With the introduction of the new Corporate Transparency Act, entity owners must navigate enhanced reporting requirements in 2024, while the upcoming election may bring further tax policy changes. SFMG is monitoring tax law closely and will notify clients of any major changes. In the meantime, the following are some items to consider before year-end:
NEW IN 2024 – CORPORATE TRANSPARENCY ACT
- Beneficial Ownership Reporting: The CTA requires most corporations, LLCs, and similar entities to report information on their beneficial owners (individuals who own or control at least 25% of the entity or who have substantial control).
- Information Submission: Entities must submit the full legal name, date of birth, residential address, and unique identification numbers (such as a passport or driver’s license number) of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
- Filing Deadlines: Starting January 1, 2024, newly formed companies must file this information within 90 days of incorporation (30 days beginning in 2025). Existing companies must file by January 1, 2025.
- Penalties for Non-Compliance: Failing to comply with the CTA can result in civil penalties of up to $500 per day and criminal fines up to $10,000, along with imprisonment for up to two years.
- Exemptions: Certain larger entities, such as publicly traded companies, banks, and insurance companies, are exempt from the reporting requirements due to existing transparency obligations.
- For more information or to file online, visit https://fincen.gov/boi
SECURE ACT 2.0 UPDATES
- The SECURE Act 2.0 delayed the Required Beginning Date (RBD) for mandatory distributions to age 73 for those born from 1951-1959 and age 75 for those born in 1960 or later.
- Penalties for not taking Required Minimum Distributions (RMDs) were reduced from 50% to 25%. If the error is corrected promptly, the penalty is further reduced to 10%.
- Employers may make matching contributions or nonelective contributions to employee Roth 401k/403b plans if the Roth option is available.
- Earners now have the choice to contribute to a Roth Simple IRA and Roth SEP IRA.
- Beginning in 2025:
- Beneficiaries of inherited IRAs must take annual Required Minimum Distributions (RMDs) if the account owner died on or after their Required Beginning Date.
- If the account owner died before their RBD, beneficiaries must empty the account by the end of the 10th year following the owner’s death.
- Catch-up contributions for employer retirement plans (401(k), 403b) will increase to the greater of $10,000 or 150% of the regular catch-up contribution ($7,500) for those age 60-63.
TAKE ADVANTAGE OF TAX-DEFERRED GROWTH
- Take full advantage of available retirement plans (401k, IRA, SEP-IRA, defined benefit, etc.) and other non-qualified plans (executive bonus, carve-out plans, deferred compensation, etc.) to defer and/or minimize income taxes over the long-term. IRA contribution limit for 2024 is $7,000 with an additional $1,000 catch-up contribution if over age 50. Contribution limits for 401ks are $23,000, with an additional $7,500 catch-up contribution if over age 50.
- Note that the window to make contributions to an employer plan typically closes at the end of the year, while taxpayers generally have until the April 15th income tax deadline to make IRA contributions to Traditional and Roth IRAs.
- If eligible, maximize contributions to Health Savings Accounts, which are pre-tax and tax-deferred funds that can be withdrawn tax free for future medical expenses. Taxpayers may be able to defer an additional $4,150 (individual plans) – $8,300 (family plans) of income with an additional $1,000 catch-up contribution for those over age 55.
REVISIT CHARITABLE GIVING STRATEGIES
- Use a Donor Advised Fund to make a future donation to charity but receive a current income tax deduction. With the higher standard deduction in 2024 ($29,200 for married filing jointly and $14,600 for single filers), this is a great tool that allows taxpayers to donate multiple years’ worth of gifts in one year (known as bunching), while being able to control the future distribution of funds. This strategy can increase itemized deductions over the standard deduction, allowing taxpayers to itemize for the tax year.
- Consider gifting appreciated securities to avoid potential capital gains taxes. Be aware that if donating securities, it could take custodians up to two weeks to process, and therefore, should be initiated by 12/15/2024 to ensure it will qualify for a 2024 deduction.
- For taxpayers over age 70.5, consider donating up to $105,000 per IRA owner directly to charity. This Qualified Charitable Deduction (QCD) will allow those who will no longer qualify for itemized deductions to reduce their taxable income through charitable contributions.
ESTATE AND GIFT TAXES
- The maximum estate tax rate is 40% and the estate tax exemption is $13.61 million for single filers and $27.22 million for married couples in 2024.
- Be aware that the annual federal gift tax exclusion allows the taxpayer to give away up to $18,000 in 2024 ($36,000 for married couples) to as many people as the taxpayer wishes without those gifts counting against the lifetime estate tax exemption.
- Tuition and medical expense payments made directly to the institution on behalf of another person do not count against the $18,000 gift tax exclusion.
- Consider wealth transfer strategies to reduce the taxable estate and ensure that assets will be utilized according to the taxpayer’s wishes, both now and in the future. We recommend discussing estate planning with us and an estate attorney prior to year-end if interested in these strategies.
OTHER CONSIDERATIONS
- Check beneficiary designations on retirement accounts and life insurance policies, especially if there has been a major life change (marriage, divorce, death of spouse, new child, etc.).
- Review the titling of assets to ensure they remain aligned with the estate planning designs and goals, as well as to reduce the cost of probate or avoid it altogether.
The purpose of the update is to share some of our current views and research. Although we make every effort to be accurate in our content, the data is derived from other sources and should be reviewed carefully. While we believe these sources to be reliable, we cannot guarantee their validity. SFMG is not a CPA firm and does not provide tax advice. Please contact your tax advisor for discussion regarding specific tax planning strategies.