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Business Tax Planning Letter As 2023 wraps, we will step into a new tax season, oering the ideal opportunity for proacve year-end tax planning. Just like previous years, noteworthy changes in tax rules and regulaons necessitate a careful review. Below are key points and praccal ps to help assist you. Keep in mind, that this is just a starng point. Every business is dierent and individual business circumstances vary. DMJPS is commied to helping you and your business succeed. We're here to provide advice that's tailored to your unique situaon. TABLE OF CONTENTS The topics below are clickable links for easy navigaon. TAX LAW UPDATES ..................................................................................................................................... 3 W-2s & 1099s .......................................................................................................................................... 10 REASONABLE COMPENSATION ............................................................................................................... 11 YEAR-END BONUSES................................................................................................................................ 12 179 DEDUCTION & BONUS DEPRECIATION ............................................................................................. 13 BUSINESS PROPERTY TAX LISTING ........................................................................................................... 15 MEALS & ENTERTAINMENT ..................................................................................................................... 15 PER DIEM ................................................................................................................................................. 16 MILEAGE .................................................................................................................................................. 17 UNREIMBURSED EMPLOYEE BUSINESS EXPENSES .................................................................................. 18 QUALIFIED BUSINESS INCOME (QBI) ....................................................................................................... 18 RESEARCH & EXPERIMENTAL EXPENDITURES ......................................................................................... 19 NET OPERATING LOSS (NOL) ................................................................................................................... 20 BAD DEBTS & WORTHLESS STOCK ........................................................................................................... 21 HOBBY LOSSES ......................................................................................................................................... 23 CHOICE OF ENTITY .................................................................................................................................. 24 EMPLOYING FAMILY MEMBERS ............................................................................................................... 25 BUYING/SELLING A BUSINESS ................................................................................................................. 26 SMALL BUSINESS TAXPAYER .................................................................................................................... 27 RETIREMENT ........................................................................................................................................... 28 CLOSING COMMENTS ............................................................................................................................. 30

3 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. TAX LAW UPDATES THE CORPORATE TRANSPARENCY ACT Starng January 1, 2024, new reporng requirements will take eect under the Corporate Transparency Act (CTA), a part of the broader An-Money Laundering Act of 2020. The CTA is a signicant step in prevenng money laundering, tax evasion, and other illegal acvies that can be facilitated through anonymous shell companies. Here's what businesses need to know about the CTA: Who Needs to Report: • The CTA primarily impacts smaller businesses. Domesc and foreign companies operang in the U.S. are required to disclose specic informaon about their owners to the Financial Crimes Enforcement Network (FinCEN). This includes corporaons, limited liability companies, and other similar enes. • However, there is also an exempon for "large operang companies," which must meet specic criteria: a) employing over 20 full-me U.S. employees, b) maintaining a physical U.S. oce presence, and c) reporng more than $5 million in U.S. revenue to the IRS in the previous year through federal income tax or informaon returns. Who is Exempt: • Larger companies that meet the above criteria are exempt. • Other exempt enes include public companies, banks, insurance companies, and certain regulated industries which are already subject to similar reporng requirements. What Needs to be Reported: • "Reporng Companies" must provide FinCEN with informaon about their "benecial owners," dened as individuals who own or control 25% or more of the company or have substanal control over the company's operaons. • This includes providing full legal names, dates of birth, addresses, and a unique idenfying number from a passport or driver's license. • Informaon about "Company Applicants" – the individuals who led the documentaon to form the company – must also be reported. The FinCEN Idener: • Businesses can opt to receive a FinCEN Idener, a unique number that can be used in place of providing all benecial owner informaon each me a report is required. Penales for Non-Compliance: • Failing to comply with the CTA can result in nes up to $10,000 and/or imprisonment for up to two years. Jump to Table of Contents

4 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. For businesses that are subject to the CTA, it is crucial to understand these new rules and begin preparing now to meet the January 2024 deadline. Those exempt from the Act can proceed with their current operaons, but should be aware of the CTA's requirements in case their status changes in the future. DMJPS PLLC wishes to clarify that, based on current guidance, we will not be able to assist with reporng under the CTA. Insurance carriers have advised that providing such assistance on CTA maers would equate to praccing law without a license. Therefore, it is of utmost importance for businesses to be informed of these regulaons and ensure adherence to avoid any potenal legal repercussions. SECURE ACT 2.0 The SECURE 2.0 Act of 2022, ocially known as the Securing a Strong Rerement Act of 2022, was signed into law by the President on Thursday, December 29, 2022. This legislaon represents a signicant step forward in enhancing rerement savings opportunies for workers in the United States. Building upon the foundaons laid by the Seng Every Community Up for Rerement Enhancement (SECURE) Act of December 2019, SECURE 2.0 introduces a range of provisions aimed at increasing coverage and savings for rerement, thereby strengthening the nancial security of American workers as they enter their golden years. Key provisions of SECURE 2.0 that are likely to impact our business clients, taxpayers, and plan administrators include: Expanding Coverage and Increasing Rerement Savings • Automac Enrollment in Rerement Plans (Starng in 2025): The bill mandates that 401(k) and 403(b) plans automacally enroll eligible parcipants, with an inial enrollment default rate between 3% and 10%. The enrollment rate then increases by 1% annually unl reaching at least 10%, but not more than 15%. Notably, this requirement exempts small businesses with 10 or fewer employees, newly established businesses, church plans, and governmental plans. • Treatment of Student Loan Payments as Elecve Deferrals for Matching Contribuons (Starng in 2024): Employers can now make matching contribuons in 401(k), 403(b), and SIMPLE IRA plans in respect to "qualied student loan payments," thereby aiding employees burdened with student loans to sll benet from employer match programs. Modicaon of Small Employer Pension Plan Start-Up Costs Credit (Started in 2023) • The Act enhances the start-up credit from 50% to 100% for employers with up to 100 employees (previously 50 employee limit), providing a higher incenve for small businesses to establish pension plans. • The credit now also includes employer contribuons, capped at $1,000 per employee, excluding certain dened benet plan contribuons. New Credit for Small Employers for Military Spouse Employees (Started in 2023)

