Small Business Alert: Watch Out for the 100% Penalty

Some tax sins are much worse than others. An example is failing to pay over federal income and employment taxes that have been withheld from employees’ paychecks. In this situation, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person. It’s called the 100% penalty because the entire unpaid federal income and payroll tax amounts can be assessed personally as a penalty against a responsible person, or several responsible persons. Determining responsible person status Since the 100% penalty can only be assessed against a so-called responsible person, who does that include? It could be a shareholder, director, officer or employee of a corporation; a partner or employee of a partnership; or a member (owner) or employee of an LLC. To...

Discover if you Qualify for "Head of Household" Tax Filing Status

When you prepare your tax return, you’ll check one of the following filing statuses: single, married filing jointly, married filing separately, head of household or qualifying widow(er). Only some people are eligible to file a return as a head of household. But if you’re one of them, it’s more favorable than filing as a single taxpayer. To illustrate, the 2025 standard deduction for a single taxpayer is $15,000. However, it’s $22,500 for a head of household taxpayer. To be eligible, you must maintain a household that, for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent. Tax law fundamentals Who’s a qualifying child? This is one who: Lives in your home for...

FAQs about the Excess Earnings Method in Business Valuation

Valuation professionals use various methods to determine the fair market value of a private business or business interest. One of the more debated techniques is the excess earnings method. Here are answers to some common questions about this controversial method. What’s the excess earnings method? The U.S. Department of the Treasury originally developed the excess earnings method in 1920 to estimate value lost by businesses during Prohibition. This method separates a business’s earnings into two categories: Earnings attributable to tangible assets, and . Excess earnings, which represent returns on intangible assets. . Although not initially designed as a business valuation tool, the excess earnings method is easy for business owners, attorneys and judges without extensive financial expertise to understand. So it’s sometimes used to value professional practices and small businesses. How...

Are you a Tax-Favored Real Estate Professional?

For federal income tax purposes, the general rule is that rental real estate losses are passive activity losses (PALs). An individual taxpayer can generally deduct PALs only to the extent of passive income from other sources, if any. For example, if you have positive taxable income from other rental properties, that generally counts as passive income. You can use PALs to offset passive income from other sources, which amounts to being able to currently deduct them. Unfortunately, many rental property owners have little or no passive income in most years. Excess rental real estate PALs for the year (PALs that you cannot currently deduct because you don’t have enough passive income) are suspended and carried forward to future years. You can deduct suspended PALs when you...

Deduct a Loss from Making a Personal Loan to a Relative or Friend

Suppose your adult child or friend needs to borrow money. Maybe it’s to buy a first home or address a cash flow problem. You may want to help by making a personal loan. That’s a nice thought, but there are tax implications that you should understand and take into account. Get it in writing You want to be able to prove that you intended for the transaction to be a loan rather than an outright gift. That way, if the loan goes bad, you can claim a non-business bad debt deduction for the year the loan becomes worthless. For federal income tax purposes, losses from personal loans are classified as short-term capital losses. You can use the losses to first offset short-term capital gains that would otherwise be...

Keeping Password "Spraying" from Compromising your Network

Cybercriminals are always looking for novel ways to gain unauthorized access to online accounts and IT networks. Password “spraying” is a newer scheme you and your IT department need to know about and guard against. Traditional cyberattacks attempt to breach a single account with multiple password attempts. But password spraying schemes use common passwords to try to access as many accounts as possible. Unfortunately, this approach can be very effective. How and why it works Password spraying perpetrators buy lists of usernames or email addresses and either buy or invent lists of common passwords. They then attempt to access multiple accounts using a single password. If that password doesn’t work, the criminals select a new password and keep trying until, eventually, a password opens an account. That...

6 Essential Tips for Small Business Payroll Tax Compliance

Staying compliant with payroll tax laws is crucial for small businesses. Mistakes can lead to fines, strained employee relationships and even legal consequences. Below are six quick tips to help you stay on track. (1) Maintain organized records Accurate recordkeeping is the backbone of payroll tax compliance. Track the hours worked, wages paid and all taxes withheld. Organizing your documentation makes it easier to verify that you’re withholding and remitting the correct amounts. If you ever face an IRS or state tax inquiry, having clear, detailed records will save time and reduce stress. (2) Understand federal withholding Federal income tax. Employees complete Form W-4 so you can determine how much federal income tax to withhold. The amounts can be calculated using IRS tax tables. . FICA taxes (Social Security and...

Turning Stock Downturns into Tax Advantage

Have you ever invested in a company only to see its stock value plummet? (This may become relevant in light of recent market volatility.) While such an investment might be something you’d rather forget, there’s a silver lining: you can claim a capital loss deduction on your tax return. Here are the rules when a stock you own is sold at a loss or is entirely worthless. How capital losses work As capital assets, stocks produce capital gains or losses when they’re sold. Your capital gains and losses for the year must be netted against one another in a specific order based on whether they’re short-term (held one year or less) or long-term (held for more than one year). If, after netting, you have short-term or long-term losses...

A Blueprint for Valuing Construction Companies

Determining the value of a construction company is complex and requires a deep understanding of industry-specific challenges and financial metrics. Whether a construction business owner is planning a sale or merger, securing financing, preparing for succession, or navigating legal matters, an accurate valuation is essential. Professional valuation experts analyze a range of factors unique to construction businesses — including homebuilders, commercial real estate developers, subcontractors and specialized tradespeople — to provide reliable assessments of value. Unique risks The construction industry is inherently cyclical, making economic fluctuations a significant risk. Market downturns can lead to project delays or cancellations, affecting cash flow and profitability. Weather conditions and natural disasters further contribute to the industry’s unpredictability, as they can disrupt project timelines and escalate costs. Another major risk factor is...

5 Business Succession Options and their Tax Implications

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. Whether you’re ready to retire, you wish to step back your involvement or you want a solid contingency plan should you unexpectedly be unable to run the business, exploring different succession strategies is key. Here are five options to consider, along with some of the tax implications. 1. Transfer directly to family with a sale or gifts One of the most common approaches to succession is transferring ownership to a family member (or members). This can be done by gifting interests, selling interests or a combination. Parents often pass the business to children, but family succession plans can also involve siblings or...