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Do you have questions about taking IRA withdrawals? We’ve got answers

Tax Prep, Planning & Strategy|February 11, 2025

Once you reach age 73, tax law requires you to begin taking withdrawals — called Required Minimum Distributions (RMDs) — from your traditional IRA, SIMPLE IRA and SEP IRA. Since funds can’t stay in these accounts indefinitely, it’s important to understand the rules behind RMDs, which can be pretty complex. Below, we address some common questions to help you navigate this process.

What are the tax implications if I want to withdraw money before retirement?

If you need to take money out of a traditional IRA before age 59½, distributions are taxable, and you may be subject to a 10% penalty tax. However, there are several ways that you can avoid the 10% penalty tax (but not the regular income tax). They include using the money to pay:

Qualified higher education expenses,
Up to $10,000 of expenses if you’re a first-time homebuyer,
Expenses after you become totally and permanently disabled,
Expenses of up to $5,000 per child for qualified birth or adoption expenses, and
Health insurance premiums while unemployed.

These are only some of the exceptions to the 10% tax allowed before age 59½. The IRS lists them all in this chart.

When am I required to take my first RMD?

For an IRA, you must take your first RMD by April 1 of the year following the year in which you turn 73, regardless of whether you’re still employed. The RMD age used to be 72 but the Secure 2.0 Act raised it to 73 starting in 2023.

How do I calculate my RMD?

The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who’s 10 or more years younger than the owner.

How should I take my RMDs if I have multiple accounts?

If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. You don’t have to take a separate RMD from each IRA.

Can I withdraw more than the RMD?

Yes, you can always withdraw more than the RMD. But you can’t apply excess withdrawals toward future years’ RMDs.

In planning for RMDs, you should weigh your income needs against the ability to keep the tax shelter of the IRA going for as long as possible.

Can I take more than one withdrawal in a year to meet my RMD?

You may withdraw your annual RMD in any number of distributions throughout the year, as long as you withdraw the yearly total minimum amount by December 31 (or April 1 if it is for your first RMD).

What happens if I don’t take an RMD?

If the distributions to you in any year are less than the RMD for that year, you’ll be subject to an additional tax equal to 50% of the amount that should have been paid but wasn’t.

Plan carefully

Contact us to review your traditional IRAs and analyze other retirement planning aspects. We can also discuss who you should name as beneficiaries and whether you could benefit from a Roth IRA. Roth IRAs are retirement savings vehicles that operate under a different set of rules than traditional IRAs. Contributions aren’t deductible, but qualified distributions are generally tax-free.

How Section 1231 gains and losses affect business asset sales

Management Advisory Services & Business Consulting|February 6, 2025

When selling business assets, understanding the tax implications is crucial. One area to focus on is Section 1231 of the Internal Revenue Code, which governs the treatment of gains and losses from the sale or exchange of certain business property.

Business gain and loss tax basics

The federal income tax character of gains and losses from selling business assets can fall into three categories:

Capital gains and losses. These result from selling capital assets which are generally defined as property other than 1) inventory and property primarily held for sale to customers, 2) business receivables, 3) real and depreciable business property including rental real estate, and 4) certain intangible assets such as copyrights, musical works and art works created by the taxpayer. Operating businesses typically don’t own capital assets, but they might from time to time.
Sec. 1231 gains and losses. These result from selling Sec. 1231 assets which generally include 1) business real property (including land) that’s held for more than one year, 2) other depreciable business property that’s held for more than one year, 3) intangible assets that are amortizable and held for more than one year, and 4) certain livestock, timber, coal, domestic iron ore and unharvested crops.
Ordinary gains and losses. These result from selling all assets other than capital assets and Sec. 1231 assets. Other assets include 1) inventory, 2) receivables, and 3) real and depreciable business assets that would be Sec. 1231 assets if held for over one year. Ordinary gains can also result from various recapture provisions, the most common of which is depreciation recapture.

Favorable tax treatment

Gains and losses from selling Sec. 1231 assets receive favorable federal income tax treatment.

