Admittedly, there’s a lot going on in the country right now.
My encouragement: don’t let yourself get caught up in doomscrolling, echo chambers, or just watching the news round the clock.
It’s good to be informed, but hypervigilance won’t help fix any problems. Yes, knowledge is power. But we can only handle so much on top of our daily life demands.
As your go-to tax pro who’s on the roller coaster ride with you, let me assure you that I will do anything I can to help prepare your The Woodlands business tax-wise for what’s coming. It’s one of the reasons I send out these regular writings.
Let me briefly address some 2024 trends that could bring potential 2025 tax changes at the local and state levels across the country.
- Local governments are facing budget pressures due to declining property tax revenues and commercial property values. As a result, many may turn to sales tax hikes to make up for the shortfall.
- Tax revenue is on the decline for state governments. Many are depleting their reserves, which could lead to new tax policies or additional fees.
- With 171 new local tax districts added last year nationwide, more businesses will be subject to additional taxes and compliance requirements.
- Audits are back to pre-pandemic levels, but the approach is changing. While large companies still face onsite audits, small and midsized businesses are seeing more remote audits. Be prepared for increased scrutiny and ensure compliance with sales and use tax regulations.
Clearly, it will pay to be more intentional with your books, budget, and tax situation this year. If you’re ready to knock out your tax filing and start to position yourself better for this upcoming year, get an appointment on my calendar:
woodlands-cpa.com/information-gathering/
And ask yourself, “Am I using every opportunity available to me to build my business’s financial well-being?”
I know it can be exhausting, the constant effort to do what’s best for your business. It never ends.
But it’s extremely necessary because it’s up to YOU to leave no stone unturned – to explore every possible means of strengthening your bottom line.
I’m not saying you have to use every possible strategy (indeed, you shouldn’t). Your focus is to educate yourself and take action on the strategies that make the most sense for you.
Weems’s Six Lesser-Known Small Business Tax Strategies
“Plan your work for today and every day, then work your plan.” – Norman Vincent Peale
Today, I’m going to give you a lot of “what” without a whole lot of “how” related to tax strategies for your business. That’s on purpose – because the integration of these strategies is very nuanced for your particular business and tax situation.
I would encourage you to use this as an opportunity to think big picture. Take a good look at your current tax strategy and (as humbling as it is) find room for improvement. Then we can talk about the particulars of how to take action.
Small Business Tax Strategy #1: Opportunity Zones
There are two main ways to get tax savings from Opportunity Zones (OZs): Investing your capital gains in an OZ or having a business located within one.
Method 1: Investing capital gains in an OZ fund.
If you sell an asset and reinvest your gains into a Qualified Opportunity Fund (QOF) within six months, you can defer paying taxes on those gains. The deferred taxes won’t come due when you sell your OZ investment – or by December 31, 2026, whichever comes first. And if your investment is held in the OZ fund for at least 10 years, any appreciation earned from the investment can be totally tax-free.
Method 2: Operating a Business in a Qualified Opportunity Zone (QOZ)
To qualify, your business has to meet a few quotas:
- Operate within an area that the government has deemed a Qualified Opportunity Zone (QOZ),
- Generate at least half of its gross income from activities within said zone, and
- Make sure that 70 percent of your tangible property is used there.
If you make the cut, you get perks like tax deferrals for real estate or equipment improvements and potential state and local tax credits. And if you want to sell your business in the QOZ after operating there for at least 10 years, any appreciation in its value is exempt from federal capital gains taxes.
Small Business Tax Strategy #2: Energy Credit Transfers
Thanks to the Inflation Reduction Act, you can monetize applicable energy credits by selling them to unrelated parties. And if you have a large tax liability, you can purchase them at a discount – sometimes paying only 85-95 percent of their face value.
Let’s say, for example, you decide you want to buy energy credits, and buy them from a broker at 90 percent of their face value. So, you buy 50K worth of credits for 45K. These credits then directly reduce your federal tax liability – so you saved by buying the credits at a discount AND got your tax liability knocked down.
Small Business Tax Strategy #3: Accountable Plans for Employee Reimbursement
If you reimburse your employees for work-related expenses (like mileage, meals, travel, or supplies) using an Accountable Plan is the way to go. With an Accountable Plan, those reimbursements don’t count as taxable income for your employees, and you avoid payroll taxes on those amounts too. And the cherry on top: You can claim deductions on those reimbursements as they’re business expenses.
All that’s required on your part is to draft a policy outlining 1) what types of expenses are reimbursable, 2) how employees should substantiate expenses, and 3) deadlines for submitting receipts and returning excess funds. And of course, you’ll want to claim deductions on those business expenses on your tax return.
Small Business Tax Strategy #4: Section 179 Deduction
With the Section 179 deduction, you can deduct the full purchase price of certain equipment, software, and property in the year it’s placed in service instead of spreading the depreciation over several years. For 2025, the expected is 1.25 million – thought this is subject to annual inflation adjustments, of course.
What qualifies? Equipment or property used more than 50 percent of the time for business purposes that is also placed in service during the tax year. BUT – the deduction can’t exceed your business’s taxable income. You CAN, however, carry forward any unused deduction to future tax years so you can benefit later if your income increases.
Small Business Tax Strategy #5: Qualified Business Income (QBI) Deduction
If you own a sole proprietorship, partnership, S-corporation, or LLC taxed as a pass-through entity, you may be able to deduct up to 20 percent of your QBI on your personal tax return (if you qualify). QBI refers to the net income your business generates minus wages you pay yourself, guaranteed payments to partners, and certain types of investment income.
To claim the full 20 percent, your taxable income can’t surpass the 2025 income thresholds of 364.2K for married filing jointly and 182.1K for all other filers. If you do exceed those income thresholds, things get a bit dicey. I’d be happy to talk you through the details if this is an opportunity that interests you.
Small Business Tax Strategy #6: Work Opportunity Tax Credit
You can get a credit of up to 9.6K if you hire people facing employment barriers. Qualifying individuals include veterans, people receiving government assistance, ex-felons, or the long-term unemployed, to list a few.
Typically, the credit is 40 percent of the first 6K in wages for employees working at least 400 hours in their first year. For anyone working between 120 and 399 hours, that drops to 25 percent of first-year wages. But at the very least, employees have to work 120 hours to qualify your business for the credit. For certain targeted groups, such as qualified veterans, the wage base can increase, and the credit can go up to 9.6K per eligible employee.
To claim the WOTC, you’ll need to certify the employee’s eligibility by submitting IRS Form 8850 and the required state workforce agency paperwork within 28 days of their start date.
I know, this is a lot to chew on. Like I mentioned earlier, there are a lot of nuances involved with putting these strategies into action. If you want to see how they could work for you, let’s get a chat scheduled. I’d be happy to help you figure out the nitty-gritty of how these strategies could specifically help YOUR Montgomery County business.
woodlands-cpa.com/information-gathering/
Helping you save more,
Aurelia Weems