Tax-Related Inflation Adjustments for 2024

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The IRS has announced the annual inflation adjustments for more than 60 tax provisions for tax year 2024, including the tax rate schedules and other tax changes. Here are some highlights:

The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.

Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

The other rates are:

  • 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
  • 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
  • 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
  • 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
  • 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
  • 10% for incomes of $11,600 or less ($23,200 or less for married couples filing jointly)

The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).

The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.

For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.

For the taxable years beginning in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.

For tax year 2024, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,800, an increase of $150 from tax year 2023, but not more than $4,150, an increase of $200 from tax year 2023. For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250 from 2023. For tax year 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for tax year 2023. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024, an increase of $550 from tax year 2023.

For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023.

The basic exclusion amount for estates of decedents who die during 2024 is $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.

The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.

The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

401k and IRA Limits for 2024

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The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan is increased to $23,000, up from $22,500.

Additionally, the limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2024.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan remains $7,500 for 2024. Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains $3,500 for 2024.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2024.

You can deduct contributions to a traditional IRA if you meet certain conditions. If during the year either you or your spouse was covered by a retirement plan at work, the deduction may be phased-out or eliminated, depending on your filing status and income. (If neither you nor your spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2024:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out range for those making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $76,500 for married couples filing jointly, up from $73,000; $57,375 for heads of household, up from $54,750; and $38,250 for singles and married individuals filing separately, up from $36,500.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,000, up from $15,500.

IRS Announces ERC Withdrawal Process

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If you own a business, you have probably been targeted by a scam trying to get you to claim the Employee Retention Credit (ERC). These scams have run rampant over the last year and have solicited business owners via email, telephone, and postal mail. Unfortunately some business owners have been tricked into improperly claiming an ERC for which they do not qualify, leading to the possibility of fines and repayment of the credit with interest.

Recognizing this problem, the IRS has announced the details of a special withdrawal process to help those who filed an ERC claim and are concerned about its accuracy. This new withdrawal option allows some employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that’s still being processed can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

Who can ask to withdraw an ERC claim

Employers can use the ERC claim withdrawal process if all of the following apply:

  • They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  • They filed the adjusted return only to claim the ERC, and they made no other adjustments.
  • They want to withdraw the entire amount of their ERC claim.
  • The IRS has not paid their claim, or the IRS has paid the claim, but they haven’t cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return.

How to withdraw an ERC claim

To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.

  • Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
  • Taxpayers who filed their ERC claims themselves, haven’t received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.
  • Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.

IRAs and Retirement Planning

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It’s never too early to begin planning for retirement. Individual retirement accounts provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund or stockbroker.

A traditional IRA is the most common type of individual retirement account. IRAs let earnings grow tax deferred. You pay taxes on investment gains only when you make withdrawals. You also may be able to claim a deduction on your federal income tax return for the amount you contributed to an IRA.

What to consider before investing in a traditional IRA

  • A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
  • Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
  • There are annual limits to your contributions depending on your age and the type of IRA.
  • When planning when to withdraw money from an IRA, you should know that:
    • You may face a 10% penalty and a tax bill if you withdraw money before age 59½ unless you qualify for an exception.
    • Usually, you must start taking withdrawals from your IRA when you reach age 73 (age 72 if you turned 72 in 2022). For tax years 2019 and earlier, that age was 70½.
    • Special distribution rules apply for IRA beneficiaries.

Differences between a Roth and a traditional IRA

A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA, but there are exceptions:

  • You can’t deduct contributions to a Roth IRA.
  • Qualified distributions are tax free.
  • Roth IRAs don’t require withdrawals until after the death of the owner.

Other types of IRAs

  • Simplified Employee Pension – A SEP IRA is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
  • Savings Incentive Match Plan for Employees – A SIMPLE IRA allows the employer and employees to contribute to an IRA set up for each employee. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
  • Payroll Deduction IRA – Employees set up a traditional or a Roth IRA with a financial institution and authorize a payroll deduction agreement with their employer.
  • Rollover IRA – The IRA owner receives a payment from their retirement plan and deposits it into an IRA within 60 days.

Moratorium on Processing ERC Claims Declared

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Due to rising concerns about a flood of improper Employee Retention Credit claims, the IRS has announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program in order to protect honest small business owners from scams.

The IRS Commissioner ordered the immediate moratorium, to run through at least December 31, following growing concerns inside the tax agency from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS will continue to work on previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but processing times will be longer because of increased concerns about fraud. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

Payouts for ERC claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

This enhanced compliance review of existing claims submitted before the moratorium is intended to protect against fraud but also to protect businesses from facing penalties or interest payments stemming from bad claims pushed by promoters.

The IRS is developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for repayments for those who received an improper ERC payment; more details will be available this fall.

In addition, the IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option – which can be used by taxpayers whose claim hasn’t yet been paid– will allow the taxpayers, many of them small businesses who were misled by promoters, to avoid possible repayment issues and paying promoters contingency fees. Filers of these more than 600,000 claims awaiting processing will have this option available.

Reconstructing Financial Records After a Disaster

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Natural disasters can strike without warning, and sometimes even the most diligent taxpayers are left without the important personal and financial records they need. People may need documentation for tax purposes, federal or state assistance programs or insurance claims.

Here are some steps that can help you reconstruct your important records if you’re confronted with a disaster.

Tax records

  • You can get free federal tax return transcripts immediately using Get Transcript on IRS.gov.
  • You can also order transcripts by calling 800-908-9946 and following the prompts.
  • Keep our office information in a safe place so that we can help you reconstruct tax records, if needed.

