States continue to move ahead with implementing new passthrough entity taxes as a workaround to the $10,000 cap on the federal deduction of state and local taxes.
Ease the burden of being a member of the Sandwich Generation with these action steps
If you’re currently taking care of your children and elderly parents, count yourself among those in the “Sandwich Generation.” Although it may be personally gratifying to help your parents, it can be a time-consuming and financial burden.
How can you best handle the financial affairs of parents in the later stages of life? Incorporate their needs into your own estate plan while tweaking, when necessary, the arrangements they’ve already made. Here are some critical action steps to take to better manage your situation:
Identify key contacts. Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.
List and value their assets. If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRAs and other retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.
Execute the proper estate planning documents. Develop a plan incorporating several legal documents. If your parents already have one or more of these documents, the paperwork may need to be revised. Some elements commonly included in an estate plan are:
- Wills. Your parents’ wills control the disposition of their possessions and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically passes to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.
- Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, so this might save time and money, while avoiding public disclosure.
- Powers of attorney for health and finances. These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.
- Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies so they can act according to their wishes.
- Beneficiary designations. Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.
Spread the wealth. If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $17,000 (for 2023) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts, so you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.
If you’re part of the Sandwich Generation, you already have a lot on your plate. Please contact us if you have questions regarding your parents’ estate plans, or your own. We’d be pleased to help during this challenging time.
© 2023
AICPA backs bill to make it easier to file for tax extensions
The bill filed by Reps. Judy Chu and Mike Carey would streamline the extension-filing process for millions of Americans.
Being a gig worker comes with tax consequences
In recent years, many workers have become engaged in the “gig” economy. You may think of gig workers as those who deliver take-out restaurant meals, walk dogs and drive for ride-hailing services. But so-called gig work seems to be expanding. Today, some nurses have become gig workers and writers in Hollywood who recently went on strike have expressed concerns that screenwriting is becoming part of the gig economy.
There are tax consequences when performing jobs that don’t involve taxes being deducted from a regular paycheck. The bottom line: If you receive income from freelancing or from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made.
Gig worker basics
The IRS considers gig workers those who are independent contractors and conduct their jobs through online platforms. Examples include Uber, Lyft, Airbnb and DoorDash.
Unlike traditional employees, independent contractors don’t receive benefits associated with employment or employer-sponsored health insurance. They also aren’t covered by the minimum wage or other federal law protections and they aren’t part of states’ unemployment insurance systems. In addition, they’re on their own when it comes to retirement savings and taxes.
Make quarterly payments during the year
If you’re part of the gig or sharing economy, here are some tax considerations.
- You may need to make quarterly estimated tax payments because your income isn’t subject to withholding. These payments are generally due on April 15, June 15, September 15 and January 15 of the following year. (If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.)
- You should receive a Form 1099-NEC, Nonemployee Compensation, a Form 1099-K or other income statement from the online platform.
- Some or all of your business expenses may be deductible on your tax return, subject to the normal tax limitations and rules. For example, if you provide rides with your own car, you may be able to deduct depreciation for wear and tear and deterioration of the vehicle. Be aware that if you rent a room in your main home or vacation home, the rules for deducting expenses can be complex.
Maintain meticulous records
It’s important to keep good records tracking income and expenses in case you are audited by the IRS or state tax authorities. Contact us if you have questions about your tax obligations as a gig worker or the deductions you can claim. You don’t want to get an unwanted surprise when you file your tax return.
© 2023
Supreme Court upholds exception to notice requirement for third-party summonses
In a unanimous decision, the Court held that the IRS does not have to notify third parties named in a summons when it seeks access to records held at institutions such as banks in aid of collection of a tax assessment.
The IRS has just announced 2024 amounts for Health Savings Accounts
The IRS recently released guidance providing the 2024 inflation-adjusted amounts for Health Savings Accounts (HSAs).
HSA fundamentals
An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high-deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).
Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contributions to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.
Inflation adjustments for next year
In Revenue Procedure 2023-23, the IRS released the 2024 inflation-adjusted figures for contributions to HSAs, which are as follows:
Annual contribution limitation. For calendar year 2024, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $4,150. For an individual with family coverage, the amount will be $8,300. This is up from $3,850 and $7,750, respectively, in 2023.
There is an additional $1,000 “catch-up” contribution amount for those age 55 and older in 2024 (and 2023).
High-deductible health plan defined. For calendar year 2024, an HDHP will be a health plan with an annual deductible that isn’t less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000, respectively, in 2023). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000, respectively, in 2023).
Advantages of HSAs
There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and can be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. Contact your employee benefits and tax advisors if you have questions about HSAs at your business.
© 2023
The IRS recently released guidance providing the 2024 inflation-adjusted amounts for Health Savings Accounts (HSAs).
HSA fundamentals
An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high-deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).
Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contributions to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.
