Five Summertime Strategies for 2023

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Ordinary Income: Ordinary income from investments includes interest, dividends, and rental income. Let's briefly explore each: Interest: If you earn interest from investments like savings accounts, certificates of deposit (CDs), or bonds, that income is generally taxable. It is typically taxed at your ordinary income tax rates, which vary based on your income level. Dividends: Dividends are a company’s earnings distributions to its shareholders. They can be classified as either qualified or non-qualified dividends. Qualified dividends, which meet specific criteria, are subject to lower tax rates similar to long-term capital gains. Non-qualified dividends are typically taxed at ordinary income tax rates. Rental Income: If you invest in real estate and receive rental income, it is generally considered ordinary income and is subject to taxation at your applicable tax rates. However, you may be able to offset this income with eligible expenses, such as mortgage interest, property taxes, depreciation, and maintenance costs. Capital Gains: Capital gains occur when you sell an investment for a profit. The taxable portion of capital gains can be further divided into short-term and long-term gains: Short-Term Capital Gains: If you hold an investment for one year or less before selling it, any profit you make is considered a short-term capital gain. Short-term capital gains are taxed at your ordinary income tax rates. Long-Term Capital Gains: Investments held for more than one year before being sold may qualify for long-term capital gains treatment. At the federal level, the tax rates for long-term capital gains are generally lower than ordinary income tax rates and vary based on your income level. At the state level, while a handful of states tax such gains at a lower rate than the state ordinary income tax rates, most states tax all income, regardless of type, at the same rate. Net Investment Income Tax: In addition to regular income taxes, certain high-income individuals may be subject to the Net Investment Income Tax (NIIT). The NIIT is a 3.8% federal tax on the lesser of your net investment income or the excess of your modified adjusted gross income (MAGI) over a specific threshold: • For single or head-of-household filers, the threshold is $200,000. • For married couples filing jointly, the threshold is $250,000. Net investment income includes interest, dividends, capital gains, rental income, royalties, and passive income from businesses. It is essential to consult with a tax professional to determine if you are subject to the NIIT and how it may impact your tax liability. Strategies to Minimize Investment Income Taxes: While taxes are a necessary part of investing, there are strategies you can employ to minimize their impact: Tax-Advantaged Accounts: Consider investing in tax-advantaged accounts like individual retirement accounts (IRAs), 401(k)s, or Health Savings Accounts (HSAs). These accounts offer tax benefits that can help reduce your overall tax liability. Tax-Loss Harvesting: If you have investments that have decreased in value, you can sell them to offset capital gains from other investments. This strategy, known as tax-loss harvesting, can help reduce your taxable income. Holding Periods: By holding investments for more than one year, you may qualify for the lower long-term capital gains tax rates. Donating Stocks to Charity : By directly donating appreciated stock (that has been held long-term) to charity, you don’t have to recognize a taxable capital gain, but you can still receive a charitable contribution deduction for the fair market value of the stock (if you itemize deductions). This allows for a much greater tax benefit than if you sell the stock and then donate the funds, because you will pay capital gains tax on the gain from the sale!

