Managing payroll can be a major challenge for small business owners, especially as state and federal payroll tax regulations continue to evolve. Missteps in this area aren't just minor hiccups — they can lead to significant financial penalties and operational disruptions. Below are some common payroll compliance pitfalls and ways to avoid them. Misclassifying Workers Businesses often prefer to treat workers as independent contractors (rather than employees) to lower costs and administrative burdens. However, the IRS, the U.S. Department of Labor, various state agencies and even workers themselves may challenge worker classifications. Properly classifying a worker as an independent contractor is beneficial because the business doesn't have to worry about employment tax issues or provide expensive fringe benefits. However, when a business mistakenly treats an employee as an independent contractor, the employer could owe unpaid employment taxes, penalties and interest. The employer also may be liable for employee benefits, such as health insurance and retirement plan contributions, that should have been provided but weren't. So, it's important to get worker classification right. Beware: IRS and DOL rules can differ from state and local rules. That said, worker classification is generally based on the degree of control the employer has over the person and their work product. Another misclassification error happens when an employer misinterprets an exemption from overtime pay. Most salaried executives and many other employers are exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA). However, the FLSA includes several key exceptions reflecting earnings thresholds. Miscalculating Pay Inaccurate earnings calculations can cause headaches for employers and hardship for workers. For instance, shorted employees may have to scramble to pay their bills. Examples of mistakes involving employee compensation include: Overpayment or underpayment, Errors relating to new hires and employees on disability or leave, Inaccurate retroactive payments, and Incorrect deductions for fringe benefits. If you make a mistake when compensating an employee, resolve the issue immediately and take steps to prevent it from happening again. Being transparent and responsive helps retain valued workers and maintain morale and productivity.   Tracking Time Improperly Accurately tracking time for hourly employees can be challenging. Employers may unintentionally overlook compensable time, such as meal or rest breaks, travel to off-site assignments, or participation in company-sponsored events. Under the FLSA, nonexempt employees — typically paid hourly — must receive overtime pay at 1.5 times their regular rate for any hours worked beyond 40 in a workweek. Improper time tracking can lead to two unfavorable outcomes: 1) underpayment, where employees aren't properly compensated for overtime, or 2) overpayment, which may require repayment or adjustments to future wages. Either scenario can cause frustration, damage morale, and potentially expose the employer to legal risk. Failing to Report All Sources of Income Compensation includes more than just salaries and hourly pay. Examples of alternative pay sources are: Overtime, Bonuses, and Commissions. Some lesser-known income items may also come into play. For instance, some employers may offer incentive stock options (ISOs) or other rights, gift cards, employee awards, and other fringe benefits, such as the use of company-owned vehicles. Payroll and income taxes must be paid on these items, too. Failing to include the value of awards, bonuses and fringe benefits (when required) in employees' taxable incomes can lead to substantial underreporting penalties for employers. Missing Deadlines The IRS and state tax agencies expect your business to deposit federal payroll taxes on time. That means your organization must deposit amounts withheld for income tax, Social Security and Medicare taxes (FICA) and Federal Unemployment Tax Act taxes (FUTA) throughout the year. It's critical to follow the IRS schedule for depositing payroll payments. Deposit frequency depends on your total tax liability. Most small businesses must deposit payroll taxes by the 15th of the following month. However, some may be required to make semiweekly deposits. In addition, small businesses must generally report wages and tax withholding quarterly. The due dates for calendar-year businesses' quarterly reports are as follows: Quarter Pay period Due date First January 1 – March 31 April 30 Second April 1 – June 30 July 31 Third July 1 – September 30 October 31 Fourth October 1 – December 31 January 31 of the following year Note: If a due date falls on a weekend or legal holiday, the deadline moves to the next business day. When cash is tight, business owners may be tempted to borrow money from withheld payroll taxes. This is never a good idea. Missed deadlines or underpaying the IRS could cost more taxes (plus penalties and interest). Additionally, an officer, business owner and/or other employee responsible for meeting payroll tax obligations on behalf of your organization could be held personally liable for the full amount of the unpaid taxes under Section 6672 of the Internal Revenue Code. Issuing Inaccurate W-2s Form W-2, "Wage and Tax Statement," is the only payroll tax form that goes directly from an employer to its employees. It provides the following tax information: Gross income, Taxable income, and Payroll withholding for fringe benefits and retirement account contributions. Reporting these items correctly is critical. Mistakes on an employee's W-2 can have a domino effect throughout the company. It can lead to penalties for errors, extra paperwork and disgruntled employees. Relying on Manual Recordkeeping It might be relatively easy for a small business owner to handle payroll matters for a handful of employees. But as your business grows, payroll tasks become more complicated. Reliance on paper processes, manual data entries and spreadsheets to track employees' hours can lead to miscalculations in pay. For example, manual processes can lead to misplaced worksheets and missed payments. Furthermore, when the person in charge of processing payroll is out of the office, his or her designated replacement may not be fully prepared for the responsibilities. This situation can cause payroll entries to fall through the cracks or be misrepresented. Consider investing in an automated payroll system integrates with your accounting system and other digital tools, such as customer relationship management platforms, project management tools, cloud storage and communication apps. Potential benefits include simplified payroll processing, improved oversight and fewer payroll errors.  Get It Right Payroll-related laws and regulations aren't written in stone. Payroll practices should take into account any changes applicable to your business and government requirements. For example, some procedures were paused or postponed during the pandemic, and new laws and rulings may require updates to your payroll management system. This requires continuous vigilance. If you feel overwhelmed by payroll tasks, it may be time to shift payroll management responsibilities to an external payroll provider. Professionals who specialize in payroll processing can help you avoid costly mistakes. Contact your professional advisors for more information.

by Casey Donnelly Tax Associate at Brewer, Eyeington, Patout & Co., LLP Depreciation recapture might sound complicated, but it’s an important concept for anyone who owns and sells property or business assets. Essentially, it’s a way for the IRS to “recapture” some of the tax benefits you received from depreciating an asset over time. Let’s dive into what this means and how it affects you. What is Depreciation? First, let’s understand depreciation. When you buy a property or an asset for your business, you can deduct a portion of its cost each year as depreciation. It helps spread out the cost of the asset over its useful life. What is Depreciation Recapture? When you sell that asset, depreciation recapture comes into play. If you sell the asset for more than its depreciated value (also known as the adjusted or book basis), you might have to pay taxes on the amount you depreciated. This is because the IRS wants to recover some of the tax benefits you received from those depreciation deductions. Types of Property and How They Are Treated Personal Property (Section 1245) : This includes things like machinery, equipment, and vehicles. When you sell these items, any gain up to the amount of depreciation you took is taxed as ordinary income. Real Property (Section 1250) : This includes buildings and structures. For these, only the depreciation that exceeds straight-line depreciation (a method that spreads the cost evenly over the asset’s life) is recaptured as ordinary income. The rest is taxed at a lower capital gains rate. How to Calculate Depreciation Recapture Here’s a simple way to think about it: Find the Adjusted or Book Basis : This is the original cost minus all the depreciation you’ve taken. Calculate the Gain : Subtract the adjusted basis from the sale price. Determine the Recapture Amount : The recapture amount is the lesser of the total depreciation taken or the gain on the sale. Tax the Recapture : This amount is taxed as ordinary income, while any remaining gain is taxed at capital gains rates. Why It Matters Depreciation recapture can increase your tax bill when you sell an asset. It’s important to be aware of this so you can plan accordingly. For example, if you’re selling a piece of equipment or a rental property, knowing about depreciation recapture can help you properly estimate your tax liability. Tips to Manage Depreciation Recapture Like-Kind Exchanges : You may be able to defer the gain on the sale of the property, by exchanging the asset for a similar one under Section 1031.  However, this is only applicable for real property. Installment Sales : Spreading the sale over several years can help manage the tax impact. Consult a Tax Professional : They can provide strategies tailored to your specific situation. Depreciation recapture is a key concept for anyone selling depreciated assets. By understanding how it works, you can better prepare for the tax implications and make informed decisions. Always consider consulting with your tax professional to navigate these rules effectively.

