Dear Clients and Friends,

As the 2024 year concludes, it is the best and last opportunity to implement and maximize tax planning items. Our analysis is based on current effective laws at the time of drafting. You must ensure that your tax decisions are based on the latest legislation, IRS guidance and regulations. As changes are expected to the tax environment as a result of a new administration, you need to be up-to-date with current or retroactive tax legislation changes. We continue to monitor any potential tax legislation and we will continue to provide client updates via newsletters and website postings.

INDIVIDUAL PLANNING
Itemized Deduction v. Standard Deduction
Each year, you can deduct the greater of your itemized deductions (mortgage interest, charitable contributions, medical expenses, and taxes) or the standard deduction. The 2024 standard deduction is $14,600 for singles and married individuals filing separately (MFS), $29,200 for married couples filing jointly (MFJ), and $21,900 for Heads of Household (HOH). If your total itemized deductions for 2024 will be close to your standard deduction, consider “bunching” your itemized deductions, so they exceed your standard deduction every other year. Paying enough itemized deductions in 2024 to exceed your standard deduction will lower this year’s tax bill. Next year, you can always claim the standard deduction, which will be increased for inflation. 

For example, if you file a joint return and your itemized deductions are steady at around $28,000 per year, you will end up claiming the standard deduction in both 2024 and 2025. But, if you can bunch expenditures so that you have itemized deductions of $32,000 in 2024 and $24,000 in 2025, you could itemize in 2024 and get a $32,000 deduction versus a $29,200 standard deduction. In 2025, your itemized deductions would be below the standard deduction (which adjusted for inflation will be at least $29,200). So, for 2025, you would claim the standard deduction. If you manage to exceed the standard deduction every other year, you will be better off than if you just settle for the standard deduction each year. 

You can get itemized deductions into 2024 by making your house payment due in January 2025 in 2024. But there is a limit on the amount of mortgage interest you can deduct. Generally, you can only deduct interest expense on up to $375,000($750,000 if MFJ) of a mortgage loan used to acquire your home. More generous rules apply to mortgages (and home equity debt) incurred before 12/15/2017. 

Timing your charitable contributions is another simple way to get your itemized deductions into the year you want them. 

Finally, consider accelerating elective medical procedures, dental work, and vision care into 2024. For 2024, medical expenses can be claimed as an itemized deduction to the extent they exceed 7.5% of your Adjusted Gross Income (AGI). 

Charitable contribution planning
If you are planning to donate to a charity, it’s likely better to make your contribution before the end of the year to potentially save on taxes. There are many tax planning strategies we can discuss with you about charitable giving. 

• Consider donating appreciated assets that have been held for more than one year, rather than cash. You benefit from a deduction for the FMV of your appreciated stock and avoid taxes on capital gains from the appreciation. 
• Opening and funding a donor advised fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and the ability to distribute those funds to charities over multiple years. 
• Qualified charitable distributions (QCDs) are another beneficial option for those over age 70 1/2 who don’t typically itemize on their tax returns. If you have a required minimum distribution (RMD) from your retirement accounts, this could be a great strategy for you. 

It is essential to maintain proper documentation of all donations, including obtaining a letter from the charity confirming that no goods or services were provided in exchange for donations of $250 or more. 

RETIREMENT PLAN CONTRIBUTIONS
Individuals may want to maximize their annual contributions to Individual Retirement Accounts (IRAs). The combined annual limit for traditional and Roth IRAs is $7,000. Individuals age 50 or older able to contribute and additional $1,000. For individuals who are active participants in an employer sponsored retirement plan, the deduction for contributions is subject to limitations which need to be reviewed.

The maximum amount in elective contributions that an employee can make in 2024 to a 401(k) or 403(b) plan is $23,000 ($30,500 if age 50 or over and the plan allows “catch-up” contributions). For 2025, these limits are $23,500 and $31,000, respectively.

The SECURE Act permits a penalty-free withdrawal of up to $5,000 from traditional IRAs and qualified retirement plans for qualifying expenses related to the birth or adoption of a child after December 31, 2019. The $5,000 distribution limit is per individual, so a married couple could receive a total of $10,000.

