Tax

Because you operate your business as a solely owned corporation (C or S) with no employees, several excellent retirement plans are available to you that can provide significant tax deductions and help you build wealth for retirement.

Some of the best options include:

• SEP-IRA. Easy to set up and allows employer contributions of up to $69,000 for 2024 ($70,000 for 2025).
• Solo 401(k). Offers the highest contribution limits, with a combination of salary deferrals and employer contributions—up to $81,250 for 2025 if you qualify for super catch-up contributions.
• SIMPLE-IRA. A great choice for modest salaries, allowing employee deferrals and employer-matching contributions.
• Profit-sharing plan. Flexible employer contributions of up to 25 percent of salary, with loan options if needed.

Each of these plans comes with different benefits and administrative requirements, so choosing the right one depends on your salary level, cash flow, and long-term financial goals. 

If you haven’t yet set up a retirement plan, there’s still time to act for the 2024 tax year, depending on the plan you choose.

If you want to discuss corporate retirement plans, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 11, 2025

Disasters are all over the news these days. Severe calamities that cause widespread damage, such as large wildfires, floods, hurricanes, and earthquakes, ordinarily result in a disaster declaration by the U.S. president. 

There’s nothing good about a disaster, but at least the tax law can help disaster victims in various ways. And recent changes in the law provide even more ways to get tax relief.

You’re probably aware that declared disaster victims can deduct the value of their uninsured losses from their tax returns, subject to limits. There are several other forms of tax relief for disaster victims, including those described below.

Postponement of tax deadlines. The government automatically extends tax deadlines for 60 days for those in federally declared disaster areas. But the IRS usually exercises its discretion to postpone such deadlines for up to one year. The IRS announces the extensions on its website.

Penalty-free withdrawals from retirement accounts. Taxpayers who suffer losses due to federally declared major disasters may withdraw up to $22,000 from their IRA, 401(k), or 403(b) account without penalty. And they can pay the regular income tax due on the withdrawals over three years. 

Disaster relief payments are tax-free. Relief payments to disaster victims from federal, state, and local governments are tax-free. Disaster mitigation payments, which are made to lessen or avoid the effects of future disasters, are also tax-free. Payments that charitable organizations make to disaster victims are ordinarily tax-free gifts.

Qualified wildfire relief payments. Under new legislation passed in late 2024, most payments triggered from federally declared disasters caused by forest or range fires are tax-free. This relief applies to qualified wildfire relief payments received from January 1, 2020, through December 31, 2025. 

Taxpayers who previously paid tax on wildfire receipts that are now tax-free may amend their tax returns for a refund, including from the years 2020 and 2021. The new law overrides the statute of limitations for these payments and allows amended returns until December 12, 2025.

Casualty gains can be tax-free or deferred. Disaster victims can end up owing income tax on casualty gains. These occur when the insurance received due to a disaster exceeds the adjusted basis of the property damaged or destroyed by the disaster or other casualty event. But there are ways to avoid owing tax on casualty gains, such as the following:

• You can treat the damage or destruction caused by a disaster as an involuntary conversion and postpone reporting the gain if you spend the insurance recovery funds to repair or replace the property within two years—four years for your main home if it was in a federally declared disaster area. If you use all of the insurance proceeds you receive to purchase replacement property within two or four years, your casualty gain will not be taxed.
• If the casualty completely destroyed your main home, you can treat the casualty gain as profit from the sale of your home. Then, if you qualify for the home sale exclusion, you can exclude from your income $250,000 of your gain if you are single or $500,000 if you are married and filing jointly. The destruction does not have to be from a federally declared disaster.

If you want to discuss any of these rules, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 8, 2025

Here’s a short note on your payments of corporate expenses.

Your Corporation Is a Separate Legal Entity

As a business owner operating through a corporation, you need to remember that the corporation is a distinct legal entity separate from you.

Avoiding Costly Mistakes

If you incur expenses related to business travel, meals, lodging, or mileage without seeking reimbursement from your corporation, the corporation does not receive a tax deduction for these costs. Furthermore, you cannot personally deduct these expenses on your individual tax return, as the Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee business expenses as an itemized deduction from 2018 through at least 2025.

The Right Way: Accountable Plan Reimbursements

To ensure tax compliance and financial efficiency, you should submit an expense report to your corporation and receive reimbursement under what is known as an “accountable plan.” When structured correctly, an accountable plan provides the following benefits:

• You receive tax-free reimbursements for legitimate business expenses.
• Your corporation gets the full tax deduction for the expenses reimbursed.
• Proper documentation protects you in the event of an IRS audit.

Steps to Implement an Accountable Plan

To maintain compliance and ensure proper reimbursement, follow these best practices:

• Maintain detailed records. Keep receipts, mileage logs, and business purpose explanations for all expenses.
• Submit expense reports. Provide written reports to your corporation, outlining the details of each expense.
• Ensure timely reimbursement. Have your corporation reimburse you within a reasonable time frame.
• Avoid overpayments. Return any excess amount if your corporation advances funds for expenses.

Take Action Now

To ensure that you maximize tax benefits and stay compliant, I strongly recommend implementing a formal reimbursement process. 

If you want my help establishing an accountable plan or structuring your reimbursements correctly, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 2, 2025