What Are Cryptocurrency Taxes? Cryptocurrency taxes are the taxes that you owe on any gains or losses that you realize from the sale or exchange of virtual currencies. The IRS treats cryptocurrencies like property, which means that any gains or losses you generate are treated as capital gains or losses (just like when you sell stocks, real estate, or other capital assets). How Do Cryptocurrency Taxes Work? Cryptocurrency taxes work similarly to other capital gains taxes. If you sell or exchange cryptocurrency at a profit, you'll owe taxes on that profit. If you sell or exchange it at a loss, you may be able to deduct that loss to reduce your overall tax liability (although there are certain limitations when claiming capital losses). The amount of tax you owe on your cryptocurrency gains depends on how long the cryptocurrency has been held since the initial acquisition - if you own it for less than a year, your gains will be considered short-term and taxed at your ordinary income tax rate. If you hold it for more than a year, however, your gains will be taxed at the long-term capital gains tax rate, which is generally lower than the ordinary income tax rate. What Do You Need to Do to Comply with Cryptocurrency Tax Laws? If you've invested in cryptocurrency, it's important to understand how to properly report your gains and losses on your tax returns. Here are some steps you can take to ensure that you abide by the law: • Keep Accurate Records - The first step is to keep precise records of all your cryptocurrency transactions. Keeping track of the gain or loss from virtual currency trading is easy if you are using a broker that issues you Form 1099-B (Proceeds from Broker and Barter Exchanges). However, if you don't use a broker who keeps records of your trading activity, you will need to do so on your own. This means that you must keep track of the following: •Purchase Date •Purchase Price •Sale Date •Sale Price Don't forget that sales aren't the only form of taxable transactions. You must report the disposition of a virtual coin if it's sold for cash, traded for another cryptocurrency asset, or used to buy something. It's also important to note that virtual currency splits can create ordinary income, as can airdrops, mining, and staking. • Report Your Gains and Losses on Your Tax Return - When you prepare your tax return, you'll likely need to report your cryptocurrency gains and losses on Form 8949, Sales and Other Dispositions of Capital Assets. You'll also need to include the total amount of your gains or losses on Schedule D of your tax return. • Pay Any Taxes Owed - If you owe taxes on your gains, you'll need to pay them when you file your tax return (and they will be included in your overall tax liability on ALL taxable income). If you don't pay your taxes on time, you may be subject to penalties and interest charges. Conclusion As cryptocurrency continues to become a more popular investment vehicle, it's important to understand how to properly keep track of and report your gains and losses on your tax returns. The IRS is cracking down on these types of transactions, and you don’t want anything to come back and bite you later! As always, if you're unsure how this applies to your specific tax situation, please consult with a tax professional.

A Successful Partnership Intuit conducted a survey in October 2022 which found tremendous benefits to the accountant-business owner relationship: Nine out of ten small businesses with an accountant or bookkeeper say they contribute to the business’s success. More than eight out of ten business owners say accounting professionals helped them reduce the impact of inflation on their business. More than 80 percent of business owners say their accountant helps them make better use of technology. More than 98 percent of business owners say they are more confident in their business because of their accountants. Small business owners overwhelmingly say their accountants save them time and money. There’s no doubt that the relationship between a business owner and their accountant is of utmost importance to your business. Here are five ways to work even better with your accountant so that you can both benefit from this important business relationship. Reduce your accountant’s administrative time. There is a lot of paperwork when it comes to accounting and tax work, and administrative work goes hand in hand with that paperwork. When you can reduce the administrative work, your accountant can focus more on planning and advisory work, which is more valuable to your business. Here are a couple of tips. When sending paper information to your accountant, scan it in and convert it to PDF instead. Then upload it to your secure portal. When sending digital information, convert images to PDF files when possible. Images can’t easily be converted to text as PDFs can. Instead of sending multiple files, combine PDFs into one image so they are in the same document. Use a client portal instead of email if a client portal is provided. Spend time understanding your accounting and tax reports. A little education can go a long way. Learning a bit about finances and accounting can help you become a much better business owner. Your accountant may have suggestions on the