Tax Planning for Tax Year 2024 – Upcoming Changes

The Internal Revenue is making a number of changes for tax year 2024, largely as annual inflation adjustments. Looking ahead, some planning in advance can help get you ready to realize the most advantageous tax outcome.

Tax Brackets for 2024

The IRS put in place higher limits for federal income tax brackets for tax year 2024, which means Americans will likely pay a little less in taxes. Brackets are increasing by about 5.4% for both individual and married filers. The top tax rate remains at 37% for 2024, and that starts for single taxpayers earning $609,350 of more.

The IRS made the changes to avoid “bracket creep,” when inflation pushes people into higher tax brackets without additional purchasing power.

Standard Deduction

The 2024 tax year standard deduction for married couples filing jointly will be $29,200, a $1,500 increase from $27,700 for the 2023 tax year. For single taxpayers, the standard deduction is $14,600, an increase of $750 from the 2023 deduction of $13,850. For heads of households, the standard deduction will be $21,900, an increase of $1,100 from the amount for tax year 2023.

IRA, 401(k) Contribution

For tax year 2024, taxpayers can contribute up to $23,000 into 401(k), 403(b) and most 457 plans, $500 more than the $22,500 contribution limit for 2023. The limit on annual contributions to an IRA will increases to $7,000, up from $6,500 for 2023.

The IRA catch-up contribution limit for individuals aged 50 and over remains at $1,000 for 2024. For 401(k) and most other plans, the catch-up contribution limit for employees 50 and over is $7,500 for 2024.

Flexible Spending Account Contributions

The IRS raised the limit for 2024 contributions to health flexible spending arrangements to $3,200, up from $3,050 for 2023. The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.

Child Tax Credit

For the 2024 tax year, the child tax credit remains at up to $2,000, but the refundable portion of the credit increases to $1,700, which equates to a possible additional refund of $100 per qualifying child. It’s important to note that income limits apply to these benefits

The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

Electric Vehicle Credit Change

Some models of electric vehicles will lose eligibility for consumer tax credits. This is because of stipulations that prevent crediting vehicles made with components that come from “foreign entities of concern,” such as companies tied to the governments of China, Iran, North Korea or Russia.

However, consumers will now be able to get their tax credit as an instant rebate in the year when they purchase the vehicle, instead of claiming it the following year on their taxes.

Earned Income Credit

The IRS is increasing the earned income tax credit, with families now eligible to receive $7,830 if they have 3 or more qualifying children, an increase of from $7,430 for tax year 2023. You should consult a tax advisor for information related to maximum EITC amounts, income thresholds and phase-outs.

Standard Mileage Rate

The Internal Revenue Service is increasing the “optional standard mileage rate” used to calculate business tax deductions by 1.5 cents a mile for 2024, bringing the IRS rate to 67 cents per mile driven for business use in 2024. The mileage rate for medical miles driven is 21 cents per mile and the rate for charitable miles driven is 14 cents per mile for 2024.

Alternative Minimum Tax

The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700).

For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).

Gift Exclusion

The annual exclusion for gifts is $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Electric Vehicle Tax Credit

Individuals who purchased new electric vehicles may be eligible for a federal tax credit of up to $7,500 for tax year 2023. The credit is available to individuals and businesses. It is nonrefundable and there are numerous requirements and conditions that affect eligibility and the amount of the credit.

Eligibility

To qualify, the vehicle must have a battery capacity of at least 7 kilowatt hours, a gross vehicle weight rating of less than 14,000 pounds, and be made by a qualified manufacturer. Vehicles must also undergo final assembly in North America, which further limits the vehicles that qualify.

There are new requirements effective from April 18, 2023, which include meeting critical mineral and battery component requirements to qualify for the credit.

The vehicle’s manufacturer suggested retail price for new vehicles (MSRP) must not exceed $80,000 for vans, SUVs, and pickup trucks, and $55,000 for other vehicles.

