Category: Uncategorized

IRS Plans to Shake Up Leadership

3 min read

IRS Leadership change 2024The top leadership in the IRS is set to change. IRS Commissioner Daniel Werfel believes the changes are needed for the agency to meet its new goals. He aims to create greater flexibility and efficiency over the agency by streamlining internal processes. The changes also are needed, in his view, to adapt to the evolving landscape around tax administration – which has undergone changes due to new tax laws and technology.

What Are the Changes?

Changes to the organizational structure include reducing the Deputy Commissioner post to a single position (there are currently two); as well as creating four new positions with an IRS chief of taxpayer services, IT, compliance, and operations.

Long Time No Changes

While these changes are set to take place in the beginning of 2024, they are the first changes to take place in a long time for agency leadership. Currently, the highest rungs of the IRS organizational structure dates to the year 2000, over 20 years ago.

The last time changes were made in 2000, the IRS reorganized operations to support taxpayer segments that were the result of the IRS Restructuring and Reorganization Act of 1998.

Single Deputy IRS Commissioner Model

The change over from two at the top to a single deputy IRS commissioner position is modeled after the way the Treasury Department is structured. Doug O’Donnell, current deputy commissioner for Services and Enforcement, will step up to the post.

The Four New Positions

Other key changes in the leadership structure are the creation of four new chief positions, overseeing the areas of taxpayer service, compliance, IT, and operations.

Ken Corbin (currently Wage and Investment Commissioner) is being promoted to Chief, Taxpayer Service. Corbin served in various roles within the IRS since starting his career in 1986 at the Atlanta Service Center. His division will handle taxpayer-centered services, including the toll-free call and taxpayer assistance centers, overseeing tax return processing centers and correspondence with taxpayers.

The Chief, Taxpayer Compliance Officer role will be filled by Heather Maloy. Maloy’s career encompasses both roles within the IRS as well as private practice. Previously, she served as the LB&I Commissioner as well as other roles, including Associate Chief Counsel to a number of IRS divisions. The Chief, Taxpayer Compliance Officer role will oversee compliance work, including operations in the Small Business, Self Employed, Tax Exempt, and Government Entities divisions. She will also be responsible for the Professional Responsibility, Return Preparer, and Whistleblower offices.

The position of Chief Information Officer will be filled by Rajiv Uppal. Uppal’s current role is as the Director of the Office of IT and Chief Information Officer for Medicare and Medicaid Services centers. The Chief IT Officer role will oversee the entire IRS IT division.

Finally, the fourth new position, that of Chief Operating Officer, will be held by Melanie Krause. Krause began working at the IRS in 2021 and currently serves as the Chief Data and analytics Officer. Prior to this, she was the Acting Deputy Commissioner for Services and Enforcement.

Conclusion

Logistically, the changes should occur on the proposed timeline as reorganization changes that do not require a budgetary appropriation amendment. In layman’s terms, the IRS isn’t looking to Congress for any more money, so Congressional approval isn’t needed. As such, the changes are all but certain to take place in early 2024. The result aims to help the organization adapt to recent tax law changes and evolving technology while simultaneously streamlining the organization and making it both more efficient and effective.

Documenting Fiduciary Accounting Practices

3 min read

Fiduciary AccountingFiduciary accounting, which is also referred to as court accounting, is a way to document and report financial activity during a discrete period of time for legal entities, such as a conservatorship, estate, trust or guardianship.

It’s meant to give adequate notice to all relevant parties when it comes to every consequential financial activity impacting the administration that occurred over the accounting time frame. It shows every disbursement and receipt that is managed by the legal entity’s fiduciary. It accounts for transactions beginning with the initial funding or principal and the resulting future transactions, including income.

