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The days of pure amateur athletes performing for our nation's colleges are officially over. In the current environment, the National Collegiate Athletic Association (NCAA) allows student-athletes to be paid for "name, image and likeness" (NIL) aspects. This has created a pay-for-play attitude in college athletics with prospective students often opting to go to the school that's the highest bidder. The tax ramifications of payments for NIL are still evolving. On the federal level, it's been well-established that student-athletes generally must report NIL compensation as taxable income on their personal tax returns. But state income taxation of NIL is proving to be a thornier issue. What Are the Basic Ground Rules? In 2021, the NCAA authorized payments to college athletes for NIL activities, reversing decades of bans against compensating these amateurs. In fact, previous NCAA investigations resulted in stiff sanctions for colleges that committed infractions in several high-profile cases. Now a student-athlete may be rewarded monetarily just for showing up the first day of school! The lifting of NCAA restrictions has coincided with the use of the collegiate "portal" that allows student-athletes to move freely from one school to another without penalty or loss of eligibility. The most common method of NIL payment is from brand endorsements and social media connections. Furthermore, there's no ceiling on the amount of money or benefits an athlete can earn from NIL. Some of the deals can ultimately reach into seven figures. The NIL money often comes from schools, boosters and other organizations. Notably, so-called collectives have been formed by alumni fans and other supporters of collegiate athletic programs. These collectives aren't officially affiliated with the college or university, but their intentions are clear. To this point, the IRS has generally denied tax-exempt status for collectives under 501(c)(3) of the tax code, so boosters can't deduct their contributions. But that hasn't dampened the enthusiasm. Nevertheless, there's some rain on the parade of free-flowing cash for those fortunate enough to have the requisite athletic prowess. The IRS generally treats NIL income received as taxable income, while state income tax may also be a concern. In addition, a student-athlete must report the taxable income on their Free Application for Federal Student Aid (FAFSA) form. This could jeopardize financial aid. Similarly, NIL could have an impact on Pell Grants awarded to qualified recipients. What Are the Federal Tax Consequences? Generally, a student-athlete is required to submit Form W-9, "Request for Taxpayer Identification Number and Certification," to receive NIL income from an entity. The IRS will use this completed form to match information from the entity. If things don't match up, the IRS computers could flag the returns for closer inspection. If a student-athlete is employed by an entity, they'll have to complete Form W-4, "Employee's Withholding Certificate," like any other employee. The usual tax rules for employees will then apply. Most students will be independent contractors and, therefore, self-employed. Thus, they'll be required to file Schedule C. The distinctions often are based on the type of income received. Cash awards. Cash awards are reported on the Form 1099-NECs that student-athletes will receive for each year. These awards are included in their taxable income as well as self-employment income reported on Schedule C. As opposed to wages, no tax is withheld. Normally, the student-athlete will make quarterly estimated tax payments instead. Sponsorships and services income. This is a common arrangement for NIL deals. The student-athlete may be showcased at an event where they present a sponsor's services or logo. Again, the income is reported on Form 1099-NEC with the same tax repercussions as cash awards. Royalty income. If the student-athlete is compensated for NIL on media sources (for example, video games), the compensation is treated as taxable royalty income. The key distinction between royalty income and sponsorship and services income is that the athlete isn't obligated to present the sponsor's logo or products. Noncash awards. Generally, noncash NIL awards are considered to be taxable income. For example, a student-athlete may receive benefits for signing autographs, appearing in advertisements or participating on social media. They must notify the school program and include the consideration in taxable income. What Are the State Tax Consequences? It didn't take long for state tax revenue collectors to figure out that they could also get a piece of the pie from NIL income. But there are some special wrinkles in this area because student-athletes typically generate NIL income in multiple states. For these purposes, a student-athlete must, at the very least, pay tax to the state where they reside. For example, if you are a student-athlete and live full-time in California outside of the school year, your state of residency is California. It doesn't change because you go to a university in another state, even though you play most of your games there. It's important for student-athletes to understand the rules for establishing domicile in their home state, especially if they intend to change their official state of residency. For example, it might be beneficial to seek a change if the college is in a state without any state income tax. But now states across the country are throwing a monkey wrench in the works. They're collecting their share of tax revenue from NIL when student-athletes visit their states for sporting events. This practice is an extension of the philosophy being applied by the states to professional athletes and other entertainers. For example, if an athlete from the University of Southern California plays in a road game at Oregon, the state of Oregon could tax the player for a portion of their NIL attributable to the game in Oregon.   Some states have agreed to reciprocity laws with each other that protect student-athletes from duplicate tax. For instance, the "DMV" area comprised of the District of Columbia, Maryland and Virginia has legislation protecting residents from additional taxation. Find out more details for specific areas from your professional tax advisors. Following the Rules of the Game This is an area that is fraught with tax perils for the uninformed. Although student-athletes can prosper from NIL, they must be careful to observe all the tax rules, including making estimated tax payments if they're not having tax withheld, and to stay updated on the latest developments. A team of professional advisors can help. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here.  We love customer feedback! Please leave us a review here!   © Copyright 2024. All rights reserved.Brought to you by: Brewer, Eyeington, Patout & Co. LLP

The gift tax exclusion is among the most valuable tools available to transfer assets to family and other loved ones without ending up with an unwelcome tax bill for the givers or recipients. Year end often is a busy time for gifting, as taxpayers move to take advantage of the annual exclusion. However, the impending end of the increased lifetime exemption offers another incentive to act now. Annual Gifting The federal estate tax rate ranges from 18% to 40%. Annual gifting can be an effective strategy to reduce the size of your taxable estate. The savings may be significant, especially when you transfer assets that are expected to appreciate over the short run or are subject to substantial valuation discounts (for example, for lack of marketability or control). For 2023, the annual gift tax exclusion is $17,000 for each recipient. The IRS doesn't impose any limit on the number of individuals to whom you can make tax-free gifts. And, if you're married, your spouse can gift another $17,000 to the same recipients, doubling your gifts and reducing your combined estate by $34,000 for each recipient. Note: For 2024, the annual gift tax exclusion will increase to $18,000 for each recipient. That can add up. For example, if you and your spouse each make gifts to your 10 grandchildren in 2023, you can remove $340,000 from your estate. And you can more than double the amount you remove from your estate by making gifts in both December 2023 and January 2024. If you make gifts to someone other than your spouse this year that exceed the $17,000 limit, you'll need to file IRS Form 709, " United States Gift (and Generation-Skipping Transfer) Tax Return." You and your spouse must file separate returns — no joint return is available for gift taxes. You must file a separate return for each calendar year a reportable gift is given. Lifetime Exemption Scheduled to Change If you make gifts that exceed the annual exclusion, you aren't required to pay taxes, but you'll reduce the amount of your lifetime gift and estate exemption that's available at your death. For 2023, the federal exemption is $12.92 million ($25.84 million for married couples). The estate tax generally is computed