Amount of Credit

The amount of the tax credit depends on various factors, including the vehicle’s MSRP, manufacturer, final assembly location, battery component, critical mineral sourcing, and the taxpayer’s modified adjusted gross income (MAGI). The amount of the credit also depends on when you placed the vehicle in service, regardless of purchase date.
For vehicles placed in service January 1 to April 17, 2023:
• $2,500 base amount
• Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
• Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
• Up to $7,500 total
In general, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum 7-kilowatt hours of battery capacity.
For vehicles placed in service April 18, 2023 and after:
Vehicles will have to meet all of the same criteria listed above, plus meet new critical mineral and battery component requirements for a credit up to:
• $3,750 if the vehicle meets the critical minerals requirement only
• $3,750 if the vehicle meets the battery components requirement only
• $7,500 if the vehicle meets both
A vehicle that doesn’t meet either requirement will not be eligible for a credit. Additionally, the taxpayer’s modified adjusted gross income (MAGI) cannot exceed certain limits. The MAGI limit for married couples filing jointly is $300,000, $225,000 for heads of households, and $150,000 for all other filers.

Used Vehicles

Used electric vehicles purchased in 2023 or after may also qualify for a tax credit of up to $4,000.

How to Claim

To claim the tax credit, individuals must file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, with their tax return and provide the vehicle’s VIN. Sellers must also provide certain information to the taxpayer at the time of sale and report the same information to the IRS.

All of the factors discussed above interact with each other, and the actual tax credit amount can vary based on the specific circumstances of the vehicle purchase and the taxpayer’s income. Consulting with a tax professional or referring to official IRS publications can provide more precise information regarding the tax credit for electric vehicles purchased in 2023.

Update for Tax Year 2024

For tax year 2024, the IRS plans to expand access to the tax benefit by allowing consumers to choose between claiming a nonrefundable credit on their tax returns to lower their tax bill (as described above) or transferring the credit to the dealer to lower the price of the car at the point of sale.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Required Minimum Distributions from IRAs

Traditional Individual Retirement Accounts (IRAs) are “tax-deferred plans,” meaning you don’t pay taxes on your account contributions or earnings until you take withdrawals. Because the IRS wants to start collecting those taxes sooner rather than later, they require you to start taking annual withdrawals when you reach a certain age. Beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking required minimum distributions (RMD’s) to age 73. The RMD is the smallest amount you must withdraw from your tax-deferred IRA retirement accounts every year after age 73, whether you need the money or not.

RMDs and Life Expectancy

RMDs are based on the IRS life expectancy tables. There are varying tables for different circumstances. For example, The IRS uniform lifetime table utilizes a life expectancy divisor of 26.5 if you are age 73. To figure the RMD for that year, a person would divide their IRA account balance by 26.5. For example, if the IRA account balance was $100,000, the owner would have to withdraw $3,733.58 ($100,000 divided by 26.5) and pay taxes on this withdrawal in that year.

Each year, your life expectancy divisor is one year less, so the RMD goes up a little bit every year, until it eventually levels off and gradually decreases.

Calculations utilize separate tables for certain circumstances. For example, if your spouse is at least 10 years younger and your sole beneficiary, the IRS requires the use of a separate table for the RMD calculation. In addition, different rules apply if you are the beneficiary of an inherited IRA.

Retirement Accounts Subject to RMDs

In addition to traditional IRAs, these other types of retirement accounts are also subject to RMDs:
• Simplified Employee Pension (SEP) IRAs
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs
• 401(k)s
• Nonprofit 403(b) plans
• Government 457 plans
• Profit-sharing plans

For IRA accounts, you may be able to take your RMD out of one account, or take some from each account, as long as you withdraw the required minimum. Defined contribution plans require you to calculate and satisfy your RMD separately for each plan and withdraw the amount from that plan.

Because Roth IRAs are funded with contributions already taxed, these don’t require RMDs until after the owner dies. Also, if you’re still working after age 73 and have a traditional 401(k) or other workplace contribution plan, you may be able to defer RMDs until April 1 of the year after you stop working.

Schedule for Taking RMDs

For tax year 2023, you must start taking RMDs by April 1 of the year after you turn 73. Let’s say you celebrate your 73rd birthday on July 4, 2023. You must take the RMD by April 1, 2024. You’ll have to take another RMD by Dec. 31, 2024 and by Dec. 31 each year after that.

