small business taxes

2025 Retirement Contribution Limits: How to Boost Your Savings This Year

Ken Botwinick, CPA | 11/13/2024

With new cost-of-living adjustments from the IRS, 2025 brings slight increases to retirement contribution limits, allowing you and your employees to save even more. These updates, detailed in IRS Notice 2024-80, apply to 401(k) plans, IRAs, SIMPLE plans, and more, though the adjustments are more modest than in recent years due to easing inflation.

401(k) Contribution Limits for 2025

Starting in 2025, employees contributing to a 401(k) plan can save up to $23,500—an increase from $23,000 in 2024. This limit also applies to 403(b) plans, most 457 plans, and the federal Thrift Savings Plan. For employees aged 50 and over, the catch-up contribution remains at $7,500. However, under the SECURE 2.0 Act, those aged 60 to 63 can take advantage of a higher catch-up amount of $11,250, boosting their total potential contribution to $34,750 in 2025.

SEP and Defined Contribution Plan Limits

Defined contribution plans, including SEP plans, will see an increase in contribution limits from $69,000 to $70,000 in 2025. To be eligible for a SEP plan, employees must earn a minimum of $750 annually—a threshold that remains unchanged from 2024.

SIMPLE Plan Contribution Limits

For 2025, the deferral limit for SIMPLE plans rises to $16,500 (up from $16,000). For employees 50 and over, the catch-up contribution stays at $3,500, but those between 60 and 63 can now contribute an additional $5,250, potentially saving up to $21,750.

Additional Retirement Plan Limits

In 2025, other plan limits also increase, allowing more flexibility for certain high-earning employees and plan participants:

Defined Benefit Plans: The annual benefit cap rises from $275,000 to $280,000.
Top-Heavy Plan Key Employee Limit: Increases from $220,000 to $230,000.
Highly Compensated Employee Threshold: Increases from $155,000 to $160,000.

IRA Contributions Remain Unchanged

The annual contribution limit for IRAs will remain at $7,000, with a fixed catch-up contribution of $1,000 for individuals 50 and older.

Plan for a More Secure Future

The increased contribution limits for 2025 can help you and your employees build a more robust retirement fund. If you have questions about these updates or want to explore other tax-advantaged retirement options, contact us today. We’re here to help you make the most of your retirement savings strategy.

Does Your Business Need to Report Employee Health Coverage? Key Obligations Explained

Ken Botwinick, CPA | 10/02/2024

Offering employee health coverage is a vital part of many businesses’ benefits packages, but navigating the reporting requirements can be challenging. As a business owner, it’s essential to understand your obligations under federal laws like the Affordable Care Act (ACA) to ensure compliance and avoid potential penalties. So, does your business need to report employee health coverage to the IRS? Let’s dive into the details and answer some common questions.

How Many Employees Trigger Reporting Requirements?

Under the ACA, businesses with 50 or more full-time employees, known as Applicable Large Employers (ALEs), are required to report employee health coverage to the IRS. Specifically, ALEs must file Forms 1094-C and 1095-C to report details of the health coverage offered and the enrollment status of each employee.

Form 1094-C: This form serves as a summary that provides details on health coverage offers made to employees and transmits the individual employee forms to the IRS.
Form 1095-C: Each full-time employee receives this form, which outlines the health insurance offered, the months they were covered, and the share of costs.

These forms are also used to determine if an employer is liable for any payments under the “employer mandate.” ALEs that fail to offer affordable minimum essential coverage to their full-time employees and their dependents may face penalties. Form 1095-C also helps the IRS determine employee eligibility for premium tax credits.

For businesses with fewer than 50 full-time employees, including equivalents, the employer is not considered an ALE and therefore is exempt from the employer mandate and related reporting requirements for that year.

What Information Needs to Be Reported?