When it comes to the format of fiduciary accounting, along with the United States having its own unique modifications, the Uniform Principal and Income Act requires checking the governing instruments, in addition to state laws, to ensure fiduciary accounting compliance is met. However, looking at the National Standard Format, the following components in a filing are accepted by most courts:

  • Documentation of incoming and outgoing monetary sums of the legal entity’s starting principal and income produced
  • Documentation of the entity’s liabilities and assets
  • Documentation of any payment the fiduciary received
  • Legally authorized individuals hired by the fiduciary, what pay they received, and their association with the fiduciary

The primary consideration is that being part of being a fiduciary is having a legal duty to the beneficiary of the legal entity, including “the duty to account” to the beneficiary. This duty to account is oftentimes required by the governing document, the state statute, a court order, linked to court proceedings or a beneficiary requesting an accounting. If this duty is breached, the fiduciary may be liable.

The accounting should ensure a reporting of every asset in the legal entity. During the first year, the beginning balance will list the assets that fund the account. For successive accountings, the starting balance and the ending asset values on the preceding accounting should be the same. Along with the assets in the custody of the legal entity being documented, any asset that has been withdrawn, paid out, or moved must also be documented. Income received from the entity’s investments is to be measured against the principal and income investment schedules to ensure that all income, dividends, and interest have been received and reported correctly.  

Reasons Why an Accounting is Done

Some of the more straightforward reasons a fiduciary accounting is done is to ensure the fiduciary is compliant. There’s also greater efficiency when doing this annually versus more infrequent intervals since mistakes can be identified and corrected sooner. The same accounting results can also be used for the entity’s tax filings.

Other reasons concern the fiduciary and beneficiaries. The beneficiary can review and challenge the accounting if there’s impropriety suspected. When the fiduciary has completed their responsibilities for the beneficiaries and entity, liability for the fiduciary may cease to exist, even if the beneficiaries decline to execute a receipt, release, and refunding agreement (or similar document). If an approved accounting is necessary to be submitted with a court, the above four documents may be considered an acceptable substitution in place of an accounting.

Regardless of the type of legal entity that requires this type of fiduciary accounting, a fiduciary that is diligent and works with an accounting and legal professional can reduce the chances of exposing themself and their supervising entities from unnecessary exposure.

Relaxing Small Business Accountability and Supporting Veteran Homelessness and Substance Abuse Disorders

3 min read

SJ Res 32, HR 3581, HR 3848, HR 4531A joint resolution providing for Congressional disapproval under Chapter 8 of Title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to Small Business Lending Under the Equal Credit Opportunity Act (SJ Res 32) – This resolution was introduced on June 13 by Sen. John Kennedy (R-LA). It nullifies a rule issued by the Consumer Financial Protection Bureau (CFPB) that requires financial institutions to collect and report credit application data for small businesses to the CFPB. The bill passed in the House and the Senate on Dec. 1, but President Biden has threatened to veto the resolution because he believes it would reduce transparency and accountability in small business lending.

Caregiver Outreach and Program Enhancement (COPE) Act (HR 3581) – This bill supports various Veterans Administration initiatives: 1. Authorizes funding for the implementation, coordination, and enhancement of mental health counseling and treatment for participants (family caregivers of veterans) in the VA family caregiver program; 2. Authorizes the VA to contribute to local authorities to mitigate flooding risks on properties adjacent to VA medical facilities; 3. Requires an annual survey of police chiefs, facility emergency management leaders, facility directors, etc., for data regarding VA facility security; 4. Extends certain VA home loan fee rates through March 12, 2032. The legislation was introduced by Rep. Jennifer Kiggans (R-VA) on May 22. It passed in the House on Dec. 4 and is now in the Senate for review.

Housing our Military Veterans Effectively Act of 2023 (HR 3848) – This Act is designed to address issues related to homeless veterans. It increases the maximum per diem payments to authorized entities that provide transitional housing and services to homeless veterans. It also authorizes a maximum of 200 percent of the rate for veterans who live in rural areas, areas with high veteran suicide rates, and high rates of veteran homelessness. Furthermore, the bill authorizes the VA, through fiscal year 2024, to use certain funds to provide additional assistance to homeless veterans participating in the HUD-VA Supportive Housing program and to manage the use of VA land for homeless veterans to live and sleep. The legislation was introduced on June 6 by Rep. Lori Chavez-DeRemer (R-OR) and passed in the House on Dec. 5. Its fate currently rests with the Senate.

