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.

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If you have a child or grandchild planning to attend college, you’ve probably heard about qualified tuition programs, also known as 529 plans. These plans, named for the Internal Revenue Code section that provides for them, allow prepayment of higher education costs on a tax-favored basis.

There are two types of programs:

1. Prepaid plans, which allow you to buy tuition credits or certificates at present tuition rates, even though the beneficiary (child) won’t be starting college for some time; and
2. Savings plans, which depend on the performance of the fund(s) you invest your contributions in.

Earnings build up tax-free

You don’t get a federal income tax deduction for 529 plan contributions, but the account earnings aren’t taxed while the funds are in the program. (Contributors are eligible for state tax deductions in some states.) You can change the beneficiary, or roll over the funds in the program to another plan for the same or a different beneficiary, without income tax consequences.

Distributions from the program are tax-free up to the amount of the student’s “qualified higher education expenses.” These include tuition (up to $10,000 for an elementary or secondary public, private or religious school), fees, books, supplies and required equipment. Reasonable room and board are also qualified expenses if the student is enrolled at least half time.

Tax-free distributions from a 529 plan can also be used to pay the principal or interest on a loan for qualified higher education expenses of the beneficiary or a sibling of the beneficiary.

What about distributions in excess of qualified expenses? They’re taxed to the beneficiary to the extent that they represent earnings on the account. The IRS will also impose a 10% penalty tax.

Your contributions to the qualified tuition program are treated as gifts to the student, but the contributions qualify for the gift tax exclusion ($18,000 in 2024, adjusted annually for inflation). Suppose your contributions in a year exceed the exclusion amount. In that case, you can elect to take the contributions into account ratably over five years starting with the year of the contributions. Thus, assuming you make no other gifts to that beneficiary, you could contribute up to $90,000 per beneficiary in 2024 without gift tax. (In that case, any additional contributions during the next four years would be subject to gift tax, except to the extent that the exclusion amount increases.) You and your spouse together could contribute $180,000 per beneficiary for 2024, subject to any contribution limits imposed by the plan.

Not all schools qualify

Eligible schools include colleges, universities, vocational schools or other postsecondary schools eligible to participate in a student aid program of the U.S. Department of Education. This includes nearly all accredited public, nonprofit and for-profit postsecondary institutions.

However, “qualified higher education expenses” also include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. A school should be able to tell you whether it qualifies.

Tax-smart education

A distribution from a qualified tuition program isn’t subject to gift tax, but a change in beneficiary or rollover to the account of a new beneficiary may be. Contact us with questions about tax-saving ways to save and pay for college.

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As the end of the year approaches, many people start to think about their finances and tax strategies. One effective way to reduce potential estate taxes and show generosity to loved ones is by giving cash gifts before December 31. Under tax law, you can gift a certain amount each year without incurring gift taxes or requiring a gift tax return. Taking advantage of this rule can help you reduce the size of your taxable estate while benefiting your family and friends.

Taxpayers can transfer substantial amounts, free of gift taxes, to their children or other recipients each year through the proper use of the annual exclusion. The exclusion amount is adjusted for inflation annually, and in 2024 is $18,000. It covers gifts that an individual makes to each recipient each year. So a taxpayer with three children can transfer $54,000 ($18,000 × 3) to the children this year, free of federal gift taxes. If the only gifts during a year are made this way, there’s no need to file a federal gift tax return. If annual gifts exceed $18,000 per recipient, the exclusion covers the first $18,000 and only the excess is taxable.

Note: This discussion isn’t relevant to gifts made to a spouse because they’re gift-tax-free under separate marital deduction rules.

Married taxpayers can split gifts

If you’re married, gifts made during a year can be treated as split between the spouses, even if the cash or asset is given to an individual by only one of you. Therefore, by gift splitting, up to $36,000 a year can be transferred to each recipient by a married couple because two exclusions are available. For example, a married couple with three married children can transfer $216,000 ($36,000 × 6) each year to their children and the children’s spouses.

If gift splitting is involved, both spouses must consent to it. This is indicated on the gift tax return (or returns) that the spouses file. (If more than $18,000 is being transferred by a spouse, a gift tax return must be filed, even if the $36,000 exclusion covers the total gifts.)

More rules to consider

Even gifts that aren’t covered by the exclusion may not result in a tax liability. That’s because a tax credit wipes out the federal gift tax liability on the first taxable gifts you make in your lifetime, up to $13.61 million in 2024. However, to the extent you use this credit against a gift tax liability, it reduces or eliminates the credit available for use against the federal estate tax at your death.

