Year-End Gifting and Estate Planning Tips

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by Frank Miltenberger

With the year coming to a close, now is a perfect time to think about your gift and estate tax planning. Below, we have outlined key opportunities to consider before year-end and for next year.

Annual Gifting Exclusion Limits for 2024 and 2025

For 2024, the annual gift tax exclusion is $18,000 per recipient (or $36,000 for married couples who gift to any one recipient). This means you can gift up to this amount to as many recipients as you’d like without dipping into your lifetime gifting exemption.

Looking ahead to 2025, the annual exclusion will increase to $19,000 per recipient, allowing for a $38,000 combined gift by a married couple to any one recipient.

Estate Tax Planning Considerations

In addition, thanks to the lifetime federal gift and estate tax exemption, the total amount you can give over your lifetime without incurring federal estate or gift taxes, is currently $13.61 million per individual ($27.22 million for married couples) in 2024. In 2025, this will increase to $13.99 million per individual ($27.98 million for married couples).

It is important to note that under current law, these historically high exemption levels are set to expire at the end of 2025. Beginning in 2026, the exemption will revert to pre-2018 levels, which is estimated to be around $6 million per individual unless Congress acts. As such, you may want to take advantage of these exclusions before the end of 2025.

We are here to help you make the most of these opportunities. If you have any questions or want to discuss strategies that work best for you, please do not hesitate to contact us.

408-252-1800

Feeling Charitable? Be Sure You Can Substantiate Your Gifts

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As the end of the year approaches, many people give more thought to supporting charities they favor. To avoid losing valuable charitable deductions if you itemize, you’ll need specific documentation, depending on the type and size of your gift. Here’s a breakdown of the rules:

Cash gifts under $250

A canceled check, bank statement or credit card statement will do. Or ask the charity for a receipt or “other reliable written record” that provides the organization’s name, the date and the amount of the gift.

Cash gifts of $250 or more

You’ll need a contemporaneous written acknowledgment from the charity stating the amount of the gift. That means you received the acknowledgment before the earlier of your tax return due date (including extensions) or the date you file your return. If you make multiple separate gifts to the same charity of less than $250 each (monthly contributions, for example) that total $250 or more for the year, you can still follow the substantiation rules for cash gifts under $250.

Noncash gifts under $250

Get a receipt showing the charity’s name, the date and location of the donation, and a description of the property.

Noncash gifts of $250 or more

Obtain a contemporaneous written acknowledgment from the charity that contains the information required for cash gifts, plus a description of the property.

Noncash gifts of more than $500

In addition to the above, keep records showing the date you acquired the property, how you acquired it and your adjusted basis in it. Also, file Form 8283.

Noncash gifts of more than $5,000 ($10,000 for closely held stock)

In addition to the above, obtain a qualified appraisal and include an appraisal summary, signed by the appraiser and the charity, with your return. (No appraisal is required for publicly traded securities.)

Noncash gifts of more than $500,000 ($20,000 for art)

In addition to the above, include a copy of the signed appraisal, not just a summary, with your return.

Finally, if you received anything in exchange for your donation, such as a book for making an online donation or food and drink at a fundraising event, ask the charity for the fair market value of the item(s). You’ll need to subtract it from your charitable deduction.

Saving taxes isn’t the primary motivator for charitable donations, but it may affect the amount you can afford to give. Substantiate your donations to ensure you receive the deductions you deserve.

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Not Every Disaster Allows for a Casualty Loss Tax Deduction

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Many Americans have become victims of natural disasters in 2024. Wherever you live, unexpected disasters may cause damage to your home or personal property, creating a “personal casualty loss.” This is defined as damage from a sudden, unexpected or unusual event, such as a hurricane, tornado, flood, earthquake, fire, act of vandalism or terrorist attack. You can deduct personal casualty losses only if you itemize on your tax return and, through 2025, only if the loss results from a federally declared disaster. There is, however, an exception to the latter rule. Suppose you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property. In that case, you can deduct personal casualty losses that aren’t due to a federally declared disaster up to the amount of your personal casualty gains.

In some cases taxpayers can deduct a casualty loss on the tax return for the preceding year and claim a refund. You may be able to file an amended return if you’ve already filed the relevant return.

