Michael Gray, CPA's Tax and Business Insight
December 4, 2024
© 2024 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy holidays!
- 'Tis the season for year-end planning.
- Fourth quarter calendar year corporate estimated tax payment is due December 16.
- Fourth quarter estimated tax payment for non-corporate taxpayers is due January 15.
- First real estate tax payment is due.
- Make passthrough entity elective tax payments by the year-end.
- Business Ownership Information Reports put on hold.
- If you have a small business, have you filed a Beneficial Ownership Information Report?
- Calendar year accrual basis corporations should pay related parties by December 31.
- Vacation property LLC might be required to file a California income tax return.
- Required minimum distributions for 2024.
- Important December 31 deadline for inherited IRAs.
- Year end planning - should you "harvest" losses before the year end?
- Donations of appreciated stock.
- Consider making retirement account contributions to Roth accounts.
- Estates and trusts should plan distributions.
- Should you buy business equipment before December 31?
- If you exercised an incentive stock option and haven't sold the stock, consider using the "escape hatch."
- Clean vehicle credit.
- Some gifts have no limit.
- Consider gifts to a Section 529 plan.
- IRS announces relief for Form 1099-K filing for third-party organizations.
- California ABC test exemptions sunset for certain industries.
- Tax reform outlook after the Presidential election.
- Some American women are taking extreme defensive measures after the election.
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: Monetization
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Our tree is up and decorated! Happy Holidays!
Christmas Day will be Wednesday, December 25, and Hannukah begins that evening. "God Bless us, every one!"
Dawn Siemer won't be available starting December 14, returning January 2.
'Tis the season for year-end planning.
There is less than a month remaining for 2023. Make your year-end planning appointment with your tax advisor now.
Fourth quarter calendar year corporate estimated tax payment is due December 16.
The final 2024 estimated tax payment for calendar-year corporations is due December 16, 2024. Not all corporations can base their federal estimated tax payments on the previous year's income tax return. For example, new corporations and corporations that had no tax liability for the previous year must compute their estimated tax using the current year's facts. See your tax advisor for assistance.
Fourth quarter estimated tax payment for non-corporate taxpayers is due January 15.
The final 2024 estimated tax payment for individuals and calendar-year estates and trusts is due January 15, 2025. Remember California taxpayers with taxable income of $1 million or more must pay their estimated taxes using the current year's facts.
Consider making the California or state payment by December 31, 2024 for a 2024 tax deduction. Watch the alternative minimum tax. Also, remember the total tax deduction for state income tax payments and real estate tax is limited to $10,000 and the standard deduction has been increased to $29,200 for married filing joint and $14,600 for singles and married filing separate returns.
See your tax advisor.
First real estate tax payment is due.
The first real estate tax payment for the 2024-2025 fiscal year in Santa Clara County is due December 10. Avoid a late payment penalty - mail your payment now!
Make passthrough entity elective tax payments by the year-end.
Calendar year end passthrough entities should make an effort to pay any remaining tax by December 31, 2024. According to IRS Notice 2020-75, the tax must be paid in order to claim a current tax deduction. The tax payments reduce the taxable income passed through to the owners.
Note the option to make an additional payment in 2024 is only available to taxpayers who complied with the June 17, 2024 prepayment requirement.
See your tax advisor for details. The elective tax payment isn't a do-it-yourself project.
(Spidell's California Taxletter Podcast, "Tax Planning strategies to consider implementing by the end of the year", November 24, 2024.)
Business Ownership Information Reports put on hold.
A federal district court in Texas has issued a nationwide preliminary injunction against enforcing the beneficial ownership reporting requirements mandated by the Corporate Transparency Act.
The court ruled that Congress exceeded its authority by enacting the CTA, which is an unconstitutional infringement on states' rights to regulate businesses.
The opinion was issued on December 3, 2024, and will probably be appealed.
For now, businesses don't have to file BOI reports with FinCEN.
(Spidell's Flash E-Mail, "Court puts BOI reporting on hold for all businesses", December 4, 2024, Texas Top Cop Shop v. Garland, U.S. District Court, Eastern District of Texas, Case No. 4:24-CV-478, December 3, 2024.)
If you have a small business, have you filed a Beneficial Ownership Information Report?
See the item above. This requirement is suspended. I've included this information in case you decide to file a BOI anyway.
