Deciphering and complying with new laws is unfortunately something that all business owners must contend with. To make matters worse as we start a new year, there are several laws that were blocked by judges after millions of businesses had already started implementing them.
In this edition of the Tax & Business Letter, learn more about two business laws that are in legal limbo as we start 2025 and some suggestions for how to approach these situations.
Also read through several tips to make filing your business’s 2024 tax return smooth sailing.
As always, please reach out with any questions and forward this information to anyone who may find it of value.
Business Laws in Limbo to Start 2025
Several laws are in legal limbo to start 2025. Here’s a summary of where these laws currently stand and how they affect your business.
#1 – Law that’s in limbo: New overtime rules
Background: New overtime rules that may mean higher payroll expenses for your company have been blocked by a federal judge. Prior to July 2024, overtime pay was mandated for employees earning $35,568 or less ($684 a week). Under new rules that were supposed to take effect July 1, 2024, employees earning up to $43,888 would now qualify for overtime. Another increase was scheduled January 1, 2025, with employees earning up to $58,656 qualifying for overtime.
While the Department of Labor may appeal the rule’s injunction, the agency may still face an uphill battle to implement the rule with a new White House administration set to take office later this month. A similar rule proposed in 2016 to boost the overtime salary threshold was also blocked and never implemented.
How this affects your business: There’s still a possibility that this new overtime rule takes effect in the near future. Consider the following steps to ensure that your business is in compliance if the rule is allowed to take effect:
- Step 1: Identify affected employees. Look through your current payroll and identify employees who earn a salary of $58,656 or less.
- Step 2: Determine how to classify these identified employees. For the employees you identify in Step 1 who earn less than the salary threshold amount, conduct an analysis to determine whether each of these employees is now eligible for overtime. If so, you have a few choices: you can bump up their pay to avoid paying overtime to that employee; reclassify the employee to hourly and pay overtime as they clock enough hours; or have them keep time sheets and then pay overtime when their hours exceed the overtime requirements.
- Step 3: Prepare to update your payroll system. Team up with your payroll partner to ensure your payroll system is ready to be updated to reflect any changes to an employee’s overtime status is the overtime rule is allowed to go into effect. This includes updates to any official paperwork or documents.
#2 – Law that’s in limbo: Corporate Transparency Act (CTA)
Background: Required filing of beneficial owner information (BOI) on FinCEN.gov continues its roller coaster judicial journey. On December 26th, the requirement to file is (for now) officially on hold once again pending further judicial review. Last week the injunction to halt the filing requirement was overturned leaving your business until January 13, 2025 to file your report. Now that ruling is suspended.
How this affects your business: If enforcement of the CTA is allowed to continue, you’ll need to decide 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.
Stay tuned for updates as they become available.
Tax Return Filing Tips for Your Business
Consider these suggestions for helping to make tax season smooth sailing this year for your small business:
- Make sure your bookkeeping is up to date. Preparing an accurate tax return starts with accurate books. Reconciling your bank accounts is the first step in this process. Consider it the cornerstone on which you build your financials and your tax return. Up-to-date cash accounts will also give you confidence that you’re not over-reporting (or under-reporting!) income on your tax return.
- File employee-related tax forms. File all necessary W-2 and W-3 forms, along with the applicable federal and state payroll returns (Forms 940 and 941). Do this as soon as possible in January to allow time to identify any potential problems. The deadline is January 31 for both paper and e-filing of W-2s and W-3s.
- Get your information reporting in order. Identify anyone you paid during the year that will need a 1099. Look for vendors that are not incorporated like consultants or those in the gig economy. And don’t forget your attorneys. You will need names, addresses, identification numbers (like Social Security numbers) and amounts billed. Send out W-9s as soon as possible to request missing information. The 1099-NEC filing deadline is January 31 for both paper and e-filing with the IRS, while the 1099-MISC deadline is February 28 if paper filing and March 31 if e-filing.
- Reconcile accounts payable. To help get your 1099 information in order, reconcile your accounts payable and cash disbursements so you have an accurate picture of which vendors you paid in 2024.
- Organize credit card statements. If you use credit cards for your business, develop an expense report for each statement. The report should recap the credit card bill and place the transactions in the correct expense accounts. Attach actual copies of the expenses with the credit card statement. You will need this to support audits for both income tax and sales tax. Use this exercise to show you are only including business-related expenses by reimbursing your business for any personal use of the card.
- Compile a list of major purchases. Prepare a list of any major purchases you made during 2024. Once the list is created, find detailed invoices that support the purchase and create a fixed asset file. This spending documentation will be needed to determine if you wish to depreciate the purchase over time, take advantage of bonus depreciation, or immediately expense the purchase using code Section 179. Your choices create a great tax planning tool.
Should you need help, please reach out for assistance.
Tips to Improve Your Cash Flow in 2025
Here are three ideas to help improve your business’ cash flow in 2025.
- Focus on accounts receivable. The time value of money says that a dollar today is worth more than a dollar tomorrow (or at some point in the future). Remember the best way to improve cash flow is to encourage customers to prepay for orders and to actively manage your accounts receivable.
What to do now: Actively manage your accounts receivable activity. Calculate how long it takes (in days) for customers to pay their bills. Provide incentives to pay receivables more quickly and stay on top of slow payers. Identify slow paying customers and take action to close the door on future problems with them.
- Every non-cash asset matters. It is important to build your cash reserves when times are good. So review every asset on your balance sheet – accounts receivable, prepaid expenses, fixed assets, and inventory. Determine what it would take to convert each of them to cash.
What to do now: Create a fixed asset plan and stick to it. The plan should target how much you wish to spend each year and how you are going to pay for it. Also consider actively retiring assets before they have no value. Turn inventory back into cash by calculating your average inventory turns. Handle overstock items and obsolete items timely. If you have prepaid assets, make sure you are getting a steep discount for paying in advance and if not move to paying the bill monthly.
- Forecasting is your friend. According to a survey by The Service Corps of Retired Executives, 82% of small businesses that eventually fail do so because they run out of money. The best way to ensure this doesn’t happen to you is to create a rolling 12 forecast with a worst, most likely and best case scenario. This will tell you whether you have future cash flow risks long before they occur. It also keeps your forecast relevant as you look at it once a month.
What to do now: Create your forecast and identify any future cash needs. Then put a plan in place to address any projected shortfall in the future. Having a line of credit in place long before you need it can help navigate cash flow issues.
By keeping these cash flow basics in mind, you will greatly improve the likelihood your business will survive and thrive in 2025!
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
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