Note that if you wait until 2024 (up to April) to take your AMD, you will actually be taking two RMDs in 2024: your RMD for tax year 2023 AND your RMD for tax year 2024. Taking two RMDs in one tax year could push you into a higher tax bracket, so it might be wiser to take your first RMD by December 31.

Penalties

The penalty for not taking an RMD is severe, a 50 percent excise tax on the amount you should have taken out. Although the IRS will sometimes forgive the penalty, it’s best not to incur it in the first place.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
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Two End-of-Year Reminders for Business Owners

Owners of small businesses have to deal with a number of annual reporting and compliance requirements. Deadlines for two reporting requirements for the 2023 tax year are coming up.

1099 Forms

If your small business or sole proprietorship paid for contract labor or other services by non-employees, you likely have to send them a Form 1099. Refer to the following requirements:
• A 1099-NEC form is required to be filed if you paid an individual, partnership or LLC $600 or more in calendar year 2023. This includes payments for services to non-employees.
• A 1099-MISC form is required to be filed if you paid an individual, partnership or LLC $600 or more in the calendar year 2023. This includes payments for rents, attorney fees and other income payments.
• A 1099-INT or 1099-DIV is required if you paid interest or dividends of $10 or more to an individual.

The 1099 forms are due to recipients on January 31, 2024 and most are due to the IRS February 28, 2024 (paper-filed) or March 31, 2024 (e-filed). 1099-NEC forms are due to the IRS by January 31, 2024.

Failure to file 1099s on time can lead to penalties of up to $310 per 1099 form. If the IRS believes the failure to file is “intentional,” they quote a minimum penalty is $630 per form!

Health Insurance Expenses Paid by S-Corporations

If your S-Corporation pays health, disability or accident insurance premiums on your behalf, including long term care insurance or Medicare premiums, these should be reported as taxable wages to you, subject to federal income tax withholding. In addition to being the proper reporting procedure, there is a tax benefit to you reported on your personal income tax return.

If you have not been including the insurance premiums paid throughout the 2023 calendar year in your paychecks, be sure to add the entire insurance amount paid to one of your last 2023 payroll checks.

You should provide this information to your payroll service provider by early January, since they will need to incorporate the amount into your 4th quarter 2023 payroll reports, your annual Form 940 and your 2023 W-2.


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Gift Giving and Your Tax Return

Gifts to Individuals
Under the annual “gift tax exclusion,” you can make gifts in tax year 2023 of up to $17,000 to as many individuals as you want, with no federal gift tax consequences and no requirement to report them to the IRS. Gifts can be made to friends as well as children, grandchildren and their spouses. Your spouse can also make their own gifts of up to $17,000 to individuals, and there is no limitation at all on gifts between spouses.
The gifts you make do not impact your federal income tax, and you cannot take any deduction for the value of the gift, other than gifts that are deductible charitable contributions as described below.

For Federal tax purposes, a gift is not considered to be income. As a result, the individuals receiving gifts of money or anything else of value from you do not need to report the gifts on their tax returns. An exception is a gift that may appreciate in value, such as stocks. The person receiving the gift may have to pay capital gains tax upon disposition if the gift is sold. Keep in mind that any checks you write for gifts need to clear your bank by the end of the applicable tax year.

Other Options for Individual Giving
As an alternative to cash gifts to individuals, you can make unlimited direct payments for medical and tuition expenses for as many individuals as you want, with no gift or estate tax consequences. These payments need to be made directly to the institutions. For example, you can’t give your granddaughter the money to pay her college tuition; it has to go directly to the school.

You can also set up or contribute to a 529 college savings plan, even if the child is already in college. What you contribute grows, tax-free, and comes out also tax free if used for educational purposes including books, supplies and even a computer. There is no limit to 529 plan withdrawals if they are used for qualified educational expenses. However, if the withdrawals are for private school expenses for K-12 children, the withdrawal is limited to $10,000 per year.

Charitable Giving
Contributions to charity can be taken as deductions for taxpayers who itemize their deductions. For most of us, however, the Standard Deduction (which was substantially increased several years ago) makes more sense than itemizing.

