Maximize Your Tax Deductions: Understanding Meal Expenses in Chattanooga and Athens, TN

2024 YEAR-END INCOME TAX PLANNING FOR BUSINESSES INTRODUCTION It’s hard to believe we are nearing the end of another year. Before we say goodbye to 2024, we believe it’s important to take a moment and review year-end tax planning opportunities. Examining your 2024 tax situation before year-end could lead to tax savings when you file your tax return in 2025. As a result, we have included our 2024 year-end income tax planning letter to assist you with this process. We’ve included selected traditional as well as some new planning ideas for your consideration. If you have questions or want to discuss planning ideas not included in our letter, please call our firm. Caution! The IRS continues releasing guidance on various important tax provisions. We closely monitor new tax legislation and IRS releases. Please call our firm if you would like an update on the latest tax legislation, IRS notifications, announcements, and guidance or if you need additional information concerning any item discussed in this letter. Be careful! Although this letter contains planning ideas, you cannot properly evaluate a particular planning strategy without calculating the overall tax liability for the business and its owners (including the alternative minimum tax) with and without the strategy. In addition, this letter contains ideas for Federal income tax planning only. State income tax issues are not addressed. However, you should consider the state income tax impact of a particular planning strategy. We recommend that you call our firm before implementing any tax planning technique discussed in this letter. POSSIBLE LEGISLATION BEFORE YEAR-END Each year we work to provide you with our year-end planning letter in time to implement possible tax saving strategies before December 31st. As a result, it’s possible Congress could pass new legislation between your receipt of this letter and year-end. Congress has not acted concerning several expiring provisions and extenders, including those introduced by the Tax Cuts and Jobs Act. At this point, it is uncertain whether there will be new legislation after the election and before 2025. Therefore, please contact our firm if you would like an update on possible legislation and how it could affect you. HIGHLIGHTS OF PROVISIONS INCLUDED IN SECURE 2.0 ACT FIRST EFFECTIVE IN 2024 On December 29, 2022, President Biden signed the “Consolidated Appropriations Act, 2023.” The Act includes a segment called SECURE 2.0 dealing with retirement plans. The following is a brief summary of selected provisions of SECURE 2.0 first effective for 2024. Caution! A business wishing to implement any of these provisions should consult with the attorney handling the business’s qualified plan since these provisions may require plan amendments. Employers May Amend A Plan To Increase Benefits On Or Before The Due Date Of Their Return SECURE 2.0 provides that an employer may amend a profit-sharing, pension, stock bonus, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing retroactive matching contributions) if 1) the amendment satisfies certain requirements under the qualified plan requirements, and 2) the amendment is adopted prior to the due date (including extensions) of the employer’s return for the taxable year for which the amendment is effective. Treatment of Student Loan Payments As Elective Deferrals For Purposes of Matching Contributions This provision allows employers to make matching contributions under a 401(k) plan, 403(b) plan, 457(b) plan, or SIMPLE IRA with respect to “qualified student loan payments” (QSLPs) made by an employee on a qualified education loan incurred by the employee for the payment of qualified higher education expenses. Starter 401(k) Deferral Only Plans For Employers With No Retirement Plan SECURE 2.0 allows employers to establish a starter 401(k) deferral-only plan. The following requirements apply to a starter 401(k) deferral-only plan: The employee is deemed to have elected to make elective contributions of a percentage of compensation as provided under the plan unless the employee elects to make a lesser contribution or no contribution; The elective deferral percentage provided under the plan is not less than 3% or more than 15%; The only contributions allowed to be made to the plan are these employee elective deferral contributions. Employers may not make matching or other contributions to the plan; The maximum elective deferral contributions for any employee for a calendar year may not exceed $6,000 (as indexed for inflation after 2024); Additional catch-up contributions are permitted (for an employee who attains age 50 by the end of the tax year) up to $1,000, as indexed for inflation; An employee eligible to participate in the plan includes an employee at least age 21 who has completed a year of service; The employer may not maintain another qualified plan during the year except for a plan where the only participants are employees covered by a collective bargaining agreement. Note! A starter 401(k) deferral-only plan is not treated as a top-heavy plan. Safe Harbor Deferral Only 403(b) Plans For Employers With No Retirement Plan SECURE 2.0 also allows public schools and certain tax-exempt employers to establish a safe harbor deferral-only 403(b) plan. A safe harbor deferral-only 403(b) plan generally has the same characteristics as a starter deferral-only 401(k) plan as outlined above. Selected Other Changes Made To Retirement Plans By SECURE 2.0 Employer Allowed To Replace SIMPLE IRA With Safe Harbor 401(k) Plan During A Plan Year. The Act allows an employer to replace a SIMPLE IRA with a SIMPLE 401(k) plan