Accounting Freedom

Do you own a growing, unincorporated small business, and are you concerned about high self-employment (SE) tax? The SE tax is how Social Security and Medicare taxes are collected from self-employed individuals. The maximum 15.3% SE tax rate hits the first $168,600 of 2024 net SE income. The 15.3% rate is made up of 12.4% for Social Security tax plus 2.9% for Medicare tax. In 2025, the maximum 15.3% SE tax rate will hit the first $176,100 of net SE income. Above that, the 12.4% Social Security tax goes away, but the 2.9% Medicare tax continues for all income. Contact us if you have questions or want more information about the SE tax and ways to reduce it by operating as an S corporation. www.accountingfreedom.com

One way that growing businesses can invest in their employees is by sponsoring a qualified retirement plan. But picking the right one isn’t always easy. For example, there’s the ever-popular traditional 401(k). Available to all employers, it offers flexibility in plan design but challenging administration. Another option is sponsoring SEP-IRAs for participants. Any business can do so, and administering these accounts is less complicated. But you must fund SEP-IRAs entirely. If your company employs 100 or fewer employees, consider sponsoring SIMPLE IRAs. You must fund these as well, but there are a couple of different ways of doing so. Contact us for help picking the right plan. www.accountingfreedom.com

How much can you and your employees contribute to your 401(k)s next year? The IRS recently announced the 2025 cost-of-living adjustments. With inflation easing, the amounts aren’t increasing as much as in recent years. The 2025 401(k) contribution limit will increase to $23,500 (from $23,000 in 2024). This amount also applies to 403(b) and most 457 plans. The catch-up contribution limit for employees who are age 50 or over and participate in 401(k)s will remain $7,500. However, there will be a new catch-up contribution amount for taxpayers age 60, 61, 62 or 63. For them, the 2025 catch-up amount will be $11,250. This change takes effect next year under the SECURE 2.0 law. www.accountingfreedom.com

Does your company operate in the business-to-business (B2B) marketplace? If so, your marketing initiatives must reach the companies you serve and speak to the right people at those organizations. To accomplish this, you’ve got to choose the right channels. For example, well-written and optimally distributed press releases remain a viable way to announce new products and services or other big news. You (or qualified employees) can also write bylined articles for industry publications. And then there’s digital marketing. Devise a strategy to regularly push out quality content on your optimal channels. These may include your website, blogs, one or more social media platforms, or podcasts. www.accountingfreedom.com

Does your business own real estate titled under the business’s name? With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a better choice. For example, C corporations treat real estate like other business assets. Expenses related to owning the assets are generally tax deductible in the year incurred. However, when the business sells real estate, the profits are taxed twice, at the corporate level and at the owner’s individual level when a distribution is made. But if the real estate ownership is transferred to a pass-through entity instead, the sale profit will be taxed only at the individual level. Contact us to learn more. www.accountingfreedom.com

For businesses to stay operational and attain profitability, liquidity is key. The good news is that working capital management is a tried-and-true way to tackle this challenge. Working capital is a metric (current assets minus current liabilities) that measures liquidity. Regularly calculating it can help you and your leadership team determine, among other things, whether you have enough current assets to cover current obligations. The amount of working capital your company needs is known as its working capital requirement. To optimize your working capital requirement, focus primarily on three key areas: 1) accounts receivable, 2) accounts payable and 3) inventory. Contact us for help. www.accountingfreedom.com

When drafting partnership agreements, various tax issues must be addressed. This is also true for operating agreements for multi-member LLCs that are treated as partnerships for tax purposes. For example, you should identify and describe guaranteed payments to partners because special tax rules apply to them. For income tax purposes, a guaranteed payment is one that’s: 1) made to a partner acting in the capacity of a partner, 2) made in exchange for services performed for the entity or for the use of capital by the partnership, and 3) not dependent on partnership income. Contact us to be involved in launching an entity and addressing tax issues in the partnership or LLC operating agreement. www.accountingfreedom.com

To help ensure stability and profitability, businesses need to engage in strategic planning. But which leadership skills are essential to this endeavor? Among the five most important are the ability to: 1) View the company realistically and aspirationally; accurate information and a sound vision are key. 2) Analyze the industry and market to foresee impending changes. 3) Understand customers and anticipate their needs; the latter point is perhaps the biggest challenge of strategic planning. 4) Recognize the company’s capabilities and resources. 5) Communicate effectively. We can help your business gather the financial information it needs to plan for the future confidently and decisively. www.accountingfreedom.com

Our offices will be closed tomorrow starting at 10:30AM for our summer party. We will be enjoying some great food and weather in downtown Milwaukee!

While many facets of the economy have improved this year, the rising cost of living and other economic factors have caused many businesses to close their doors. If yours is among them, we can help you take care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability with the Trust Fund Recovery Penalty. There may be other tasks. Contact us with questions and to discuss these issues. www.accountingfreedom.com