In this Edition
March 7, 2023

Buying a New Business Vehicle? A Heavy SUV Is a Tax-Smart Choice

PODCAST: Does Your Business Owe Tax to Another State?

Do You Run a Business From Home? You May Be Able to Deduct Home Office Expenses

Secure 2.0 Law May Make You More Secure in Retirement

Can You Deduct the Costs of a Spouse on a Business Trip?
Buying a New Business Vehicle? A Heavy SUV Is a Tax-Smart Choice
If you’re buying or replacing a vehicle that you’ll use in your business, be aware that a heavy SUV may provide a more generous tax break this year than you’d get from a smaller vehicle. The reason has to do with how smaller business cars are depreciated for tax purposes.

Depreciation Rules

Business cars are subject to more restrictive tax depreciation rules than those that apply to other depreciable assets. Under the so-called “luxury auto” rules, depreciation deductions are artificially “capped.” Those caps also extend to the alternative deduction that a taxpayer can claim if it elects to use Section 179 expensing for all or part of the cost of a business car. (It allows you to write-off an asset in the year it’s placed in service.)

These rules include smaller trucks or vans built on truck chassis that are treated as cars. For most cars that are subject to the caps and that are first placed in service in calendar year 2023, the maximum depreciation and/or expensing deductions are:

  • $20,200 for the first tax year in its recovery period (2023 for calendar-year taxpayers)
  • $19,500 for the second tax year
  • $11,700 for the third tax year
  • $6,960 for each succeeding tax year

Generally, the effect is to extend the number of years it takes to fully depreciate the vehicle.

Because of the restrictions for cars, you may be better off from a tax timing perspective if you replace your business car with a heavy SUV instead of another car. That’s because the caps on annual depreciation and expensing deductions for passenger automobiles don’t apply to trucks or vans that are rated at more than 6,000 pounds gross (loaded) vehicle weight. This includes large SUVs, many of which are priced over $50,000.

The result is that in most cases, you’ll be able to write-off a majority of the cost of a new SUV used entirely for business purposes by utilizing bonus and regular depreciation in the year you place it into service. For 2023, bonus depreciation is available at 80%, but is being phased down to zero over the next few years.

If you consider electing Section 179 expensing for all or part of the cost of an SUV, you need to know that an inflation-adjusted limit, separate from the general caps described above, applies ($28,900 for an SUV placed in service in tax years beginning in 2023, up from $27,000 for an SUV placed in service in tax years beginning in 2022). There’s also an aggregate dollar limit for all assets elected to be expensed in the year that would apply. Following the expensing election, you would then depreciate the remainder of the cost under the usual rules without regard to general annual caps.

Please note that the tax benefits described above are all subject to adjustment for non-business use. Also, if business use of an SUV doesn’t exceed 50% of total use, the SUV won’t be eligible for the expensing election and would have to be depreciated on a straight-line method over a six-tax-year period. Contact us for more details about this opportunity to get hefty tax write-offs if you buy a heavy SUV for business.  

Vince Schamber, CPA
D 920.337.4548
PODCAST
Does Your Business Owe Tax to Another State?

In this episode, Jeff Dvorachek, a tax partner, shares the information business owners need to determine their sales payroll and income tax liabilities to other states.
Do You Run a Business From Home? You May Be Able to Deduct Home Office Expenses
An array of tax-related limits that affect businesses are indexed annually, and due to high inflation, many have increased more than usual for 2023. Here are some that may be important to you and your business.

Social Security Tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2023 at $160,200 (up from $147,000 for 2022).

Deductions Section

  • 179 expensing:
  • Limit: $1.16 million (up from $1.08 million)
  • Phaseout: $2.89 million (up from $2.7 million)
  • Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
  • Married filing jointly: $364,200 (up from $340,100)
  • Other filers: $182,100 (up from $170,050)

Retirement Plans

  • Employee contributions to 401(k) plans: $22,500 (up from $20,500)
  • Catch-up contributions to 401(k) plans: $7,500 (up from $6,500)
  • Employee contributions to SIMPLEs: $15,500 (up from $14,000)
  • Catch-up contributions to SIMPLEs: $3,500 (up from $3,000)
  • Combined employer/employee contributions to defined contribution plans (not including catch-ups): $66,000 (up from $61,000)
  • Maximum compensation used to determine contributions: $330,000 (up from $305,000)
  • Annual benefit for defined benefit plans: $265,000 (up from $245,000)
  • Compensation defining a highly compensated employee: $150,000 (up from $135,000)
  • Compensation defining a “key” employee: $215,000 (up from $200,000)

Other Employee Benefits

  • Qualified transportation fringe-benefits employee income exclusion: $300 per month (up from $280)
  • Health Savings Account contributions:
  • Individual coverage: $3,850 (up from $3,650)
  • Family coverage: $7,750 (up from $7,300)
  • Catch-up contribution: $1,000 (no change)
  • Flexible Spending Account contributions:
  • Health care: $3,050 (up from $2,850)
  • Dependent care: $5,000 (no change)

These are only some of the tax limits and deductions that may affect your business and additional rules may apply. Contact us if you have questions. 

Nicole Malueg, CPA
D 920.684.2523
Tax Tip Tuesday - Video Short
Last Minute Tax Saving Deductions

This week, Samantha, Justin, and Aaron explain how you can use a Traditional IRA for last-minute tax-saving deductions this tax season.
Secure 2.0 Law May Make You More Secure in Retirement
A new law was recently signed that will help Americans save more for retirement, although many of the provisions don’t kick in for a few years. The Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) was signed into law on December 29, 2022. SECURE 2.0 is meant to build on the original SECURE Act of 2019, which made major changes to the required minimum distribution (RMD) rules and other retirement provisions.

