Sudbury, MA
Tax updates
Please see below for some important tax updates by year
2024 Tax Year – Interesting tax items and updates are listed below. Call if you have specific questions on 2024 taxes, on structuring for tax efficiency or planning 2025 for future opportunities. Here are some highlights:
1. Federal Government: 2023 National Debt $33 Trillion, GDP $27T, tax collections for the same period $5 Trillion - scary!
2. Tax brackets: The same six tax brackets carry forward based upon inflation. For example, the 24% ($201k) tax bracket increased by $10,300 – more income will be taxed in a lower bracket. There continues to be a .9% Medicare surtax for incomes over $250,000 and a 3.8% surtax on unearned income (Cap Gains & interest) over $250,000).
3. Tax due – Offer in Compromise to settle tax debt at less than what you owe: a) requires a personal net worth report, b) Lump sum payment requires a 20% up-front payment with application and balance paid within five months, if accepted, c) Periodic payments over 24 months, first payment with offer plus a $205 application fee if accepted.
4. Gift tax exclusion is $19,000 in 2025 to any person. Strategies are that H&W each provide $19k for a total of $38,000 to one person. Another strategy available is to make 5 year contribution (19k x 5years = $95,000) into a 529 educational plan. There is no time limit on when the funds have to be withdrawn, and if not for education the earnings are taxed when taken. The same for HSA balances which grow tax free and taxed upon distribution.
5. Estate tax planning: the 2024 Federal exemption is $13.6 million (quite high), but the MA exemption is $2 million and MA tax above that starts at 7.2%. There is an unlimited exemption when given to a spouse. The strategy is to set up a Trust (see an Attorney) for non-spouse beneficiaries under the $2 million MA exemption limit and the balance to the spouse. For larger (> $4M) estates, consider a QTIP trust to delay tax until the 2nd to die. Beneficiaries pay no tax on their distributions.
6. Social Security one-time Death benefit of $255 non-taxable. Usually paid automatically when SS is advised. If not received, the survivor must apply within two years.
7. QBI (qualified business income deduction) is an additional 20% expense deduction on a SSTB (specified service trade of business) less various deductions. SSTB includes service business such as consulting, athletics financial services, law, accounting, etc. – any business where the principal asset is the skill of the owner.
8. Real Estate Professional: for those with rental property, rental losses on Schedule E will likely be deferred and not currently deductible. The strategy is to be classed as a Professional and deduct losses on Schedule C. This requires 250+ hours documented with no rental manager involved – a high bar to cross.
9. Erroneous tax refund received: there is a two year limit after the IRS refund check is cashed after which the IRS is unable to ask for repayment.
10. Damage losses: can be deducted on Schedule A after reducing loss by $100 and exceeding 10% of AGI.
11. Who pays taxes?
- LEVEL PERCENT Paid AGI
- Top 1%: 46% $683,000 +
- Top 1 – 5%: 66% 253,000 +
- Top 1 – 10%: 76% 170,000 +
- Bottom 50%: 2% 47,000 +
12. Tax rates & deductions reset to 2017 levels: the Trump Tax Cuts and Jobs Act of 2017 set the tax rates (adjusted for inflation) through 2025. Then in 2026 the tax rates and deductions go back to the 2017 levels. This could be a significant tax increase unless Congress choses to maintain these 2017 adjustments.
13. Tax Gap: IRS estimates the shortage in revenue collections at about 16% in these categories:
· $ 77 Billion for No filing
· 542 Billion for Underreporting
· 68 Billion for Underpayment (incorrect tax types - Cap Gains & classifications)
14. 1099-K Reporting limit for 2024 has been reduced from $20,000 down to $5,000 per provider (per credit, debit gift cards and online marketplaces such as eBay, Amazon Venmo or Zelle). Should you receive a 1099-K, not related to business / personal income, let me know as I may be able to adjust this income to zero.
15. HSA: there is no time limit to take a buildup of funds which grow tax free – similar to a ROTH IRA if used for medical expenses, otherwise the accumulated income is taxed. When taken. Eligibility to take HSA expires at age 65 when you enroll in Medicare.
16. RMDs (Required Minimum Distribution from an IRA) upon death – 10 year rule: If a decedent dies prior to taking RMDs, the beneficiary has 10 years to take his / her distribution without an annual amount. - If the decedent dies after taking RMDs, the beneficiary is required to take annual RMD distributions according to their life expediency tables and the balance in the 10th year. The spouse rolls the IRA into their own.
