Papin CPA PLLC

The high federal estate tax exemption ($13.61 million in 2024) means that many people aren’t concerned with estate tax. But you should still consider saving income tax for your heirs. For example, be careful making lifetime transfers of appreciated assets. It’s true that the assets and future appreciation generated by them are removed from your estate. But a gift carries a potential income tax cost because the recipient receives your basis upon transfer. He or she could face capital gains tax on the future sale of the gifted property. If the appreciated property is held until your death, under current law, the heir will get a “step-up” in basis that will reduce or wipe out capital gains tax. https://bit.ly/3WyLhhN

Are you philanthropic? If you’re 70? or older, you may want to consider making a cash donation from your IRA to an eligible charity. This potential tax-saving strategy is called a qualified charitable distribution (QCD). How does it save tax? When required minimum distributions (RMDs) are taken out of traditional IRAs, federal income tax (and possibly state tax) must be paid. But not if you transfer IRA assets to charity via a QCD. In 2024, you can direct up to $105,000 of RMDs to charity. The money given to charity counts toward your RMDs but doesn’t increase your adjusted gross income (AGI), which may allow you to qualify for other tax breaks. Questions? Contact us. https://bit.ly/3WyLhhN

Buckle up: We’re likely to see major federal tax changes within the next year or two. The reason has to do with the upcoming elections and provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on Dec. 31, 2025. Here are 4 possible scenarios: 1) All TCJA provisions that are scheduled to expire will expire. 2) All TCJA provisions that are set to expire will be extended or made permanent. 3) Some provisions will expire while others will be extended or made permanent. 4) Some or all expiring TCJA provisions will expire and new laws will be enacted that provide different tax breaks and/or rates. What will happen to YOUR taxes depends on which scenario becomes reality. https://bit.ly/3WyLhhN

Employees, self-employed people and employers pay Social Security tax. If you’re an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half of the Social Security tax (6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see it. The Social Security tax wage ceiling for 2024 is $168,600 (up from $160,200 for 2023). If your wages meet or exceed that ceiling, the Social Security tax for 2024 will be $20,906 (12.4% x $168,600). Half comes out of your paychecks and your employer pays the other half. The wage ceiling is projected to go up to $174,900 in 2025 and up to $242,700 by 2033. https://bit.ly/3WyLhhN

The tax rules involved in selling mutual fund shares can be complex. If you sell appreciated fund shares that you’ve owned for more than one year, the profit will be a long-term capital gain. The top federal income tax rate will be 20% and you may also owe the 3.8% net investment income tax. One challenge is that certain mutual fund transactions are treated as sales even though they might not seem like it. For example, many funds provide check-writing privileges. Each time you write a check on your fund account, you’re selling shares. Another issue may arise in determining your basis for shares sold. We can answer any questions you may have and explain how the rules apply to your situation. https://bit.ly/3WyLhhN

Are you a taxpayer age 62 or older who needs income and owns a house that has appreciated greatly? A reverse mortgage may be a solution. With one, you can raise needed cash and also take advantage of the tax-saving basis “step-up” rule. The federal tax basis of a capital gain asset owned by a person who dies, including a personal residence, is stepped up to fair market value as of the date of the owner’s death. If your home’s value stays about the same between your date of death and the date your heirs sell it, there will be little or no taxable gain because the sale proceeds will be nearly or fully offset by the stepped-up basis. https://bit.ly/3WyLhhN

Controlling costs is a fundamental task for every business. But where and how to address this challenge can change over time based on various factors. One recent survey revealed three top categories for cost-cutting initiatives: 1) Supply chain; identify your top vendors and see whether you can consolidate spending with them to put yourself in a stronger position to negotiate volume discounts. 2) Labor; be sure you know precisely how much you’re truly spending. A metric called labor burden rate can help. Outsourcing and tech upgrades may help, too. 3) Marketing and sales; choosing and monitoring the right metrics is essential for controlling these costs as well. Contact us for help. https://bit.ly/3WyLhhN

When companies are ready to sponsor a qualified retirement plan, they have many options. One under-the-radar choice is a 412(e)(3) plan. Unlike 401(k) plans, these are defined benefit plans funded with insurance and annuity contracts. Older business owners who want to maximize retirement savings in a short time may want to check out 412(e)(3)s. Why? Because, assuming they have few if any highly compensated employees, owners can take a large share of the financial benefits while also enjoying tax deductions for plan contributions. As is the case with defined benefit plans, however, sponsors must have the financial stability to support the plan indefinitely. Contact us for more information. https://bit.ly/3WyLhhN

Cash flow management is something many small to midsize businesses struggle with. Here are four ways to put and keep the odds in your favor: 1) Create and continuously update a sound annual budget; ensure that every item aligns with your strategic goals. 2) Generate GAAP-compliant financial statements; a statement of cash flows will be particularly helpful in catching potential problems. 3) Exercise careful expense management; detailed records may reveal ways to reduce day-to-day operating expenses. 4) Mind your timing; look for ways to stabilize revenue inflows (such as strong collection procedures) and payment outflows (discounts and favorable payment terms). Contact us for help. https://bit.ly/3WyLhhN

The term “ESG” generally refers to how companies handle three critical activities: 1) Environmental practices (such as energy use and waste management). 2) Social practices (such as fair labor practices, health and safety, and diversity). 3) Governance practices (such as ethics, transparency and cybersecurity). As your company engages in strategic planning, considering ESG-related issues may be time well spent. Missteps in these areas could draw public scrutiny or raise compliance issues. Succeeding at them may lead to stronger financial performance thanks to potential benefits such as higher sales, reduced costs, improved access to capital, and stronger hiring and employee retention. https://bit.ly/3WyLhhN