or other 401(k) plan meeting certain requirements during a plan year. Employers May Establish Emergency Savings Accounts Linked To Individual Retirement Plans. The Act provides employers the option to offer non-highly compensated employees emergency savings accounts linked to the employee’s account in the employer’s individual account plan (e.g., 401(k), profit-sharing). These accounts are called Pension-Linked Emergency Savings Accounts (PLESAs). Hardship Withdrawal Provisions Of 403(b) Plans Broadened To Conform With Hardship Withdrawals From 401(k) Plans. Before 2024, hardship withdrawals were only allowed from 403(b) plans to the extent of employee salary reduction contributions. Beginning in 2024, hardship distributions to a participant in a 403(b) plan may be made from salary reduction contributions, nonelective contributions, matching contributions, and earnings on any contributions. This conforms the hardship provisions for 403(b) plans to those for 401(k) plans. OTHER SELECTED RECENT DEVELOPMENTS Beneficial Ownership Reporting With FINCEN Due In 2024. PLEASE BE ADVISED: Effective December 31, 2024, there was a nationwide injunction placed on the FinCEN requirements. Those who have not yet filed the FinCEN are now not required to do so by the January 1, 2025 deadline. Our office will keep you updated when more information comes available. As a part of the Corporate Transparency Act (CTA), a new rule went into effect in January 2024, requiring certain entities (“reporting entities”) to conduct criminal activities, including money laundering. Caution! CTA provides that individuals providing, or attempting to provide, false or fraudulent beneficial owner information or willfully failing to report complete or updated beneficial ownership information to FinCEN as required by CTA (1) shall be liable for a civil penalty of not more than $500 for each day that the violation continues or (2) may be fined not more than $10,000, imprisoned for not more than 2 years, or both. Therefore, those required to file these BOI reports should do so unless exempt from filing. Reporting companies created or registered before 2024 must file a BOI report with FinCEN by January 1, 2025. Reporting companies created or registered on or after January 1, 2024, and during 2024 have 90 days to file an initial BOI report. Update! On Tuesday, October 29, the Financial Crimes Enforcement Network (FinCEN) issued notices announcing that certain businesses affected by hurricanes Beryl, Debby, Francine, Helene, and Milton will have an additional six months to submit beneficial ownership information (BOI) reports. This additional time includes updates or corrections to previous reports. IRS Moves Forward With Employee Retention Credit Claims. During the moratorium on processing ERC claims, which began September 14, 2023, the IRS reviewed claims filed before September 14, 2023, and determined that approximately 50,000 were valid, low-risk claims which the IRS said will be processed and paid during 2024. Note! The fact that the IRS pays an employer’s claim for the employee retention credit does not mean the IRS agrees the employer is entitled to the credit. Only after the relevant statutes of limitations have expired can the employer be certain its refund claim will not be challenged by the IRS. Businesses Located In And Individuals Living In A Hurricane Helene Disaster Zone Have Until May 1, 2025, To File Returns And Make Certain Tax Payments. The IRS has announced that individuals living in, and businesses located in, Alabama, Georgia, North Carolina, South Carolina, and certain counties in Florida, Tennessee, and Virginia now have until May 1, 2025, to file various returns and make certain payments. Note! See https://www.irs.gov/newsroom/tax-relief-in-disaster-situations concerning disaster filing and payment relief details concerning these and other areas provided disaster relief during 2024. Also, please call our firm if you are located in one of these disaster areas and have questions concerning which returns and payments have been delayed or the tax treatment of any losses you have incurred because of a declared disaster. Qualified Commercial Clean Vehicles Credit. The Inflation Reduction Act of 2022 introduced a credit for depreciable commercial electric and fuel cell vehicles placed in service after 2022 and before 2033. The maximum credit is determined based on: 15% of the incremental cost of the vehicle if the vehicle has a gasoline or diesel component (i.e., if a hybrid). The IRS says the incremental cost of vehicles with a GVWR of less than 14,000 pounds is deemed to be $7,500, except for small hybrid vehicles where the incremental cost is deemed to be $7,000. 30% of the incremental cost of the vehicle if the vehicle is 100% electric. Planning Alert! A business that acquires a new vehicle qualifying for either the regular clean vehicle credit or this commercial clean vehicle credit may choose to take the larger of the two credits, but not both. TRADITIONAL YEAR-END TAX PLANNING TECHNIQUES Planning With Timing Of Income And Expenses. One traditional year-end tax planning strategy for business owners includes reducing current year taxable income by deferring income into later tax years and accelerating deductions into the current tax year. This strategy is beneficial where the income tax rate on the business’s income in the following year is expected to be the same or lower than the current year. Caution! In the following discussion, we include "timing" suggestions as they relate to traditional year-end tax planning strategies that would cause you to accelerate deductions into 2024, while deferring income into 2025. However, for businesses that