Inflation Means Your and Your Employees Can Save More for Retirement in 2023

How much can you and your employees contribute to your 401(k)s next year — or other retirement plans? In Notice 2022-55, the IRS recently announced cost-of-living adjustments that apply to the dollar limitations for pensions, as well as other qualified retirement plans for 2023. The amounts increased more than they have in recent years due to inflation. 401(k) plans The 2023 contribution limit for employees who participate in 401(k) plans will increase to $22,500 (up from $20,500 in 2022). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan. The catch-up contribution limit for employees age 50 and over who participate in 401(k) plans and the other plans mentioned above will increase to $7,500 (up from $6,500 in 2022). Therefore,...

Finding Comparable Transactions to Use in Business Valuation

The market approach is an intuitive way to value a private business interest. It bases the subject company’s value on sales of other similar businesses or business interests, which are commonly referred to as “guideline transactions” or “comparables.” Each business is unique, so identifying an exact match is impossible. 2 methods The following two primary valuation methods fall under the market approach umbrella: Guideline public company method. Under this method, value is derived from comparable stocks (or partnership interests) that are actively traded on the New York Stock Exchange or other public markets. Public stock prices are used to compute pricing multiples — such as price-to-revenue, price-to-net income and price-to-book value — to apply to the subject company’s results. Financial variables may be calculated for a variety...

You May be Liable for Nanny Tax for All Types of Domestic Workers

You’ve probably heard of the “nanny tax.” But even if you don’t employ a nanny, it may apply to you. Hiring a house cleaner, gardener or other household employee (who isn’t an independent contractor) may make you liable for federal income and other taxes. You may also have state tax obligations. If you employ a household worker, you aren’t required to withhold federal income taxes from pay. But you can choose to withhold if the worker requests it. In that case, ask the worker to fill out a Form W-4. However, you may be required to withhold Social Security and Medicare (FICA) taxes and to pay federal unemployment (FUTA) tax. 2022 and 2023 thresholds In 2022, you must withhold and pay FICA taxes if your household worker earns...

In 2023, the Social Security Wage Base is Increasing

The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $160,200 for 2023 (up from $147,000 for 2022). Wages and self-employment income above this threshold aren’t subject to Social Security tax. Basics about Social Security The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers. One is for the Old Age, Survivors and Disability Insurance program, which is commonly known as Social Security. The other is for the Hospital Insurance program, which is commonly known as Medicare. There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2023, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the...

When a Valuation Professional Finds Fraud

Imagine you’ve got your eye on a business that seems like an attractive investment or acquisition target. It boasts strong earnings, competitive growth estimates and a clean balance sheet. But this business has a secret: fraud. And fraud can dramatically change the prospects — and value — of a company. That’s why, when conducting business appraisals, valuation professionals keep their eyes peeled for signs that fraud is occurring or could easily occur. Gauging fraud risk Business value is a function of risk and return, and one critical risk factor companies face is fraud. So valuators conducting an appraisal might ask management about the company’s internal controls — its policies and procedures to protect assets and ensure reliable financial statements. They may look for particular internal controls that...

Plan Now to Make Tax-Smart Year-End Gifts to Loved Ones

Are you feeling generous at year end? Taxpayers can transfer substantial amounts free of gift taxes to their children or other recipients each year through the proper use of the annual exclusion. The exclusion amount is adjusted for inflation annually, and for 2022, the amount is $16,000. The exclusion covers gifts that an individual makes to each recipient each year. So a taxpayer with three children can transfer a total of $48,000 to the children this year free of federal gift taxes. If the only gifts during a year are made this way, there’s no need to file a federal gift tax return. If annual gifts exceed $16,000, the exclusion covers the first $16,000 and only the excess is taxable. Note: This discussion isn’t relevant to gifts made...

Providing Fringe Benefits to Employees with No Tax Strings Attached

Businesses can provide benefits to employees that don’t cost them much or anything at all. However, in some cases, employees may have to pay tax on the value of these benefits. Here are examples of two types of benefits which employees generally can exclude from income: A no-additional-cost benefit. This involves a service provided to employees that doesn’t impose any substantial additional cost on the employer. These services often occur in industries with excess capacity. For example, a hotel might allow employees to stay in vacant rooms or a golf course may allow employees to play during slow times. A de minimis fringe benefit. This includes property or a service, provided infrequently by an employer to employees, with a value so small that accounting for it...

How Valuators Use Visual Aids

Business valuation professionals who serve as expert witnesses in court face two daunting tasks: First, they must capture the attention of a judge or jury. Then they need to make complex financial analyses understandable. That’s easier said than done after the trier of fact already has listened to hours of testimony in commercial litigation. Impactful visual aids can help break up the monotony and drive home key points in an expert’s oral testimony and written reports. Achieving maximum impact Many people are visual learners, so oral testimony alone may not be enough to enable them to understand complex issues, such as discounted cash flow analyses or profit trends. Experts who supplement their analyses with pictures are likely to leave a lasting impression. Today, most courtrooms are equipped with...

Tax and Other Financial Consequences of Tax-Free Bonds

If you’re interested in investing in tax-free municipal bonds, you may wonder if they’re really free of taxes. While the investment generally provides tax-free interest on the federal (and possibly state) level, there may be tax consequences. Here’s how the rules work. Purchasing a bond  If you buy a tax-exempt bond for its face amount, either on the initial offering or in the market, there are no immediate tax consequences. If you buy such a bond between interest payment dates, you’ll have to pay the seller any interest accrued since the last interest payment date. This amount is treated as a capital investment and is deducted from the next interest payment as a return of capital. Interest excluded from income  In general, interest received on a tax-free municipal bond...

What Local Transportation Costs Can Your Business Deduct?

You and your small business are likely to incur a variety of local transportation costs each year. There are various tax implications for these expenses. First, what is “local transportation?” It refers to travel in which you aren’t away from your tax home (the city or general area in which your main place of business is located) long enough to require sleep or rest. Different rules apply if you’re away from your tax home for significantly more than an ordinary workday and you need sleep or rest in order to do your work. Costs of traveling to your work location The most important feature of the local transportation rules is that your commuting costs aren’t deductible. In other words, the fare you pay or the miles you drive...