Charitable deductions no longer will lower your tax bill, unless your possible deductions for charity combined with other deductions like mortgage interest, real estate taxes and medical expenses total more than the Standard Deduction. For tax tear 2023, the Standard Deduction is $13,850 for single taxpayers and $27,700 for married couples filing jointly.

If you do plan on making tax-deductible charitable contributions, you can verify a charity’s tax-exempt status at the IRS Tax Exempt Organization Search page before donating.

Some taxpayers can maximize the impact of their charitable contributions by giving away the gain on appreciated securities instead of cash. Since charities are exempt from capital gains taxes, the gain is never taxed, but you get to deduct the full market value of your stock at the time of the gift.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Year End Tax Planning

Getting organized is half the battle in being ready to have your tax return filed. Having your tax records in order well in advance of the filing deadline can avoid last-minute mistakes that could slow your refund or cause you to overlook deductions or credits.

A number of strategies can be employed to reduce your income or increase your deductions in a particular tax year. Most of these strategies work best if you take some action or consider them before the current tax year begins.

The Paper Chase

Whether you keep your tax records on paper or digitally, the forms you may need to get your tax return filed include:
• W2 from your employer
• 1099-INT for interest received from a bank or other institution
• 1099-MISC or 1099-NEC received for self-employed work
• 1099-R for pension or retirement benefits
• Brokerage statements from your investment advisors
• Form 1095-A, if you are insured through the Health Insurance Marketplace
• Notice from the IRS of an Identity Protection PIN, if you received one

Keep in mind that some institutions can be slow in providing documents or require you to access them online.

This is also the time to let the IRS know if your address has changed.

Pro Forma for Tax Planning

Your tax advisor could perform a “pro forma” tax return projection to determine your possible tax liability by including hypothetical scenarios for various tax strategies. If you anticipate income from investments, your brokerage institution could provide a summary of year-to-date activity to assist your tax advisor with tax planning.

Paycheck Withholdings

The IRS allows employees to provide the specific amount by which they would like to increase or decrease their federal tax withholdings directly. You can use the IRS Tax Withholding Estimator to find out if you have been withholding the right amount. If you need to make adjustments, you would file a new W-4 form at your workplace.

“Bunching” Deductible Expenses

About three quarters of taxpayers benefit from taking the Standard Deduction, $13,850 for 2023 if you are single and $27,700 if you are married filing jointly. If your qualifying deductible expenses are close to the Standard Deduction, you could consider “bunching.” This strategy involves timing the payment of expenses such as property tax bills, medical expenses and charitable contributions so they all occur in the same tax year, allowing you to itemize your deductions. The following year you would then minimize these expenses and take the Standard Deduction.

Deferring Income

If your employer routinely allows employees to defer compensation or bonuses, you could reduce your income and thus your tax liability in a particular year by deferring payment to the subsequent year. If you are self-employed, you could defer some client billing until the next tax year. However, it only makes sense to defer income if you think you will be in the same tax bracket or a lower one the next year.

Donating Appreciated Property

For charitable contributions, you could consider donating appreciated stock or property rather than cash. If you have owned the property more than a year, you could deduct its market value on the date of the gift and avoid paying capital gains tax on the built-up appreciation. Limits on contributions of appreciated stock vary from cash donations, so speaking to a tax advisor prior to donation is a good idea.

Loss Harvesting

Loss harvesting involves selling investments such as stocks and mutual funds that result in a loss, in order to offset taxable gains. If your losses exceed your gains, you can use up to $3,000 of excess losses to offset other income. Losses of more than $3,000 can be carried forward to future years.

Retirement Contributions

Another way to reduce taxable income is to increase your retirement account contributions to the maximum amount allowed. Utilizing a company sponsored 401(k) plan where employers match contributions or contributing the maximum to an IRA are two tools for this. Limits for 2023 are $22,500 for 401k plans and $6,500 for IRA’s. Catch up contributions are available for taxpayers age 50 and older in the amount of $7,500 for 401k plans and $1,000 for IRA’s. Generally, you have until the tax filing deadline of the next year to make IRA contributions.