Many U.S. businesses filed for bankruptcy last year. Through the end of the third quarter of 2024 (the latest available statistics at this writing), formal bankruptcy filings were on track to exceed the 2023 mark and the watershed year of 2020. Here's a look at what's driving the increase and how the process works, including revised rules for small businesses that went into effect in 2022. A Perfect Storm As of September 30, 2024, 512 U.S. companies had filed for bankruptcy in calendar year 2024. This is higher than year-to-date filings reported in the third quarter of 2023 (504) and perilously close to 2020's year-end total (518). (That peak was generally attributed to fallout from the COVID-19 pandemic.)  Why are bankruptcies on the upswing? Rising inflation, higher interest rates, low consumer confidence and geopolitical uncertainty are contributing factors. Also, adverse market conditions may cause a small business to experience: Decreased demand.  Customer preferences may change, causing a shift in the marketplace, or the need for goods or services can dry up. More sophisticated, nimble competitors might be better positioned to adjust offerings or prices to accommodate these changes or may use advanced analytics to take market share from unwary small businesses. Cash flow shortages.  Small businesses can run into trouble when outgoing expenditures exceed incoming revenue. Shortfalls may happen when companies grow rapidly. But lax working capital management — for example, bloated inventory, late customer payments and bad debts — is often a precursor to bankruptcy. Ineffective debt management.  Business owners may borrow money to stay afloat during a cash crunch. However, interest payments and other related problems can drain a company's resources and eventually sink it. Poor leadership. Successful businesses have qualified, experienced managers in key roles. Without professional management, small businesses can struggle and fail to implement corrective measures. In addition, small businesses may have difficulty recovering from online scams, cyberattacks and embezzlement schemes. Larger companies generally have greater resources to absorb fraud losses and respond appropriately.  Bankruptcy Basics Bankruptcy is a formal legal proceeding initiated when a business can't meet its legal obligations. It offers a "fresh start" when a business is no longer viable. Chapter 11 of the U.S. Bankruptcy Code mainly allows a distressed business to reorganize its debt. After the filing is complete, the business continues to operate. This option may be preferable to Chapter 7 or Chapter 13. With Chapter 7, assets are liquidated, so creditors typically receive little or nothing. Chapter 13 is only available to wage-earners, self-employed individuals or sole proprietors. Among other differences, Chapter 13 has higher income thresholds than the other options, but you must pay off secured debts like car loans and mortgages in full. Close-Up on Chapter 11 Chapter 11 filings are most prevalent, in part, because there's no income limit and they're flexible. Typically, these proceedings involve debt restructuring — including priority tax debts, secured debts, unsecured debts, and leases and contract debts — while offering protection of business assets. The process starts when a debtor business voluntarily  petitions the bankruptcy court or when creditors file an involuntary  petition against the debtor after certain conditions have been met. In either situation, the business typically has about four months to develop its reorganization plan. However, the court may extend that timeline to up to 18 months if the debtor can show "just cause" for a delay. A bankruptcy judge makes several important determinations, including whether a debtor is eligible to file and will be discharged of its debts. Courts also appoint trustees to administer the proceedings. When bankruptcy is complete, a business's debts are discharged. Legislative Relief for Small Businesses Historically, it was difficult and expensive for small business owners to seek bankruptcy protection under Chapter 11. However, the Small Business Reorganization Act (SBRA) of 2019 provides more flexibility to small businesses that file for bankruptcy. The law includes six changes for businesses with no more than $2.75 million (indexed for inflation) in secured and unsecured debts under Subchapter V of Chapter 11. 1. Streamlined reorganizations. The law eliminates certain procedural requirements and lowers costs for small business reorganizations. Significantly, no one except business debtors can propose a reorganization plan. Plus, debtors aren't required to obtain approval or solicit votes for plan confirmation. Absent a court order, there's no unsecured creditor committee. The SBRA also requires courts to hold a status conference within 60 days of a petition filing, giving debtors 90 days to file their plan. 2. New value rule.  The SBRA repeals the requirement that equity holders of a small business debtor must provide "new value" to retain their equity interests without fully paying off creditors. Now, the plan must be nondiscriminatory and "fair and equitable." In addition, similar to Chapter 13, the debtor's entire projected disposable income must be applied to payments, or the value of the property to be distributed can't be less than the debtor's projected disposable income. 3. Trustee appointments.  A standing trustee is appointed to serve as the trustee for the bankruptcy estate. This trustee presides over the reorganization and monitors its progress. 4. Administrative expense claims.  Previously, a debtor had to pay any administrative expense claims on the plan's effective date. Under the SBRA, a small business debtor can stretch payment of administrative expense claims over the plan's term, giving this class of debtors a distinct advantage. 5. Residential mortgages.  The SBRA eliminates the ban on small business debtors modifying their residential mortgages. Thus, a debtor has more leeway if the underlying loan was used primarily for the debtor's small business. Otherwise, secured lenders continue to have the same protections as in other Chapter 11 cases. 6. Discharges.  The SBRA provides that courts must grant debtors a discharge after completing payments within the first three years of a plan (or a longer period of up to five years established by the judge). Discharges relieve debtors of personal liability for all debts under a plan (with certain exceptions). Important:  The debt limit under Subchapter V of Chapter 11 was temporarily raised by other pandemic-era legislation. The inflation-adjusted limit is now $3,024,725 for cases filed after June 20, 2024.  Seeking Outside Expertise Financial advisors usually play prominent roles in bankruptcies and reorganizations, regardless of the debtor's size. A CPA can help with the following: Budget preparation.  Companies with inadequate budgets that take on excessive debt may be forced to declare bankruptcy. CPAs can help develop viable reorganization plans. They can even help avert a formal bankruptcy filing with an informal reorganization plan that more effectively allocates working capital, without adversely affecting quality or performance. Debt management. Financial and legal advisors are instrumental in restructuring debt, including negotiations with creditors. A debtor may be able to lower monthly debt payments to a manageable level through consolidation or elimination of high-interest charges. CPAs may also unearth ways to tap into other resources and avert bankruptcy. Review of financial condition.  Bankruptcy requires a thorough examination of assets and liabilities. Advisors can prepare a statement of financial condition indicating whether any assets are held jointly or in a partnership. The bankruptcy court or IRS may request this statement. Tax matters.  Whether a business is on the verge of bankruptcy or has already filed a bankruptcy petition, a CPA firm can help comply with federal and state tax regulations. For More Information      Bankruptcy doesn't necessarily mean the end of your business venture. A reorganization can help distressed businesses recover from a downward spiral. Contact your financial advisor to discuss your options.

The Republicans will soon control the White House and both chambers of Congress, which will likely open the door for major tax legislation next year. Here are some thoughts on how this power shift could affect the taxes of small businesses and their owners. Extension of TCJA Provisions The Tax Cuts and Jobs Act (TCJA), which generally became effective in 2018, included many important federal income tax provisions that affect small businesses and their owners. Some are scheduled to expire at the end of 2025, while others are permanent. Republicans are expected to extend many of the expiring provisions, including: Individual tax rates on business income. The TCJA retained seven tax rate brackets as under pre-TCJA law, but five rates are lower than they were before. These rates generally apply to an individual taxpayer's: Net taxable income from a sole proprietorship or from a limited liability company (LLC) that's treated as a sole proprietorship for tax purposes, and Share of net income passed through from a partnership, an LLC that's treated as a partnership for tax purposes or an S corporation. For 2025, the tax rates for ordinary income are as follows: 2025 Federal Tax Rates onOrdinary Income and Short-Term Capital Gains Tax Rates Single  Married Joint Filers Head of Household 10% $0 – $11,925 $0 – $23,850 $0 – $17,000 12% $11,926 – $48,475 $23,851 – $96,950 $17,001 – $64,850 22% $48,476 – $103,350 $96,951 – $206,700 $64,851 – $103,350 24% $103,351 – $197,300 $206,701 – $394,600 $103,351 – $197,300 32% $197,301 – $250,525 $394,601 – $501,050 $197,301 – $250,500 35% $250,526 – $626,350 $501,051 – $751,600 $250,501 – $626,350 37% $626,351 and up $751,601 and up $626,351 and up   In 2026, the rates and bracket edges that were in place for 2017 (with cumulative inflation adjustments) are scheduled to return unless future legislation is enacted to change that outcome. When the Republicans take control of Congress in 2025, the TCJA rates for individuals will probably be extended — and the top rate will likely stay at the current 37%. QBI deduction. Before the TCJA, net taxable income from sole proprietorships, partnerships, LLCs that are treated as sole proprietorships or partnerships for tax purposes, and S corporations was passed through to the owners and taxed at owners' standard federal income tax rates. The TCJA established a new deduction based on a noncorporate owner's qualified business income (QBI) from these businesses. This tax break is available to individuals, estates and trusts. Under current law, a deduction of up to 20% of QBI may be available. However, it's subject to limitations that may apply at higher income levels. The QBI deduction isn't allowed in calculating a noncorporate business owner's adjusted gross income (AGI), but it reduces taxable income. In effect, it's treated the same as an allowable itemized deduction, though you're not required to itemize to benefit. The QBI deduction is scheduled to expire after 2025, absent congressional action. However, the Republican-controlled Congress will likely extend this tax break — or they might liberalize it or make it permanent. First-year depreciation tax breaks. For qualified property, the TCJA initially increased the first-year bonus depreciation percentage to 100% for eligible assets. After 2022, first-year bonus depreciation is still available, but the bonus depreciation percentages are reduced as follows: 80% for property placed in service in calendar year 2023, 60% for property placed in service in calendar year 2024, 40% for property placed in service in calendar year 2025, and 20% for property placed in service in calendar year 2026. First-year bonus depreciation is scheduled to vanish after 2026 without congressional action. However, there's a good chance the new Congress will extend or revive it. President-Elect Donald Trump has even proposed returning to 100% first-year bonus depreciation for qualifying capital investments. In addition, Trump has floated the idea of doubling the ceiling on the Section 179 expensing deduction for small businesses' qualifying investments in equipment. The TCJA permanently capped the deduction at $1 million, adjusted annually for inflation ($1.22 million in 2024 and $1.25 million in 2025). The deduction is subject to a phaseout when the cost of qualifying asset additions exceeds $2.5 million, adjusted annually for inflation ($3.05 million in 2024 and $3.13 million in 2025).   C Corporation Tax Rate The TCJA permanently established a flat 21% corporate rate for C corporations, which also applies to personal service corporations (PSCs). Before the TCJA, C corporations paid graduated federal income tax rates of 15%, 25%, 34% and 35% on taxable income. When taxable income exceeded $10 million, the effective tax rate was a flat 35%. PSCs paid a flat 35% rate on all taxable income. Trump campaigned to lower the corporate tax rate from 21% to 15% for corporations that make their products in America. However, it's currently unclear whether he has congressional support for this proposal.   