Learning Center for Tax and Financial Insights

One of the most important things to understand about selling a business is that this is not a decision that should be made lightly.This is true both in terms of who you sell to and with regard to what will happen to your finances after all is said and done. You need a solid financial plan in place ahead of time to not only make the most of the sale, but to guarantee that you'll have everything you need to live as comfortably as possible moving forward.The Art of Selling Your BusinessBy far, the most important step that you can take in terms of selling your business actually occurs before the sale even happens: planning ahead.When you sell your organization, especially if you're lucky enough to do so for millions of dollars, you generate enough of a profit to live comfortably for several years. But you need to be forward-thinking in terms of how you maximize those profits with regard to the taxes you'll be required to pay.A great strategy for long-term investors is QSBS stock exclusion, which permits shareholders of certain qualified small businesses to exclude a significant portion or all their associated capital gains when selling or exchanging that stock if they've held it over five years.The point is that you're maximizing the income that you're actually making from the sale of your company, which ultimately should be the goal of any entrepreneur. So planning ahead can literally save you millions in tax liability and higher take-home cash. QSBS is just one example of possible tax strategies.Another critical step to take after selling your business involves evaluating all healthcare options available to you. In a lot of situations, entrepreneurs will sell their company prior to the age of 65 — meaning before they are eligible for Medicare. Depending on the nature of the sale, they may be able to stay on a company-sponsored health insurance plan. They may also be able to get coverage through a spouse who is still employed. But if neither of these things is true, they're likely going to need to find coverage on the open market — something that can amount to thousands of dollars every year.

Article Highlights:Benefits of College Savings PlansContributionsPlan Modifications by Recent Tax ActsPrudence in Using the FundsGift Tax Twist The Qualified State Tuition Plan, often referred to as the Sec 529 Plan, is a tax-beneficial incentive for parents, grandparents, and others to save money for an individual’s future college tuition and fees. There is no federal tax deduction for making contributions. But the tax benefit of these plans is that the earnings within the plan accumulate tax-deferred and then are tax-free when withdrawn if used for college tuition and related qualified expenses. Let’s take a simplified example.Example: Jo’s parents establish a 529 plan when she is age 5, and contribute $10,000 to the plan. The $10,000 is invested in mutual funds that pay dividends of $400 per year. The tax on the dividends is deferred until the time when funds are withdrawn from the plan, and only payable if the distribution isn’t used for eligible education expenses. Let’s say that Jo enters college in 13 years and with the dividends earned over those years and an increase in the value of the original $10,000 to $15,000, the account is worth $20,200. Jo’s tuition and related expenses for her first semester is $25,000. The entire $20,200 is withdrawn to pay those expenses, so none of the dividends received and none of the $5,000 gain in the value of the account will be taxable. If Jo’s parents were in a 24% tax bracket, the tax savings by investing in the 529 plan compared to putting $10,000 in a regular brokerage account will be at least $1,530. The benefit would be compounded if more than $10,000 was contributed to the 529 plan. Contributions - To maximize the tax benefits of a plan, it should be established for a child as soon after birth as possible when funds are available for contribution. For tax purposes, there is no limit on the amount that can be contributed, but contributions are considered gifts and each individual contributing to a plan would have to file a gift tax return if the gift exceeds the annual inflation-adjusted gift tax exclusion, which is $16,000 for 2022 (up from $15,000 for years 2018 through 2021). A special gift provision permits a contributor to contribute up to 5 times the annual gift tax exclusion amount to a qualified tuition account in a single year and treat the contribution as having been made ratably over the five-year period beginning with the calendar year in which the contribution is made. Why would someone want to do this? Because by front-loading the contributions, they would accelerate the accumulation of earnings within the account. When making 5 years’ worth of 529 plan contributions in one year, a gift tax return is required in the year of contribution. If the contributor dies within the 5-year period, any amount contributed that is allocable to the years within the five-year period remaining after the year of the contributor’s death are includible in the contributor’s gross estate for estate tax purposes. Although the income and gift tax laws don’t cap how much can be contributed to a qualified tuition plan, the 529 plans do limit the maximum amount that can be contributed per beneficiary based on the projected cost of a college education, and the maximum amount will vary between plans, though most have limits in excess of $200,000, with some topping $475,000. Generally, once an account reaches that level, additional contributions cannot be made, but that doesn’t prevent the account from continuing to grow.

March 10 - Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during February, you are required to report them to your employer on IRS Form 4070 no later than March 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.March 15 - Time to Call For Your Tax AppointmentIt is only one month until the April due date for your individual income tax returns. If you have not made an appointment to have your taxes prepared, we encourage you to do so before it becomes too late.

March 1 - Farmers and FishermenFile your 2021 income tax return (Form 1040 or 1040-SR) and pay any tax due. However, you have until April 18 (April 19 if you live in Maine or Massachusetts) to file if you paid your 2021 estimated tax by January 18, 2022. Penalty Relief: IRS will waive estimated tax penalties for farmers and fisherman who were unable to comply with the March 1, 2022, filing and payment deadline as long as they file and pay their 2021 taxes by April 18, 2022.March 15 - PartnershipsFile a 2021 calendar year return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1065) or substitute Schedule K-3 (Form 1065). If you want an automatic 6-month extension of time to file the return, file Form 7004. Then file Form 1065 and provide Schedules K-1 or substitute Schedules K-1, and if applicable Schedules K-3, to the partners by September 15.March 15 - S-CorporationsFile a 2021 calendar year income tax return (Form 1120-S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) or substitute ScheduleK-3 (Form 1120-S).To request an automatic 6-month extension of time to file the return, file Form 7004 and pay the tax estimated to be owed. Then file the return; pay any tax, interest, and penalties due; and provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) by September 15.

Are you taking on a worker who’s not an employee? QuickBooks Online includes tools for tracking and paying independent contractors.The COVID-19 pandemic created millions of self-employed individuals and small businesses. Whether they chose to, or circumstances forced them to, these new entrepreneurs had to learn new ways to get paid and to prepare their income taxes.If you’re thinking about taking on a contract worker, you, too, will have to educate yourself on the paperwork and processes required to comply with the IRS’ rules for his or her compensation. It’s much easier than hiring a full-time employee, but it still takes some knowledge of how QuickBooks Online handles these individuals.You’ll also need to make certain that the person you’re hiring is indeed an independent contractor and not an employee. The IRS takes this distinction very seriously. If you’re at all unsure of your new hire’s employment status, we can help you sort it out.Creating Records for ContractorsOnce new contractors have accepted your offer, you’ll need to have then fill out an IRS Form W-9. You can download a copy here. Employees complete the more detailed Form W-4 so that the employer can withhold income taxes correctly, but you won’t have to withhold taxes for your contract workers. They will be responsible for calculating and paying quarterly estimated taxes and filing an IRS Form 1040 every year. You, though, will be responsible for sending them an IRS Form 1099-NEC (Non-Employee Compensation) every January if you paid them more than $600 during the previous year. You do not need to send a 1099-NEC to a corporation or to an LLC that is treated as a C Corp or an S Corp. You can complete the Vendor Information window for each independent contractor, checking the box in front of Track payments for 1099.Using the information the contractors provide, you can create records for them in QuickBooks Online. If you don’t have a QuickBooks Payroll subscription, you can set them up as 1099 vendors. Click the Expenses tab in the toolbar and then on the Vendors tab. Click New vendor in the upper right to open the Vendor Information window. Complete the fields for the worker and be sure to check the box in front of Track payments for 1099, as shown in the partial image above.

There are many expanded tax benefits that individuals and families with low income can claim on their 2021 tax returns. Watch this video for details so you don't miss out.