Under the SECURE Act, individuals are now able to contribute to their traditional IRAs in or after the year in which they turn 70½.

Required minimum distributions (RMDs)
You cannot keep retirement funds in your account indefinitely. RMDs are the minimum amount you must annually withdraw from your retirement accounts once you reach a certain age (generally age 73). Failure to do so can result in significant penalties. There are also opportunities to roll retirement funds to a qualified charity to satisfy your RMD without incurring taxes. 

If you inherit an IRA from someone else — say, a parent, sibling, or aunt — you are subject to the 10-year rule. If the original IRA owner died on or after Jan. 1, 2020, most non-spouse beneficiaries must withdraw the full balance by the end of the 10th year after the account holder’s death. 

The 10-year rule applies to both traditional and Roth IRAs. There is another issue when the IRA is traditional and the late owner was currently required to take RMDs, the inheritor must continue doing so in years one through nine after the death, before clearing out whatever is left by the end of year 10.

Digital assets and virtual currency
Digital assets are defined as any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.

The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services or having such currencies that you hold as an investment, generally have tax impacts –– and the IRS continues to increase its scrutiny and reporting requirements in this area. Gains or losses are reportable from these transactions even if brokers do not provide reporting statements. 

If you hold and transact with digital assets, you should be aware of a safe harbor that allows for the allocation of unused basis before the end of the year if you used the universal method to determine the cost of those assets. 

Energy tax credits
“Going green” continues to offer significant tax incentives. The Inflation Reduction Act of 2022 included new and expanded tax credits for solar panels, electric vehicles (EVs) and energy-efficient home improvements. While the rules are complex, there is time to benefit from these credits in the current year. It is important to note that these credits have specific eligibility requirements and limitations.

The tax credits for energy efficient home improvements recently underwent significant changes. This credit now has an annual limit rather than the lifetime limit that was in place previously. This change allows homeowners to benefit from the credits year after year if they continue to make energy-efficient upgrades. The energy efficient home improvements credit covers a wide range of improvements, including installing windows, doors, insulation, and various types of heat pumps.  

Beneficial ownership interest (BOI) reporting
The Corporate Transparency Act (CTA), effective January 1, 2024, mandates the disclosure of the beneficial ownership information of certain entities to the Financial Crimes Enforcement Network (FinCEN). Notably, this reporting requirement may also apply to single member LLCs, which are typically disregarded entities for income tax purposes. 

It is crucial to understand that this is not a tax filing requirement, but rather an online report submitted directly to FinCEN if applicable. As such we are not preparing or filing any client BOI reports. It is your responsibility to submit timely. There are severe penalties for businesses who willingly do not comply with the requirements. For entities in existence before January 1, 2024, the report must be filed by January 1, 2025. There are other deadlines related to entities created during 2024 and those with changes to reported information. 

The reporting is made directly through FinCEN’s website at www.fincen.gov/boi. It is important to note that this is a one-time filing requirement unless there are changes to the reported information.  

Life changes 
Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.).

Capital gains and loss harvesting
Consider tax benefits related to using capital losses to offset realized gains. Think about selling portfolio investments that are underperforming before the end of the year. Net capital losses can offset up to $3,000 of the current year’s ordinary income. The unused excess net capital loss can be carried forward to use in subsequent years. 

It is a good idea to look at your investment portfolio with an eye to selling before year-end to save taxes. Note that selling investments to generate a tax gain or loss does not apply to investments held in a retirement account [such as a 401(k)] or IRA, where the gains and losses are not currently taxed. 