expect their income to be significantly higher in 2024 than in 2025, the opposite strategy might be more advisable. Planning Alert! Your ability to take maximum advantage of the 20% 199A deduction for 2024 and/or 2025 may, in certain situations, be enhanced significantly if you are able to keep your taxable income below certain thresholds. Consequently, please keep that in mind as you read through the following timing strategies for income and deductions. First-Year 168(k) Bonus Depreciation Deduction. Traditionally, a popular way for businesses to maximize current-year deductions has been to take advantage of the First-Year 168(k) Bonus Depreciation deduction. Before the “Tax Cuts and Jobs Act” (TCJA) was enacted in late 2017, the 168(k) Bonus Depreciation deduction was equal to 50% of the cost of qualifying depreciable assets placed in service. The “Tax Cuts and Jobs Act” temporarily increased the 168(k) Bonus Depreciation deduction to 100% for qualifying property acquired and placed in service after September 27, 2017, and before January 1, 2023. Beginning with 2024, the 100% 168(k) deduction is reduced as follows for property placed in service: During 2024 - 60%, During 2025 - 40%, During 2026 - 20%, and After 2026 - 0% (with an additional year for long-production-period property and noncommercial aircraft). Planning Alert! Businesses should consider purchasing and placing in service in 2024 any qualifying property needed in early 2025 since the deduction will drop to 40% in 2025. Section 179 Deduction. Another popular and frequent used way to accelerate deductions is by taking maximum advantage of the up-front Section 179 Deduction (“179 Deduction”). The Tax Cuts and Jobs Act (TCJA) also made several taxpayer-friendly adjustments to the 179 Deduction which include: Substantially increasing the 179 Deduction limitation (up to $1,220,000 for 2024); Increasing the phase-out threshold for total purchases of 179 property ($3,050,000 for 2024); and Expanding the types of business property qualifying for the 179 Deduction. Observation! To maximize your 179 Deductions for 2024, it is important for your business to determine that the depreciable property acquired and placed in service qualifies as 179 Property. Generally, "depreciable" property qualifies for the 179 Deduction if: It is purchased for use in your business; It is "tangible personal property"; and It is used more than 50% for your business. Business Vehicles. New or used business vehicles generally qualify for the 179 Deduction, provided the vehicle is used more-than-50% in your business. Planning Alert! There is a dollar cap imposed on business cars and trucks that have a vehicle weight of 6,000 lbs. or less. If applicable, this dollar cap applies to both the 168(k) Bonus Depreciation and the 179 Deduction with respect to the vehicle. Note! Trucks, vans, and SUVs that have a loaded weight (GVWR) of more than 6,000 lbs. are exempt from these annual depreciation caps. Planning Alert! With the 168(k)-deduction scheduled to drop to 40% in 2025, it may be possible to create a larger deduction by pushing asset purchases into 2024 instead of waiting until 2025. Salaries For S Corporation Shareholder/Employees. For 2024, an employer generally must pay FICA taxes of 7.65% on an employee's wages up to $168,600 ($176,100 for 2025) and FICA taxes of 1.45% on wages in excess of $168,600 ($176,100 for 2025). In addition, an employer must withhold FICA taxes from an employee’s wages of 7.65% on wages up to $168,600 and 1.45% of wages in excess of $168,600 ($176,100 for 2025). Generally, the employer must also withhold an additional Medicare tax of 0.9% for wages paid to an employee in excess of $200,000. If you are a shareholder/employee of an S corporation, this FICA tax generally applies only to your W-2 income from your S corporation. Other income that passes through to you or is distributed with respect to your stock is generally not subject to FICA taxes or to self-employment taxes. Note! If the IRS determines that you have taken unreasonably “low” compensation from your S corporation, it will generally argue that other amounts you have received from your S corporation (e.g., distributions) are “disguised compensation” and should be subject to FICA taxes. Caution! Determining “reasonable” compensation for an S corporation shareholder is a case-by-case determination. S Corporation Shareholders Should Check Stock And Debt Basis Before Year-End. If you own S corporation stock and you think your S corporation will have a tax loss this year, you should contact us as soon as possible. These losses will not be deductible on your personal return unless and until you have adequate “basis” in your S corporation. Planning Alert! If an S corporation anticipates financing losses through borrowing from an outside lender, the best way to ensure the shareholder gets debt basis is to: Have the shareholder personally borrow the funds from the outside lender; and Then have the shareholder formally (with proper and timely documentation) loan the borrowed funds to the S corporation. Caution! A shareholder cannot get debt basis by merely guaranteeing a third-party loan to the S corporation. Please do not attempt to restructure your loans without contacting us first. MAXIMIZE YOUR 20% 199A DEDUCTION FOR QUALIFIED BUSINESS INCOME (QBI) The 20% 199A Deduction For Qualified Business Income. Don’t overlook the 20% Deduction under Section 199A with respect to “Qualified Business Income,” “Qualified REIT Dividends,” and “Publicly-Traded Partnership Income.” The 20% 199A deduction does not reduce your adjusted gross income or impact your calculation of self-employment tax. Instead, the deduction simply