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It’s time for your small business to think about year-end tax planning

|November 19, 2024

With Labor Day in the rearview mirror, it’s time to take proactive steps that may help lower your small business’s taxes for this year and next. The strategy of deferring income and accelerating deductions to minimize taxes can be effective for most businesses, as is the approach of bunching deductible expenses into this year or next to maximize their tax value.

Do you expect to be in a higher tax bracket next year? If so, then opposite strategies may produce better results. For example, you could pull income into 2024 to be taxed at lower rates, and defer deductible expenses until 2025, when they can be claimed to offset higher-taxed income.

Here are some other ideas that may help you save tax dollars if you act soon.

Estimated taxes

Make sure you make the last two estimated tax payments to avoid penalties. The third quarter payment for 2024 is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

QBI deduction

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income (QBI). For 2024, if taxable income exceeds $383,900 for married couples filing jointly (half that amount for other taxpayers), the deduction may be limited based on whether the taxpayer is engaged in a service-type business (such as law, health or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in.

Taxpayers may be able to salvage some or all of the QBI deduction (or be subject to a smaller deduction phaseout) by deferring income or accelerating deductions to keep income under the dollar thresholds. You also may be able increase the deduction by increasing W-2 wages before year end. The rules are complex, so consult us before acting.

Cash vs. accrual accounting

More small businesses are able to use the cash (rather than the accrual) method of accounting for federal tax purposes than were allowed to do so in previous years. To qualify as a small business under current law, a taxpayer must (among other requirements) satisfy a gross receipts test. For 2024, it’s satisfied if, during the three prior tax years, average annual gross receipts don’t exceed $30 million. Cash method taxpayers may find it easier to defer income by holding off on billing until next year, paying bills early or making certain prepayments.

Section 179 deduction

Consider making expenditures that qualify for the Section 179 expensing option. For 2024, the expensing limit is $1.22 million, and the investment ceiling limit is $3.05 million. Expensing is generally available for most depreciable property (other than buildings) including equipment, off-the-shelf computer software, interior improvements to a building, HVAC and security systems.

The high dollar ceilings mean that many small and midsize businesses will be able to currently deduct most or all of their outlays for machinery and equipment. What’s more, the deduction isn’t prorated for the time an asset is in service during the year. Even if you place eligible property in service by the last days of 2024, you can claim a full deduction for the year.

Bonus depreciation

For 2024, businesses also can generally claim a 60% bonus first-year depreciation deduction for qualified improvement property and machinery and equipment bought new or used, if purchased and placed in service this year. As with the Sec. 179 deduction, the write-off is available even if qualifying assets are only in service for a few days in 2024.

Upcoming tax law changes

These are just some year-end strategies that may help you save taxes. Contact us to customize a plan that works for you. In addition, it’s important to stay informed about any changes that could affect your business’s taxes. In the next couple years, tax laws will be changing. Many tax breaks, including the QBI deduction, are scheduled to expire at the end of 2025. Plus, the outcome of the presidential and congressional elections could result in new or repealed tax breaks.

Best of Harford Voting Begins!

NEWS|November 15, 2024

Voting for the Best of Harford is open and Weyrich, Cronin & Sorra is up for Best Accountant. Please consider voting for us!

Click here to vote for Weyrich, Cronin & Sorra >>

You can vote once per day, per email address until the contest ends on November 27th at 5 p.m. You can find us under Personal Services > Accountant.

Now what? Assessing the likely tax impacts of the 2024 election

Tax Prep, Planning & Strategy|November 14, 2024

President-Elect Donald Trump will return to the White House in 2025 — a year that already was expected to see significant activity on the federal tax front. A projected unified GOP Congress is poised to help him notch early legislative tax victories. (Republicans have won back a majority in the U.S. Senate and are projected to retain a majority in the U.S. House of Representatives.) The most obvious legislative win will likely be the extension and expansion of Trump’s signature 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA).

While Trump didn’t issue detailed tax policies during the campaign, he briefly proposed several measures on the trail that could be included in a TCJA update or other law. Let’s take a closer look at what might be on the table for business and individual taxpayers in 2025 and beyond.

