The 2023 Wisconsin Act 12 enacted June 20, 2023, exempts personal property from taxation beginning with the January 1, 2024, assessment.

The information below outlines the transition for businesses that historically filed and paid personal property tax:

• No personal property tax returns will need to be filed beginning in 2024 for both manufacturers and non-manufacturers.
• Expect to receive and pay a personal property tax bill this December for the 2023 assessment period.
• If the business owns leasehold improvements that were taxed as personal property, the business will now be taxed as real estate. Expect to receive a real estate tax bill in 2024 for these improvements.
• Manufacturing real estate tax returns will still need to be filed annually with the Wisconsin Department of Revenue. This is one of the requirements that allows your business to claim the Wisconsin manufacturing credit on your income tax return.
• The Act allows municipalities to assess personal property tax for any errors or omissions from the 2022 and 2023 assessments on the 2024 and 2025 real estate tax bills.
• The Act creates a new section 70.995(5n) which updates the definition of manufacturing property, defines what it means to be engaged in manufacturing, and makes several changes to rules on the manufacturing classification and assessments.



If you have any questions you would like answered in further detail, please contact us!

If you own an unincorporated small business, you probably don’t like the size of your self-employment (SE) tax bills. No wonder!

For 2023, the SE tax is imposed at the painfully high rate of 15.3% on the first $160,200 of net SE income. This includes 12.4% for Social Security tax and 2.9% for Medicare tax. The $160,200 Social Security tax ceiling is up from the $147,000 ceiling for 2022, and it’s only going to get worse in future years, thanks to inflation. Above the Social Security tax ceiling, the Medicare tax component of the SE tax continues at a 2.9% rate before increasing to 3.8% at higher levels of net SE income thanks to the 0.9% additional Medicare tax, on all income.

The S Corp Advantage: Reduce Your Tax Burden for Small Business Owners

For wages paid in 2023 to an S corporation employee, including an employee who also happens to be a shareholder, the FICA tax wage withholding rate is 7.65% on the first $160,200 of wages: 6.2% for Social Security tax and 1.45% for Medicare tax. Above $160,200, the FICA tax wage withholding rate drops to 1.45% because the Social Security tax component is no longer imposed. But the 1.45% Medicare tax wage withholding hits compensation no matter how much you earn, and the rate increases to 2.35% at higher compensation levels thanks to the 0.9% additional Medicare tax.

An S corporation employer makes matching payments except for the 0.9% Additional Medicare tax, which only falls on the employee. Therefore, the combined employee and employer FICA tax rate for the Social Security tax is 12.4%, and the combined rate for the Medicare tax is 2.9%, increasing to 3.8% at higher compensation levels — same as the corresponding SE tax rates.

Note: In this article, we’ll refer to the Social Security and Medicare taxes collectively as federal employment taxes whether paid as SE tax for self-employed folks or FICA tax for employees.

Strategic Steps to Becoming an S Corporation and Lowering Your Tax Liability

While wages paid to an S corporation shareholder-employee get hit with federal employment taxes, any remaining S corp taxable income that’s passed through to the employee-shareholder is exempt from federal employment taxes. The same is true for cash distributions paid out to a shareholder-employee. Since passed-through S corporation taxable income increases the tax basis of a shareholder-employee stock, distributions of corporate cash flow are usually free from federal income tax.

In appropriate circumstances, an S corp can follow the tax-saving strategy of paying modest, but justifiable, salaries to shareholder-employees. At the same time, it can pay out most or all of the remaining corporate cash flow in the form of federal-employment-tax-free shareholder distributions. In contrast, an owner’s share of net taxable income from a sole proprietorship, partnership and LLC (treated as a partnership for tax purposes) is generally subject to the full ravages of the SE tax.

Watch for Potential Negative Side Effects of S Corporation Status

Running your business as an S corporation and paying modest salaries to the shareholder-employee(s) may mean reduced capacity to make deductible contributions to tax-favored retirement accounts. For example, if an S corporation maintains a SEP, the maximum annual deductible contribution for a shareholder-employee is limited to 25% of salary. So the lower the salary, the lower the maximum contribution. However, if the S corp sets up a 401(k) plan, paying modest salaries generally won’t preclude generous contributions.