best source for this or they may have videos they have produced themselves. Honesty is paramount. It’s critical that there is trust and complete honesty on both sides of the relationship. Your accountant may have earned a CPA or Enrolled Agent or other certifications that took years to acquire. Their license is in peril if anything is not above board. You might be surprised to learn that there are potentially many penalties and jail time for the accountant as well as the client if fraud or other criminal acts are discovered. One example of something you can do to ensure your accountant’s trust is in tax preparation: clients should complete the tax organizer in full when the tax preparer sends it, even though it is a pain to do so. If a piece of information is missing, or you decide it’s not important but the government feels it is, that omission can spell the beginning of trouble for both you and your tax preparer. Be mindful in communications. Good communication is an essential part of the accountant-client relationship. A great client will take the time to read any emails or correspondence and answer all the questions in the email (not just the first one!). Both you and your accountant may have preferred ways of communicating, among the choices of text, voice, and email. Keep in mind your accountant has a higher duty to protect your private information. Text and unencrypted email can be problematic for them, depending on the type of information to be conveyed. To save time and reduce interruptions, keep a notes file on your desktop, and add any non-urgent questions to your list. That way, you can cover a lot of ground when you meet periodically. It’s a better use of both of your time. Of course, if you have urgent questions, feel free to contact your accountant at any time. Vet any advice you hear. Be wary of unsolicited advice as well as tips you might see on social media. They can be uneducated and worst case, downright fraudulent. One of the biggest problems today is ERC mills: companies that have sprung up to help small businesses claim the Employee Retention Credit from 2020 and 2021. Most of these companies are not following IRS guidelines and do not have the proper credentials to evaluate the tax law properly. Social media sources can be quite unreliable as well. TikTok has some outrageous financial claims regarding the choice of business entity, so please do not act on this advice until you speak with a qualified accounting or tax professional. Try these tips to build better rapport with your accountant, and your business will blossom as well.

Taxable Income Typically, the following types of income are required to be declared on your tax return, and you must pay tax on them: Wages Salaries Commissions Strike pay Rental income Alimony (for divorces finalized before 2019) Royalty payments Gains on stock sales Dividend and interest income Self-employment/business income Keep in mind that there are other forms of compensation that may be taxable, including fringe benefits or stock options. Fringe benefits are part of your income unless they are specifically excluded by law – or, if you pay fair market value for them. You do not need to be an employee of the provider of such a benefit to be a recipient, and if you perform the services for which a fringe benefit is being provided, you are the recipient and required to report/pay tax on it as applicable, even if it is given to another person and not you (for example, a family member). Examples could include: A company-paid offsite gym membership A company vehicle that can be used personally Holiday gifts from an employer in the form of cash or gift certificates Company-paid tuition exceeding a certain amount Employer-paid group life insurance over a certain amount Nontaxable Income The following types of income are usually deemed nontaxable by IRS and aren’t required to be reported on your tax return: Inheritances and bequests Cash rebates Alimony payments (for divorces finalized after 2018) Child support payments Most healthcare benefits Money that is reimbursed from qualifying adoptions Welfare payments Other Considerations There are some types of income that may or may not be taxable, or may be partially taxable. Examples include proceeds from cashing in a life insurance policy or money from a qualified scholarship, depending on how it was used. Income from retirement accounts may also fall into this category. Consult with your tax professional to determine how much of such income should be included on your tax return, if any. Certain types of income may not be readily identified as taxable, but are generally required to be included on your return. Examples include: the fair-market value of property received for your services; disability retirement or sickness/injury payments from an employer-paid plan; property and services for which you bartered; money/income from offshore accounts; or canceled/forgiven debt. IRS rules state that you are taxed on all income available to you, regardless of whether it is actually in your possession. For example, if a check is received by or made available to you before the end of the tax year, but you do not cash or deposit the check until the next year, the income was “constructively received” before