by adding taxable gifts to the deceased person's gross estate and then reducing that figure by the lifetime exemption in effect at death. Note: For 2024, the federal lifetime gift and estate exemption increases to $13.61 million ($27.22 million for married couples). The Tax Cuts and Jobs Act of 2017 nearly doubled the exemption. But the provision is scheduled to sunset after 2025, absent Congressional action. At that point, the exemption would return to its previous level of $5 million (adjusted for inflation). In 2019, the IRS issued a final "anti-clawback" regulation that will allow post-2025 estates to calculate taxes based on the lifetime exemption in effect at the time large gifts were made (assuming they're made from 2018 through 2025), rather than the smaller limit that may be in effect at the time of death. Important: Some states impose estate or inheritance tax at a lower threshold than the federal government does. So it's also important to understand the rules in your state to avoid an unexpected tax liability or other unintended consequences of an asset transfer. Eligible Transfers Not every asset transfer is a "gift" in the eyes of the IRS. Generally, the federal gift tax applies to any transfer by gift of real or personal property, tangible or intangible, that you made directly or indirectly, in trust, or by any other means. Examples include: Cash, Real estate, Stocks and bonds, Business interests, Vehicles, and Collectibles. The gift tax doesn't just apply to the free transfer of property. It also may apply to certain sales or exchanges where, for example, the value received is less than the value of the property sold or exchanged. Other situations where it may apply include: Forgiveness of debt, Interest-free or below-market interest rate loans, Transfer of benefits from insurance policies, Property settlements as part of divorce litigation, or  Annuities in exchange for creating survivor annuities. The gift tax applies to digital assets, too. The IRS defines digital assets as any digital representations of value that are recorded on a cryptographically secured distributed ledger (for example, blockchain) or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. On the other hand, the gift tax doesn't apply to tuition that you pay on behalf of another person. The payment must be made directly to the qualifying educational organization and for only tuition. No educational exclusion is allowed for books, supplies, room and board, or other expenses that aren't direct tuition costs. Contributions to a 529 plan also aren't excluded from the gift tax. However, you can accelerate up to five years' worth of annual gift tax exclusions to make a large 529 contribution in a single year. In 2023, an accelerated contribution will max out at $85,000 ($170,000 for a married couple). Similarly, medical expenses paid on behalf of another person are excluded from the gift tax if they're paid directly to the medical provider. The expenses must qualify for the medical expense tax deduction, and the exclusion doesn't apply to costs reimbursable by the person's insurance. Plan Carefully Although the annual gift tax exclusion is expected to continue for the long run, the clock may be ticking on the generous lifetime exemption. We can help you with an estate plan that maximizes the benefits for you and your loved ones.   © Copyright 2023. All rights reserved.Brought to you by: Brewer, Eyeington, Patout & Co. LLP

The holidays are often referred to as "the most wonderful time of year" — and for some people, that's due in part to their year-end bonuses. While bonuses are an important part of rewarding employee performance and enhancing retention, they also can raise a variety of tax issues for both employers and employees. Here's what you need to know if you give or receive a bonus. The Employee's Side of the Story As an employee, you generally must report a bonus as income in the year you receive it, regardless of the form it comes in (for example, cash or cryptocurrency). It's irrelevant when you deposit it because, in the eyes of the IRS, it's your income as soon as it's made available. On the other hand, if you receive a bonus after the New Year in recognition of your 2023 performance, it's taxable for 2024, not 2023. Could a substantial bonus push you into a higher tax bracket? This may be an unavoidable side effect of a major payout, but, under our marginal tax system, the higher rate will apply only to your taxable income that exceeds the relevant threshold. For example, if you end up in the 32% tax bracket in 2023, the 32% rate applies only to your taxable income in excess of $182,100, not your entire taxable income. What can you do to reduce your tax liability from a substantial bonus? There are several options. For example, you could invest your bonus in your 401(k) or health savings account (HSA). You also could increase itemized deductions, if you claim them, by taking steps such as donating to charity. But pay close attention to the relevant deadlines for such tax-planning moves to apply for 2023. If you expect to have less taxable income next year (for example, because you plan on retiring), consider asking your employer to defer the bonus into 2024 so you'll pay a lower tax rate on it. Deducting Bonuses Paid to Employees Employers generally can deduct the cost of bonuses paid to employees before year end, assuming they represent compensation for services rather than a gift. Tax regulations may complicate matters for bonuses paid after year end, though. For employers that use cash-method accounting, it's simple — they can't deduct a bonus paid in 2024 on their 2023 tax returns. However, accrual-method businesses may have some breathing room. Under the 2½-month rule, those businesses can deduct a bonus paid for performance in one year if the employee receives it within 2½ months after year end. After that time, the IRS presumes the bonus is deferred compensation, which isn't deductible in the year earned but only in the year it was actually or constructively paid. The 2½-month rule applies only to nonrelated employees. If the employee is the employer's spouse, child, sibling, parent or grandparent, the business must deduct the bonus in the year the bonus recipient reports it as income, which is most likely the year it's paid out. Withholding Rules Federal income taxes must be withheld from bonuses, similar to regular wages. But different rules come into play, because bonuses are considered "supplemental wages." Other examples of supplemental wages include: Commissions, Overtime compensation, Severance pay, Awards and prizes, Back pay, Tips, and Payments for nondeductible moving expenses. Employers need to withhold the usual FICA taxes — meaning the 6.2% Social Security tax and the 1.45% Medicare tax — and the federal unemployment tax. The federal income tax withholding amount depends on the total amount of supplemental wages an employee receives during the tax year. Here's how it works: If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 37% (or the highest rate of income tax for the year). You should withhold at that rate even if the employee's Form W-4 indicates otherwise. The regular withholding rules apply to the amount under the $1 million threshold. Additional Rules The following rules also apply for supplemental wages of $1 million or less: If you pay supplemental wages with regular wages without specifying the amount of each, you should withhold federal income tax as if the total were a single payment for a regular payroll period. If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), you can 1) withhold a flat 22% of the bonus, or 2) use the aggregate method (an IRS formula) to calculate the amount to withhold. Be aware of state income tax withholding obligations, too. If the employer withholds more than turns out to be necessary, the employee will receive a refund. Conversely, withholding too little could leave the employee with an unexpected tax bill. What if you pay the employee's share of taxes on a bonus? In that case, the taxes paid are considered additional wages to the employee and are subject to payroll taxes. So, a tax-free bonus is basically impossible. Plan Ahead Most taxpayers know that good intentions don't cut it with the IRS. We can help you cover your bases when it comes to the tax issues related to year-end bonuses — whether you're an employer or an employee. © Copyright 2023. All rights reserved. Brought to you by: Brewer, Eyeington, Patout & Co. LLP

