Blog – Larson Accounting Group

18 de November de 2024

The Internal Revenue Service reminds individual retirement arrangement (IRA) owners age 70½ and older that they can make up to $105,000 in tax-free charitable donations during 2024 through qualified charitable distributions. That’s up from $100,000 in past years.

For those age 73 or older, qualified charitable distributions (QCDs) also count toward the year’s required minimum distribution (RMD).

Generally, IRA distributions are taxable, but QCDs remain tax-free if sent directly to a qualified charity by the trustee. To make a QCD for 2024, IRA owners should contact their IRA trustee soon to ensure the transaction completes by year-end.

Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs don’t require itemizing deductions.

For those planning ahead, starting this year, the QCD limit is subject to annual adjustment, based on inflation. For that reason, the annual QCD limit will rise to $108,000 in 2025.

Reporting and documenting QCDs

For 2024, QCDs should be reported on the 2024 tax return. IRA trustees will issue Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in early 2025 documenting IRA distributions.

The full amount of any IRA distribution goes on Line 4a of Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors. Enter “0” on Line 4b if the full amount is a QCD, marking it as such.

Donors must obtain a written acknowledgement from the charity showing the contribution date, amount and confirmation that no goods or services were received.

For more details, see Publication 526, Charitable Contributions, and Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Source: IRS-2024-289, Nov. 14, 2024

by Larson Accounting

14 de November de 2024

The Internal Revenue Service will sponsor a free one-hour webinar designed to help the many businesses that must report their beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network.

Because this is not an IRS or tax-related requirement, FinCEN representatives will conduct the webinar on this new anti-money laundering provision. The webinar will take place on Tuesday, Nov. 19, 2024, beginning at 2 p.m. ET.

Many companies created or registered to do business before Jan. 1, 2024, must e-file their initial beneficial ownership information (BOI) to FinCEN by Jan. 1, 2025. In general, this means reporting the names and other information about the people who own or control the company. Exceptions and special rules apply.

During this free webinar, FinCEN will:

Explain the Corporate Transparency Act.
Provide Beneficial Ownership reporting resources.
Analyze the BOI reporting requirement using the Small Entity Compliance Guide.
Describe what happens if a company does not timely report BOI to FinCEN.

The webinar will also feature a live question-and-answer session. Though primarily aimed at tax professionals, anyone is welcome to attend.

Certificates of completion will be offered, but no continuing education credits are available for this webinar. Closed captioning will also be offered.

Time: 2 p.m. (Eastern); 1 p.m. (Central); 12 p.m. (Arizona and Mountain); 11 a.m. (Pacific); 10 a.m. (Alaska); 9 a.m. (Hawaii and Aleutian) time zones.

Registration: Visit the Internal Revenue Service webinar website. Questions about the webinar can be emailed to the web conference team.

For more information about the BOI reporting requirement, including FAQs and a five-minute video illustrating how to file, visit FinCEN’s BOI page.

Source: IRS-2024-288, Nov. 12, 2024

by Larson Accounting

5 de November de 2024

The Internal Revenue Service announced today that the amount individuals can contribute to their 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024.

The IRS today also issued technical guidance regarding all cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025 in Notice 2024-80 PDF, posted today on IRS.gov.

Highlights of changes for 2025

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

The limit on annual contributions to an IRA remains $7,000. 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 2025.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

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 2025.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the 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 2025:

For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $79,000 and $89,000, up from between $77,000 and $87,000.
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 $126,000 and $146,000, up from between $123,000 and $143,000.
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 $236,000 and $246,000, up from between $230,000 and $240,000.
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 taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000. 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 $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for singles and married individuals filing separately, up from $38,250.
The amount individuals can generally contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000. Pursuant to a change made in SECURE 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts. For 2025, this higher amount remains $17,600.
The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most SIMPLE plans remains $3,500 for 2025. Under a change made in SECURE 2.0, a different catch-up limit applies for employees aged 50 and over who participate in certain applicable SIMPLE plans. For 2025, this limit remains $3,850. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Details on these and other retirement-related cost-of-living adjustments for 2025 are in Notice 2024-80 PDF, available on IRS.gov.

Source: IRS-2024-285, Nov. 1, 2024

by Larson Accounting

30 de October de 2024

As National Cybersecurity Awareness Month concludes and preparation for next tax season begins, the Internal Revenue Service and its Security Summit partners today reminded taxpayers to be wary of online threats like identity theft and fraud.

Whether shopping online or browsing social media, people unfamiliar with online security could be putting themselves at risk. Lax online behavior can open the door to swindlers eager to swipe people’s personal information and leave themselves vulnerable to tax-related identity theft.

The IRS and Security Summit alert taxpayers to remain vigilant and to teach children and teens how to recognize and avoid online scams to minimize their chances of falling prey or unwittingly exposing their families to identity theft and tax fraud.