Additional Considerations

If you have a Flexible Spending Account where your employer sets aside part of your pay for child care or medical bills, you should check to see if you have used it all prior to the end of the year. The excess is forfeited each year, so you may want to schedule any healthcare visits or expenses to utilize these funds.

One thing to keep in mind while considering deferred deduction strategies is that you may be subject to an Alternative Minimum Tax. The IRS calculates this tax separately from your regular tax liability and imposes whichever tax is higher. You should check with your tax preparer to ensure the most beneficial strategy.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Hobby Versus Business

What’s the difference between a hobby and a business? A business operates to make a profit. While hobby activity may result in some income, people engage in a hobby primarily for enjoyment or recreation, not to make a profit.

Expenses incurred by for-profit business activities are generally tax deductible, hobby expenses are not. Hobby income, however, is still taxable. These circumstances lead some individuals to wonder if their personal hobbies can be considered businesses with a profit motive in order to obtain more favorable tax outcomes.

In recent years, more and more taxpayers are reporting secondary income from sources such as entrepreneurial businesses. In 2022, 44% of Americans reported engaging in a “side job” to help them make ends meet.

If a business is a secondary source of income, it is important to clearly distinguish it from a hobby activity. In addition to the intention to make a profit, there are other considerations that come into play to help make the case to the IRS that the activity is a business rather than a hobby.

Safe Harbor Rule

The IRS safe harbor rule indicates that if the business was profitable in at least three of the previous five consecutive years, the IRS will accept that it is engaged for profit. However, for industries such as horse training, breeding or racing, this rule may be extended to a profit in two of the prior seven years, because these endeavors involve a greater amount of risk.

“Treat It Like a Business”

Beyond the Safe Harbor Rule, taxpayers can increase their chances of prevailing against an IRS challenge by treating their activities like businesses rather than hobbies. This is especially important if a business is showing a loss rather than a profit. Ways of treating the activity as a business may include:
• Having a business plan
• Performing market studies
• Advertising
• Having separate books and bank accounts
• Conducting periodic financial reviews
• Employing expert advice or services
• Modifying business operations to improve profitability.

Common pitfalls for taxpayers to avoid include:
• Failing to keep records of revenues and expenses;
• Using personal bank accounts to pay expenses
• Deducting personal expenses not related to business activities

These considerations can be helpful in making the case for a business even with recurring losses.

Other Factors

Other factors are also used by the IRS in determining if an activity is a business engaged for profit. No one factor alone is decisive, and their relative importance depends on the case. These factors include:

• The manner in which the books and records are maintained
• The expertise of the business owner or advisors, including education or past experience in the type of business.
• The amount of time and effort put into the business
• The dependence on the income for livelihood
• The normalcy of the losses given the industry or uncontrollable circumstances such as fires, natural disasters or economic downturns
• The success in making a profit in similar activities in the past
• The expectation of future profit from the appreciation of the assets used in the activity

Hobby Income

According to the IRS rules, income of more than $400 in a calendar year from a hobby, must be reported as self-employed income. This income is reported on Schedule SE and is subject to self-employment tax.

Whether an activity is a hobby or a business, a CPA can help evaluate the issues and set up the planning and documentation needed for the most advantageous tax outcome.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Health Saving Accounts and Flexible Spending Accounts

Note: Open enrollment for FSAs takes place at the beginning of new health plan years, typically from mid-November to mid-December.

Health Saving Accounts (HSA) and Flexible Spending Accounts (FSA) are both types of savings accounts that let you set aside money on a pre-tax basis to pay for medical expenses. In both cases, you contribute to them on a pre-tax basis using your gross pay,

And as long as you use the funds to pay for qualified medical expenses, you generally won’t owe taxes on withdrawals. But HSAs and FSAs differ substantially in how they work, who can enroll and what can happen to the amounts you contribute.

Health Saving Accounts

HSA accounts are offered by employers in conjunction with “high-deductible” health plans. Your health plan deductible must be at least $1,500 for single coverage for 2023 or $3,000 for family coverage. Self-employed individuals with high-deductible health plans can also set up HSA accounts.