The TCJA’s ticking clock

The TCJA brought wide-ranging changes to the federal tax landscape, including:

A 21% corporate income tax rate,
Lower marginal tax rates for individuals,
A higher standard deduction,
The doubling of the Child Tax Credit for some parents,
The creation of a qualified business income deduction for pass-through entities, and
The doubling of the federal gift and estate tax exemption.

Although most of the corporate provisions are permanent, many TCJA provisions regarding individual taxes, as well as the doubled gift and estate tax exemption, are scheduled to expire at the end of 2025. Trump has endorsed extending those tax breaks. The nonpartisan Congressional Budget Office has estimated that the 10-year cost of permanently extending the expiring provisions will ring in at $4.6 trillion.

Additional proposals affecting business taxes

During the campaign, Trump proposed several tax changes that businesses would welcome. For example, he would further reduce the corporate tax rate, to 15%, for companies that make their products in the United States.

He also has called for two changes that may have bipartisan support. Trump would allow companies to immediately expense their research and experimentation costs, rather than capitalize and amortize them, and return to 100% first-year bonus depreciation for qualifying capital investments. Under the TCJA, the allowable first-year bonus deduction is 60% for 2024, and for 2025 it’s slated to be 40%. Without congressional action, it will drop to zero in 2027.

In addition, Trump has spoken of doubling the ceiling on the Sec. 179 expensing deduction for small businesses’ qualifying investments in equipment. The TCJA permanently capped the deduction at $1 million, adjusted annually for inflation ($1.22 million for 2024). The deduction is subject to a phaseout when the cost of qualifying purchases exceeds $2.5 million ($3.05 million for 2024, adjusted for inflation).

Additional proposals affecting individual taxes

One TCJA provision that Trump has expressed second thoughts about is the $10,000 cap on the state and local tax deduction. The cap, which hits taxpayers hardest in states with high property taxes, is set to expire after 2025. Congress could just let it expire or even terminate it early, depending on how quickly lawmakers can move tax legislation.

A TCJA expansion or additional legislation could incorporate Trump’s promises to eliminate taxes on tips for restaurant and hospitality workers. (It’s unclear if he was referring only to federal income taxes or also payroll taxes.) Without limitations, such a provision could benefit individuals who restructure their compensation to reduce their tax bills by, for example, classifying bonuses as tips.

Trump has also proposed excluding overtime pay and Social Security payments from taxation. It’s worth noting that a Trump administration may reduce the number of employees eligible for overtime. And exempting Social Security benefits would shrink the funding for both that program and Medicare. In addition, the president-elect has proposed a new deduction for interest on car loans for vehicles manufactured in the United States and a reduction in taxes for Americans living abroad.

Trump also said he’d consider making police officers, firefighters, active duty military members and veterans exempt from paying federal taxes. And in a social media post, he wrote that if he won, hurricane victims could deduct the cost of a home generator, retroactive to September 1, 2024.

The threat of tariffs

Trump has repeatedly pledged to impose a baseline tariff of 10% on imported goods, with a 60% tariff on imports from China and possibly a higher tariff on imports from Mexico. Taxpayers likely will face higher prices as a result.

Although Trump routinely claims that the exporting countries will bear the cost of the tariffs, history suggests otherwise. The more common scenario is that U.S. companies that buy imported goods pass the tariffs along to their customers, opening the door for their competitors that don’t purchase imports to similarly raise their prices. Some major U.S. companies and the National Retail Federation have already warned that if Trump’s tariff proposals come to fruition, higher prices on many products may follow.

Rollback of the IRA

The GOP has had the Inflation Reduction Act (IRA) in its crosshairs since the law first passed with zero Republican votes. Trump has vowed to cut unspent funds allocated for the IRA’s tax incentives for clean energy projects. He also may want to eliminate the business and individual tax credits going forward.

But a significant number of clean energy manufacturing projects that rely on the credits are planned or underway in Republican districts and states, which could give the GOP pause. In fact, a group of Republican legislators signed a letter to Speaker of the House Mike Johnson this past August, opposing a full repeal of the IRA. Trump could instead advocate for keeping some of the tax credits or restricting them, for example, through tighter eligibility requirements.