R&E Expenditures Starting in 2022, the TCJA brought a significant permanent change to the tax treatment of research and experimentation (R&E) costs under Internal Revenue Code Section 174. Under current law, businesses no longer have the option to deduct so-called "specified R&E expenses" (those paid or incurred during the tax year). Instead, they must amortize these costs over five years if incurred in the United States, or 15 years if incurred outside the country. Amortization continues even if the underlying property is disposed of, retired or abandoned during the applicable period. In addition, software development costs now must be treated as Sec. 174 expenses. Making matters even more complicated is a provision requiring that the amortization period begin at the midpoint of the tax year in which the expenditures are incurred or paid. As a result, taxpayers can deduct only 10% of expenses in the first year and 20% of expenses in years two through five, with the remaining 10% deducted in year six. R&E expenditures generally include research and development (R&D) costs in the experimental or laboratory sense. Applicable costs also include those incurred in efforts intended to discover information that would eliminate uncertainty about the development or improvement of a product, including salaries. Important: Sec. 174 defines R&E expenditures more broadly than R&D expenses are defined for Sec. 41 R&D tax credit purposes. So, costs not covered by the credit may still be considered R&E expenditures. That means Sec. 174 may apply to a business regardless of whether it claims the credit. Before the TCJA went into effect, a business could either: Deduct R&E expenses in the year they were incurred, or Capitalize and amortize the costs over a minimum of five years. Software development costs could be expensed immediately. They could also be amortized over five years from the date of completion or amortized over three years from the date the software was placed in service. The new Congress may try to restore the option to deduct R&E costs. Bipartisan support exists for this change because this TCJA provision has adversely affected many small businesses. Specifically, the provision has caused many companies — particularly those in the life sciences and technology sectors — to report taxable income, even if they incur losses. In January 2024, the House passed the Tax Relief for American Families and Workers Act (H.R. 7024) by a vote of 357-70. Among other things, the bill would have temporarily restored the previous Sec. 174 immediate expensing option through 2025 on a retroactive basis for domestic R&E expenses. The Senate never voted on the bill. It's likely that the new Congress will revisit the issue. Additional Tax Proposals On the campaign trail, President-Elect Trump proposed various tax law changes that could affect employers' payroll tax obligations if enacted. Examples include: Eliminating taxes on tips paid to restaurant and hospitality workers, Eliminating taxes on overtime pay, and Eliminating taxes on firefighters, police officers, active-duty military members and veterans. However, Trump didn't provide any details on possible rules and restrictions. If these changes are enacted, employers presumably wouldn't have to pay federal payroll taxes on any tax-free payments. In addition, Trump generally doesn't support the various "green" energy tax subsidies implemented over the last few years, including the tax credit for "clean" commercial vehicles. In fact, he's promised to dismantle the Inflation Reduction Act (IRA), including cutting unspent funds allocated for the law's tax incentives for clean energy projects. However, Republicans from districts and states with significant clean energy projects planned or underway may push back on a full repeal of the IRA. As a compromise, Congress might propose retaining some of the IRA tax credits or restricting them through tighter eligibility requirements. Finally, the president-elect has repeatedly pledged to impose a baseline tariff on imported goods. In his latest proposal, he stated that he would impose a 25% tariff on products from Canada and Mexico and additional tariffs on imports from China. During the campaign, he made several other proposals. Trump routinely claims that the exporting countries will bear the cost of the tariffs. However, U.S. companies that buy imported goods pay the tariffs and will likely pass them along to their customers. Some major U.S. companies and the National Retail Federation have already warned that Trump's tariff proposals would increase product prices. Wait and See It's currently unclear whether Republicans will be able to deliver on their campaign promises. But, with the looming expiration date of many TCJA provisions, 2025 is certain to be a landmark year for federal tax legislation. Contact your tax advisor to stay atop the latest developments and devise tax planning strategies for your business to optimize your tax outcome.

With year end rapidly approaching, many business owners are focusing on budgeting and strategic planning for 2025. But you shouldn't overlook last-minute opportunities to cut taxes for 2024. Here are some tax-smart moves for businesses to consider executing by December 31. Invest in Fixed Assets If you've been planning to buy new or used machinery, equipment or computer systems, you can deduct a significant chunk of the purchase price this year if it's placed in service before December 31, 2024. The first-year bonus depreciation percentage is only 60% for 2024 (down from 80% for 2023 and 100% for 2022). It's scheduled to drop to 40% for 2025, absent congressional action. The bonus depreciation deduction also is available for software, certain vehicles, office furniture and qualified improvement property(generally, interior improvements to nonresidential property, including roofs; HVAC, fire protection and alarm systems; and security systems). However, Section 179 expensing may give you more bang for your buck for 2024. With Sec. 179, you can deduct 100% of the purchase price of new and used eligible assets. The maximum deduction is $1.22 million for 2024. In addition, the deduction begins phasing out on a dollar-per-dollar basis when qualifying purchases exceed $3.05 million for 2024. The maximum deduction also is limited to the amount of your income from business activity. You can carry forward excess amounts or claim the unused amounts as bonus depreciation, which isn't subject to any income limits or phaseouts. Bonus depreciation can even create net operating losses (NOLs). Under the Tax Cuts and Jobs Act (TCJA), NOLs can be carried forward only and are subject to an 80% limitation. Beware: Depreciation-related deductions can reduce qualified business income (QBI) deductions (see below) and certain other tax breaks that depend on taxable income. Your tax advisor can help determine what's right for your situation. Important: President-Elect Trump has expressed support for returning to 100% bonus depreciation, as well as doubling the phaseout threshold for Sec. 179 expensing. In 2025, the Republican-controlled Congress could pass legislation that includes these changes as part of its efforts to extend and expand the TCJA. Timing Income and Deductions If you conduct your business using a so-called pass-through entity — meaning a sole proprietorship, S corporation, limited liability company or partnership — your shares of the business's income and deductions are passed through to the owners and taxed at your personal rates. Under current law, the 2025 individual federal income tax rate brackets will be the same as this year's, with modest bracket adjustments for inflation. So, the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year makes sense if you expect to be in the same or lower tax bracket next year. At a minimum, this strategy will postpone part of your tax bill from 2024 until 2025. Most small businesses (including C corporations and personal service corporations) can use cash-method accounting for tax purposes. Assuming your business is eligible, cash-method accounting allows you to manage your 2024 and 2025 business taxable income to minimize taxes over the two-year period. If you expect your business income will be taxed at the same or lower rate next year, there are specific cash-method moves that can defer some taxable income until 2025. On the income side, the general rule for cash-basis businesses is that you don't have to report income until the year you receive cash or checks in hand or through the mail. To take advantage of this rule, consider waiting until near year end to send out some invoices to customers. That will defer some income until 2025, because you won't collect the money until early next year. Of course, this should be done only for customers with solid payment histories. Other ways for cash-basis businesses to reduce taxable income for the current year include: Charging recurring expenses at year end. You can claim 2024 deductions even though you won't pay the credit card bills until 2025. Paying expenses with checks and mailing them a few days before year end. The tax rules allow you to deduct the expenses in the year you mail the checks, even though they won't be cashed or deposited until early next year. Prepaying some expenses before year end. Prepaid expenses can be deducted in the year they're paid if the economic benefit from the prepayment doesn't extend beyond the earlier of 1) 12 months after the first date on which your business realizes the benefit of the expenditure, or 2) the end of the next tax year. Important: Timing strategies that reduce business income may also reduce your QBI deduction (see below) and certain other tax breaks that depend on taxable income. Your tax advisor can help determine what's right for your situation. On the other hand, if you expect to be in a higher tax bracket in 2025, take the opposite timing approach: Accelerate income into this year (if possible) and postpone deductible expenditures until 2025. That way, more income will be taxed at this year's lower rate instead of next year's expected higher rate. Maximize Your QBI Deduction A noncorporate owner of a pass-through entity may be eligible for a deduction of up to 20% of the owner's share of the entity's QBI. This deduction is subject to complex rules and restrictions. For example, it's subject to limitations based on an owner's taxable income. So, if you're close to the income limit, you might consider deferring taxable income into next year and accelerating deductible expenditures into this year. However, you don't want to lower taxable income too much — the QBI deduction itself is based on income from the business. Additionally, the QBI deduction is subject to limitations based on the W-2 wages paid and the unadjusted basis of qualified property for the tax year. To increase your QBI deduction this year, consider increasing W-2 wages (possibly through year-end bonuses) or buying qualified property in 2024. (However, be aware that increasing wages or taking first-year depreciation deductions can have the unintended consequence of decreasing your QBI deduction.) Note: The QBI deduction is currently scheduled to expire after 2025, unless Congress extends it or makes it permanent. There's currently notable bipartisan support for extending this TCJA provision because it benefits small businesses. Leverage Retirement Plan Credits Eligible small employers that don't already offer a retirement plan can reap multiple tax benefits by establishing a qualified retirement plan. For example, you can claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan, such as a 401(k) plan. Eligible costs are those incurred to set up and administer the plan and to educate employees about it. A perk of this credit is that you can elect to claim it for the tax year before the plan starts, for the start-up costs paid or incurred that year. For instance, a qualified small employer (meaning one with no more than 100 employees) whose new plan doesn't become effective until January 1, 2025, can elect to treat 2024 as the first credit year. In addition, eligible small employers can claim a tax credit for contributions made to a defined contribution plan, SEP or SIMPLE IRA plan. An eligible employer that adds an auto-enrollment feature can claim a credit of $500 annually for three years, beginning with the first tax year the employer includes automatic enrollment. Be Proactive With significant parts of the TCJA scheduled to expire after 2025 and a new GOP majority in Congress, 2025 will likely bring some major shifts in the tax landscape. Contact your tax advisor to take advantage of current tax breaks to minimize your federal tax liability for 2024 and stay atop any new developments. Have You Considered the PTET Election? Most states have pass-through entity tax (PTET) laws. This tax functions as a workaround for the current $10,000 cap on the federal income tax deduction for state and local taxes (SALT). PTET may benefit owners of pass-through entities — including partnerships, S corporations and limited liability companies — who pay individual income tax on their share of the business's income. The details vary by state. But the general goal is to shift the state tax burden for pass-through entity income from the individual partners or shareholders to the entity. Typically, the laws allow eligible pass-through entities to pay an elective entity-level state tax on business income with an offsetting tax benefit at the owner level. The benefit usually is a full or partial tax credit, deduction or exclusion. The business can claim a Section 164 business deduction for the full tax payment because the SALT cap doesn't apply to businesses. Important: The $10,000 SALT limit is scheduled to expire after 2025, without congressional action. President-Elect Trump supports increasing or eliminating it, but some members of Congress may push back on changing the current rules because increasing the SALT limit would only benefit taxpayers living in high-tax states. The PTET election isn't necessarily right for every pass-through entity. Contact your tax advisor to discuss whether this option is available in your state and makes sense for your situation.

