Key Tax Considerations

Bonus Depreciation Phase Out

First-year bonus depreciation that allow business to deduct 100% of capital purchase are phasing out beginning 2023. For qualified improvement property and other assets with a tax life of 15 years or less, the deduction is 80% (down from 100% in 2022). The deduction decreases 20% each year until completely eliminated by 2027. Thus, it’s important to consider the timing of your capital purchases. Let us help you receive the best tax treatment.

Business Ownership Reporting, including LLCs.

A new filing requirement, Beneficial Ownership Information Reporting (BOI) to the Financial Crimes Enforcement Network (FinCEN) starts in 2024. This new requirement applies to all businesses that are registered with state(s) to engage in business including one-member LLCs, sole proprietorships, and rental activities under LLCs. Severe penalties are imposed on businesses who do not comply. Businesses will need to complete this reporting by different dates based on when they were formed:

• Formed before 2024: January 1, 2025
• Formed in 2024 only: 90 days after formation to file the initial report.
• Formed after 2024: 30 days after formation

Please reach out to your business attorney and/or registering agent as soon as possible if you own a business.

E-filing of W2s and 1099s

Starting with tax year 2023, taxpayers must e-file W-2s and 1099s if they are filing more than 10 forms total. Penalties apply to any paper filed forms in excess of 10. Plan ahead and obtain W-9 information from your service providers well ahead of the January 31 deadline.

Standard mileage rates and business meals deduction

The IRS has not yet released the standard mileage rate for 2024. The rates are typically updated in December for the following year. Beginning on 1/1/2023, the standard mileage rates for the use of a car are 65.5 cents per mile driven for business, 22 cents per mile driven for medical, and 14 cents per mile driven in service of charitable organizations.

The pandemic provisions that allowed a 100% deduction for business meals purchased from a restaurant were ended and have returned to being a 50% deduction started in 2023.

Additional child tax credit

The maximum additional child tax credit amount increased to $1,600 for each qualifying child.

Clean Vehicle Tax Credits

Tax credits for purchase of electric cars have a new set of rules starting in 2023. Eligibility for the credit up to $7,500 depends on MSRP, battery manufacturing, purchase price and the buyer’s income.

Confirm in advance if the vehicle is eligible for the credit on https://fueleconomy.gov/feg/tax2023.shtml. It is also important to consider your income for the year of purchase. If your income is too high but the car is eligible, you may want to consider getting the credit indirectly through an auto lease if the dealer has that option.

Energy Efficient Home Improvement Credit

These expenses may qualify if they meet requirements detailed on energy.gov(https://www.energy.gov/policy/articles/making-our-homes-more-efficient-clean-energy-tax-credits-consumers)

• Exterior doors, windows, skylights, and insulation materials
• Central air conditioners, water heaters, furnaces, boilers, and heat pumps
• Biomass stoves and boilers
• Home energy audits

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation. From 2023 through 2032,  30%, up to a maximum of $1,200 (heat pumps, biomass stoves and boilers have a separate annual credit limit of $2,000) with no lifetime limit.

Residential Clean Energy Credit

These expenses may qualify if they meet requirements detailed on energy.gov:

• Solar, wind, and geothermal power generation
• Solar water heaters
• Fuel cells
• Battery storage (beginning in 2023)

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation:

• 2022 to 2032: 30%, no annual maximum or lifetime limit
• 2033: 26%, no annual maximum or lifetime limit
• 2034: 22%, no annual maximum or lifetime limit

Retirement Accounts

Ensure you’ve maximized contributions to your retirement accounts, such as 401(k)s and IRAs. If eligible, consider making catch-up contributions to retirement accounts.

Required minimum distributions (RMDs)

The Secure 2.0 Act raised the RMD minimum age to 73 beginning in 2023.

• If you turned age 73 in 2023, it means you were 72 in 2022 and are subject to the age 72 RMD rule in effect for 2022. Your first RMD is due April 1, 2023, and your second RMD is due December 31, 2023.
• If you turned age 72 in 2023, remember to take your first RMD by April 1, 2025, for tax year 2024.

