By Ashley Sly, Senior Tax Manager, MHCS
Tax season is upon us once again. Business owners often dread this time of year due to the amount of information to accumulate, the feeling of not fully understanding tax code, and the number of deadlines to track. While an easier tax season cannot be promised, there are some tips and strategies to navigate through the tax filings and potentially lower your tax liability.
- Be Aware of Deadlines
Multiple tax filing deadlines fall between January and April and there are other tax deadlines throughout the year for income tax estimates, payroll filings, sales tax, extensions, etc. Knowing what deadlines impact you and your business can eliminate stress, mistakes, and unwanted surprises. It is also important to understand what internal deadlines your CPA may have to deliver timely filings. It may be helpful to put these deadlines on your calendar to be aware of what is due and when, so you can plan accordingly. - Be Prepared to Wait
The Tax Cuts and Jobs Act of 2017 contained a provision to begin phasing out bonus depreciation in 2023. Bonus depreciation, an option to accelerate depreciation on acquired fixed assets in the year of purchase, is currently at 60% for 2024, and is set to be 40% for 2025. To create a more favorable tax environment for businesses, members of the newly elected administration in Washington, D.C. have discussed passing tax legislation to retroactively revert bonus depreciation back to 100% for 2024 and also retroactively fix a technical glitch with the Research and Development Tax Credit. Progress on moving these tax changes forward is not expected until later this spring, which creates concerns with the March 15th and April 15th tax filing deadlines. Until more information is available, it may be recommended to calculate tax liabilities based on the current tax law, pay an extension payment, if applicable, and extend your tax return(s) until more information is available. - Utilize Pass-Through Entity Tax Elections.
Generally, both federal and state income tax on a pass-through entity’s taxable income is paid by the entity’s owners. Because individuals cannot deduct more than $10,000 of state and local income tax as an itemized deduction, this can limit the owners’ deduction for state income tax on the entity’s income. The Pass-through Entity Tax (PTET) election allows pass-through businesses to elect to pay state income tax on their business income at the entity level. In other words, the entity elects to pay the state income tax due on the business income that would otherwise pass through to owners and be subject to state income tax at the owner level. The federal itemized deduction cap for state and local taxes that applies to individuals does not apply to the pass-through entity. Instead, the state income taxes reduce the business income that flows throw to the entity’s owners. Currently, of the 42 states that impose a personal income tax, 35 have enacted legislation allowing a PTET election (including Iowa). Ultimately, the PTET election may provide favorable tax benefits for you and your business. - Establish a Tax-Favored Retirement Plan
If your business doesn’t already have a retirement plan, now might be the time to take the plunge. Current rules allow for significant deductible contributions while also putting away a sizeable amount towards retirement.
The general deadline for setting up a tax-favored retirement plan, such as a SEP or 401(k) plan, is the extended due date of the tax return for the year you or the plan sponsor want to make the initial deductible contribution. Even if you can’t make a contribution for 2024, it’s still a good time to establish a plan because the sooner you get cash into the plan the more it can grow on a tax-deferred basis. - Start Planning for 2025 Tax Filings
It’s never too early to begin planning for the 2025 tax year. Discuss tax planning for 2025 with your CPA to determine what, if any tax estimates are needed. This is also a good time to discuss tax strategies for 2025 and future years. If you plan on selling your business or passing it to the next generation also discuss these plans with your CPA to develop a long-term tax strategy. Planning ahead can allow for you and your business to appropriately budget, eliminate last minute surprises, and make the next tax season less stressful.
By staying informed and proactive, business owners can navigate tax season more efficiently and take advantage of valuable tax-saving opportunities. Work closely with your CPA, establish long-term strategies, and keep an eye on evolving tax regulations. Preparation today will not only ease your current tax burden but also set your business up for continued success.
NAWBO Iowa thanks member Ashley Mowery, Principal, and her colleague Ashley Sly, Senior Tax Manager, at MHCS for taking time during their busy season to provide essential information to our members!
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| Ashley Mowery | Ashley Sly |
