In this Edition
December 27, 2022

Have You Considered a Cost Segregation Study?

PODCAST: Business Tax Planning for 2022

Two Essential Documents to Protect Your Estate

Choosing a Business Entity? Here Are the Pros and Cons of a C Corporation

Do You Qualify for the QBI Deduction? And Can You Do Anything by Year-End to Help Qualify?
Have You Considered a Cost Segregation Study?
Because of the economic impact of inflation, many companies may need to conserve cash and not buy much equipment this year. As a result, you may not be able to claim as many depreciation tax deductions as in the past. However, if your company owns real property, there may be another approach to depreciation to consider: a cost segregation study.

Depreciation Basics

Business buildings generally have a 39-year depreciation period (27.5 years for residential rental properties). Typically, companies depreciate a building’s structural components — including walls, windows, HVAC systems, plumbing and wiring — along with the building. Personal property (such as equipment, machinery, furniture and fixtures) is eligible for accelerated depreciation, usually over five or seven years. And land improvements, such as fences, outdoor lighting and parking lots, are depreciable over 15 years.

Often, businesses allocate all or most of their buildings’ acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be “part of a building” may in fact be personal property. Examples include removable wall and floor coverings, removable partitions, awnings, canopies, window treatments, signs and decorative lighting.

Pinpointing Costs

A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. Although the relative costs and benefits of a cost segregation study will depend on your particular facts and circumstances, it can be a valuable investment.

It may allow you to accelerate depreciation deductions on certain items, thereby reducing taxes and boosting cash flow. And, thanks to the Tax Cuts and Jobs Act, the potential benefits of a cost segregation study are even greater than they were years ago because of enhancements to certain depreciation-related tax breaks.

Worth a Look

Cost segregation studies have costs all their own, but the potential long-term tax benefits may make it worth your while to undertake the process. Contact our firm for further details.

Vince Schamber, CPA
D 920.337.4548
PODCAST
Business Tax Planning for 2022

Now that the election is over, it looks like we will have a divided government in Washington for the next couple of years. What this typically means is that there will not be a lot of large tax changes.

This podcast explains some tax planning ideas for the end to the year from a business point of view.
Individual Tax Planning for 2022

It's easier for individuals to do tax planning before the end of the year than it is after.

In this episode, Jeff Dvorachek shares how individuals can use stock sale losses, charitable donations as well as retirement plan and health savings account contributions to help offset taxable income for 2022.
Two Essential Documents to Protect Your Estate
Estate planning isn’t just about what happens to your assets after you die. It’s also about protecting yourself and your loved ones during your lifetime. To spare your family from guessing what you want done, and to ensure that your wishes are carried out, put your wishes in writing. Generally, that means executing two documents:

1). A Living Will.

This document expresses your preferences for the use of life-sustaining medical procedures, such as artificial feeding and breathing, surgery, invasive diagnostic tests and pain medication. It also specifies the situations in which these procedures should be used or withheld.

A living will may contain a “do not resuscitate” order, which instructs medical personnel not to perform CPR in the event of cardiac arrest.

2). A Health Care Power of Attorney (HCPA). 

This document authorizes a surrogate — your spouse, child or another trusted representative — to make medical decisions on your behalf if you’re unable to do so. An HCPA is generally broader than a living will, though there may be some overlap.

An HCPA might authorize your surrogate to make medical decisions that don’t conflict with your living will. These might include consent for medical treatment, placement in a nursing home or other facility, or authorization to employ or discontinue life-prolonging measures.

It’s a good idea to have both a living will and an HCPA or, if allowed by state law, a single document that combines the two. Contact us with your questions regarding these or other aspects of the estate planning process.

Ryan Laughlin, CPA, MST, JD, AEP
D 920.337.4525
Tax Tip Tuesday - Video Short
Holiday Gift Tax Tips!

This week, Jessica explains some tax tips for buying gifts this holiday.
Choosing a Business Entity? Here Are the Pros and Cons of a C Corporation
If you’re launching a new business venture, you’re probably wondering which form of business is most suitable. Here is a summary of the major advantages and disadvantages of doing business as a C corporation.

A C corporation allows the business to be treated and taxed as a separate entity from you as the principal owner. A properly structured corporation can protect you from the debts of the busi ness yet enable you to control both day-to-day operations and corporate acts such as redemptions, acquisitions and even liquidations. In addition, the corporate tax rate is currently 21%, which is lower than the highest noncorporate tax rate.