5 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Small employers with no more than 100 employees can benet from a tax credit under Secon 112 of the SECURE 2.0 Act. This credit is designed to encourage the inclusion of military spouse employees in dened contribuon plans, provided they meet specic eligibility and vesng criteria. The tax credit comprises two components: o Parcipaon Credit: Employers can claim $200 for each eligible military spouse employee who parcipates in the plan. o Matching Contribuon Credit: Addionally, employers can claim a dollar-for-dollar match on the rst $300 of contribuons made on behalf of the military spouse employee, resulng in a maximum tax credit of $500. It's important to note that this tax credit applies for three years per eligible military spouse and does not extend to highly compensated employees. Enhancement of Saver's Credit (Starng in 2027) • Under SECURE 2.0, the previous "saver's tax credit" is replaced by a direct federal contribuon to the taxpayer's Tradional IRA or rerement plan. This contribuon equals 50% of the taxpayer's annual rerement plan contribuons, up to a maximum of $2,000 per individual. The phase-out occurs based on adjusted gross income, ranging from $20,500 to $35,500 for individuals and higher limits for joint lers and heads of household. Importantly, this contribuon isn't subject to annual contribuon limits, including those for IRAs. However, it generally isn't available to taxpayers under 18, tax dependents, full-me students, or nonresident aliens. Increase in Required Beginning Date Age (Starng in 2023) • The required minimum distribuon age will increase to 73 starng January 1, 2023, then to 74 in 2030, and nally to 75 in 2033. Enhancements to Rerement Plan Catch-Up Limit • Annual Catch-up Contribuon Limit for 2023: In 2023, the annual catch-up contribuon limit is set at $7,500 for most rerement plans. However, for SIMPLE plans, this limit is $3,500. • Increased Catch-up Contribuon Limits for Ages 60-63 (Starng in 2025): Individuals aged 60 to 63 during the taxable year will benet from signicantly increased catch-up contribuon limits. For plans other than SIMPLE plans, the new limit will be the greater of $10,000 or 150% of the regular catch-up contribuon limit from 2024. For SIMPLE plans, it will be the greater of $5,000 or 150% of the regular limit from 2025. • Special Rules for Wages Exceeding $145,000 (Starng in 2026): For individuals who’s wages exceed $145,000, any catch-up contribuons made to plans other than SIMPLE plans will be treated as designated Roth contribuons. This means these contribuons will be included in your taxable income. Note that the $145,000 will be indexed for inaon for years aer 2024. However, the IRS has postponed the mandatory Roth catch-up for high earners aged 50+ from 2024 to 2026 due to implementaon challenges, resulng in a two-year delay. • Indexed Catch-up Contribuon Limit for IRAs (Starng in 2024): The $1,000 catch-up contribuon limit for IRAs, which is available to individuals aged 50 or older, will be indexed Jump to Table of Contents

6 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. for inaon. This means that the limit will increase in mulples of $100 to keep up with the rising cost of living. Reducon in Service Required for Long-Term Part-Time Workers (Starng in 2025) • Shortened Waing Period: 401(k) plans will allow employees who work more than 500 hours for at least two consecuve years and reach the age of 21 by the end of this two-year period to parcipate. This is a reducon from the previous three-year requirement. • Exclusion of Pre-2021 Service: Addionally, the Act species that 12-month periods before January 1, 2021, will not be counted when determining years of service for vesng of employer contribuons. In simpler terms, this means that these periods won't be considered when calculang how long an employee has worked for vesng purposes. • Extension to 403(b) Plans: These new rules also apply to 403(b) rerement plans that are subject to the Employee Rerement Income Security Act (ERISA). ERISA is a federal law that sets certain standards and protecons for rerement plans oered by employers. By extending these rules to 403(b) plans subject to ERISA, it ensures a consistent set of regulaons for both 401(k) and 403(b) plans, making it easier for long-term part-me employees to parcipate in rerement plans and save for their future. Simplicaon and Claricaon of Rerement Plan Rules (expected no later than December 29, 2024) • A naonal, online "lost and found" for rerement plans will be established, alongside new regulaons from the Department of Labor to guide duciaries in locang missing parcipants. • The Employee Plans Compliance Resoluon System (EPCRS) will be expanded to allow more types of errors to be corrected internally through self-correcon and will also apply to inadvertent IRA errors. Revenue Provisions: • SIMPLE IRAs will be able to accept Roth contribuons starng in 2023. In summary, the SECURE Act 2.0 introduces impacul changes aimed at enhancing rerement savings and providing greater exibility for Americans. DMJPS is commied to helping you navigate these new provisions and ensure you are well-posioned to take full advantage of the benets oered by the Act. Please do not hesitate to reach out to us with any quesons or for further assistance in understanding how these changes may aect you or your business. See the Rerement secon for further informaon. EMPLOYEE RETENTION CREDIT (ERC) Informaon Release 2023-169 revealed a signicant move by the IRS, placing an immediate moratorium on processing new claims for the ERC unl at least the end of the year. This decision comes as a response to the rising concerns about improper

7 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. claims that have put the integrity of this program and the nancial security of honest small business owners at risk. The moratorium is in eect unl at least December 31, 2023. Businesses have been inundated with adversements and promoonal content regarding the ERC. An IRS report from October 19, 2023 showed that the Service has processed a staggering 3.6 million ERC claims over the course of the program. This trend is concerning and has prompted the IRS to take a stance to safeguard the interest of legimate claimants. It is important to note that these measures taken by the IRS are not meant to penalize businesses with valid ERC claims. Such claims should connue to be led within the statute of limitaons for 2020 and 2021 payroll reports, albeit with an understanding that processing mes will be extended. The IRS has also made it clear that during this moratorium, claims submied before September 14 will connue to be processed, albeit at a slower pace, with the standard processing goal shiing from 90 days to 180 days or more, depending on the need for addional review or audit. Commissioner Werfel advises businesses to exercise cauon, especially those being pressured by promoters to apply for the ERC. Businesses should seek advice from trusted tax professionals who are well-versed with the complexies of the ERC rules rather than falling prey to promoters seeking conngency fees. To further assist businesses in understanding their eligibility for the ERC, the IRS has provided a queson and answer guide along with a simple chart outlining the requirements to claim the ERC. Furthermore, the IRS has also highlighted the consequences of making an improper claim, which includes the obligaon to repay the credit along with potenal penales and interest. The list of red ags provided by the IRS should serve as a guide for businesses to steer clear of unscrupulous promoters. In closing, while the IRS takes strides to combat fraud and protect legimate claimants, businesses must remain vigilant and informed. Ensure that your claims are legimate and seek professional advice to navigate through these turbulent mes eecvely. By doing so, you will safeguard the nancial well-being of your business and contribute to upholding the integrity of the ERC program. FORM 8300 $10,000 CASH PAYMENT REQUIREMENTS FOR BUSINESSES The Internal Revenue Service (IRS) mandates strict reporng requirements for businesses receiving cash payments over $10,000 in a trade or business, as outlined in the 2023 Form 8300. The purpose of this reporng is to monitor large cash transacons that could be indicave of money laundering or other illicit acvies. Let's delve into the key components of the Form 8300 reporng process to ensure your business stays in compliance with these vital regulaons. Key Points: When to File Form 8300: Jump to Table of Contents

8 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • File within 15 days of receiving a cash payment over $10,000. • This applies to single transacons or a series of related transacons. What to Include in Form 8300: • Business details (name, address, EIN). • Payer's details (name, address, TIN). • Transacon details (date, amount, payment method). Reporng Transacons from Foreign Persons: • Addional reporng may be required for payments from foreign individuals, including details on foreign bank accounts involved in the transacon. Providing a Statement to the Payer: • Businesses must provide a wrien statement to the payer by January 31 of the year following the transacon. Record Keeping: • Keep a copy of Form 8300 and any supporng documentaon for ve years. Penales for Non-Compliance: • Penales may include nes and, in severe cases, criminal charges. Mandatory E-Filing Starng January 1, 2024: • Businesses ling 10 or more informaon returns must e-le Form 8300 through FinCEN's BSA E-Filing System. • E-ling is secure, free, and convenient. • If e-ling causes undue hardship, apply for a waiver using Form 8508. • If your religious beliefs conict with e-le technology, you are exempt from e-ling and must write "religious exempon" at the top of each paper Form 8300. SALES & USE TAX (WAYFAIR) In 2018, a signicant change in tax law occurred with the South Dakota v. Wayfair decision by the U.S. Supreme Court. This ruling changed the way sales and use taxes are applied to businesses selling products or services across state lines, allowing states to tax businesses based on their economic acvity in the state, rather than requiring a physical presence. The impact of this decision has been considerable. Before Wayfair, many businesses avoided paying sales and use tax in states where they did not have a physical presence. However, since the ruling, every state with a sales and use tax has implemented laws to tax remote sellers based on their economic presence in the state. While this has increased state revenues, it has also created complexity for businesses. Business now need to navigate various state and local sales

