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Keeping It SIMPLE

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Hand holding drawing virtual lightbulb with brain on bokeh background for creative and smart thinking idea concepA SIMPLE IRA is an option for small business owners who do not currently have a retirement plan in place but would like to have one. This particular type of retirement plan has several attractive features that deliver significant benefits to both employers and their employees.

What It Is

The Savings Incentive Match Plan for Employees (SIMPLE) is a retirement savings plan targeted at employers with 100 or fewer employees who earn $5,000 or more in compensation. With fewer reporting and administrative requirements than other retirement plans, the SIMPLE plan is designed to appeal to employers with limited resources and personnel to handle benefit administration and compliance issues.

With a SIMPLE IRA, employees may make tax-deferred contributions through payroll deduction to traditional individual retirement accounts set up under the plan. In 2023, the contribution limit is $15,500 ($19,000 if age 50 or over). All account earnings are tax deferred until the plan participant begins withdrawals. Withdrawals from a SIMPLE IRA are taxed at regular income tax rates.

Employers appreciate the fact that a SIMPLE IRA is relatively easy to set up and operate. An annual report is not required, although certain documents must be distributed to inform employees about the plan.

Employers are required to contribute to the plan, either by matching employee contributions up to 3% of pay or by contributing 2% of each eligible employee’s compensation. The matching percentage may be lowered in some years.

Plan Benefits

  • Employee contributions are tax deferred
  • Employer contributions to employees’ SIMPLE IRAs are tax deductible
  • Account earnings are tax deferred
  • No annual filing requirement or discrimination testing

Potential Drawbacks

  • Employer contributions are required
  • No Roth contributions are permitted
  • Full immediate vesting (employee has ownership of all SIMPLE IRA money)
  • No loans permitted

Your financial and tax professionals can help you assess your retirement plan options

Nitya, LLC CPAs Earns Award

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Our firm was recently awarded the “Top CPA Firm” of 2023 by Financial Services Review.

Financial Services Review uses print and digital magazines, websites, and newsletters to provide its readers with views and news  about technology solutions and trends in the financial services industry. Their insightful research of the accounting industry helps to support small businesses like Nitya LLC CPAs receive recognition on a broader scale.

For more information about the award, read this article.

And to My Executor, I Leave My Passwords

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Happy confident lawyer, Real Estate Agent, notary, financial advisor giving consultation, legal advice to senior couple of clients about medical insurance, wills, house buying or selling, savings, investmentWhat would the consequences be if, after your death, no one could access the information you have stored electronically? If you’ve protected your accounts or files with passwords, it could easily happen.

Computers have changed the way we manage our personal and financial — and often, our professional — lives. And they’ve also created new challenges for estate planning. Consider, for example, an Internet business left in limbo because the owner made no provision for accessing accounts. Running the business — or even making customers and creditors aware of the situation — would be problematic without access to the owner’s digital records.

But business accounts and records aren’t the only potential casualties. Personal e-mail, address books, photo libraries, and financial information are also at risk of being lost if the decedent hasn’t shared passwords or designated someone in his or her will to have access to the records.

The legal treatment of digital assets remains a problem for the courts. Meanwhile, it’s important to revise your estate planning documents to include passwords and authorize access to your online and other protected computer data.

A Checklist for Your Digital Assets

  • Determine what and how valuable your digital assets are.
  • Give your executor or personal representative instructions for locating them.
  • Share your passwords with the person you’ve designated to have access, and/or include a list with your estate documents.
  • Instruct your representative to delete files containing sensitive information.
  • Make provisions to renew business URLs after your death, so they won’t be lost.
  • Plan for the disposal or transfer of digital assets just as you would for tangible assets.

