Handling Large Cash Transactions

A reminder for businesses: Within 15 days of a $10,000 transaction, you must use IRS Form 8300 to report the transactions. If you file electronically, forms are delivered to the Financial Crimes Enforcement Network. Paper forms are submitted to the IRS.

You also generally should provide written statements to parties whose names you’ve reported by January 31 of the year following the transactions. However, if a transaction you report is suspicious, don’t provide a statement to the individual involved.

Although you aren’t required to file Form 8300 for cash transactions of less than $10,000, the IRS encourages you to report suspicious transactions of any amount.

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65 Day Rule for Complex Trusts

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As part of our commitment to keeping you informed about important tax matters, we want to bring your attention to the upcoming deadline related to the 65-day rule for distributions from complex trusts.

The 65-day rule allows trustees of complex trusts to make certain tax decisions, specifically regarding the distribution of income, within the first 65 days of the new tax year. This rule provides an opportunity for trustees to allocate income earned in 2023 to beneficiaries rather than the trust itself by making a distribution within the first 65 days of the subsequent tax year. 

Complex Trusts Only:

Please note this special rule only applies to trustees of “complex” trusts that file their own trust income tax return. This rule does not apply to a standard revocable living trust or other “grantor” style trusts where income is already reported on your individual income tax return.

Deadline Approaching:

The deadline for making decisions under the 65-day rule is fast approaching. Distributions must be “paid or credited” by March 5th, 2024 in order for 2023 taxable income to be passed out to beneficiaries.

Tax Implications:

Trusts have compressed tax brackets and reach the maximum tax bracket at $14,450 of taxable income. Beneficiaries are often in lower tax brackets so by taking advantage of the 65 day rule and distributing income to the beneficiary it may result in a lower overall tax burden if the beneficiary is not in the maximum tax bracket.

Distributions need to actually occur to meet the requirements of the 65 day rule. If your intent as trustee is not to distribute assets to the beneficiary but rather keep the assets within the trust, you may not want to take advantage of this rule, despite the potentially higher tax burden.

If you have any questions or concerns regarding the 65-day rule or would like assistance in navigating this process, please do not hesitate to contact us. Our team is here to support you in ensuring that your tax strategies align with your goals and objectives.

408-252-1800

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ERC Voluntary Disclosure Program Available for a Limited Time

As part of an ongoing initiative to combat questionable Employee Retention Credit (ERC) claims, the IRS has launched a voluntary disclosure program. It allows eligible businesses to pay back money they received after filing ERC claims in error.

The disclosure program runs through March 22, 2024, and requires only 80% of the claim received to be repaid. It’s part of a larger IRS effort to stop aggressive marketing around the ERC that misled some employers into filing claims they were ineligible for.

The IRS has another program that allows employers to withdraw pending ERC claims with no interest or penalty. More than $100 million in withdrawals has already been received.

Tracking Down Donation Substantiation

If you’re like many Americans, your mailbox may have been filling up in recent weeks with letters from your favorite charities acknowledging your 2023 donations. But what happens if you haven’t received such a letter for a contribution? Can you still claim a deduction on your 2023 income tax return for the gift? It depends.

What's Required?

To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation if it’s cash. If the donation is property, the acknowledgment must describe the property, but the charity isn’t required to provide a value. The donor must determine the property’s value.

“Contemporaneous” means the earlier of the date you file your tax return or the extended due date of your return. So, if you donated in 2023 but haven’t yet received substantiation from the charity, it’s not too late, as long as you haven’t filed your 2023 return. Contact the charity and request a written acknowledgment.

Keep in mind that, if you made a cash gift of under $250 with a check or credit card, generally a canceled check, bank statement or credit card statement is sufficient to support your donation. However, if you received something in return for the donation, you generally must reduce your deduction by its value and the charity is required to provide you a written acknowledgment as described earlier, listing the value of the item you received.

Itemized Deductions or Standard?

You may remember that in recent tax years (2020 and 2021) there was a special provision of tax law that allowed taxpayers who take the standard deduction on their tax returns to claim a limited deduction.