9 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. and use tax laws, as well as determine if they have exceeded the thresholds for tax collecon in each state. Planning Strategies and Consideraons • Nexus Study: Conduct a detailed analysis of your business operaons to idenfy your nexus footprint. For example, having an oce, employees, or exceeding a sales threshold in a state can create a tax obligaon due to the economic presence in that state. • Tracking: Maintain precise records of all your sales and transacons across the country, monitoring them on a monthly basis. This data is crucial to determine when your business surpasses the tax collecon thresholds set by any state. • Automated Services: Implement automated tools and soware soluons to simplify the management of tax rates, exempons, and compliance requirements. Companies like Avalara, Vertex, and TaxJar provide excellent soluons for managing sales and use tax complexies, saving you me and minimizing potenal errors in tax calculaons and lings. • Business Structure Review: Examine your business and enty structures to ensure they are opmized for minimizing tax obligaons. You may need to adjust your operaon or distribuon methods, or explore other legal structures to reduce your tax burden. • State and Local Tax Laws: Develop a comprehensive understanding of the state and local sales and use tax laws applicable to your business. It's crucial to know the taxability of your products and services, as well as any applicable exempons, to prevent over or underpayment of taxes. NORTH CAROLINA PASS-THROUGH ENTITY TAX (PTET) On April 3, 2023, North Carolina Gov. Roy Cooper signed S.B. 174, bringing forth signicant tax law changes, including amendments to the state’s elecve Pass-Through Enty Tax (PTET). These revisions not only provide claricaon on certain tax aspects but also broaden the eligibility for enes seeking to make a PTET tax elecon. This is parcularly relevant for business clients who might benet from these changes. What exactly is the PTET? The North Carolina Pass-Through Enty Tax provides a valuable tax-saving opportunity for certain businesses like LLCs, S corporaons, and partnerships. With the federal $10,000 state and local tax (SALT) deducon limit on the pass-through individual’s Form 1040, Schedule A, business owners can no longer fully deduct their state income taxes on their federal return. This tax allows businesses to shi the payment of state income tax to the enty level, bypassing the SALT cap, and potenally reducing their overall tax bill. Key Points: Expanded Eligibility for PTET Elecon: • Partnerships and S corporaons are now allowed as owners in an elecng partnership. Jump to Table of Contents

10 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Previously, this was limited to partnerships fully owned by individuals, estates, trusts, or certain tax-exempt organizaons. Nonresident Withholding for Tiered Partnerships: • Tiered partnerships (partnerships within partnerships) are now eligible for the elecon, with specic nonresident withholding requirements. Credit for Taxes Paid to Another State: • North Carolina residents can receive a credit for taxes paid to other states, even if their partnership did not make the PTET tax elecon in North Carolina. Updates for Tax Year 2023 and Beyond: • Starng in 2023, the calculaon of PTET will exclude income not sourced from North Carolina. • Resident owners of an elecng PTET cannot claim a credit for their share of enty-level income tax paid to another state. W-2s & 1099s As the end of the year approaches, it's important to start preparing for tax documents, specically W-2 and 1099 forms. 1099 Filings: • Deadline: Please let us know by December 1, 2023, if you require assistance with your 1099 lings. These forms must be led by January 31, 2024. • Requirements: 1099s are required for payments of $600 or more for services, rent, prizes, awards, and professional fees (including aorneys and physicians). • Excepons: No 1099 is required for wages (reported on Form W-2), payments to corporaons (except for legal and healthcare services), merchandise payments, salaries to individual partners, trust, or estate payments to beneciaries, and personal payments for rent, interest, services, etc. Legal Services: • All payments of $600 or more for legal services must be reported on a 1099, regardless of the recipient's corporate status. Backup Withholding: • Backup withholding is a tax measure that requires the payer to withhold tax at a rate of 24% if the payee fails to provide a valid tax idencaon number (TIN) or if the IRS noes the payer that the payee is subject to backup withholding. This is a prevenve measure to ensure the IRS receives its due tax. Once withheld, the tax is then remied to the IRS. All payments subject to backup withholding must be reported on a 1099, regardless of the amount.

11 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. Vendor Files: • Make sure you have a signed Form W-9 from each vendor. If not, request one now. Penales: • Be aware that penales for failing to le correct informaon returns or to furnish correct payee statements have increased and are subject to inaonary adjustments. Electronic Filing: • As the IRS is pushing for electronic ling, consider e-ling your W-2s and 1099s instead of mailing them in. Visit the IRS website here to access the chart containing the due dates for 2023 Forms in 2024. REASONABLE COMPENSATION Corporaons are required to pay reasonable salaries to shareholder-employees for the services they provide. Failing to do so may result in the corporaon having to jusfy its reasons, such as being in a startup phase with prots retained for growth, or facing cash-ow dicules. It is important to note that these reasons should be well-documented. However, be mindful that the IRS is likely to scrunize any juscaon if the corporaon is distribung prots but not paying shareholder-employee wages. Establishing That Compensaon Is Reasonable: To Prove that Compensaon is Reasonable, it must meet two criteria: • Intent Test: The payment should be for services rendered. • Amount Test: The payment amount should be reasonable relave to the services performed. Consideraons for Reasonable Compensaon Include: • The corporaon's nancial condion and character. • The shareholder's role, dues, and hours worked. • The compensaon policy of the corporaon for all employees and the shareholder's individual salary history. • Comparisons with similarly situated employees in other companies. • Whether an independent investor would see a reasonable return on investment aer considering the shareholder’s compensaon. Avoiding Payroll Taxes and Social Security Benet Reducon: While shareholders might seek to minimize wages to avoid FICA and other payroll taxes (since S corporaon pass-through income is not subject to these taxes), this approach should be taken Jump to Table of Contents

12 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. with cauon. Inadequate wages might be recharacterized from distribuons, thus subjecng them to employment taxes. Reasonable Compensaon and QBI Deducon: Reasonable compensaon impacts the qualied business income (QBI) deducon. Compensaon paid to shareholder-employees is not included in QBI to the owner, but it is a deducon to the business in compung QBI. Thus, S corporaons should carefully analyze shareholder-employee compensaon to maximize the impact on the QBI deducon while adhering to reasonable compensaon guidelines. Seng and Supporng Reasonable Compensaon: To support the reasonableness of compensaon, consider ulizing industry salary surveys, job search websites, and other credible sources to establish a salary range that aligns with the shareholder-employee’s role and responsibilies. It’s crucial to document the compensaon decision and any changes made throughout the year in the corporate minutes. Health, Dental, and Accident Insurance Premiums: For shareholders with more than 2% ownership, health and accident insurance premiums paid by the corporaon are deducble and must be included in their wages on their W-2. YEAR-END BONUSES When evaluang the scal landscape of your business, it's imperave to understand how employee bonuses can be leveraged for tax deducons. Many business owners grapple with quesons about the ming and method of deducng bonuses paid to employees. In this segment, we'll unpack this topic to guide you in making informed decisions that align with your business objecves and tax compliance requirements. When Can Bonuses Be Deducted? For employers using the accrual accounng method, bonuses can be deducted in the tax year when: • The obligaon to pay the bonus is established, and liability is xed. • The bonus amount can be determined with reasonable accuracy. • The economic performance concerning the liability has occurred. Deducng Bonuses for a Group of Employees: It is possible to accrue the liability for bonuses even if the individual recipients or the exact amounts payable to each employee have not been idened by the year's end. However, this is condional on the following: • Employees must have performed the necessary services during the tax year. • Employees must sll be employed by the company on the date the bonuses are paid aer the year's end.