Under the Corporate Transparency Act, entities that register with a Secretary of State, including most single-member LLCs, LLCs, partnerships, S corporations and corporations were required to file by the end of the year. New entities formed during 2024 were required to file within 90 days after formation. See your attorney or tax advisor. Here's a URL for the FinCEN website with details. Note that while CPA firms that report under Sarbannes-Oxley and sole proprietorships aren't required to file a BOI, other CPA firms, including single-member LLCs, were required to file. https://www.fincen.gov/boi
Calendar year accrual basis corporations should pay related parties by December 31.
In order to currently deduct expenses due to certain related persons, accrual-basis corporations must pay them by the year-end. These include wages, bonuses, interest expense, rent, etc. Be sure to review the status of these items with your tax advisor by December 31.
Vacation property LLC might be required to file a California income tax return.
Some owners of vacation homes put them in a single-member LLC for liability protection. When the LLC is formed in California, the LLC will probably have to file an LLC return and pay the $800 annual tax, because it's considered to be "doing business in California" as a result of being organized in California.
An LLC formed outside of California that holds a personal vacation home or a second residence located out of state may not be required to register with the California Secretary of State. In that case, it appears the LLC is not required to file a California income tax return and pay the $800 annual tax.
An LLC formed outside of California that holds a personal vacation home or a residence located in California is required to file a California income tax return and pay the $800 annual tax, because the LLC has "nexus" with California.
(Spidell California Taxletter Podcast: "Understand the tax issues of holding a vacation home in an LLC", November 17, 2024.)
Required minimum distributions for 2024.
Participants in qualified plans (including 401(k) plans) and traditional IRAs must take required minimum distributions starting for the year the participant reaches age 73. Generally, the distribution is required to be made by December 31. There is an exception for participants whose 73rd birthday is during 2024. They may take the 2024 distribution by April 1, 2025. Doing that will require two distributions 2025. See your financial advisor about what make sense for you.
Important December 31 deadline for inherited IRAs.
The beneficiaries of an inherited IRA must divide the account into separate accounts for each beneficiary by December 31 of the year of the decedent's death for favorable distribution rules. Otherwise, the distribution will generally be based on the life expectancy of the oldest beneficiary.
Year end planning - should you "harvest" losses before the year end?
The stock market has been very active this year, and stock values are mostly up. Review the securities (or other assets) you are holding for potential capital losses. If you sell the loss shares before the end of the year, you can offset the losses against your gains plus $3,000. This is even more important if you could be subject to the 3.8% federal net investment income tax. You could bring your adjusted gross income below the $250,000 threshold for married persons filing joint returns or $200,000 for singles.
Remember the wash sale rules. If you purchase shares of the same security during the period 30 days before and 30 days after a sale at a loss, the loss is disallowed for the same number of shares.
Consult with your tax advisor.
Donations of appreciated stock.
This strategy works best for taxpayers who itemize deductions. There is a double tax benefit. The taxpayer gets a charitable contribution deduction for the fair market value of the stock and doesn't pay tax on the appreciation of the stock. The charitable contribution deduction is limited to 30% of adjusted gross income. Any excess charitable contributions may be carried over for five years.
Consider making retirement account contributions to Roth accounts.
The tax deferral for contributions to qualified retirement plans, such as a 401(k), and traditional IRA accounts is temporary. The tax will eventually be due when distributions are received from the account. The SECURE Act of 2019 has mostly eliminated the "stretch IRA", while SECURE 2.0 of 2022 has expanded Roth options for employer retirement plans.
Although contributions aren't tax deductible, after a very brief waiting period, distributions from Roth accounts are tax-free, and no distributions are required during the participant's lifetime. The tax benefit is permanent.
Check whether your employer offers Roth options in its retirement plan.
If Roth alternatives are available, consider making future contributions to Roth accounts, instead of traditional retirement accounts. Since there is no tax deduction, remember to compute and plan to pay additional income taxes due for the years of contributions.
Estates and trusts should plan distributions.
The maximum 37% federal income tax rate and the 3.8% tax on net investment income hit estates and trusts especially hard. They apply when the undistributed estate or trust income exceeds $15,200. If possible, the income of the estate or trust should be distributed to beneficiaries before the year-end, since the threshold for these taxes is much higher for individuals. (The income of some trusts is automatically considered distributed. See your tax advisor.) An election is also available to treat distributions made during the first 65 days of the following year (for example, on January 31, 2025) as distributed for a taxable year (for example, 2024).
In most cases, capital gains don't qualify for the distribution deduction. See your tax advisor.
The beneficiaries should be involved in this decision and be informed about the additional income to be reported on their income tax returns (in writing) to avoid unpleasant surprises.
Should you buy business equipment before December 31?