The Social Security Administration (SSA) recently announced that the "wage base" for computing Social Security tax will increase for 2024 to $168,600. This is up from $160,200 for 2023. Social Security "Earnings Test" Amounts Also Go Up for 2024 The Social Security program allows workers to start receiving benefits as soon as they reach age 62 — or to put off receiving benefits until age 70. "Full retirement age" is when individuals become eligible to receive 100% of their Social Security benefits. Those born in 1942 or before were eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months. Still working? Starting Social Security benefits before reaching your full retirement age brings into play the so-called "earnings test," which limits the amount you can earn while collecting Social Security benefits. If you're under the federal retirement age, the limit will be $22,320 for 2024 (up from $21,240 for 2023). This means that for every $2 over this limit, you must forfeit $1 in benefits. For individuals who reach the federal retirement age in 2024, the earnings limit will be $59,520 for the months before you reach your federal retirement age (up from $56,520 in 2023). In this case, $1 in benefits must be forfeited for every $3 over the limit. Starting in the month you reach your federal retirement age, your Social Security benefits won't be reduced no matter how much you earn. Federal law limits the amount of earnings that are subject to the Old-Age, Survivors, and Disability Insurance (OASDI) tax in a given year. This threshold, referred to as the Social Security wage base, means that if you earn more than $168,600 in 2024, you won't pay OASDI tax on the amount above that. Workers will continue to be taxed at the 6.2% OASDI tax rate on wages up to this base amount. Adding It Up In addition, employees must pay Medicare tax on all wages. For 2024, an employee will pay: 6.2% Social Security tax on the first $168,600 of wages, making the maximum tax $10,453.20 (6.20% times $168,600), plus 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). Self-Employed Individuals The Social Security and Medicare tax rates for self-employed individuals are doubled. However, these taxpayers can deduct half of these employment tax payments on their federal income tax returns to arrive at adjusted gross income So for 2024, self-employed people will pay: 12.4% Social Security tax on the first $168,600 of self-employment income, plus 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return and $125,000 on a separate return) plus 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return and $125,000 for married taxpayers filing a separate return). The SSA also announced that Social Security and Supplemental Security Income (SSI) benefits will increase by 3.2% in 2024 — significantly less than the 8.7% SSI benefits increase in 2023. The average monthly Social Security benefit will increase from $1,848 to $1,907, and the maximum federal SSI monthly payment to an individual will increase from $914 to $943 in 2024. The maximum federal SSI monthly payment to a couple will increase from $1,371 to $1,415 in 2024. Want More Information? If you have questions about Social Security tax or benefits and how they affect you, consult with your tax and financial advisors. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Section 529 plans can be a tax-smart way to save for college and other qualified education expenses. Contributions to these plans aren't deductible for federal tax purposes, but earnings and gains accumulate federal-income-tax-free. Then you can take federal-income-tax-free withdrawals to cover qualified education expenses. What happens if a 529 account turns out to be overfunded — or if you're strapped for cash and want access to the funds to pay bills? Here's an overview of the federal income tax consequences when a 529 account balance won't be used to pay qualified education expenses for the account beneficiary, including a new option. If the Account Beneficiary Skips College If your child isn't ready to go to college after graduating high school, it may be advisable to hold tight for a couple years. The account beneficiary may decide to go to college later. Unless the 529 plan restricts how long the account can remain open, you can leave the funds invested for several years. The money will be there if your child eventually decides to go to college. If after a few years the designated beneficiary still doesn't want to pursue higher education, consider these options: Change the account beneficiary. An easy solution is to name a new beneficiary for the 529 account, if you have one. This can be done on a tax-free basis if the new beneficiary has one of the following family relationships to the original beneficiary: Sibling or step-sibling Spouse First cousin or spouse of first cousin Less-likely family members may include the original beneficiary's: Brother-in-law or sister-in-law Child, stepchild, foster child, adopted child or other descendent Son-in-law or daughter-in-law Parent or stepparent Father-in-law or mother-in-law Niece or nephew (or the spouse of a niece or nephew) Aunt or uncle (or the spouse of an aunt or uncle) Depending on the 529 plan, you can fill out a beneficiary change form online or print a paper copy and mail it. You can also do a tax-free rollover of a 529 account balance into a new account set up for a new beneficiary who has one of these family relationships to the original account beneficiary. Take advantage of the expanded definition of qualified education expenses. For purposes of taking tax-free 529 account withdrawals, qualified education expenses include more than just costs to attend a traditional college or university. 529 funds also can be used to pay for technical and professional schools, if those educational institutions participate in financial aid programs sponsored by the U.S. Department of Education. Almost all post-secondary educational institutions will pass that test. In addition, tax-free 529 account withdrawals can be used to cover expenses to attend a registered apprenticeship program. They can also cover up to $10,000 of annual K-12 tuition expenses. This could be to pay for K-12 expenses for a new account beneficiary who has one of the aforementioned family relationships to the original beneficiary — or to pay for K-12 expenses using a new account set up for someone with one of those relationships and funded with a rollover from the original beneficiary's account. Finally, tax-free 529 account withdrawals can be taken to cover principal or interest payments on qualified education loans owed by the account beneficiary or a sibling of the beneficiary. However, withdrawals for loan payments are subject to a lifetime limit of $10,000. Use the funds for your own education expenses. You can change the account beneficiary to yourself if the 529 account was funded with your money (as opposed to funded with money from a custodial account set up for the 529 account beneficiary). Then you can take tax-free withdrawals to cover qualified education expenses if you decide to go back to school. Close the account. If you choose this option, earnings included in withdrawals used for purposes other than qualified education expenses will be taxable. And the withdrawn earnings may be hit with a 10% penalty tax. Important: You're not allowed to keep a withdrawal from a 529 account that was funded with money from a custodial account set up for the 529 account beneficiary. In that situation, any money taken from the 529 account legally belongs to the account beneficiary and can only be withdrawn for a purpose that benefits that individual. Once the beneficiary becomes an adult under applicable state law, he or she assumes control over the 529 account balance. If an Account That's Used for Education Expenses Is Overfunded If a 529 account has leftover funds after you've paid qualified education expenses for the designated beneficiary, many of the same options are available. For instance, you could: Change the account beneficiary Use the funds for your own qualified education expenses Close the account But there's also a new option in this situation: You could roll over the remaining balance into a Roth IRA. Starting in 2024, a change included in the SECURE Act 2.0 legislation potentially allows federal-income-tax-free rollovers of up to $35,000 from a beneficiary's 529 account into a Roth IRA set up for the same beneficiary. This is intended as a fix for overfunded 529 accounts. However, the lifetime limit on 529-to-Roth rollovers is $35,000, and the 529 account must have been open for at least 15 years. Until the IRS publishes guidance on this topic, it's currently unclear if changing the 529 account beneficiary restarts the 15-year clock. The amount that can be rolled over in any year is limited to the IRA contribution limit for that year. For 2023, that limit is $6,500. Finally, the amount rolled over can't exceed the 529 account beneficiary's earned income for the year, and 529 account contributions and earnings in the preceding five years can't be rolled over. This change presents a potentially significant tax planning opportunity for beneficiaries with overfunded 529 accounts. But the change doesn't go into effect until next year. In the meantime, the IRS is expected to issue guidance to clarify matters. If You Need 529 Funds to Pay Bills If you fund a 529 account, the money in the account belongs to you, and you can take withdrawals for any reason. However, earnings included in withdrawals used for purposes other than qualified education expenses will be taxable. Plus, withdrawn earnings may be hit with a 10% penalty tax. Important: Don't forget you're not allowed to keep a withdrawal from a 529 account that was funded with money from a custodial account set up for the 529 account beneficiary. In that situation, any money taken from the 529 account legally belongs to the account beneficiary and can only be withdrawn for a purpose that benefits that individual. Weigh Your Options If you have an overfunded 529 account, there are several options to consider. But it's critical to mind the tax implications. Contact your tax advisor to discuss what's right for your situation. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here! © Copyright 2023. All rights reserved. Brought to you by: Brewer, Eyeington, Patout & Co. LLP