Support for Patients and Communities Reauthorization Act (HR 4531) – This bipartisan legislation reauthorizes (through the fiscal year 2028) grants, programs, and activities that address substance use. The provisions address data collection, education, and surveillance activities; support for substance use disorder (SUD) prevention, treatment, recovery, and trauma experienced by families of SUD patients; and student loan repayment and other resources for the SUD workforce. The legislation also modifies certain drug schedules of controlled substances and permanently requires that Medicaid cover medication-assisted treatment for eligible SUD patients. This bill was introduced by Rep. Brett Guthrie (R-KY) on July 11 and is co-sponsored by 37 Republicans and 27 Democrats. It passed in the House on Dec. 12 and is currently under consideration in the Senate.

Considerations For Paying Off a Mortgage Early

5 min read

Paying Off a Mortgage EarlyFor many, buying a home is the biggest asset they will ever own. However, you aren’t able to fully benefit from that asset until you pay off the mortgage; until then, it is technically a liability. The most common length of a mortgage loan is 30 years, but most people either sell their home, refinance their mortgage – or even pay it off before the end of that term.

What are the pros and cons of paying off a mortgage early? Obviously, you no longer have to make monthly payments, so money can be directed elsewhere. It is advisable to pay off your mortgage before you retire when most people live on a lower, fixed income. By having the mortgage paid off, that money can be redirected to other household expenses and/or provide higher discretionary income.

It should be noted that paying off your mortgage doesn’t provide relief from other routine, high-ticket home expenses such as property taxes, homeowners’ insurance, or regular maintenance. However, owning your home outright means it can’t be foreclosed on and taken from you. It also provides a large financial asset from which you can tap the equity or sell for a windfall.

While paying off your mortgage can provide security and peace of mind, you should consider all the factors before going down this path. For example, you may not have enough discretionary income to devote to making extra payments to your mortgage loan principal.

Usually, in the first 10 to 20 years of homeownership, buyers are juggling a multitude of financial obligations – raising a family, building an emergency fund, saving for college, taking annual vacations, and investing for retirement. That doesn’t always leave a lot of money left over for your mortgage.

There are, however, different strategies you can use to pay off a mortgage early:

  • Pay an extra amount toward your principal along with your regular payment every month.
  • Pay an extra amount each year, such as from a work bonus or other annual windfall.
  • If you continue working after retirement age, you may want to allocate the required minimum distributions (RMDs) from a retirement account toward your mortgage.
  • Make large payments each year from an inherited IRA transferred from a deceased parent’s retirement account. Non-spouse heirs generally have 10 years to use up these funds. By withdrawing only a portion of the funds each year, the inherited IRA may continue to grow over the full 10-year period.
  • Pay off fully or a significant portion of the mortgage using other inherited funds from a deceased parent.

Not only does paying off the mortgage early shorten the life of the loan, but it also can save you tens of thousands of dollars in interest payments.

For some people, paying off a mortgage early may not be their best strategy. After all, if they have locked in a low, fixed interest rate on the loan for the entire term, their excess income may be better deployed to an investment portfolio. Over a 15-, 20- or 30-year period, regular contributions to an investment portfolio can earn even more than the equity built up in a home.

If you’re locked into a high-interest-rate mortgage, you may want to consider refinancing when rates are adjusted downward. This can help you allocate more money toward your principal. However, don’t be quick to refinance to a lower rate if you already have a low rate, as mortgages are structured to pay a higher percentage of interest on the front end of the loan. When possible, it’s best to refinance or pay extra principal in the early years of the loan rather than the later years – because refinancing could cause you to pay more interest in another front-loaded loan for another long term. Also, be aware that some mortgages have an early payoff penalty, generally during the early years of a refinance, so check before you pay it off early.

Another consideration is that mortgage interest is tax deductible, which may be a key tax saver for those in a high tax bracket.

It’s a good idea to pay off any high-interest debt you may owe, such as credit cards, auto, or student loans, before paying down your mortgage early. These debts may be costing you more money than you can save by paying off a low-interest mortgage. Once you’re debt-free, you can redeploy those payments toward your mortgage principal.

