As March arrives, we’re gearing up for the heart of tax season. This period is about more than just preparing; it’s about capitalizing on tax and business protocols that can benefit you in the long run. Our experienced team is dedicated to offering the latest and most pertinent insights and support. This month’s newsletter will delve into the topics of Baby Boomers downsizing their homes, the importance of not mixing personal and business finances, and examining which expenses are deductible for charity volunteers.

Thank you to the Greater Binghamton Chamber of Commerce for helping us celebrate the opening of our new Binghamton location! We are now located at 33 Lewis Road, Binghamton NY 13905.  Check out our press release with WIVT - NewsChannel 34!  

Did you know that Davidson Fox has an Endowment with Binghamton University?  We provide a scholarship called the Davidson Fox Community Accounting Scholarship.  We would like to congratulate Tori for being awarded our Scholarship at BU!  Tori was selected out of a list of applicants with the intent of creating an affordable education for students while highlighting potential excellence in our community.  Tori visited our new location for a tour and a brief view of our day-to-day operations. We wish her the best in her endeavors in becoming an accountant!

Should you find yourself at a crossroads in your financial journey or have pressing questions about the topics covered, please don't hesitate to reach out. We're here to guide you toward informed decisions that align with your financial goals.

And remember, our services extend to your colleagues, family, and friends. Should they require assistance, we're just a phone call away. We remain committed to identifying every opportunity to ensure our client's prosperity. Your kind reviews and referrals are invaluable to us.

CORPORATE TRANSPARANCY ACT 2024: BENEFICIAL OWNERSHIP INFORMATION

Effective January 1, 2024, the Corporate Transparency Act (the “CTA”) imposes a new filing requirement on corporations, LLCs, and any other entity created by a filing with the Secretary of State, regardless of when the entity was formed (called “reporting company”), unless an exemption applies. There are 23 exemptions, which include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies.

Each reporting company must complete a Beneficial Ownership Information Report (a “BOI Report”) with the Financial Crimes Enforcement Network (“FinCEN”), part of the Department of Treasury through a secure filing system available via FinCEN’s website: Beneficial Ownership Information Reporting

Through the BOI Report, reporting companies disclose certain information about the companies, their beneficial owners, and their company applicants. Reporting companies must also provide updates when the information changes. All information will be stored in a secure, non-public database maintained by FinCEN.

Understanding Capital Gains Tax

One of the primary financial considerations when selling your home is the capital gains tax. This is a tax on the profit you make from selling your property. For many Boomers, the value of their homes has increased significantly over the years, potentially resulting in a sizable tax bill upon sale. Although there is a tax exemption—$250,000 for single filers and $500,000 for married couples—rising property values mean that profits can easily exceed these amounts.

The Current Housing Market and Legislative Landscape

The housing market's dynamics, combined with stagnant legislative efforts to update relevant tax laws, have left many retirees in a difficult position. Proposals like the "More Homes on the Market Act" aim to alleviate some of these issues but have yet to be passed. Additionally, the lack of suitable downsizing options, such as affordable smaller homes, further complicates the decision to sell.

Strategies for a Smoother Downsizing Experience

Despite these challenges, there are several strategies you can employ to make the downsizing process as beneficial as possible:

Explore Creative Living Arrangements: Consider alternatives to traditional downsizing, such as building an accessory dwelling unit (ADU) on your property or modifying your home to suit a simpler lifestyle.

Maximize Tax Benefits: Familiarize yourself with the tax implications of selling your home. Ensure you qualify for the home-sale gain exclusion and seek ways to maximize this benefit. Timing your sale and staying informed about potential tax law changes can also be advantageous.

Consider Renting: If selling isn't immediately appealing, renting out your property could be a viable option. This approach requires understanding the tax implications of rental income and how it affects your overall financial picture.

Keep Detailed Records: Maintain thorough records of your home's purchase price, any improvements made, and depreciation if applicable. This documentation is crucial for accurately calculating potential capital gains.

Seek Professional Advice: The financial and tax aspects of downsizing can be complex. Consult with our office for personalized guidance tailored to your specific situation.

Downsizing in retirement is more than just a lifestyle change; it's a financial decision that requires careful consideration and planning. By understanding the challenges and exploring your options, you can make informed choices that align with your retirement goals. Remember, you're not alone in this journey—professional advisors can offer the support and expertise you need to navigate the downsizing process with confidence.

• New U.S. Department of Labor Rule
• Prior Rule Rescinded
• Effect on ABC Test Used by Some States
• New Six Factor Test
  o   Opportunity for Profit or Loss Depending on Managerial Skill
  o   Investments by the Worker and the Potential Employer
  o   Degree of Permanence of the Work Relationship
  o   Nature and Degree of Control
  o   Extent Work Performed Is an Integral Part of the Potential Employer's Business
  o   Skill and Initiative

 The U.S. Department of Labor (DOL) announced on Jan. 9, 2024, the issuance of its final rule regarding whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). The new rule, which becomes effective March 11, 2024, rescinds the 2021 independent contractor rule issued under former President Donald Trump and replaces it with a six-factor test as outlined below. Additional factors may be relevant if they bear on whether the worker is economically dependent on the potential employer for work.