Stay tuned

While it’s always dicey to assume that candidates can deliver on big campaign promises, one thing is certain — 2025 will be a critical year for tax legislation. In addition to the issues discussed above, so-called “tax extenders” for various temporary business and individual tax provisions will come up for debate. We’ll keep you apprised of the developments that could affect your tax liability.

Are you liable for two additional taxes on your income?

Tax Prep, Planning & Strategy|November 12, 2024

Having a high income may mean you owe two extra taxes: the 3.8% net investment income tax (NIIT) and a 0.9% additional Medicare tax on wage and self-employment income. Let’s take a look at these taxes and what they could mean for you.

1. The NIIT

In addition to income tax, this tax applies on your net investment income. The NIIT only affects taxpayers with adjusted gross incomes (AGIs) exceeding $250,000 for joint filers, $200,000 for single taxpayers and heads of household, and $125,000 for married individuals filing separately.

If your AGI is above the threshold that applies ($250,000, $200,000 or $125,000), the NIIT applies to the lesser of 1) your net investment income for the tax year, or 2) the excess of your AGI for the tax year over your threshold amount.

The “net investment income” that’s subject to the NIIT consists of interest, dividends, annuities, royalties, rents and net gains from property sales. Wage income and income from an active trade or business aren’t included. However, passive business income is subject to the NIIT.

Income that’s exempt from income tax, such as tax-exempt bond interest, is likewise exempt from the NIIT. Thus, switching some taxable investments to tax-exempt bonds can reduce your exposure. Of course, this should be done after taking your income needs and investment considerations into account.

Does the NIIT apply to home sales? Yes, if the gain is high enough. Here’s how the rules work: If you sell your principal residence, you may be able to exclude up to $250,000 of gain ($500,000 for joint filers) when figuring your income tax. This excluded gain isn’t subject to the NIIT.

However, gain that exceeds the exclusion limit is subject to the tax. Gain from the sale of a vacation home or other second residence, which doesn’t qualify for the exclusion, is also subject to the NIIT.

Distributions from qualified retirement plans, such as pension plans and IRAs, aren’t subject to the NIIT. However, those distributions may push your AGI over the threshold that would cause other types of income to be subject to the tax.

2. The additional Medicare tax

In addition to the 1.45% Medicare tax that all wage earners pay, some high-wage earners pay an extra 0.9% Medicare tax on part of their wage income. The 0.9% tax applies to wages in excess of $250,000 for joint filers, $125,000 for married individuals filing separately and $200,000 for all others. It applies only to employees, not to employers.

Once an employee’s wages reach $200,000 for the year, the employer must begin withholding the additional 0.9% tax. However, this withholding may prove insufficient if the employee has additional wage income from another job or if the employee’s spouse also has wage income. To avoid that result, an employee may request extra income tax withholding by filing a new Form W-4 with the employer.

An extra 0.9% Medicare tax also applies to self-employment income for the tax year in excess of the same amounts for high-wage earners. This is in addition to the regular 2.9% Medicare tax on all self-employment income. The $250,000, $125,000, and $200,000 thresholds are reduced by the taxpayer’s wage income.

Mitigate the effect

As you can see, these two taxes may have a substantial effect on your tax bill. Contact us to discuss how the impact could be reduced.

How the U.S. election changes the outlook for taxes

Tax Prep, Planning & Strategy|November 8, 2024

The outcome of the November 5 election is likely to significantly impact taxes. Many provisions in President-elect Donald Trump’s 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’s a better chance that most provisions will be extended.

This is especially true as Republicans have won back a majority in the U.S. Senate. As of this writing, Republicans have 52 seats, with a few seats yet to be called, so their majority could grow. The balance of power in the U.S. House of Representatives remains up in the air, with quite a few seats yet to be called.

In addition to the TCJA, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:

Expiring provisions of the TCJA. Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.

Business taxation. President-elect Trump has proposed decreasing the corporate tax rate from its current 21% to 20% (or even lower for companies making products in America). He’d also like to expand the Section 174 deduction for research and development expenditures.

Individual taxable income. The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.