Starting September 1, 2023, federal student loans will begin accruing interest again. And loan payments will officially restart in October 2023. As part of federal relief measures during the COVID-19 pandemic, individuals with federal student loan debt weren't required to make payments, and interest charges were suspended. Those relief measures have been in place since March 20, 2020. If borrowers made payments during this period, the amounts paid went directly toward principal, not interest. Since taking office, President Biden has tried to implement additional relief measures for federal student loan borrowers. On June 30, 2023, the U.S. Supreme Court struck down Biden's proposed student loan forgiveness program. This program would have canceled up to $20,000 of debt for approximately 43 million eligible borrowers. The majority opinion found the forgiveness program exceeded the legal authority of the U.S. Department of Education (DOE). The Biden administration is still trying to find ways to help student loan borrowers. Here's an overview of his latest proposal and other programs that may provide relief to certain individuals with federal student loans. The SAVE Plan President Biden's latest relief measure is the Saving on a Valuable Education (SAVE) plan. On July 14, 2023, the DOE reported that the SAVE plan would go into effect immediately and replace the existing Revised Pay as You Earn (REPAYE) plan. These programs target income-driven repayment (IDR) programs, which make student loan debt more manageable by basing the monthly payment on income and family size. It's estimated that the SAVE Plan will provide relief to more than 804,000 borrowers with $39 billion in debt. Eligible individuals hold Direct or Federal Family Education loans (FFEL) issued by the DOE, including Parent PLUS loans. They must have hit the necessary forgiveness threshold upon receiving IDR credit during any of the following periods: Any month of active repayment, partial or late, no matter what loan type or term, 12 or more consecutive months of lender-approved loan payment reductions or suspensions, 36 or more consecutive months of paused loan payments, The months in deferment prior to 2013, not including in-school deferment, and Months spent in military deferment or economic hardship on or after January 1, 2013. The SAVE plan is expected to face legal challenges and could take several months to even years before the details are locked in. In the meantime, the following provisions of the SAVE plan are expected to go into effect in 2023: More income protection. The SAVE plan limits monthly payments to a percentage of discretionary income, presently 10%. Discretionary income is defined as the difference between your adjusted gross income and 150% of the federal poverty guidelines (about $21,870 per individual for 2023) under the REPAYE plan. That threshold will increase to 225% of the poverty line (about $32,800 per individual) under the SAVE plan. So, essentially any borrower who's earning less than $15 per hour for a full-time position could qualify for a $0 monthly payment under the SAVE plan. Cap on interest payments. The SAVE plan eliminates interest that exceeds the monthly payment. For example, if a loan accrues $50 of interest per month and the monthly payment is $30, the remaining $20 of interest won't be charged, according to the DOE. No co-signer for married borrowers. You can apply for the SAVE plan without having your spouse co-sign. The REPAYE plan currently requires married borrowers to report their spouse's income, even if they file taxes jointly. You'll be automatically enrolled in the SAVE plan if you are currently on the REPAYE program. If you wish to apply for an IDR, visit the Federal Student Aid website . The SAVE plan is expected to bring additional relief to eligible borrowers in 2024. These changes include smaller monthly payments, a faster track for loan forgiveness, deferment and forbearance support, and automatic enrollment. Other IDR Options If you don't qualify for the SAVE plan but want to relax the repayment terms for your student loans, first contact your lender to discuss a new plan. Besides the SAVE plan, other existing IDR options for federal student loans include: Pay as you earn (PAYE). A PAYE plan decreases the monthly payment to 10% of your discretionary income and extends the term to 20 years. Income-based payment plan. This type of plan decreases the monthly payment to 10% or 15% of discretionary income, depending on when you took out the loans, and extends the term up to 25 years. Income-contingent repayment plan. This decreases the monthly payment to the lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years. It also extends the term to 25 years. Graduated payment plan. With this plan, payments start small and increase every two years over 10 years. If loans are consolidated, they can last as long as 30 years. Consolidation loan payment plan. By consolidating federal loans, you may be eligible to extend the repayment plan as much as 30 years. These programs don't apply to private student loans. If you're having trouble making payments on private student loans, discuss repayment options with your lender. Other Student Loan Forgiveness Programs Additional programs for federal student loan borrowers include: Perkins loan cancellation and discharge. The last Perkins loan was issued in 2017. If you have a Perkins loan and work in public service — such as nurse, teacher, or full-time firefighter — you may be eligible for partial or full loan forgiveness. Public service loan forgiveness (PSLF). Some federal loans can be forgiven after 120 monthly loan payments (10 years) under a PSLF program. Eligibility involves employment with certain nonprofit organizations or government agencies while making qualifying monthly payments. Teacher loan forgiveness. If you teach full-time for five full and consecutive academic years in a low-income elementary or secondary school or educational agency, you may be eligible for up to $17,500 in loan forgiveness. In addition, the following programs are designed to provide some relief for federal student loans when specific extenuating circumstances affect the ability to attend school or repay the loans. Borrower defense to repayment. These programs are designed to help if a school intentionally misled the borrower or engaged in misconduct. Closed school discharge. This applies if the school you attended closed while you were enrolled or shortly after you withdrew. Discharge due to death. All federal loans may be discharged if the student loan borrower or student for whom the loan was taken out dies. A family member or other representative must submit proof of death, such as a death certificate, to the loan provider. Discharge in bankruptcy. Under some situations, student loans may be discharged during bankruptcy proceedings. The borrower must file for a Chapter 7 bankruptcy, file what's known as "adversary proceedings," and demonstrate that repaying the loans will impose an undue hardship on the borrower or the borrower's family. False certification discharge. A person who received a Direct or FFEL loan and whose school falsely certified that individual's eligibility for the loan may qualify for this discharge. Total and permanent disability discharge. Borrowers may qualify for a loan discharge, whether a Direct, FFEL or Perkins loan, or TEACH grant if they become totally and permanently disabled. Three specific organizations can help qualify the person for this type of discharge: 1) the U.S. Department of Veterans Affairs, 2) the Social Security Administration, and 3) a licensed physician. Unpaid refund discharge. Borrowers may qualify for unpaid refund discharge for Direct and FFEL loans if they withdrew from school and the institution didn't return the required funds to the loan provider. Before applying for a discharge, however, you must try to resolve the problem directly with the school. For More Information Student loan forgiveness is a hot topic. The Supreme Court struck down President Biden's original federal loan forgiveness program, and it remains to be seen whether his new SAVE plan will be challenged in court. In the meantime, borrowers have several alternatives to consider for alleviating the burden of student loan debt. Contact your financial advisors to discuss your options and apply for relief, if you're eligible. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here! © Copyright 2023. All rights reserved. Brought to you by: Brewer, Eyeington, Patout & Co. LLP