Net Sec. 1231 gains. If a taxpayer’s Sec. 1231 gains for the year exceed the Sec. 1231 losses for that year, all the gains and losses are treated as long-term capital gains and losses — assuming the nonrecaptured Sec. 1231 loss rule explained later doesn’t apply.

An individual taxpayer’s net Sec. 1231 gain — including gains passed through from a partnership, LLC, or S corporation — qualifies for the lower long-term capital gain tax rates.

Net Sec. 1231 losses. If a taxpayer’s Sec. 1231 losses for the year exceed the Sec. 1231 gains for that year, all the gains and losses are treated as ordinary gains and losses. That means the net Sec. 1231 loss for the year is fully deductible as an ordinary loss, which is the optimal tax outcome.

Unfavorable nonrecaptured Sec. 1231 loss rule

Now for a warning: Taxpayers must watch out for the nonrecaptured Sec. 1231 loss rule. This provision is intended to prevent taxpayers from manipulating the timing of Sec. 1231 gains and losses in order to receive favorable ordinary loss treatment for a net Sec. 1231 loss, followed by receiving favorable long-term capital gain treatment for a net Sec. 1231 gain recognized in a later year.

The nonrecaptured Sec. 1231 loss for the current tax year equals the total net Sec. 1231 losses that were deducted in the preceding five tax years, reduced by any amounts that have already been recaptured. A nonrecaptured Sec. 1231 loss is recaptured by treating an equal amount of current-year net Sec. 1231 gain as higher-taxed ordinary gain rather than lower-taxed long-term capital gain.

For losses passed through to an individual taxpayer from a partnership, LLC, or S corporation, the nonrecaptured Sec. 1231 loss rule is enforced at the owner level rather than at the entity level.

Tax-smart timing considerations

Because the unfavorable nonrecaptured Sec. 1231 loss rule cannot affect years before the year when a net Sec. 1231 gain is recognized, the tax-smart strategy is to try to recognize net Sec. 1231 gains in years before the years when net Sec. 1231 losses are recognized.

Conclusion

Achieving the best tax treatment for Sec. 1231 gains and losses can be a challenge. We can help you plan the timing of gains and losses for optimal tax results.

Maximize your 401(k) in 2025: Smart strategies for a secure retirement

Tax Prep, Planning & Strategy|February 4, 2025

Saving for retirement is a crucial financial goal and a 401(k) plan is one of the most effective tools for achieving it. If your employer offers a 401(k) or Roth 401(k), contributing as much as possible to the plan in 2025 is a smart way to build a considerable nest egg.

If you’re not already contributing the maximum allowed, consider increasing your contribution in 2025. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions can have a significant impact on the amount of money you’ll have in retirement.

With a 401(k), an employee elects to have a certain amount of pay deferred and contributed to the plan by an employer on his or her behalf. The amounts are indexed for inflation each year and they’re increasing a modest amount. The contribution limit in 2025 is $23,500 (up from $23,000 in 2024). Employees age 50 or older by year end are also generally permitted to make additional “catch-up” contributions of $7,500 in 2025 (unchanged from 2024). This means those 50 or older can generally save up to $31,000 in 2025 (up from $30,500 in 2024).

However, under a law change that becomes effective in 2025, 401(k) plan participants of certain ages can save more. The catch-up contribution amount for those who are age 60, 61, 62 or 63 in 2025 is $11,250.

Note: The contribution amounts for 401(k)s also apply to 403(b)s and 457 plans.

Traditional 401(k)s

A traditional 401(k) offers many benefits, including:

Pretax contributions, which reduce your modified adjusted gross income (MAGI) and can help you reduce or avoid exposure to the 3.8% net investment income tax.
Plan assets that can grow tax-deferred — meaning you pay no income tax until you take distributions.
The option for your employer to match some or all of your contributions pretax.

If you already have a 401(k) plan, look at your contributions. In 2025, try to increase your contribution rate to get as close to the $23,500 limit (with any extra eligible catch-up amount) as you can afford. Of course, the taxes on your paycheck will be reduced because the contributions are pretax.

