There’s plenty to talk about today, so let’s dig in…
Fully Fund Retirement Plans
This should go without saying, but please make sure that your retirement plans are fully funded. If you don’t have one, get one. Your retirement will come quickly.
Tax Loss Harvesting
Sell any bad securities before the end of the year so that they can help with 2024.
Funding College Expenses
If possible, this should occur in 2024. If you make the payments in 2025, it will not help with this return.
Gifting Stock to Children
You are allowed a gift tax exclusion of up to $18,000 per individual. Gifting stock to your inheritors under this amount can help with a potential estate tax issue.
Credit for Small Employer Health Insurance Premiums
A credit of up to 50% is available to offset the cost of providing insurance coverage to employees. It is calculated by applying the percentage of employer-paid insurance premiums and is subject to phase out limits based upon the number of full-time employees (FTE) and wages paid.
The full amount of the credit is available if you have up to 10 FTE’s. It phases out between 11 and 24 FTE’s, and is unavailable after 25 FTE’s. There are many other restrictions. This is an example of a tax savings bill that’s almost impossible for most businesses to claim.
Net Investment Income Tax – Medicare Tax
Still in place is the additional tax on Net Investment Income. This is an additional tax on net passive or investment income above the thresholds, which are…
1 – Married Filing Joint or Qualifying Widower – $250,000
2 – Married Filing Separate – $125,000
3 – Single or Head of Household – $200,000.
If your income exceeds these thresholds and you have investment income, then either all or a portion of your net investment income will be subject to a 3.8% Medicare Tax.
These rules apply to rental income as well. Again this is based upon Net Investment Income after the normal and reasonable deductions for the production of this income have been deducted. It does not include:
1 – Wages
2 – Unemployment Benefits
3 – Net Operating Income from a Non-Passive Business
4 – Social Security Benefits
5 – Alimony
6 – Tax exempt Interest
7 – Employment Income
8 – Qualified Plan Distributions
This additional Medicare Tax is also imposed on taxpayers with W-2 wages and Self Employment Income above the same stated threshold limits.
In other words, once you get past these limits, instead of paying 2.9% in Medicare, it becomes 3.8%. This additional tax will be particularly harmful to partnerships whether filing on a Schedule C or a flow through from a 1065.
If you have an employee with wages above these thresholds, there is no employer matching. This is strictly an employee tax.
Let me leave you with this…
The Internal Revenue Service (IRS) has again extended the enforcement date of the $600 threshold for 1099-K reporting. I mentioned this in a prior communication but think that it needs a little elaboration.
The reporting threshold was $20K in prior years. In other words, if you did less than $20K in credit card sales, in prior years you probably wouldn’t have received a 1099-K.
But that threshold for this year is being reduced to $5K. In 2025, it will become $2,500 and in 2026 it goes down to the originally intended $600.
This may come as quite a shock to many, who have operated smaller internet businesses. Although all of your income is taxable no matter what the total number happens to be, in prior years much of it wasn’t reported to the government.
But now it will be.
Keep track of your deductible expenses and be able to provide proof. Whether the are in the form of a cancelled check, a credit card transaction, or a cash receipt marked paid, we will need them to provide deductions. We don’t want you to pay even a nickel more in tax than is absolutely necessary.
This is the eighteenth column in my series trying to get our clients ready for their December Tax Planning Sessions.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.SalarySolutions.net
www.AccountingSolutionsLtd.com
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.