Even at the best of times, the future is unpredictable. As anyone who has run a business for any length of time understands, there will often be challenges, many of which are unexpected — such as a global pandemic — coming straight out of left field. Here are four strategies your small company can use to build strength and resilience for unexpected challenges. 1. Prioritize Marketing When business is booming, it's easy to let marketing slide. After all, customers are coming in regularly. But it's important to build brand recognition and awareness. And when the economy or a particular industry hits a slowdown, some businesses see marketing as an area where expenses and resources can easily be cut — at least until profits improve. But it's during those tough times that you need solid marketing. Consider the public perception that's likely when marketing slows down. It's a case of "out of sight, out of mind." Many members of the public assume that if a business has fallen silent, it has closed its doors. Instead of cutting back on marketing — which could be a nail in your business's coffin, it might help to rethink and restructure how you're marketing. Here are some marketing best practices: Keep it simple. Make monthly marketing goals. Design them so they all relate to your business's strategic objectives. Don't let a day go by during the month that you don't think about that month's theme. Identify your target audience. Start with the end goal. Who are you trying to attract and what message do you want them to hear? It's possible you've been throwing darts wildly instead of focusing on actual customers. Or you may need to rethink your audience entirely. Pick the right platform. Once you've correctly identified your audience, find out where they are. Is your intended audience on social media and websites? Or are offline channels such as networking and word of mouth a better fit? Focus your attention mostly on one or two channels. It can help you reach new markets, generate more leads and deliver greater value to potential customers through an improved customer experience. Measure your efforts. Quality improvement expert W. Edwards Deming famously said, "If you can't measure performance, you can't manage it." That certainly applies to marketing. Create goals and key performance indicators for your marketing efforts and develop ways of tracking them. This might be as simple as asking new customers how they heard about you. Then place more emphasis on the marketing efforts that reached the most people and marginalize or eliminate the less effective efforts. For example, if most customers found you through word of mouth and very few through social media, adjust your marketing efforts to emphasize word of mouth. 2. Stay on Top of Technology Some businesses are tech-oriented, while others aren't. However, every business must take advantage of some technologies (think computers). Automated payroll systems and cashless or peer-to-peer (P2P) payments, such as Zelle, PayPal, Venmo and Cash App, can create efficiencies that ease your business through rough patches. For example, automated payroll can eliminate errors and free you up to concentrate on initiating new business and maintaining existing customers. Adding P2P payments may open a new customer base among those who don't carry cash. Also, consider modernizing your customer relationship management (CRM) system. New CRMs can communicate with your customers on whatever platform they may be using. Don't forget or delay establishing a strong cybersecurity program. Depending on the complexity of your online business operations, you may be able to strengthen your cybersecurity affordably, but you should be willing to pay whatever it costs to protect your digital assets. Just one ransomware attack could cost you thousands of dollars in lost revenue. 3. Continuing Education Do you know what is new in your industry? Are you aware of what your competitors are doing? There's always plenty of new things to learn about your specific industry or business in general. To get started, check out free education resources, such as SCORE and Bank of America's Small Business Resources sites. If you find valuable information there that your employees might also benefit from, consider giving them time during the workday to take some courses. If you prefer more formal educational programs, organizations such as LinkedIn and the Small Business Administration have online learning programs. And Bank of America offers a free online program for women to earn a business certificate from Cornell. 4. Network It can be easy to become isolated when you're solely focused on your own company. Being too internally focused keeps you from interacting with other people running similar businesses or even other business owners in your community. So, if you don't already, reach out! Consider organizations such as your local Small Business Chamber of Commerce, Entrepreneurs' Organization, Business Networking International, Rotary or Kiwanis. You might also check out organizations such as the National Association of Women Business Owners or Luminary. Continuous Improvement The four tips above can help you reach your yearly business goals, regardless of economic conditions. The important thing is to keep growing, learning and improving — even if it's just in small ways. Otherwise, your company might stagnate and, eventually, disappear. Take steps now to actively position your company for success. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Many businesses maintain life insurance policies on their owners or employees for estate planning, buyouts and various other business purposes. To receive the maximum tax benefits from business-owned life insurance, though, you need to understand the IRS rules and requirements. Basic Rules Business-owned life insurance generally refers to a life insurance policy that 1) is owned by a business that's directly or indirectly a beneficiary under the policy, and 2) covers the life of an individual who's an employee of the business on the date the policy is issued. Under the tax code, the issue date is the latest of the following: The date of application for coverage, The effective date of coverage, and The date the policy is formally issued. A business might purchase life insurance for several reasons. For example, it might plan to use the death benefits from a policy on the owner to fund post-death tax liabilities and equalize distributions to the owner's family members when much of his or her estate is shares in the closely held family business. Life insurance proceeds also can play a critical role after the death of a "key person." Death benefits may be needed to finance a buyout of the key person's shares from his or her family, whether under the terms of an existing buy-sell agreement or otherwise. Death benefits can help a company bridge the gap while it recruits and trains a replacement after a key person's death, too. In fact, to help mitigate risk, a lender might require a business borrower to purchase life insurance on a key person. Additionally, some companies use business-owned life insurance to fund nonqualified plans. For example, they might purchase a split-dollar life insurance policy on an employee so they can recover the amount spent on premiums from the death benefit, with the remainder going to other beneficiaries designated by the employee. Exclusions from Income Generally, the premiums a company pays on employee life insurance aren't deductible if the company retains rights or has a beneficiary interest in the policy, as with business-owned life insurance. But the death benefits the company receives may be excluded from its gross income if the policy insures the life of any of the following individuals: A director, highly compensated employee or highly compensated individual at the time the policy was issued, or An employee at any time during the 12 months preceding his or her death. To qualify for this exclusion, the business also must satisfy three notice-and-consent requirements before the policy is issued . First, the business must notify the employee in writing that it intends to insure the employee's life. The notification should specify the maximum face amount for which the employee could be insured at the time the policy was issued. The written notification also must include a disclosure of the face amount of life insurance, either in dollars or as a multiple of salary, that the business reasonably expects to purchase on the employee during the employee's tenure with the company. Second, the employee must provide written consent to being insured under the policy and that such coverage may continue after the insured terminates employment. Additional notices and consents are required if the aggregate face amount of business-owned life insurance policies on an employee exceeds the amount to which the employee consents. Third, the employee must be informed in writing that the business will be a beneficiary of