Roth 401(k)s

Your employer may also offer a Roth option in its 401(k) plans. If so, you can designate some or all of your contributions as Roth contributions. While such amounts don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners because they can’t contribute to a Roth IRA. That’s because the ability to make a Roth IRA contribution is reduced or eliminated if adjusted gross income (AGI) exceeds specific amounts.

Planning for the future

Contact us if you have questions about how much to contribute or the best mix between traditional and Roth 401(k) contributions. We can also discuss other tax and retirement-saving strategies for your situation.

Unlocking the mystery of taxes on employer-issued nonqualified stock options

Tax Prep, Planning & Strategy|January 28, 2025

Employee stock options remain a potentially valuable asset for employees who receive them. For example, many Silicon Valley millionaires got rich (or semi-rich) from exercising stock options when they worked for start-up companies or fast-growing enterprises.

We’ll explain what you need to know about the federal income and employment tax rules for employer-issued nonqualified stock options (NQSOs).

Tax planning objectives

You’ll eventually sell shares you acquire by exercising an NQSO, hopefully for a healthy profit. When you do, your tax planning objectives will be to:

1. Have most or all of that profit taxed at lower long-term capital gain rates.

2. Postpone paying taxes for as long as possible.

Tax results when acquiring and selling shares

NQSOs aren’t subject to any tax-law restrictions, but they also confer no special tax advantages. That said, you can get positive tax results with advance planning.

When you exercise an NQSO, the bargain element (difference between market value and exercise price) is treated as ordinary compensation income — the same as a bonus payment. That bargain element will be reported as additional taxable compensation income on Form W-2 for the year of exercise, which you get from your employer.

Your tax basis in NQSO shares equals the market price on the exercise date. Any subsequent appreciation is capital gain taxed when you sell the shares. You have a capital loss if you sell shares for less than the market price on the exercise date.

Let’s look at an example

On December 1, 2023, you were granted an NQSO to buy 2,000 shares of company stock at $25 per share. On April 1, 2024, you exercised the option when the stock was trading at $34 per share. On May 15, 2025, the shares are trading at $52 per share, and you cash in. Assume you paid 2024 federal income tax on the $18,000 bargain element (2,000 shares × $9 bargain element) at the 24% rate for a tax of $4,320 (24% × $18,000).

Your per-share tax basis in the option stock is $34, and your holding period began on April 2, 2024. When you sell on May 15, 2025, for $52 per share, you trigger a $36,000 taxable gain (2,000 shares × $18 per-share difference between the $52 sale price and $34 basis). Assume the tax on your long-term capital gain is $5,400 (15% × $36,000).

You net an after-tax profit of $44,280 when all is said and done. Here’s the calculation: Sales proceeds of $104,000 (2,000 shares × $52) minus exercise price of $50,000 (2,000 shares × $25) minus $5,400 capital gains tax on the sale of the option shares minus $4,320 tax upon exercise.

Since the bargain element is treated as ordinary compensation income, the income is subject to federal income tax, Social Security and Medicare tax withholding.

Key point: To keep things simple, the example above assumes you don’t owe the 3.8% net investment income tax on your stock sale gain or any state income tax.

Conventional wisdom and risk-free strategies

If you had exercised earlier in 2024 when the stock was worth less than $34 per share, you could have cut your 2024 tax bill and increased the amount taxed later at the lower long-term capital gain rates. That’s the conventional wisdom strategy for NQSOs.

The risk-free strategy for NQSOs is to hold them until the earlier of 1) the date you want to sell the underlying shares for a profit or 2) the date the options will expire. If the latter date applies and the options are in-the-money on the expiration date, you can exercise and immediately sell. This won’t minimize the tax, but it eliminates any economic risk. If your options are underwater, you can simply allow them to expire with no harm done.

Maximize your profit

NQSOs can be a valuable perk, and you may be able to benefit from lower long-term capital gain tax rates on part (maybe a big part) of your profit. If you have questions or want more information about NQSOs, consult with us.

When can you deduct business meals and entertainment?