The decision to pay off a mortgage early depends on your situation and your priorities. Specifically, if you still need to build an emergency reserve fund, catch up on retirement savings, or pay down high-interest debt, you might be better off allocating money elsewhere. By the same token, if the investment markets are enjoying an upward trend and you have a low-interest mortgage, you may want to just let your money “ride” in the market so you have more available later – perhaps then you can pay off your mortgage before you retire.

4 Smart Ways to Maximize Your IRA Contributions

4 min read

Maximize Your IRA ContributionsUnless you’re near retirement, chances are you’re depositing a certain amount of cash each year in your IRA at tax time, then kind of forgetting about it, not thinking much about it until the next year. This dynamic can cost you a lot of money – today and at retirement age. Here are a few ways to make all your hard-earned money work even harder.

Invest your money; don’t simply fund it. According to a Vanguard study, two-thirds of last-minute IRA contributions end up just sitting in money market funds. The result? They’re just a little more than a checking account with a fancy name. Lesson: Don’t let your funds sit idle. They should be placed in the right investment, perhaps a target-date mutual fund. Maybe a bond fund or some carefully selected stocks. Do the work now. Take time to analyze what’s right for you so you can max out your investment.

Convert to a Roth. This scenario might not apply to you, but it’s a reality that quite a few have encountered: A sharp mid-career income loss, say, because of the pandemic, which would put you into a lower tax bracket. If this applies to you, it’s a good time to convert your traditional IRA to a Roth. Another scenario where converting might be a good idea is if tax rates are temporarily lowered by Congress. There’s also the backdoor Roth, which is a good tax reduction strategy; it works best for people who have high salaries (think C-suite) and access to a workplace retirement plan that causes them to be ineligible to deduct their traditional IRA contributions in the first place. It’s easy. Open a new traditional IRA, make non-deductible contributions, then convert it to a Roth. All said and done, no matter where you fall on the income spectrum, Roth IRAs are well worth looking into.

Avoid the procrastination penalty. Sure, making a full-sized IRA contribution right before your filing deadline feels good. You’re doing what you’re supposed to do, right? Taking the tax break for the prior year, right? Yes, but not so fast. (Just to refresh, it’s $6,500 for individuals in 2023; $7,500 for people 50 and older; the contribution cap is $7,000 for individuals in 2024 and $8,000 for people 50 and older.) But here’s the rub: You’ve left more than 15 months of potential investment income on the table. What? Yes, that is $6,500 that you should have invested during the previous year, maybe placed in a mutual fund or stock that could have been earning for you. So, think again about waiting until the last minute to contribute. It might end up being quite costly.

Invest in stocks and bonds – strategically. If you’ve been lucky enough to maximize your tax-advantaged account contributions and have some cash left over in your standard investment accounts, think about buying bonds in your IRA and stocks in your standard account. But why? Bond dividends are taxed as ordinary income. Stocks and stock-filled mutual funds generally generate capital gains. Specifically, these gains aren’t simply regular payments you get from your stocks. They’re the increase in their sticker price each year. It’s important to understand the difference. Capital gains, which only occur when you sell a stock or fund, are taxed at a lower rate. It makes sense to put them in taxable investment account and then save your tax-advantaged accounts for larger investments. Regardless of which IRA you decide upon, you won’t pay taxes on money while it stays put in your account.

Saving for retirement is one of the most important things you can do. Granted, life happens, and sometimes you get off track. But if you keep your eyes on your future nest egg and max out contributions while you’re working, you’ll be better prepared to enjoy your next season of life.

Sources

https://www.forbes.com/advisor/retirement/maximize-ira-contribution

Updated IRS 2024 Penalties for Late Filing and Missed Tax Forms

3 min read

IRS 2024 PenaltiesEvery year, the IRS announces annual inflation adjustments related to tax rate schedules, deductions, cost-of-living adjustments, etc. What many taxpayers do not realize is that they also adjust the cost of fines and penalties as well. This means that the penalties for late filings and missing tax forms are getting more expensive. In this article, we will look at the penalties for failing to file various types of tax returns as well as failing to file certain types of forms.