The DOL believes this new rule will provide greater clarity and consistency for businesses. However, it could potentially lead to an influx of litigation against certain businesses, particularly in the transportation and logistics industries, by attorneys seeking to have independent contractors reclassified as employees and awarded damages for overtime and deductions from pay, even if those workers prefer to be independent contractors.

The following is an overview of relevant factors associated with each of the new six-factor tests: 

If you have additional questions, please contact this office for additional information and assistance.

• COVID-19 Pandemic Notice Suspensions
• Resumption of Collection Letters in 2024
• Special First Letter
• Penalty Relief
• Taxpayers Qualifying for Penalty Relief
• Tax Returns Qualifying for Penalty Relief
• Reasonable Cause Criteria or First-Time Abate Relief

Due to the COVID-19 pandemic, the IRS suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022. These reminders would have normally been issued as a follow up after the initial notice. Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.

The IRS has announced a resumption of the collection notices in 2024, with some taxpayers already receiving a reminder letter; IRS will continue mailing resumption reminders through March of 2024. This communique may come as a surprise to some delinquent taxpayers since they may have not heard from the IRS in over a year. The first correspondence will be a special reminder letter that will alert taxpayers of their liability, easy ways to pay, and the amount of penalty relief, discussed below, if applied.

The IRS is taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021. The IRS estimates 5 million tax returns filed by 4.7 million individuals, businesses, trusts, estates, and tax-exempt organizations are eligible for the penalty relief. This represents $1 billion in savings to taxpayers, or about $206 per return.

The relief granted is available only to eligible taxpayers’ additions to tax for the failure to pay during the relief period. An “eligible taxpayer” is any taxpayer:

• Whose assessed income tax for taxable year 2020 or 2021, as of December 7, 2023, is less than $100,000, excluding any applicable additions to tax, penalties, or interest;
  
  
• Who was issued an initial balance due notice on or before December 7, 2023, for taxable year 2020 or 2021; and
  
  
• Who is otherwise liable during the relief period for additions to tax for the failure to pay penalty with respect to an eligible return for taxable year 2020 or 2021.

This penalty relief is automatic. Eligible taxpayers don't need to take any action to get it. Eligible taxpayers who already paid their full balance will also benefit from the relief. If a taxpayer already paid failure-to-pay penalties related to their 2020 and 2021 tax years, the IRS will issue a refund or credit the payment toward another outstanding tax liability.

Eligible taxpayers include individuals, businesses, trusts, estates, and tax-exempt organizations that filed certain Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021, with an assessed tax of less than $100,000, and that were in the IRS collection notice process, or were issued an initial balance due notice, between Feb. 5, 2022, and Dec. 7, 2023. The IRS notes the $100,000 limit applies separately to each return and each entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.

Taxpayers who are not eligible for this automatic relief may also have options. They may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program.

If you have an outstanding liability from 2020 and/or 2021, please contact this office for assistance with ways to resolve the outstanding debt such as an installment agreement with the IRS or perhaps an offer-in-compromise to settle the debt for less than owed.

• ERC Background.
• TV Promoters and Marketeers.
• IRS Programs to Withdraw Erroneous Claims.
• ERC Voluntary Disclosure Program.
• How to Apply for theVoluntary Disclosure Program.
• ERC Claim Withdrawal Program.

The Employee Retention Credit (ERC) was a government-sponsored program to keep workers employed during the Covid-19 pandemic. It provided qualifying employers with a refundable credit against certain employment taxes equal to 70% (up from 50% prior to 2021) of the qualified wages that an eligible employer paid to employees after March 12, 2020, and before July 1, 2021.

If you recall a few months back, there were a flood of TV commercials claiming businesses could get a tax refund of thousands of dollars by filing for the ERC. Those commercials of course got business owners’ attention. What those ads failed to mention is that businesses must meet stringent qualifications to be eligible for the credit.

The IRS has issued several warnings urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file.

As part of a larger effort to protect small businesses and organizations from improper refund claims, the IRS in December of 2023 introduced a New Voluntary Disclosure Program that allows employers who received questionable Employee Retention Credits (ERC) to pay them back at a discounted rate.

This new program is part of a larger effort by the IRS to stop aggressive marketing around the ERC that misled some employers into filing claims.

Interested employers must apply to the ERC Voluntary Disclosure Program. Those that the IRS accepts into the program will benefit from the following:

• They need only repay 80% of the credit they received. Why isn’t the IRS requiring payment of 100% of the ERC the employer received? The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee, typically 20%, that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.
  
  
• If the IRS paid interest on the employer’s ERC refund claim, the employer would not need to repay that interest.
  
  
• Income tax returns do not need to be amended to reduce wage expense.
  
  
• The 20% reduction is not taxable as income. 
  
  
• Penalties and interest will not be levied on the amount of the ERC amount claimed.
  
  
• ERC claims resolved under this program will not be subject to IRS examination.