any proceeds payable upon the employee's death. Additionally, time limits apply on purchasing the policy. It must be issued within a year after the consent is provided or before the employee terminates employment with the business, whichever comes first. The tax code also allows an exception for death benefits used to fund a buyout. Specifically, it treats the business's portion of death benefits as tax-exempt if that portion is paid to, or used to purchase, an equity, capital or profits interest belonging to a family member of the insured. It also is tax-exempt if it's paid to a designated beneficiary, a trust established for the benefit of the insured's family member or designated beneficiary, or the insured's estate. Again, the business must satisfy the notice-and-consent requirements. If no exception applies, the tax benefits are significantly curtailed. Any death benefits that exceed the business's tax basis in the policy (generally, the premiums paid) will be taxable income. Reporting Obligations Companies that purchase business-owned life insurance must report it to the IRS. The report includes the number of employees covered by the policies issued after August 17, 2006, and the total amount of these policies in force on such employees at the end of the applicable tax year. The business also must indicate whether it's obtained a valid consent from each covered employee, as well as the number of covered employees who haven't provided a valid consent. Important: The reporting obligation is ongoing. Companies must file the appropriate tax forms with their annual income tax returns for every year that business-owned life insurance policies remain in effect. For More Information Purchasing business-owned life insurance on eligible employees can provide a range of benefits that help ensure the continuing success of your company. To make the most of those benefits, though, you need to understand and comply with the strict tax rules. Contact your tax and financial advisors regarding any questions you may have about determining the appropriate level of coverage and understanding the relevant tax rules. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation, and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

The statute of limitations for the IRS to audit your tax return is typically three years. It begins on the later of: 1) the due date for your tax return or 2) the date on which you file your taxes. While the general rule for retaining federal tax records is three years, it's often prudent to keep most financial records longer than that. Many exceptions to this rule of thumb require you to save financial documents longer. Some states also have different records retention requirements. Here's the lowdown on records retention, broken down by various types of documentation. Federal Tax Records Most tax advisors recommend that you retain copies of your finished tax returns indefinitely to prove that you filed. Even if you don't keep the returns indefinitely, hold on to them for at least six years after they're due or filed, whichever is later. It's a good idea to keep records that support items shown on your individual tax return until the three-year statute of limitations runs out. Examples of supporting documents include canceled checks and receipts for alimony payments, as well as records showing charitable contributions, mortgage interest payments and retirement plan contributions. You can also file an amended tax return during this time frame if, for example, you missed a deduction, overlooked a credit or misreported income. Which records can you throw away today? You can generally throw out records for the 2019 tax year, for which you filed a return in 2020. You're not necessarily safe from an IRS audit after three years, however. There are some exceptions to the three-year rule. For instance, if the IRS has reason to believe your income was understated by 25% or more, the statute of limitations for an audit rises to six years. Or, if there's suspicion of fraud or if you don't file a tax return at all, there's no time limit for the IRS to launch an inquiry. In addition, records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses for federal disasters, need to be saved until the deductions no longer have effect, plus seven years, according to IRS instructions. There are also some cases when taxpayers get more than the usual three years to file an amended return. For example, you have up to seven years to take deductions for bad debts or worthless securities, so don't toss out records that could result in refund claims for those items. State Tax Records The previous guidelines are all geared toward complying with federal tax obligations. Ask your tax advisor how long you should keep your records for state tax purposes, because some states have different statutes of limitations for auditing tax returns. Plus, if you've been audited by the IRS, states generally have the right to resolve their own issues related to that tax year within a year of the federal audit's completion. So, hold on to all tax records related to an IRS audit for a year after it's completed. Bills and Receipts In general, it's OK to shred most bills — such as phone bills or credit card statements — when your payment clears your bank account or at year end. However, if a bill or receipt supports an item on your tax return, follow the tax guidance above. If you buy a big-ticket item — such as jewelry, furniture or a computer — keep the bill for as long as you have the item. You never know if you'll need to substantiate an insurance claim in the event of loss or damage. Real Estate Records Keep your real estate records for as long as you own the property, plus three years after you dispose of it and report the transaction on your tax return. Throughout ownership, keep records of the purchase, as well as receipts for home improvements, relevant insurance claims and documents relating to refinancing. These documents help prove your adjusted basis in the home, which is needed to figure any taxable gain at the time of sale. They can also support calculations for rental property or home office deductions. Investment Account Statements To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, and dividend reinvestment and investment expenses, such as brokers' fees. It's a good idea to keep these records for as long as you own the investments — plus until the expiration of the statute of limitations for the relevant tax returns. Likewise, the IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRAs. With Roth IRAs, it's more important than ever to hold on to all IRA records pertaining to contributions and withdrawals in case you're ever questioned. If an account is closed, treat IRA records with the same rules that apply to stocks and bonds. Don't dispose of any ownership documentation until the statute of limitations expires. Now or Later? Old tax records take up space in your home, office or hard drive — and they could lead to stolen identities if not properly disposed of. But, if you purge too soon, you might not be able to file an amended return or defend against inquiries by the IRS and state tax agencies. So, when in doubt, hang on to your records a little longer than you think is necessary. If you have questions about financial record retention, contact your tax advisor. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. 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In early March, Silicon Valley Bank (SVB) and Signature Bank unexpectedly collapsed. They became the second and third largest bank failures in U.S. history, respectively. The largest collapse involved Washington Mutual in 2008, precipitating the Great Recession. (See "Two Banks Collapse in One Week" at the bottom.) The recent regional bank failures have caused many individual depositors and business owners to question whether their accounts will be protected by the FDIC and what they should do if their banks fail. FDIC Fundamentals The Federal Deposit Insurance Corporation (FDIC) was founded in 1933, in the wake of massive bank failures during the Depression. FDIC coverage protects up to $250,000 per depositor, per bank, in each account ownership category. The protection extends to any person or entity with funds in an insured bank. The person doesn't have to be a U.S. citizen or resident. The FDIC protection covers: Checking accounts, Negotiable order of withdrawal (NOW) accounts, Savings accounts, Money market deposit accounts (MMDA), Time deposits such as certificates of deposit (CDs), and Cashier's checks, money orders and other official items issued by a bank. If a person holds deposits in separate, insured banks, each account is covered up to $250,000. However, if funds are deposited in separate branches of the same insured bank, they aren't separately insured. Important: FDIC coverage protects depositors against institutional failures. Stolen or lost deposits will generally result in a loss to the bank, not its customers. In many instances, losses will be covered by a so-called "banker's blanket bond." This is an insurance