An HSA is controlled by an individual and can be more flexible than an FSA plan. Withdrawals for non-medical purposes are allowed subject to a penalty and contributions may be rolled over to the next year. The HSA is also a “portable account” so you keep your money even if you switch jobs. However, in most cases, you are not eligible for an HSA if you can be claimed as a dependent by someone else.

In many cases, the employer or self-employed individual will contribute funds into the HSA to cover costs toward the deductible until the health insurance policy takes over the financial burden. Once the account is set up, an employee can contribute additional money to the HSA with a payroll deduction from gross income. The money contributed to an HSA account can be made with pretax dollars, which reduces the amount of income reported for tax purposes. Contributions to HSA plans are subject to annual limits depending on the type of plan. Interest or earnings on the money invested in the account is tax-free.

A withdrawal from an HSA can be used for a broad range of medical expenses, from doctor visits and hospital stays to eyeglasses, contacts, chiropractic care or prescription drugs.

Once enrolled in Medicare, a taxpayer cannot continue contributing to an HSA but can spend the funds tax-free on medical needs, including Medicare premiums and out-of-pocket costs. After age 65, HSA funds can be withdrawn without penalty for other expenses unrelated to healthcare, but the withdrawals will be subject to ordinary income tax.

Flexible Spending Accounts

An FSA is similar to an HSA, but there are a few key differences. For one, self-employed individuals are not eligible. Unlike an HSA, an FSA is employer-owned and less flexible. Non- Qualified Withdrawals are not allowed and contributions must be spent within the tax year and cannot be rolled over to the next year.

In addition, an FSA requires that you declare how much you would like your employer to deduct from your gross pay to fund your FSA in each calendar year. Once that declaration is made, you generally can’t change it.

You can only sign up for an FSA during the annual open enrollment period. Open enrollment takes place at the beginning of new plan years, typically from mid-November to mid-December, but can vary with the plan.

One of the biggest benefits of an FSA is that it can be set up as a Dependent Care FSA (DCFSA) to allow withdrawals for childcare expenses. It is also possible to have a separate, regular FSA to cover medical expenses depending on your company’s plan.

Your CPA can help you navigate the complicated rules of HSAs and FSAs to see which type of account gives you the best tax advantage.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Tax Credit for Solar Energy – The Residential Clean Energy Credit

Households can take advantage of Florida’s annual average of 237 sunny days by installing solar panels on their homes. Florida ranks 6th in the country for solar use.

What is a clean energy tax credit?
The Residential Clean Energy Credit allows a taxpayer to deduct up to 30% of the cost of certain energy saving improvements to your home. In addition to solar panels, the credit covers less common technologies such as solar water heaters, wind turbines, fuel cells and geothermal heat pumps.

Installation of the solar panels must be started in the tax year that you claim the credit, but it does not need to be completed in the same year.

The credit cannot be greater than the tax owed. So, if you do not owe federal taxes, you cannot take the credit. You can, however, carry forward any excess credit for the next year.

What are the criteria to claim the clean energy tax credit?
A few criteria need to be met in order to take advantage of the tax credit. The credit only applies to the home you live in. In addition, you must own the solar panel system; leasing the system does not qualify for the tax credit.

The system must be a new installation. If you buy a home with solar panels already installed, you are unable to utilize the tax credit.

Can I deduct the interest if I finance the solar panels?
If you are financing the solar panels, you are able to claim the full 30% of the cost toward the credit. However, interest, fees and warranties are not eligible expenses when calculating the tax credit nor do they qualify as an itemized tax deductions on your tax return.

What about selling excess electric back to the utility company?
This is called “Net Metering.” This allows you to send the excess energy your solar panels produce back into the grid, earning credit towards your electric bill. At the end of the month, you will only be charged for the energy you actually used from the utility company.

Do I have to install the solar panels on my roof?
No. As long as the system is on your property, you can still take advantage of the tax credits.

Are there any other incentives available in Florida for installing solar panels?
There is no sales tax on solar panel systems. Florida provides both sales tax and property tax exemptions for solar panels, continues to mandate net metering policies for excess solar generation, and offers property assessed clean energy (PACE) loans for solar.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Selling Your Home…and Minimizing Capital Gains Tax

Real estate, in the form of the home you live in, is one of the most common investments that people make. Like any other investment, when a home is sold, you may be liable for tax on any profit made. This tax is known as the capital gains tax.