However, applications must be submitted by March 22, 2024, and time is running out. To apply an employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program.

Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.

The IRS also is offering an ERC withdrawal program. Employers that have submitted an ERC claim, but have not yet received a refund, may still have an opportunity to withdraw their claim before the claim is processed. Employers can use this ERC claim withdrawal process if ALL the following apply:

• The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  
  
• The adjusted return was filed only to claim the ERC and made no other adjustments.
  
  
• The employer wants to withdraw the entire amount of their ERC claim.
  
  
• The IRS has not paid their claim, or the IRS has paid the claim, but the employer hasn’t cashed or deposited the refund check.

To take advantage of this new claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC.

If you have submitted an ERC claim and are concerned about its validity, or fallen victim to an ERC promoter or marketer, and would like this office to review the claim, or if you need assistance in taking advantage of the two IRS programs to get things right, please contact this office.  

• Collecting Paperwork 
• Decedent and Survivor Social Security Benefits  
• Probate Decedent’s Estate 
• Decedent Final Tax Return 
• Other Tax Returns 
• Surviving Spouse 
• Survivor Benefits
• Surviving Spouse Filing Status 

The death of a loved one is one of life’s most difficult times and a time for reflection and grieving. However, it also triggers unique financial and tax events that must be dealt with by the survivors. For a surviving spouse, this is an especially difficult time and can be devastating if the death was sudden with little or no time to make financial preparations.

This material is divided into several sections dealing with the various aspects of a passing and provides information to help you work through the various financial problems and details that must be attended to with the death of a loved one.

Collecting Paperwork – Gathering the proper paperwork is the first step in settling a decedent’s affairs. These documents will be necessary to file and collect benefits, file taxes, etc. This task is generally the responsibility of the decedent’s surviving spouse or, if unmarried, whoever is responsible for the decedent’s affairs.

Death Certificate - The death certificate will be needed for many financial procedures that will be encountered. Request several copies (ten is recommended in most cases). These are usually available from the funeral director. If not, they will be available from the county health department.

Decedent’s Insurance Policies - These will help you determine the benefits entitled to by the survivors. In addition to looking for life insurance policies, don’t overlook veteran’s policies, mortgage insurance policies and death benefits associated with car loans, credit cards, installment accounts, health policies, employer plans and retirement plans.

Surviving Spouse’s Insurance Policies - If the decedent is the beneficiary of the spouse’s policies, the surviving spouse may wish to file change of beneficiary notices with the insurance carrier.

Marriage Certificate - A surviving spouse will sometimes need to provide proof of the marital relationship to apply for certain benefits. If you are unable to find one, a copy can usually be obtained from the county offices of the place where the couple was married.

Birth Certificates - For dependent children birth certificates may also be needed when applying for certain benefits. If copies cannot be found, one can be obtained from the county or state in which a child was born.

Certificate of Discharge from the Military - If your spouse was in the military, you may need his or her certificate of discharge to collect certain benefits. If discharge or separation documents are lost, veterans or the next of kin of deceased veterans may obtain duplicate copies by completing forms found on the Internet at https://www.archives.gov/personnel-records-center/military-personnel and mailing or faxing them to the NPRC. Alternatively, write the National Personnel Records Center, Military Personnel Records, 1 Archives Drive, St. Louis, MO 63138. It is not necessary to request a duplicate copy of a veteran’s discharge or separation papers solely for the purpose of filing a claim for VA benefits. If complete information about the veteran’s service is furnished on the application, the VA will obtain verification of service.

The Deceased's Will or Trust Documents - The decedent may have had a will or trust. A copy of the will or trust will be required. The decedent’s attorney will have copies of these documents.

Decedent’s IRA and Pension Plans - Compile a list of the decedent’s IRA accounts and retirement plans and determine who the beneficiary or beneficiaries are for each.

Spouse’s IRA and Pension Plans - If the decedent is the beneficiary of the spouse’s IRA or retirement plans, the surviving spouse may wish to file change of beneficiary notices with the plans.

Complete List of All Property - Generally, the assets of all decedents will go through state probate, estate, or trust proceedings and a complete inventory of the decedent’s assets will be needed. The date-of-death value of each of the assets owned by the decedent will need to be determined for the probate or trust administration. For some assets, such as real estate, a professional appraiser may need to be hired to determine the amount. In most cases it is advisable for the surviving spouse, executor and/or trustee to meet with an attorney, as well as their tax and financial advisors, who will guide them through this process.

Frequently, taxpayers maintain their most important documents in a safe deposit box. Where possible, the contents should be removed before the decedent’s passing. Depending upon the jurisdiction, sometimes the boxes are sealed upon the owner’s or joint owner’s death. If the box is sealed, it will require a court order to gain access to the box.

Social Security – The Social Security Administration (SSA) should be notified as soon as possible when a person dies. In most cases, the funeral director will report the person's death to the SSA. The funeral director must be furnished with the deceased's Social Security number so that he or she can make the report.

Some of the deceased's family members may be able to receive Social Security benefits if the deceased person worked long enough under Social Security to qualify for benefits. Get in touch with the SSA as soon as possible to make sure the family receives all the benefits to which they may be entitled. The following is information on the benefits that may be available.  

