Category: October 2024

Categories
Feature Articles- October 2024 October 2024

Boost Morale and Save Taxes with Achievement Awards

Boost Morale and Save Taxes with Achievement Awards

Some small businesses struggle with employee morale for a variety of reasons, one of which may be economic uncertainty. If you want to boost employees’ spirits without a big financial outlay, an achievement awards program is a relatively low-cost fringe benefit that may be a win-win addition.

Under such an initiative, you can hand out awards at an appointed time, such as a year-end ceremony or holiday party. And, as long as you follow the rules, the awards will be tax-deductible for your company and tax-free for recipient employees.

Fulfilling the Requirements

To qualify for favorable tax treatment, achievement awards must be granted to employees for either promoting safety in the workplace or length of service. The award can’t be disguised compensation or a payoff for closing a big deal. In addition, they must be tangible items, ranging from a gold watch or a smartphone to a plaque or a trophy. Examples of awards that would violate the rules are gift certificates, vacations, or tickets to sporting events or concerts.

Additional requirements apply to each type of award:

1. Safety Awards
These can’t go to managers, administrators, clerical workers or other professional employees. Also, safety awards won’t qualify for favorable tax treatment if the company grants them to more than 10% of eligible employees in the same year.

2. Length-of-service Awards
To receive such an award, an employee must have worked for the business for at least five years. In addition, the employee can’t have received a length-of-service award within the last five years.

Also, keep in mind that the award must be part of a “meaningful presentation.” That doesn’t mean you have to host a gala awards dinner at the Ritz, but the award should be marked by a ceremony befitting the occasion.

Nonqualified vs. Qualified

There are limits on an award’s value depending on whether the achievement awards program is nonqualified or qualified. For a nonqualified program, the annual maximum award is $400. For a qualified program the maximum is $1,600 (including nonqualified awards). Any excess above these amounts is nondeductible for the employer and taxable to the employee. If an employee receives multiple awards in one year, these figures apply to the total, not to each individual award.

To establish a qualified program, and therefore benefit from the higher limit, you must meet two additional requirements. First, awards must be granted under a written plan and the plan must be open to all eligible employees without favoritism. Second, the program must not discriminate in favor of highly compensated employees as to eligibility or benefits. For 2024, the salary threshold for a highly compensated employee is $155,000.

Awards of nominal value are generally not taxable. These are small, infrequent gifts such as a coffee mug, a t-shirt, or an occasional meal.

Explore The Idea

If an achievement awards program makes sense for your company, be sure that these requirements are met. Otherwise, you and your employees could suffer negative tax consequences. Contact the Lahrmer & Company office at (216) 393-1954 or office@lahrmercpa.com for guidance in setting up a program that checks all the boxes.

Feature Articles

Tax Tips

Categories
October 2024 Tax Tips -October 2024

When is Employer-paid Life Insurance Taxable?

When is Employer-paid Life Insurance Taxable?

If the fringe benefits of your job include employer-paid group term life insurance, a portion of the premiums for the coverage may be taxable. And that could result in undesirable income tax consequences for you.

The cost of the first $50,000 of group term life insurance paid by your employer is excluded from taxable income. But the employer-paid cost of coverage over $50,000 is taxable to you and included in the taxable wages reported on your Form W-2, even if you never actually receive any benefits from it. That’s called “phantom income.”

Have You Reviewed Your W-2?

If you’re receiving employer-paid group term life insurance coverage in excess of $50,000, check your W-2 to see the impact on your taxable wages. If there’s a dollar amount in Box 12 (with code “C”), that’s the amount your employer paid to provide you with group term life insurance over $50,000, minus any amount that you paid for the coverage. You’re responsible for any taxes due on the amount in Box 12, including employment tax.

The amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2. It’s the amount in Box 1 that’s reported on your tax return.

What are Your Options?

If the tax cost seems too high for the benefit you’re getting, ask your employer if they have a “carve-out” plan, which allows certain employees to opt out of the group coverage. If there’s no such option, ask your employer if they’d be willing to create one.

Carve-out plans vary, but one option is for your employer to continue to provide $50,000 of group-term coverage at no cost to you. Your employer could then provide you with an individual permanent policy for the balance of the coverage. Or it could pay you a cash bonus representing the amount it would have spent for the excess coverage, and you could use that money to pay premiums for an individual policy. There would still be tax consequences, but the tax liability might be smaller and the coverage might better meet your needs.

We Can Help

If you have other tax questions about life insurance, contact the Lahrmer & Company office at (216) 393-1954 or office@lahrmercpa.com.

