IP Pins

The IRS strongly encouraged all individuals to sign up for an Identity Protection PIN (IP PIN) for the 2025 tax season to help protect against tax-related identity theft. An IP PIN is a six-digit number known only to the taxpayer and the IRS that is used to verify one’s identity when filing tax returns.  The IRS maintains an FAQ page about IP PINs.  Taxpayers can obtain their IP PIN through their Individual Online Account. However, the IP PIN application will be down for maintenance starting November 23, 2024 through early January 2025.  If you wish to obtain an IP Pin, you will be able to do that early in 2025.  If you already have an IP Pin due to previous identity theft, you do not need to apply again.  The IRS will send you the new pin in early 2025.

2024 investment income

I am seeing that many funds will be paying very large Capital Gains for 2024.  You can check with your investment advisor or look at your accounts online to see the projected capital gains that will be paid in December 2024.  This increased income  will result in higher tax for 2024.  You may want to make an estimated payment before January 15, 2025 to avoid underpayment penalties.

BOI reporting

There is a new reporting requirement that began on January 1 2024.  This reporting is required for all entities such as partnerships, LLCs and Corporations.   The Corporate Transparency Act (CTA), enacted in 2021, was passed to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities. The Corporate Transparency Act is designed to improve business activity transparency through the reporting of Beneficial Ownership Information (BOI) and is particularly targeted to smaller businesses.

The beneficial owner of certain entities must file a report with FinCEN to fulfil this reporting requirement.  As an LLC, you will fall under this reporting requirement.   This is not a tax return or tax form and it is not done through the IRS.  Therefore, it is not something that I can do for you. 

However, as your tax advisor, I want to make sure that you are aware of this potential requirement.  Please refer to https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf for guidance.  You can obtain additional information  at: https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet .  These will give you information to determine if you are required to file and the timing of when the reporting must be done.

If you have an LLC, partnership or Corporation, be sure to take care of this before the end of the year.

UPDATE:  this requirement has been challenged in court and at this time the reporting is voluntary.  I suggest that you go ahead and complete the reporting so that it is taken care of if and when it becomes required.

Required Minimum Distributions (RMD)

If you turn 73 in 2024, you need to start taking distributions from your traditional IRA, 401k, TSP, or other defined benefit plan.  You can wait until April 1, 2025 to take the first distribution.  However, if you do that, then you will have to take two distributions in 2025.  You are not required  to take distributions from Roth IRAs or other Roth defined benefit plans.

If you inherited an IRA after 2019, you are subject to the new 10 year rule.  The IRA must be fully distributed  by the 10^th year after the individuals death.  The Secure Act was ambiguous as to if annual distributions were required.  In July of 2024, the IRS issued Final regulations  to address the RMD issue. In general, the  RMD requirement are:

• If the deceased had been taking required RMDs, then the beneficiary must continue to take annual distributions.  The balance of the account must be distributed by the 10^th anniversary of death
• If the deceased had not yet been required to take distributions, then the beneficiary can wait until the 10^th year after the death of the deceased.

The IRS has waived the penalty for the years 2020- 2024 if the beneficiary has not been taking annual distributions. You must start taking distributions in 2025.  You will want to contact the trustee of the IRA to set up the distribution for the coming year.

There are different rules if the beneficiary is a minor, surviving spouse or is not more than ten years younger than the deceased.

Keep in mind that if you have the entire IRA distributed in the tenth year, it could create a significant tax liability for you.  Generally the distributions from these plans are fully taxable.  The advantage to leaving the funds in the IRA as long as possible is that there is more time for tax deferred growth.  But the downside is that a large IRA could push you into a higher tax bracket.  You will want to plan what strategy is best for your own tax situation.

The 10 year rule only applies to IRAs inherited after 2019.  If you have an IRA that you inherited prior to 2020, you will continue to take distributions based on the schedule set up when you inherited it.

 

529 Plan conversions to Roth IRA

• 529 account holders can transfer up to a lifetime limit of $35,000 to a Roth IRA for a beneficiary.
• The 529 plan must have been open for the designated beneficiary for at least 15 years. (The Roth IRA also must be established in the name of the designated beneficiary of the 529 account.)
• The amount transferred from a 529 account to a Roth IRA in the applicable year, together with all other contributions in the year to IRAs for the same beneficiary, must not exceed the Roth IRA annual contribution limit applicable to the beneficiary.
• Additionally, the transfer amount must come from contributions made to the 529 account at least 5 years prior to the transfer date and the aggregate amounts transferred from 529 accounts to all Roth IRAs must not exceed $35,000 per beneficiary.

Residential Energy Credit

Starting in 2023 there are enhanced credits for windows, doors HVAC, etc.   I number of people made these energy efficient improvements to their homes with the understanding that they would receive a tax credit.  However, for many people, the improvements did not meet the efficiency requirements to qualify for the credit.  If you have purchased these energy efficient items for your home, be sure to get the certification from the manufacturer that shows that they qualify.  Starting in 2025, the manufacturers will be required to issue a pin that will be entered on the tax return that verifies that the energy improvement qualifies for the credit.

For detailed information go to:https://www.irs.gov/newsroom/all-taxpayers-now-eligible-for-identity-protection-pins

IRS Issues New RMD Tables . . . for 2022!

You can look forward to somewhat smaller required minimum distributions (RMDs) from your IRA and company retirement savings plan beginning in 2022. That’s because, on November 6, the IRS released new life expectancy tables that are used to calculate RMDs. The new tables are not effective until 2022. RMDs are waived for 2020, and RMDs for 2021 will be calculated under the current tables.

Kiddie Tax   The SECURE Act (Division O, Page 647 of the Appropriations Act) provides relief for kiddie tax. For tax years beginning after Dec. 31, 2019, the unearned income of certain children is again taxed at the parents’ tax rate. In 2018 and 2019, the Tax Cuts and Jobs Act taxed the unearned income of children using the much higher trust tax rates. The law is changed to allow a taxpayer to elect (at such time and in such manner as the IRS may provide) for the change to also apply to taxable years beginning in 2018, 2019, or both (as specified by the taxpayer in his or her election).

New tax-related retirement options: The Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, is a major part of this bill.

Provisions which are now law, include:

• Part-time workers can participate in 401(k) plans.
• Required minimum distributions (RMDs) no longer kick in at age 70½. The age for required distributions out of a tax-deferred retirement account can now wait until you turn 72.
• Contributions could be made to traditional IRA contributions by those older than 70½.
• New parents, including adoptive moms and dads, could make penalty-free retirement plan withdrawals from qualified retirement plans.
• Some home health care workers can contribute to a defined contribution plan or IRA.
• Inherited IRAs, instead of being stretched out tax-deferred over beneficiaries' lifetimes, now must be drawn down completely within 10 years.
• Small employers can apply for a new tax credit of up to $500 per year to help defray startup costs for new 401(k) and SIMPLE IRA plans that include automatic employee enrollment.

 

Click here for Highlights of  the Tax Cuts and Jobs Act

For the complete IRS publication go to:   https://www.irs.gov/pub/irs-pdf/p5307.pdf