Tax Prep, Planning & Strategy|January 23, 2025

You’re not alone if you’re confused about the federal tax treatment of business-related meal and entertainment expenses. The rules have changed in recent years. Let’s take a look at what you can deduct in 2024.

Current law

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, that you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game.

You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment.

Allowable food and beverage costs

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees and tips.

To be 50% deductible, food and beverages consumed in conjunction with an entertainment activity must: be purchased separately from the entertainment or be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages. You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other rules

Per IRS regulations, no 50% deduction for the cost of business meals is allowed unless:

1. The meal isn’t lavish or extravagant under the circumstances.

2. You (as the taxpayer) or an employee is present at the meal.

3. The meal is provided to you or a business associate.

Who are business associates? They’re people with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees or partners.

IRS regulations make it clear that you can deduct 50% of the cost of a business-related meal for yourself — for example, because you’re working late at night.

Traveling on business

Per IRS regulations, the general rule is that you can still deduct 50% of the cost of meals while traveling on business. The longstanding rules for substantiating meal expenses still apply. Message: keep receipts.

IRS regulations also reiterate the longstanding general rule that no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you on business travel. (This is also true for spouses and dependents accompanying an officer or employee on a business trip.)

The exception is when the expenses would otherwise be deductible. For example, meal expenses for your spouse are deductible if he or she works at your company and accompanies you on a business trip for legitimate business reasons.

100% deductions in certain situations

IRS regulations confirm that some longstanding favorable exceptions for meal and entertainment expenses still apply. For example, your business can deduct 100% of the cost of:

Food, beverage, and entertainment incurred for recreational, social, or similar activities that are primarily for the benefit of all employees (for example, at a company holiday party);
Food, beverages, and entertainment available to the general public (for example, free food and music you provide at a promotional event open to the public);
Food, beverages and entertainment sold to customers for full value;
Amounts that are reported as taxable compensation to recipient employees; and
Meals and entertainment that are reported as taxable income to a non-employee recipient on a Form 1099 (for example, a customer wins a dinner cruise for ten valued at $750 at a sales presentation).

In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.

Bottom line

Business-related meal deductions can be valuable, but the rules can be complex. Contact us if you have questions or want more information.

How inflation will affect your 2024 and 2025 tax bills

Tax Prep, Planning & Strategy|January 16, 2025

Inflation can have a significant impact on federal tax breaks. While recent inflation has come down since its peak in 2022, some tax amounts will still increase for 2025. The IRS recently announced next year’s inflation-adjusted amounts for several provisions.

Here are the highlights.

Standard deduction. What does an increased standard deduction mean for you? A larger standard deduction will shelter more income from federal income tax next year. For 2025, the standard deduction will increase to $15,000 for single taxpayers, $30,000 for married couples filing jointly and $22,500 for heads of household. This is up from the 2024 amounts of $14,600 for single taxpayers, $29,200 for married couples filing jointly and $21,900 for heads of household.

The highest tax rate. For 2025, the highest tax rate of 37% will affect single taxpayers and heads of households with income exceeding $626,350 ($751,600 for married taxpayers filing jointly). This is up from 2024, when the 37% rate affects single taxpayers and heads of households with income exceeding $609,350 ($731,200 for married couples filing jointly).

Retirement plans. Some retirement plan limits will increase for 2025. That means you may have an opportunity to save more for retirement if you have one of these plans and you contribute the maximum amount allowed. For example, in 2025, individuals can contribute up to $23,500 to their 401(k) plans, 403(b) plans and most 457 plans. This is up from $23,000 in 2024. The general catch-up contribution limit for employees age 50 and over who participate in these plans will be $7,500 in 2025 (unchanged from 2024).

However, under the SECURE 2.0 law, specific 401(k) participants can save more with catch-up contributions beginning in 2025. The new catch-up contribution amount for taxpayers who are age 60, 61, 62 or 63 will be $11,250.

Therefore, participants in 401(k) plans who are 50 or older can contribute up to $31,000 in 2025. Those who are age 60, 61, 62 or 63 can contribute up to $34,750.