Need help? Contact the office with your questions.

408-252-1800

Photo by Roman Castillo: https://www.pexels.com/photo/car-driving-in-rain-17679501/

The U.S. Election Outcome Likely to Have Major Impact on Taxes

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Having won control of the White House, the Senate and the House of Representatives, Republicans will have the opportunity to move forward their vision for federal taxes. What might this mean?

First, many provisions in President-Elect Donald Trump’s signature tax legislation from his first time in the White House, the Tax Cuts and Jobs Act (TCJA), are scheduled to expire at the end of 2025. Now, there’s a better chance that most provisions will be extended.

Second, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:

Business Taxes

Numerous tax law changes have been discussed that would affect businesses, including changes affecting:

Corporate income tax rates:

The president-elect has suggested decreasing the current rate of 21% to 20%, and to 15% for corporations that manufacture products in the United States.

Research and development (R&D) expenses:

Proposals include expanding or revising R&D credits and removing mandatory capitalization and amortization of R&D expenditures. The latter would allow immediate R&D deductions in the year expenses are incurred.

Sec. 199A qualified business income (QBI) deduction:

This 20% deduction for certain income of sole proprietors and pass-through entities is set to expire at the end of 2025. There’s a good chance it will be extended or made permanent.

Bonus depreciation:

This deduction is currently at 60% and set to drop to 40% for 2025 and 20% for 2026, then disappear. One proposal would reinstate this to 100%.

Individual Taxes

Potential tax law changes are also on the horizon for individual taxpayers, such as related to the following:

Expiring provisions of the TCJA:

Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.

Individual taxable income:

The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.

Child tax incentives:

President-Elect Trump has voiced support for increasing the current cap on the Child Tax Credit ($2,000 per qualifying child), but no formal policy proposal has been made.

Electric-Vehicle Credit:

The president-elect has said informally that he would consider eliminating the electric-vehicle credit. If you’re thinking about purchasing an electric vehicle, you may want to do so by the end of 2024 just in case the credit is eliminated for 2025.

Housing incentives:

President-Elect Trump has alluded to possible tax incentives for first-time homebuyers but no specific proposals relating to tax incentives for housing. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations, opening parts of federal lands to new home construction. It also proposes tax incentives for first-time homebuyers.

Tariffs

The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10% to 20% on most imported goods, a 60% tariff on imports from China and a 100% tariff on vehicles imported from Mexico.

How Will You Be Affected?

Which extensions and proposals become law will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. Republicans don’t have wide margins in the Senate or House, which could make it challenging to get certain tax law changes passed that aren’t universally popular with Republicans. If you have questions about how you might be affected by potential tax law changes, please contact the office.

408-252-1800

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Unlocking Tax Savings: The Benefits of a Cost Segregation Study

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A cost segregation study allows a business property owner to accelerate depreciation deductions. That, in turn, enables the owner to reduce current taxable income and increase cash flow.

A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. It then allows the personal property to be reclassified for tax purposes and deducted over a much shorter depreciation period. This strategy has been consistently upheld in the courts.

Fundamentals of Depreciation

Business buildings generally have a 39-year depreciation period. Typically, companies depreciate a building’s structural components (such as walls, windows, HVAC systems, plumbing and wiring) along with the building. Personal property (such as equipment, machinery, furniture and fixtures) is eligible for accelerated depreciation, usually over five or seven years.

Often, businesses allocate all, or most, of their buildings’ acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be “part of a building” may, in fact, be personal property. Examples include removable wall and floor coverings, removable partitions, awnings, canopies, window treatments and signs.

Shine a Light on Outdoor Savings

Rules for outdoor lighting, parking lots, landscaping and fencing are tricky but can still lead to current tax deductions in certain situations. These expenditures are generally treated as capital improvements, subject to the 15-year depreciation rule. For instance, if you replace your business lighting to upgrade it or provide greater security at night, it qualifies as a deductible capital improvement. Similarly, landscaping projects designed to boost your curb appeal or provide environmental benefits are considered capital improvements.

On the other hand, routine maintenance (such as the costs of mowing and watering the lawn surrounding your business building) typically fall into the category of deductible business expenses, just like minor repairs.