Housing incentives. President-elect Trump has alluded to possible tax incentives for first-time homebuyers but without specifics. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations and opening parts of federal lands to new home construction.

Tariffs. The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10%, with a 60% tariff on imports from China. (In speeches, he’s proposed a 100% tariff on certain imported cars.)

Which extensions and proposals will actually come to fruition will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. If you have questions on how these potential changes may affect your overall tax liability, please contact us.

Help ensure your partnership or LLC complies with tax law

|November 7, 2024

When drafting partnership and LLC operating agreements, various tax issues must be addressed. This is also true of multi-member LLCs that are treated as partnerships for tax purposes. Here are some critical issues to include in your agreement so your business remains in compliance with federal tax law.

Identify and describe guaranteed payments to partners

For income tax purposes, a guaranteed payment is one made by a partnership that’s: 1) to the partner acting in the capacity of a partner, 2) in exchange for services performed for the partnership or for the use of capital by the partnership, and 3) not dependent on partnership income.

Because special income tax rules apply to guaranteed payments, they should be identified and described in a partnership agreement. For instance:

The partnership generally deducts guaranteed payments under its accounting method at the time they’re paid or accrued.
If an individual partner receives a guaranteed payment, it’s treated as ordinary income — currently subject to a maximum income tax rate of 37%. The recipient partner must recognize a guaranteed payment as income in the partner’s tax year that includes the end of the partnership tax year in which the partnership deducted the payment. This is true even if the partner doesn’t receive the payment until after the end of his or her tax year.

Account for the tax basis from partnership liabilities

Under the partnership income taxation regime, a partner receives additional tax basis in his or her partnership interest from that partner’s share of the entity’s liabilities. This is a significant tax advantage because it allows a partner to deduct passed-through losses in excess of the partner’s actual investment in the partnership interest (subject to various income tax limitations such as the passive loss rules).

Different rules apply to recourse and nonrecourse liabilities to determine a partner’s share of the entity’s liabilities. Provisions in the partnership agreement can affect the classification of partnership liabilities as recourse or nonrecourse. It’s important to take this fact into account when drafting a partnership agreement.

Clarify how payments to retired partners are classified

Special income tax rules also apply to payments made in liquidation of a retired partner’s interest in a partnership. This includes any partner who exited the partnership for any reason.

In general, payments made in exchange for the retired partner’s share of partnership property are treated as ordinary partnership distributions. To the extent these payments exceed the partner’s tax basis in the partnership interest, the excess triggers taxable gain for the recipient partner.

All other payments made in liquidating a retired partner’s interest are either: 1) guaranteed payments if the amounts don’t depend on partnership income, or 2) ordinary distributive shares of partnership income if the amounts do depend on partnership income. These payments are generally subject to self-employment tax.

The partnership agreement should clarify how payments to retired partners are classified so the proper tax rules can be applied by both the partnership and recipient retired partners.

Consider other partnership agreement provisions

Since your partnership may have multiple partners, various issues can come into play. You’ll need a carefully drafted partnership agreement to handle potential issues even if you don’t expect them to arise. For instance, you may want to include:

A partnership interest buy-sell agreement to cover partner exits.
A noncompete agreement.
How the partnership will handle the divorce, bankruptcy, or death of a partner. For instance, will the partnership buy out an interest that’s acquired by a partner’s ex-spouse in a divorce proceeding or inherited after a partner’s death? If so, how will the buyout payments be calculated and when will they be paid?

Minimize potential liabilities

Tax issues must be addressed when putting together a partnership deal. Contact us to be involved in the process.

How much can you contribute to your retirement plan in 2025? The IRS just revealed the answer

Tax Prep, Planning & Strategy|November 6, 2024

The IRS has issued its 2025 inflation-adjusted contribution amounts for retirement plans in Notice 2024-80. Many retirement-plan-related limits will increase for 2025 — but less than in prior years. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings.