Failure to File Penalties

There is simply no way around it: skipping out on filing a tax return is going to cost you. Each type of return has its own penalty associated with it. For returns to be filed in 2024, the failure to file penalties is as follows.

Income Tax Returns

Failure to file within 60 days of the due date, the minimum penalty is $510 (up from $485 in 2023) and can increase depending on the circumstances – up to 100 percent of the taxes on the return.

Partnership Return

Failure to file a partnership tax return incurs a $245 penalty (up from $235 in 2023).

S-Corporation Return

Failure to file an S-Corporation return incurs a $245 penalty (up from $235 in 2023).

Beyond these simple financial penalties, things can get serious depending on the length of time a return has not been filed and the amount of past due taxes. This includes liens, levies, and passport restrictions.

Passport Revocation or Denial

In cases of serious tax delinquency, defined as a tax debt of $62,000 or more in 2024, your application for a new passport can be revoked or denied renewal.

Liens

If a taxpayer fails to pay a properly assessed tax bill, the IRS can file a Notice of Federal Tax Lien. This type of lien puts creditors on notice that the federal government has a legitimate claim over your property. This means that when you sell any of your property or assets, you can be forced to send the proceeds to the IRS.

Levies

Levies are the legal seizure of your property. Typically, any property can be levied to fulfill a tax obligation. There are exceptions for certain small amounts of personal property, such as provisions, furniture, and other household personal effects, and business property needed to carry on a trade or business, but these are negligible thresholds (less than $12,000). Further, wages can be levied and are subject to a formula that calculates a maximum weekly amount.

In any case, a levy is the last resort of the IRS but is obviously something you want to avoid.

Conclusion

Paying penalties is no fun, and no one wants to pay them. You may feel overwhelmed due to personal or business circumstances or other reasons, but the absolute worst thing you can do is to ignore your tax filing obligations. Even if you are late, the sooner you file versus burying your head like an ostrich, the better – as it’s “better late than never” when it comes to the IRS.

The main lesson is that ignoring things won’t make them better.

Impact of Digital Currency on Businesses’ Accounting

4 min read

Impact of Digital Currency on Businesses’ AccountingThe emergence of digital currency is reshaping how businesses operate and account for financial transactions. As accounting professionals navigate this transformative wave, understanding the profound impact of digital currency on business accounting becomes not just relevant but imperative.

What is digital currency?

Digital currency is a form of currency that exists only in electronic or digital form, without a physical counterpart like coins or banknotes. There are two main types of digital currencies.  First, there are decentralized cryptocurrencies such as Bitcoin or stablecoins such as USDC (that track to the US dollar at 1-1). Cryptocurrencies are always based on blockchain technology.  The other main type and more likely to serve as a substitute for traditional government issued currencies are digital currencies such as central bank digital currencies (CBDCs).  Unlike crypto-currencies, CBDCs are centralized and issued by issuing authority and also are not necessarily based on a blockchain or immutable ledger systems.

Immutable ledger systems ensure transparency, traceability, and security in financial transactions. The technology has also given rise to decentralized finance, or DeFi, designed to offer access to financial services without the need for institutions such as banks. This translates into a paradigm shift for accounting professionals, as digital currency and cryptocurrency are continually adopted to make payments and investments and as a reservoir of value.

The Impact of Digital Currency on Business Accounting

  1. Enhance Financial Reporting – Digital currencies facilitate real-time transactions, eliminating the lag time associated with traditional banking processes. This newfound speed provides accounting professionals with instant access to financial data, enabling quicker and more accurate financial reporting. Businesses can now assess their financial health daily, leading to more informed decision-making.
  2. Smart Contracts Streamline Auditing Processes – Smart contracts, self-executing contracts with the terms of the agreement written directly into code, bring automation to the auditing process. This reduces the risk of human error and accelerates auditing procedures. Accounting professionals can leverage smart contracts to automate routine tasks, allowing them to focus on higher-value analytical work.
  3. Cross-Border Transactions Simplify Global Accounting – Accounting for international transactions has historically been intricate due to varying currencies and exchange rates. With digital currencies, businesses can streamline these processes, reduce the complexities associated with global accounting, and provide accounting professionals with standardized data for analysis.
  4. Enhanced Financial Inclusion Accounting for a Broader Audience – Digital currencies can enhance financial inclusion by providing access to financial services for unbanked or underbanked individuals. Accounting professionals will need to consider the unique accounting challenges associated with this expanded user base, such as diverse transaction volumes and varying levels of financial literacy.