If you are looking to sell appreciated securities, it is usually best to wait until they have been held for over 12 months, so they will generate a long-term, versus short-term, capital gain. The maximum long-term capital gain tax rate is 20%, but for many individuals, a 15% rate applies. The 3.8% Net Investment Income Tax (NIIT) can also apply at higher income levels. Even so, the highest tax rate on long-term capital gains (23.8%) is still far less than the 37% maximum tax rate on ordinary income and short-term capital gains. And, to the extent you have capital losses that were recognized earlier this year or capital loss carryovers from earlier years, those losses can offset any capital gains if you decide to sell stocks at a gain this year. You should also consider selling stocks that are worth less than your tax basis in them (typically, the amount you paid for them). Taking the resulting capital losses, this year will shelter capital gains, including short-term capital gains, resulting from other sales this year. But consider the wash sale rules. If you sell a stock at a loss and within the 30-day period before or the 30-day period after the sale date, you acquire substantially identical securities, the loss is suspended until you sell the identical securities. 

If you sell enough loss stock that capital losses exceed your capital gains, the resulting net capital loss for the year can be used to shelter up to $3,000 ($1,500 if MFS) of 2024 ordinary income from salaries, self-employment income, interest, etc. Any excess net capital loss from this year is carried forward to next year and beyond. Having a capital loss carryover into next year and beyond could be a tax advantage. The carryover can be used to shelter both short-term and long-term gains. This can give you some investing flexibility in future years because you will not have to hold appreciated securities for over a year to get a lower tax rate on any gains you trigger by selling, to the extent those gains will be sheltered by the capital loss carryforward. 

Nontax considerations must be considered when deciding to sell or hold a security. If you have stock that has fallen in value, but you think will recover, you might want to keep it rather than trigger the capital loss. If, after considering all factors, you decide to take some capital gains and/or losses to minimize your 2024 taxes, make sure your investment portfolio is still allocated to the types of investments you want based on your investment objectives. You may have to rebalance your portfolio. When you do, be sure to consider investment assets held in taxable brokerage accounts as well as those held in tax-advantaged accounts, such as IRAs and 401(k) plans.

Estate and gift tax planning 
Be sure you are appropriately planning for estate and gift taxes. There is an annual exclusion for gifts ($18,000 per donee in 2024, $36,000 for married couples) to help save on potential future estate taxes. Review lifetime gift and generation skipping transfer (GST) opportunities to use additional exclusions and exemption amounts.

The basic estate, gift, and generation skipping transfer tax exclusion is scheduled to fall from $13.61 million ($27.22 million for married couples) in 2024 to $5 million ($10 million for married couples) in 2026. The 2026 amounts will be adjusted for inflation, but the bottom line is that, absent any tax law changes, the 2026 exclusion will be substantially less than 2024 exclusion. So, many estates that will escape taxation before 2026 will be subject to estate tax after 2025. If you think your estate may be taxable, annual exclusion gifts (perhaps to children or grandchildren) are an easy way to reduce your taxable estate. The annual gift exclusion allows for tax-free gifts that do not count toward your lifetime exclusion amount. For 2024, you can make annual exclusion gifts up to $18,000 per donee, with no limit on the number of donees. 

In addition to potentially reducing your taxable estate, gifting income-producing assets to children (or other loved ones) can shift the income from those assets to someone in a lower tax bracket. But, if you give assets to someone who is under age 24, the Kiddie Tax rules could cause some of the investment income from those assets to be taxed at your higher marginal federal income tax rate. 

If you gift investment assets, avoid gifting assets worth less than what you paid for them. The donee’s basis for recognizing a loss is the lower of your basis or the property’s FMV at the date of the gift. So, in many cases, the loss that occurred while you held the asset may go unrecognized. Instead, you should sell the securities, take the resulting tax loss, and then give the cash to your intended donee.

State and local taxes
Remote working arrangements or moving your residency could potentially have tax implications to consider. We can help you with your state income, sales and use tax questions.

Education planning
Save for education with Sec. 529 plans. There can be income tax benefits to do so, and there have been changes in the way these funds can be used. 

