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.

United States tax information for volunteers.

If you are volunteering your time for a charity registered with the US Treasury, you likely will incur unreimbursed costs.  If you itemize on your individual income tax return, you may have charitable deductions for those receipted expenses.

The following is taken from an IRS Tax Tips paper on the subject:

Tax tips you should know if you have charity-related travel expenses

Do you donate your time to charity? If you travel for it, you may be able to lower your taxes. Here are some tax tips that you should know about deducting charity-related travel expenses:

• Qualified Charities — To deduct your costs, you must volunteer for a qualified charity.

• Out-of-Pocket Expenses — You may be able to deduct some of your costs including travel. They must be necessary while you are away from home. All costs must be: unreimbursed, directly connected with the services, expenses you had only because of the services you gave, and not personal, living or family expenses.

• Genuine and Substantial Duty — Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or don’t have any duties for significant parts of the trip.

• Value of Time or Service — You can’t deduct the value of your time or services that you give to charity. This includes income lost while you serve as an unpaid volunteer for a qualified charity.

• Travel You Can Deduct — The types of expenses that you may be able to deduct include: air, rail and bus transportation, car expenses [i.e. rental of a car],  lodging costs,  cost of meals, and  taxi or other transportation costs between the airport or station and your hotel.

• Travel You Can’t Deduct — Some types of travel don’t qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or vacation.

Charity mileage rate: As of 2024, the rate is 14 cents-per-mile.

In 2024, the gift tax annual “sprinkling” exclusion amount will increase to $18,000 per donee (from its prior $17,000 amount in 2023).  This gift tax annual exclusion amount can be used without using the estate and gift tax exemption amount.  This means that a married couple can now gift together $36,000 to each of their children and grandchildren without using any of their combined $27,220,000 unified exemption amount.  Additionally, clients can make tax-free gifts in unlimited amounts for tuition, medical expenses, and health insurance premiums paid directly to the school and/or medical provider.  With the expected high inflation adjustments, this $18,000 gift tax annual exclusion amount will likely continue to increase in the future.  

EXAMPLE:  Two spouses have three (3) children and seven (7) grandchildren for a total of ten (10) potential donees to whom to make annual gifts.  With the increased gift tax annual exclusion to $18,000 in 2024, the parents can gift to their ten potential donees a total of $360,000 every year gift tax-free. [Above this amount, they would have to file a gift tax return].

THE FOLLOWING COPIED FROM IRS RELEASE:

Issue Number:    IR-2023-160

Inside This Issue

IRS reminder: Make sure to understand recent changes when buying a clean vehicle

WASHINGTON — The Internal Revenue Service reminded consumers considering an automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules.

The Inflation Reduction Act of 2022 (IRA) made several changes to the new Clean Vehicle Credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles.

Before taxpayers purchase a clean vehicle they should be sure that the vehicle was made by a qualified manufacturer. Taxpayers must also meet other requirements such as the modified adjusted gross income limits. [Single $150k and married joint $300k].

To be a qualified manufacturer, the manufacturer must enter into an approved agreement with the Internal Revenue Service and supply the IRS with valid vehicle identification numbers (VINs) that can later be matched at the time of filing to the VIN reported on the return.

When purchasing a new or used clean vehicle, purchasers should check if the make and model are eligible. In addition, for a new or used clean vehicle to be eligible for a Clean Vehicle Credit, the seller must provide the buyer with a seller report verifying that the vehicle purchased will qualify for the credit, which will include the make, model, and VIN.

Also, the clean vehicles tax credits are non-refundable tax credits meaning that these credits can’t be used to increase the taxpayer’s tax refund or to create a tax refund. These credits will only reduce the amount of tax they owe.

The amount of tax owed will determine if the full amount or only a portion of the credit can be claimed.

For more information on these credits and other clean energy credits related to the Inflation Reduction Act, check Credits and Deductions Under the Inflation Reduction Act of 2022.

Ref: Corporate Transparency Act

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 1, 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.