Many people don’t realize that this provision wasn’t reauthorized for subsequent years. Since the tax break has expired, it’s no longer available to nonitemizers. So, to deduct your charitable donations, you must opt to itemize deductions on your tax return, rather than taking the standard deduction.

Ask Questions

If you aren’t sure about some of your donations, contact the office for answers to your questions and help determining whether you have sufficient substantiation for the donations you hope to deduct on your 2023 return. It’s also important to have the substantiation you’ll need for charitable gifts you’re planning this year to ensure you can enjoy the desired deductions when you file your 2024 tax return.

408-252-1800

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Deductions vs. Credits: What’s the Difference?

One of the most common misunderstandings about filing an income tax return is the difference between deductions and credits. Deductions reduce the amount of a taxpayer’s income before tax is calculated. For example, on your individual return, you can either take the standard deduction or itemize deductions, if it will reduce your taxable income more. Credits, on the other hand, reduce the actual tax due, dollar-for-dollar, generally making them more valuable than deductions.

For example, the tax savings from a $1,000 deduction would depend on your tax bracket; it would save you $150 if you’re in the 15% tax bracket but it would save you $350 if you’re in the 35% tax bracket. A $1,000 credit, on the other hand would save you $1,000 in taxes regardless of your tax bracket. (These examples assume no income-based phaseout or limit applies to the deduction or credit.)

Some credits, such as the Child Tax Credit, are partially or fully refundable. This means that if a taxpayer’s tax liability is less than the amount of the credit, the taxpayer can possibly receive the difference as a refund.

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How to Secure a Tax Benefit with the QBI Deduction

QBI may sound like the name of a TV quiz show. But it’s actually the acronym for “qualified business income,” which can trigger a tax deduction for some small business owners or self-employed individuals. The QBI deduction was authorized by the Tax Cuts and Jobs Act (TCJA), and it took effect in 2018.

How It Works

The deduction is still available to owners of pass-through entities – such as S corporations, partnerships and limited liability companies – as well as self-employed individuals. But it is scheduled to expire after 2025 unless Congress acts to extend it.

The maximum deduction is equal to 20% of QBI. Generally, QBI refers to your net profit, excluding capital gains and losses, dividends and interest income, employee compensation and guaranteed payments to partners. The deduction can be claimed whether or not you itemize.

Notably, the QBI deduction is subject to a phaseout based on your income. If your total taxable income is below the lowest threshold, you may be entitled to the full 20% deduction, although other limitations do apply:

  • For 2023, the thresholds are $182,100 for single filers and $364,200 for joint filers.
  • For 2024, the thresholds are $191,950 for single filers and $383,900 for joint filers.

But things get tricky if your income exceeds the applicable threshold. In that case, your ability to claim the QBI deduction depends on the nature of your business.

Specifically, the rules are different for regular business owners of pass-through entities, sole proprietors and those who are in “specified service trades or businesses” (SSTBs). This covers most businesspeople who provide personal services to the public, such as physicians, attorneys, financial planners and accountants. (Engineers and architects are excluded.) Professionals in this group forfeit the QBI deduction entirely if income exceeds another set of limits:

  • For 2023, these upper limits are $232,100 for single filers and $464,200 for joint filers.
  • For 2024, these upper limits are $241,950 for single filers and $483,900 for joint filers.

If your income falls between the thresholds stated above, your QBI deduction may be reduced, regardless of whether you’re in an SSTB or not. For taxpayers who are in SSTBs, the deduction is phased out until it disappears at the upper income threshold. For other taxpayers, the deduction is limited to the lesser of 20% of QBI or the greater of 1) 50% of the wages paid to employees on W-2s, or 2) 25% of wages plus 2.5% of the unadjusted basis of the qualified property owned by the business.

Available for a Limited Time

The QBI deduction provides a valuable tax break for small business owners, so if it expires, their taxes are likely to go up. It’s unclear at this time what the chance is of the deduction being extended. Contact the office for guidance in determining the best strategy for your personal situation.

408-252-1800

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There May Still Be Time to Lower Your 2023 Tax Bill

If you’re preparing to file your 2023 tax return, you may still be able to lower your tax bill – or increase your refund. If you qualify, you can make a deductible contribution to a traditional IRA right up until the original filing deadline, April 15, 2024, and see tax savings on your 2023 return.