17. How is Social Security taxed?: 1) if AGI is less than $32,000, SS is not taxed, 2) at $44,000 AGI 50% is taxed, and 3) over $44,000 85% is taxed. Massachusetts does not tax SS benefits, public or military pensions.
Tax planning may save on taxes. Call our office to see if you are entitled to arrange your tax reporting more favorably for 2024 and 2025 going forward.
Office of David J. Felsing, CPA
(978) 443-1350
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2023 Tax Year – A few of the major 2023 tax items are listed below. Call if you have specific questions on 2023 taxes or on structuring your future opportunities. Here are some highlights:
1. Tax brackets: The same six tax brackets carry forward based upon inflation. For example, the 24% ($190k) tax bracket increased by $12,600 – more income will be taxed in a lower bracket. There continues to be a .9% Medicare surtax for incomes over $250,000 and a 3.8% surtax on unearned income (Cap Gains & interest) over $250,000).
2. Recent Tax Legislation for tax year 2023 per the Inflation Reduction & Secure 2.0 Acts:
- · 401(k) contributions to $22,500 + $7,500 if over 50 years old with earned income
- · Auto Standard Mileage Allowance rate $.655 business, .22 med & moving, .14 charity.
- · Child Tax Credit $2,000 per child under 17, phase-out for incomes over $400,000
- · Education: Lifetime learning deduction to max of $2,000, incomes under $180,000.
- · Educator expense $300 (K-12 grades)
- · Energy Tax Credits: Residential at 30%, Windows, Doors, Audit to $1,200.
- · Energy vehicles: New to $7,500 cost under $55,000, income under $300,000
Used to $4,000 cost under $25,000, income under $300,000.
- · Energy: Heat pump, Water heater, boiler, solar panels renewals 30% to $2,000.
- · Form 1099-K reporting suspended back to $20,000 and more than 200 transactions
- · Gift Tax Annual Exclusion per recipient $17,000 ($34,000 for married couple).
- · Home / second home rental: no reporting if you rent 14 days or less
- · HSA pre-tax medical contribution for family coverage is $7,750.
- · Interest expense (margin) deduction limited to interest income.
- · IRA contributions $6,500 + $1,000 if over 50 years old with earned income
- · Per Diem business expense $204 - $297 per day.
- · QBI 20% deduction for business with incomes under $364,200
- · RMD take in year taxpayer reaches 73. Beneficiaries take RMD for 10 years.
- · RMD failure to take: penalty reduced from 50% to 25% of required amount.
- · SALT itemized deduction remains limited to $10,000 for income & RE Taxes.
- · Standard Deduction $27,700 + $1,500 (over 65) = $29,200
- · Student loan interest deduction up to $2,500 with incomes under $145,000.
- · Tuition 529 plans can contribute five years up-front for $85k or $170k jointly.
- · Tuition: pay directly to the school, doesn’t count against $17,000 gifting.
- · Massachusetts State Tax Changes:
- 4% additional tax on incomes over $1 million
- $2 million Estate Tax Exemption raised from $1 million
3. RMD (Required Minimum Distributions) for ages 73 to 85 ranges from 3% to 7% of retirement investments as of 12/31 of the prior year and is included in taxable income.
4. Section 529 Education non-taxable distributions cover most expenses such as tuition, room, board, computers and fees. Distributions are not tax deductible. The preferred way to pay College from a 529 account is to instruct the 529 Fiduciary to send payments directly to the College – not to yourself as the IRS will deem that as taxable income to you.
5. Nanny tax including household employees, and private teachers requires reporting when paid over $2,600. Over this threshold, taxes include Social Security, State & Federal unemployment. These taxes are paid on your Form 1040, Schedule H and to your state unemployment department.
6. Medicare Part B premiums for 2023 range from $174.70 to $594.00 monthly depending on gross income. A large severance, bonus, excess RMD / conversions to ROTH or taxable sale of Real Estate will increase your premiums for several years at the higher rate.
7. Financial planning: insure you have a Will and Trust in place as well as correct beneficiaries listed on your financial / retirement accounts.
Tax planning may save on taxes. Call our office to see if you are entitled to arrange your tax reporting more favorably in 2023 (including new additional MA taxes) and going forward.