The Tax Cuts and Jobs Act (TCJA) virtually doubled the standard deduction through 2025. So fewer taxpayers are itemizing deductions these days. Instead, more people are claiming the standard deduction. When making year-end charitable contributions, consider whether you'll claim the standard deduction or itemize deductions on your 2024 federal tax return. If you expect to take the standard deduction for 2024, you won't receive any tax benefit for making charitable contributions. For some taxpayers who expect to take the standard deduction, it makes sense to hold off on donating in 2024 and make a larger contribution in 2025. That way, if they itemize deductions for 2025, they can claim tax deductions for the amounts donated. The reverse situation also may apply if you'll itemize in 2024, but expect to take the standard deduction in 2025. Here's more on the tax rules for charitable contributions and how the so-called "bunching" strategy works. Charitable Contribution Basics First and foremost, deductible contributions must be made to a qualified charitable organization approved by the IRS . The tax rules for deducting charitable contributions vary depending on what type of assets you donate. For monetary contributions, you can generally deduct the full amount of your donations, up to 60% of your adjusted gross income (AGI) for the year. (Before the TCJA, the limit was 50%.) The AGI limit is 30% for cash donations to nonoperating private foundations. Any excess may be carried over for up to five years. For gifts of long-term capital gains property , you can generally deduct the value of the property contributed, up to 30% of your AGI. The AGI limit is 20% for gifts to nonoperating private foundations. Any excess may be carried over for up to five years. Suppose you donate property that has substantially appreciated in value. In that case, you may be in line for a special tax break. Normally, the value of a gift of property for tax deduction purposes is the property's cost. However, if you donate property that you've held longer than one year, you can write off its fair market value on the donation date. No tax is due on the appreciation in value while you've owned the property, so you escape the long-term capital gains tax bill on these appreciated assets. Other special rules and limits may come into play. For instance, donated property must be used to further the charitable organization's tax-exempt mission. So, if you donate artwork to a museum, you might require the museum to display it in a prominent place. It can't be locked away in a dusty storeroom where no one will see it.  In addition, you must observe strict recordkeeping rules before claiming any deduction. Beware: The IRS requires you to obtain a written acknowledgment from charitable organizations for monetary contributions of $250 or more. Even more details are required for property gifts. And, if the property is valued above $5,000, you must also obtain a written appraisal from a qualified appraiser. Bunching Strategy One classic tax-reduction strategy is bunching charitable contributions. Here, a taxpayer who normally makes regular annual contributions to charity makes larger contributions in alternating years and no gifts in the off years. This allows the taxpayer to claim itemized deductions in the years he or she makes large gifts — and claim the standard deduction in the off years. (See "To Itemize or Not to Itemize?" below.) Under this approach, if it appears that you'll be itemizing deductions in 2024, you might step up your charitable gift-giving before year end. For instance, move donations planned for 2025 into 2024. The reverse situation may also make sense. For example, Joe and Joanne are a married couple who file jointly. Their standard deduction is $29,200 for 2024. They expect to report the following itemizable expenses for 2024: $10,000 in state and local taxes, and $15,000 in mortgage interest. So far, they've donated $4,000 to charity this year.  As things stand now, the couple has $29,000 of itemizable expenses for 2024, which is slightly less than their standard deduction ($29,200). Joanne would like to donate $8,000 to her favorite charity. Should they donate today or wait until 2025? Making the gift in 2024 would increase their itemizable deductions to $37,000, which is $7,800 more than the standard deduction. Assuming the couple is in the 32% federal tax bracket, contributing in 2024 would lower their tax bill by $2,496 (32% of $7,800), compared to claiming the standard deduction.  However, if the couple had incurred only $10,000 in itemizable expenses so far in 2024, it would make sense from a tax perspective to postpone their $8,000 donation until next year when their situation might change. Important: The bunching strategy can also be applied to other itemizable expenses, such as mortgage interest, property tax and nonemergency medical costs. Consider a DAF Bunching gifts is relatively easy if you've already decided which of your favorite charities to contribute to at year end. You'll just need to contribute the money or property to the qualified charities in the appropriate year and follow the recordkeeping rules. However, if you're hard-pressed to divvy up your contributions on such short notice, consider setting up a donor advised fund (DAF). With a DAF, you can donate in one fell swoop and secure your charitable contribution deduction for 2024. Then, the money will be invested, and the sponsoring organization can dole it out to charities at your discretion. You can make additional contributions to the DAF in the future.  For More Information Of course, there's more to charitable gift-giving than just tax considerations, but a tax deduction can sweeten the deal if fits into your plans. Don't leave these decisions until year end. Contact your tax advisor soon to develop a charitable-giving plan that meets all your objectives. To Itemize or Not to Itemize? With the tax year winding down, it's time to evaluate your personal tax situation. Will you claim the standard deduction or itemize deductions on your 2024 tax return? The answer matters when it comes to receiving tax benefits for your charitable contributions. In general, taxpayers should claim the higher of 1) the standard deduction, or 2) the amount of your qualified itemized deductions on your annual federal tax return. The standard deduction is adjusted annually for inflation. For 2024, the standard deduction is: $14,600 for single people and married couples who file separately, $21,900 for heads of households, and $29,200 for married couples who file jointly. For 2024, taxpayers who are age 65 or older or blind can claim an additional standard deduction of $1,950 ($1,550 if married). Alternatively, you might decide to claim itemized deductions for such items as: Interest on mortgage debt incurred to purchase, build or improve your principal residence and a second residence, State and local taxes, including property tax and either income tax or sales tax, Personal casualty and theft losses due to a federally declared disaster, Medical expenses in excess of 7.5% of AGI, and Charitable contributions, subject to the limits listed above. In addition to temporarily increasing the standard deduction, the Tax Cuts and Jobs Act (TCJA) includes provisions limiting certain itemized deductions. For example, through 2025, the TCJA limits your entire deduction for state and local taxes to $10,000 ($5,000 if you're married and filing separately). It also places restrictions on personal casualty and theft losses and mortgage interest deductions, along with suspending miscellaneous itemized deductions through 2025 for expenses such as certain professional fees, investment expenses and unreimbursed employee business expenses. Under prior law, miscellaneous itemized deductions were subject to a 2%-of-AGI floor. Your professional tax advisor can help you tally up your expected itemized deductions for 2024 to see where you stand for the tax year. He or she can also recommend strategies to lower your taxes.

The Tax Cuts and Jobs Act (TCJA) brought a significant, albeit delayed, change to the tax treatment of research and experimentation (R&E) costs under Internal Revenue Code Section 174. After the law was enacted, many tax experts mistakenly expected that Congress would intervene before the amendment took effect. Instead, the changes became effective in 2022, and the repercussions have proven harsh, especially for small businesses. While IRS guidance that was released in 2023 may provide some relief, it hasn't reversed the adverse fallout. Old Rules Before the TCJA went into effect, a business could either: Deduct R&E expenses in the year they were incurred, or Capitalize and amortize the costs over a minimum of five years. Software development costs could be immediately expensed. Or they could be amortized over five years from the date of completion or amortized over three years from the date the software was placed in service. R&E expenditures generally include research and development (R&D) costs in the experimental or laboratory sense. Applicable costs are those related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product, including salaries. Important: Sec. 174 defines R&E expenditures more broadly than the way R&D expenses are defined for purposes of the Sec. 41 R&D tax credit. So, costs that aren't covered by the credit may still be considered R&E expenditures. That means Sec. 174 can apply to a business regardless of whether it claims the credit. New Rules Starting in 2022, businesses no longer have the option to deduct so-called "specified R&E expenses" (those paid or incurred during the tax year). Instead, they must amortize these costs over five years if incurred in the United States or 15 years if incurred outside the country. Amortization continues even if the underlying property is disposed of, retired or abandoned during the applicable period. In addition, software development costs now must be treated as Sec. 174 expenses. Making matters even more complicated is a provision requiring that the amortization period begin in the midpoint of the tax year in which the expenditures are incurred or paid. As a result, taxpayers can deduct only 10% of expenses in the first year and 20% of expenses in years two through five, with the remaining 10% deducted in year six. How the Changes Affect Businesses Many business owners now find themselves facing dramatically larger tax bills than they have in the past, when they could immediately deduct 100% of R&E costs in the year incurred. Without the full deduction, they may end up reporting taxable income — even if they had a loss. The new tax treatment has hit the life sciences and technology industries particularly hard. Their tax liabilities, including quarterly estimated tax payments, are taking huge or even debilitating bites out of their cash flow and threatening continued operations. The loss of hefty current deductions also means these businesses lose out on reinvestment opportunities. With big tax bills looming, some businesses that have limited access to capital have had to resort to tapping personal financial resources (for example, credit cards, savings or lines of credit) to meet their obligations. Others have had to weigh layoffs, hiring freezes and the possibility of putting a pause on critical projects. IRS Steps In The IRS issued guidance in the fourth quarter of 2023 and has promised forthcoming proposed regulations on revised Sec. 174. While the guidance hasn't modified the TCJA amendment, it has provided some helpful clarification. It identifies several types of costs that aren't considered R&E expenditures. Examples include those for general and administrative service departments that only indirectly support or benefit R&E activities (such as payroll and human resources). The guidance also aims to help taxpayers determine whether certain activities constitute software development costs. For example, costs that are related to software development activities or to the installation of purchased software aren't subject to Sec. 174, but costs for upgrades and enhancements to such software are. Potential Legislative Relief The IRS guidance has answered some questions regarding the proper application of Sec. 174. However, many more questions remain, along with concerns that the TCJA's change may deter R&E activities. Congress appears to have taken notice. In January 2024, the House passed the Tax Relief for American Families and Workers Act (H.R. 7024) by a vote of 357-70. Among other things, the bill would temporarily restore the previous Sec. 174 immediate expensing option, through 2025, on a retroactive basis for domestic R&E expenses. But the option wouldn't be available for foreign R&E. The Senate has yet to vote on the bill. Time to Strategize Unlike many provisions in the TCJA, the amendment to Sec. 174 is permanent, and even enactment of the Tax Relief for American Families and Workers Act in its current form would simply delay implementation of the change. Consult with your tax advisor to determine the best way to navigate the change to minimize the negative consequences to your bottom line.