For eligible taxpayers, the 2023 contribution limit has increased to $6,500, or $7,500 for taxpayers aged 50 and up on Dec. 31, 2023. If you’re a small business owner, you can establish and contribute to a Simplified Employee Pension (SEP) plan up to the extended due date of your return. The maximum SEP contribution you can make for 2023 is $66,000.

What determines eligibility? To make a fully deductible contribution to a traditional IRA, you (and your spouse, if you’re married) must not be active participants in an employer-sponsored retirement plan or, if you are, your 2023 modified adjusted gross income (MAGI) must not exceed the applicable limits:

  • For single taxpayers covered by a workplace plan, $73,000 (partial deduction available up to $83,000 MAGI).
  • For a married couple filing jointly, where the spouse making IRA contributions is covered by a workplace plan, $116,000 (partial deduction available up to $136,000 MAGI).
  • If the spouse making the IRA contributions isn’t covered by a workplace plan but his or her spouse is, $218,000 (partial deduction available up to $228,000 MAGI).

For married couples filing separately, where at least one spouse is covered by a workplace plan, the ability to deduct IRA contributions is extremely limited.

Contact the office if you want more information about this important topic to help you save the maximum tax-advantaged amount for retirement.

408-252-1800

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Traveling for Business in 2024? What’s Deductible?

If you and your employees will be traveling for business this year, there are many factors to keep in mind. Under the tax law, certain requirements for out-of-town business travel within the United States must be met before you can claim a deduction. The rules apply if the business conducted reasonably requires an overnight stay.

Note: Under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses through 2025 on their own tax returns. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025. Self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.

Rules That Come Into Play

The actual costs of travel (for example, plane fare and cabs to the airport) are generally deductible for out-of-town business trips. You’re also allowed to deduct the cost of lodging. And a percentage of your meals is deductible even if the meals aren’t connected to a business conversation or other business function. For 2024, the law allows a 50% deduction for business meals.No deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that generally means “unreasonable.” Also, personal entertainment costs on trips aren’t deductible, but business-related costs such as those for dry cleaning, phone calls and computer rentals can be written off.

Mixing Business With Pleasure

Some allocations may be required if the trip is a combined business/pleasure trip; for example, if you fly to a location for four days of business meetings and stay on for an additional three days of vacation. Only the costs of meals, lodging and so on incurred during the business days are deductible, not those incurred for the personal vacation days.

On the other hand, with respect to the cost of the travel itself (for example, plane fare), if the trip is primarily for business purposes, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (though this isn’t the sole factor).

Suppose a trip isn’t for the actual conduct of business but is for the purpose of attending a convention or seminar. The IRS may check the nature of the meetings carefully to make sure they aren’t vacations in disguise, so retain all material helpful in establishing the business or professional nature of this travel.

Also, personal expenses you incur at home related to the trip aren’t deductible. This might include costs such as boarding a pet while you’re away.

Is Your Spouse Joining You?

The rules for deducting the costs of a spouse who accompanies you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of yours or of your company. If that isn’t the case, then even if there’s a bona fide business purpose for having your spouse make the trip, you probably won’t be able to fully deduct his or her travel costs (though you can deduct some costs).

Specifically, the restrictions apply only to additional costs incurred by having your non-employee spouse travel with you. For example, the expense of a hotel room or for traveling by car would likely be fully deductible since the cost to rent the room or to travel alone or with another person would be the same, even in a rented car.

Before You Hit the Road

Contact the office with any questions you may have about travel deductions to help you stay in the right lane.

408-252-1800

Photo Credit to https://homethods.com/.

Nick Satterfield Promoted to Senior Manager

It is our pleasure to announce a well-deserved Wheeler promotion for Nick Satterfield to Senior Manager effective 1/1/2024. 

When we think of Nick, it’s hard not to think “home grown”. After graduating from Santa Clara University, Nick started his career at Wheeler as an Intern. Over the course of almost 10 years with us he has been committed to his growth technically, as well as learning the public accounting industry nuances such as navigating tax season, working with clients, and mentoring staff.

The management group here at Wheeler is excited to see what the future holds for him. Congratulations, Nick!