• A one-time payment of $255 can be paid to the surviving spouse if he or she was living with the deceased; or, if living apart, was receiving certain Social Security benefits on the deceased's record. If there is no surviving spouse, the payment is made to a child who is eligible for benefits on the deceased's record in the month of death.
  
  
• Certain family members may be eligible to receive monthly benefits, including:
  
  o   A widow or widower aged 60 or older (age 50 or older if disabled).
  o   A surviving spouse at any age who is caring for the deceased's child under age 16 or disabled.
  o   An unmarried child of the deceased who is:
  
  
  § Younger than age 18 (or age 18 or 19 if he or she is a full-time student in an elementary or secondary school); or
  § Age 18 or older with a disability that began before age 22.
  
  o   Parents, age 62 or older, who were dependent on the deceased for at least half of their support; and
  o   A surviving divorced spouse, under certain circumstances. 

If the deceased was receiving Social Security benefits, the benefit received for the month of death, or any later months must be returned. For example, if the person dies in July, the benefit paid in August must be returned. If benefits were paid by direct deposit, contact the bank or other financial institution. Request that any funds received for the month of death or later be returned to the Social Security Administration. If the benefits were paid by check (a rarity these days), do not cash checks received for the month in which the person dies or later. Return the checks to the SSA as soon as possible.

Probate – This is the legal process of settling the estate of a deceased person, specifically resolving all claims, and distributing the deceased person's remaining property per the decedent’s wishes under a valid will. This process is generally handled by a probate court which protects the wishes of the deceased, confirms the executor (usually named in the will) as the personal representative of the estate, protects the interests of family members who may have claims against the estate, and protects the executor against claims and lawsuits. If there is no will, the court will appoint a personal representative, usually the decedent’s spouse if married at the time of death. In general, the probate process normally entails the following:

• In most cases, the survivors will engage an attorney to handle the probate and petition the court to begin the probate proceedings.  
• The cost of probate is generally based on the value of the decedent’s assets and is usually set by law.  
• The court will appoint a personal representative.  
• Notices in local newspapers will be published informing creditors, heirs, and beneficiaries of the probate proceedings, allowing them ample time to make claims. 
• The assets will be appraised. 
• The creditors will be paid. 
• The remaining assets will be distributed to the heirs and beneficiaries. 

Note: Assets held in a living trust are not required to be probated and skip the probate process; this saves the beneficiaries both time and money. Also, assets that are jointly owned by the deceased and someone else are not subject to probate. IRA accounts with a named beneficiary and the proceeds from life insurance policies are also not subject to probate.

Decedent’s Final Tax Return -Upon the death of a taxpayer, a personal representative (e.g., estate executor/executrix) takes charge of the decedent’s property. This person may be named in the decedent’s will or trust document, or appointed by the court if there is no will or trust. When the taxpayer is married, that person is generally the surviving spouse. The duties of the representative include collecting all the decedent’s property, paying creditors, and distributing assets to the heirs, or in some cases selling property that was the decedents. In addition, the representative is responsible for filing various tax returns and seeing that the taxes owed are properly paid. The decedent’s final income tax return is filed on a 1040 series return.

Filing Requirements - The requirements for filing a return for a deceased taxpayer are generally the same as if the taxpayer were still living--based on income level, age and filing status.

Due Date – The due date for a decedent’s final return is the same as for any other individual (generally April 15 of the following year, but extendable to October 15). Note: if either April 15 or October 15 fall on a Saturday, Sunday, or legal holiday the due date is the next business day.

Filing Status - Generally, if the taxpayer was married at the time of death, the decedent will file a joint return with the surviving spouse; otherwise, he or she will file as an unmarried individual. However, a taxpayer who was married at the time of death may not file a joint return with the surviving spouse where (1) the spouse refuses to file jointly, (2) the surviving spouse has remarried, or (3) the executor of the estate does not agree to the joint filing status.

Refunds - If a decedent’s return claims a refund, Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, should be filed. However, Form 1310 is not needed if the person claiming the refund is the surviving spouse of the decedent, filing a joint return with the decedent, or a court-appointed or certified personal representative is filing an original return for the decedent.

Income to Include - Generally, the decedent’s income on the final return only includes income derived up to the date of death. Post-death income is taxable to the decedent’s estate or trust, but the estate or trust will generally pass the taxable income on to the beneficiaries for inclusion in their individual returns if the income has been distributed to the beneficiaries during the same reporting period.

Tax Attributes - Tax attributes are exemptions, deductions, and carryover items. Where a decedent was married, the attributes must be allocated to the decedent and the surviving spouse based on ownership and state property laws. For example, a married couple has a capital loss carryover of $10,000. Assuming the losses came from jointly owned property, one-half of the capital loss carryover would belong to the decedent and half to the surviving spouse, allowing the surviving spouse to continue to carry over his or her share of the capital loss. The decedent’s share of the carryover can only be used on the final return and any leftover is lost. The following is the treatment of some of the more common tax attributes:

Carryovers – Generally, except as noted below, carryover deductions and credits can be used to the extent normally permitted on the decedent’s final return, but any excess does not carry over to the estate or beneficiaries. The carryovers included in this category are net operating loss (NOL), investment interest deduction, capital loss, business credit, minimum tax credit, passive loss credit, and the charitable contribution deduction. 