Office of David J. Felsing, CPA
(978) 443-1350
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2022 Tax Year - This tax year saw the Inflation Reduction Act along with some other noteworthy changes and updates:
1. Tax brackets: The same six tax brackets carry forward. Based upon inflation, the starting taxable amounts has increased – more income will be taxed in a lower bracket. For example, the MFJ 24% bracket now starts at $178,150 a $5,400 increase from the prior year 2021. There continues to be a .9% Medicare surtax for incomes over $250,000 and a 3.8% surtax on unearned income (Cap Gains & interest) over $250,000.
2. RMD (Required Minimum Distributions) for ages 72 to 85 ranges from 3% to 7% of retirement investments as of 12/31 of the prior year and is included in taxable income.
3. Child Tax Credit for 2022 is down to $2,000 for each child under 17 years old which is scheduled to expire in 2023. The phase-out is $400,000 AGI for this child tax credit. Child Care Expenses are available (when both parents are working) to 20% of expenses paid up to a maximum of $6,000, a phase-out at $438,000 and refundable meaning you receive this credit as a refund even if no tax is due.
4. 401(k) contributions increase to $20,500 (+ $6,500 for those 50 and over - $27,000). IRA RMD (Required Minimum Distribution) the beginning age is 72 years old. No age limit on IRA contributions based upon your earned income and subject to AGI limits.
5. Auto mileage deduction is $0.585 & .625 per business miles (based upon your Auto log). A 6,000 lb heavy SUV is 100% deductible x business use.
6. Standard deduction for married taxpayers is $25,900 for 2022. Charitable contributions for 2022 are now deductible on Schedule A – the $600 “above the line” has been eliminated. SALT (state and local tax) deduction on Schedule A is limited to $10,000 for 2022. 0% tax on capital gains with AGI incomes under $83,350 MFJ.
7. Social Security earnings wage base is increasing from $ 142,800 to 147,000 in 2022. Seniors taking Social Security at 62 years old, can still work, provided their earned income is under $19,560 without effecting their SS benefits.
8. Section 529 Education non-taxable distributions cover most expenses such as tuition, room, board, computers and fees. Distributions are not tax deductible. The preferred way to pay College from a 529 account is to instruct the 529 Fiduciary to send payments directly to the College – not to yourself, then to the College as the IRS will deem that as taxable income to you. There is also an education tax credit for the taxpayer, spouse and dependents called American Opportunity and Lifetime learning up to $2,500 for AGI under $180,000 and based upon Form 1098-T sent by the College.
9. Nanny tax including household employees, and private teachers requires reporting when paid over $2,600. Over this threshold, taxes include Social Security, State & Federal unemployment. These taxes are paid on your Form 1040, Schedule H and to your state unemployment department.
10. Medicare Part B premiums for 2022 are $164.90 monthly for those with AGI incomes under $194,000. Medicare Part B Premiums increases as incomes rise to $560.50 monthly for those with AGI over $750,000. A large severance, bonus, excess RMD / conversions to ROTH or taxable sale of Real Estate will increase your premiums for several years.
11. Financial planning: insure you have a Will and Trust in place as well as correct beneficiaries listed on your retirement accounts.
Tax planning may save on taxes. Please call our office at 978-443-1350 or email dfelsing@comcast.net on your situation.
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2021 Tax Year– This tax year included the Infrastructure Investment and Jobs Act. Here are a few other significant highlights of the 2021 Tax Year:
1. Child Tax Credit for 2021 is $3,600 for a child up to 6 years old and $3,000 for 6 to 17 years old for taxpayers making under $400,000. Six advanced payments were made in 2021 based upon your prior tax return. The IRS will mail you a record of advance payments which is needed to reconcile payments with total credit on Form 8812 for 2021.
2. Child / dependent care expense: Both parents must have earned income. The credit is 50% of the expense limited to $8,000 for one child and $16,000 for two or more. Phase out incomes are between $125,000 and 438,000. Refundable means an IRS check will be sent for the above, even if no tax is due.
3. 401(k) contributions increase from $19,500 to 20,500 for 2022 plus $6,000 if over 50 years old. IRA RMD (Required Minimum Distribution) the beginning age is 72 years old. No age limit on IRA contributions based upon your earned income and subject to AGI limits.
4. Standard deduction for married taxpayers is $25,100 for 2021. Charitable contributions of cash can now be deducted up to $300 ($600 MFJ) by non-itemizers on Form 1040. SALT (state and local tax) deduction on Schedule A is limited to $10,000 for 2021. 0% tax on capital gains with AGI incomes under $80,800 MFJ.