Type of limitation	2024 limit	2025 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$23,000	$23,500
Annual benefit limit for defined benefit plans	$275,000	$280,000
Contributions to defined contribution plans	$69,000	$70,000
Contributions to SIMPLEs	$16,000	$16,500
Contributions to traditional and Roth IRAs	$7,000	$7,000
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 50 or older	$7,500	$7,500
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 60, 61, 62 or 63*	N/A	$11,250
Catch-up contributions to SIMPLE plans for those age 50 or older	$3,500	$3,500
Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63*	N/A	$5,250
Catch-up contributions to IRAs for those age 50 or older	$1,000	$1,000
Compensation for benefit purposes for qualified plans and SEPs	$345,000	$350,000
Minimum compensation for SEP coverage	$750	$750
Highly compensated employee threshold	$155,000	$160,000

* A change that takes effect in 2025 under SECURE 2.0

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2025:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
- For a spouse who participates, the 2025 phaseout range limits will increase by $3,000, to $126,000–$146,000.
- For a spouse who doesn’t participate, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2025 phaseout range limits will increase by $2,000, to $79,000–$89,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,000 contribution limit for 2025 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
For single and head-of-household taxpayers, the 2025 phaseout range limits will increase by $4,000, to $150,000–$165,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for traditional and Roth IRAs.)

Revisit your retirement plan

To better ensure that your retirement plans remain on track, consider these 2025 inflation-adjusted contribution limits. We can help you review your plans and make any necessary modifications.

6 tax-free income opportunities

Tax Prep, Planning & Strategy|October 31, 2024

Believe it or not, there are ways to collect tax-free income and gains. Here are some of the best opportunities to put money in your pocket without current federal income tax implications:

Roth IRAs offer tax-free income accumulation and withdrawals. Unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are free from federal income tax. A qualified withdrawal is one that’s taken after you’ve reached age 59½ and had at least one Roth IRA open for over five years, or you are disabled or deceased. After your death, your heirs can take federal-income-tax-free qualified Roth IRA withdrawals, with proper planning.
A large amount of profit from a home sale is tax-free. In one of the best tax-saving deals, an unmarried seller of a principal residence can exclude (pay no federal income tax on) up to $250,000 of gain, and a married joint-filing couple can exclude up to $500,000. That can be a big tax-saver, but you generally must pass certain tests to qualify. For example, you must have owned the property for at least two years during the five-year period ending on the sale date. And you must have used the property as a principal residence for at least two years during the same five-year period. Note: To be eligible for the larger $500,000 joint-filer exclusion, at least one spouse must pass the ownership test and both spouses must pass the use test.
People with incomes below a certain amount can collect tax-free capital gains and dividends. The minimum federal income tax rate on long-term capital gains and qualified dividends is 0%. Surprisingly, you can have a pretty decent income and still be within the 0% bracket for long-term gains and dividends — based on your taxable income. Single taxpayers can have up to $47,025 in taxable income in 2024 and be in the 0% bracket. For married couples filing jointly, you can have up to $94,050 in taxable income in 2024.
Gifts and inheritances receive tax-free treatment. If you receive a gift or inheritance, the amount generally isn’t taxable. However, if you’re given or inherit property that later produces income such as interest, dividends, or rent, the income is taxable to you. (There also may be tax implications for an individual who gives a gift.) In addition, if you inherit a capital gain asset like stock or mutual fund shares or real estate, the federal income tax basis of the asset is stepped up to its fair market value as of the date of your benefactor’s demise, or six months after that date if the estate executor so chooses. So, if you sell the inherited asset, you won’t owe any federal capital gains tax except on appreciation that occurs after the applicable date.
Some small business stock gains are tax-free. A qualified small business corporation (QSBC) is a special category of corporation. Its stock can potentially qualify for federal-income-tax-free treatment when you sell for a gain after holding it for over five years. Ask us for details.
You can pocket tax-free income from college savings accounts. Section 529 college savings plan accounts allow earnings to accumulate free of any federal income tax. And when the account beneficiary (typically your child or grandchild) reaches college age, tax-free withdrawals can be taken to cover higher education expenses. Alternatively, you can contribute up to $2,000 annually to a Coverdell Education Savings Account (CESA) set up for a beneficiary who hasn’t reached age 18. CESA earnings are allowed to accumulate free from federal income tax. Then, tax-free withdrawals can be taken to pay for the beneficiary’s college tuition, fees, books, supplies, and room and board. The catch: Your right to make CESA contributions is phased out between modified adjusted gross incomes of $95,000 and $110,000, or between $190,000 and $220,000 if you’re a married joint filer.