Inflation adjustments for next year
In Revenue Procedure 2023-23, the IRS released the 2024 inflation-adjusted figures for contributions to HSAs, which are as follows:
Annual contribution limitation. For calendar year 2024, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $4,150. For an individual with family coverage, the amount will be $8,300. This is up from $3,850 and $7,750, respectively, in 2023.
There is an additional $1,000 “catch-up” contribution amount for those age 55 and older in 2024 (and 2023).
High-deductible health plan defined. For calendar year 2024, an HDHP will be a health plan with an annual deductible that isn’t less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000, respectively, in 2023). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000, respectively, in 2023).
Advantages of HSAs
There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and can be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. Contact your employee benefits and tax advisors if you have questions about HSAs at your business.
© 2023
If you’re married, ensure that you and your spouse coordinate your estate plans
Estate planning can be complicated enough if you don’t have a spouse. But things can get more difficult for married couples. Even if you and your spouse have agreed on most major issues in the past — such as child rearing, where to live and other lifestyle choices — you shouldn’t automatically assume that you’ll both be on the same page when it comes to making estate planning decisions.
A worst-case scenario is when one spouse moves forward with his or her estate plan without the knowledge or approval of the other, to the eventual detriment of the family. Thus, it’s critical for both spouses to clearly communicate their estate planning goals to each other.
Where to begin?
Start with the basic premise that state law generally governs estate matters. Therefore, state law determines if your property is community property, separate property or tenancy by the entirety. For instance, California is a community property state. That means half of what a resident owns is his or her spouse’s property and vice versa. There’s no circumventing this law when planning for a joint estate.
Next, consider your family’s dynamics. Emotions can run high and tensions may result, for example, if a family includes children from a prior marriage. If these issues aren’t addressed beforehand, it could lead to legal squabbles.
Don’t forget about the tax implications. Currently, married couples can take advantage of a record-high federal gift and estate tax exemption that shelters most estates from tax. However, if you and your spouse are high earners (or otherwise have large estates) ensure that you incorporate estate tax minimization techniques into your coordinated plans.
Finally, decide together on distributions of assets to designated beneficiaries. You may intend, for example, for expensive jewelry to go to one child, but your spouse might have other ideas.
Keep lines of communication open
Indeed, clear communication is essential for married couples when developing estate plans. We can help ensure that you and your spouse both have plans that work in harmony.
© 2023
HSA amounts continue trend, increase again in 2024
The 2024 amounts from the IRS mark at least the ninth annual increase in a row for maximum contributions.
IRS chief: Racial disparities in audits will be addressed within a year
In his response to a university study showing racial differences in audit rates, IRS Commissioner Danny Werfel says in a letter to senators that the agency is investigating the cause of any discrepancies.
4 tax challenges you may encounter if you’re retiring soon
Are you getting ready to retire? If so, you’ll soon experience changes in your lifestyle and income sources that may have numerous tax implications.
Here’s a brief rundown of four tax and financial issues you may contend with when you retire:
Taking required minimum distributions. These are the minimum amounts you must withdraw from your retirement accounts. You generally must start taking withdrawals from your IRA, SEP, SIMPLE and other retirement plan accounts when you reach age 73 if you were age 72 after December 31, 2022. If you reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025, for 2024. Roth IRAs don’t require withdrawals until after the death of the owner.
You can withdraw more than the minimum required amount. Your withdrawals will be included in your taxable income except for any part that was taxed before or that can be received tax-free (such as qualified distributions from Roth accounts).
Selling your principal residence. Many retirees want to downsize to smaller homes. If you’re one of them and you have a gain from the sale of your principal residence, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return, you may be able to exclude up to $500,000.
To claim the exclusion, you must meet certain requirements. During a five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.
If you’re thinking of selling your home, make sure you’ve identified all items that should be included in its basis, which can save you tax.
Getting involved in new work activities. After retirement, many people continue to work as consultants or start new businesses. Here are some tax-related questions to ask if you’re launching a new venture:
- Should it be a sole proprietorship, S corporation, C corporation, partnership or limited liability company?
- Are you familiar with how to elect to amortize start-up expenditures and make payroll tax deposits?
- Can you claim home office deductions?
- How should you finance the business?
Taking Social Security benefits. If you continue to work, it may have an impact on your Social Security benefits. If you retire before reaching full Social Security retirement age (65 years of age for people born before 1938, rising to 67 years of age for people born after 1959) and the sum of your wages plus self-employment income is over the Social Security annual exempt amount ($21,240 for 2023), you must give back $1 of Social Security benefits for each $2 of excess earnings.
If you reach full retirement age this year, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($56,520 in 2023) until the month you reach full retirement age. Then, your earnings will no longer affect the amount of your monthly benefits, no matter how much you earn.
Speaking of Social Security, you may have to pay federal (and possibly state) tax on your benefits. Depending on how much income you have from other sources, you may have to report up to 85% of your benefits as income on your tax return and pay the resulting federal income tax.
Tax planning is still important
As you can see, you may have to make many decisions after you retire. We can help maximize the tax breaks you’re entitled to so you can keep more of your hard-earned money.
© 2023
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