The public-private sector partnership encourages everyone to be aware of the many security vulnerabilities they face online and to review a wide range of resources available to them as October’s National Cybersecurity Awareness Month draws to a close.

Members of the Security Summit – a coalition that includes tax software and financial companies, tax professionals, state tax administrators and the IRS – also offer multiple online safety recommendations to protect taxpayers from tax-related identity theft.

Online safety tips

Options to help protect against cybersecurity attacks include:

Recognize scams and report phishing. It’s important to remember that the IRS does not use unsolicited email and social media to discuss personal tax issues, such as those involving tax refunds, payments or tax bills. Don’t reply, open any attachments or click any links. To report phishing, send the full email headers or forward the email as is to phishing@irs.gov; do not forward screenshots or scanned images of emails because this removes valuable information. Then delete the email.
Protect personal information. Refrain from revealing too much personal information online. Birthdates, addresses, age and financial information, such as bank accounts and Social Security numbers, are among things that should not be shared freely. Encrypt sensitive files such as tax records stored on computers.
Use strong passwords. Consider using a password manager to store passwords.
Enable multi-factor authentication (MFA). Use this for extra security on online accounts.
Use and update computer and phone software. Enable automatic updates to install critical security updates, including anti-virus and firewall protections.
Use a VPN. Criminals can intercept personal information on insecure public Wi-Fi networks. Individuals are encouraged to always use a virtual private network (VPN) when connecting to public Wi-Fi.

Source: IRS-2024-283, Oct. 28, 2024

by Larson Accounting

25 de October de 2024

The Department of the Treasury and the Internal Revenue Service today issued final regulations to provide guidance for the Advanced Manufacturing Production Credit established by the Inflation Reduction Act of 2022 (IRA).

The Advanced Manufacturing Production Credit provides a tax credit for the production and sale of statutorily specified eligible components to unrelated persons. Such eligible components include solar and wind energy components, inverters, qualifying battery components and 50 applicable critical minerals. The eligible components must be produced in the United States or a territory of the United States.

Generally, the final regulations define qualifying production activities, provide rules for the sale of eligible components to unrelated persons as well as special rules that apply to sales between related persons, and provide rules to address contract manufacturing scenarios.

The final regulations also provide definitions of eligible components, rules related to calculating the credit, including eligible production costs, and specific recordkeeping and reporting requirements.

More information about IRA guidance may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Source: IRS-2024-281, Oct. 24, 2024

by Larson Accounting

22 de October de 2024

The days of the individual retirement account “stretch” are long gone. But the appeal of Roth conversions is enduring — especially under the current tax rates.

Expiring provisions of the Tax Cuts and Jobs Act at the end of 2025 that mean lower taxes on the conversion, the fact that Roth IRAs carry no required minimum distributions and, of course, the duty-free withdrawals for the owner or their heirs add up to a compelling case, according to Sarah Brenner, the director of retirement education with consulting firm Ed Slott & Company. The first Secure Act was a “game-changer for IRAs and Roth IRAs” due to the new obligation for beneficiaries to empty the accounts within a decade of inheritance, and Secure 2.0 “made some changes around the edges,” she said in an interview.

The situation for traditional IRA owners is “kind of like ripping off a Band-Aid,” in which they should just “get the pain over with,” Brenner said, pointing out that clients often have a misconception that “you’ve got to do it all” even though “it’s not all-or-nothing” because they could simply do a partial conversion as well.

“The Secure Act changed the game, and it has definitely led to, I would say, an even stronger case for Roth conversions,” she added. “You work with the rules you have, and you have a 10-year rule.”

After four straight years of pushing back the implementation of that rule, the IRS has indicated that it will be going into effect at the beginning of 2025. Next year was already going to turn into one of the most consequential for tax policy in recent decades because of the possible sunset of the lower tax brackets and many other parts of the Tax Cuts and Jobs Act that will be high on the agenda for the next occupant of the White House and lawmakers in control of Congress.

Tax experts have been extolling the continued virtues of Roth conversions since passage of the first Secure Act in 2019.

“Though considerations around Roth IRA conversions have changed as a result of the Secure Act, Roth IRAs still offer advantages to account owners and beneficiaries,” certified public accountant and planner Joseph Doerrer wrote the following year in the Journal of Accountancy. “Roth IRAs are tax advantaged, and owners of Roth IRAs aren’t required to take RMDs. This can prove helpful in retirement, as it allows a larger amount of assets to remain in the account. Not having to take RMDs can also help account owners avoid creating unwanted taxable income, giving them more flexibility in retirement. Beneficiaries will enjoy a simpler tax situation, versus beneficiaries of traditional IRAs, due to the tax-free nature of their distributions from the account.”

The politics that led to more tax revenue flowing into federal coffers are now affecting personal financial decisions among advisors and their clients in the wake of the two Secure Acts, Sheryl Rowling, a CPA, planner and technology firm founder, wrote last year for Morningstar.

“Now is the time to do Roth conversion planning,” Rowling said. “By delaying retirement distributions, your clients can have additional years to convert IRA funds to Roth at lower tax rates. These changes all seem to encourage, even require, a greater emphasis on Roth rather than pretax retirement contributions. Although this means more money to the IRS as contributions (or conversions) are made, the opportunity to permanently exclude future growth (and previously taxed principal) from taxation, coupled with the elimination of RMDs, should be a big win for taxpayers in the long run.”

The Roth conversion offers a “huge advantage” over traditional accounts in that clients “never need to take RMDs from their Roth IRAs when they’re alive,” Brenner noted. For those inheriting Roth accounts, their “very compressed timeline” to empty the IRAs within a decade is arriving alongside distributions that won’t have an effect on their taxable income, she said.

“I could just let that Roth IRA sit there and grow for 10 years and then everything would be accessible to me tax- and penalty-free. This is the type of proactive planning that people can be doing. Right now, we have historically low tax rates. We don’t know how long that’s going to last,” Brenner said. “It’s a good time for people to be thinking about converting their taxable traditional IRAs.”

For advisors and their clients, the decision comes down to a simple calculation that the “money is going to be taxed at some point,” she noted.

“You are going to have to pay a tax bill when you convert. No one likes paying taxes unless they absolutely have to,” Brenner said. “Somebody at some point is going to have to pay taxes, so it’s good to do it on your schedule.”

Source: AccountingToday

by Larson Accounting

17 de October de 2024

Scammers are using fake charities in the wake of Hurricanes Milton and Helene to harvest personal and financial data from unsuspecting taxpayers.

“You should never feel pressured by solicitors to immediately give to a charity,” said Commissioner Danny Werfel in a statement from the IRS, which issued the warning. “Verify if they’re authentic first.”

Tips to verify charities and spot fake ones:

Scammers frequently use names that sound like well-known charities to confuse people. Fake charity promoters may also use bogus emails or fake websites or alter or “spoof” their caller ID to make themselves look like a real charity. Ask the fundraiser for the charity’s name, website and mailing address. Check the Tax-Exempt Organization Search tool on IRS.gov to help find or verify legitimate charities.
Never work with charities that ask for donations by giving numbers from a gift card or wiring money. It’s safest to pay by credit card or check, and only after verifying the charity is real.
Scammers want both money and personal information. Never disclose Social Security numbers, credit card numbers or personal identification numbers
Scammers often pressure people into making an immediate payment. In contrast, legitimate charities are happy to get a donation at any time.

The IRS has other background on its Charity and Disaster Fraud page.

Source: Accounting Today
Picture: Tristan Wheelock/Bloomberg

by Larson Accounting

16 de October de 2024

The IRS is processing 400,000 claims from the pandemic-era employee retention credit (ERC) that represent about $10 billion of eligible filings, the agency said Thursday in a news release (IR-2024-263).

“In recent weeks, the IRS has made substantial progress in separating eligible claims from the wave of ineligible claims that have come in, and we continue working to refine our models to identify more eligible claims,” IRS Commissioner Danny Werfel said in the release.

To help speed processing, the IRS announced last month the opening of a consolidated claim process to help third-party payers and their clients resolve incorrect ERC claims.

In addition to processing valid claims, the IRS said it is denying improper ERC claims, intensifying audits, and pursuing civil and criminal investigations of potential fraud and abuse. The findings of an IRS review, announced in June, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims in the IRS inventory.

ERC background

The ERC was designed to help certain businesses continue paying employees during the COVID-19 pandemic while their operations were either fully or partially suspended due to a government order or when they had a significant decline in gross receipts during the eligibility periods. It was generally available to eligible businesses from March 31, 2020, to Sept. 30, 2021, and to Dec. 31, 2021, for recovery startup businesses.

Voluntary disclosure program remains open

The IRS reminded businesses that already received ERC payments to recheck eligibility requirements and consider the second Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) to resolve incorrect claims without penalties or interest.

The second VDP, which runs through Nov. 22, allows businesses to correct improper payments at a 15% discount and avoid future audits, penalties, and interest.

By Martha Waggoner

by Larson Accounting

14 de October de 2024

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In the wake of the devastating hurricanes that have ravaged Florida and the Southeast in recent weeks, the Internal Revenue Service today reassured victims that it stands ready to provide the tax-related assistance they need to recover from these storms.

IRS.gov has a variety of information to help disaster victims navigate common situations in the aftermath of disasters. The IRS also has a special hotline specifically dedicated to taxpayers with disaster-related tax questions; disaster victims can call the agency’s disaster hotline at 866-562-5227.

Here is a rundown on tax help available from the IRS.

More time to file and pay

The IRS automatically gives taxpayers whose address of record is in a disaster-area locality more time to file returns and pay taxes. Taxpayers get the extra time without having to ask for it.

Currently, taxpayers in the entire states of Alabama, Florida, Georgia, North Carolina and South Carolina, and parts of Tennessee and Virginia, who received extensions to file their 2023 returns have until May 1, 2025, to file. Tax-year 2023 tax payments are not eligible for this extension. In addition, May 1 is also the deadline for filing 2024 returns and paying any tax due.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.

This page also provides disaster updates and links to resources, and information is usually available on the IRS Twitter (now X) account as well.

Disaster payments usually tax-free

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents. See Publication 525, Taxable and Nontaxable Income, for details.

Retirement plan help

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

Disaster loss deduction may be available

In some instances, individuals and businesses in a federally-declared disaster area can qualify for a casualty loss tax deduction. The deduction is available for damaged or destroyed property not covered by insurance or other reimbursement and can result in a larger refund.

A unique feature of this deduction is that taxpayers can choose to claim it on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the prior year

(the 2023 return filed this year). For individual taxpayers, the deadline for making this election is Oct. 15, 2025.

If deductions exceed a taxpayer’s income, it can result in a net operating loss (NOL). A taxpayer need not have a business to have a NOL from a casualty. A NOL can normally be carried forward and deducted in a future tax year. See Publication 547, Casualties, Disasters, and Thefts and Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, for details.

Free tax transcripts available

The IRS reminds anyone whose tax records were lost or destroyed, or who needs tax records to apply for disaster assistance that they can get a free transcript of their returns from the IRS. Immediate access to these transcripts is available through the Get Transcript link on IRS.gov. Alternatively, taxpayers can use Get Transcript to request that transcripts be mailed to them. They can also call 800-908-9946 to request mail delivery or submit Form 4506-T, Request for Transcript of Tax Return.

As a reminder, taxpayers must have filed all required tax returns in order to qualify for disaster loans or grants for business owners, homeowners and renters from the Small Business Administration.

Free copy of tax return

Disaster-area taxpayers can get a free copy of their tax return by filing Form 4506, Request for Copy of Tax Return. The IRS waives the usual fees and expedites requests for copies of returns for people who need them to apply for disaster-related benefits or to file amended returns claiming disaster-related losses. To speed processing, be sure to notate that this is a disaster-related request and list the state and type of event.

Address change

After a disaster, people might need to temporarily relocate. Those who move should notify the IRS of their new address by submitting Form 8822, Change of Address.

Disaster hotline

Taxpayers with disaster-related tax questions can call the agency’s disaster hotline at 866-562-5227.

Taxpayers should also call this number if they live outside the disaster area but believe they qualify for a disaster-related extension or deadline postponement. This might be true, for example, if their records necessary to meet a deadline occurring during the postponement period are located in the affected area. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

More information

The IRS encourages affected taxpayers to review all federal disaster relief at DisasterAssistance.gov.

Here are other helpful IRS resources:

Source: IRS-2024-266, Oct. 11, 2024

by Larson Accounting

9 de October de 2024

The Department of the Treasury and the Internal Revenue Service today issued proposed regulationsaddressing the federal tax classification of corporations or LLCs that are owned entirely by Indian Tribal governments (Tribes) and formed under the laws of the Tribes that own them. Generally, entities formed under the laws of a Tribe are known as Tribal law entities.

During discussions with the Treasury Tribal Advisory Committee, Tribes have requested guidance on the federal tax classification of Tribal law entities entirely owned by Tribes. The importance of Tribal sovereignty and self-determination that was raised during these discussions resulted in the Treasury and IRS proposing to amend the rules on entity classification. Under the proposed regulations, Tribal law entities that are entirely owned by Tribes would not be recognized as separate entities for federal tax purposes and would not be subject to federal income tax.

The proposed regulations would also clarify that Tribal law entities entirely owned by Tribes may receive the value of certain energy credits under the Inflation Reduction Act.

Until the final regulations are published in the Federal Register, Tribes and related entities may generally rely on these proposed regulations. The proposed regulations contain definitions and examples, including an example that illustrates the federal tax classification of an entity entirely owned by multiple Tribes.

Treasury and IRS encourage interested parties to submit comments on this guidance through Regulations.gov. Please indicate IRS and REG-113628-21 in the submission. Also, written comments may be mailed to CC:PA:01:PR (REG-113628-21) Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

A public hearing has been scheduled for Jan. 17, 2025.

Source: IRS-2024-261, Oct. 7, 2024