13 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. Handling Changes in Bonus Treatment: Should you decide to alter the way you treat bonuses for tax purposes, it is imperave to comply with the specic tax codes and regulaons, including obtaining consent for any changes in accounng methods. Conngent Bonuses: If a bonus is conngent upon specic criteria (e.g., employees must sll be employed by the company on the date bonuses are paid), then the liability may not be xed at the end of the tax year. In this case, the bonus cannot be accrued unless the conngency is sased. IRS Rulings: Various IRS rulings have underscored that the all-events test must be sased for a bonus to be deducble. In other words, the employer's liability must be xed, and the bonus amount must be determinable with reasonable accuracy. If the employer retains the right to modify or eliminate bonuses, the liability is not xed unl the bonuses are paid out. Planning Strategies and Consideraons • Documentaon: Ensure all bonus policies and recipient details are thoroughly documented, especially if there are condions aached to the bonuses. • Timing: Pay close aenon to the ming of the bonuses to opmize tax deducons. • Owners: Special rules apply to the deducon of accrued bonuses to owners. 179 DEDUCTION & BONUS DEPRECIATION The end of the year is a pivotal moment for businesses to reect on their nancial performance and make strategic decisions to maximize tax savings while minimizing liabilies. With ever-evolving tax laws and regulaons, it is imperave to stay informed and proacve to leverage available tax benets eecvely. One of the most signicant areas to focus on during this season is understanding and maximizing the benets oered by the Secon 179 deducon and bonus depreciaon for capital purchases. Secon 179 of the Internal Revenue Code empowers businesses to expense the full purchase price of qualifying equipment and/or soware purchased during the tax year. The Tax Cuts and Jobs Act of 2017 (TCJA) signicantly expanded the scope of this deducon, increasing the limit from $510,000 to $1 million, with a phase-out beginning at $2.5 million. For the tax year 2023, inaon adjustments have further increased these limits, with the Secon 179 benets now applicable to businesses spending less than $4.05 million per year on equipment. The deducon limit for 2023 stands at $1,160,000, with the phase-out threshold at $2,890,000. Furthermore, bonus depreciaon is a valuable tax-saving provision that enables businesses to claim addional depreciaon deducons for qualifying business property, supplemenng the standard depreciaon allowances. Before the Tax Cuts and Jobs Act (TCJA), this benet was primarily limited to new equipment. However, under current tax law, bonus depreciaon has Jump to Table of Contents

14 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. been expanded to encompass both new and used equipment, without the requirement for "rst use" by the purchasing business. In the year 2023, businesses can claim bonus depreciaon at a rate of 80%, which represents a reducon from the 100% rate oered in previous years. The intricacies of these tax benets become more evident when we consider the applicaon of Secon 179 and bonus depreciaon together. Typically, IRS rules require businesses to use Secon 179 rst, followed by bonus depreciaon. This strategic combinaon can result in signicant tax advantages, especially for businesses that have made substanal capital purchases during the tax year. However, it's important to remember that not all taxpayers may benet from Secon 179 on its own, as bonus depreciaon covers a wider range of assets, including both new and used equipment. Key Points: • The Secon 179 deducon limit for 2023 is $1,160,000, and the phase-out threshold is $2,890,000. • Bonus Depreciaon in 2023 permits an 80% deducon for qualifying business property, which encompasses used equipment. This benet applies whether the equipment is new to the taxpayer's business or new to the world. • Vehicles have dierent Secon 179 deducon limits based on their weight, with "heavy" vehicles eligible for a higher deducon limit. • The full Secon 179 tax deducon can only be taken for vehicles used 100% for business purposes, but a paral deducon may be available for vehicles used more than 50% for business. Planning Strategies and Consideraons • Evaluate Capital Purchases: Review the necessity and benets of potenal capital purchases within the context of your business operaons. It is important to ensure that any acquisions align strategically with your business needs and objecves, rather than just providing tax benets. Timing is also crucial due to the requirement that property be placed in service by the end of the tax year. • Opmize Secon 179 and Bonus Depreciaon: Leverage the relaonship between Secon 179 and bonus depreciaon to maximize your tax savings. Apply the Secon 179 deducon rst, followed by bonus depreciaon, to ensure you receive the maximum possible deducon. • Awareness of Phase-out Limits: Be mindful of the phase-out limits for Secon 179 and the decreased percentage available for bonus depreciaon. o Bonus depreciaon will begin to phase out over the next four years: 2023 80% Bonus Depreciaon 2024 60% Bonus Depreciaon 2025 40% Bonus Depreciaon 2026 20% Bonus Depreciaon • Cash Flow Planning: When you deduct a large purchase, it can signicantly reduce your tax bill for the year. However, it's important to think about how this will aect your business's

15 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. cashow in the future. A reduced tax bill might mean less money set aside for future expenses. It's like buying something on sale now and needing to budget carefully later because you spent the savings. • Vehicle Deducons: Meculously review the specic rules and limits when deducng vehicles under Secon 179. Consider factors such as the vehicle's weight and business use percentage to opmize your tax savings. • Integraon with Tax Credits: Explore opportunies to strategically ulize Secon 179 and bonus depreciaon in conjuncon with any applicable business tax credits, such as the R&D tax credit or energy-ecient credits, to opmize your overall tax posion. • Energy Eciency Incenves: If your business is making energy-ecient purchases, research available tax incenves or credits to maximize your tax savings. Ensure these purchases qualify for both Secon 179 deducons and any addional energy-related tax incenves. • Documentaon and Record-keeping: Maintain meculous records of all your capital purchases, their business use percentage, and any associated costs. Proper documentaon is vital to ensure compliance and accuracy when claiming Secon 179 deducons, bonus depreciaon, and any related tax credits. BUSINESS PROPERTY TAX LISTING In North Carolina, businesses may be required to annually list their tangible personal property, including machinery, equipment, furniture and xtures used in business operaons in the county(s) in which they do business. The lisng period typically starts on January 1 and ends on December 31, with a nal submission date of January 31. Late lisngs can incur a 10% penalty. It's important to note that the extension date for ling can vary by county. Requirements to Complete Business Property Tax Lisng: • Detailed Inventory: A list of all business property with descripons, quanes, and locaons. • Purchase Informaon: Dates and costs associated with the acquision of each property item. • Year in Service: The year each property item was rst used for business operaons. • Supplies: A list and value of all supplies on hand as of the lisng date. • Leased Equipment: Informaon on leased equipment, including lease terms and the lessor's name. • Expensed Assets: Details of assets that were expensed for federal tax purposes but are sll required to be listed as "expensed" in the tax lisng. MEALS & ENTERTAINMENT The year 2023 marks a return to the standard rules for meals and entertainment expenses for businesses. Aer a temporary allowance of 100% deducon for some business meals under the Consolidated Appropriaons Act of 2021, this year, we are back to a 50% deducon for most business meals, similar to the pre-CAA terms and post-Tax Cuts and Jobs Act (TCJA) of 2018. Jump to Table of Contents