Feature Articles

Tax Tips

Categories
Feature Articles- October 2024 October 2024

The Rise of Checking Kiting and Other Check Fraud

The Rise of Checking Kiting and Other Check Fraud

While the use of paper checks has greatly diminished, thieves still view them as a source for stealing revenue. In fact, the Financial Crimes Enforcement Network warns that many thieves are returning to old-fashioned financial theft, using paper checks. That’s one reason why the U.S. Postal Service urges us to not send checks through the mail, where they may be vulnerable.

“Check kiting” is another type of check fraud to be aware of. It relies on “float time.” That’s the period of delay between when a check is deposited in a bank and when the bank collects the related funds. In recent years, float time has narrowed, but it hasn’t disappeared. Unethical employees can use float time to falsely inflate an account balance, allowing checks that would otherwise bounce to clear. This type of crime usually involves multiple banks or multiple accounts in the same bank.

Strategies for Thwarting Check Fraud

Here are five strategies you can implement to keep people from using your company’s accounts for fraudulent activity, including check kiting.

1. Educate Employees About Bank Fraud
Teach them to recognize fraudulent transactions and related red flags. Workers who are aware of suspicious activities can bolster management’s commitment to preventing fraud.

2. Rotate Key Accounting Roles
Segregate accounting duties. By rotating tasks among staffers, if possible, you can help uncover ongoing schemes and limit opportunities to steal.

3. Reconcile Bank Accounts Daily
Make sure someone trustworthy, who isn’t involved in issuing payments, reconciles every company bank account.

4. Maintain Control of Paper Checks
Store blank checks in a locked cabinet or safe and periodically inventory the blank check stock. Also, limit who’s allowed to order new checks.

5. Go Digital
The most effective way to prevent check fraud is to stop using paper checks altogether. Consider replacing them with ACH payments or another form of electronic payments.

Tighten Up

The bottom line is, it’s a mistake to assume that check fraud is too old-fashioned to attract the attention of thieves.

Vigilance in your banking processes can help thwart it. For help tightening your internal controls, contact the Lahrmer & Company office at (216) 393-1954 or office@lahrmercpa.com.

Feature Articles

Tax Tips

Categories
October 2024 Tax Tips -October 2024

Factoring The QBI Deduction Into Year-end Tax Planning for Your Business

Factoring The QBI Deduction Into Year-end Tax Planning for Your Business

Thanks to the Tax Cuts and Jobs Act, sole proprietors and owners of pass-through entities, such as partnerships, S corporations and, generally, limited liability companies, may be able to claim tax deductions based on their qualified business income (QBI) and certain other income.

How it Works

This deduction can be up to 20% of your QBI, subject to limits that apply at higher income levels. However, some tax planning strategies can increase or decrease your allowable QBI deduction for 2024. So if you’re eligible for this deduction, it’s important to consider the impact other year-end strategies will have on it before executing them. Also, keep in mind that the QBI deduction is scheduled to expire at the end of 2025 unless Congress acts to extend it.

Have Questions?

Contact the Lahrmer & Company office at (216) 393-1954 or office@lahrmercpa.com for help optimizing your overall tax results.

Feature Articles

Tax Tips

Categories
October 2024 Tax Tips -October 2024

Medicare Premiums May Lead to Tax Savings

Medicare Premiums May Lead to Tax Savings

If you pay premiums for Medicare health insurance, you may be able to combine them with other qualifying expenses and claim them as an itemized deduction for medical expenses on your tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans, which cover some costs that Medicare Parts A and B don’t cover.

Is it Necessary to Itemize?

Generally, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying health care expenses exceeded 7.5% of your adjusted gross income. But, if you’re self-employed people or a shareholder-employees of an S corporation, you can generally claim an above-the-line deduction for your health insurance premiums, including Medicare premiums. That means you don’t need to itemize deductions to get the tax savings.

Need Help?

Contact the Lahrmer office at (216) 393-1954 or office@lahrmercpa.com with questions about claiming medical expense deductions on your personal tax return. Also, be sure to ask for help identifying an optimal overall tax-planning strategy based on your personal circumstances.

Feature Articles

Tax Tips

    Subscribe to our Newsletter

    Subscribe to our newsletter to receive news, updates, and valuable tips.

      Subscribe to our Newsletter

      Subscribe to our newsletter to receive news, updates, and valuable tips.

        CONTACT LAHRMER & COMPANY LLC

        captcha