policy that a bank purchases to protect itself from causes of disappearing funds, such as theft, fraud, fire and other natural disasters. Unauthorized access to funds may be covered by the Electronic Funds Transfer Act and other consumer protections. The FDIC does not cover: Stock investments, Bond investments, Mutual funds, Crypto assets, Life insurance policies, Annuities, Municipal securities, Safe deposit boxes or their contents, and U.S. Treasury bills, bonds or notes (although these are backed by the federal government). Important: There may be other protection for the assets above. The Securities Investors Protection Corporation (SIPC) is a nongovernment entity that replaces missing stocks and other securities in customer accounts held by its members up to $500,000, including up to $250,000 in cash, if a member brokerage firm fails. This coverage does not protect investors against decreases in the market value of investments. Ownership Categories There are also federal rules regarding funds depositors have in different categories of legal ownership. These ownership categories include: Single accounts, Certain retirement accounts, Joint accounts, Revocable trust accounts, Irrevocable trust accounts, Employee benefit plan accounts, Corporation, partnership and unincorporated association accounts, and Government accounts. In terms of ownership categories, a bank customer with multiple accounts may qualify for more than $250,000 in FDIC coverage if the customer's funds are deposited in different ownership categories and the requirements for the ownership categories are met. For example, Mr. Smith has four single accounts at Savers Bank, a hypothetical insured bank, including one account in the name of his business (a sole proprietorship). The FDIC covers deposits owned by a sole proprietorship as a single account of the individual owner. So, in this situation, the FDIC would combine Mr. Smith's four accounts. If the deposits in these accounts total $260,000, the FDIC would cover up to $250,000, with $10,000 uninsured. On the other hand, Mr. and Mrs. Johnson hold multiple accounts at Savers Bank: An MMDA worth $230,000, A savings account with a balance of $250,000, and A CD worth $270,000 (with a third co-owner listed on the account). The Johnsons' deposits at Savers Bank total $750,000. To calculate FDIC coverage, the total amount in each joint account is divided by the number of co-owners. So, Mr. and Mrs. Johnson each have the following account balances: An MMDA worth $115,000 (half of $230,000), A savings account with a balance of $125,000 (half of $250,000), and A CD worth $90,000 (one-third of $270,000). Therefore, each of their deposits at Savers Bank totals $330,000. The FDIC would cover $250,000 each, leaving an uninsured balance of $80,000 each. Assuming the third owner listed on their CD has no other accounts at Savers Bank, his or her ownership share of the CD ($90,000) would be fully insured. If Your Bank Fails If you have deposits in an FDIC-insured bank that fails, you don't need to apply for or buy FDIC deposit insurance. Coverage is automatic. If you're unsure if your bank is FDIC-insured, ask a bank representative or use the FDIC's BankFind Suite tool. Historically, the FDIC pays insurance within days after a bank closing, often by the next business day. This is done by either providing each depositor with a new account at another insured bank in the amount equal to the insurance balance or by issuing a check to each depositor. In the case of SVB, the FDIC transferred all deposits — both insured and uninsured — and substantially all assets of the former SVB to a newly created, full-service FDIC-operated bridge bank. This action will protect all depositors of SVB, even those with more than $250,000 per depositor in each account ownership category. Similarly, according to a press release, the FDIC transferred all deposits and most of the assets of Signature Bank to Signature Bridge Bank, N.A., "a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders." Both banks are offering full coverage protection of deposits, with no losses associated with the collapses being "borne by the taxpayer," according to a joint statement on March 12 by Secretary of the U.S. Department of Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell and FDIC Chairman Martin Gruenberg. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Although the "systemic risk exception" covers depositors, the joint statement added that shareholders, certain unsecured debtholders and bank senior management won't be protected. Covering Your Assets In light of the recent bank failures, it may be prudent for individuals and business owners with significant account balances to divvy up their deposits between multiple account ownership categories and/or banks. Or you might decide to add another person's name to an account, such as a business partner, spouse or child. Contact your financial professional to determine whether your balance will be fully insured and to answer any additional questions you might have about FDIC coverage. Two Banks Collapse in One Week On March 10, 2023, Silicon Valley Bank (SVB) collapsed. On that same day, Signature Bank customers, apparently alarmed by the collapse of SVB, withdrew more than $10 billion in deposits. By March 12, Signature Bank had permanently closed. SVB was founded in Santa Clara, California, in 1983, with the goal of supporting and investing in the volatile technology sector, including biotech. By 2021, SVB claimed to be the bank for almost half of all U.S. venture-backed startups, calling itself "the financial partner of the innovation economy." At the end of 2022, SVB held approximately $209 billion in assets, including a high percentage of government bonds that had dropped in value when the Federal Reserve raised interest rates. Signature Bank, based in New York, had significant ties to the real estate and legal industries. One of its board members, Barney Frank, was previously a member of the U.S. House of Representatives and co-authored the Dodd-Frank Act — a law designed to protect investors in the wake of the Great Recession of 2008. In 2018, Signature Bank began branching out from its traditional business lines into cryptocurrency investments. At the time of its collapse, Signature Bank held $16.5 billion in deposits from customers with digital assets. By March 13, both banks had essentially been taken over by the federal government. The U.S. Department of Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation indicated they would back SVB deposits beyond the federally insured ceiling of $250,000. The full details of why these banks collapsed are still being investigated. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Every tax season, business owners must familiarize themselves with tax law changes that went into effect for that tax year. Fortunately, businesses don't have to contend with sweeping changes for 2022. But there are three major ones that could affect business taxpayers as they file federal income tax returns this year for 2022. 1. Reduced Cap on Deducting Business Interest Expense Starting in 2018, there have been limits on how much business interest expense corporate and non-corporate taxpayers can deduct for the tax year. In general, under the Tax Cuts and Jobs Act (TCJA), a taxpayer's deduction for business interest expense for the year is limited to the sum of: Business interest income, 30% of adjusted taxable income (ATI), and Floor plan financing interest paid by certain vehicle dealers. Interest expense that's disallowed under the limitation rules is carried forward to future tax years indefinitely and treated as business interest expense incurred in the carry-forward year. To calculate ATI, businesses will need to adjust their taxable income for: Items of income, gain, deduction or loss that aren't allocable to a business, Any business interest income or business interest expense, Any net operating loss deduction, The deduction for up to 20% of qualified business income from a pass-through business entity, Any allowable depreciation, amortization or depletion deductions for tax years beginning before 2022, and Other adjustments listed in the proposed regulations. Deductions for depreciation, amortization and depletion were added back when calculating ATI for tax years beginning before 2022. For tax years beginning in 2022 and beyond, the deductions for depreciation, amortization and depletion aren't added back. This could result in a lower interest expense limitation amount, which in turn will increase your taxable income. Important: Small businesses with average annual gross receipts of $27 million or less for the three-tax-year period ending with the preceding tax year are exempt from the interest expense limitation rules for 2022. This threshold is indexed annually for inflation. The interest expense deduction limitation rules get more complicated for businesses operating as partnerships, limited liability companies (LLCs) treated as partnerships for tax purposes and S corporations. Basically, the limitation is calculated at both the entity level and at the owner level. Special rules prevent double counting of income when calculating an owner's ATI for purposes of applying the limitation at the owner level. Contact your tax advisor for more information. 