Worth Checking Out

Although the relative costs and benefits of a cost segregation study will depend on your particular facts and circumstances, it can be a valuable investment.

And, under the Tax Cuts and Jobs Act, the potential benefits of a cost segregation study may be even greater than they were years ago because of enhancements to certain depreciation-related tax breaks.

Contact the office for further details.

408-252-1800

Photo by Gustavo Fring: https://www.pexels.com/photo/woman-in-office-taking-notes-4872023/

Don’t Miss This Important Deadline: Required Minimum Distributions

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If you’re subject to required minimum distributions (RMDs), you must take your 2024 RMD by Dec. 31 to avoid penalties. RMDs are mandatory withdrawals from retirement plans such as 401(k)s, IRAs, SIMPLE IRAs and SEPs. Roth accounts aren’t subject to RMDs during the owners’ lifetimes. RMDs are taxable income subject to ordinary-income tax (not long-term capital gains) rates.

Previous tax law required RMDs to begin at age 72 and imposed a penalty of 50% on missed withdrawals. The SECURE 2.0 Act raised the age to 73 and lowered the penalty to 25% (or 10% if corrected within two years). Younger taxpayers can be subject to RMDs if they inherited a retirement account. Contact the office as soon as possible for help calculating the correct amount for your RMDs.

Here’s more from the IRS: IRS reminds those aged 73 and older to make required withdrawals from IRAs and retirement plans by Dec. 31; notes changes in the law for 2023 | Internal Revenue Service

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Business Gifts: What’s the Tax Treatment?

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During the holiday giving season, keep the following tax limits in mind. Your business can deduct only up to $25 per person per year for gifts to recipients such as clients and business partners. You can also generally deduct $25 per person per year for employee gifts.

If gifts to employees are infrequent and of minimal value (de minimis), they generally aren’t taxable to workers. Although the IRS doesn’t specify a dollar amount for a gift to qualify as a de minimis benefit, you should aim to spend $100 or less. However, if you give cash or cash-equivalents (such as gift cards), the gifts are considered compensation and taxable to employees regardless of the amount.

Photo by Antoni Shkraba: https://www.pexels.com/photo/person-giving-a-gift-box-5493207/

2025 Depreciation and Pension Credits: Year-End Tax Planning

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by Natalie Nguyen

As the holiday season kicks into full swing, it’s easy to get caught up in the festivities and put taxes on the back burner. But this is the perfect time to start thinking about how upcoming changes might affect your tax strategy in the new year. It’s essential to stay informed about the latest changes in tax laws, especially if you are a business owner. In this post, we’ll show you a couple of changes that are important to review as we approach 2025 relating to depreciation and pension plan credits. 

Depreciation Changes

The 2017 Tax Cuts and Jobs Act (TCJA) introduced significant changes to depreciation rules, including enhanced bonus depreciation. While these provisions have provided substantial tax benefits for businesses since its inception, the bonus depreciation has been phasing out gradually for a few years and is currently scheduled to completely phase-out by December 31, 2026.

Key Changes for 2025:

  • Bonus Depreciation Phase-Out: The bonus depreciation percentage, which allows businesses to deduct a significant portion of the cost of qualifying assets upfront, will decrease to 40% for eligible assets placed in service after December 31, 2024. 
  • Section 179 Deduction: Another method to recover all or part of the costs of certain property, up to a limit, is the Section 179 Deduction. The maximum Section 179 expense deduction is $1,250,000, and this expense is reduced by the amount of section 179 property is placed in service during the tax year that exceeds $3,130,000. For 2025, the maximum Section 179 expense deduction for sport utility vehicles over 6,000 pounds is $31,300.

Pension Plan Credits

While there are no significant changes to pension plan credits for 2025 compared to 2024, it’s crucial for businesses to stay informed about ongoing regulations and potential legislative updates.

Eligible employers may be able to claim a tax credit of up to $5,000, for three years, on ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (ex. 401(k) plan). 