Effective January 1, 2024, an additional type of qualified distribution for 529 plan assets allows limited tax and penalty-free 529 plan rollovers to Roth IRA accounts. This increased flexibility may help to address the needs of account owners whose beneficiaries do not pursue higher education or who have leftover funds within their 529 account due to their beneficiary receiving a scholarship. There are several key provisions of the Act as it relates to these rollovers, including:

• The 529 account must have been open for more than 15 years
• The eligible rollover amount must have been in the 529 account for at least 5 years
• The annual rollover limit is subject to Roth IRA annual contribution limits ($7,000 for 2024; $8,000 for individuals age 50 and older)
• There is a lifetime rollover limit of $35,000 for each 529 account beneficiary
• Rollovers can only be made to the Roth IRA account owned by the named 529 account beneficiary
• Note that Roth IRA income limits do not apply for this type of contribution

Updates to financial records 
Determine whether any updates are needed to your insurance policies or beneficiary designations.

Roth IRA conversions
Evaluate the benefits of converting your traditional IRA to a Roth IRA to lock in lower tax rates on some of your pre-tax retirement accounts. Backdoor Roth contributions and conversions should be considered and completed before the April 15, 2025 due date.

Estimated tax payments 
With underpayment interest rates currently at 5% for federal, it is a good idea to review withholding and estimated tax payments and assess any liquidity needs. If you have income flowing through from a business, you may benefit from a state’s Pass-Through Entity (PTE) provisions.

BUSINESS PLANNING
Analysis of your financial statements
Look at where your business is positioned with income and expenses to close out the tax year. This may mean getting caught up on your bookkeeping to have a better picture of where your tax situation stands. We can help you analyze your financial statements for tax savings and planning opportunities. 

Deferral of income and accelerating expenses
Many times, there may be strategies such as the deferral or acceleration of income or prepayment or deferral of expenses, that can help you save taxes and thereby strengthen your financial position. As another example, in terms of property and equipment purchases, you may benefit from making these purchases before the end of the year. Many purchases can be completely written off by businesses in the year they are placed in service. Plus, there are tax-favorable rules that permit qualified improvement property to qualify for 15-year depreciation and, therefore, also be eligible for 60% first-year bonus depreciation. The percentage for first-year bonus depreciation is set to decrease to 40% for 2025 unless Congress passes legislation. Thus, it is important to consider the timing of your capital purchases. 

Retirement Plans
If your business does not already have a retirement plan, now might be a good time to consider. Current rules allow for significant deductible contributions. For example, if you are self-employed and set up a SEP plan for yourself, you can contribute up to 20% of your net self-employment income, with a maximum tax-deductible contribution of $69,000 for 2024. If you are employed by your own corporation, up to 25% of your salary can be contributed, with a maximum tax-deductible contribution of $69,000 for 2024. 

A 401(k) plan can be especially attractive for self-employed and small corporations, because, in addition to the contribution of up to 20% (25% if you are employed by your own corporation) of compensation, the plan can allow matching contributions, meaning more before-tax money goes into the plan. A SIMPLE-IRA is another option that can be a good choice if your business income is modest. Depending on your circumstances, the SIMPLE-IRA plan can allow for bigger tax-deductible contributions than a SEP or 401(k).

Section 179 Deductions 
For qualifying property placed in service in tax years beginning in 2024, the maximum allowable Section 179 deduction is $1.22 million. Most types of personal property, as well as off-the-shelf software, used for business are eligible for Section 179 deductions. 

Section 179 deductions also can be claimed for certain real property expenditures, called Qualified Improvement Property (QIP), up to the maximum annual Section 179 deduction allowance ($1.22 million for tax years beginning in 2024). There is no separate Section 179 deduction limit for QIP expenditures, so Section 179 deductions claimed for QIP reduce the maximum Section 179 deduction allowance dollar for dollar. 

QIP includes any improvement to an interior portion of a nonresidential building that is placed in service after the date the building is first placed in service, except for expenditures attributable to the building’s enlargement, any elevator or escalator, or the building’s internal structural framework. 

Section 179 deductions also can be claimed for qualified expenditures for roofs, HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property. To qualify, these items must be placed in service after the nonresidential building has been placed in service. 

Please note, Section 179 deductions can’t cause an overall business tax loss, and deductions are phased out if you place more than $3.05 million of qualifying property in service during the 2024 tax year. Section 179 deductions can be subject to several limitations if you own an interest in a pass-through business entity (partnership, S Corporation, or LLC treated as either for tax purposes).

