Howard, Moore & McDuffie, P.C.

How much can you and your employees contribute to your 401(k)s next year? The IRS recently announced the 2025 cost-of-living adjustments. With inflation easing, the amounts aren’t increasing as much as in recent years. The 2025 401(k) contribution limit will increase to $23,500 (from $23,000 in 2024). This amount also applies to 403(b) and most 457 plans. The catch-up contribution limit for employees who are age 50 or over and participate in 401(k)s will remain $7,500. However, there will be a new catch-up contribution amount for taxpayers age 60, 61, 62 or 63. For them, the 2025 catch-up amount will be $11,250. This change takes effect next year under the SECURE 2.0 law.

Business owners may travel to visit customers, attend conferences, check on vendors and for other purposes. Managing tax-deductible travel costs can help ensure compliance and maximize tax savings. Assuming you meet the tax law requirements, there are a number of deductible business travel expenses. They include: air, train or bus fare to the destination; baggage fees; car rental expenses or the cost of using your vehicle; tolls; parking; transportation at the destination (such as taxis); lodging; tips and dry cleaning. Meal expenses are generally 50% deductible. The business travel deduction rules can be complicated. If you’re uncertain about the tax treatment of your expenses, contact us.

If you’re getting remarried, you may have different expectations than you did during your first marriage, especially when it comes to estate planning. For example, you may feel that your new spouse should have more limited rights to your assets than your spouse in your first marriage. Most states provide a surviving spouse with an “elective share” of the deceased spouse’s estate, regardless of the terms of his or her will or certain other documents. Generally, a surviving spouse’s elective share ranges from 30% to 50%, though some states start lower and provide for progressively larger shares as the duration of the marriage increases.

If you hold an interest in a business that’s closely held or family owned, a buy-sell agreement should be a component of your estate plan. The agreement provides for the orderly disposition of each owner’s interest after a “triggering event,” such as death, disability, divorce or withdrawal from the business. It accomplishes this by permitting or requiring the company or the remaining owners to purchase the departing owner’s interest. It’s essential to revisit the agreement’s valuation provision (the mechanism for setting the purchase price for an owner’s interest) to ensure that it reflects the business’s current value. Contact us with questions.

If you own a small business with no employees (other than your spouse) and want to set up a retirement plan, consider a solo 401(k) plan. This is also an option for self-employed individuals or business owners who wish to upgrade from a SIMPLE IRA or SEP plan. For 2024, you can make an elective deferral contribution of up to $23,000 of your net self-employment (SE) income ($30,500 if you’ll be 50 or older as of Dec. 31, 2024). On top of the elective amount, an extra contribution of up to 20% of your net SE income is allowed for solo 401(k)s. For 2024, the combined elective and extra contributions can’t exceed $69,000 ($76,500 for 50 or older) or 100% of net SE income. Questions? Contact us.

For many people, the possibility that they’ll incur significant long-term care (LTC) expenses is one of the biggest threats to their estate plans. These expenses (such as for nursing home stays and home health aides) can quickly deplete funds you’ve set aside for retirement or to provide for your family. A practical solution is to purchase an LTC insurance policy. This insurance generally provides benefits when you can no longer perform several basic activities of daily living (including bathing, dressing, eating, transferring and managing incontinence) or if you’re cognitively impaired. Once that occurs and you start receiving benefits, your premiums cease. Contact us with questions.

Happy Halloween from all of us at HMM!

1099 season is just around the corner! Business should be proactive about collecting a Form W-9 from every vendor or contractor before paying them so you won't be stuck chasing these when it's time to file your Forms.

As year end approaches, you may be thinking about tax strategies. One way to reduce potential estate taxes and show generosity to loved ones is to give cash gifts before Dec. 31. Taxpayers can transfer large amounts using the annual exclusion. In 2024, the exclusion amount is $18,000. It covers gifts you make to each recipient. That means if you have three children, you can transfer $54,000 to them in 2024, free of federal gift taxes. Married couples can consent to give each recipient up to $36,000 a year. Other rules may apply, and you need to file a gift tax return if you give more than $18,000 or consent to give gifts with your spouse. We can prepare a gift tax return for you.

The Social Security Administration has announced that the wage base for computing Social Security tax will rise to $176,100 in 2025. This is up from $168,600 in 2024. (Believe it or not, it was just $3,000 from 1937–1950!) Wages and self-employment income above this amount aren’t subject to Social Security tax. The Federal Insurance Contributions Act imposes two taxes on employers, employees and self-employed workers. One is Social Security and the other is Medicare. A maximum amount of compensation is subject to the Social Security tax, but there’s no maximum for Medicare tax. For 2024 and 2025, the FICA tax rate for employers is 7.65% (6.2% for Social Security and 1.45% for Medicare).