The annual contribution limit for those with IRA accounts will remain at $7,000 for 2025. The IRA catch-up contribution for those age 50 and up also remains at $1,000 because it isn’t adjusted for inflation.

Flexible Spending Accounts (FSAs). These accounts allow owners to pay for qualified medical costs with pre-tax dollars. If you participate in an employer-sponsored FSA, you can contribute more in 2025. The annual contribution amount will rise to $3,300 (up from $3,200 in 2024). FSA funds must be used by year end unless an employer elects to allow a two-and-one-half-month carryover grace period. For 2025, the amount that can be carried over to the following year will rise to $660 (up from $640 for 2024).

Taxable gifts. You can make annual gifts up to the federal gift tax exclusion amount each year. Annual gifts help reduce the taxable value of your estate without reducing your unified federal estate and gift tax exemption. For 2025, the first $19,000 of gifts to as many recipients as you’d like (other than gifts of future interests) aren’t included in the total amount of taxable gifts. (This is up from $18,000 in 2024.)

Thinking ahead

While it will be quite a while before you’ll have to file your 2025 tax return, it won’t be long until the IRS begins accepting tax returns for 2024. When it comes to taxes, it’s nice to know what’s ahead so you can take advantage of all the tax breaks to which you’re entitled.

Self-employment tax: A refresher on how it works

Tax Prep, Planning & Strategy|January 14, 2025

If you own a growing, unincorporated small business, you may be concerned about high self-employment (SE) tax bills. The SE tax is how Social Security and Medicare taxes are collected from self-employed individuals like you.

SE tax basics

The maximum 15.3% SE tax rate hits the first $168,600 of your 2024 net SE income. The 15.3% rate is comprised of the 12.4% rate for the Social Security tax component plus the 2.9% rate for the Medicare tax component. For 2025, the maximum 15.3% SE tax rate will hit the first $176,100 of your net SE income.

Above those thresholds, the SE tax’s 12.4% Social Security tax component goes away, but the 2.9% Medicare tax component continues for all income.

How high can your SE tax bill go? Maybe a lot higher than you think. The real culprit is the 12.4% Social Security tax component of the SE tax, because the Social Security tax ceiling keeps getting higher every year.

To calculate your SE tax bill, take the taxable income from your self-employed activity or activities (usually from Schedule C of Form 1040) and multiply by 0.9235. The result is your net SE income. If it’s $168,600 or less for 2024, multiply the amount by 15.3% to get your SE tax. If the total is more than $168,600 for 2024, multiply $168,600 by 12.4% and the total amount by 2.9% and add the results. This is your SE tax.

Example: For 2024, you expect your sole proprietorship to generate net SE income of $200,000. Your SE tax bill will be $26,706 (12.4% × $168,600) + (2.9% × $200,000). That’s a lot!

Projected tax ceilings for 2026–2033

The current Social Security tax on your net SE income is expensive enough, but it will only worsen in future years. That’s because your business income will likely grow, and the Social Security tax ceiling will continue to increase based on annual inflation adjustments.

The latest Social Security Administration (SSA) projections (from May 2024) for the Social Security tax ceilings for 2026–2033 are:

2026 – $181,800
2027 – $188,100
2028 – $195,900
2029 – $204,000
2030 – $213,600
2031 – $222,900
2032 – $232,500
2033 – $242,700

Could these estimated ceilings get worse? Absolutely, because the SSA projections sometimes undershoot the actual final numbers. For instance, the 2025 ceiling was projected to be $174,900 just last May, but the final number turned out to be $176,100. But let’s say the projected numbers play out. If so, the 2033 SE tax hit on $242,700 of net SE income will be a whopping $37,133 (15.3% × $242,700).

Disconnect between tax ceiling and benefit increases

Don’t think that Social Security tax ceiling increases are linked to annual Social Security benefit increases. Common sense dictates that they should be connected, but they aren’t. For example, the 2024 Social Security tax ceiling is 5.24% higher than the 2023 ceiling, but benefits for Social Security recipients went up by only 3.2% in 2024 compared to 2023. The 2025 Social Security tax ceiling is 4.45% higher than the 2024 ceiling, but benefits are going up by only 2.5% for 2025 compared to 2024.