Most States have limitations on section 179 depreciation which requires a carryforward of excess federal deduction. 

First-year Bonus Depreciation
60% first-year bonus depreciation is available for qualified new and used property that is acquired and placed in service in calendar-year 2024. That means your business might be able to write off 60% of the cost of some or all your 2024 asset additions on this year’s return. However, you should generally write off as much as you can using Section 179 deductions before taking advantage of 60% first-year bonus depreciation, since, if no limits apply, Section 179 expensing results in a 100% write-off. 

Qualified property includes depreciable property with a recovery period of 20 years or less and off-the-shelf computer software. Most personal property has a recovery period of 20 years or less. Some real property, such as QIP (defined earlier) and land improvements (for example sidewalks and fences) also have a recovery period of 20 years or less and qualifies for bonus depreciation. 

To take advantage of Section 179 expensing and/or bonus depreciation, consider making eligible asset acquisitions between now and year end. The bonus depreciation percentage is scheduled to decrease to 40% for assets placed in service in 2025. So, if you are thinking about acquiring qualifying assets, getting them placed in service in 2024 rather than 2025 means that you get the deduction in 2024 rather than 2025, and if you take bonus depreciation, the higher bonus depreciation rate will apply.

Most States have limitations on bonus depreciation which requires a carryforward of excess federal deduction. 

Timing year-end Bonuses
Both cash and accrual basis taxpayers can time year-end bonuses for maximum tax effect. Cash basis taxpayers should pay bonuses before year end to maximize the deduction available in 2024 if you expect to be in the same or lower tax bracket next year. Cash basis taxpayers that expect to be in a higher tax bracket in 2025, because of significant revenue increases, should wait to pay 2024 year-end bonuses until January 2025, when their deduction for bonuses will offset income taxed at a higher rate. Accrual basis taxpayers deduct bonuses in the year that all events related to the bonuses are established with reasonable certainty. However, the bonus must be paid no later than 2 ½ months of the end of the year end for a current year deduction. Calendar- year taxpayers using the accrual method would have to pay bonuses by 3/15/2025 to accrue and deduct the bonus in 2024. Accrual method employers who think they will be in a higher tax bracket in 2025 and want to defer deductions to that year should consider changing their bonus plans before year-end to set the payment date later than the 2 ½ month window.

State Pass-Through Entity Tax
Generally, both federal and state income tax on a pass-through entity’s taxable income is paid by the entity’s owners. Because individuals cannot deduct more than $10,000 ($5,000 if MFS) of state and local income tax as an itemized deduction, this can limit the owners’ deduction for state income tax on the entity’s income. The Pass-Through Entity tax (PTE) election allows pass-through businesses to elect to pay state income tax on their business income at the entity level. In other words, the entity elects to pay the state income tax due on the business income that would otherwise pass through to owners and be subject to state income tax at the owner level. The federal itemized deduction cap for state and local taxes that applies to individuals does not apply to the pass-through entity. Instead, the state income taxes reduce the business income that flows throw to the entity’s owners. Currently, of the 42 states (including the District of Columbia) that impose a personal income tax, 35 have enacted legislation allowing a PTE election and one has proposed such legislation. 

2025 Unclaimed Funds Report
Effective January 1, 2025, the State of Ohio requires all businesses to file any Ohio Unclaimed Funds Report including negative or none-based reports online through the Ohio Business Gateway. The State will no longer accept paper filed returns. The report deadline is November 1 without an extension. As online/electronic reporting will require each business to be individually registered with the Ohio Business Gateway or Ohio Department of Commerce, we will no longer be able to submit Ohio Unclaimed Funds Reports on your behalf. You will need to make arrangement to register online to submit your 2025 return.

This year-end planning letter is based on the prevailing tax laws, rules, and regulations effective at the time of publication. Be Aware of any subsequent tax legislation enacted which may change the items discussed in this planning letter. Whether it is working toward a tax-optimized retirement or getting answers to your tax and financial planning questions, we are here for you. Please contact our offices to set up your year-end review. As always, planning ahead can help you minimize your tax bill, avoid surprises, and position you for greater success.