5 Often-Overlooked Tax Credits for Your Small Business

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Document of payment, tax. Check, contract. Budget planning calculator, bill payment abstract metaphor, tax credit, bank account. Flat illustration. Abstract business concept vector illustration set.As a small business owner, tax time can be stressful. That’s why ensuring you’re garnering every benefit possible is essential. Many small businesses overlook some huge benefits when it comes to tax credits. This article reveals five of the most overlooked tax credits for small businesses. Read on to determine if any of these apply to your business.

Tax Credit vs. Tax Deduction

Before jumping to five tax credits often overlooked by small businesses, let’s clarify the difference between a tax credit and a tax deduction.

While tax deductions reduce your taxable income resulting in you paying a lower tax amount, tax credits are a dollar amount deducted from the taxes you owe. So, if you receive a tax credit of $500, you subtract $500 from taxes due.

Tax credits can be highly beneficial come tax time, so knowing which ones your small business is eligible to claim is good. Unfortunately, there are quite a few that many business owners aren’t aware of.

Here are five tax credits that are the most overlooked by small businesses. After you review the list, check with your accountant to see if your business is eligible for these or other tax credits to reduce the amount you owe to the IRS.

5 Tax Credits You May be Overlooking

1. Retirement Saver’s Credit

For small businesses that start a retirement plan for their employees, the IRS offers this credit to offset some of the startup costs they consider “ordinary and necessary.” Your business must employ fewer than 100 employees and not have had a retirement plan previously. The credit is for 50 percent of your startup costs, with a maximum credit of $500.

This tax credit can be claimed for three years, beginning the year before your plan becomes effective. If you do not currently offer a retirement savings plan for your employees, now may be the time to establish one.

2. Research & Development Tax Credit

The R&D tax credit is one of the most overlooked because small business owners not in a “research” field with a laboratory setting often blaze right past this one. But according to the IRS, “research” isn’t necessarily in a lab.

To qualify for this tax credit, a business must improve a product or process, often occurring in many companies as part of their everyday operations. For example, you may qualify if you own a software company and develop or improve an IT process.

Developing, designing, enhancing, or improving a product or process related to your business can qualify you for a credit of 13 cents on every dollar. Of course, you’ll want to confirm whether your business qualifies, identify qualifying activities, and keep copious records so that you can back up your claim to the credit.

3. Rehabilitation Credit (Historic Preservation)

If your business spent money to rehabilitate or renovate a historic structure, this credit likely applies to you. A 20 percent tax credit is available for rehabilitating historic, income-producing buildings determined by the Secretary of the Interior to be “certified historic structures.”

This does not apply to residential structures; however, many businesses purchase historic properties to house their office, restaurant, or other business. Historic structures are certified by the National Park Service, which reports to the IRS. If that applies to the structure where your business is housed, it is worth reviewing this credit with your accountant.

4. Empowerment Zone Employment Credit

Empowerment Zones (EZ) are distressed urban and rural areas needing revitalization. The purpose of the EZ credit is to encourage business owners to operate in these areas and employ EZ residents.

The credit is 20 percent of qualified wages paid during a calendar year. Businesses are eligible for a wage credit of up to $3,000 annually for each eligible employee.

5. Plug-In Electric Vehicle Credit

Suppose you purchase a new plug-in electric vehicle (EV) for your business between 2023 and 2032. In that case, you may qualify for a tax credit of $7,500. To be eligible for the credit, your adjusted gross income (AGI) must not exceed $150,000 in the year you take delivery of the vehicle or the year before (whichever is less).

The EV must meet qualifications regarding battery capacity, retail price, and weight. Speak to your tax accountant for the guidelines and qualifications if you purchased a plug-in EV for your business.

Ensuring you claim every tax credit your small business is entitled to is the key to paying the lowest tax possible. There are dozens of tax credits that small businesses are eligible for. Be sure to have your accountant or CPA review your eligibility for maximum savings come tax time.

Take Advantage of 7 Small Business Deductions

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Cropped shot of a young business owner using her tablet while standing in her storeSmall businesses can take advantage of dozens of tax deductions to reduce what they owe the IRS at tax time. In this article, we share seven top deductions that you may not know about but should.