Advance planning may lead to better results

You may be able to collect federal-income-tax-free income and gains in several different ways, including some that aren’t explained here. For example, proceeds from a life insurance policy paid to you because of an insured person’s death generally aren’t taxable. So, don’t assume you’ll always owe taxes on income. Also, check with us before making significant transactions because advance planning could result in tax-free income or gains that would otherwise be taxable.

Understanding your obligations: Does your business need to report employee health coverage?

Management Advisory Services & Business Consulting|October 29, 2024

Employee health coverage is a significant part of many companies’ benefits packages. However, the administrative responsibilities that accompany offering health insurance can be complex. One crucial aspect is understanding the reporting requirements of federal agencies such as the IRS. Does your business have to comply, and if so, what must you do? Here are some answers to questions you may have.

What is the number of employees before compliance is required?

The Affordable Care Act (ACA), enacted in 2010, introduced several employer responsibilities regarding health coverage. Certain employers with 50 or more full-time employees (called “applicable large employers” or ALEs) must use Forms 1094-C and 1095-C to report information about health coverage offers and enrollment for their employees.

Specifically, an ALE uses Form 1094-C to report each employee’s summary information and transmit Forms 1095-C to the IRS. A separate Form 1095-C is used to report information about each employee. In addition, Forms 1094-C and 1095-C are used to determine whether an employer owes payments under the employer shared responsibility provisions (sometimes referred to as the “employer mandate”).

Under the ACA mandate, an employer can be penalized if it doesn’t offer affordable minimum essential coverage that provides minimum value to substantially all full-time employees and their dependents. Form 1095-C is also used in determining employees’ eligibility for premium tax credits.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer isn’t an ALE for the current year. That means the employer isn’t subject to the employer shared responsibility provisions or the information reporting requirements for the current year.

What information must be reported?

On Form 1095-C, ALEs must report the following for each employee who was a full-time employee for any month of the calendar year:

The employee’s name, Social Security number (SSN) and address,
The Employer Identification Number (EIN),
An employer contact person’s name and phone number,
A description of the offer of coverage (using a code provided in the instructions) and the months of coverage,
Each full-time employee’s share of the coverage cost under the lowest-cost, minimum-value plan offered by the employer, by calendar month, and
The applicable safe harbor (using one of the codes provided in the instructions) under the employer shared responsibility or employer mandate penalty.

What if we have a self-insured plan or a multi-employer plan?

If an ALE offers health coverage through a self-insured plan, the ALE must report additional information on Form 1095-C. For this purpose, a self-insured plan also includes one offering some enrollment options as insured arrangements and other options as self-insured.

Suppose an employer provides health coverage in another manner, such as through a multiemployer health plan. In that case, the insurance issuer or the plan sponsor making the coverage available will provide the information about health coverage to enrolled employees. An employer that provides employer-sponsored, self-insured health coverage but isn’t subject to the employer mandate isn’t required to file Forms 1094-C and 1095-C. Instead, the employer reports on Forms 1094-B and 1095-B for employees who enrolled in the employer-sponsored, self-insured health coverage.

On Form 1094-C, an employer can also indicate whether any eligibility certifications for relief from the employer mandate apply.

Be aware that these reporting requirements may be more complex if your business is a member of an aggregated ALE group or if the coverage is provided through a multiemployer plan.

What are the W-2 reporting requirements?

Employers also report certain information about health coverage on employees’ Forms W-2. But it’s not the same information as what’s reported on 1095-C. The information on either form doesn’t cause excludable employer-provided coverage to become taxable to employees. It’s for informational purposes only.

The above is a simplified explanation of the reporting requirements. Contact us with questions or for assistance in complying with the requirements.

How will the 2025 inflation adjustment numbers affect your year-end tax planning?

Tax Prep, Planning & Strategy|October 25, 2024

The IRS has issued its 2025 inflation adjustment numbers for more than 60 tax provisions in Revenue Procedure 2024-40. Inflation has moderated somewhat this year over last, so many amounts will increase over 2024 but not as much as in the previous year. Take these 2025 numbers into account as you implement 2024 year-end tax planning strategies.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $325–$650, depending on filing status, but the top of the 35% bracket will increase by $10,200–$20,400, again depending on filing status.

