Business website costs: How to handle them for tax purposes
The business use of websites is widespread. But determining the proper tax treatment for the costs involved in developing a website can be difficult. The IRS hasn’t yet released formal guidance on when website costs can be deducted, so you must apply existing guidance that’s available on other costs to the issue of website development costs. The exact treatment of website design costs depends on whether they’re software or hardware and whether they’re part of a start-up business. If you hire third parties to set up and run your website, payments are currently deductible as ordinary and necessary business expenses. Contact us if you have questions or want to plan for website costs.
IRS announces per diem rates for business travel
The IRS recently announced special per diem rates that can be used to substantiate business expenses incurred for travel away from home on or after October 1, 2020. Employers using these rates to set per diem allowances can treat the amount of certain categories of travel expenses as substantiated without requiring employees to prove the actual amount spent. For travel within the continental United States, employers can use the optional high-low method for substantiating lodging, meals and incidental expenses, or for substantiating meal and incidental expenses only. The per diem rules can greatly simplify the process of substantiating business travel expenses. Contact us for more info.
2020 Q4 tax calendar: Key deadlines for businesses and other employers
Here are a few key tax-related deadlines for businesses and other employers during Quarter 4 of 2020. OCT. 15: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2019 income tax return. NOV. 2: Report income tax withholding and FICA taxes for Q3 2020 (unless you’re eligible for a Nov. 10 deadline because you deposited on time (and in full) all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2020 estimated income taxes. Contact us for more about the filing requirements and to ensure you’re meeting all applicable deadlines.
Tax implications of working from home and collecting unemployment
COVID-19 has resulted in many changes in our lives, and some of them have tax implications. For example, many employers have required employees to work from home. Unfortunately, employee business expense deductions (including expenses to maintain a home office) are disallowed from 2018 through 2025. However, if you’re self-employed and work from a home office, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules. Another tax-related situation involves people who are laid off and collecting unemployment benefits. Be aware that these benefits are taxable and must be reported on federal income tax returns for the tax year received.
Weighing the risks vs. rewards of a mezzanine loan
The economic impact of the COVID-19 pandemic has hurt many companies but also opened opportunities for others to expand or pivot into more profitable areas. If your business needs working capital to grow, rather than simply survive, consider a mezzanine loan. These work by layering a junior loan on top of a senior (or primary) loan, combining aspects of senior secured debt from a bank and equity-based financing from direct investors. The advantages: a relatively quick approval process and access to working capital that you may be unable to obtain elsewhere. Drawbacks include high interest rates and potential loss of ownership share if delinquency or default occurs. Contact us for more info.
Prioritize customer service now more than ever
As companies adjust to the COVID-19 crisis and resulting economic fallout, prioritizing customer service is more important than ever. Success starts at the top. Encourage your management team and fellow business owners (if any) to regularly interact with customers. Moving down the organizational chart, cultivate customer-service heroes by celebrating achievements and empowering employees. Leverage the latest technology to deploy a system of immediate or at least timely customer feedback. Continually reassess your approach to customer service to suit the changing circumstances of not only the pandemic, but also your industry and local economy. Contact us for help.
Employers have questions and concerns about deferring employees’ Social Security taxes
The IRS has issued guidance to employers about the presidential action to allow employers to defer certain payroll taxes. Notice 2020-65 was issued to implement President Trump’s executive memo signed Aug. 8. The deferral involves wages or compensation paid to an employee beginning Sept. 1, 2020, and ending Dec. 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or an equivalent amount in other pay periods. The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning Jan. 1, 2021, and ending April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021.
Homebuyers: Can you deduct seller-paid points?
Despite the pandemic, the National Association of Realtors reports that existing home sales and prices are up nationwide, compared with last year. If you’re a homebuyer, you may wonder if you can deduct mortgage points paid on your behalf by the seller. Yes, you can, subject to some important limitations. For example, the rule allowing a deduction for seller-paid points doesn’t apply to points that are allocated to the part of a mortgage above $750,000 ($375,000 for marrieds filing separately) for tax years 2018 through 2025 (above $1 million for tax years before 2018 and after 2025). It also doesn’t apply to points on a loan used to improve (rather than buy) a home and in other situations.
Back-to-school tax breaks on the books
Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person or a combination. In any event, parents may be eligible for certain tax breaks to help defray the cost of education. For example, with the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 for each full-time college or grad school student. This applies to qualified expenses including tuition, room and board, books and computer equipment and other supplies. But the credit is phased out for moderate-to-upper income taxpayers. This is only one of the tax breaks available for education. Contact us for assistance in your situation.
ESOPs offer businesses a variety of potential benefits
Wouldn’t it be great if your employees worked as if they owned the company? An employee stock ownership plan (ESOP) could make this a reality. Under an ESOP, employees take part ownership of the business through a retirement savings arrangement. Among the biggest benefits for employers, along with having an extra-motivated workforce, is that contributions to qualified retirement plans such as ESOPs are typically tax-deductible. The company can also benefit from a clearer path to a smooth succession. There are some risks, however, including complexity of setup and administration, and a strain on cash flow in some situations. Please contact us to discuss further.