The Tax Cuts and Jobs Act (TCJA) included many important federal income tax provisions that affect small business taxpayers and their owners. Some of these provisions are scheduled to expire in the near future, unless they're extended or made permanent by Congress. Here's an overview of five key provisions that may soon come to an end and the tax implications if they're allowed to expire. 1. Individual Tax Rates for Business Income For 2018 through 2025, the TCJA retains seven tax rate brackets as under prior law, but five of the rates are temporarily lower than they were under prior law. These rates generally apply to an individual's: Net taxable income from a sole proprietorship or from a limited liability company (LLC) that's treated as a sole proprietorship, and Net income passed through from an S corporation, a partnership or an LLC that's treated as a partnership. The 2024 rate brackets for ordinary income and net short-term capital gains are as follows: 2024 Federal Tax Rates on Ordinary Income and Net Short-Term Capital Gains Tax Rates Single Married Joint Filers Head of Household 10% $0 – $11,600 $0 – $23,200 $0 – $16,550 12% $11,601 – $47,150 $23,201 – $94,300 $16,551 – $63,100 22% $47,151 – $100,525 $94,301 – $201,050 $63,101 – $100,500 24% $100,526 – $191,950 $201,051 – $383,900 $100,501 – $191,950 32% $191,951 – $243,725 $383,901 – $487,450 $191,951 – $243,700 35% $243,726 – $609,350 $487,451 – $731,200 $243,701 – $609,350 37% $609,351 and up $731,201 and up $609,351 and up If Congress allows this TCJA provision to expire, the rates and brackets that were in place for 2017 (with cumulative inflation adjustments for the bracket thresholds) are scheduled to return starting in 2026. Importantly, the top rate bracket would move from the current 37% to 39.6%. 2. QBI Deduction Net taxable income from the following entities simply passed through to the owners and taxed at the owner level at their standard federal income tax rates: S corporations, Sole proprietorships, Partnerships, and LLCs that are treated as sole proprietorships or as partnerships for tax purposes. For tax years beginning in 2018 through 2025, the TCJA established a new deduction based on a noncorporate owner's qualified business income (QBI) from these businesses. This deduction is available to individuals, estates and trusts. It can be up to 20% of QBI, subject to limitations that can apply at higher income levels. The QBI deduction isn't allowed in calculating a noncorporate business owner's adjusted gross income (AGI), but it reduces taxable income. In effect, it's treated the same as an allowable itemized deduction, but you don't need to itemize to benefit. If Congress allows the QBI deduction to expire, it will be gone after 2025. 3. Employee Deductions for Unreimbursed Business Expenses For 2018 through 2025, the TCJA suspended miscellaneous itemized deductions for unreimbursed employee business expenses, such as business-related education expenses and costs related to using your personal vehicle for your employer's business. Under prior law, miscellaneous itemized deductions were subject to the 2%-of-AGI deduction threshold. If Congress allows this TCJA provision to expire, the more favorable rules for these expenses that were in place for 2017 are scheduled to return starting in 2026. 4. First-Year Bonus Depreciation Under the TCJA, for qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increased to 100% (up from 50% in 2017). The 100% deduction was allowed for both new and used qualifying property. However, the property can't have been used previously by the taxpayer. The first-year bonus depreciation deduction was reduced to 80% for property placed in service in calendar year 2023. It has further decreased to 60% for property placed in service in calendar year 2024. In later years, the first-year bonus is scheduled to be reduced as follows: 40% for property placed in service in calendar year 2025, and 20% for property placed in service in calendar year 2026. Important: For certain property with longer production periods, the preceding cutbacks are delayed by one year. For example, the 80% deduction rate will apply to properties with long production periods that are placed in service in 2024. If Congress allows this TCJA provision to expire, first-year bonus depreciation won't be allowed after 2026 (2027 for long-production-period property).  5. Excess Business Losses For 2018 through 2025, the TCJA limits deductions for current-year business losses incurred by noncorporate taxpayers. Such losses generally can offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains, only up to the annual limit. "Excess" losses are carried forward to later tax years and can then be deducted under the net operating loss rules. The CARES Act temporarily lifted the limit, allowing taxpayers to deduct 100% of business losses arising in 2018, 2019 and 2020. But the limit returned in 2021, and the Inflation Reduction Act of 2022 extended it through 2028. If Congress allows this provision to expire, the more favorable rules for excess business losses that were in place for 2017 are scheduled to return starting in 2029. Uncertain Future Clouds Business Tax Planning Most of the TCJA provisions that affect small businesses and their owners are currently set in stone, unless Congress passes legislation to reverse them. (See "Permanent TCJA Provisions: Will They Last?" below.) This article covers only five of the most common soon-to-expire TJCA provisions; there may be some less-common temporary provisions that apply to your situation. The future of the temporary TCJA provisions is unclear. It's possible that Congress could extend all or some of them — or simply allow them to sunset as scheduled. So business owners are facing an unsettling tax planning environment. Contact your tax advisor to determine which of the TCJA provisions are relevant to your situation and how to respond to any changes. Permanent TCJA Provisions: Will They Last? Most of the business-related Tax Cuts and Jobs Act (TCJA) provisions will remain on the books permanently, unless Congress passes legislation to override them. Here's a brief overview of the provisions that will remain on the books for businesses and business owners under current law: Flat 21% federal income tax rate on C corporations, including personal service corporations, Elimination of the corporate alternative minimum tax, More-generous rules for first-year Section 179 depreciation write-offs, More-generous depreciation deductions for passenger vehicles used for business (cars, light trucks and light vans), Faster depreciation for some real property and farming machinery and equipment, Expanded eligibility to use cash-method accounting and simplified inventory accounting procedures, Favorable accounting method change for eligible construction companies with long-term contracts, Elimination of favorable like-kind treatment under Section 1031 for exchanges of personal property, Reduced or eliminated deductions for business entertainment and some employee fringe benefits, Limitation on deductions for interest paid or accrued by a business (several exceptions apply), Stricter rules on deducting net operating losses, Certain self-created intangible assets (including inventions, models and designs, secret formulas, and certain processes) no longer treated as capital gains assets, Three-year holding period rule before long-term capital gains treatment is allowed for partnership carried interests, $1 million annual limit on compensation deductions for amounts paid to principal executive officers, and Requirement, for tax years beginning after December 31, 2021, for specified R&D expenses to be capitalized and amortized over five years (15 years if the R&D is conducted outside the United States). In addition, the TCJA included sweeping permanent changes that affect business taxpayers with foreign operations. Together with the flat 21% corporate tax rate, these changes are intended to encourage multinational companies to conduct more operations in the United States.