5. Social Security earnings wage base is increasing from $142,800 to 147,000 in 2022. Seniors taking Social Security at 62 years old, can still work, provided their earned income is under $19,560 without effecting their SS benefits. .9% Medicare surtax is in addition to regular tax for incomes over $250,000 MFJ.
6. Section 529 Education non-taxable distributions cover most expenses such as tuition, room, board, computers and fees. Distributions are not tax deductible. There is also an education tax credit up to $2,500 for AGI under $160,000 and based upon Form 1098-T sent by the Collage.
7. Nanny tax including household employees, and private teachers requires reporting when paid over $2,400. Over this threshold, taxes include Social Security, State & Federal unemployment. These taxes are paid on your Form 1040, Schedule H and to your state unemployment department.
8. Medicare Part B premium for 2021 are $148.50 monthly ($170.10 in 2022) for those with AGI incomes under $182,000. Medicare Part B Premiums increases as incomes rise to $504.90 ($578.30 in 2022) monthly for those with AGI over $750,000. A large severance or bonus or retirement distribution will increase your premiums for several years.
9. Financial planning: insure you have a Will and Trust in place as well as correct beneficiaries listed on you retirement accounts.
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2020 Tax Year– 2020 was a difficult year with an early-on tax law followed by several tax updates and clarifications. Please call if you have specific questions on 2020 taxes. Here are some highlights:
1. Amended tax returns for 2019 and forward are now allowed to be E-filed – with a faster IRS turn around.
2. EIP (Economic Income Payment ~~ $1,200): do not have to pay it back, not taxable income and based upon 2018 & 2019 tax filings. In the event you had a child in 2020, you can get a tax credit on your 2020 tax return if applied for.
3. IRA RMD (Required Minimum Distribution) the beginning age is 72 years old. No age limit on IRA contributions, based upon your earned income subject to AGI limits.
4. IRA withdrawals in 2020 up to $100,000 are 10% penalty free but subject to tax. This distribution can be re-deposited in your IRA over three years, or the associated tax can be paid over the three following years, otherwise it is considered a taxable distribution.
5. Estate Beneficiaries (other than a spouse) receiving a decedents IRA must take taxable distributions within 10 years.
6. Charitable contributions of cash can now be deducted up to $300 by non-itemizers in addition to the Standard Deduction.
7. Standard deduction for married taxpayers is $24,800 for 2020.
8. Mortgage interest on loans up to $750,000 taken after 1/1/2019 are deductible. Home equity loans (included in the $750,000 limit) are deductible provided they can be “traced” to your home improvement. RV’s and Boats are no longer consider a home (even though they have a bathroom).
9. Medicare Part B premium for 2021 will be $148.50 monthly for those with AGI incomes under $176,000. Medicare Part B Premiums increases as incomes rise to $504.90 monthly for those with AGI over $750,000.
10. Check & verify a Charitable organization: IRS.gov ~ in the search box type “Tax Exempt Organization Search” then enter the city and state for a listing of recognized charities.
11. 401(k) contributions stays at $19,500 + 6,000 if over 50 years old for 2021. 12. The Social Security wage base for 2021 is $142,800. There is no cap on the 1.45% Medicare tax on earned income.13. The nanny tax threshold is $2,300 for 2021. Earnings under this threshold aren’t taxable. This includes housekeepers, private teacher and in-home caregivers. Many tax deductions and exemptions are “phased-out” at higher income levels. Tax planning may save on taxes to shift income, deductions or dependencies. Please call our office as to specific phase-outs or any general questions you may have.
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2019 Tax Year – The last tax act made significant changes to tax law. Please call if you have specific questions on 2019 taxes. Here are some highlights of the changes:
1. AMT (Alternative Minimum Tax = 27%): A Taxpayer’s regular tax would have to be less than about $110,000 + 20% of capital gains and dividends. It is unlikely most taxpayers will pay AMT tax.
2. Auto mile expense for 2019 is: Business = 58¢, Medical & Moving = 20¢, Charitable work = 14¢.
3. Annual Gift Tax Exclusion is $15,000. There is a five year provision which includes $75,000 contributions to a 529 plan for the educational benefit of a single child / grandchild. Additional amounts above these ceilings are applied (but not taxed) against your $1 million lifetime gift exclusion.
