Ref: IRS Tax Tip 2025-04 / Secure 2.0 Act

This IRS is reminding those in the Los Angeles County disaster are that they can:

1. Take up to $22,000 from their retirement without penalty (it will still be taxed)
2. Include that amount in their tax return over three years (up to $7,333 per year) OR
3. Repay the amount to the retirement account over three years.

Who qualifies:

1. Those displaced from their principal residence OR
2. Those who had damage to their principal residence OR
3. Those who lost income due to temporary or permanent layoff

Ref: Federal disaster declared Jan 8, 2025

On January 8, 2025, President Biden signed a major disaster declaration for the Los Angeles County wildfires.

If you experience a loss (after insurance settlement) you can claim a casualty loss on BOTH your federal and California returns. This is a complex calculation. Clients effected should contact us for more information. [Note that casualty losses NOT in a federal disaster area can be claimed only on the California return under current tax law].

Ref: Corporate Transparency Act

NEW DEADLINE IS JANUARY 13, 2025 (The Court injunction has been lifted).

THIS IS A NEW LEGAL REQUIREMENT EFFECTIVE 1/1/2024. [We bring it to your attention as a client service and strongly suggest you contact your business attorney or a paralegal reporting service].

Who is effected: Virtually ALL corporations, LLCs and partnerships.

When: Due date is Jan 13, 2025 for all entities in existence prior to 2024. New entities within 30 days of formation. Changes: Within 30 days of the change.

What: Information for all control employees of ALL entities includes full name, residential address, identification information (including a pdf of drivers license or passport).

How: You or your attorney will report through fincen.gov/boi

Example I: Small corp is owned by three shareholders A(50%), B(40%) and C(10%). Also John Smith is President, but not a shareholder. Information would be reported for all over 25% and John as an officer.

Example II: Small LLC is owned 50% each by partnership A and B. Both partnership A and B are owned 50% each by John, Susie, Sam and Christy. Since each of the individuals is the 25% beneficial owner of Small LLC, it will report all four. Also, both partnership A and B will report two partners each respectively.

Penalties: Are SEVERE: $500 per day and up to two years in prison.

AGAIN, THIS IS A LEGAL REQUIREMENT AND NOT PART OF YOUR INCOME TAX RETURN. AS WE ARE NOT A LAW FIRM, WE DON’T OFFER THIS REPORTING SERVICE. You can either report yourself or through your attorney / paralegal.

IRS Notice 2024-85

The IRS is providing transition relief for third-party settlement organizations (TPSOs), also known as payment apps and online marketplaces (e.g., Venmo, Amazon, etc.), regarding transactions during calendar years 2024 and 2025.

According to the IRS’s latest guidance, TPSOs must file 1099-Ks to report transactions when the amount of total payments for those transactions is more than:

• $5,000 in 2024; 
• $2,500 in 2025; and 
• $600 in calendar year 2026 and after.

Client suggestion: Be sure that your business Venmo, Amazon, Zelle, Applepay etc are used ONLY for business transactions. If you receive a Form 1099-K with personal amounts (e.g. your kids reimburse you for vacation money), it’s important that you present it so we can reconcile it on your individual return.

We predict that this will cause a HUGE MESS for the filing period starting January 2024. IRS.gov states that if in error, you should contact the issuing company (e.g. Venmo) and have them correct it… but with millions of potential errors, they are not likely to do so.

IRS.gov has instructions if you can’t get the Form 1099-K corrected:

1. Enter the incorrect amount as “other income” on line 8z of Form 1040.
2. Enter the offsetting amount as “other adjustments” on line 24z of Form 1040
3. The two amounts will offset and the computer will locate the original amount.

Ref: IRS Issue IR-2024-289

Individuals age 70 1/2 and older can make IRA distributions to qualified charities without counting the distribution in taxable income. In prior years, the total was limited to $100,000 per year. That amount in 2024 has risen to $105,000. That amount is $108,000 for 2025.