The nationwide ban against noncompete agreements for most employees and independent contractors has been overturned by the U.S. District Court for the Northern District of Texas. The ban, which was scheduled to take effect on September 4, 2024, was mandated under a new final rule issued by the Federal Trade Commission (FTC) in April 2024. The federal ruling effectively allows companies to enter into new noncompete agreements and enforce existing ones as permitted under prior law. However, we may not have heard the final word on this "final rule." What Is a Noncompete Agreement? Noncompete agreements have been a common business practice for decades. A noncompete agreement is a document, or a clause in a document or contract, that employers may require employees to sign as a condition of employment or when their employment is terminated. Likewise, independent contractors may be asked to sign noncompete agreements before commencing contract work. In addition, noncompete agreements may come into play when a business or business interest is sold. Some buyers require sellers to sign noncompetes to prevent them from taking customers or launching competing business ventures after the deal is complete. A noncompete generally limits business activities in the same field or for a specified period (or both). For instance, if a CEO of a manufacturing firm departs the company, he or she may be prohibited from serving in an executive capacity for another manufacturing firm for three years. The agreement may also include geographic limitations. The main intent of these agreements is to protect the business interests of employers or buyers, guard against disclosure of trade secrets, and prevent competitors from stealing customers or clients. To be legally enforceable, an agreement must be "reasonable" under the facts and circumstances. Not surprisingly, noncompetes are often contested in court. And some states (such as California) ban noncompetes for employees altogether. Why Did the FTC Restrict Noncompetes? Workers have long complained that the use of noncompete agreements provides an unfair advantage to businesses. Noncompetes may impose conditions that effectively force workers to stay longer at jobs than they would like or leave for lower-paying jobs or other positions that aren't as personally rewarding. Or they may feel compelled to relocate to another part of the country. In some cases, they may even leave the workforce. In 2023, the FTC responded to these concerns by issuing a proposed rule banning companies from using noncompete agreements. Although most public comments favored a nationwide ban, a prominent segment of the business community strongly objected to this proposal. Ultimately, the FTC decided to go ahead with the ban, with certain modifications. Under the final FTC rule, existing noncompetes generally would no longer be enforceable after the effective date, except for agreements signed by "senior executives." A senior executive is defined for this purpose as someone earning more than $151,164 annually who's in a "policy-making" position. This is an individual, such as the company's president or CEO, who has final authority to make policy decisions that control significant aspects of a business entity or common enterprise. However, it doesn't refer to someone whose role is limited to advising or influencing such decisions. Additionally, the rule would have required employers to give employees (except senior executives) with existing agreements adequate notice that they wouldn't enforce any applicable agreements after the effective date. The final rule spells out the details on notification. There are noteworthy exceptions to the final rule, including: Nonprofit organizations and industries that aren't covered by the Federal Trade Commission Act, such as banks and other financial institutions, common transportation carriers, air carriers, and any individual or business subject to the Packers and Stockyards Act, The bona fide sale of a business entity, of the person's ownership interest in a business entity, or of all or substantially all of a business entity's operating assets, and A cause of action related to a noncompete accrued prior to the effective date. The final rule also provides that it's not an unfair method of competition for a person to enforce or attempt to enforce a noncompete when he or she has a good-faith basis to believe that the final rule is inapplicable. According to the FTC, the new final rule would have resulted in wage increases annually totaling $300 billion and created nearly 8,500 new businesses per year. It would have allowed workers to freely pursue work opportunities without the fear of being taken to court by their employers. Why Did the Federal Court Reject the Final Rule? On August 21, 2024 — shortly before the effective date of the final rule — the U.S. District Court for the Northern District of Texas ruled in Ryan, LLC v. Federal Trade Commission that the FTC exceeded its authority in implementing the noncompete rule. Important: This decision has implications that extend beyond the plaintiff in this case. The court held that the FTC can't enforce the ban on a nationwide basis. A key factor in the Ryan decision was the U.S. Supreme Court's recent decision in the case of Loper Bright Enterprises v. Raimondo . This ruling overturned the Chevron doctrine. Under that doctrine, if Congress hasn't directly addressed the question at the center of a dispute, a court was required to uphold the agency's interpretation of the statute as long as it was reasonable. Now, under Loper , it's up to courts to decide "whether the law means what the agency says." Federal laws are often somewhat ambiguous, so this decision may have implications for all federal agencies, not just the FTC. The U.S. District Court for the Northern District of Texas had temporarily blocked the final rule as it applied to the plaintiff in this case, a tax services and software provider headquartered in Dallas. The firm was joined in the suit by the U.S. Chamber of Commerce — the biggest business lobby in the country — and several other business groups. The tax services firm argued that the ban on noncompetes would harm its business by exposing confidential information and enabling its competitors to poach its best employees. After deliberating the matter, the federal court determined the FTC had overstepped its bounds by prohibiting virtually all noncompetes instead of targeting the worst offenders. The court rendered a final decision that can be appealed to the U.S. Court of Appeals for the Fifth Circuit. Will the FTC Appeal this Ruling? The U.S. Chamber of Commerce has applauded the Ryan decision, calling the case a "significant win" and stating that the ban would have harmed businesses and the overall economy. For its part, FTC leadership acknowledged its disappointment in the outcome of the case and asserted that it is "seriously considering" an appeal. Alternatively, FTC spokesperson Victoria Graham says the agency may contest noncompetes on case-by-case basis. So companies that enter into excessively restrictive agreements may still be vulnerable to attack. There isn't a consensus among federal courts on this issue. A week before the Ryan decision, the U.S. District Court for the Middle District of Florida ruled that the ban was probably illegal and refused to enforce it against a real estate developer. Conversely, in July, the U.S. District Court for the Eastern District of Pennsylvania held that the FTC's final rule was reasonable and that noncompetes are rarely warranted. For More Information For now, the FTC is prohibited from enforcing its final rule banning noncompetes for most employees and independent contractors, but businesses are in limbo as they wait for a possible appeal. If the government pursues this avenue, it faces an uphill battle in the wake of the Loper decision. Contact your financial and legal advisors for the latest developments on this hot-button issue.

The national conventions for both political parties' presidential candidates have wrapped up and their platforms have finally been released. With campaign season in full swing, many voters are wondering about the presidential candidates' tax proposals. Unfortunately, the details of the dueling proposals are somewhat limited — and economists don't always agree on the long-term effects of various tax policies. Here's a general rundown of some notable differences in how the candidates would handle taxes, based on their promises and information that's currently available. Taxes on Unrealized Gains and Capital Gains One DNC proposal that has gotten significant media attention is Harris's plan to impose capital gains tax on unrealized gains. Specifically, she proposes taxing appreciation on assets owned but not yet sold, but only the wealthiest taxpayers would be affected. Those with net worth exceeding $100 million would pay a tax of at least 25% of their income and their unrealized capital gains. In addition, Harris has proposed changing the long-term capital gains rate for individuals with more than $1 million in income. If the change is enacted, these individuals would pay 28% on investment sales on assets held more than one year (up from the current top rate of 20%). Unrealized gains at death would be taxed, too, subject to a $5 million exemption ($10 million for married couples) and certain other exemptions (for example, for surviving spouses, family businesses and residences). Expiring TCJA Provisions One reason that taxes are in the spotlight this election year is that many of the provisions in the far-reaching Tax Cuts and Jobs Act (TCJA) are scheduled to expire after 2025. Noteworthy examples of expiring tax provisions that affect individual and noncorporate small business taxpayers are: Lower marginal tax rates, Increased standard deductions, and The qualified business income (QBI) deduction for sole proprietors and owners of "pass-through" entities. For purposes of the QBI deduction, pass-through entities include S corporations, partnerships and limited liability companies, as well as sole proprietorships. GOP position. Former President Donald Trump backs the GOP platform, which promises to make the higher standard deduction and the doubled child credit permanent. Moreover, Trump recently expressed support for a proposal set forth by his running mate J.D. Vance that would increase the child credit to $5,000 per child. Trump also has said he would make the TCJA's individual and estate tax cuts permanent and reduce taxes further, without specifying particular provisions. In addition, he has frequently praised the benefits of the QBI deduction for small business owners in various speeches and interviews since the TCJA was signed into law in December 2017. So, he likely favors extending this provision or making it permanent. DNC position. As a presidential candidate, Vice President Kamala Harris embraces the DNC platform, which vows not to increase taxes for individuals making less than $400,000. This means she would need to support the continuation of certain TCJA tax breaks, including the higher standard deduction and lower marginal tax rates for people who make less than $400,000 per year. She has endorsed President Biden's proposed fiscal year 2025 budget, which would return the top individual marginal income tax rate for single filers earning more than $400,000 ($450,000 for joint filers) to the pre-TCJA rate of 39.6%. In addition, she would increase the additional Medicare tax rate on earnings above $400,000 to 5%, making the top marginal rate 44.6%. In addition, the budget proposes increasing the 3.8% tax on net investment income to 5% for investment income over $400,000. As part of the DNC plan to help lower taxes on families, Harris has proposed increasing the child credit from $2,000 under the TCJA to $3,600 for qualifying children ages two to six and $3,000 for all other qualifying children. She would add a $6,000 newborn credit for the first year of a child's life. Harris also supports expanding the earned income tax credit and premium tax credits to subsidize health insurance. The DNC platform promises to make the wealthy "pay their fair share" of federal taxes. Part of that promise includes ending the stepped-up basis for inherited assets. This means unrealized gains on inherited assets would be subject to capital gains tax. The gain would equal the difference between the asset's fair market value at the time of inheritance and the decedent's tax basis in the asset (typically, the original purchase price). (See "Taxes on Unrealized Gains and Capital Gains" at right.) Corporate Tax The TCJA permanently reduced the top corporate tax rate from 35% to a flat corporate tax rate of 21%. This rate applies to C corporations and personal service corporations. The law also eliminated the corporate alternative minimum tax (AMT). For tax years starting after December 31, 2022, the Inflation Reduction Act (IRA) introduced a permanent corporate AMT of 15% on corporations with average annual financial statement income exceeding $1 billion. RNC position.  During a major economic address on September 5, Trump proposed lowering the corporate tax rate from its current 21% to 15% for "companies that make their product in America." He also would like to eliminate the new corporate AMT under the IRA. DNC position. The DNC platform promises to make "big corporations pay their fair share" of federal taxes. Harris supports increasing the corporate tax rate to 28%, which is still below the pre-TCJA rate of 35%. She would increase the IRA's corporate AMT from 15% to 21%. Harris also would increase the excise tax on stock repurchases from 1% to 4%. This tax is based on the repurchased stock's current fair market value. By increasing the rate, Harris hopes to reduce the difference in the tax treatment of buybacks and dividends. In addition, Harris plans to prevent businesses from deducting the compensation of employees making more than $1 million per year. Tariffs Tariffs are another hot topic this election season. A tariff is a tax on goods and services imported from other countries. Governments use tariffs to generate revenue, protect domestic industries and exert pressure on other countries during trade negotiations. The United States already imposes tariffs on many foreign-made goods. RNC position. Trump consistently has called for higher tariffs on U.S. imports. He would impose a universal baseline tariff of 10% on all imported goods, with a 60% tariff on imports from China. In speeches, he's proposed different tariff amounts on imported cars. Trump also has proposed eliminating federal income taxes and replacing them with tariffs. Domestic products wouldn't be subject to Trump's tariffs, thereby encouraging consumers and businesses to buy from U.S. manufacturers and discouraging businesses from expatriating overseas. DNC position. Harris has countered that raising tariffs would result in price hikes on the tens of millions of Americans who currently make too little to pay federal income taxes. The DNC platform says, "Trump's extreme import tariffs … will make life more expensive for folks nationwide," and estimates that his plan would increase annual costs for working families by $2,500. Taxes on Tip Income and Social Security There's bipartisan support for eliminating federal taxes on tips for restaurant and hospitality workers. However, the candidates differ somewhat in their proposals for handling taxes on tip income. Critics have questioned both proposals, pointing out that they might prompt employers to reduce tipped workers' wages, among other problems. RNC position. Trump was the first candidate to propose eliminating federal taxes on tips for restaurant and hospitality workers. Under Trump's plan, tip income wouldn't be subject to either federal income or payroll taxes. DNC position. During campaign speeches, Harris also has promised to exempt tips from federal income taxes, although her proposal isn't included in the DNC platform. Harris's plan includes an income limit and other provisions to prevent wealthy individuals from restructuring their wages or bonuses to avoid taxation. Social Security. Trump has suggested excluding Social Security benefits from taxation, too. Harris hasn't yet proposed any changes to the taxation of Social Security benefits. Housing Incentives The shortage of affordable housing for working families and first-time homebuyers is another major concern this election season. Home prices have soared in many parts of the country, and interest rates are significantly higher than they were four years ago. RNC position. Trump has referenced possible tax incentives for first-time buyers but hasn't provided specifics. The GOP platform says they will "reduce mortgage rates by slashing inflation, open limited portions of federal lands to allow for new home construction, promote homeownership through tax incentives and support for first-time buyers, and cut unnecessary regulations that raise housing costs." These broad promises leave much to interpretation. DNC position. The DNC platform proposes offering a $10,000 mortgage-relief tax credit for first-time homebuyers and those selling their first homes. Harris also wants to provide $25,000 in down-payment assistance for buyers from families that haven't previously owned homes. In addition, she's calling for a tax incentive for homebuilders that build starter homes sold to first-time homebuyers. However, critics say these measures could drive up demand — and home prices. Other Tax Breaks Starting a business. Under current law, entrepreneurs can deduct $5,000 of start-up expenses and then spread the remaining start-up costs over a period of years. Noting that the average cost of starting a business is $40,000, Harris has proposed increasing the deduction for start-up expenses to $50,000. The proposal would allow new businesses to allocate the deduction over a period of years, or claim the full deduction if they're profitable. Electric cars. Trump said that if elected, he would consider ending the tax credit of up to $7,500 for purchasing an electric vehicle (EV). Meanwhile, Harris has indicated support for EVs. The $7,500 credit was enacted as part of the IRA, which contains other provisions that Trump has said he would like to repeal. Word of Caution These are only some of the candidates' tax-related proposals. For all the campaign trail bluster, remember that tax changes are enacted by Congress — and politicians sometimes are unable or unwilling to fulfill campaign promises after they're elected. Whether any of the proposals outlined above ever come to fruition, even if the proponent is elected, remains to be seen. Stay tuned for the latest developments as more details of the candidates' proposals are unveiled this fall.

