Cox & Company CPA

Have you ever bought stock shares that later became worthless? (This may become relevant in light of recent market volatility.) At least you can claim a tax deduction. You can claim a capital loss equal to your basis in the stock (generally what you paid for it). The stock is treated as if it was sold on the last day of the tax year. This date affects whether the loss is short- or long-term. You may discover that a stock is worthless after you’ve filed your return for the year. In that case, you can amend your return for that year to claim a credit or refund. This can be done for 7 years from the due date of your original return, or 2 years from the date you paid the tax, whichever is later.

When it’s time to consider your business’s future, succession planning can protect your legacy and successfully set up the next generation of leaders or owners. Here are five options to consider: 1)?Transfer the business directly to family members through a sale or gifts. 2)?Transfer ownership through a trust. 3)?Engage in an employee or management buyout. 4)?Establish an employee stock ownership plan. 5)?Sell stock or assets to an outside buyer. Each of these options has tax implications. The best approach for you depends on factors including your retirement timeline, financial goals and family or employee involvement. Contact us about how to move forward in your situation.

If your employer offers tax-favored transportation fringe benefits, you should probably take advantage of them. For 2025, employer-provided mass transit passes for train, subway and bus systems are tax-free to an employee, up to $325 a month. Your company can’t deduct the cost of this benefit. However, your company can offer a salary-reduction arrangement that allows you to set aside up to $325 per month from your salary to pay for transit passes. That way, you pay with before-tax dollars. For 2025, employer-provided parking allowances are also tax-free up to $325 per month. You can be given this fringe on top of the tax-free $325 a month for transit passes. Contact us with questions.

Are you starting a business with partners and considering the best entity to form? An S?corporation might be the ideal choice. One significant advantage of an S?corp over a partnership is that, as an S?corp shareholder, you won’t be personally liable for corporate debts. If you anticipate early losses, an S?corp is more favorable than a C?corp from a tax perspective. C?corp shareholders typically don’t benefit from such losses, but S?corp shareholders can deduct their share of the losses on their personal tax returns, up to their basis in the stock and any loans made to the entity. Contact us for more information.

Did you make significant gifts to your children, grandchildren or other heirs last year? If so, it’s important to determine whether you must file a gift tax return by April 15 (Oct. 15 if you file for an extension). The annual gift tax exclusion was $18,000 in 2024 (increasing to $19,000 in 2025). Generally, you’ll need to file a return if you made gifts in 2024 that exceeded the $18,000-per-recipient gift tax annual exclusion (though there are exceptions in certain situations). But it may be desirable to file a gift tax return even if you aren’t required to. Contact us if you’re unsure whether you must (or should) file a 2024 gift tax return.

Current tax law generally limits deductions of business interest, with certain exceptions. If your business has significant interest expense, it’s important to understand the impact of the Section 163(j) deduction limit on your tax bill. Unless your company is exempt, your maximum business interest deduction for the tax year equals the sum of 1)?30% of your company’s adjusted taxable income (ATI), 2)?your company’s business interest income, if any, and 3)?your company’s floor plan financing interest, if any. If your company is affected by the business interest deduction limitation, contact us to see if you can avoid it or reduce the impact. We can help assess what’s right for your business.

You can itemize deductions if the total of your allowable itemized write-offs for the year exceeds your standard deduction allowance for the year. Otherwise, you must claim the standard deduction. The basic standard deduction allowances for 2024 are: $14,600 for single taxpayers, $29,200 for married joint filers and $21,900 for heads of households. Additional standard deduction allowances apply if you’re age 65 or older or blind. For 2025, the basic standard deduction allowances are $15,000, $30,000, and $22,500, respectively. Itemized deductions include charitable contributions, mortgage interest, state and local taxes, and medical expenses. Other rules and limits apply.

As a business owner, you may be eligible to claim home office tax deductions that will reduce your taxable income. However, it’s crucial to understand the IRS rules to ensure compliance and avoid potential IRS audit risks. If you’re eligible, there are two ways to claim deductions. With the actual expense method, you claim direct expenses, such as the cost of painting and a share of indirect expenses, such as utilities, insurance and depreciation. With the simplified method, you deduct $5 per square foot of home office space, up to $1,500. Unfortunately, employees can’t deduct home office expenses. We can help you determine if you qualify and how to proceed.

Getting ready to file your 2024 return and finding your tax bill is higher than you’d like? There may still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA up until this year’s April 15 filing deadline and benefit on your 2024 return. An eligible taxpayer can make a 2024 IRA contribution of up to $7,000 ($8,000 if you’re 50 or older). You must meet income requirements to qualify. Business owners can also set up and contribute to SEP plans up until the filing due date, including extensions. For 2024, the most you can contribute to a SEP is $69,000. Contact us for more information about growing your nest egg on a tax-favored basis.

If an individual taxpayer has substantial business losses, unfavorable federal income tax rules may come into play. If your business or rental activity throws off a tax loss (and many do during the early years), things can get complicated. For example, you can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards. Contact us with any questions.