CST Group, CPAs, PC

As we get closer to the end of the year, employees only have a few paychecks left for 2024. If you’re an employee who received a surprise tax bill – possibly with penalties – for the 2023 tax year, consider checking your withholding to ensure it’s sufficient. The IRS provides an online withholding estimator tool to help determine the correct amount. If you find you need to adjust your withholding, give your payroll administrator a new Form W-4 to have more withheld this year. What if you got a big refund last year? Instead of letting Uncle Sam keep your money for a year, you can lower your withholding and give yourself a raise in take-home pay. Here’s the tool: https://bit.ly/3O5KAbV

We're #hiring a new Estate, Trust, and Gift Tax Senior Associate in Reston, Virginia. Apply today or share this post with your network.

Certain U.S. small business owners must report beneficial ownership information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by Jan. 1, 2025. In a recent letter to FinCEN, 44 House Republicans urged the agency to delay the reporting deadline. The letter states that “without a delay in the effective date, millions of America’s smallest business owners will be deemed out of compliance and subject to penalties and fines up to $250,000 and even jail time.” Instituted by the Corporate Transparency Act, the BOI requirement is intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud.

Employers that withhold taxes from employee wages but don’t pay them over to the IRS may face a penalty of 100% of the unpaid tax. The Trust Fund Recovery Penalty (TFRP) can be assessed personally against “responsible” parties. In one case, the owner of three masonry companies was assessed a TFRP of $650,000 for failing to pay employment taxes withheld from his employees. He attempted to evade taxes in multiple ways, including filing false tax returns and giving the IRS false information regarding an Offer in Compromise. He also placed companies and bank accounts in the names of others. He pleaded guilty in U.S. District Court and now faces up to five years in prison and a $250,000 fine.

Business owners can generally deduct “ordinary and necessary” business costs, including eligible legal fees. In one U.S. Tax Court case, a taxpayer argued he was entitled to deduct nearly $600,000 in legal expenses on his return. He claimed the expenses were related to a fraud loss at an investment company where he worked as the president and managing director. The IRS and the court disallowed the expenses because the taxpayer couldn’t prove they were ordinary and necessary. He also didn’t show they were incurred during the tax year in question. For example, many of the legal invoices submitted were for other years. (TC Memo 2024-103)

What’s the difference between an amended tax return and a superseding return? Amended returns can be filed to correct or change information on a timely filed return, after the original or extended due date has passed. However, a superseding return is a rare opportunity to change or correct a filed return before the original or extended due date. Why does this matter? Some tax elections you make are irrevocable (for example, the election to carry forward a tax overpayment to the next year). Such a change can be made only on an original return. A timely filed superseding return takes the place of the original return. Here’s more: https://bit.ly/4fv9woY

As your business gets ready for the holiday giving season, keep the following tax limits in mind. Your company can only deduct 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. And, as long as gifts to employees are infrequent and of minimal value (de minimis), they aren’t taxable to workers. However, if you give cash or cash-equivalents (such as gift cards), those gifts are considered compensation and taxable to employees. 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.

Not everyone is eligible to make tax-deductible contributions to a traditional IRA account. For example, for 2025, eligibility for single taxpayers who also contribute to a workplace retirement plan (such as a 401(k) plan), will phase out with income between $79,000 and $89,000. For joint filers, the phaseout range for the spouse who contributes to a work-based plan will be $126,000 to $146,000. For the other spouse who doesn’t contribute to a work-based plan, the phaseout will be between $236,000 and $246,000. Roth IRAs have different phaseout numbers for 2025: $150,000 to $165,00 for single filers; $236,000 to $246,000 for joint filers; and $0 to $10,000 for married separate filers.

The IRS has issued 2025 retirement plan numbers. In 2025, individuals with IRAs can contribute up to $7,000 (the same as in 2024). The IRA catch-up contribution for those age 50 or over will remain at $1,000. For those with 401(k) plans, the 2025 contribution limit will increase to $23,500, up from $23,000 in 2024. The same is true for 403(b) plans and 457 plans. The catch-up contribution limit for employees 50 or over participating in these plans will be $7,500 for 2025 (same as 2024). So, the total allowable contribution for 2025 for those 50 or over will be $31,000. In 2025, a higher catch-up limit of $11,250 will apply for employees age 60 to 63 participating in these plans.

November’s here. With the holiday season and year end coming soon, many employers are planning to pay employee bonuses. If you are, the timing of bonus payments may help reduce your business tax. For example, cash-basis businesses must deduct bonuses in the year paid. So, you can pay bonuses in late 2024 or early 2025, whatever makes the most tax sense. Accrual-based businesses must pay bonuses within 2? months after 2024 ends to claim the deduction for 2024. Otherwise, bonuses will be considered nondeductible deferred compensation. If your business would rather deduct bonuses in 2025, look into changing your bonus plan before Dec. 31 and resetting the payout date.