reduces your taxable income. The 20% 199A Deduction is allowed in addition to your itemized deductions or your standard deduction. Note! The 20% 199A Deduction is set to expire after 2025! It is best to resolve a thorough discussion of the 20% 199A Deduction with respect to Qualified Business Income (QBI) in this letter. However, if you own an interest in a business as a sole proprietor, an S corporation shareholder, or a partner in a partnership, you are a very good candidate for the 20% 199A Deduction. If you want more information on the 20% 199A Deduction, please call our firm and we will be glad to provide more details. CAREFUL WITH EMPLOYEE BUSINESS EXPENSES From 2018 through 2025, “un-reimbursed” employee business expenses are not deductible at all by an employee. For example, an employee may not deduct on the employee’s income tax return any of the following business expenses incurred as an “employee” , even if the expenses are necessary for the employee’s work: Automobile expenses (including auto mileage, vehicle depreciation); Costs of travel, transportation, lodging and meals; Union dues and expenses; Work clothes and uniforms; Qualifying home office expenses; Dues to a chamber of commerce; Professional dues; Work-related education expenses; Job search expenses; Licenses and regulatory fees; Malpractice insurance premiums; Subscriptions to professional journals and trade magazines; and Tools and supplies used in your work. Note! Generally, employee business expenses reimbursed under an employer’s qualified “Accountable Reimbursement Arrangement” are deductible by the employer (subject to the 50% limit on business meals), and the reimbursements are not taxable to the employee. Planning Alert! Generally, for a reimbursement arrangement to qualify as an “Accountable Reimbursement Arrangement”: The employer must maintain a reimbursement arrangement that requires the employee to substantiate covered expenses; The reimbursement arrangement must require the return of amounts paid to the employee in excess of the amounts substantiated; and There must be a business connection between the reimbursement (or advance) and the business expenses. Caution! If an employer reimburses an employee’s deductible business food and beverage expense under an Accountable Reimbursement Arrangement, the employer could deduct 50% of the food/beverage cost. However, as discussed previously, an employee who is not reimbursed by the employer for the business meal will not get a deduction because un-reimbursed employee business expenses are not deductible by employees (from 2018 through 2025). OTHER SELECTED YEAR-END PLANNING CONSIDERATIONS FOR BUSINESSES IRS Increases Standard Mileage Rates Effective January 1, 2024. The standard mileage deduction rate for deductible business miles was increased from 65.5 cents per mile to 67.0 cents per mile effective January 1, 2024. The charitable mileage rate is still 14.0 cents per mile and the rate for medical and moving mileage dropped to 21.0 cents per mile for 2024. Planning Alert! Be sure to keep proper records for business, medical/moving, and charitable mileage for use as a possible deduction for 2024. Partnerships And S Corporations In Applicable States Should Consider Election To Allow Business To Pay State And Local Income Taxes. From 2018 through 2025 , the aggregate itemized deduction for state and local real property taxes, state and local personal property taxes, and state and local income taxes (or sales taxes if elected) is limited to $10,000 for individuals ($5,000 for married individuals filing separately). As a result, most states have enacted legislation allowing partnerships and S corporations to elect to pay state and local income taxes on the partnership’s or S Corporation’s income. States either give the partners or S Corporation shareholders a state credit or deduction on their personal returns for the state and local tax paid on income reported by the entity. Please give us a call if you would like to know more about your state’s law allowing state and local taxes to be paid by the partnership or S corporation. Consider Simplified Accounting Methods For Certain Small Businesses. The Tax Cuts and Jobs Act (enacted in late 2017) provides the following accounting method relief provisions for businesses with Average Gross Receipts (AGRs) for the Preceding Three Tax Years of $30 Million or Less (for 2024): Generally allows businesses to use the cash method of accounting even if the business has inventories; Allows simplified methods for accounting for inventories; Exempts businesses from applying UNICAP; and Liberalizes the availability of the completed contract method. Planning Alert! The IRS has released detailed regulations and procedures to follow for taxpayers who qualify and wish to change their accounting methods in light of these relief provisions. Please call our firm if you want us to help determine whether any of these simplified accounting methods might be available to your business. Lower Form 1099-K Threshold. The American Rescue Plan Act lowered the exception from filing Form 1099-K by Payment Settlement Entities to gross payments of $600 or less, with no minimum number of transactions. The new $600 reporting threshold was to apply beginning with 2023 transactions. Note! In Information Release 2023-221, the IRS announced: "Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan." Don’t Forget De Minimis Safe Harbor Election To Expense Certain Assets. Making the de minimis safe harbor election on your company’s 2024 return will allow it to expense certain costs paid for assets, materials, and supplies purchased through your company. The safe harbor threshold is $5,000 if your company has a certified, audited financial statement and $2,500 if it doesn’t. Note! The $5,000/$2,500 thresholds are applied to each invoice. FINAL COMMENTS Please contact us if you are interested in a tax topic that we did not discuss. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our Firm closely monitors these changes. In addition, please call us before implementing any planning idea discussed in this letter, or if you need additional information concerning any item mentioned in this letter. We will gladly assist you. Note! The information contained in this material should not be relied upon without an independent, professional analysis of how any of the items discussed may apply to a specific situation. Disclaimer: Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of promoting, marketing, or recommending to another party any transaction or matter addressed herein. The preceding information is intended as a general discussion of the subject addressed and is not intended as a formal tax opinion. The recipient should not rely on any information contained herein without performing his or her own research verifying the conclusions reached. The conclusions reached should not be relied upon without an independent, professional analysis of the facts and law applicable to the situation.

Each year we work to provide you with our year-end planning letter in time to implement possible tax saving strategies before December 31st. As a result, it’s possible Congress could pass new legislation between your receipt of this letter and year-end. Congress has not acted concerning several expiring provisions and extenders, including those introduced by the Tax Cuts and Jobs Act. At this point, it is uncertain whether there will be new legislation after the election and before 2025. Therefore, please contact our firm if you would like an update on possible legislation and how it could affect you. HIGHLIGHTS OF PROVISIONS INCLUDED IN SECURE 2.0 ACT FIRST EFFECTIVE IN 2024 On December 29, 2022, President Biden signed the “Consolidated Appropriations Act, 2023.” In the following summary, we’ve listed a few provisions of the SECURE 2.0 segment of the Consolidated Appropriations Act, 2023, that could impact your 2024 year-end planning. Exceptions From 10% Penalty Tax For Certain “Early Distributions” From Retirement Accounts Exception From 10% Penalty Tax Relating To Federally Declared Disasters. With the recent hurricane disasters, etc., it’s important to note that individuals living in a Federally Declared Disaster may be able to withdraw up to $22,000 from their retirement plan (including an IRA), penalty-free, as a Qualified Disaster Recovery Distribution (QDRD). There is a 180-day window within which the amounts may be withdrawn penalty-free. Even though there is no penalty on the amount withdrawn, the amount withdrawn will generally be included in your income. Exception For Distributions To Domestic Abuse Victims. Distributions from an eligible retirement plan (generally qualified plans, other than defined benefit plans) to a domestic abuse victim will not be subject to the 10% penalty tax if such distributions do not exceed $10,000 during the one-year period ending on the date the distribution is made. A domestic abuse victim is an individual abused by a spouse or domestic partner in a manner that includes physical, psychological, sexual, emotional, or economic abuse, including efforts to control, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household. Note! Employers are not required to allow distributions from an employer-sponsored retirement plan because of domestic abuse. No 10% Penalty Tax On Certain Emergency Personal Expenses “Emergency Personal Expense Distribution.” Any distribution from a retirement plan, other than a defined benefit plan, to an individual to meet unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses will not be hit with the 10% penalty tax. Only one distribution for emergency expenses is allowed per calendar year. Note! An employer is not required to include an “Emergency Personal Expense Distribution” provision in the employer’s retirement plan. Increase In Age For Required Minimum Distributions (RMDs) Required minimum distributions (RMDs) from IRAs and qualified plan accounts were generally required to begin no later than April 1st following the calendar year in which an individual reached age 72. Note! RMDs are now required after 73, for individuals who attain age 72 after 2022. The Act provides: For an individual born after 1950, RMDs are required to begin no later than April 1 following age 73, and For an individual born after 1959, RMDs are required no later than April 1 following age 75. Trustee-To-Trustee Tax-Free Transfer Allowed From 529 Plan To Beneficiary’s Roth IRA A trustee-to-trustee tax-free transfer is allowed after 2023 from a 529 plan to a beneficiary’s Roth IRA without tax or penalty if the following requirements are met: The 529 plan has been maintained for at least a 15-year period ending on the date of the transfer. The amount of transfer to the Roth IRA does not exceed the aggregate amount of contributions and earnings prior to the 5-year period ending on the date of transfer. Transfers for any one taxable year cannot exceed the IRA contribution limitation for the year reduced by the amount of all contributions made to all IRAs maintained for the beneficiary’s benefit during the year. The aggregate of all qualified transfers for the current and all prior years does not exceed $35,000. HIGHLIGHTS OF TRADITIONAL YEAR-END TAX PLANNING Each year, we discuss several traditional year-end tax planning strategies to help reduce taxable income. One of those strategies is reducing