Here are some of the significant retirement plan changes and when they’ll become effective:

  • The age for beginning RMDs is going up. Employer-sponsored qualified retirement plans, traditional IRAs and individual retirement annuities are subject to RMD rules. They require that benefits start being distributed by a specific beginning date. Under the new law, the age used to determine distributions increases from age 72 to age 73 starting on January 1, 2023. It will then increase to age 75 starting on January 1, 2033.

  • There will be higher “catch-up” contributions for 401(k) participants ages 60 through 63. Currently, participants in certain retirement plans can make additional catch-up contributions if they’re age 50 and older. The limit on catch-up contributions to 401(k) plans is $7,500 for 2023. Secure 2.0 will raise the 401(k) plan catch-up contribution limits to the greater of $10,000 or 150% of the regular catch-up amount for individuals ages 60 through 63. The higher amounts will be indexed for inflation after 2025. This provision will take effect for taxable years beginning after December 31, 2024. (There will also be increased catch-up amounts for SIMPLE plans.)

  • Tax-free rollovers will be allowed from 529 accounts to Roth IRAs. SECURE 2.0 will permit beneficiaries of 529 college savings accounts to make direct trustee-to-trustee rollovers from a 529 account in their names to their Roth IRAs without tax or penalty. Several rules apply. This provision is effective for distributions after December 31, 2023.

  • “Matching” contributions will be permitted for employees with student loan debt. The new law will allow an employer to make matching contributions to 401(k) and certain other retirement plans with respect to “qualified student loan payments.” The result of this provision is that employees who can’t afford to save money for retirement because they’re repaying student loan debt can still receive matching contributions from their employers into retirement plans. Taxpayers can receive these matching contributions even if they aren’t contributing to their own retirement accounts. This will take effect starting after December 31, 2023.

Just the Beginning

These are only some of the many provisions in SECURE 2.0. Contact us if you have any questions about your situation.

Charlie Wendlandt, CPA
D 715.384.1986
Can You Deduct the Costs of a Spouse on a Business Trip?
If you own a company and travel for business, you may wonder whether you can deduct all the costs of having your spouse accompany you on trips. It’s possible, but the rules are restrictive. 

First, your spouse must be your employee. If that isn’t the case, then even if your spouse has a bona fide business purpose for making the trip with you, you won’t likely qualify to deduct all of his or her travel costs. In fact, this requirement prevents tax deductibility in most cases.

A Spouse-Employee

If your spouse is your employee, then you can deduct travel costs if his or her presence on the trip serves a bona fide business purpose. It isn’t enough for your spouse to merely be “helpful” in incidental ways, such as by typing your meeting notes. Your spouse’s presence must serve a necessary business purpose. 

In most cases, a spouse’s participation in social functions, for example as a host or hostess, isn’t enough to establish a business purpose. That is, if his or her purpose is to establish general goodwill for customers or associates, this is usually insufficient. Further, if there’s a vacation element to the trip (for example, if your spouse spends time sightseeing), it will be more difficult to establish a business purpose for his or her presence on the trip. On the other hand, a bona fide business purpose exists if your spouse’s presence is necessary to care for a serious medical condition that you have.

If these tests are satisfied in relation to your spouse, the normal deductions for business travel away from home can be claimed. These include the costs of transportation, meals, lodging, and incidentals such as dry cleaning and phone calls.

A Non-Employee Spouse

Suppose your spouse’s travel doesn’t satisfy these requirements. You may still be able to deduct a substantial portion of the trip’s costs. This is because the rules don’t require you to allocate 50% of your travel costs to your spouse, but only any additional costs you incur for him or her. For example, in many hotels, the cost of a single room isn’t that much lower than the cost of a double. If a single would cost you $150 a night and a double would cost you and your spouse $200, the disallowed portion of the cost allocable to your spouse would only be $50. In other words, you can write off the cost of what you would have paid traveling alone. To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you’re staying.

If you drive your own car or rent one, the whole cost will be fully deductible even if your spouse is along. Of course, if public transportation is used, and for meals, any separate costs incurred by your spouse won’t be deductible.

Contact us if you have questions about this or other tax-related topics.

Jared Ystad
D 715.384.1975
Hawkins Ash CPAs Opens 2024 Internship Selection
At Hawkins Ash CPAs, we’re passionate about fostering the next generation of public accounting professionals. Accounting college students chosen to participate in our Internship Program receive the full public accounting experience as they work side-by-side with senior staff to provide critical, timely tax and audit services to clients. Our interns receive the training and support needed to get the most out of their time. They enjoy in-office lunches and snacks and other fun, team-building activities.

In many cases, interns who enjoy their internship and want to pursue a career in public accounting are offered the opportunity to return for the next year's internship program or a full-time position as an associate.

Hawkins Ash CPAs is a Top 200 Firm in the nation with ten offices in Wisconsin and Minnesota. We are proud to offer local tax, audit, and accounting services to clients and compete on a national level. We offer big-city career options and experiences close to home. Our offices are in small to mid-sized safe Midwest towns. Our flexible work schedules and growth opportunities allow our team to develop personally and professionally through all stages of life.
Student On-Campus Events

Our recruiter and accounting professionals will be attending the following college career fairs and on-campus events. At these events, students will grow their network and explore career opportunities. They will be available to answer any questions and help guide students through the application and interview process.
UW-Milwaukee
April 4: Mock Interview
UW-La Crosse
April 12: Mock Interview and Resume Review Night

April 19: Small-Firm Night

April 26: Scholarship Awards Night: Meet & Greet
2023 Homegrown Success Career Fair
Medford, WI

Heather Notbohm
D 262.404.2194
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