Challenges of Digital Currencies

Accounting professionals face both challenges and opportunities as businesses increasingly adopt digital currencies for transactions. Accounting standards may need to evolve to accommodate the unique characteristics of digital currencies.

The integration of digital currencies with traditional accounting systems is another critical consideration. Businesses will likely operate in a hybrid financial environment for the foreseeable future, necessitating seamless integration between digital and conventional accounting systems. Accounting professionals must adapt to this coexistence, ensuring data accuracy and integrity across platforms.

The volatile nature of digital currencies poses both risks and opportunities for businesses. While the potential for significant gains exists, so does the risk of value fluctuations. Accounting professionals play a pivotal role in developing robust risk management strategies, ensuring businesses can thrive in the evolving landscape of digital currency without exposing themselves to undue financial risks.

The regulatory environment surrounding digital currencies is still evolving. Accounting professionals must stay abreast of changing regulations to ensure businesses remain compliant. This adaptability is crucial as governments define and regulate digital currencies worldwide. For instance, the lack of a precise classification of digital currencies poses difficulties in determining their financial treatment. The absence of standardized guidelines complicates valuation, reporting, and compliance, requiring accountants to navigate a complex landscape where traditional classifications may not fully capture the distinctions of these evolving assets. Therefore, a proactive approach to compliance will be integral to the long-term success of businesses in this space.

As digital currencies evolve, accounting professionals must commit to continuous learning. Staying ahead of technological advancements, regulatory changes, and industry best practices is paramount. Professional development in areas such as blockchain technology, cryptocurrency taxation, and digital auditing will be essential for accounting professionals aiming to thrive in the digital era.

Conclusion

The impact of digital currency on business accounting is transformative and far-reaching. Accounting professionals are at the forefront of this paradigm shift, navigating the challenges and harnessing the opportunities presented by the digital revolution. Embracing innovation, adapting to changing regulations, and continuously honing skills will ensure businesses survive and thrive in this dynamic era of digital currency.

The 2023 Tax Planning Guide

5 min read

2023 Tax Planning GuideIt’s that time of year again: time for year-end tax planning. With the end of 2023 coming fast, the time to act is now. In this article, we’ll look at the moves you can make to optimize your tax situation in 2023 as an individual taxpayer.

Itemized Deductions

Flexing your timing on itemized deductions is a solid strategic move. It can help you shift to a bigger itemized deduction in 2023 versus 2024 (but not both). This can be advantageous if you expect to be in a higher tax bracket in one year compared to the other. Key itemized deductions to consider are home interest, state and local taxes, charitable deductions, and medical expenses.

Electric Vehicles

If you are in the market for a new car, consider buying an electric vehicle (EV) to save some taxes as well. Many new EVs can get you a credit of up to $7,500 and used versions up to $4,000. The credit is limited based on the cost of the vehicle, with more expensive models ineligible for the tax credit. Generally, the MSRP of a sedan cannot exceed $55,000, and SUVs, trucks, and vans cannot be more than $80,000. 

In addition to the price limit on the EV itself, the credit is limited by taxpayers’ income levels. Married couples’ modified gross income cannot be more than $300,000 to get the credit on a new EV and $225,000 for a used version. Single taxpayers are capped at $150,000 for a new version or $75,000 for a used EV.

One important distinction here is that if you buy an EV in 2023, you’ll need to claim the credit via your tax return, which means you won’t get the benefit right away. In 2024, however, you can choose to transfer the credit to the car dealer when you buy the vehicle and pay less as a result immediately. So, if you plan to buy now or in early 2024, it may be better to wait if you have the choice.