current year taxable income by deferring taxable income into later years and accelerating deductions into the current year. This strategy is beneficial when your income tax rate in the coming year is expected to be the same or lower than the current year. Consequently, in the following discussion, we include traditional year-end tax planning strategies that would allow you to accelerate your deductions into 2024 while deferring your income into 2025. Planning Alert! For individuals who expect their 2024 income tax rate to be much lower than their 2025 income tax rate, the opposite strategy might be more advantageous. For example, individuals who have a significant drop in income during 2024, may decide it’s better to accelerate income into 2024 (to be taxed at lower rates), while deferring deductions into 2025 (to be taken against income taxed at higher rates). Tax Benefits Of Above-The-Line Deductions. Traditional year-end planning includes accelerating deductible expenses into the current tax year. So-called “above-the-line” deductions reduce both your “adjusted gross income” and your “modified adjusted gross income,” while “itemized” deductions (i.e., below-the-line deductions) do not reduce adjusted gross income or modified adjusted gross income. Deductions that reduce your adjusted gross income (or modified adjusted gross income) can generate tax benefits for 2024, including increasing your other tax deductions, reducing the phase-out of your tax credits, and improving your eligibility for certain tax-advantaged benefits. The following is a discussion of planning for accelerating above-the-line deductions into 2024: Moving Expenses For Active-Duty Armed Forces Members. Generally, active members of the Armed Forces who move pursuant to a military order because of a permanent change of station may still deduct un-reimbursed qualified moving expenses as above-the-line deductions and may exclude the employer reimbursements of those moving expenses from income. For 2024, an Armed Forces Member may use the standard rate of 21 cents per mile to determine the deduction for automobile expenses related to a qualified move. Contributions To A Health Savings Account (HSA). You may be eligible for an above-the-line deduction for contributions to an HSA if you are covered under a high-deductible health plan during 2024. The maximum deduction for a self-only coverage plan is $4,150 and $8,300 for a family coverage plan. In addition, if you are at least 55 by the end of 2024, you can add $1,000 ($5,150 & $9,300). Student Loan Interest Deduction. The $2,500 maximum deduction is phased out between $165,000 and $195,000 of modified adjusted gross income for filing a joint return ($80,000 and $95,000 if filing single). Caution! The deduction is not allowed to: A taxpayer filing as married filing separately, or A taxpayer who may be claimed as a dependent on someone else’s tax return. Itemized Deductions Although itemized deductions (i.e., below-the-line deductions) do not reduce your adjusted gross income or modified adjusted gross income, they still may provide valuable tax savings if your itemized deductions exceed your standard deduction. For 2024, the Standard Deduction is: Joint Return - $29,200; Single - $14,600; and Head-of-Household - $21,900. The following are ideas for planning with itemized deductions: Medical Expense Deductions. For 2024, you are allowed to take an itemized deduction for medical expenses only to the extent your aggregate medical expenses exceed 7.5% of your AGI. Planning Alert! It may be possible to deduct expenses for your "medical dependent." If you paid medical expenses for a child, parent, etc., who you are unable to claim as a dependent due to their 2024 gross income, please call us so we can determine if these expenses qualify to be reported as medical expenses on your return. $10,000 Cap On State And Local Taxes. From 2018 through 2025, your aggregate itemized deduction for state and local real property taxes, state and local personal property taxes, and state and local income taxes (or sales taxes if elected) is limited to $10,000 ($5,000 for married individuals filing separately). Note! You are still allowed a full deduction for state, local, and foreign property or sales taxes paid or incurred in carrying on your trade or business (e.g., your Schedule C, Schedule E, or Schedule F operations). Limitations On The Deduction For Interest Paid On Home Mortgage “Acquisition Indebtedness.” The Tax Cuts And Jobs Act (TCJA) reduced the dollar cap for Acquisition Indebtedness incurred after December 15, 2017, from $1,000,000 to $750,000 ($375,000 for married filing separately) for 2018 through 2025. Generally, any Acquisition Indebtedness incurred on or before December 15, 2017, is “grandfathered” and will still qualify for the $1,000,000 cap. Planning Alert! If your monthly interest payments during early 2024 will likely exceed $750,000, prepay your January 2025 mortgage interest before December 31, 2024, so you can accelerate the interest deduction portion into 2024. Charitable Contributions. If you want a 2024 deduction for a charitable contribution, it must be “paid” by year-end. For example, if you mail a check to your favorite charity by December 31, 2024, it will be deductible in 2024. However, if you merely give a note or a pledge to a charity, no deduction is allowed until you pay the note or pledge. Planning Alert! If you are considering a significant 2024 contribution to a qualified charity, it will generally save you taxes if you contribute appreciated long-term capital gain property, rather than selling the property and contributing the cash proceeds to the charity. By contributing capital gain