It’s almost time to file your business’s 2024 tax return! To help make filing your return go as smoothly as possible, this month’s newsletter features several year-end tax tips to get you organized and find last-minute opportunities to cut your tax bill.
Also, included is an update on a federal judge blocking enforcement of new business ownership reporting rules.
As always, please reach out with any questions and forward this information to anyone who may find it of value.
As a reminder, we will be closing at 2pm on Tuesday, 12/24 and closed on Wednesday, 12/25 for the Christmas Holiday. And closing at 2pm on Tuesday, 12/31 and closed on Wednesday 1/1/25 for New Years Holiday.
Everyone at Business Accounting Systems wishes you and your family a beautiful holiday season!
Year-End Tax Tips for Your Business
Here are some year-end tax tips to consider for your business.
- Get financials up-to-date. Filing a 2024 tax return for your business where you don’t overpay or underpay your taxes starts with accurate and timely financial records. So if you have not already done so, get your financial records up to date. Then when December is completed, it will be a simple update. This will make filing your tax return in early 2025 much easier.
Bonus tip: Pay special attention to your retained earnings or equity accounts reported on your 2023 tax return. This 2023 ending balance should equal 2024’s beginning balance in your general ledger.
- Compare your 2024 tax bill with 2025. Calculate your business’s 2024 tax bill, then estimate what your 2025 tax bill using current tax law. Look to see if there’s an opportunity to shift some income into the year with the lower tax rate, while paying expenses in the year that has the higher tax rate.
Bonus tip: If you plan on making a capital purchase before the end of 2024, remember that the asset or piece of equipment must be fully placed in service by the end of 2024, not just paid for by December 31st.
- Be prepared to receive 1099-Ks. Payment processing companies such as PayPal, Venmo, and credit card companies must issue 1099-Ks to every business and individual that exceeds $5,000 in electronic payments processed in 2024. So be prepared to receive a 1099-K from each payment processor with whom you exceeded the $5,000 threshold.
Bonus tip: Remember, you must account for all your income whether or not you receive a 1099-K. Just be sure to save all 1099-Ks you receive and ensure they are reported on your business’s tax return.
- Identify vendors that need a Form 1099. Identify all vendors who require a 1099-NEC or a 1099-MISC. Obtain tax identification numbers for each vendor if you haven’t already done so. Copies of most versions of 1099 forms must be sent to your vendors by January 31, 2025.
Bonus tip: Remember that electronic filing is now required for ALL federal forms if you file more than 10 total tax forms.
- Review federal and state laws that apply to you. There are discussions about extending and/or making permanent many of the provisions contained in the Tax Cuts and Jobs Act (TCJA) of 2017. Many of the individual provisions and several of the business provisions are scheduled to expire at the end of 2025, so paying attention to any legislation forthcoming that could change any of this tax landscape is important in 2025.
Bonus tip: New overtime rules that went into effect July 1st are blocked by a federal judge. Consult with your tax and legal advisors to determine how this legal challenge affects your business.
Judge Blocks Enforcement of New Ownership Reporting Rules
Department of Justice to appeal ruling
Enforcement of a new law requiring the identity of millions of business owners to be reported to the Financial Crimes Enforcement Network (FinCEN) was blocked by a federal judge earlier this month.
Here’s what you need to know about this legal ruling and how it may affect your business.
Background
Millions of small businesses began reporting information about its owners to FinCEN in January when the new Corporate Transparency Act (CTA) took effect. The CTA requires specified businesses to file a Beneficial Ownership Information (BOI) report that identifies individuals who own at least 25 percent of the business or who have substantial control.
According to FinCEN, collecting this information is meant to protect national security by making it easier to find corruption, money laundering operations, tax evasion, and drug trafficking organizations. This ownership information will be shared with approved agencies including Federal and State law enforcement and Federal tax authorities.