16 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. Deducbility in 2023: 50% Deducble: • Business meals with clients or employees • Meals during work-related meengs in the oce • Meals provided for the convenience of the employer, such as a cafeteria on the business premises • Snacks available in the oce • Meals during business travel • Meals during conferences or seminars 100% Deducble: • Recreaonal events solely for employee morale, such as a company picnic • Promoons aimed at improving public goodwill towards the business • Charity events sponsored by the business • Necessary business meals that are essenal to the operaon • Meals provided for the convenience of employees, such as lunch during a meeng that runs through typical lunch hours • Meals that are included as part of an employee's taxable compensaon • Meals sold to clients as part of the business operaon • Dues to civic or business organizaons Not Deducble: • Entertainment costs, such as concert or sports ckets • Rentals of entertainment facilies like a party venue • Membership dues for clubs and organizaons that are entertainment in nature, such as a country club Planning Strategies and Consideraons • Documentaon: Maintain clear records and keep receipts for meals that cost more than $75. • Separaon: Ask for itemized receipts to clearly separate food costs from any entertainment expenses. • Approved Entertainment: Some entertainment expenses, like company holiday pares or award trips, may be deducble under specic condions. PER DIEM Starng from October 1, 2023, the IRS has new, simplied rates to reimburse employees for lodging, meals, and other small expenses when they travel for work. Via this method, collecon of every receipt is not required. Key Details:

17 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. What You’re Paying For: Amount You Can Give Meals & small expenses for travel in the US $69 per day Meals & small expenses for travel outside the US $74 per day Small expenses (both in and outside the US) $5 per day Travel to expensive places in the US $309 per day Travel to other places in the US $214 per day Meals for travel to expensive places in the US $74 per day Meals for travel to other places in the US $64 per day Also, some places are considered more expensive to travel to than others. These new rates and rules are in eect for any travel expenses paid out on or aer October 1, 2023. MILEAGE The Internal Revenue Service has announced new oponal standard mileage rates for 2023, which are crucial for those calculang deducble costs associated with vehicle use for business, charitable, medical, or moving purposes. Starng January 1, 2023, the standard mileage rates are as follows: • 65.5 cents per mile for business use, reecng an increase of 3 cents from the mid-year rate in 2022. • 22 cents per mile for medical or moving purposes for qualied acve-duty members of the Armed Forces, consistent with the mid-year rate in 2022. • 14 cents per mile for service to charitable organizaons, which remains unchanged from 2022 and is set by statute. Please note that these rates are applicable to all vehicle types, including electric, hybrid-electric, gasoline, and diesel-powered automobiles. Planning Strategies and Consideraons • Opon to Calculate Actual Costs: Taxpayers have the choice to calculate the actual costs of using their vehicle rather than using the standard mileage rates. • First-Year Rule: If opng for the standard mileage rate, it is generally required to choose this method in the rst year the car is available for business use. In subsequent years, you have the opon to switch between the standard mileage rate or actual expenses. • Leased Vehicles: For leased vehicles, if you choose the standard mileage rate, it must be used for the enre lease period, including renewals. • Tax Cuts and Jobs Act Implicaons: Under the Tax Cuts and Jobs Act, miscellaneous itemized deducons for unreimbursed employee travel expenses are not allowed. • Deducon for Moving Expenses: Taxpayers cannot claim a deducon for moving expenses unless they are members of the Armed Forces on acve duty and moving under orders to a permanent change of staon. • 2024 Mileage Rate: As of the wring of this leer, the Internal Revenue Service has not yet released the standard mileage rates for 2024. Historically, the IRS updates and releases the Jump to Table of Contents

18 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. new rates in December for the upcoming year, so we ancipate the 2024 mileage rates will be made available in December of 2023. UNREIMBURSED EMPLOYEE BUSINESS EXPENSES Unreimbursed employee business expenses are those necessary and ordinary costs that an individual incurs in the course of performing their job dues but are not reimbursed by their employer. These can include expenses such as travel, meals, and use of personal property for work-related acvies. Eligibility for Deducon: To be deducble, unreimbursed employee business expenses must meet the following criteria: • Incurred during the tax year; • For the trade or business of being an employee; and • Ordinary and necessary for that trade or business. Limitaons: It is important to note that only unreimbursed business expenses are deducble. If an employee can be reimbursed by their employer but chooses not to seek reimbursement, they cannot deduct the expense. Burden of Proof: Taxpayers typically bear the burden of proof during IRS audits. However, this burden can shi to the IRS if the taxpayer provides credible evidence, meets substanaon requirements, maintains necessary records, and cooperates with the IRS during the audit process. Substanaon: Taxpayers must substanate their deducons with adequate records. Some expenses, such as travel, gis, and those related to listed property, have stricter proof requirements. Planning Strategies and Consideraons • Understand Employer Reimbursement Policies: Be knowledgeable about your employer’s reimbursement policies and acvely seek reimbursement for eligible expenses. • Maintain Records: Keep detailed and organized records of your expenses, as they will be crucial in the event of an audit. QUALIFIED BUSINESS INCOME (QBI) The Qualied Business Income (QBI) deducon under Code Sec. 199A is a signicant aspect of tax planning for pass-through enes, such as sole proprietorships, partnerships, limited liability companies, and S corporaons. This deducon allows these businesses to deduct up to 20% of their business income from a qualied trade or business. However, it is crucial to note that the deducon cannot exceed 20% of the excess of your taxable income over your net capital gain for the tax year. It's important to be aware that this deducon, along with other key provisions of

19 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. the Tax Cuts and Jobs Act of 2017, is currently set to sunset on December 31, 2025. If these provisions are not extended or modied by new legislaon, the rules for pass-through enes and their tax planning strategies could change materially. Key Points: Wage and Investment Limits: • The QBI deducon is subject to specic wage and investment limits, which are the greater of: o 50% of the W-2 wages with respect to the qualied trade or business (W-2 wage limit), or o The sum of 25% of the W-2 wages paid with respect to the qualied trade or business plus 2.5% of the unadjusted basis, immediately aer acquision, of all "qualied property." • Importantly, if your taxable income is below $182,100 in 2023 ($364,200 for married individuals ling jointly), these limits do not apply. Planning Strategies and Consideraons Income Thresholds and Tradional Planning Techniques: Lower Your Income to Benet More: • If you're close to earning $182,100 (or $364,200 if you're married), think about ways you can lower your income. • This could include pung more money into your rerement account, using a Health Savings Account (HSA), or giving to charity. Look at Your Business Structure: • Somemes, rearranging how your business is set up, like changing debt arrangements or the way you lease or sell property between your businesses, can increase your QBI deducon. • But be careful! These changes must be real and praccal, not just a way to get a bigger tax break. The IRS pays close aenon to these kinds of changes. RESEARCH & EXPERIMENTAL EXPENDITURES Tax planning around Research and Experimental (R&E) expenditures is crical to maximize the benets for your business. As per the Internal Revenue Code, these costs must now be capitalized and amorzed over ve years, or 15 years if the research is conducted outside the U.S., Puerto Rico, or any U.S. possession. This is a signicant change from previous years when current deducons were allowed. Here are some important points to note: Soware Development Costs: Jump to Table of Contents