You qualify for this credit if:

  • You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;
  • You must have at least one plan participant who was a non-highly compensated employee (NHCE); and
  • In the three tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Amount of Credit

  • Employers with 50 or fewer employees: If you have 50 or fewer employees who received at least $5,000, the credit it 100% of eligible startup costs, up to the greater of:
    • $500; or
    • The lesser of:
      • $250 multiplied by the number of NHCEs who are eligible to participate in the plan,
      • or $5,000.
  • Employers with 51-100 employees: if you have 51-100 employees who received at least $5,000, the credit is 50% of your eligible startup costs, up to the greater of:
    • $500; or
    • The lesser of:
      • $250 multiplied by the number of NHCEs who are eligible to participate in the plan,
      • or $5,000

Eligible Startup Costs

You may claim the credit for ordinary and necessary costs to:

  • Set up and administer the plan
  • Educate your employees about the plan

Tax Credit for Plan Contributions

Small employers (less than 100 employees) may claim a tax credit for plan contributions made to a defined contribution plan, SEP or Simple IRA plan. The tax credit is not available for contributions to employees earning more than $100,000. (Maybe adjusted for inflation in the following years).

  • For employers with 1-50 employees, the tax credit available for each participant is:
    • First plan year: 100% of contribution, up to $1,000
    • Second plan year: 100% of contribution, up to $1,000
    • Third plan year: 75% of contribution, up to $1,000
    • Fourth plan year: 50% of contribution, up to $1,000
    • Fifth plan year: 25% of contribution, up to $1,000
  • For employers with 51-100 employees, the tax credit available for each participant is:
    • First plan year: 100% minus 2% for each employee exceeding 50 limit
    • Second plan year: 100% minus 2% for each employee exceeding 50 limit
    • Third plan year: 75% minus 2% for each employee exceeding 50 limit
    • Fourth plan year: 50% minus 2% for each employee exceeding 50 limit
    • Fifth plan year: 25% minus 2% for each employee exceeding 50 limit

Note that you cannot both deduct the startup costs and claim the tax credit for the same expenses. You are also not required to claim the allowable credit.

Auto-enrollment Tax Credit

An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a 3-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature. This tax credit is available for new or existing plans that adopt an eligible auto-enrollment plan.

Do You Need Assistance?

Navigating tax law changes can feel overwhelming, especially with everything else on your plate during the holidays. But you don’t have to feel alone. If you have questions about how the new tax laws will impact you and your business, we’re here to provide the guidance you need. Our team is ready to help you understand these changes and create a tax strategy that works best for your unique situation. Reach out to us today, and let’s ensure that you’re fully prepared for a successful 2025 tax year.

408-252-1800

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571-L Business Property Statement Reminder

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California law requires an annual tax based on business property owned as of 12:01am on January 1st, 2025. The tax is assessed by the County in which the business property is located. Assessed business property consists of any property which you owned, claimed, possessed, controlled, or managed on the tax lien date. The property statement form titled “571-L Business Property Statement” is used to report these business assets.

Form 571-L Business Property Statement

You must file this form if:

  1. You receive the 571-L Property Statement Notice from the County, which is generally sent in January via mail, or
  2. You have taxable business property with a total cost of $100,000 or more as of the tax lien date.

Due Date:

The initial filing due date of the Form is April 1, 2025, but the return will be considered timely filed without incurring any penalties if filed by May 7, 2025.

Do you need assistance?

If you would like Wheeler Accountants to prepare the required form and schedules for you, please send us your 571-L Property Statement Form via ShareFile, email, fax, or mail. If you did not receive the form and have taxable assets of $100,000 or more, please notify us, and we will advise you.

For Wheeler Accountants to guarantee your forms are filed timely, we must receive all necessary information no later than April 1, 2025. If available on the corresponding County’s website, Wheeler Accountants will file the form electronically on your behalf by May 7, 2025. 

Our minimum fee for the preparation of this form is $600, or our standard hourly rates, whichever is higher. Due to our compressed workload, we will begin preparation of these forms in April 2025.

Please contact our 571-L team at 571L@WheelerCPA.com or call the office if you have questions.

408-252-1800

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Tax-Saving Moves Businesses Should Consider Before Year End

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Now is a good time to consider year-end moves that can help reduce your business’s 2024 taxes. The effectiveness of a particular action depends on the circumstances of your business. Here are several possibilities.

Time Income and Deductions

A tried-and-true tactic for minimizing your tax bill is to defer income to next year and accelerate deductible expenses into this year. For example, if your business uses the cash method of accounting, consider deferring income by postponing invoices until late in the year or accelerating deductions by paying certain expenses before year end.