year-end and, therefore, is taxable in that year. If you have a contract with a third party (agent) to receive income on your behalf, the income is considered received by you (and therefore taxable) in the year the agent received it. If you receive payment for future services to be provided, the income is generally included in income/subject to tax in the year you receive it. An exception to this is if you report on an accrual basis of accounting – consult with your tax professional for more information. Note that in some cases, the tax treatment of certain income for State purposes is not consistent with Federal tax law. For example, while alimony is no longer reportable on Federal returns for divorces finalized after 2018, California still requires such income to be included on the state tax return. Check with your tax professional to learn more about federal and State tax law differences. For more information, please refer to IRS Publication 525, Taxable and Nontaxable Income: 2022 Publication 525 (irs.gov)

Every bank is different when it comes to the features and benefits of their business offerings. Here is a list of some of the items to consider asking your banker. Is your checking account interest-bearing, and if so, how does the interest rate compare to a business savings account interest rate? Is there an initial minimum deposit to open the savings account? What are the monthly fees for each type of account? What minimum balances are required in both checking and savings accounts so that fees are waived? And, is it worth it to keep minimum balances? Are there withdrawal limits? What are the other benefits of having a business savings account? Is my money FDIC-insured, and if so, what is the cap? Often, a bank will tie the checking and savings accounts together, and there will be a combined minimum balance that is lower than if either account was separate. For that reason, having your checking and savings accounts in the same bank might be more effective. Other common benefits include waiving overdraft fees, wire transfer fees, and NSF charges. There are other types of interest-bearing accounts besides savings accounts, including money market accounts and certificates of deposits (CDs). Money market accounts may have check-writing privileges, but the withdrawals may be limited. While CDs typically pay a higher interest rate than a savings account, they tie up your money for a specified period of time, and there are steep early-withdrawal penalties. There are many institutions besides your main bank that are focused on savings accounts and will pay much higher interest rates. Typically, online banks and credit unions will pay a higher interest rate than a bank, but the money may not be FDIC-insured, so be sure to read the fine print. An additional benefit of keeping money in a separate savings account is that you can save for many things: A cushion for emergencies. Lump sum tax payments. Future capital expenditures. Once you’ve set up your new savings account, consider setting up monthly automatic transfers from your checking account to your savings account so that you build up your savings balance.

The IRS has strict rules for determining the difference between a business and a hobby for tax purposes. While expenses incurred to conduct a business are deductible, expenses incurred for a hobby may not be, causing your taxes to increase. A person that conducts an activity for profit is allowed to deduct the expenses that are ordinary and necessary in that industry. If the expenses exceed the income, a loss is incurred. This loss can offset other income such as wages, interest or dividends. However, if your activity is determined to be a hobby for IRS purposes, you cannot reduce your wages, interest or dividends by any losses. When you have losses for three years in a row, you must be able to prove to the IRS that your activity is truly a business and not a hobby. The IRS will consider the following when evaluating your business/hobby: The manner that you carry on the activity The expertise of the taxpayer in this industry as well as the taxpayer’s history and success in this industry The time and effort spent in the activity and whether the taxpayer depends on the income for their livelihood The elements of personal pleasure or recreation Even if you have losses, there is a lot you can do to ensure your business is not considered a hobby. Here are some ideas to implement. Develop a written business plan and update it annually. Show how you plan to convert your losses into gains. Set up a separate business bank account and credit card account(s), and use them only for business purposes. Keep thorough and professional books. Obtain insurance, registrations, certifications, and licenses needed for that type of industry. Maintain a second phone listing for business. Keep a detailed calendar of your business activities. Record time spent on your business. Document evaluations of your operation to attempt to improve the business’s profitability. Research trends in similar businesses. Log any personal use on assets, such as a camera or automobile. If there’s any question that your activities could be considered a hobby, these tips will help you stay proactive for tax purposes.