In blocking the enforcement of the CTA nationwide, Judge Amos Mazzant says in his memorandum opinion that the CTA “is likely unconstitutional as outside of Congress’s power.” Mazzant noted that “the Commerce Clause does not justify regulating all companies based on nothing more than a fear that a reporting company might shelter a financial criminal.” He further stated that the Necessary and Proper Clause only grants Congress authority to take actions “in conjunction with some enumerated power,” but determined that the CTA was not sufficiently related to any enumerated power.
What You Need to Know
Mazzant’s ruling temporarily exempted all businesses nationwide from complying with the CTA by filing a BOI report. The ruling, though, did NOT declare the CTA unconstitutional. If an appeals court overturns Mazzant’s injunction, there’s a possibility that the following deadlines as originally written in the CTA will be enforced:
- If your company was created prior to 2024, you must file your initial Beneficial Ownership Information (BOI) report before January 1, 2025.
- Companies formed during 2024 have 90 days to file their initial BOI report, while companies formed in and after 2025 must file their initial BOI report within 30 days of being registered or created.
Determine if your business must comply
If it’s determined that enforcement of the CTA can continue, you’ll need to determine if your business must comply with CTA’s reporting requirements by filing a BOI report. As the CTA is written, any company created in the United States that has registered with a secretary of state or any similar office under the laws of a state or Indian tribe, or foreign companies registered to do business in the U.S., is subject to these new reporting requirements.
There are, however, nearly two dozen types of businesses that are exempt from these new reporting requirements, including sole proprietors, accounting firms, insurance companies, banks, and large businesses (more than $5 million in sales, more than 20 U.S. full time employees, and a physical location in the U.S.). The full list is available on www.fincen.gov.
5 Numbers That Will Make or Break Your Business
Regardless of the type of business you’re running, actively monitoring a few key numbers is often what’s needed to keep your company growing and prosperous.
A company’s key indicators often fall into one or more of the following categories:
- Order volume. Find the metric of orders that makes sense for your business. Measure the number of orders versus last month and last year. Then look at year to date numbers and compare them to last year. Are you selling more units over time? Tracking revenue alone may present a false picture. After all, revenue may be growing because prices have increased. If unit sales are declining, you might be losing market share.
- Breakeven point. Determine how much gross margin (sales minus cost of goods) you need to cover your ongoing expenses. These ongoing expenses like rent, supplies, utilities, advertising, insurance and other expense should be totaled and divided by twelve to determine your average monthly breakeven point. You will need a gross margin that averages above this breakeven point to show a profit at the end of the year. If you’re dipping into reserves to cover revenue shortfalls, adjustments may be required. So calculate and know this number for your business.
- Liquidity. Knowing whether there is enough to pay your bills now and into the future is key. So create and maintain a 12 month financial forecast. This includes both your income statement and balance sheet. Then translate it into a statement of cash flow. If done correctly, you can see when you will need cash. Then plan accordingly to ensure the proper liquidity is available when you will need ti.
- Inventory Turnover. This number shows how many times your company sells and replaces inventory during a given period. The higher the number, the better. Assume your company’s cost of goods sold for 2024 was $100,000, beginning inventory on January 1, 2024 was $10,000, and ending inventory on December 31, 2024 was $15,000 (for an average of $12,500). Your cost of goods sold of $100,000 divided by $12,500 equals a turnover ratio of 8.0. Banks and investors love to look at this number as the higher the turnover, the less likely you cannot change the inventory back into cash by selling it.
- Payroll (and Contractor) Percentage. Take your total payroll costs (including benefits) add contractor costs and divide it by net sales. This percent of sales is then compared to budget and prior years. Try to maintain or shrink this percent. Don’t forget to add part-time and contract workers to this total, as many businesses are relying more on this source of workers in this tight labor market.
Over time your business’s vital numbers may change. The key is to know your company, identify changing conditions and adapt.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this newsletter. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Business Accounting Systems, P.C. have any control over, or responsibility for, the content of any such Websites. All rights reserved.