The rules for inherited IRAs changed for account owners who died after December 31, 2019. Please contact us if you recently inherited an IRA for more information.

Qualified charitable distribution (QCD) one-time election

Beginning in 2023, a one-time $50,000 qualified charitable distribution (QCD) can be made from your IRA to charitable trusts as part of the $100,000 annual QCD limit. Starting in 2024, the QCD annual limit will be indexed for inflation.

Plan ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.

IRA to HSA one-time transfer

It’s a good idea to contribute to your HSA as much as possible to maximize your tax benefits. The contribution limits are $3,850 for individual and $7,750 for family in 2023, and $4,150 for individual and $8,300 for family in 2024.

You can transfer funds directly from your IRA to a Health Savings Account (HSA) without taxes or penalties. If you’re hit with high medical expenses and have an insufficient balance in your HSA, transferring funds from your IRA may be a solution. You are allowed a one-time fund transfer directly from your IRA to a Health Savings Account (HSA) without taxes or penalties.

Washington State Capital Gains Tax

The 2021 Washington State Legislature passed a 7% capital gains tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets (excluding real estate). The Washington Supreme Court upheld the tax in appeals.

The tax applies to individuals if the total capital gains exceed the annual threshold of $250,000. Individuals can be liable for their ownership interest in a pass-through or disregarded entity that sells or exchanges long-term capital assets. The tax only applies to gains allocated to Washington State.

Please reach out to our team with questions to determine if you may owe the tax.

Take advantage of the annual gift tax exclusion to transfer wealth tax-efficiently to loved ones. The annual exclusion from gift tax is $17,000 per year per donor to donee in 2023 and $18,000 in 2024. Note that a married couple are considered as two separate donors.

Assess your estate planning goals and review your will, trusts, and beneficiary designations. The lifetime estate and gift exclusion are scheduled to be reduced from $12.9 million per person to $5 million per person indexed for inflation after December 31, 2025.

Appraisers and business valuators anticipate a spike in business as taxpayers try to obtain fair market values for gifting before the 2025 cliff. We recommend you reach out to us and your estate planning attorney now to discuss gift planning strategies to get ahead of the rush.

Here are a few more tax and financial planning tips to consider:

• 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.).  Review Your Income and Deductions:
  • Evaluate your current income and projected income for the year. Consider if you are eligible/would benefit from deferring any income to the following year.
  • Consider making additional contributions to retirement accounts to reduce taxable income.
  • Assess your itemized deductions. If they are close to the standard deduction, you may want to consider bundling deductions in alternating years.
• Capital Gains and Losses:
  • Review your investment portfolio for potential tax-efficient strategies.
  • Offset capital gains with capital losses to minimize your tax liability.
  • Take advantage of favorable tax rates on long-term capital gains.
• Charitable Giving:
  • Consider making charitable contributions before year-end to benefit from potential deductions.
  • If you’re over 70½, consider making a Qualified Charitable Distribution (QCD) from your IRA, which can satisfy your Required Minimum Distribution (RMD) while being tax-free.
  • Consider contributing to a donor advised fund (DAF) in years with significant income.
• Tax Credits and Deductions:
  • Review available tax credits and deductions, such as the Child Tax Credit, Education Credits, and energy-efficient home improvements for potential tax credit.
• Business Tax Planning:
  • If you own a business, explore opportunities for year-end business deductions.
  • Consider establishing or contributing to a retirement plan for your employees. Those establishing a plan for the first time may be eligible for the Retirement Plans Startup Costs Tax Credit.
• Maximize Tax-Advantaged Accounts:
  • Evaluate Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) for potential contributions.
  • Use up any remaining balances in your FSA before they expire.
• 529 Plans: Starting in 2024 you can transfer unused portions contributed to a Roth IRA plan for beneficiaries tax free. Confirm with us if your 529 plan is eligible.
• Estimated tax payments: With underpayment interest rates being on the rise (currently at 8% for federal), contact us to review your withholding and estimated tax payments and assess any liquidity needs.
• If you are investing in digital assets, a reminder that capital gains are taxed on the difference between your basis and your sale price. It can be very difficult to track down the basis. Good planning and tracking can save taxes.