Credits for Individuals Child Tax Credit Dependent Care Credit Earned Income Tax Credit Adoption Credit Saver’s Credit Foreign Tax Credit Excess Social Security and RRTA tax withheld Credit for Tax on Undistributed Capital Gain Credit for Prior Year Minimum Tax Residential Energy Credits Plug-in Electric Drive Vehicle Credit Premium Tax Credit (marketplace health care insurance credit) American Opportunity Credit and Lifetime Learning Credit If you feel you might qualify for one of these credits, be sure to ask your tax preparer about them. Deductions for Individuals The IRS provides each taxpayer with a standard deduction that reduces their adjusted gross income so they pay less tax. The amounts change each year, and are determined by filing status. In the 2022 tax year, here is a sampling of the standard deduction amounts. Single; Married Filing Separately $12,950 Married Filing Jointly; Qualifying Widow(er) $25,900 Head of Household $19,400 Most taxpayers take the standard deduction, but the law allows you to take more if you have more qualifying deductions than the limits above. These are called itemized deductions and can include personal property tax, real estate tax, sales tax, charitable contributions, gambling losses, interest expense, home mortgage interest paid, and moving expenses, to name a few. Students and teachers may be able to take education deductions, which include student loan interest paid, work-related educational expenses, and educational expenses paid by a teacher. Self-employed individuals can claim work-related deductions related to business expenses, business use of car, and business use of home on Schedule C. Health care deductions, such as medical and dental expenses or Health Savings Account (HSA) contributions can be deductible to those who participate in these plans. For investors, deductions may include sale of home, Individual Retirement Arrangement (IRA) contributions, capital losses, bad debts, qualified opportunity zone investments, and debt forgiveness. If you’d like to study deductions and credits on your own, the IRS website is a wealth of knowledge. If you don’t want to do that, you can always ask your tax professional. Filling out your tax organizer in a complete and thorough manner is the very first step to helping your tax pro identify the plethora of credits and deductions you may qualify for.

1. Eliminate wasted time. Take a deep look at your to-do list. Identify one task that you’ve always done that adds nothing to your business. Does it really need to be done? Try to find tasks that don’t make any sense to do any more that you’re still doing just because you’ve always done it. You should be able to free up a lot of time! For now, use it to slow down. Take a nap, call a friend, visit your employees with no agenda and really listen, take a walk and smell the roses, or simply hug your child. 2. Get off electronics. A friend recently suffered from a concussion and her doctor told her to stay off electronics to help her brain heal faster. She limited herself to one hour a day for two months. What would you do if you had to stay off electronics? My friend read all the paperbacks she had that she hadn’t gotten to (for 15 years), cooked more, went shopping for things she had wanted for years, took walks, and learned a new language. If you spend any time on social media, eliminating it even partially can be a huge pickup in time. Getting off electronics and using that time to get back into nature is healing for everyone. 3. Get enough sleep. If you are sleep-deprived, everything takes longer. Slowing down and getting enough sleep each night can make you more productive, reducing your work hours. Plus, you just feel more refreshed. 4. Gain a new perspective. Slowing down your normal routine can help you gain perspective. You might have been fighting fires in the trenches for so long, you’ve forgotten why you’re in business to begin with. Take time to re-connect with your mission, vision, and purpose. Make sure your employees understand their grander goals as well. 5. Avoid multi-tasking. Almost everyone thinks they are good at multi-tasking, but it turns out science says only a minority percentage of people can really multi-task effectively. Become self-aware of your own habits related to multi-tasking. Do things take longer when you multi-task? Do you make mistakes you have to go back and correct when you multi-task? If so, you may be in the majority of people who simply shouldn’t do it. 6. Stop worrying about billable hours (for service businesses) – at least for a while. If you are really fixated on billable hours, you may need to just let them go for a while until you can get your perspective back. There is more to life and business than billable hours. 7. Re-connect with your business community. If there has been no time to connect with your co-owners, customers, and employees, slowing down can provide that time. The most important thing is to simply show up and listen. You will learn a lot! 8. Make time for strategy. If your business is headed in the wrong direction, that is the ultimate time-waster! Slowing down allows you to re-visit your strategy, making sure you are working on the right projects, that you have the right company culture, and that your business goals are in alignment with your big-picture purpose. 9. Do nothing. It’s really okay to do nothing when you’re the business owner. You need time to come up with ideas, think about the hard issues, and even daydream. You have to stop working in the business so you can work on the business. 10. Get better at managing distractions. If you get interrupted every five minutes, you will be drained of energy at the end of your work day. Get smart about managing interruptions so you can be more productive. This will free up more time for you to take breaks and slow your pace during your workday. Try at least a few of these ideas to slow down before your mind or your body insist on it.