4. Social Security tax of 2.8% of wage & self-employment applies to earned income below $132,900 for 2019 ($137,700 for 2020). No SS tax above this ceiling, Medi tax at 1.45% has no ceiling.
5. Filing dates: 2019 tax returns are due by Wednesday April 15th.. Tax extensions are available to October 15th provided tax extensions are filed timely and the liability has been paid.
6. Sale of your residence will not result in a Capital Gain Tax so long as you have lived in the residence for 2 of the past 5 years and the gain for a married couple is under $500,000.
7. Retirement distributions from your RMD IRA / 401(k) are included as income. It is best to just take the minimum you need because if you take a large amount in a single year, your income may jump you into a higher tax bracket. Please call us for rules on retirement distributions.
8. Audit: The chance of an Audit is based upon the IRS matching records, accuracy of preparation and increases with income. Audit rates range between .5% and 24% based upon income and IRS document matching. Most Audits are bills mailed to the taxpayer citing differences.
9. The 2019 401(k) contribution limit is $19,000 + $6,000 for those 50 + years old.
10. Passive (Rental Real Estate) losses can reduce your other W2 income up to $25,000 when adjusted income is > $100,000. The complete phase out is $150,000.
11. Itemized Standard Deduction MFJ is $24,400, taxes (SALT) limited to $10,000, Medical (over 10% of AGI) & Donations up to any amount. Donations can be made out of your retirement account directly to the charity and will count as your RMD.
12. Little things: MA Commuter Pass (if > $150 up to $750), charitable portion of your auto license plates, non-deductible retirement distributions (prorated), margin interest expense and allocations of professional fees to business and rental expense are deductible items. Tax planning may save on taxes to shift income, deductions or dependent items. We are here to help so you can take your entitled tax deductions for 2019. Please call our office for specific Sudbury, MA accounting and tax questions and guidance going forward.
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2018 Tax Year: The Tax Cuts and Jobs Act (TCJA) changes many items from prior years tax reporting. A few of the significant changes are:
1. New tax forms and schedules: Page 1 and 2 of Form 1040 has been consolidated down to postage card size (on standard size paper). This savings in number of line items resulted in an increase in the number of supporting schedules. For 2018, the taxpayer may be required to use several forms, each feeding into the next, which was previously recorded on a single line.
2. Standard Deduction: it has been increased to $24,000 + $1,300 each if over 65 years old. Personal exemptions have been eliminated for 2018 and are now included as part of the Standard Deduction.
3. Itemized Deductions: Itemized includes: Medical in excess of 7.5% of AGI + State and Local taxes (limited to $10,000) + Mortgage Interest + Gifts to Charity. If this exceeds the Standard Deduction of $24,000, the overage will be tax deductible. For those who rent or have State taxes below the $10,000 limit, please know that charitable deductions may not be deductible as the $24,000 limit (which includes Charity) has not been reached.
4. Medical: Obamacare – there is still a penalty for not having health insurance for 2018 (repealed for 2019). The Health Premium Credit is still available for those who are not on Medicare. These credits phase out starting with married incomes of $25,000. Long-term-care premiums are considered a medical expense. Taxpayers who are age 71 can write off premiums up to $5,110. Self-employed can deduct up to the dollar limit without regard to the 7.5% AGI limit on their Schedule C.
5. Miscellaneous itemized deductions have been repealed for 2018. They included employee business expenses, investment management fees, tax preparation, job search, tuition, travel expense and safe deposit fees.
6. 20% deduction for QBI (Qualified Business Income): for 2018, 20% of business income is now deductible for all pass-through businesses up to QBI of $315,000. Above this level various restrictions and computations apply, such as W2 wages, type of business (service) and qualified property.
7. Capital Gains tax rate of 15% for incomes up to $479,000 and 20% thereafter.
8. AMT (Alternative Minimum Tax): The AMT exemption for married couples increased from $84,500 to $109,400. This 26% / 28% AMT tax generally starts for incomes above $250,000 depending upon the circumstances.
9. IRA Contribution limits stayed at $5,500 + $1,000 for those 50 and over.
10. Payroll: the 2018 wage base is $128,400 for Social Security tax (up to $132,900 in 2019). In addition, there is a .9% Medicare surtax on wages that exceed $250,000.
11. Auto mile deduction for 2018: $.545 for business miles (Schedules C & E), $.18 for medical and $.14 for Charity.