Married individuals: Each IRA owner, if qualified, can make a QCD from his/her IRA for a maximum total of $210,000.

These are referred to as qualified charitable distributions (QCD).

For those age 73 and older, these do count towards your required minimum distributions.

Ref: IRC Subchapter S

Profitable S corporations MUST pay a reasonable W2 wage to it’s shareholder/officer(s). If this is not paid, this is a LARGE AUDIT FLAG. Many of these audits are now chosen through AI, comparing net income to the Officer Compensation reported on Line 7 of Form 1120-S. This is an easy test to perform.

Reasonable compensation takes into consideration the duties of the officer shareholder as well as the location of the business. There are many online salary surveys (e.g. Indeed) listing salary ranges by location and industry. These can serve as guidance.

IF AUDITED: The IRS will look at salary level and compare to reasonable surveys. If too low, the IRS will recharacterize some shareholder distributions as wages and assess FICA/Medicare taxes (currently at 15.3%) as well as FUTA tax on the shortfall. This amount may also be assessed interest and penalties.

COMMON PAYMASTER: If there are multiple S corporations commonly owned (e.g. three S corporations owned 100% by the same individual), then payroll can be paid by only one of them under the rules in IRC Sec 3121(s) and Section 3306(p). Also see Reg Secion 31-3121(s)-1. This treatment will save both in time devoted to multiple wage report preparation as well as overpayment (e.g. paying FUTA tax multiple times for the same employee).

If you have questions on the above, please contact us.

Ref: IRS Notice 2024-68

The IRS has published this notice superseding Notice 2023-68 (published appx a year ago).

Per diem rates are used when traveling away-from-home for business in lieu of using actual receipts. The following don’t include special rates for the transportation industry. [You must maintain records such as a calendar substantiating your away-from-home business days].

High cost localities include: Los Angeles, Ventura, Orange, Santa Barbara, San Francisco and San Diego Counties. A full listing is included in Notice 2024-68 including locations outside of California.

High cost cities travel per diem: $319; meals only per diem $86.

Low cost cities travel per diem: $225; meals only per diem $74

EFFECTIVE DATE OCTOBER 1, 2024.

Source: CA FTB to Spidell 7/22/24

If your LLC/Partnership/S corporation had made a “pass through entity” payment to California and mistakenly paid it as an estimated payment instead of a Form 3893 payment, the FTB will now allow you to recharacterize the payment. The request must be made in writing to move the payment incorrectly shown as an estimate to a pass-through entity payment.

If you have made this mistake, please contact us and we will help you to draft the request letter.

Ref: SECURE Act 2.0 (2022)

Example: Your child, Sam, is the beneficiary of a 529 education savings plan with a balance of $30,000 and he’s finished with college. What to do with the remaining funds?

NEW: Under new law, you can roll the 529 funds into a Roth IRA in Sam’s name subject to the annual maximum (currently $7,000). THESE ROLLOVERS ARE TAX AND PENALTY FREE. In this example, you’d be done with the rollover in five years.

ALTERNATIVELY: You may want to consider waiting… and change the beneficiary to your grandchild (yet to be born). By the time he/she goes to college, the account should grow substantially.

Ref: SB167 signed by Gov Newsom this week.

SUSPENSION OF NET OPERATING LOSS DEDUCTION 1/1/24 – 12/31/2026.

Background: In California’s frequent times of financial difficulty, the Legislature often suspends the ability to use prior year net operating losses against current year income. This effectively raises CA taxes by taking away a deduction… And this deduction is more common during hard economic times.

Ideally this deduction will return to CA taxpayers for the year starting 1/1/2027, but the Legislature could extend the suspension.

Who is NOT subject to the suspension:

1. Individual taxpayers who have net business income OR modified adjusted gross income of less than $1 million.
2. Corporate taxpayers who have business income subject to CA taxation of less than $1 million. Business income is defined as income from a trade/business whether by the taxpayer or through a partnership, LLC, S corporation owned directly/indirectly by the taxpayer; OR rental income; OR a farming business.