2. New Requirement to Capitalize Research Costs Under the TCJA, starting in 2022, Internal Revenue Code Section 174 "research and experimental" expenditures must be capitalized and amortized over five years (15 years for research conducted outside the United States). Previously, businesses had the option of deducting these costs immediately as current expenses. The TCJA also expands the types of activities that are considered R&D for purposes of Sec. 174. For example, software development costs are now considered R&D expenses subject to the amortization requirement. Before capitalizing R&D expenses for 2022, businesses should analyze costs carefully to identify those that constitute R&D expenses and those that are properly characterized as other types of expenses (such as general business expenses under Sec. 162) that continue to qualify for an immediate deduction. Businesses with significant R&D expenditures also should discuss eligibility for the R&D credit for 2022 with their tax advisors. 3. Reduced Limit on Deducting Corporate Cash Donations C Corporations are subject to an annual deduction limit for monetary contributions to qualified charitable organizations. Prior to 2020, the limit was generally 10% of the corporation's taxable income for the year, subject to a five-year carryover. Pandemic-related relief upped the ante for monetary contributions to 25% of taxable income for 2020 and 2021. In addition, the limit was increased to 100% for qualified disaster relief contributions made in cash during the period spanning January 1, 2020, through February 25, 2021. The 25% limit on qualified contributions made in cash for 2020 and 2021 was applied first without regard to any qualified disaster relief contribution. Excess contributions above the 25% limit could be carried forward for up to five years. Under current law, the rule has reverted to 10% of taxable income for 2022 and thereafter. It's essential to keep detailed records of charitable donations. Your business should retain the records for at least three years in case the IRS challenges a write-off. Important: Charitable contribution deductions can be claimed by pass-through entities, including S corporations, partnerships and LLCs. But write-offs for pass-through entities are claimed by the individual owners on their personal tax returns. Currently, individuals may deduct monetary contributions of up to 60% of adjusted gross income (AGI). The excess above the 60%-of-AGI limit may be carried over for up to five years. Ready, Set, File The countdown to Tax Day has begun. This year, corporate and individual taxpayers must file their 2022 returns by April 18, and S corporations and partnerships must file by March 15. Contact your tax professional for more information on these and other tax law changes for 2022. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Do you pay someone to watch your young child (or another qualifying dependent) while you're at work? You may be entitled to claim the dependent care credit on the 2022 return you must file by April 18. But be aware: Recent enhancements provided under the American Rescue Plan Act (ARPA) expired at the end of 2021. Nevertheless, you can still maximize generous tax benefits on your 2022 return by understanding the rules and taking full advantage of what's allowed under current law. Here's an overview of today's rules. The Basics Generally, parents of children under age 13 are eligible for the nonrefundable dependent care credit if they incur expenses to allow them to be "gainfully employed." The credit covers eligible expenses that you pay so you can work — or if you're married, so both you and your spouse can work. If you're married, you generally must file a joint Form 1040 for the tax year in question to claim the child and dependent care credit. The percentage is based on a sliding scale, depending on your adjusted gross income (AGI), starting at 35% for AGI below $15,000. The 35% credit is gradually reduced by one percentage point for each $2,000 (or fraction thereof) of AGI above $15,000 until it reaches 20%. Under this formula, the credit equals 20% of eligible expenses for taxpayers with an AGI above $43,000. The credit is a dollar-for-dollar reduction of your tax bill, which is more valuable than a tax deduction. Additional Restrictions When claiming the dependent care credit, there's an annual dollar cap on the amount of eligible expenses. The cap is $3,000 for one qualifying dependent ($6,000 for two or more qualifying dependents). Therefore, the maximum credit for a taxpayer with an AGI above $43,000 is $600 for one qualifying dependent ($1,200 for two or more qualifying dependents). In addition, the eligible expenses of a married couple can't exceed the lower of the earned income or the annual earnings of the lower-paid spouse. For example, Jack earns $5,000 annually from a part-time job, and Jill earns $100,000 annually from her full-time gig. The couple pays someone $1,000 a month to watch the kids ($12,000 for the year). The eligible expenses available for the credit are limited to $5,000 (Jack's part-time income) — not $12,000. Under the general limitation rule, if one spouse has no earned income, you can't claim the child and dependent care credit. However, if your spouse has no earned income and is disabled or a full-time student, he or she is deemed to have monthly earnings of $250 if you have one qualifying individual ($500 if you have two or more qualifying individuals). Therefore, the maximum amount of eligible expenses for the year is $3,000 for one child ($6,000 for two or more children). Under this exception, you can potentially claim the child and dependent care credit even though your spouse doesn't actually work and has no earnings. For this purpose, a parent is considered a full-time student if he or she is enrolled full-time at a school for at least five calendar months during the year. The months don't have to be consecutive. Conversely, a part-time student who takes only several courses during the year is excluded from claiming the credit. Special Situations The current rules for dependent care credit are relatively straightforward. But there are several nuances that you should know about. To get the most from this tax break, consider the following situations: In-home babysitters. The credit covers both out-of-home and in-home expenses. For example, the list of eligible expenses includes daycare centers and private nursery schools — as well as babysitters who come to your home. Caregivers can even be relatives, such as aunts, uncles and grandparents. However, the relative can't be someone who qualifies as your tax dependent. So, you can't deduct the cost of hiring your teenager to watch a younger sibling. The credit may even be available for wages or fees paid to a nanny, maid or housekeeper who performs other services around the home. Generally, the entire cost for these services qualifies for the credit. However, no credit is allowed for services provided by a chauffeur or gardener. After-school care. Costs for kindergarten and above don't qualify, because they're considered education expenses rather than care expenses. However, costs for before- and after-school programs can qualify for the credit. Summer camps. Summer day camps also qualify for the credit. The day camp can be a specialty camp involving activities, such as sports or music, or a specific academic discipline, such as computer or math studies. But no credit is allowed for an overnight camp. Nonchild dependents. The dependent care credit isn't necessarily limited to expenses paid for young children. It may also be available for care given to a dependent you support, such as an elderly parent or an adult child with a disability who lives with you and requires daily assistance. The caretaker doesn't have to be a nurse or other health care professional or have any special training. Similarly, you can even claim the credit for the expenses of caring for your spouse while you're working. For instance, suppose your spouse is at home with a back injury for 10 weeks. The cost of an aide for your spouse during that 10-week period qualifies for the credit. Divorced parents. The credit can be claimed by a divorced parent who provides more than half of a child's support during the tax year. In this situation, the child must have been in the custody of one or both parents for more than half the year, and the parent claiming the credit must be the child's custodial parent. Claiming Your Credit Your tax advisor can help you navigate the federal income tax rules for this credit. Before reaching out to your advisor, make sure you have all the information needed to claim the credit on your 2022 return. This includes the provider's name, address, and Social Security number or Employer Identification Number. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!