If you requested an extension for your 2023 federal income tax return, you have until six months from the original due date — October 15, 2024, to be exact — to wrap things up. This extra time may give you the opportunity to lower your overall tax bill and possibly increase a refund. Here are 10 potential tax breaks for individual taxpayers, including self-employed workers, to consider.  1. Family Tax Credits Families may be eligible for several tax breaks under current tax law. Common examples are:   Child tax credit. Parents can claim the child tax credit for kids under age 17. On 2023 returns, the credit is $2,000 for each child if your modified adjusted gross income (MAGI) is $200,000 or less for single filers ($400,000 for couples who file jointly). Dependent care credit. This credit is available if you incur qualified expenses so that you (and your spouse, if married) can work or actively look for work. It's generally 20% of the first $3,000 of expenses for one child ($6,000 for two or more children). Adoption credit. For 2023, you can claim a maximum credit of $15,950 for qualified expenses incurred to adopt an eligible child. This credit is phased out for high-income taxpayers beginning at $239,230 of 2023 MAGI. 2. Charitable Gifts If you donated money or property to qualified charities last year, you may be eligible for charitable deductions within generous limits. However, you must itemize deductions — rather than take the standard deduction — to claim charitable contributions. The deduction for cash or cash-equivalents is limited to 60% of adjusted gross income (AGI). For gifts of property, a 30%-of-AGI threshold applies. However, there's an upside: If you donated appreciated property that you owned for longer than one year, the deduction is equal to its fair market value, not its cost. To qualify for this itemized deduction, you must observe strict recordkeeping rules. Make sure you have the appropriate documentation to back up your claims. 3. Home Energy Credits If certain requirements are met, you can claim the following nonrefundable tax credits for qualified residential energy-saving expenses on your 2023 return: Energy-efficient home improvement credit. This credit is equal to 30% of the cost of energy-efficient installations — such as exterior doors, windows and skylights; insulation; and central air conditioning — up to a maximum limit of $1,200. Other special limits may apply to specific items. Residential clean energy credit. For investments in energy improvements for your main home — including solar, wind, geothermal, fuel cells or battery storage equipment — you can claim a credit for 30% of the cost. The clean energy equipment must meet government standards. 4. QBI Deduction The qualified business income (QBI) deduction may benefit self-employed individuals and owners of pass-through business entities, including S corporations, partnerships and limited liability companies (LLCs). The deduction is generally equal to 20% of the taxpayer's QBI, which is defined as the net amount of qualified items of income, gain, deduction and loss connected with the conduct of a U.S. business. However, QBI doesn't include certain investment items, reasonable compensation paid to an owner for services rendered to the business, or any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the partnership or LLC. Additional limits can begin to apply if taxable income for the year exceeds the applicable threshold. For 2023, the applicable threshold is $182,100 ($364,200 for married couples who file jointly). One such limit is that the QBI deduction generally isn't available for income from "specified service businesses." This covers most people who provide personal services to the public, ranging from physicians to plumbers and pest control experts. (However, engineers and architects are specifically exempt from the special limitation.) 5. Higher Education Credits Eligible parents can generally claim one of the following higher education credits for their children in school: American Opportunity Tax credit (AOTC). The maximum AOTC is $2,500 per student . For example, if you have two kids in college, the maximum credit is $5,000 per year. Lifetime Learning credit (LLC). The maximum LLC is $2,000 per family . So, if you have two kids in college, the maximum credit is limited to $2,000 per year. The AOTC is generally preferable to the LLC if you have more than one child. However, unlike the AOTC, the LLC is available for more than four years of study. Important: Both credits are phased out based on MAGI. For 2023, the phaseout ranges are: $80,000 to $90,000 for single taxpayers and heads of households, and $160,000 to $180,000 for married couples who file jointly.   Married couples who file separately aren't eligible for either credit. 6. Section 1031 Like-Kind Exchanges An owner of commercial or investment real estate can exchange like-kind properties without paying any current tax, except to the extent any "boot" is received. For example, you might have sold an apartment building in 2023 in return for a warehouse or raw land, without owing tax on the gain from the sale on your 2023 return. But to qualify for the favorable tax treatment, you must meet the following timing requirements: The replacement property must be identified or received within 45 days of transferring legal ownership of the relinquished property, and The title to the replacement property must be transferred to you within the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer. So, filing an extension may have provided you with extra time to complete a tax-deferred exchange. 7. Medical Deductions Taxpayers who itemize may deduct unreimbursed medical expenses above 7.5% of AGI. For instance, if you incurred $10,000 in qualified medical expenses in 2023 and your AGI is $100,000, you can write off $2,500 of your medical expenses ($10,000 minus 7.5% of $100,000). Filing for an extension gives you additional time to check for deductible expenses that may have fallen through the cracks. Unearthing extra expenses may help you exceed the threshold for 2023, but you'll need to have the appropriate documentation to support your claims. 8. Home Office Deductions If you're self-employed, you may qualify for home office deductions. To qualify for this break, you must regularly and exclusively use part of your home as your principal place of business or a place where you normally deal with patients, customers or clients. You may even qualify if you do the books at home and your main "work" occurs at other sites. For example, a landscaper or an interior designer may be eligible for this deduction. Generally, you can deduct your direct home office expenses, plus a portion of your indirect expenses for the entire home based on the percentage of business use of the home. Examples of indirect expenses are utilities, mortgage interest, property taxes, repairs and insurance premiums. Alternatively, you can elect a simplified method using $5 per square foot of office space up to a maximum of $1,500. Important: Under the current tax rules, employees aren't allowed to claim the home office deduction, even if their employers require them to work remotely. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, including unreimbursed employee business expenses, through 2025. 9. EV Credits Starting in 2023, the tax credit for purchasing new electric vehicles (EVs) and hybrids for domestic use is revised. Under the Inflation Reduction Act, the credit may be up to $7,500. To qualify for the credit under the updated guidance, you must: Buy it for your own use, not for resale, and Use it primarily in the United States. In addition, your MAGI can't exceed: $300,000 for married couples filing jointly, $225,000 for heads of households, or $150,000 for all other filers. The credit can't be claimed for passenger vehicles costing more than $55,000, or $80,000 for vans, sports utility vehicles and pickup trucks. For the first time ever, purchasers of used EVs may qualify for a credit of up to $4,000, limited to 30% of the cost. But lessors still can't claim any credit. To qualify, the vehicle must be powered by batteries made with materials that are sourced from the United States or one of its free trade partners. Partial credits may be allowed. While the prior threshold of 200,000 vehicles per manufacturer has been repealed, the vehicle still must appear on the IRS approved list. 10. Installment Sales Under the installment sale method, you can defer tax on the sale of real estate if you receive payments over two or more years. Briefly stated, the tax that's due from any gain is proportional to the income received for the tax year — though ordinary gain from certain depreciation recapture is recognized in the year of sale, even if no cash is received. This tax treatment is automatic. However, once you've reviewed your situation, you may find that it's beneficial to pay all the tax in 2023. For instance, you may have incurred a substantial loss from your S corporation to absorb the taxable income. Or you might expect to be subject to higher tax rates in future years. In those situations, you may elect out of installment sale treatment by the tax filing extension date. Ready, Set, File The October 15 deadline for filing extended 2023 returns will be here before you know it. Contact your tax advisor to discuss your options and to file a timely return. These 10 breaks are just the tip of the iceberg. Your tax pro may suggest additional ideas for ways to lower your tax obligation for the last tax year and beyond.