If your business uses the accrual method of accounting, you have less flexibility to control the timing of income and expenses, but there are still some things you can do. For example, you may be able to deduct year-end bonuses accrued this year even if they aren’t paid until next year (if they’re paid by March 15, 2025).

Accrual-basis businesses may also be able to defer income from certain advance payments (such as licensing fees, subscriptions, membership dues, and payments under guaranty or warranty contracts) until next year. These payments may be deferred to the extent they’re recorded as deferred revenue on an “applicable financial statement” of the business, for example, an audited financial statement or a financial statement filed with the Securities and Exchange Commission.

Deferring income and accelerating deductions isn’t right for every business. In some cases, it may be advantageous to do the opposite, that is, to accelerate income and defer deductions. This may be the case if, for example, you believe your business will be in a higher tax bracket next year.

Buy Equipment and Other Fixed Assets

One of the most effective ways to generate tax deductions is to buy equipment, machinery and other fixed assets and place them in service by Dec. 31. Ordinarily these assets are capitalized and depreciated over several years, but there are a few options for deducting some or all of these expenses immediately, including:

Section 179 expensing.

This break allows you to deduct up to $1.22 million in expenses for qualifying tangible property and certain computer software placed in service in 2024. It’s phased out on a dollar-for-dollar basis to the extent Sec. 179 expenditures exceed $3.05 million for 2024.

Bonus depreciation.

This year, you can deduct up to 60% of the cost of eligible tangible property, which includes most equipment and machinery, as well as off-the-shelf computer software and certain improvements to nonresidential building interiors. Now’s the time to take advantage of bonus depreciation, since the deduction limit is scheduled to drop to 40% next year and 20% in 2026 and to be eliminated after that, unless Congress passes new legislation.

De minimis safe harbor.

This provision allows you to expense certain low-cost items used in your business, even if they’d ordinarily be treated as fixed assets that are capitalized and depreciated. If your business has applicable financial statements, you can deduct up to $5,000 per purchase or invoice for these items to the extent that you deduct them for accounting purposes. If you don’t have applicable financial statements, then the limit is $2,500.

Despite the term “de minimis,” the safe harbor makes it possible to immediately deduct a significant amount of property. For example, if you buy 10 computers for your business for $2,500 each, you can deduct as much as $25,000 up front.

Each of these options has advantages and disadvantages and is subject to various rules and limitations. Contact the office for help choosing the most effective strategies for your business.

Fund a Retirement Plan

If you don’t have a retirement plan, establishing one can be a great way to generate tax benefits. It can also improve employee recruitment and retention efforts. Certain employers are entitled to tax credits for starting a new plan.

Whether you start a new plan now or already had one in place, depending on the type of plan, you may be able to take 2024 deductions for contributions you make after year end. Some plans, including simplified employee pensions (SEPs), can be adopted and funded after year end and still create deductions for this year.

Be Prepared to Write Off Bad Debts

Year end is a good time to review your receivables and determine whether any business debts have become worthless or uncollectible. If they have, you may be able to reduce 2024 taxes by claiming a bad debt deduction.

To qualify for the deduction, you’ll need documentation or other evidence that the debt is bona fide. You’ll also need evidence that there’s no reasonable expectation of payment (such as the debtor’s insolvency or bankruptcy) or documentation that you’ve taken reasonable steps to collect the debt. You should also have documentation that the debt was charged off this year, which is required for partially worthless debts and a best practice for totally worthless debts.

Finally, to deduct a bad debt you must have previously included the receivable in your taxable income. Thus, an accrual-basis business can deduct an otherwise eligible bad debt if it’s already accrued the receivable, but a cash-basis business can’t.

Find the Optimal Combination

Whichever year-end tax strategies you explore, it’s critical to understand how they interact with other provisions of the tax code. For example, if you have a pass-through business, claiming significant amounts of bonus depreciation can reduce your Section 199A deduction for qualified business income (QBI). That’s because first-year depreciation deductions reduce your taxable income and your QBI. Contact the office for help selecting the optimal combination of year-end planning strategies for your business.

408-252-1800

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