2025 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $11,925	$0 – $17,000	$0 – $23,850	$0 – $11,925
12%	$11,926 – $48,475	$17,001 – $64,850	$23,851 – $96,950	$11,926 – $48,475
22%	$48,476 – $103,350	$64,851 – $103,350	$96,951 – $206,700	$48,476 – $103,350
24%	$103,351 – $197,300	$103,351 – $197,300	$206,701 – $394,600	$103,351 – $197,300
32%	$197,301 – $250,525	$197,301 – $250,500	$394,601 – $501,050	$197,301 – $250,525
35%	$250,526 – $626,350	$250,501 – $626,350	$501,051 – $751,600	$250,526 – $375,800
37%	Over $626,350	Over $626,350	Over $751,600	Over $375,800

Note that under the TCJA, the rates and brackets are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

Standard deduction

The TCJA nearly doubled the standard deduction, indexed annually for inflation, through 2025. In 2025, the standard deduction will be $30,000 for married couples filing jointly, $22,500 for heads of households, and $15,000 for singles and married couples filing separately.

After 2025, the standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them. Also worth noting is that the personal exemption that was suspended by the TCJA is scheduled to return in 2026. Of course, Congress could extend the suspension.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2025 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $48,350	$0 – $64,750	$0 – $96,700	$0 – $48,350
15%	$48,351 – $533,400	$64,751 – $566,700	$96,701 – $600,050	$48,351 – $300,000
20%	Over $533,400	Over $566,700	Over $600,050	Over $300,000
* Higher rates apply to certain types of assets.

As with ordinary income tax rates and brackets, those for long-term capital gains are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2025, the threshold for the 28% bracket will increase by $6,500 for all filing statuses except married filing separately, which will increase by half that amount.

2025 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $239,100	$0 – $239,100	$0 – $239,100	$0 – $119,550
28%	Over $239,100	Over $239,100	Over $239,100	Over $119,550

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts in 2025 will be $88,100 for singles and $137,000 for joint filers, increasing by $2,400 and $3,700, respectively, over 2024 amounts. The inflation-adjusted phaseout ranges in 2025 will be $626,350–$978,750 for singles and $1,252,700–$1,800,700 for joint filers. Phaseout ranges for married couples filing separately are half of those for joint filers.

The exemptions and phaseouts were significantly increased under the TJCA. Without Congressional action, they’ll drop to their pre-TCJA levels (adjusted for inflation) in 2026.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks will generally remain the same in 2025. But most of these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges will generally remain the same or increase modestly in 2025, depending on the break. For example:

The American Opportunity credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the American Opportunity credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGIs in excess of $80,000 ($160,000 for joint returns). The maximum credit per eligible student is $2,500.

The Lifetime Learning credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the Lifetime Learning credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGIs in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2025 — by $7,040. It will be $259,190–$299,190 for joint, head-of-household and single filers. The maximum credit will increase by $470, to $17,280 in 2025.

Note: Married couples filing separately generally aren’t eligible for these credits.

These are only some of the education and child-related tax breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible to claim one on his or her tax return.

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. In 2025, the amount will be $13.99 million (up from $13.61 million in 2024). Beware that the TJCA approximately doubled these exemptions starting in 2018. Both exemptions are scheduled to drop significantly in 2026 if lawmakers don’t extend the higher amount or make other changes.

The annual gift tax exclusion will increase by $1,000, to $19,000 in 2025. (It isn’t part of a TCJA provision that’s scheduled to expire.)

Crunching the numbers

With the 2025 inflation adjustment amounts trending slightly higher than 2024 amounts, it’s important to understand how they might affect your tax and financial situation. Also keep in mind that many amounts could change substantially in 2026 because of expiring TCJA provisions — or new tax legislation, which could even go into effect sooner. We’d be happy to help crunch the numbers and explain the tax-saving strategies that may make the most sense for you in the current environment of tax law uncertainty.

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