Van de Ven CPAs

Back in 2012, Puerto Rico enacted a law (Act 22) to attract wealthy mainland individuals to invest in its communities. In exchange, Puerto Rico and a U.S. tax code provision provide certain tax benefits to Americans who buy homes there. However, the law has driven up local housing prices and reduced tax income. In response, some U.S. House Democrats have introduced the United with Puerto Ricans Opposed to Act 22 Risks Act. The lawmakers claim the tax breaks have spurred purchases of not only luxury properties but also “affordable” housing. Foreign buyers often pay higher-than-appraised prices in cash. Some U.S. buyers have also allegedly evaded U.S. tax by claiming Puerto Rican income.

One tax-related proposal of President-Elect Trump is to increase tariffs on foreign imports. On the campaign trail, he said he would impose a 10% to 20% tariff on most imported goods, a 60%-or-more tariff on Chinese products and a 100% tariff on vehicles from Mexico. His position is that tariffs would boost U.S. manufacturing and create new jobs. During the campaign, Trump also proposed replacing the U.S. income tax with foreign tariffs. Critics, however, argue these tariffs would increase prices for U.S. consumers. Whether and to what extent Trump will carry out his tariff proposals may depend on the ultimate makeup of Congress, negotiations with trading partners and other factors.

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.

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)

One of the many tax changes proposed by President-elect Donald Trump is to expand the Section 174 deduction for R&D expenditures. Under the Tax Cuts and Jobs Act (TCJA), R&D expenditures paid or incurred beginning in 2022 must be capitalized and amortized over five years for domestic R&D and over 15 years for foreign R&D. Before the TCJA, businesses could immediately deduct R&D expenses in the year they were incurred. There’s bipartisan support for removing this TCJA provision and again allowing an immediate R&D deduction in the year expenses are incurred. Trump has said he wants to expand R&D tax breaks but hasn’t elaborated on what that will entail.

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).

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. Contact us to file a superseding return. Here’s more: https://bit.ly/4fv9woY

What does a Donald Trump victory mean for taxes? Many provisions in his 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 is a better chance that most will be extended. But the former and future president has indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction. Some other changes he’s proposed are reducing the corporate tax rate and eliminating taxes on overtime, certain tips and Social Security benefits. Which extensions and proposals become law also depends on the Republican margin in the Senate and who controls the House and by how much.

Access to timely, accurate financial data is critical to your business’s success. However, small business owners may not have the time or patience to handle tedious bookkeeping tasks or the resources to hire a full-time, in-house bookkeeper. Outsourcing these tasks to a third-party provider can be a smart decision for five key reasons: 1) lower costs and scalability, 2) enhanced accuracy, 3) expanded access to financial expertise, 4) improved timeliness, and 5) the use of advanced security protocols. Outsourcing your bookkeeping helps alleviate stress by ensuring your financial records are up-to-date, accurate and secure. Contact us to help you work smarter, not harder.

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.