Medical Expenses - Medical expenses paid before death are claimed on the decedent’s final return as an itemized deduction in the usual manner. Medical expenses not deductible on the final return become liabilities of the estate, and they are deducted on the estate tax return (Form 706) if one is required to be filed. However, expenses that were paid out of estate funds within one year after death can be, at the discretion of the executor, treated as if paid by the decedent and claimed on the decedent’s final return instead. To make the election, file a statement with the decedent’s final return that the expenses are not being claimed on the estate tax return. 

Charitable Contributions - As noted previously, charitable contribution carryovers are lost if not used on the final return. The fair market value of property of an individual that is donated to charity after the individual’s death may be claimed as a charitable contribution by the beneficiary who was designated to inherit the property. 

Foreign Tax Credit Carryovers - Foreign tax credit carryovers can be used by the taxpayer's estate or heirs. 

Passive Losses - When a passive interest is transferred due to death, the accumulated suspended losses from the activity are deductible on the decedent’s final return. The deduction amount is limited to the excess of the basis of the property in the hands of the transferee (heir) over the decedent’s adjusted basis in the property just before death. In other words, the amount of the passive activity loss that equals the step-up in basis due to the decedent's death is not allowed as a deduction to anyone in any tax year.

Example: Robert was the sole owner of a residence used as a rental, a passive activity, when he died. In his will, he left the property to his brother Tom. At Robert’s date of death, the value of the rental was $500,000, his adjusted basis was $494,000, and he had unused passive activity losses of $8,000. Since Tom’s inherited basis of the rental, $500,000 (FMV at date of death), is increased by $6,000 over Robert’s adjusted basis of $494,000, the deduction on Robert’s final return for the year of death would be limited to $2,000 ($8,000 - $6,000). If the inherited basis had been $502,000 or more, none of the suspended passive loss would have been deductible ($502,000 – 494,000 = $8,000; $8,000 - $8,000 = $0). 

Exemptions – Normally the full value of the decedent’s exemption is claimed on the final return; proration based on the time the taxpayer was alive for the final year is not required. Since 2018, the first year that the Tax Cuts and Jobs Act (TCJA) was effective, personal tax exemption deductions are no longer allowed. However, TCJA expires after 2025 and the exemption deduction may return.

Unrecovered Investment in Pensions - If a retired person dies before recovering the entire basis in a pension or annuity (that started after 1986), the unrecovered portion is allowed as a deduction on the retiree’s final return. However, if the annuity is for the joint lives of a retiree and a designated beneficiary, the deduction would apply to the final return of the last to die.  

Funeral Expenses - Are NOT deductible on the decedents or survivor’s income tax returns. If an estate tax return is required to be filed, funeral expenses are an allowed deduction on it. 

Other Tax Returns – In addition to the decedent’s final return, there are other returns that may need to be filed, along with taxes paid. All income of the decedent both before death and after death is taxable, unless specifically exempt by law. Since the decedent’s final return only includes income up to the date of death, the income after death, such as income from investments and businesses, is included on a “fiduciary” income tax return (Form 1041 for federal and an equivalent state return). Whether the tax on this income is paid by the estate (or trust) or the beneficiary depends on whether the income is retained by the estate or trust or passed on to the beneficiary during the applicable tax period. It is not unusual for a Form 1041 to have to be filed for more than one tax year (or partial year), as settling an estate or trust often can take over a year.

Estate Tax - For 2024, the Federal estate tax exemption is $13.61 million (up from 12.92 million in 2023) and a top tax rate of 40%. Form 706 must be filed if the decedent’s estate value exceeds the $13.61 million exemption. CAUTION: The federal estate tax exemption was approximately doubled by the TCJA back in 2018 and has been inflation adjusted since. However, TCJA expires after 2025 and without Congressional action the estate tax exemption will be approximately cut in half starting with deaths in 2026, potentially subjecting a larger number of estates to the estate tax.  

State laws vary, but an estate which pays a federal estate tax may also be required to file a state estate or death tax form and pay the state death tax. However, most states do not impose an inheritance tax. Consult this office for further information.

Surviving Spouse – Getting one’s financial issues in order after the passing of a spouse can be a difficult and emotional time. Hopefully, you and your deceased spouse had preplanned for this eventuality. If your spouse managed your financial affairs, taking over these affairs and those associated with his or her passing can seem overwhelming. A surviving spouse will need to carefully assess his or her financial situation. If the breadwinner passed away, his or her earned income will probably go away too. If the opposite is the case and there are children, the surviving spouse will need to plan so that he or she can continue working. If the couple was retired, will the retirement income be lost or reduced? Unless you have significant financial resources, these issues need to be addressed rather quickly. However, avoid any immediate long-term decisions; they will probably be emotionally based.