Why Estate Planning Is Still Important The unified federal estate and gift tax exemption for 2024 is $13.61 million (effectively $27.22 million for a married couple). These generous exemptions probably mean you aren't currently exposed to the federal estate tax, but your estate plan may need updating to reflect the current tax rules.  Important:   In 2026, the unified federal estate and gift tax exemption is scheduled to revert to the 2017 level with a cumulative inflation adjustment, unless Congress acts to extend the higher amount. Depending on inflation through 2025, that might put it in the $7 million to $8 million range.  Estate planning can be a moving target, sometimes for reasons that have nothing to do with taxes, such as marriage, divorce and other changes to your family situation. Contact your tax advisor for more information about updating your estate plan. Summer is a good time  to reflect on tax planning moves that could lower this year's tax bill. It appears there won't be any significant federal tax changes that will take effect next year. If that's an accurate prediction, this year's tax planning environment is straightforward. Here are seven planning ideas to consider implementing between now and year end.  1. Game the Standard Deduction  When filing your federal income tax return, you'll need to decide whether to itemize or take the standard deduction. The Tax Cuts and Jobs Act (TCJA) significantly increased the standard deduction amounts through 2025 and indexed them annually for inflation. For 2024, the basic standard deduction amounts are: $14,600 for singles and married couples filing separately, $29,200 for married couples filing jointly, and $21,900 for heads of households. Slightly higher standard deductions are allowed to those who are 65 or older or blind. If your total itemizable deductions for this year will be close to your standard deduction allowance, consider making enough additional expenditures for itemized deduction items between now and December 31 to surpass your standard deduction. The extra expenditures will allow you to itemize and reduce your 2024 federal income tax bill.  Here are some itemizable expenses that you could potentially accelerate before year end to tip the scales:    Mortgage interest.  The easiest itemizable expense to prepay is included in your house payment due on January 1, 2025. Accelerating that payment into this year will give you 13 months of itemized home mortgage interest deductions in 2024. The TCJA put stricter limits on these deductions, so check with your tax advisor to determine whether you're affected.  State and local income and property taxes.  Consider prepaying state and local income and property taxes that will be due early next year. Paying those bills before December 31, 2024, can lower this year's federal income tax bill, because your total itemized deductions will be that much higher. However, be aware that the TCJA decreased the maximum amount you can deduct for all state and local taxes combined to $10,000 ($5,000 if you use married filing separately status).  Important:  Prepaying state and local taxes can be a bad idea if you'll owe the alternative minimum tax (AMT) for 2024. That's because write-offs for state and local income and property taxes are disallowed under the AMT rules. Thankfully, changes included in the TCJA greatly reduced the odds that most individuals will owe the AMT.  Charitable contributions.  Consider making bigger donations before year end to IRS-approved charities. You can compensate by making smaller donations next year, if you wish. Bigger donations this year could cause your total itemizable expenses to exceed your standard deduction and lower this year's federal income tax bill.    Medical expenses.  Consider accelerating into this year elective medical procedures, dental work and vision care. If you itemize this year, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).    2. Manage Gains and Losses in Your Taxable Investment Accounts     So far, the stock market has surged this year. If you hold investments in taxable brokerage accounts, you've probably already collected some gains and may have some unrealized gains. In addition, you may have incurred some losses and have some unrealized losses. Consider the following tax planning opportunities: Investment gains.  Sell appreciated securities that have been held for over 12 months. Long-term capital gains (LTCGs) are taxed at the federal capital gains tax rates, which can be 0%, 15% or 20%. Most individuals will pay 15%. High-income individuals will owe the maximum 20% rate on the lesser of: 1) their net LTCG for the year, or 2) the excess of their taxable income for the year, including any net LTCG, over the applicable threshold.  For 2024, the income thresholds for the 20% LTCGs rate are: $583,751 for married joint-filing couples, $518,901 for single filers, and $551,351 for heads of households. Assuming the current tax rules remain in place for 2025, these brackets will be adjusted for inflation. You also might owe state income tax and the 3.8% net investment income tax (NIIT).  Important:   If you're in the 20% LTCGs bracket and you're feeling generous, you can gift appreciated investments to family members and friends in the 0% bracket. (See the third tax planning tip below.) Investment losses.  To the extent you have capital losses that were recognized earlier this year or capital loss carryovers from previous years, selling appreciated shares this year won't result in any tax hit. In particular, sheltering net short-term capital gains with capital losses is a tax-smart move, because net short-term gains would otherwise be taxed at higher ordinary-income rates. If you have some losing investments that you'd like to sell, consider taking the resulting capital losses this year to shelter capital gains, including high-taxed short-term gains, from other sales in 2024. If selling underperforming investments would cause your capital losses to exceed your capital gains, the result would be a net capital loss for the year. In this situation, your net capital loss could shelter up to $3,000 ($1,500 if you use married filing separately status) of 2024 ordinary income from tax. Ordinary income includes salaries, bonuses, self-employment income, interest and royalties. Any excess net capital loss from this year is carried forward indefinitely. The carryover can be used to shelter both short-term and long-term gains recognized next year and beyond. This can give you extra investing flexibility in those years because you won't have to hold appreciated securities for over a year to get a lower tax rate. Moreover, the top two federal rates on net short-term capital gains recognized in 2025 are expected to remain at 35% and 37% (plus the 3.8% NIIT, if applicable). So having a capital loss to carry over into next year to shelter short-term gains recognized next year could be advantageous. Important:  If you sold a home earlier this year for a taxable gain, you can offset some or all of that taxable gain with harvested capital losses from selling underperforming securities.    3. If Possible, Take Advantage of 0% Tax Rate on Investment Income Certain individuals may be eligible for a 0% federal income tax rate on LTCGs and qualified dividends from securities held in taxable brokerage firm accounts. While your income may be too high to benefit from the 0% rate, you may have loved ones in that bracket. If so, consider giving them some appreciated stock or mutual fund shares, which they can then sell and pay no federal income tax on the resulting long-term gains.  For 2024, individuals with income below the following thresholds qualify for the 0% rate: $94,051 for married joint-filing couples, $47,026 for single filers, and $63,001 for heads of households. Assuming the current tax rules remain in place for 2025, these brackets will be adjusted for inflation. Gains will be LTCGs if your ownership period plus the gift recipient's ownership period (before the recipient sells) equals at least a year and a day.  Giving away stocks that pay dividends is another tax-smart idea. If the dividends fall within the gift recipient's 0% rate bracket, they'll be federal-income-tax-free.  Important:  If you give securities to someone who is under age 24, the kiddie tax rules could potentially cause some of their capital gains and dividends to be taxed at the parent's higher marginal federal income tax rate. Contact your tax advisor for more information. In addition, if you give more than the annual gift exclusion, there may be tax implications.  4. Convert a Traditional IRA to a Roth IRA  The best scenario for converting a traditional IRA into a Roth account is when you expect to be in the same or a higher tax bracket during your retirement years. Given the enormous federal debt, federal income tax rates might have to be increased to address the issue.  While doing a Roth conversion can be a smart tax planning move, there's a current tax cost for converting. That's because a conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth account. But if you put off converting until some future year, the tax cost could be higher if tax rates increase.     After the conversion, all the income and gains that accumulate in the Roth account, and all qualified withdrawals, will be federal-income-tax-free. In general, qualified withdrawals are those taken after:  You have had at least one Roth account open for more than five years, and  You are age 59½ or you become disabled or die.  With qualified withdrawals, you (or your heirs if you pass on) avoid having to pay higher tax rates that might otherwise apply in future years.  5. Donate to Charities If you itemize and want to make gifts to your favorite charities before year end, you can make them while also adjusting your taxable account investment portfolio. Consider making charitable contributions with these tax-smart principles: Donate   appreciated  investments instead of giving away cash.  For itemizers, donations of publicly traded shares owned over a year result in charitable deductions equal to the full current market value of the shares at the time of the gift. Plus, if you donate shares that are worth more than you paid for them, you escape capital gains taxes that would result from a sale. Sell investments that are worth  less  than you paid for them and collect the resulting tax-saving capital losses.  Then you can give the sale proceeds to favored charities and, if you itemize, you can claim the resulting tax-saving charitable contribution deductions. 6. Make Gifts to Loved Ones For gifts to loved ones, follow the same tax-smart strategies that apply to gifts to charities. That is, give away investments with accumulated gains directly to your loved one. If you give away investments with LTCGs, the gift recipient will likely pay a lower tax rate than you would have paid if you sold the shares. Sell underperforming investments, collect the resulting tax-saving capital losses and give the sales proceeds to your loved one.  7. Make Charitable Gifts from Your IRA  IRA owners or beneficiaries who are age 70½ or older can make cash donations of up to $100,000 to IRS-approved public charities directly out of their IRAs. These qualified charitable distributions (QCDs) are federal-income-tax-free to you. Although you can't claim itemized charitable write-offs on your federal income tax return, the tax-free treatment of QCDs equates to an immediate 100% federal income tax deduction. So, you won't have to worry about restrictions that can delay itemized charitable write-offs.  QCDs have other tax advantages, too. Contact your tax advisor if you're interested in taking advantage of the QCD strategy for 2024. You'll need to arrange with your IRA trustee or custodian for money to be paid out to one or more qualifying charities before year end. Don't Delay Assuming the current federal income tax rules will remain in place for next year, the 2024 tax planning picture is clear. But the situation could potentially change next year, depending on the outcome of the November elections.  These are just some ideas to lower your tax obligation for this year. There may be other opportunities that could apply to your situation, including education-related breaks, tax-favored treatment for health savings accounts, and credits for energy-efficient home improvements and vehicles. Contact your tax advisor this summer to implement the right strategies for your circumstances.