property held more than one year, a deduction is generally allowed for the full value of the property, but no tax is due on the appreciation. Casualty Losses. From 2018 through 2025, the itemized deduction for personal casualty losses and theft losses has been suspended. Note! Personal casualty losses generally continue to be deductible to the extent the taxpayer has personal casualty “gains” for the same year. In addition, casualty losses with respect to property held in a trade or business or for investment are still allowed. Planning Alert! Personal casualty losses attributable to a Federally declared disaster continue to be deductible. If you have a casualty or theft loss resulting from a federally declared disaster, you have the option of taking the loss in the tax year of the loss or the tax year prior to the loss. Postponing Taxable Income May Save Taxes. Generally, deferring taxable income from 2024 to 2025 may also reduce your income taxes if your effective income tax rate for 2025 will be lower than your effective income tax rate for 2024. Moreover, deferring income from 2024 to 2025 may provide you with the same tax benefits of accelerating deductions into 2024. Planning Alert! The deferral of income could cause your 2024 taxable income to fall below the thresholds for the highest 37% tax bracket (i.e., $731,201 for joint returns; $609,351 if single). If you have income subject to the 3.8% Net Investment Income Tax (3.8% NIIT) and the income deferral reduces your 2024 modified adjusted gross income below the thresholds for the 3.8% NIIT (i.e., $250,000 for married filing joint, $125,000 for married filing separate, and $200,000 for all others), you may avoid this additional 3.8% tax on your investment income. In addition, if you reduce your modified adjusted gross income below the NIIT thresholds above, you may not be subject to the additional Medicare tax of 0.9% on your wages and/or self-employment income. Planning Alert! If you are a self-employed individual using the cash method of accounting, consider delaying year-end billings to defer income until 2025. Remember, if you receive the check in 2024, deferring the deposit of the check until 2025 does not defer the income. Caution! You may not want to defer billing if you believe this will increase your risk of not getting paid. TAX PLANNING FOR INVESTMENT INCOME Planning With The 3.8% Net Investment Income Tax (3.8% NIIT). The 3.8% NIIT applies to the Net Investment Income of higher-income individuals. This tax applies to individuals with modified adjusted gross income (MAGI) exceeding $250,000 for married filing jointly; $200,000 if filing as single or head of household; or $125,000 for married filing separately. The 3.8% NIIT is imposed on the lesser of an individual’s net investment income or the amount by which the individual’s MAGI exceeds the thresholds above. Planning Alert! The NIIT applies to interest, dividends, annuities, royalties, rents, and income from passive activities. The 3.8% NIIT will not apply to your tax-exempt income, such as tax-exempt bond interest. Traditional Year-End Planning With Capital Gains And Dividends. For individuals filing a joint return with 2024 taxable income of less than $94,051 (less than $47,026 if single), their long-term capital gains and qualified dividends are taxed at a zero percent rate. The zero percent rate for long-term capital gains and qualified dividends is particularly important to lower-income retirees who rely largely on investment portfolios that generate dividends and long-term capital gains. Planning Alert! If you have substantial capital loss carryforwards coming into 2024, consider selling enough appreciated securities before the end of 2024 to decrease your net capital loss to $3,000. In most cases, you should sell the short-term gain (held 12 months or less) securities first. This allows your net capital loss (in excess of $3,000) to offset your short-term capital gain, while preserving favorable long-term capital gain treatment for later years. CONSIDER RECENT CHANGES TO IRAS AND QUALIFIED RETIREMENT PLANS Final RMD Regulations Keep 10-Year Rule When Account Owner Dies On Or After The Required Beginning For Taking Distributions. The 2024 final regulations do not modify the interpretation of the 10-year rule as provided in the proposed regulations. However, the final regulations do not require distributions that were not made in 2021, 2022, 2023, or 2024, pursuant to the relief provided in IRS Notices to be made in a catch-up distribution in 2025. Only the distribution that would otherwise have been required for 2025 will be required for 2025. However, any remaining balance remaining in the account owner’s account must be distributed to beneficiaries in that 10th year. SELECTED MISCELLANEOUS YEAR-END PLANNING CONSIDERATIONS Contributing The Maximum Amount To Your Traditional IRA. If you are married, even if your spouse has no earnings, you can generally deduct in the aggregate up to $14,000 ($16,000 if you are both at least age 50 by the end of the year) for contributions to you and your spouse’s traditional IRAs. You and your spouse must have combined earned income at least equal to the total contributions. However, no more than $7,000 ($8,000 if at least age 50) may be contributed to either your IRA account or your spouse’s IRA account for 2024. If you are an active participant in your employer’s retirement plan during 2024, your IRA deduction is reduced ratably as your adjusted gross income increases from $123,000 to $143,000 on a joint return ($77,000 to $87,000 on a single return). However, if you file a joint return with your spouse and your spouse is an active participant in his or her