Financial statements

Financial statements from credit card companies or banks are usually available online. You can also contact your bank to get paper copies of statements.

Property records

  • If you are a homeowner, you may be able to contact the title company, escrow company or bank that handled the purchase of your home to get documents related to the purchase.
  • Many property records are available online from tax assessors or other government agencies. Check local government websites for information.
  • If you made home improvements, you can get in touch with the contractors who did the work and ask for statements to verify the work and cost. You can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, you can check court records for probate values. If a trust or estate existed, you can contact the attorney who handled the trust.
  • Insurance companies often keep records related to property maintained in a home, so keep your property insurance contacts handy.
  • If you own a car, you can research the current fair-market value of most vehicles via resources available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Educator Expense Deduction in 2023

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It’s back to school season, which is also a good time to remind teachers, principals, and other educators about the educator expense deduction which they may be eligible for. If you are an educator, you may be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when you file your federal income tax return next year.

This is the same limit that applied in 2022, the first year this provision became subject to inflation adjustment. Before that, the limit was $250. The limit will rise in $50 increments in future years based on inflation adjustments.

This means that you may be able to deduct up to $300 of qualifying expenses paid during the year. If you’re married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.

Who qualifies?

If you’re an eligible educator, you can claim this deduction even if you take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.

What’s deductible?

Educators can deduct the unreimbursed cost of:

  • Books, supplies and other materials used in the classroom.
  • Equipment, including computer equipment, software and services.
  • COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
  • Professional development courses related to the curriculum they teach or the students they teach.

Qualified expenses don’t include the cost of home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, be sure to keep good records, including receipts, cancelled checks and other documentation.

Tax Considerations Related to Separation and Divorce

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Separation and divorce are never easy for the couples involved. In addition to all the personal issues at play, separation and divorce can impact the former couple’s tax situation as well.

Am I married for tax purposes?

The IRS considers a couple married for tax filing purposes until they get a final decree of divorce or separate maintenance.

Update tax withholding

When a person divorces or separates, they usually need to update their tax withholding by filing a new Form W-4, Employee’s Withholding Certificate, with their employer. If they receive alimony, they may have to make estimated tax payments.

Tax treatment of alimony and separate maintenance

  • Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree or a written separation agreement may be alimony or separate maintenance for federal tax purposes.
  • Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.

Rules related to dependent children and support

Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren’t filing a joint return, they’ll have to decide which parent claims the child. If the parents can’t agree, the IRS provides tie-breaker rules that can be used to resolve the dispute. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.

Not all payments under a divorce or separation instrument—including a divorce decree, a separate maintenance decree or a written separation agreement—are alimony or separate maintenance. Alimony and separate maintenance does not include:

  • Child support
  • Noncash property settlements, whether in a lump-sum or installments
  • Payments that are your spouse’s part of community property income
  • Payments to keep up the payer’s property
  • Use of the payer’s property
  • Voluntary payments

Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.

Report property transfers, if needed

Usually, if a taxpayer transfers property to their spouse or former spouse because of a divorce, there’s no recognized gain or loss on the transfer. People may have to report the transaction on a gift tax return.

Tax Deductions for Homeowners

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The summer is prime time for buying or selling a house. If you purchased a home this year, here are a few tax deductions and programs that you might be eligible for.

Deductible house-related expenses

Most people take out a mortgage to buy their home and then make monthly payments to the lender. This mortgage payment may include several costs of owning a home that can be deducted, such as:

  • state and local real estate taxes, subject to the $10,000 limit.
  • home mortgage interest, within limits.

It’s important to note that in order to take advantage of these deductions, you must itemize your deductions (rather than simply taking the standard deduction).

Non-deductible payments and expenses

Unfortunately, not all expenses related to owning a home are deductible. For example, you cannot deduct any of the following:

  • Insurance, including fire and comprehensive coverage and title insurance
  • Down payments on a mortgage
  • Wages paid to housekeepers and other domestic help
  • Depreciation
  • The cost of utilities, such as gas, electricity or water
  • Most settlement or closing costs
  • Forfeited deposits, down payments or earnest money
  • Internet or Wi-Fi system or service
  • Homeowners’ association fees, condominium association fees or common charges
  • Home repairs

Mortgage interest credit

The mortgage interest credit helps people with lower income afford home ownership. If you qualify for the mortgage interest credit, you can claim the credit each year for part of the the interest paid on your home mortgage. You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate from your state or local government. An MCC is issued only for a new mortgage for the purchase of a main home.

Homeowners Assistance Fund

The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying some expenses related to their principal residence. The goal of the fund is to prevent mortgage delinquencies, defaults, foreclosures, utility shut-offs, and the displacement of homeowners experiencing financial hardship after January 21, 2020.

Minister’s or military housing allowance

If you are a minister or member of the uniformed services and receive a nontaxable housing allowance, you can still deduct your real estate taxes and home mortgage interest. You don’t have to reduce your deductions based on the allowance.

If you have questions about these programs and tax deductions, or if you are wondering if you qualify for any of them, please contact our office. We would be happy to help.

Electronic Filing Now Required to Report Cash Payments Over $10,000

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The Internal Revenue Service has announced that starting Jan. 1, 2024, businesses are required to electronically file (e-file) Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return. This new requirement follows final regulations amending e-filing rules for information returns, including Forms 8300.

Businesses that receive more than $10,000 in cash must report transactions to the U.S. government. Although many cash transactions are legitimate, information reported on Forms 8300 can help combat those who evade taxes, profit from the drug trade, engage in terrorist financing or conduct other criminal activities. The government can often trace money from these illegal activities through payments reported on Forms 8300 that are timely filed, complete and accurate.