Following Formalities

In order to ensure that a corporation is treated as a separate entity, it’s important to observe various formalities required by your state. These include:

  • Filing articles of incorporation,
  • Adopting bylaws,
  • Electing a board of directors,
  • Holding organizational meetings, and
  • Keeping minutes of meetings.

Complying with these requirements and maintaining an adequate capital structure will ensure that you don’t inadvertently risk personal liability for the debts of the business.

Potential Disadvantages

Since the corporation is taxed as a separate entity, all items of income, credit, loss and deduction are computed at the entity level in arriving at corporate taxable income or loss. One potential disadvantage to a C corporation for a new business is that losses are trapped at the entity level and thus generally cannot be deducted by the owners. However, if you expect to generate profits in year one, this might not be a problem.

Another potential drawback to a C corporation is that its earnings can be subject to double tax — once at the corporate level and again when distributed to you. However, since most of the corporate earnings will be attributable to your efforts as an employee, the risk of double taxation is minimal since the corporation can deduct all reasonable salary that it pays to you.

Providing Benefits, Raising Capital

A C corporation can also be used to provide fringe benefits and fund qualified pension plans on a tax-favored basis. Subject to certain limits, the corporation can deduct the cost of a variety of benefits such as health insurance and group life insurance without adverse tax consequences to you. Similarly, contributions to qualified pension plans are usually deductible but aren’t currently taxable to you.

A C corporation also gives you considerable flexibility in raising capital from outside investors. A C corporation can have multiple classes of stock — each with different rights and preferences that can be tailored to fit your needs and those of potential investors. Also, if you decide to raise capital through debt, interest paid by the corporation is deductible.

Although the C corporation form of business might seem appropriate for you at this time, you may in the future be able to change from a C corporation to an S corporation, if S status is more appropriate at that time. This change will ordinarily be tax-free, except that built-in gain on the corporate assets may be subject to tax if the assets are disposed of by the corporation within 10 years of the change.

The Optimum Choice

This is only a brief overview. Contact us if you have questions or would like to explore the best choice of entity for your business.
Tina Krugler

Tina Krugler, RTRP
D 715.384.1974
Do You Qualify for the QBI Deduction? And Can You Do Anything by Year-End to Help Qualify?
If you own a business, you may wonder if you’re eligible to take the qualified business income (QBI) deduction. Sometimes this is referred to as the pass-through deduction or the Section 199A deduction.

The QBI deduction is:

  • Available to owners of sole proprietorships, single member limited liability companies (LLCs), partnerships, and S corporations, as well as trusts and estates.
  • Intend ed to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate.
  • Taken “below the line.” In other words, it reduces your taxable income but not your adjusted gross income.
  • Available regardless of whether you itemize deductions or take the standard deduction.

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their QBI. For 2022, if taxable income exceeds $170,050 for single taxpayers, or $340,100 for a married couple filing jointly, the QBI deduction may be limited based on different scenarios. For 2023, these amounts are $182,100 and $364,200, respectively.

The situations in which the QBI deduction may be limited include whether the taxpayer is engaged in a service-type of trade or business (such as law, accounting, health or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in.

Year-End Planning Tip

Some taxpayers may be able to achieve significant savings with respect to this deduction (or be subject to a smaller phaseout of the deduction), by deferring income or accelerating deductions at year-end so that they come under the dollar thresholds for 2022. Depending on your business model, you also may be able to increase the deduction by increasing W-2 wages before year-end. The rules are quite complex, so contact us with questions and consult with us before taking the next steps. 

Holly Pett, CPA, EA
D 262.404.2109
More Resources from CPA-HQ
Intangible Assets: How Must the Costs Incurred Be Capitalized?

Any transaction your business engages in involving intangible assets and their related costs should be analyzed to determine the tax implications. Here are the basic rules.
Is Your Business Closing? Here Are Your Final Tax Responsibilities

If your business is closing its doors, taxes may be the last thing on your mind. But there are a number of tax obligations that must be met when a business shuts down. Here are the basic requirements.
What's Your Taxpayer Filing Status?

For many people, December 31 means a New Year’s celebration. However, from a tax perspective, it means thinking about which filing status a taxpayer will use for that year’s tax return. This article reviews the five statuses. A sidebar looks at whether a married person can file as “head of household.”