employer’s plan and you are not an active participant in a plan, your IRA deduction is reduced as the adjusted gross income on your joint return grows from $230,000 to $240,000. Caution! Every dollar you contribute to a deductible IRA reduces your allowable contribution to a nondeductible Roth IRA. Contributing The Maximum Amount To Your 401(k). Participants have until December 31st to contribute to their 401(k). For 2024, the maximum contribution amount is $23,000 ($30,500 if at least 50 years old). Contributions to your 401(k) will reduce your current taxable income and add to your retirement savings. The 20% 199A Deduction For Qualified Business Income. Don’t overlook the 20% Deduction under Section 199A with respect to “Qualified Business Income,” “Qualified REIT Dividends,” and “Publicly-Traded Partnership Income.” The 20% 199A deduction does not reduce your adjusted gross income or impact your calculation of self-employment tax. Instead, the deduction simply reduces your taxable income. The 20% 199A Deduction is allowed in addition to your itemized deductions or your standard deduction. Note! The 20% 199A Deduction is set to expire after 2025! Consider Paying Qualified Education Expenses Early To Increase Education Tax Credits. If you pay educational expenses for 2024, you may be able to take advantage of either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit. The $2,500 AOTC applies to qualified education expenses for the first four years of higher education for an eligible student. Energy Credits For Vehicles. If you purchased a new or used electric, hybrid, or fuel cell vehicle during 2024, you may qualify for a credit. For qualifying new personal use vehicles, the credit can be up to $7,500. For used vehicles, the credit can be up to $4,000. Unfortunately, determining if a vehicle qualifies for these credits is complicated. So, if you acquired an electric, hybrid, or fuel cell vehicle during 2024, please retain the documentation provided by the dealer so we can determine if you qualify for either of these credits. Note! You will not get an additional credit if you received the credit directly or indirectly from the dealer. Credits For Energy Efficient Home Improvements. If you installed energy-efficient insulation, doors, windows, skylights or energy-efficient heat pumps, air conditioners, furnaces, water heaters, or boilers in your residence during 2024, you may qualify for a credit of up to $3,200 if certain energy-efficient standards are met. Also, you may be eligible for a credit of 30% of the cost of solar panels, solar water heaters, geothermal heat pump property, and wind turbines installed in your residence during 2024. Gift And Estate Tax Planning. For 2024, a donor can gift $18,000 to each donee. It is not a taxable gift to the donor and gifts are not included in the recipient’s income. Each taxpayer’s amount of unified credit used against gift tax or estate tax is $13,610,000 for 2024. Planning Alert! Using the annual gift tax exclusion is an effective tool to move assets out of your estate without creating any gift tax or using any of a donor’s unified credit amount. Trust And Estate Distributions. If you are the trustee of certain trusts or executor of an estate, don’t forget that fiduciary entities may distribute the trust’s distributable net income within the first 65 days of 2025 and treat it as distributed in 2024. The tax is imposed at the trust level unless the income has been distributed to the beneficiary. To the extent the distribution is treated as paid to the beneficiary, the income is taxed at the beneficiary’s tax rate, which is generally lower than the tax rates that apply to most trusts. If your trust or estate is affected by this rule, please call our firm, and we can help you determine whether it would be tax-effective to distribute income before the election has been made. Adjusting Your Tax Withholding To Avoid Surprises. If you want to avoid an unexpected tax liability and possible penalties and interest in 2025, it’s a good idea to revisit your withholding and estimated tax payments before year-end. The IRS encourages taxpayers to use its Tax Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator to ensure they have the correct amount of taxes paid-in before December 31st. Planning Alert! It is especially important to review your withholding if you have had a job change, additional income stream, marriage, divorce, loss of dependent, or other significant event occur during 2024. If you believe your tax liability has been affected because of a significant event, please call our firm so we can discuss. FINAL COMMENTS Please contact us if you are interested in a tax topic that we did not discuss. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our Firm closely monitors these changes. In addition, please call us before implementing any planning ideas discussed in this letter, or if you need additional information. Note! The information contained in this material should not be relied upon without an independent, professional analysis of how any of the items discussed may apply to a specific situation. Disclaimer: Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of promoting, marketing, or recommending to another party any transaction or matter addressed herein. The preceding information is intended as a general discussion of the subject addressed and is not intended as a formal tax opinion. The recipient should not rely on any information contained herein without performing his or her own research verifying the conclusions reached. The conclusions reached should not be relied upon without an independent, professional analysis of the facts and law applicable to the situation.