The reason is that different inflation measures are used for the two calculations. The increase in the Social Security tax ceiling is based on the increase in average wages, while the increase in benefits is based on a measure of general inflation.

S corporation strategy

While your SE tax bills can be high and will probably get even higher in future years, there may be potential ways to cut them to more manageable levels. For instance, you could start running your business as an S corporation. Then, you can pay yourself a reasonably modest salary while distributing most or all of the remaining corporate cash flow to yourself. That way, only your salary would be subject to Social Security and Medicare taxes. Contact us if you have questions or want more information about the SE tax and ways to manage it.

Your guide to Medicare premiums and taxes

Tax Prep, Planning & Strategy|January 7, 2025

Medicare health insurance premiums can add up to big bucks — especially if you’re upper-income, married, and you and your spouse both pay premiums. Read on to understand how taxes fit in.

Premiums for Part B coverage

Medicare Part B coverage is commonly called Medicare medical insurance. Part B mainly covers doctors’ visits and outpatient services. Eligible individuals must pay monthly premiums for this benefit. Medicare is generally for people 65 or older. It’s also available earlier to some people with disabilities, and those with end-stage renal disease and ALS.

The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 for two years earlier. MAGI is the adjusted gross income (AGI) number on your Form 1040 plus any tax-exempt interest income.

For 2025, most individuals will pay the base monthly Part B premium of $185 per covered person.

Higher-income individuals must pay a surcharge on top of the base premium. For 2025, a surcharge applies if you: 1) filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year or 2) filed jointly for 2023 and reported MAGI above $212,000 for that year.

For 2025, Part B monthly premiums, including surcharges if applicable, for each covered individual can be found on this web page.

Part B premiums, including any surcharges, are withheld from your Social Security benefit payments and are shown on the annual Form SSA-1099 sent to you by the Social Security Administration (SSA).

Premiums for Part D drug coverage

Medicare Part D is private prescription drug coverage. Base premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium.

For 2025, surcharges apply to those who: 1) filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year or 2) filed a joint return for 2023 and reported MAGI above $212,000. You can find the 2025 monthly Part D surcharges for each covered person on this web page.

You pay the base Part D premium, which depends on the private insurance company plan you select, to the insurance company. Any surcharge will be withheld from your Social Security benefit payments and reflected on the annual Form SSA-1099 sent to you by the SSA.

Deducting Medicare premiums

You may be able to combine premiums for Medicare insurance with other qualifying health care expenses to claim an itemized medical expense deduction. Your deduction equals total qualifying expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).

Your 2024 tax return and 2026 Medicare premiums

Decisions reflected on your 2024 Form 1040 can affect your 2024 MAGI and, in turn, your 2026 Medicare health insurance premiums. This issue is especially relevant if you’re self-employed or an owner of a pass-through business entity (LLC, partnership or S corporation) because you have more opportunities to micro-manage your 2024 MAGI at tax return time. For example, you may choose to make bigger or smaller deductible contributions to a self-employed retirement plan and maximize or minimize depreciation deductions for business assets.

While your 2026 Medicare health insurance premiums may seem to be an issue in the distant future, 2026 will be here before you know it.

Optimize your situation

As you can see, Medicare health insurance premiums can add up. In addition, what you do on your yet-to-be-filed 2024 tax return can impact your 2026 premiums. We can help you make the best decisions to optimize your overall situation.

Another court ruling on BOI reporting: Requirements are halted again

Tax Prep, Planning & Strategy|January 6, 2025

In a surprising turn of events, a federal appeals court has issued another ruling that suspends a requirement for businesses to file reports about their beneficial ownership information (BOI). This came just days after the same court issued a ruling that resulted in the federal government announcing that millions of small businesses did have to file BOI reports by January 13, 2025.