Survivor Benefits – One of the first steps should be assessing what benefits you qualify for and then applying for those benefits.

Insurance – Hopefully, you have a list of policies issued to your spouse. If not, contact those companies that might have a policy on your deceased spouse. Inquire at your insurance agency and look in the safe deposit box. In addition to your life insurance policies, don’t overlook the following:

• Veteran’s life insurance coverage
• Installment accounts with life insurance coverage
• Mortgages with life insurance coverage
• Employer group term policies
• Credit card accounts with life insurance coverage
• Car loans with life insurance coverage
• Health insurance policies
• Retirement plans with death benefits.
• Annuities

Note: Be aware of all possible settlement options. Insurers may offer various settlement terms, such as a lump sum payment or annuitized payments (fixed amounts) over a period of years. Carefully consider your circumstances before deciding. A lump sum can help pay off immediate financial needs, but a payment plan can provide long-term income security. Consult with your financial advisor before deciding.

Social Security – As discussed earlier, you may qualify for Social Security benefits or an adjustment in the benefits you already received.

Veteran’s Benefits – If your deceased spouse was a veteran, you may be eligible for one or more of the benefits provided by the U.S. Department of Veterans Affairs. These include assistance with burial, plot, and grave markers. The funeral home may be able to help you apply for these benefits. If your spouse was receiving veteran’s disability benefits, you and your dependent children may also be entitled to continued payments. Contact your area’s VA office for assistance. 

Employee Benefits – If your deceased spouse was already retired and receiving pension payments from past employers, you will need to contact those employers to see if the pension will continue to pay the full or a reduced monthly amount, or whether it will cease paying benefits upon your spouse’s passing. Some employer pension plans also provide a small death benefit. Most employer pension plans, at the time of initial retirement, offer a choice for the retirement plan to pay only over the life of the retiree or a reduced amount over the joint lives of the retiree and spouse. Hopefully, you and your spouse chose the latter.

If your deceased spouse was still working at the time of death, there are several things you should check into, such as:

• Does the employer provide survivor benefits?
• Are there 401(k) or similar type retirement savings plans that you are entitled to?
• Are you entitled to accrued vacation and sick leave payments?
• Was the deceased covered under any life insurance policy provided by the employer?
• Was your spouse a member of a union or professional association that might provide death benefits?
• If the death was work-related, are you entitled to worker’s compensation benefits?

Creating a Budget – Depending upon your overall financial situation, it may be appropriate for you to develop a budget based on your new financial circumstances. This is especially important if your income has been reduced. The sooner you have your finances in order, the better. Estimate your income first; include your wages if working, Social Security and retirement benefits, investment income and other sources.

Next, list your expenses. These include housing, food, utilities, taxes, medical care and insurance, entertainment, internet and streaming services fees, clothing, transportation, insurance, school expenses for your children, etc. Be sure to set aside an amount that can be added to reserves for unexpected expenses, such as a broken water heater, car repair, etc. Also, if you are not already retired, be sure to set aside amounts to fund your future retirement as well.

Now compare your income with your expenses. If your expenses exceed your income, you will need to reduce spending. If the income exceeds your expenses, you can save the difference. Be conservative for the first year or so while you fine-tune your budget.

Change Designations - You will want to begin the process of removing your deceased spouse from title to property, credit accounts, vehicle registrations, bank accounts, investment accounts, etc. Also review your beneficiary designations on your own life insurance, IRA accounts and will to ensure who inherits them from you. You may also need or wish to change the executor designation in your own will.

Surviving Spouse Filing Status – Generally, an individual’s filing status is predicated on their marital status at the end of the tax year. However, there are special rules related to the spouse of a deceased taxpayer. In the year of death, a surviving spouse is no longer considered married for tax purposes but can still file jointly with the deceased spouse if the executor of the decedent’s estate agrees. Generally, the surviving spouse will file jointly with the deceased spouse. If not, and if the surviving spouse has not remarried, then he or she would file using the married separate status or as head of household if he or she qualifies. If the surviving spouse has remarried, then he or she would file either married joint with the new spouse or married separate.

In the years following the death of a spouse and assuming the surviving spouse has not remarried, he or she would file as follows: 

Qualifying Surviving Spouse – If the surviving spouse has a dependent child living at home, the widow or widower can file as a qualifying surviving spouse This favorable filing status is essentially the same as filing a joint return, except that there is no deduction for the deceased spouse’s exemption. (Through 2025, no exemption deduction is allowed anyway.) The widow or widower can use this status for a period of two years if he or she meets the requirements for the filing status. 

Head of Household – If the surviving spouse can no longer qualify for the qualified surviving spouse status, and he or she provides over half the household expenses for a qualified child or dependent, he or she may qualify for the Head of Household rates, which are not as beneficial as those for a qualified surviving spouse but are significantly better than filing as a single individual.

Single – If the surviving spouse does not qualify for one of the filing statuses described above, then he or she would be required to file as a single individual for years after the deceased spouse’s death. 