For a gift to qualify for the annual exclusion, it must be a “present interest” gift, meaning you can’t postpone the recipient’s enjoyment of the gift to the future. Other rules may apply. Contact us with questions. We can also prepare a gift tax return for you if you give more than $18,000 (or $36,000 if married) to a single person this year or make a split gift.

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President-Elect Trump will take power early next year along with a unified GOP Congress. However, it’s still unknown how the tax landscape will change in the coming years. The good news is that businesses have several avenues to explore before year end to trim their federal tax liability for 2024.

Pass-through entity tax deduction

About three dozen states offer some form of the pass-through entity (PTE) tax deduction on the individual tax returns of owners of pass-through entities, such as partnerships, S corporations and limited liability companies. These deductions are intended to bypass the Tax Cuts and Jobs Act’s $10,000 limit on the state and local taxes (SALT) deduction.

Details vary by state, but if available, PTE tax deductions typically allow an entity to pay a mandatory or elective entity-level state tax on its income and claim a business expense deduction for the full amount. In turn, partners, shareholders or members receive a full or partial tax credit, deduction, or exclusion on their individual tax returns, without eating into their limited SALT deduction.

Qualified business income deduction

The qualified business income (QBI) deduction allows owners of pass-through entities, including sole proprietors, to deduct up to 20% of their QBI. The deduction is set to expire in 2026, at which point income would be taxed at owners’ individual income tax rates. (However, with Republicans in control of the White House, the Senate and the House of Representatives beginning in 2025, tax experts don’t expect the deduction to expire.)

To make the most of the QBI deduction for 2024, consider increasing your W-2 deductions or purchasing qualified property. You also can avoid applicable income limits on the deduction through timing tactics.

Income and expense timing

Timing the receipt of income and payment of expenses can cut your taxes by reducing your taxable income. For example, if you expect to be in the same or a lower income tax bracket next year and use the cash method of accounting, consider delaying your customer billing to push payment into 2025. Accrual method businesses can delay shipments or services until early January for the same effect. Similarly, you could pre-pay bills and other liabilities due in 2025.

Bonuses often make a prime candidate for careful timing. A closely held C corporation might want to reduce its income by paying bonuses before year-end. This applies to cash-method pass-through businesses, too. Accrual method businesses generally can deduct bonuses in 2024 if they’re paid to nonrelatives within 2½ months after the end of the tax year.

Asset purchases 

There’s still time to make asset purchases and place them into service before year-end. You can then deduct a big chunk of the purchase price, if not the entire amount, for 2024.

The Section 179 expensing election allows 100% expensing of eligible assets in the year they’re placed in service. Eligible assets include new and used machinery, equipment, certain vehicles, and off-the-shelf computer software. You also can immediately expense qualified improvement property (QIP). This includes interior improvements to your facilities and certain improvements to your roof, HVAC, and fire protection and security systems.

Under Sec. 179, in 2024, the maximum amount you can deduct is $1.22 million. The deduction begins phasing out on a dollar-per-dollar basis when qualifying purchases exceed $3.05 million. The amount is also limited to the taxable income from your business activity, though you can carry forward unused amounts or apply bonus depreciation to the excess.

For this year, bonus depreciation allows you to deduct 60% of the purchase price of tangible property with a Modified Accelerated Cost Recovery System period of no more than 20 years (such as computer systems, office furniture and QIP). The allowable first-year deduction will drop by 20% per subsequent year, zeroing out in 2027, absent congressional action. Bonus depreciation isn’t subject to a taxable income limit, so it can create net operating losses (NOLs). Under the TCJA, NOLs can be carried forward only and are subject to an 80% limitation.

Important: Depreciation-related deductions can reduce QBI deductions, making a cost-benefit analysis vital.

Research credit

The research credit (often referred to as the ‘research and development,’ ‘R&D’ or ‘research and experimentation’ credit) is a frequently overlooked opportunity. Many businesses mistakenly assume they’re ineligible, but it’s not just for technology companies or industries known for innovation and experimentation — or for companies that show a profit. It may be worth investigating whether your business has engaged in qualified research this year or in previous years.

The credit generally equals the sum of 20% of the excess of a business’s qualified research expenses for the tax year over a base amount. The Inflation Reduction Act made the research credit even more valuable for qualified small businesses. It doubled the credit amount such businesses can apply against their payroll taxes, from $250,000 to $500,000.

Take action

No business wants to pay more taxes than it needs to. We can help ensure you’re doing everything possible to minimize your taxes with these opportunities and others.

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