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) immediately announced: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Bottom line: If your business was concerned about the deadline, or rushing to meet it, you can relax for now. Business groups, including the National Federation of Independent Business (NFIB) applauded the latest decision. In a press release, the NFIB stated that since small businesses were told that they needed to “urgently submit” BOI reports, they “have experienced enormous chaos and confusion.”

What the requirements are intended to accomplish

The BOI requirements were imposed under the Corporate Transparency Act (CTA). They’re intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud. The CTA mandated many small businesses to provide information about their “beneficial owners” (the individuals who ultimately own or control the businesses) to FinCEN. Failure to submit a BOI report by the applicable deadline would have resulted in civil or criminal penalties, or both.

FinCEN estimated that approximately 32.6 million companies would be affected by the reporting rules in the first year.

Timeline of the requirements

To help explain the head-spinning situation, here’s a timeline of some significant events.

January 1, 2021: The Corporate Transparency Act is enacted.

January 1, 2024: BOI reporting requirements begin to take effect. Initial BOI reports for companies formed or registered prior to 2024 have one year to file reports. Those that register on or after January 1, 2024, have 90 days to file upon receipt of their creation or registration documents and those that register on or after January 1, 2025, have 30 days to file upon receipt of their creation or registration documents.

December 3, 2024: The U.S. District Court for the Eastern District of Texas enters an order suspending nationwide enforcement of the CTA and its BOI reporting requirements. The court challenges the constitutionality of the CTA. (However, in other cases, district courts have upheld the CTA and its requirements.)

December 5, 2024: The government appeals the December 3 district court ruling.

December 6, 2024: FinCEN announces in an alert: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

FinCEN states that it believes the CTA is constitutional.

December 23, 2024: The U.S. Court of Appeals for the Fifth Circuit again allows the nationwide enforcement of the CTA and the BOI reporting requirements. FinCEN announces in another “alert” that reporting companies formed or registered prior to 2025 have until January 13, 2025, to file a BOI report (rather than the original January 1, 2025, deadline).

December 26, 2024: The Fifth Circuit vacates the stay and reinstates a nationwide preliminary injunction enjoining (or prohibiting) the government from enforcing the CTA.

December 27, 2024: FinCEN announces in another “alert” that reporting companies aren’t currently required to file BOI reports in January. The Fifth Circuit announces a schedule to address the “weighty substantive arguments” again, beginning in February 2025.

What the future could hold

As you can see by the latest announcement from the appeals court, the ongoing saga of the BOI reporting requirements isn’t necessarily finished. In addition to the court potentially changing the rules again, there could be legislation repealing the reporting requirements when Republicans take control of Congress in the new year. Contact us if you have questions or want to file a BOI report voluntarily.

Advantages of keeping your business separate from its real estate

Accounting & Assurance|January 2, 2025

Does your business require real estate for its operations? Or do you hold property titled under your business’s name? It might be worth reconsidering this strategy. With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a wise choice.

How taxes affect a sale

Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they’re incurred.

However, when the business sells the real estate, the profits are taxed twice — at the corporate level and at the owner’s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate is transferred to a pass-through entity instead, the profit upon sale will be taxed only at the individual level.

Safeguarding assets

Separating your business ownership from its real estate also provides an effective way to protect the real estate from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can’t touch property owned by another entity.

The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can’t recover real estate owned separately unless it’s been pledged as collateral for credit taken out by the business.

Estate planning implications

Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but all members of the next generation aren’t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one member and the real estate to another.

Handling the transaction

If you’re interested in this strategy, the business can transfer ownership of the real estate and then the transferee can lease it back to the company. Who should own the real estate? One option: The business owner can purchase the real estate from the business and hold title in his or her name. One concern though, is that it’s not only the property that’ll transfer to the owner but also any liabilities related to it.

In addition, any liability related to the property itself may inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.

An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.

An LLC is more commonly used to transfer real estate. It’s simple to set up and requires only one member. LLPs require at least two partners and aren’t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.

Tread carefully

It isn’t always advisable to separate the ownership of a business from its real estate. If it’s a valuable move, the right approach will depend on your individual circumstances. Contact us to help determine the best way to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.

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