Widows and widowers should be aware that the head of household and single filing statuses, result in higher marginal tax rates and reduced standard deductions when compared to the joint status. This could, without proper planning, lead to unpleasant taxes due or a significantly reduced refund when the return is filed.

Other Issues

Decedents E-mail Account – Plan should be discussed in advance. The deceased may or may not want to allow access to their e-mail account after they have passed. If the decedent wants to provide access, they should have left information on how to access the account. In some cases, the deceased may want someone they trust to simply delete the account.  

Cell Phone – Similarly what are the decedents wishes regarding their cell phone. Allow access to a trusted friend or relative before the service is terminated. Also, consideration should be made concerning family photos that may be on the phone.      

If you have questions or need assistance, please give this office a call.

Importance of Separating Personal and Business Finances:

The intertwining of personal and business finances can lead to a myriad of complications, from blurred financial visibility to tax compliance issues. By segregating personal and business funds, entrepreneurs create a clear delineation between their personal assets and those belonging to the business. This clear separation simplifies financial record-keeping and also protects personal assets in the event of business-related liabilities or legal disputes.

Clarity in Expense Tracking and Budgeting:

When personal and business finances commingle, tracking expenses and creating accurate budgets become arduous tasks. By maintaining separate accounts, business owners can easily categorize transactions, identify deductible business expenses, and track cash flow with precision. This clarity in expense tracking enables informed decision-making, facilitates accurate financial reporting, and ensures compliance with tax regulations.

Simplifying Bookkeeping Processes:

Effective bookkeeping is essential for maintaining financial health and facilitating business growth. Separating personal and business finances streamlines bookkeeping processes by eliminating the need to sift through mixed transactions. With distinct bank accounts and credit cards for business transactions, entrepreneurs can reconcile accounts efficiently, generate accurate financial statements, and gain valuable insights into their business's financial performance.

Enhanced Financial Reporting and Analysis:

Accurate financial reporting is crucial for assessing business performance, identifying trends, and making informed strategic decisions. By separating personal and business finances, entrepreneurs can generate comprehensive financial reports that reflect the true financial standing of their business. This transparency fosters stakeholder confidence and empowers business owners to analyze key metrics and pinpoint areas for improvement.

Mitigating Tax Compliance Risks:

Mixing personal and business finances can complicate tax reporting and increase the risk of tax compliance issues. By maintaining separate accounts, entrepreneurs can easily distinguish between personal and business expenses, facilitating the preparation of accurate tax returns. This separation also reduces the likelihood of triggering IRS audits and ensures compliance with tax regulations, ultimately minimizing the risk of penalties and fines.

Protecting Personal Assets:

Incorporating a business provides limited liability protection, shielding personal assets from business-related liabilities. However, this protection can be compromised if personal and business finances are intermingled. By keeping personal and business finances separate, entrepreneurs safeguard their personal assets from potential legal claims or creditors seeking recourse against the business.

Building Credibility and Professionalism:

Maintaining separate bank accounts and credit cards for business transactions signals professionalism and financial discipline. It instills confidence in clients, suppliers, and financial institutions, reinforcing the credibility of the business. Additionally, distinct business finances facilitate accurate financial projections and secure financing opportunities, further bolstering the business's reputation and growth prospects.

By separating personal and business finances, small business owners can streamline bookkeeping processes, track expenses accurately, and maintain clarity in financial management. This practice not only enhances decision-making and financial reporting but also mitigates tax compliance risks and protects personal assets. As businesses navigate the complexities of financial management, the importance of keeping personal and business finances separate remains a cornerstone of sound financial stewardship.

If you need assistance with account cleanup or are just getting started, feel free to reach out to this office for help. 

The Bedrock of Business Security: Understanding Cyber Threats

The foundation of any business cyber security strategy is understanding — the more you educate yourself about modern cyber threats, the easier it will be for you to safeguard your business against them. Cyber-attacks can range from data breaches and ransomware to sophisticated phishing schemes to deceive employees into divulging sensitive information. Recognizing these threats is the first step toward developing effective defenses. It's not just about installing antivirus software. It's about creating a culture of security awareness throughout the organization.

Phishing: The Deceptive Lure in Cyber Waters

Phishing attacks, in particular, have become a common and effective tactic cybercriminals use. These attacks often involve sending fraudulent emails or messages that mimic legitimate sources to trick individuals into providing confidential data. Educating your team on how to recognize and respond to phishing attempts is crucial. Regular training sessions and simulated phishing exercises can significantly enhance your organization's resilience against these deceptive attacks.

The High Stakes of CEO Impersonation Fraud

CEO fraud, also known as executive impersonation, represents a particularly insidious form of cybercrime that preys on the hierarchical structures within businesses. 

A recent case of CEO fraud used deepfake AI and falsified, artificial intelligence-generated audio to con a U.K.-based energy company out of USD$243,000.

In sophisticated scams like this, the criminal crafts an email, mirroring the tone, style, and signature of a high-ranking executive such as the CEO, COO, CFO, or Head of HR. The fraudulent communication is directed towards employees lower down the chain of command, often with urgent requests for wire transfers or sensitive information. 