Home Improvements

There are two tax credits you can get related to making “green” upgrades to your home. The first is the residential clean energy property credit, which is installing alternative energy systems such as solar, wind, geothermal, etc., giving you a credit of up to 30 percent of the materials and cost of installation. The second is the energy-efficient home improvement credit. This applies to smaller upgrades like boilers, central air-conditioning systems, water heaters, windows, etc., that meet qualifications for specific energy efficiency ratings. The credit is for 30 percent of the cost, with $1,200 yearly maximum (from all upgrades).

Charitable Donations

If you are considering making charitable donations, consider donating appreciated property, like stocks or mutual funds, where you have unrealized gains. This way, you’ll get to deduct the full amount of the fair market value without having to sell and pay taxes on the gains first.

Beware Required Minimum Distribution (RMD) Rules for IRAs

The penalty for failing to take your RMD dropped from 50 percent down to 25 percent with the Secure 2.0 Act in 2023, but it is wise to avoid the still hefty penalty. The general rule is that taxpayers 73 and older must take annual payouts, and there is a specific calculation behind it based on your age and account balance. You can also be subject to RMDs at a much younger age if you inherited an IRA. If you don’t feel comfortable making this determination, it’s best to check with your CPA or financial advisor to ensure you withdraw the right amount.

Max Out Retirement Plans

The deadline to fund workplace 401(k) plans is December 31, 2023, while 2023-year IRA contributions are allowed up until April 15, 2024. Taxpayers can contribute up to $22,500 in a 401(k) ($30,000 if age 50 or older); and $6,500 for IRAs ($7,500 if over 50). 

Capital Gains and Tax Loss Harvesting

The capital markets have seen a volatile year, and interest rates are at highs not seen in quite some time. This may create situations where tax loss harvesting is advantageous.

Generally, if you have losses in some securities, understand that you can take losses against positions with gains up to the number of gains you realize, plus a maximum of $3,000 against other income. Excess losses are carried forward to future years. So, if you have a combination of winners and losers in your portfolio, consider tax loss harvesting to lower your tax bill.

Beware of the wash-sale rules, however. The wash-sale rules forbid you to sell and then repurchase “substantially identical” securities within 30 days of the sale on loss positions. One nuance here is that cryptocurrencies are not subject to the wash-sale rule as of yet.

Increase Your Withholdings

If you expect to have a hefty tax bill, then it may be wise to have additional amounts withheld from your paycheck or make an estimated payment. This can help you avoid a penalty for underpayment of taxes. As long as you prepay via tax payments or withhold a minimum of 90 percent of your 2023 total tax bill or 100 percent of what you owed for 2022 (110 percent if your 2022 AGI exceeded $150,000), you are clear of the penalty.

Conclusion

As we prepare to enter the final month of 2023, now is the time to take a look at your financial and tax situation to see if there are any moves you can make to minimize your 2023 tax liabilities and maximize your wealth.

Wage Garnishment Considerations for Business Owners

3 min read

Wage GarnishmentAccording to the United States Department of Labor’s Consumer Credit Protection Act (CCPA), wage garnishments are a complex legal process for employers to account for when it comes to employment matters. This article specifically refers to Title III of the Consumer Credit Protection Act. 

Usually authorized through a court order, a wage garnishment directs an employer to withhold or garnish an employee’s wages for a certain amount or percentage to satisfy an outstanding debt. Wage garnishments also can be implemented for delinquent tax obligations and other debts owed to federal agencies of the U.S. federal government, as well as for state-level tax collectors. 

Another consideration for Title III is that for a single debt, employees may not be fired; but if an employee’s earnings are garnished for two or more distinct debts, an employer has the discretion to involuntarily separate an employee from its business. This law also permits varying amounts and percentages of an employee’s “disposable earnings” that may be withheld.

The first step is determining how earnings are defined in the course of deciding the final wage garnishment calculation. Examples include but are not limited to retirement and pension payments to the employee, hourly wages, yearly salaries, commissions, bonuses, along with profit sharing, etc.

When it comes to lump-sum payments, the CCPA requires counting earnings that are for personal services but not including non-personal service-related lump-sum payment compensation as the first step when calculating the final wage garnishment. 