Other Legal and Tax Implications to Consider When Converting to an S Corporation

Converting an unincorporated business into an S corporation has other legal and tax implications. It’s a big decision. We can explain all the issues. 

If you play a major role in a closely held corporation, you may sometimes spend money on corporate expenses personally. These costs may end up being nondeductible both by an officer and the corporation unless the correct steps are taken. This issue is more likely to happen with a financially troubled corporation.

Navigating Non-Deductible Expenses: Understanding What Cannot Be Written Off

In general, you can’t deduct an expense you incur on behalf of your corporation, even if it’s a legitimate “trade or business” expense and even if the corporation is financially troubled. This is because a taxpayer can only deduct expenses that are his own. And since your corporation’s legal existence as a separate entity must be respected, the corporation’s costs aren’t yours and thus can’t be deducted even if you pay them.

To make matters worse, the corporation won’t generally be able to deduct them either because it didn’t pay them itself. Accordingly, be advised that it shouldn’t be a practice of your corporation’s officers or major shareholders to cover corporate costs.

Identifying Deductible Expenses: Understanding Which Costs May Qualify for Tax Deductions

On the other hand, if a corporate executive incurs costs that relate to an essential part of his or her duties as an executive, they may be deductible as ordinary and necessary expenses related to his or her “trade or business” of being an executive. If you wish to set up an arrangement providing payments to you and safeguarding their deductibility, a provision should be included in your employment contract with the corporation stating the types of expenses which are part of your duties and authorizing you to incur them. For example, you may be authorized to attend out-of-town business conferences on the corporation’s behalf at your personal expense.

Exploring Optimal Solutions: Best Alternatives for Deductible Expenses

Alternatively, to avoid the complete loss of any deductions by both yourself and the corporation, an arrangement should be in place under which the corporation reimburses you for the expenses you incur. Turn the receipts over to the corporation and use an expense reimbursement claim form or system. This will at least allow the corporation to deduct the amount of the reimbursement.

Contact us if you’d like assistance or would like to discuss these issues further. 

If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you have taxable income from sources such as interest, dividends, self-employment, capital gains or other income. Here are the applicable rules for paying estimated tax without triggering the penalty for underpayment.

Meeting the Deadline: When are Estimated Tax Payments Due?

Individuals must pay 25% of a “required annual payment” by April 15, June 15, September 15 and January 15 of the following year to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day.

So the third installment for 2023 is due on Friday, September 15. Payments are made using Form 1040-ES and may be made electronically or on paper.

Calculating Your Obligation: How Much Should You Pay in Estimated Taxes?

The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld by their employers from their paychecks. Those who make estimated tax payments generally do so in four installments. After determining the required annual payment, divide that number by four and make four equal payments by the due dates.

But you may be able to use the annualized income method to make smaller payments during part of the year. This method is useful to people whose income flow isn’t uniform over the year, perhaps because the business is seasonal. For example, if your income comes exclusively from a business operated in a resort area during June, July and August, you may not have to make an estimated payment or as large a payment for the first two installments as you make for the last two.

Got Questions? Understanding the Estimated Tax Rules

Contact us with questions you may have about how the estimated tax rules apply to you.

Reducing Fraud Risks in Family Businesses: Strategies and Solutions

Family businesses face higher fraud risks due to loyalty and may struggle to address fraud within the family. Implementing internal controls and seeking independent advice from auditors and legal advisors can reduce risks. Holding perpetrators accountable, even if family, may be necessary. Trusting nonfamily officers and seeking professional advice can help prevent fraud in family business relationships.

Tax Returns for Business Startups: Understanding the Treatment of Expenses

In a landmark case, Walsh v. East Penn Manufacturing Co, Inc., the DOL awarded $22 million in back wages to 7,500 employees for overtime violations. Manufacturers must comply with FLSA rules, accurately track work hours, and compensate for all essential activities performed before and after shifts to avoid costly errors.

Understanding the Trust Fund Recovery Penalty: Risk, Consequences, and Best Practices

This article covers the benefits of bonds for stability and returns! Explore U.S. government savings bonds, Treasury bills, Treasury notes, tax-exempt municipal bonds, and corporate bonds. Gain stability with government bonds and potential tax advantages. Consider higher yields with corporate bonds but be aware of market fluctuations and tax implications. Make informed investment decisions for financial growth.