On Form 1095-C, ALEs must include the following information for each full-time employee who was employed during any month of the calendar year:

The employee’s name, Social Security number (SSN), and address.
Employer’s EIN (Employer Identification Number).
Contact person’s name and phone number.
A description of the health coverage offered, using designated codes.
The monthly cost of the lowest-cost plan available to full-time employees.
Safe harbor codes related to the employer mandate penalty, if applicable.

Reporting for Self-Insured and Multiemployer Plans

If your business offers a self-insured health plan, you’ll need to include additional information on Form 1095-C. A self-insured plan may offer both insured and self-insured enrollment options, so ensure all necessary details are reported accurately.

For employers that offer coverage through a multiemployer health plan, the plan sponsor or insurance issuer is responsible for providing health coverage information to employees. However, if your business provides self-insured health coverage but is not subject to the employer mandate, you’ll need to file Forms 1094-B and 1095-B for covered employees instead.

Keep in mind that these reporting requirements become more complex if your business is part of an aggregated ALE group or uses a multiemployer plan. Be sure to consult with an expert if this applies to your situation.

What Are the W-2 Reporting Requirements?

In addition to Forms 1094-C and 1095-C, employers must also report certain health coverage information on employees’ W-2 forms. This information is for reporting purposes only and does not affect the taxability of the coverage provided. It’s essential to remember that W-2 reporting and Form 1095-C reporting are separate obligations.

Get Help with Health Coverage Reporting

Understanding your business’s employee health coverage reporting requirements is crucial for avoiding penalties and ensuring compliance. While this guide provides an overview of the essential obligations, the regulations can be complex, especially for businesses with unique circumstances like self-insured plans or multiemployer coverage.

If you need help navigating these rules or ensuring proper filing, contact us today for expert assistance.

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Q&A below:

What is the minimum number of employees a business must have before being required to report health coverage?

Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees, known as “applicable large employers” (ALEs), must report health coverage information using Forms 1094-C and 1095-C. Businesses with fewer than 50 full-time employees are exempt from these reporting requirements.

What information needs to be reported by applicable large employers?

ALEs must report details for each full-time employee, including their name, Social Security number, address, the employer’s EIN, and information about the health coverage offered, such as cost and the months of coverage. They must also indicate if any safe harbor provisions apply under the employer shared responsibility provisions.

What if our business offers a self-insured health plan?

If an ALE provides health coverage through a self-insured plan, additional information must be reported on Form 1095-C. If a business offers self-insured coverage but is not subject to the employer mandate, reporting is done using Forms 1094-B and 1095-B for enrolled employees.

What health coverage information should be reported on employees’ W-2 forms?

Employers are required to report specific health coverage details on employees’ W-2 forms, though this information differs from what is reported on Form 1095-C. The W-2 reporting is for informational purposes and does not make employer-provided coverage taxable to employees.

Stop Drilling Over Your Books: Outsource Your Dental Practice’s Bookkeeping Today!

Cheri Schmidt | 08/22/2024

Running a dental practice isn’t just about creating bright smiles—it’s about keeping your finances in perfect alignment. If managing your books feels more like pulling teeth than a smooth process, it’s time to take action. Waiting too long to get your bookkeeping in order can cost you more than just a few headaches. Here’s why you should outsource your accounting today—before things get out of hand.

When Does Outsourcing Make Sense?

You might consider outsourcing your bookkeeping if you’re struggling to keep up with your financial tasks and it’s taking too much time. Here are some tell-tale signs that you need to outsource right now:

Your books are not up to date – Falling behind on your books is like skipping your patients’ check-ups—things can go south quickly.
You’re missing out on tax write-offs – Overlooking deductions is like leaving money on the table. Don’t let Uncle Sam take more than his fair share!
You’re having trouble tracking accounts receivable and payable – If you’re losing track of who owes you money and what bills need to be paid, it’s time to get help.
You’re struggling to stay on top of your cash flow – If cash flow feels more like a drip than a steady stream, you need to take action now.
Making estimated tax payments is a hassle – If calculating your tax payments gives you a migraine, it’s time to call in the experts.