The expense election for business equipment purchases is now $1,220,000. This election is even available for some SUVs and heavy trucks with a $30,500 limit, and some trucks and cargo vans don't have a limit. The excess might be eligible for bonus depreciation. See your tax advisor for details. Remember the expensed amount is only deductible against business income.
60% bonus depreciation also may alternatively apply for 2024 depreciable property, including some building improvements. The bonus depreciation percentage is scheduled to decrease to 40% for 2025.
See your tax advisor.
If you exercised an incentive stock option and haven't sold the stock, consider using the "escape hatch."
I explained the details in the November 2024 edition of Michael Gray, CPA's Tax and Business Insight. This strategy can reduce the tax hit when the value of the option stock falls after the exercise. When you sell the stock during the same year as the year of exercise, the alternative minimum tax adjustment is eliminated and the ordinary income is limited to the excess of the selling price of the stock over the option price. If the stock is replaced with a wash sale (buying back the stock during the period from 30 days before the sale to 30 days after the sale) or the sale is to a related person, the strategy doesn't work. This strategy generally only works for vested publicly traded stock.
Clean vehicle credit.
If you are considering buying a clean vehicle, such as an electric vehicle, do it by the end of 2024.
President Trump doesn't favor environmental benefits, like the clean vehicle credit. Income limitations and domestic content requirements have made the credit less available for individuals. An election is available to get the credit by LEASING an electric vehicle and letting the lessor apply the credit to reduce the amount financed for the lease.
Some gifts have no limit.
Amounts paid by donors directly to education institutions and health care providers for family members aren't counted as taxable gifts. This is a great way to provide for family members' education expenses and medical expenses.
Consider gifts to a Section 529 plan.
A Section 529 plan or qualified tuition plan is a way to invest money with potentially tax-free appreciation and avoided tax on interest and dividends. Amounts withdrawn for qualified education expenses are tax-free.
The donor may elect to treat an amount contributed to a Section 529 plan as made ratably over five years. That means about $90,000 can be contributed by an individual or $180,000 by a married couple for an individual (say, a grandchild) and be covered by the current and future annual gift tax exclusions.
Section 529 plans are also unique because the benefit can be directed to another person. For example, if a grandchild decides to not go to college, the account can be redirected to another grandchild.
Remember the election is made on a timely-filed gift tax return and annual gift tax returns must be filed to report the annual amounts. No election, no gift tax deferral.
IRS announces relief for Form 1099-K filing for third-party organizations.
The IRS has announced filing relief for third-party organizations, such as Venmo, Paypal and Amazon, that receive payments for users of their services. The forms were supposed to be required when payments received for a user exceeded $600, effective for 2022. Now the IRS has announced these temporary thresholds:
- $5,000 for 2024
- $2,500 for 2025
- $600 for 2026 and thereafter
Taxpayers who would otherwise receive these forms will be temporarily relieved from having to disclose what might be nontaxable transactions, such as for selling used furniture from a residence.
(Spidell's Flash E-Mail, "IRS announces additional 1099-K filing relief for third-party settlement organizations", November 26, 2024.)
California ABC test exemptions sunset for certain industries.
Effective January 1, 2025, the exemptions from the ABC test for manicurists and construction trucking services will sunset. This means certain workers who previously qualified as independent contractors will be employees, subject to California's employee benefit, overtime and minimum wage requirements. If the employer has a qualified retirement plan, these individuals must also be covered.
Under the ABC test, a worker is treated as an employee unless all three of the following tests are met:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
- The worker performs work that is outside the usual course of the hiring entity's business; and
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
Business that hire manicurists and construction trucking services should consult with a labor lawyer.
(Spidell's California Taxletter Podcast, "ABC test exemptions will sunset for certain industries", December 1, 2024.)
Tax reform outlook after the Presidential election.
Donald Trump has been elected to a second term as President of the United States and it appears the Republicans will probably control both the Senate and the House of Representatives. This makes it very likely that the tax cuts enacted in the Tax Cuts and Jobs Act of 2017 will be extended, which should reduce the urgency of defensive tactics for the tax cuts expiring.
Some American women are taking extreme defensive measures after the election.
Here's a link to a blog post that I wrote about the "4 Bs". Since it's not tax-related, I decided not to send it separately. https://www.michaelgraycpa.com/posts/american-women-consider-adopting-the-4-bs/
Do you sell products, services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@taxtrimmers.com.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. http://www.eztrialbalance.com
Please share your good experiences with Michael Gray, CPA.
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
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