firms, even if structured as a corporation, still require 1099-NEC forms.

How should you collect information and determine if a 1099-NEC is required?

You should have individuals and businesses that perform services for you complete a form W-9. A W-9 is an IRS form that is used to collect an individual or businesses’ name, address, tax type, tax ID number, and other information used to both determine if a 1099-NEC is required and prepare 1099-NEC forms.

What are the Due Dates related to 1099-NEC forms?

1099-NEC forms should be filed with the IRS and provided to the individuals/businesses the performed the services by January 31 of the following year. For instance, 1099-NEC forms reporting payments made in 2023 are due January 31, 2024.

How should you prepare & file the 1099-NEC forms?

There are a number of options available. One that I’ve used and recommend is Tax1099.com. You can e-file the 1099-NEC forms with the IRS for a small fee, import data from a spreadsheet template, view and print copies for your records, and pay a small fee to have them mail the 1099-NEC forms to the individuals/businesses on your behalf.

Need help?

Please reach out with questions.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

Starting a Business

The following are general recommendations when starting a small business or becoming self-employed:

Use a separate bank account (and optionally a business credit card). The stricter you are with separating business from personal transactions at the time of paying for something, the easier it makes record keeping and bookkeeping. Everything will be in one central place, and you don’t need to think back to separate business transactions from personal months afterwards.

Choose a business structure. Weigh the pros and cons of different options. Sole proprietorships are inexpensive options and generally have the same tax deductions available as other business types. LLCs allow flexibility to add additional owners or elect for different tax treatment down the road. An LLC can also offer limited legal liability in certain situations, though you should have appropriate insurance coverage for risks in your business. Annual fees for an LLC vary by state. Consider discussing the business structure with both a tax accountant and an attorney.

Tax payments – you are generally required to make estimated tax payments on your income. Generally, no one will withhold income tax from your business or self-employment income. The amount is an estimate. If you overpay the excess can be refunded. If you underpay, at least you reduced the amount owed. There are penalties for underpayment of estimated tax, so it’s generally safer to overpay than underpay. You don’t report to the IRS how much income you earned when making a payment. You simply make the payment for the amount you are ready to pay. For most business types (not c-corporations), your federal income tax payments should be made under your personal name and SSN.

Self-Employment Taxes – when you are a business owner or have self-employment income, your income is generally subject to self-employment taxes. Self-employment taxes are Social Security and Medicare taxes. For employees, your share of Social Security and Medicare taxes are withheld from your wages automatically and your employer pays the employer share of Social Security and Medicare taxes on top of your wages. When self-employed, you pay both the employer and employee share of Social Security and Medicare taxes. This is in addition to income taxes. The amount can be substantial and catch new business owners by surprise. Self-employment taxes are roughly 15% on the income (after expenses) from your business. Though there is a limit on income subject to Social Security tax ($168,600 for the 2024 tax year).

How to determine if something is a business expense: look at the purpose of the expense. Is it directly for business? For most business expenses, it’s clear whether it was a business expense (rent on an office space, paying wages to employees, website fees to advertise your business, etc.). If there is a significant personal component, it’s likely not a business expense or only a portion of the cost may be a business expense. Take meals as an example, were you meeting with someone for the primary purpose of networking for your business? That is likely a business expense. Or if the primary purpose is to satisfy hunger, that’s not a business expense, even if you have to eat to make it through the workday.

QuickBooks Online is the accounting system I recommend if you want to use software to track your business’ income and expenses. However, if you don’t expect much activity, you could get by with tracking transactions in a spreadsheet. I recommend the “Simple Start” QuickBooks Online subscription, which is their cheapest small business subscription (currently $35/month). If I start the subscription on my end, you’ll receive a 30% discount for 12 months. QuickBooks has a “Self-Employed” version and a “Small Business” version. I do NOT recommend the “Self-Employed” version as the features are extremely limited and it’s completely different from the “Small Business” plans that I have extensive familiarity with.

Payroll – payroll is only needed for paying wages to employees. Generally, business owners do not pay themselves via payroll (unless their business is taxed as an s-corporation or c-corporation). More than 95% of my clients that use a payroll service use Gusto.com for payroll. I’m happy to help with setting up Gusto’s payroll service.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.

Beneficial Ownership Information (BOI) Report

There is a new information report required for businesses called the Beneficial Ownership Information (BOI) Report. This post contains general information applicable to small business owners to notify them and help them understand this new reporting requirement. Filing the report online on the US Treasury’s website is free, easy, and straightforward (it should take less than 10 minutes to complete), but if you require any assistance, please contact me.

Why do businesses need to file this?

To comply with federal law and avoid significant penalties, businesses are required to file this report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury. According to the FinCEN’s FAQ on the BOI Report, the reports will be used to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.”

What is Reported?

  1. The business’ name, address, state of formation, and federal tax ID number.
  2. Each beneficial owner’s name, date of birth, address, driver’s license or other ID number, and a photo of the ID. This applies to anyone with 25% or greater ownership or substantial control over the business.

Reporting Frequency:

Beneficial ownership information reporting is not an annual requirement. Unless a company needs to update or correct information, a report only needs to be submitted once.

Note that a change in beneficial ownership, or any relevant beneficial ownership information, such as a change to a reporting business’ address or an owner’s address requires an updated report. Similarly, if the beneficial owner’s driver’s license or other ID number changes, it requires updating the report.

Who Has to Report?

  1. Corporations,
  2. Limited Liability Companies, and
  3. Other entities created by filing a document with a secretary of state,

Unless an exception applies…

Who is Exempt From Reporting?

  1. Sole proprietorships (note that LLCs taxed as sole proprietors are required to file the report).
  2. A business that meets an exemption on PDF page 11 of the Small Entity Compliance Guide. The next 10 pages of the linked guide provide clarifying details on who qualifies for the exemption.

How to Report:

File for free online at: https://boiefiling.fincen.gov/

It’s easy and straightforward to file. As indicated above, it requests basic information about the business and beneficial owners and should take less than 10 minutes.

Due Dates:

If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025 to file a BOI report.

If your company is created or registered in 2024, you must file a BOI report within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.

If your company is created or registered on or after January 1, 2025, you must file a BOI report within 30 calendar days after receiving actual or public notice that its creation or registration is effective.

Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.

Additional Resources:

1. Brochure on the BOI Report from the US Treasury:

https://fincen.gov/sites/default/files/shared/BOI%20Informational%20Brochure%20508C.pdf

2. FAQ on the BOI Report from the US Treasury:

https://www.fincen.gov/boi-faqs

3. Small Entity Compliance Guide on the BOI Report from the US Treasury:

https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

Attention Business Owners – Don’t Fall for Scams

Unscrupulous individuals search public business listings to find business owners to scam. They will send you letters that, at first glance, appear to be official forms from your state, but are actually solicitations. Often these scams include offering state issued documents you may not need, including various certificates, for fees that are marked up significantly from what the state would charge you.

The secret to identifying what is legitimate and what is a scam?

Read the letter.

The letters will often include text saying that it is a solicitation from a private, for-profit business that is not affiliated with any state agency.

Another give away is they want to you make a check payable to an entity other than a state agency that you are familiar with. They will choose a name for their business that is vague and generic (Example: Corporate Processing Service) and hope you don’t recognize that it’s not a state agency.

Not sure if a letter you received is a scam?

Try searching online for the supposed document they’re offering as well as other information on the letter. Is the document something your state offers at a lower fee? Is it a document you actually need? Often states are aware of these scams and will include warnings on their websites to help you tell legitimate communications from the state apart from scams.