Why You Need to Outsource—Yesterday!

You’ve worked hard to build your practice, so why let financial mismanagement chip away at your success? Outsourcing your bookkeeping can save you time, money, and a ton of stress. Here’s how:

Lower Staffing Costs Let’s be real, hiring a full-time bookkeeper is expensive. Salaries, benefits, training—it all adds up. Outsourcing lets you sidestep these costs while still getting top-notch service from a team that knows the dental industry inside and out.
Expertise at Your Fingertips When you work with us, you’re not just getting an accountant—you’re getting a team of dental-specific CPAs with over 30 years of experience. We stay on top of the latest tax laws and financial best practices, ensuring your books are accurate, compliant, and optimized for savings.
Improved Accuracy and Reliability One of the biggest advantages of outsourcing your bookkeeping is the improved accuracy and reliability it brings. Our dedicated team focuses solely on managing your books, without the distractions or multitasking that can lead to errors. We follow strict processes and standardized methods to ensure consistency in your financial records. Plus, with our use of cloud-based accounting software, you’ll have access to real-time information, allowing for better decision-making based on accurate, up-to-date data.
Scalable Services Your practice isn’t static, and your bookkeeping shouldn’t be either. Whether you’re expanding, adding new services, or just need extra support during tax season, we scale our services to meet your needs—no more, no less.
More Time for Patient Care Why spend yours or your staff’s valuable time buried in spreadsheets when you could be focusing on your patients? Let us handle your bookkeeping so you can get back to what you do best—creating healthy, happy smiles.
Risk Mitigation Employee turnover can be a major disruption for dental practices, especially if a key staff member who manages all your accounting needs unexpectedly leaves. This can leave your practice vulnerable, with important financial and administrative duties hanging in the balance. By partnering with us, you eliminate this risk entirely. While turnover can occur at our firm as well, the impact on your practice is nonexistent. We’ll seamlessly integrate another dental accounting expert into your team, ensuring that your financial operations remain uninterrupted. Employee turnover becomes our responsibility, not yours, allowing you to focus on patient care while we handle the rest.
Enhanced Security and Fraud Prevention Your patients trust you with their health—trust us with your financial security. We use top-tier security measures to protect your data and prevent fraud, so you can rest easy knowing your practice is safe.
Predictable Costs Surprise costs are fun in dental emergencies, but not in your accounting. With our clear, transparent pricing, you can budget with confidence, knowing exactly what you’ll pay each month.
Avoiding In-House Challenges Managing your books in-house can be overwhelming and prone to errors, especially as your practice grows. With constantly changing regulations and the need for precise financial management, it’s easy to fall behind or make mistakes that could be costly. Working with a dental specific CPA firm ensures that your financial management is handled by experts, allowing you to avoid these pitfalls and keep your practice running smoothly.

Conclusion: Secure Your Practice’s Future Today

Outsourcing your accounting to Botwinick & Company isn’t just a smart move—it’s an essential one. Don’t wait until financial mismanagement becomes a crisis. Let us handle your bookkeeping so you can focus on growing your practice and delivering the best care to your patients. It’s time to stop worrying about your books and start planning for your practice’s bright future.

What’s The Best Accounting Method Route For Business Tax Purposes?

Ken Botwinick, CPA | 02/19/2024

Businesses basically have two accounting methods to figure their taxable income: cash and accrual. Many businesses have a choice of which method to use for tax purposes. The cash method often provides significant tax benefits for eligible businesses, though some may be better off using the accrual method. Thus, it may be prudent for your business to evaluate its method to ensure that it’s the most advantageous approach.

Eligibility to use the cash method

“Small businesses,” as defined by the tax code, are generally eligible to use either cash or accrual accounting for tax purposes. (Some businesses may also be eligible to use various hybrid approaches.) Before the Tax Cuts and Jobs Act (TCJA) took effect, the gross receipts threshold for classification as a small business varied from $1 million to $10 million depending on how a business was structured, its industry and factors involving inventory.