20 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • These are treated as specied R&E expenditures, thus must be capitalized and amorzed. • It's crucial to disnguish between soware development costs and soware acquision costs. The laer can be depreciated over 36 months and is eligible for bonus depreciaon. Planning Strategies and Consideraons • Accurate Tracking of Expenses: With the changes brought by the Tax Cuts and Jobs Act (TCJA), diligently track R&E expenses to separate them from regular business expenses. • Review of Esmated Tax Calculaons: Discuss the tax impact and potenal planning opportunies with us. This includes reviewing esmated tax calculaons to determine addional cash needs to cover federal and state tax liabilies. • Cash Flow Management: Consider opons like reducing other expenses, accelerang collecon of accounts receivable, or exploring borrowing opons if facing cash ow issues. • Internaonal R&E Acvies: Explore relocang overseas research acvies to the U.S. to benet from a shorter ve-year amorzaon period. • Soware Development vs. Acquision: Consider acquiring soware, which can be depreciated over 36 months and is eligible for bonus depreciaon, as opposed to a longer amorzaon period for soware development. • Accounng Method Change: A change in accounng method is required to start capitalizing and amorzing R&E expenses. IRS consent is needed, and a modied Secon 481(a) adjustment may be required if the change was not made in the rst taxable year aer 2021. NET OPERATING LOSS (NOL) A NOL occurs when a business’s deducons exceed its gross income, allowing taxpayers to use the loss to reduce taxable income in another year through a deducon. The NOL deducon consists of carryovers and, in some cases, carrybacks. Regarding the periods for carrybacks and carryforwards: • For losses arising in tax years beginning aer 2020, no carryback is allowed, except for specic farm and property and casualty insurance company losses, which may be carried back two years. • For losses arising in tax years beginning aer 2017, NOLs can be carried forward indenitely, except property and casualty insurance company losses, which have a 20-year limit. For tax years beginning aer 2020, the NOL deducon is subject to an 80%-of-taxable-income limitaon. This means the NOL deducon is calculated by summing the total NOLs from tax years before 2018 carried into the current tax year and the smaller of the total NOLs from tax years aer 2017 carried into the current tax year or 80% of the taxable income minus any NOLs carried from before 2018. It's worth nong that Net Operang Losses incurred before 2018 are not subject to the 80% limitaon, meaning they can be used to oset 100% of taxable income. Planning Strategies and Consideraons

21 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Enty Type and Loss Ulizaon: o Direct Ulizaon: C Corporaons and individuals operang as sole proprietors (Schedule C) can use NOLs directly to oset their income. o Indirect Ulizaon: S Corporaons, Partnerships, and LLCs (when taxed as partnerships) pass losses to their shareholders or members, who can then use their share of the losses indirectly to oset other income on their personal tax returns, subject to various limitaons. • Timing of Income and Expenses: Consider the ming of income and expenses to maximize the benet of a Net Operang Loss. This is parcularly important if you ancipate higher income in future years. • Ulizing Carrybacks and Carryforwards: Analyze the opons of carryforward and carryback to determine the most benecial way to apply NOLs. Note that for losses arising in tax years beginning aer 2020, carrybacks are generally not allowed, except for specic cases. • Basis Limitaons and At-Risk Rules: For indirect ulizaon of NOLs (S Corporaons, Partnerships, and LLCs), be mindful of basis limitaons and at-risk rules that can aect the deducbility of losses. o Further Explanaon: ▪ Basis: Think of "basis" as your personal investment in your business or how much skin you have in the game. If your business loses money, you can only use those losses to lower your tax bill up to the amount of your investment. If your business loses more money than you put in, you can't use those extra losses unl you put more money into the business or it starts making money. ▪ At-Risk: The "at-risk" rules are like a safety net. They make sure that you can only claim losses up to the amount you could actually lose. This includes the money you've put into the business and any loans you're liable for. If you're not personally liable for paying back business loans (maybe the business itself is responsible for the loan), you can't use that money to count against your losses. BAD DEBTS & WORTHLESS STOCK Managing bad debts and worthless stock is an integral aspect of year-end tax planning for your business. These losses can signicantly impact your tax liability, so it's important to understand how to properly account for them in your tax returns. Bad Debts: Deducble Bad Debts: • Corporaons can deduct all bad debts against ordinary income. • For individuals and other non-corporate taxpayers, business bad debts are also deducble against ordinary income. In essence, these rules make sure you're not claiming losses which exceed what you've actually risked or invested in your business. Jump to Table of Contents

22 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Nonbusiness bad debts held by individuals and non-corporate taxpayers are deducble as short-term capital losses. Wholly Worthless vs. Partly Worthless Debts: • Both business and nonbusiness debts are deducble when wholly worthless. • However, only business debts are deducble when partly worthless. • The deducble amount for a wholly worthless debt is its adjusted basis for determining loss on a sale or exchange, not its face value. Disnguishing Between Business and Nonbusiness Bad Debts: • It's crucial to dierenate between business and nonbusiness bad debts, as business bad debts result in ordinary losses, while nonbusiness bad debts result in short-term capital losses. • Business bad debts can originate from credit sales, loans to suppliers, clients, employees, and distributors, or payments made as a guarantor. Proof of Worthlessness: • To claim a bad debt deducon, the worthlessness of a debt must be established through idenable events such as the cessaon of the debtor's business, bankruptcy, or legal judgments. Worthless Stock: • If you own stock in a corporaon that becomes completely worthless during the tax year, you may be able to deduct the stock's loss as a capital loss, provided you meet certain criteria. • The loss deducon for worthless stock is treated as though the stock were sold or exchanged on the last day of the tax year. • The loss will be either long-term or short-term, depending on how long you held the stock. Planning Strategies and Consideraons • Keep an Eye on Money Owed to You: Watch your accounts receivable (the money customers owe you) and try to collect overdue payments quickly to avoid having to deal with bad debts. • Document Everything: If you think a debt won't be paid back, make sure you have records and documents to prove it, just in case the IRS asks quesons later. Note: If you write o a bad debt and later receive payment for it, that money is considered income. You'll need to include it on your tax return for the year you receive the payment. • Check Your Investments: Look at your stock investments to see if any have become worthless. If they have, you might be able to deduct the loss to reduce your taxes. • Understand the Rules for Stock Losses: If you've held the worthless stock for a short me, the loss will be considered short-term. If you've held it for a long me, the loss will be long-term. This aects how the loss can be used to oset other gains. • Plan Before Selling Investments: If you're thinking about selling some investments, consider your overall gains and losses to make the best tax decision.