As noted, criminals who run these scams can create even more convincing output thanks to the rise of AI technology.

This sort of scheme hinges on the inherent trust employees place in their leaders and the natural inclination to respond promptly to executive directives. The consequences of falling victim to CEO fraud can be devastating, ranging from significant financial losses to severe reputational damage. 

It underscores the critical need for a multi-layered approach to cyber security that includes technical safeguards, such as email authentication protocols and transaction verification processes, as well as a strong organizational culture of security. Training employees to question and verify unusual requests, even when they appear to come from the top, is essential. Establishing clear protocols for financial transactions and sensitive communications can also provide a sturdy barrier against these deceptive tactics. In the battle against CEO fraud, vigilance, skepticism, and a robust verification process are your most powerful weapons.

The Importance of Securing Bank Accounts and Accounting Systems

Business operations can be complex, especially in highly regulated industries like energy and finance.  Bank accounts and accounting systems are the foundation of most companies, pumping vital resources through the organization. 

However, just as a heart is vulnerable to ailments, these financial conduits are prime targets for cybercriminals. Securing these accounts and programs is critical, not only for the preservation of financial health but also for maintaining the trust of clients, investors, and stakeholders. A breach in these systems can lead to direct financial loss and compromise sensitive financial data, leading to long-term reputational damage. Securing these financial assets requires a multifaceted approach. 

First, robust authentication mechanisms, such as two-factor or multi-factor authentication, should be non-negotiable. These add an extra layer of security, making it significantly harder for unauthorized users to gain access. Additionally, regular monitoring and auditing of financial transactions can help in the early detection of any irregularities or suspicious activities. 

Employing encryption for financial data both in transit and at rest further ensures that even if data is intercepted, it remains indecipherable to the attackers. 

Finally, educating employees about the signs of phishing and other fraud attempts can act as a critical line of defense. By fortifying bank accounts and accounting systems against cyber threats, businesses can protect their financial lifelines and ensure their operations run smoothly and securely.

The Shield of Network Security

Network security serves as the shield protecting the data traffic flowing in and out of your business. Implementing robust network security measures, such as firewalls, intrusion detection systems, and secure Wi-Fi networks, is essential for all of your company's systems. Regularly updating these systems ensures they can defend against the latest cyber threats. Remember, a network's security is only as strong as its weakest link, making continuous monitoring and updating a non-negotiable aspect of your cyber security strategy.

The Fortress of Data Protection

Your company's data sets you apart from every other business on Earth. Protecting this vital asset requires a comprehensive data protection strategy that includes encryption, secure data storage solutions, and regular backups. Encryption ensures that even if data is intercepted, it remains unreadable to unauthorized users. Meanwhile, secure storage solutions and regular backups safeguard against data loss, ensuring business continuity even in the face of cyber-attacks.

The Vanguard of Cyber Security: Employee Training and Awareness

Employees often represent the first line of defense against cyber threats — they are typically the first to see abnormal activity, whether they work from home or in a traditional office setting. Investing in regular cyber security training and awareness programs can help your staff identify threats earlier, ultimately protecting your business. These programs should cover the basics of cyber security, phishing awareness, and safe online practices. Empowering your employees with this knowledge not only fortifies your business's defenses but also fosters a culture of security mindfulness. While some may find this information familiar, a refresher is always beneficial.

The Strategy of Regular Cyber Security Assessments

Regular cyber security assessments are akin to routine health check-ups for your business's digital infrastructure. These assessments help identify vulnerabilities and ensure that all security measures are functioning as intended. Whether conducted internally or by external experts, these evaluations are invaluable for maintaining a strong security posture.

The Alliance of Compliance and Cyber Security

Compliance with industry standards and regulations is not just a legal requirement in many industries, but the cornerstone of effective cyber security. Standards such as GDPR, HIPAA, and PCI DSS provide frameworks that, when adhered to, significantly enhance your cyber security measures. Staying compliant not only protects your business from legal repercussions but also reinforces your commitment to protecting customer data.

Staying Ahead of the Curve

The cyber security landscape is changing more rapidly than ever before, particularly as artificial intelligence becomes increasingly prevalent. With new threats emerging at an unprecedented pace, staying ahead of the curve requires a proactive approach to cyber security. This includes staying informed about the latest cyber security trends, investing in advanced security technologies, and fostering a culture of continuous improvement within your organization.

Implementing Your Cyber Security Strategy

The journey to an effective business cyber security plan is ongoing. It begins with recognizing the importance of cyber security, phishing awareness, and network security, and extends to implementing a comprehensive strategy that encompasses all aspects of digital protection. By taking decisive action today, you can safeguard your business against the cyber threats of tomorrow.

The digital age presents both opportunities and challenges for businesses in all industries. While the online world offers unprecedented possibilities for growth and innovation, it also exposes businesses to sophisticated cyber threats. By understanding these threats, prioritizing phishing awareness, and implementing robust network security measures, businesses can protect their digital frontiers. Remember complacency is the enemy. Stay vigilant, stay informed, and most importantly, stay secure.

• