Tax Update
Tax Update
TAX PLANNING AND COMPLIANCES FOR 2024
Standard Deduction for 2024:
The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024 and for heads of households, the standard deduction will be $21,900 for tax year 2024.
Healthcare FSA Contribution: All taxpayers who chooses to participate in an FSA can contribute up to $3,200 through payroll deductions. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. They may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.
HSA Contribution:
Maximize your contributions in HSA account if you have enrolled in high deductible health insurance plan (HDHP). Contribution limits for Individuals $4,150 for self only (HDHP) coverage. For family coverage the limit is $8,300. Catch up Contribution limit is additional $1,000 for individuals who are 55 or older.
401(k) Contributions:
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 $23,000, up from $22,500 in 2023. Maximize 401k contributions on payroll.
IRA Contribution:
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 2024.
Foreign Earned Income Exclusion:
In 2024, US Individual living abroad can exclude up to $126,500 of foreign earned income if the taxpayer’s home is in a foreign country and taxpayer satisfies either the Bonafide residence test or the physical presence test.
Capital Gains –
Wash sale Rules
– Wash sale rules do not apply for crypto currency because crypto currency is not a security. Since wash sale rules do not apply, owners can sell their crypto currency at a loss, lock the loss amount to apply against the taxpayer’s other capital gains and then purchase the same crypto currency at the reduced rate without waiting for 30 days or so.
Earned Income Tax Credit:
The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023.
Clean Vehicle Credit:
Applies to new four-wheel vehicles placed in service after December 31, 2002, and sunsets at the end of 2032. Maximum amount is $7,500 per qualified vehicle if the vehicle’s critical materials and battery components are manufactured, processed, extracted or produced in US or in countries with which US has entered a free trade agreement. For new vehicles, dealers must provide buyers with form 15400 Clean Vehicle Seller’s report if the vehicle qualifies for the credit. The credit also depends on the taxpayers modified AGI (Adjusted gross income) limits.
Energy Efficient Home Improvement Credit:
Available through 2032 for various home improvements. Credit equals to 30% of qualified expenses with limitations. Overall credit limits to $3,200with no lifetime limit.
Residential Clean Energy Credit: Equals 30% of the cost of new, qualified clean energy property for your home installed anytime from 2022 through 2032.
529 Plan Rollovers to ROTH Accounts: Individuals who have maintained Sec 529 accounts for at least 15 years can make direct trustee to trustee rollover from sec 529 plan to beneficiary’s ROTH IRA effective for distributions made after December 31, 2023. This rollover will count towards the taxpayer’s annual IRA contribution limits ($7,000 for 2024 for taxpayers under age 50). Rollovers from sec 529 plan are subject to an aggregate lifetime limit of $35,000 per beneficiary.
Annual Gift Exclusion:
Limit is $18,000 for 2024. Gift of tuition and medical expenses paid directly to the school or medical care provider do not count towards the annual gift limit.
Estate & Trust Taxes:
Unified Exclusion amount for 2024 is $13.61 million.
Charitable Contributions:
Taxpayers can deduct charitable contributions up to 60% of their Adjusted Gross Income.
State Filing Requirements: Businesses registered in CA, please check the requirements for filing statement of Information with Secretary of State.
Noncompliance can lead to suspension of the entity.
Business Registered in other States:
Please check for any other ongoing filing requirements and do the needful.
Estimated Tax Payments:
Deadline for last quarter estimated tax payments are January 15, 2025.
Beneficial Ownership Information Reporting (BOIR): Starting January 1, 2024 all LLC, S Corp, C Corp (with some exceptions) and all other entities that file formation papers with a state’s Secretary of State’s office (or similar government agency) must file BOI Report to FinCEN by January 1, 2025. Businesses created or registered to do business in 2024 must file their initial beneficial ownership information (BOI) Report to FinCEN within 90 days of formation. Businesses formed after December 31, 2024 have 30 days to register on BOIR. This is online filing. It requires reporting the names and other information about the people who own or control the company. There are heavy penalties and fines for non-reporting the information.
Recent Update on BOIR: Please note that beneficial ownership information reporting requirements have been affected by a recent federal court order on December 3, 2024. The Department of the Treasury is appealing that order. In the meantime, reporting companies are not currently required to file a BOIR and are not subject to liability if they fail to do so while the applicable order remains in force.
However, reporting companies may still opt to file a BOIR.
More information is available on website https://www.fincen.gov/boi
Foreign Account Tax Compliance Act (FATCA)
Foreign Income to be reported on US Tax Return
US Citizens, Resident Aliens and those who have substantial presence in US for any given year, need to report their worldwide income on US Tax Return.
FBAR Return- FINCEN 114
Taxpayers with an interest in, or signature or other authority over, foreign financial account/s whose aggregate value exceeded $10,000 at any time during the year generally must file FINCEN-114 with US Treasury. This return must be filed before 15th April. There is a provision of automatic extension for another six months for filing.
For more information, please visit, http://bsaefiling.fincen.treas.gov/docs/FBAR_EFILING_FAQ.pdf
Reporting Foreign Financial Assets and Accounts:
Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets (as described below). This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114. For Taxpayers living in US and filing married filing Joint income tax return, they need to report on Form 8938; if the total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Online IRS account:
We recommend setting up your own IRS online account. You can view your account status, make payments of estimated tax/tax due, view past payments, IRS transcripts, letters and notices issued by IRS.
Identity Theft measures:
Starting 2021, all taxpayers can register for an Identity Protection PIN, which is a six digit number assigned by IRS every year to each filer which shall be used on your Tax Return. This will prevent filing of fraudulent returns using your Social Security Number. This is a voluntary program. Earlier this program was available only to identity theft victims. You can register for an IP PIN at https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin. Once enrolled, any Income tax returns filed either by paper or electronically will be rejected by the IRS unless correct six-digit pin is reported on your income tax return.
For any questions, please contact us at TaxSupport@kgcpainc.com
