Understanding Capital Gains

A capital gain occurs when you sell an asset for more than your original purchase price (known as your basis). If you sell the asset for less than what you paid, you incur a capital loss. These losses can be used to offset gains and lower your overall tax bill.

How to Correctly Pay Yourself 

Many small business owners wonder, “Should I put myself on payroll?” The answer depends on your business structure and tax considerations.

Background

The Federal Insurance Contribution Act (FICA) governs the collection of Social Security and Medicare taxes from employees and employers, while the Self-Employment Contribution Act (SECA) governs the collection of similar taxes from self-employed individuals. Under FICA, the employee and employer each pay a 6.2 percent Social Security tax and a 1.45 percent Medicare tax (15.3 percent total), while self-employed individuals pay the total 15.3 percent on defined self-employment income under SECA.

LLC vs. S Corporation: Which Offers Greater Tax Savings?

Selecting the right business structure is crucial, as it can significantly impact your tax obligations. Below is a comparison of two popular choices for small business owners: LLCs and S Corporations.

Tax Deductions for Home-Based Businesses:

What You Can Claim

Running a business from home comes with several financial benefits—one of the biggest being the tax deductions available to reduce your taxable income. Whether you’re a sole proprietor, freelancer, or small business owner, understanding what deductions you can legally claim is essential for maximizing your tax savings.

The Kiddie Tax is a U.S. tax rule designed to prevent parents from shifting investment income to their children to take advantage of lower tax rates. Here’s a short summary:

What is the Kiddie Tax?

Avoid Estimated Tax Penalties with Strategic Withholding

Quarterly estimated tax payments for each tax year are due on April 15, June 15, September 15, and January 15 of the following year. Missing any of these deadlines can result in penalties imposed by the U.S. Treasury. Currently, the penalty rate for underpaying the first installment due April 15 is 7%. Since this penalty is not tax-deductible, the effective cost is actually higher. For example, taxpayers in the 37% tax bracket face an effective penalty rate of approximately 11.11%—which is 1.59 times greater than the stated 7%.

Business Use: 70 cents per mile

Medical & Moving (for active-duty military only): 21 cents per mile

Charitable Organizations: 14 cents per mile (statutory rate)

These rates apply to all types of vehicles, including electric, hybrid, gasoline, and diesel-powered cars, vans, pickups, and panel trucks.

Understanding Tax Deductions for Raw Land Investments

Investing in raw, unimproved land offers a lower-maintenance path into real estate, free from the obligations of managing tenants or structures. But tax treatment for raw land differs from that of developed property. Property taxes on investment land are deductible if you itemize, and unlike the $10,000 cap on personal property taxes, this limit does not apply to investment property. If you finance the purchase, the interest may also be deductible as an investment interest expense—limited to your net investment income, with unused amounts carried forward to future years.

Understanding the 2024 Child Tax Credit

In 2024, the Child Tax Credit (CTC) remains a crucial financial benefit for millions of American families. The current credit allows eligible taxpayers to claim up to $2,000 per qualifying child under age 17, with up to $1,600 potentially refundable through the Additional Child Tax Credit (ACTC). To qualify, the child must have a valid Social Security number, live with the taxpayer for more than half the year, and be claimed as a dependent. The credit phases out for higher-income earners, beginning at $200,000 for single filers and $400,000 for married couples filing jointly.

Major Changes to Simple IRAs in 2024

Short Summary: A SIMPLE IRA is a written plan, funded primarily by tax-deferred employee contributions and partially by employer contributions. Individual accounts are maintained for each employee, no actuarial or qualified plan rules apply, but most employees who have earned at least $5,000 in the current and 2 previous years qualify to participate. The employee may defer up to $16,000 ($17,600 in certain cases) for 2024. The employer generally matches the lesser of the employee’s deferred amount or 3% of the employee’s compensation ($16,000 max match). The plan must be established by October 1st of the year for which a deduction is desired, and the employer’s contribution may be made up to the due date of the return plus extension. All SIMPLE IRA plans must be maintained on a calendar year basis.