23 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. HOBBY LOSSES Starng a new business venture can be excing and full of possibilies. However, it's also important to be mindful of the tax implicaons, especially if your business consistently operates at a loss. Understanding the Hobby Loss Rules: The IRS may classify your acvity as a hobby rather than a business if your expenses consistently exceed your income. This disncon is crucial for a few reasons: Deducons for Business-Type Expenses: • If your acvity is considered a hobby, your ability to claim deducons is limited. You can sll deduct expenses that are typically deducble regardless of prot, like state and local property taxes. • However, you can only deduct costs like rent and adversing up to the amount you made from the hobby. Any extra expenses won't count for tax deducons. How to Avoid the Hobby Loss Rules: • Show a prot in at least three out of ve consecuve years. • Clearly demonstrate your intenon to make a prot, proving that your venture is not merely a hobby. Proving a Prot-Making Objecve: The IRS and courts will consider several factors when determining your prot-making objecve, such as: • How the acvity is managed and conducted. • Your and your advisers' experse in the relevant area. • The me and eort you devote to the enterprise. • Your expectaon of asset appreciaon. • Your history of income or losses. • The amount and frequency of prots. • Your overall nancial status. • The degree to which the acvity involves personal pleasure or recreaon. Planning Strategies and Consideraons • Documentaon: Keep comprehensive records of your business operaons, including expenses, income, and me spent on the acvity. This documentaon is vital to prove your prot move. • Business Plan: Create a detailed business plan that outlines your strategy for turning a prot. This can serve as valuable evidence of your intent to operate a protable business. • Expert Advice: Seek advice from industry experts or consultants to demonstrate that you are taking steps to make your business protable. Jump to Table of Contents

24 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Separate Finances: Keep your business and personal nances separate to clearly disnguish your venture as a business and not a hobby. • Stay Informed: Stay up-to-date with the current tax laws and regulaons related to hobby losses to ensure compliance and avoid penales. CHOICE OF ENTITY Navigang the complexies of business tax planning, a crucial aspect to consider is the selecon of the appropriate enty for your business. This decision will signicantly inuence your exposure to liabilies and your tax obligaons, underlining the importance of two predominant factors: the degree of liability protecon and the tax treatment each enty receives under federal and state laws. Liability Protecon: • Liability protecon safeguards an owner’s personal assets from liabilies associated with business operaons. This protecon varies by state law, so seeking legal counsel for advice on the degree of protecon oered by dierent enty types is recommended. • Various factors may necessitate minimizing exposure to business liabilies, such as incurring debts, having employees whose acons can create liabilies, engaging in hazardous operaons, potenal product liabilies, and exposure to environmental liabilies. • Corporaons, both C and S, oer substanal liability protecon under state law, with dierences in tax treatment. Limited Liability Companies (LLCs) provide similar protecon without the need to incorporate. Sole proprietorships and general partnerships oer minimal to no liability protecon. o Note: Be sure to consult with an aorney regarding these structures. Tax Treatment: • The nal choice oen boils down to tax treatment under federal and state rules. C Corporaons are subject to potenal double taxaon, while S Corporaons have pass-through taxaon but come with eligibility criteria. Mul-member LLCs are treated as partnerships for federal tax purposes, and single-member LLCs can elect to be taxed as corporaons. General partnerships and sole proprietorships have pass-through taxaon at the partner or owner level, respecvely. • State income tax consideraons are crucial, as unique rules govern dierent business enes. In some cases, state and local tax rules may be the deciding factor when federal tax rules don’t favor one form over another. C Corporaons: • Provides robust liability protecon, with clear case laws to support. • Subject to double taxaon: corporate income is taxed, and shareholders are taxed on distribuons. • Possible migaon of double taxaon for qualied small business stock. • Specic tax advantages unique to C corporaon status, such as a 21% tax rate.

25 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. S Corporaons: • Oers similar liability protecon as C Corporaons. • Income is generally taxed at the shareholder level, avoiding double taxaon. • Certain situaons might result in corporate-level taxaon. • Must comply with specic eligibility criteria to aain S corporaon status. • Potenal self-employment tax savings. Limited Liability Companies (LLCs): • Provides corporate-style liability protecon without the intricacies of incorporaon. • Owners are referred to as "members”, and income is generally taxed at the member level. • Both mul-member LLCs and single-member LLCs (SMLLCs) are permissible, with the laer specically providing liability protecon for single-owner businesses. • Federal tax treatment varies; may elect to be taxed as a corporaon. • Self-employment taxes apply for acve members in most industries, rental acvity being an excepon. Sole Proprietorships: • Oers no liability protecon, leaving the owner's personal assets at risk. • Simpler tax ling, with the owner being taxed on the business's income. • Net business income is subject to self-employment tax. General Partnerships: • Lacks liability-liming features, exposing personal assets of the general partner. Limited Partnerships and Limited Liability Partnerships (LLPs): • Varying degrees of liability protecon depending on state laws. • Typically, limited partners have reduced liability compared to general partners. Planning Strategies and Consideraons • Liability Protecon: Opt for adequate insurance, competent employees, well-maintained equipment, and legal advisers as supplementary liability migaon measures. • Tax Treatment: Conduct a comprehensive analysis to ascertain if your business has nexus in a state and is consequently subject to state income tax. For businesses with mul-state operaons, understand the nexus laws in each state and consider voluntary disclosure of acvies to minimize tax, penalty, and interest exposure. EMPLOYING FAMILY MEMBERS Leveraging family employment can be an eecve strategy for tax planning, but it's crucial to understand the rules surrounding this approach. Understanding Family Employment Rules: Jump to Table of Contents

26 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. Family businesses oen employ parents, children, and even grandchildren. The IRS generally treats such employment like any other, meaning family members' wages are subject to federal income tax withholding (FITW), social security and Medicare (FICA) taxes, and federal unemployment (FUTA) tax. However, certain exempons may apply for FICA or FUTA taxes, even though FITW sll applies. Note: The denion of a family member, for these rules, encompasses spouses, children (which includes adopted, foster, and stepchildren), and ancestors. Tax Implicaons Based on Business Type: Sole Proprietorship: If your family business operates as a sole proprietorship, there are instances where a family member's wages can be exempt from certain taxes: • Children under 18 employed by a parent are FICA-exempt. For FUTA, the age limit is under 21. • A spouse's employment is exempt from FUTA but is subject to FITW and FICA. • A parent employed by their child is FICA-exempt. However, both FITW and FICA apply in all other cases. Corporaons (C or S Corporaon): If your business operates as a C or S corporaon, all family members' wages are subject to FITW, FICA, and FUTA without any exempons, regardless of age or relaonship. Partnership: If your business is a partnership, every family member's wages are subject to FICA and FUTA unless the son or daughter exempon applies and only the parents are partners. BUYING/SELLING A BUSINESS When contemplang the sale or acquision of a business, it is crucial to have a comprehensive understanding of the dierent structures available, along with the corresponding tax, legal, and business consequences they entail. The chosen structure should align with various consideraons, such as the assumpon of liabilies, the post-transacon existence of the enty, tax implicaons, and the valuaon of assets. Below is a breakdown of some advantages and disadvantages of acquiring an exisng business: Advantages: • Established products/services • Exisng goodwill • In-place management team • Available collateral for funding • Reduced start-up me and costs Disadvantages:

27 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. • Challenge in nding the right business • Potenal for negave goodwill • Risk of acquiring underulized, poorly maintained, or outdated assets • Inhering exisng problems • Assumpon of the current business culture From the buyer's perspecve, key concerns include ensuring the business can generate adequate cash ow and service any debt taken on to nance the purchase. This highlights the importance of minimizing tax liabilies and safeguarding against potenal liabilies. Opng for an asset purchase is oen more favorable than a stock purchase, as it limits liability exposure and allows for a stepped-up basis in the assets, which can then be depreciated and amorzed over me. Conversely, the seller likely will priorize minimizing taxes on the sale, safeguarding against post-sale liabilies, and securing payment, especially in scenarios where the payment is not made as a lump sum. The structure of the transacon, whether it be a stock sale or an asset sale, will vary depending on the type of business enty involved (C corporaon, S corporaon, or partnership), each carrying its unique set of tax implicaons. SMALL BUSINESS TAXPAYER The Small Business Taxpayer excepon under Code Sec. 448 is a crucial aspect for businesses considering the cash method of accounng, as it can provide signicant tax benets. Eligibility: C corporaons, partnerships with a C corporaon as a partner, and S corporaons are eligible for the Small Business Taxpayer excepon, provided they pass the gross receipts test. The gross receipts test requires a business to have average annual gross receipts of $25 million or less for the three-tax-year period ending with the preceding tax year, aer adjusng for inaon. Small Business Taxpayer Excepon: This excepon permits eligible businesses to use the cash method of accounng, which is oen benecial because it allows income to be recognized when received and deducons to be taken when expenses are paid, potenally resulng in tax savings. Inaon Adjustment and Relevance of Past Years: The $25 million threshold for the gross receipts test is subject to annual inaon adjustments. For tax years beginning in 2023, this threshold has been adjusted to $29 million. For tax years beginning in 2022, the threshold was $27 million. In the case of tax years beginning in 2021, 2020, or 2019, the threshold was $26 million. These thresholds are calculated by mulplying $25 million by the cost-of-living adjustment (COLA) and rounding the result to the nearest mulple of $1 million. Past years are relevant because they set the precedent for the adjusted thresholds, demonstrang the upward trend due to inaon and helping businesses project their eligibility in the future. Jump to Table of Contents

28 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. Important Consideraons: • S corporaons can ulize the cash method of accounng without regard to their gross receipts, as they are exempt from the restricons of Code Sec. 448. • This excepon is not applicable to tax shelters. • Other restricons on the use of the cash method may apply beyond the Code Sec. 448 prohibion. Conclusion: Reviewing your business's average annual gross receipts for the past three tax years is essenal in determining eligibility for the Small Business Taxpayer excepon. By taking advantage of this opportunity, your business can potenally realize considerable tax benets. RETIREMENT With the recent passage of the SECURE Act 2.0, small business owners need to be aware of the signicant changes that aect rerement planning. The Act introduces expanded nancial incenves and exibility in rerement plans, providing more opons for small businesses to help their employees save for the future. 401(k) Plans: • Contribuon Limits for 2023: o The contribuon limit for employees is $22,500, with an addional catch-up contribuon of $7,500 for those aged 50 and over. o For employer and employee combined, the limit is $66,000 ($73,500 including catch-up contribuons). • Contribuon Limits for 2024: o The contribuon limit for employees is $23,000, with an addional catch-up contribuon of $7,500 for those aged 50 and over. o For employer and employee combined, the limit is $69,000 ($76,500 including catch-up contribuons). • Consideraons and Compliance with SECURE Act 2.0: o For contribuons made aer December 29, 2022, a 401(k) plan may allow a parcipant to designate some or all matching and nonelecve contribuons as designated Roth contribuons. This applies to the extent the employee is fully vested in the contribuons. Any such matching contribuons will be included in the employee’s wage income for the year. o For plan years beginning aer December 31, 2023, the SECURE 2.0 Act requires catch-up contribuons for high-wage taxpayers to be made to a Roth 401(k). This rule applies to individuals who, for the preceding calendar year, had wages in excess of $145,000 (2023 wages for the 2024 plan year). However, the IRS announced a two-year transion period and will treat catch-up contribuons in 2024 and 2025 as sasfying the provisions of the law, even if the contribuons are not designated Roth contribuons.

29 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. o Stay informed about the new rules for automac enrollment and ensure your plan complies with these requirements. o Review and potenally adjust your employer matching contribuons in light of the new incenves and tax credits. o Ensure that your part-me employees are included in your plan as required by the new law. SIMPLE IRAs: • Contribuon Limits for 2023: o The contribuon limit for employees is $15,500, with an addional $3,500 catch-up contribuon for those aged 50 and over. o Employers must either match employee contribuons up to 3% of their compensaon or make non-elecve contribuons of 2% of the employee's compensaon. • Consideraons and Compliance with SECURE Act 2.0: o Beginning in 2023, the SECURE 2.0 Act allows employers to oer the opon to SIMPLE IRA contribuons (from both the employee and employer) as Roth contribuons. o Stay informed about the new tax credits available for small businesses that oer SIMPLE IRAs. o Review your employer contribuons in light of the new rules and incenves. o Ensure that your plan complies with the new rules allowing part-me employees to parcipate. SEP IRAs: • Contribuon Limits for 2023: o The contribuon limit for SEP IRAs is the lesser of 25% of compensaon or $66,000. • Consideraons and Compliance with SECURE Act 2.0: o Beginning in 2023, the SECURE 2.0 Act allows employers to oer the opon to treat SEP IRA contribuons (from both the employee and employer) as Roth contribuons. o Ensure that your SEP IRA complies with the new rules allowing part-me employees to parcipate. o Take advantage of the new tax credits for small businesses that oer SEP IRAs. o Review your employer contribuons and ensure they align with the new incenves and tax credits. It is recommended that you consult with your nancial advisor, plan administrator, and DMJPS to fully understand how the SECURE Act 2.0 aects your specic situaon and to ensure compliance. Jump to Table of Contents

30 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. CLOSING COMMENTS In closing, as we draw near the end of 2023, DMJPS wishes to express our deepest gratude for the opportunity to assist you with your tax-related needs. Our team, located from the North Carolina mountains to the coast, is equipped to handle tax reporng maers across the naon and beyond, thanks to our network of associate rms through our CPAmerica associaon. We pride ourselves on bringing you the knowledge and experience of larger rms while ensuring that you receive the customized service and familiar faces you know and trust. Please note that the insights shared in this leer are intended to provide a broad overview and are not to be construed as specic advice tailored to your unique situaon. Every individual's nancial and tax circumstances are disnct, and we highly recommend consulng with us at DMJPS for a comprehensive analysis of your tax situaon before making any decisions. We thank you for placing your trust in our services. Our priority is to ensure that you are well-informed and adequately prepared to make sound nancial decisions that align with your best interests. We encourage you to stay connected with us to learn more about our oerings and relevant news by following us at: You may also receive monthly email updates and relevant tax news by joining our mailing list. Please email connect@dmjps.com to be added to our distribuon list. Here's to a prosperous and fruiul year ahead. We are here to support you and encourage you to reach out should you have any quesons or require further assistance. Warm regards, DMJPS PLLC

31 DMJPS PLLC I 888.873.2545 I dmjps.com I be greater Member of CPAmerica, Inc. GREENSBORO | ASHEVILLE | BOONE | DURHAM | MARION | SANFORD | WILMINGTON 888.873.2545 | connect@dmjps.com | dmjps.com