Defining Disposable Earnings

The final amount able to be garnished is determined by the employee’s disposable earnings. This is defined as the earnings remaining once legally mandated deductions are factored into an employee’s earnings. Example deductions include local, federal, and state taxes, along with withholdings for unemployment, Medicare, and Social Security taxes. Voluntary deductions, such as health premiums, voluntary retirement plan contributions, etc., are not factored into the disposable earnings calculation.

When it comes to regular garnishment guidelines, which include non-support, bankruptcy, or tax-based requests, for both state and federal taxes, the maximum weekly amount is the smaller amount of either one-fourth of the worker’s disposable earnings or how much the worker’s disposable earnings exceed 30 times the U.S. minimum wage of $7.25 per hour x 30 hours = $217.50 (as of June 2023).

Looking at a weekly view, if disposable earnings are $217.50 or less, no garnishment can occur. If disposable earnings between $217.50 and up to $290 are considered, only $72.50 may be garnished, depending on how much the outstanding debt is in total. If the worker’s disposable earnings exceed $290 for a weekly pay period, up to one-fourth of the pay period’s disposable earnings can be considered to be garnished. It’s important to note that some bankruptcy court orders, state/federal tax debts, and court orders for child support and/or alimony are not necessarily subject to the garnishment ceilings discussed above.

While this information is not comprehensive for employers, it’s important to understand all the federal, state and local regulations to ensure compliance is achieved to reduce the chances for adherence complications.

Expanding Benefits for Veterans and Extending Government Funding Until Jan. 19, 2024

3 min read

Expanding Benefits for Veterans and Extending Government Funding Until Jan. 19, 2024A bill to amend Title 38, United States Code, to extend and modify certain authorities and requirements relating to the Department of Veterans Affairs, and for other purposes. (S 2795) – This bill was introduced on Sept. 13 by Sen. Don Tester (D-MT). This act extends various Department of Veterans Affairs (VA) programs and benefits, including extending the use of contract healthcare professions for disability exams from three to five years; extending authorization for VA emergency preparedness for public health emergencies through fiscal year 2028; and extending certain fee rates under the VA’s home loan program through Nov. 15, 2031. The bill passed in the Senate on Sept. 13, the House on Sept. 26, and was signed into law by the President on Oct. 6.

Wounded Warrior Access Act (HR 1226) – This bill requires the VA to develop and maintain a secure online website that will allow claimants to request records related to their VA claims and benefits, as well as a process for reporting violations. The legislation was introduced by Rep. Pete Aguilar (D-CA) on Feb. 28. It passed in the House on March 7, the Senate on Nov. 2 and was signed into law on Nov. 13.

Korean American Valor Act (HR 366) – This act amends U.S. Code Title 38 to treat certain members of the armed forces of the Republic of Korea, who served in Vietnam under the Armed Forces of the United States, as veterans for purposes of qualifying for healthcare by the VA. The legislation was introduced on Jan. 13by Rep. Mark Takano (D-CA), and was passed in the House on May 22 and in the Senate on Oct. 19. The bill was enacted by President Biden on Nov. 13.

A bill to amend Title 38, United States Code, to strengthen benefits for children of Vietnam veterans born with spina bifida, and for other purposes. (S 12) – Introduced by Sen. Mike Braun (R-IN) on Jan. 26, this bill requires the VA to provide healthcare, job training and monetary benefits to children of Vietnam veterans who were born with spina bifida – for the duration of the child’s life. The bill also requires the VA to establish an advisory council responsible for the care, coordination and ongoing outreach to assist with any care changes over time. The bill passed in the Senate on July 13, the House on Sept. 19, and was signed into law on Oct. 6.

Further Continuing Appropriations and Other Extensions Act, 2024 (HR 6363) – This continuing resolution (CR) was introduced by Rep. Kay Granger (R-TX) on Nov. 13. It is part of a two-step process to continue funding most government programs and activities at fiscal year 2023 levels for the current fiscal year (2024). The CR expires on Jan. 19, 2024, by which time budget legislation will need to be passed in order to avoid a government shutdown. This CR passed in the House on Nov. 14, the Senate on Nov. 15, and was signed by the President on Nov. 16.