Many people can reduce or avoid capital gains tax because of an IRS rule that allows you to exclude some of the gain from your taxable income. In addition, improvements you have made to the property also play a role in reducing the capital gain.

(Note: The sale of a rental property, however, is a completely different situation with a complex set of rules and few of the factors below apply.)

Home Sale Gain Exclusion
The main source of reducing capital gains tax on the sale of a home is the IRS home sale gain exclusion rule – the “Section 21 exclusion” — which allows you to avoid paying tax on a gain up to $250,000 for a single taxpayer or $500,000 for a married couple filing jointly. You can take advantage of the exclusion over and over during your lifetime, but not more frequently than every 24 months, as long as you meet certain ownership and use tests.

During the five-year period ending on the date of the sale, you must have owned the home for at least two years, the Ownership Test. You must have lived in the home as your main home for at least two years, the Use Test. And you must not have excluded the gain from the sale of another home during the two-year period ending on the date of the sale.

The Ownership and Use periods need not be concurrent. Two years means 24 months or 730 days within a five-year period, but the months or days do not have to be consecutive. Short absences, such as for a summer vacation, count in the period of use. But longer breaks, such as a one-year sabbatical, are not counted.

If you are married and file taxes jointly, only one of you needs to meet the Ownership test. Also, people who are disabled, who needed outpatient care, or are in the military may be able to get exceptions to the Use test.

If you own more than one home, you can exclude the gain only on your primary home. The IRS considers a number of factors to determine which home is the principal residence. Indicating the address as your primary home address on as many of the following documents is beneficial:
• Place of employment records
• Documentation related to location of family members’ main home
• Mailing address on bills and correspondence
• Tax returns
• Driver’s license
• Car registration
• Voter registration
• Local bank records
• Local recreational clubs and religious organization memberships

The exclusion can be used repeatedly every time you reestablish your primary residence. Unfortunately, if you experience a loss instead of a profit on the sale of your main home, the loss is not tax deductible, with one exception; If a portion of your home is rented out or used exclusively for business, the loss attributable to that portion of your home may be deductible, subject to various limitations.

Improvements to the Home
The second source of reducing capital gains tax is the cost of any improvements you have made to the home. These costs will increase the “basis” of the home. The basis is simply what you originally paid for the home, plus the cost for any improvements. The profit that could be subject to capital gains tax is the amount that you sell the home for, minus the basis.

Improvements are considered anything that has a useful life of more than one year and may include:
• Building an addition
• Finishing a basement
• Putting in a new fence or swimming pool
• Paving the driveway
• Landscaping or installing new wiring, new plumbing, central air conditioning, flooring, insulation, or a security system

All such improvements made to the home over the years will increase the home’s basis. Items considered ordinary repairs and maintenance such as painting, cleaning or any other improvement that is not part of a larger project and does not extend the life of the related asset, will not increase the basis.

Many costs in selling the home such as commissions, advertising, and legal fees are also added to the basis to reduce the capital gain.

Exclusion Rules
Even if you do not meet the ownership and use tests, there are circumstances when you may be allowed to exclude a portion of the capital gain realized on the sale of your home. Partial exclusions may apply if you sell your home because of health reasons, a change in place of employment, or unforeseen circumstances like a divorce or natural or man-made disasters that result in a casualty loss to your home.

Capital Gains Tax Rates
If you do owe capital gains tax on the sale of your home, two different tax rates may apply. The short-term rate applies if you owned the house for a year or less, and is equal to your ordinary income tax rate. Long-term rates apply if you owned the home for more than a year, and are generally lower than the short-term rate, depending on filing status and income.

Recordkeeping
In general, tax records should be kept for three years after the tax filing due date. However, you should keep documents related to your home’s cost basis for as long as you own your home. The records should include proof of the home’s purchase price and the purchase expenses as well as receipts and other records for all improvements that affect the home’s cost basis.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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