The TCJA simplified the small business definition by establishing a single gross receipts threshold. It also increased the threshold to $25 million (adjusted for inflation), expanding the benefits of small business status to more companies. For 2024, a small business is one whose average annual gross receipts for the three-year period ending before the 2024 tax year are $30 million or less (up from $29 million for 2023).

In addition to eligibility for the cash accounting method, small businesses can benefit from advantages including:

Simplified inventory accounting,
An exemption from the uniform capitalization rules, and
An exemption from the business interest deduction limit.

Note: Some businesses are eligible for cash accounting even if their gross receipts are above the threshold, including S corporations, partnerships without C corporation partners, farming businesses and certain personal service corporations. Tax shelters are ineligible for the cash method, regardless of size.

Difference between the methods

In contrast, accrual-basis businesses recognize income when earned and deduct expenses when incurred, without regard to the timing of cash receipts or payments. Therefore, they have little flexibility to time the recognition of income or expenses for tax purposes.

The cash method also provides cash flow benefits. Because income is taxed in the year received, it helps ensure that a business has the funds needed to pay its tax bill.

However, for some businesses, the accrual method may be preferable. For instance, if a company’s accrued income tends to be lower than its accrued expenses, the accrual method may result in lower tax liability. Other potential advantages of the accrual method include the ability to deduct year-end bonuses paid within the first 2½ months of the following tax year and the option to defer taxes on certain advance payments.

Switching methods

Even if your business would benefit by switching from the accrual method to the cash method, or vice versa, it’s important to consider the administrative costs involved in a change. For example, if your business prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles, it’s required to use the accrual method for financial reporting purposes. That doesn’t mean it can’t use the cash method for tax purposes, but it would require maintaining two sets of books.

Changing accounting methods for tax purposes also may require IRS approval. Contact us to learn more about each method.

Q&As

What are the main differences between the cash and accrual accounting methods?

The main differences between the cash and accrual accounting methods lie in how income and expenses are recorded and recognized. Under the cash accounting method, revenue is recognized when cash is received from customers, and expenses are recognized when cash is paid to suppliers or other parties. This method focuses on actual cash inflows and outflows. On the other hand, the accrual accounting method records revenue when it is earned, regardless of when payment is received, and expenses are recorded when they are incurred, regardless of when payment is made. This method matches revenues with their associated expenses, providing a more accurate picture of a company’s financial performance.

Which accounting method—cash or accrual basis—provides better tax advantages for businesses?

For most businesses, the cash method provides significant tax advantages. Because cash-basis businesses recognize income when received and deduct expenses when they’re paid, they have greater control over the timing of income and deductions. The cash method also provides cash flow benefits. Because income is taxed in the year received, it helps ensure that a business has the funds needed to pay its tax bill. However, for some businesses, the accrual method may be preferable. For instance, if a company’s accrued income tends to be lower than its accrued expenses, the accrual method may result in lower tax liability. Other potential advantages of the accrual method include the ability to deduct year-end bonuses paid within the first 2½ months of the following tax year and the option to defer taxes on certain advance payments.

What types of businesses are eligible to use the cash method for tax purposes?

Generally, businesses with average annual gross receipts of $30 million or less for the three-year period ending before the 2024 tax year are eligible to use the cash method. Some businesses are eligible for cash accounting even if their gross receipts are above the threshold, including S corporations, partnerships without C corporation partners, farming businesses and certain personal service corporations.

Can my business switch between the cash and accrual method?

Yes, businesses can switch between the cash and accrual method of accounting. However, it is important to note that once a business chooses a method for tax purposes, it generally must obtain permission from the IRS to change methods. The IRS has specific rules and procedures for changing accounting methods, and businesses should consult with a tax professional or accountant to ensure compliance with these regulations. Additionally, switching between methods may have implications for financial reporting and may require adjustments to be made to prior period financial statements. It is recommended to carefully consider the benefits and drawbacks of each method before making a decision to switch.