1. Property rent

If you rent a location for conducting business, you can deduct your rent payments as a business expense. Remember, even if you run a business from a home office, that is not an eligible “property rent” expense for your business. Home office deductions should be made under that category.

2. Software subscriptions

If you purchase or subscribe to business-specific software, those purchases or subscriptions are deductible as miscellaneous deductions under “other business expenses.”

3. Marketing

You can deduct expenses from marketing your business through promotions or paid advertising. Some examples of deductible marketing expenses are sending mailers to potential or current customers, running a paid social media campaign, buying signs or banners to display at your business, printing business cards or brochures, print advertising, website development, and logo design. There are many more, so consider anything you do to market your business 100 percent deductible.

4. Entertainment

If your business requires you to entertain clients or guests, the IRS allows you to deduct part of those expenses. Entertainment includes clubs, bars, sporting events, restaurants, hunting or fishing events, a hospitality suite or booth at a conference, and more. While you do not have to close a deal or make a sale to claim these entertainment expenses, you must ensure they are exclusively related to your business.

5. Professional fees

Any professional fees that you pay directly related to your business are deductible. For example, a cleaning crew for your storefront business, an attorney that handles your legal paperwork, or the services of an accountant or CPA that manages your finances – those fees are all deductible.

6. Employee gifts

You can gift your employees up to $25 per employee per year, which is 100 percent deductible. So, if you want to provide a holiday gift card, a bouquet of flowers for your personal assistant, or send a special birthday treat to those who work for you, it’s a win-win!

7. Taxes

While it may not seem logical, the taxes you pay for your business are fully deductible. This includes federal, state, local, and income taxes. Employer taxes and state unemployment taxes are also fully deductible.

These seven small business deductions are just the tip of the iceberg regarding some not-so-obvious deductions that may be eluding you! Check with your accountant or CPA to ensure you are reaping all the benefits of your small business.

The Pluses and Minuses of Business Borrowing

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Human hand giving money to other hand. Holding banknotes. Isolated on blue background. Vector illustrationThere are distinct pluses and minuses that small business owners should consider when looking for a loan.

New small business owners typically enter the marketplace with high expectations — they want to build sales and increase profits quarter to quarter. More often than not, they hope to add employees and, perhaps, open up additional locations. To help turn their dreams of growth into reality, they often seek out financing.

The big question is when to borrow money and on what terms. The decision isn’t always clear-cut, as there are distinct pluses and minuses that small business owners should consider.

The Pluses of Business Borrowing…

Seeking financing can make sense from a business perspective if the loan is intended to help the business expand and grow. For example, using debt to add to or introduce a new line of products, acquire additional property, or take other actions that are expected to boost revenues is an appropriate business strategy. A loan can also make sense when it is used to repay the owner of the business some of what he or she put into the business using personal funds.

…And the Minuses

A business loan impacts cash flow as it is being repaid, often in monthly installments. The interest cost may be an important consideration, depending on the interest rate environment. Business borrowers should understand that their tax deduction for interest expense may be limited to 30% of the business’s adjusted taxable income. However, smaller businesses may be permitted to deduct more. A tax professional can provide details on these rules.

Excessive Debt

Business owners also need to consider other possible negative ramifications from taking on excessive debt. For example, the owner of a small business is typically required to personally guarantee loans to the business. If the business defaults on the loan, then the owner is personally liable for repaying the loan balance. It is possible that in such a situation, the lender would take steps to seize the owner’s auto, home, and other assets in order to settle the debt. Moreover, if the business ended up with more liabilities than assets and was unable to repay what it owed, then the business might be forced to file for bankruptcy.

Seek Professional Input

Before taking on debt, small business owners may want to consult with an experienced financial professional. A professional analysis of the business’s financial health, cash flow, and prospects can help the owner determine whether a business loan at this stage makes sense and how much debt the business can afford to take on.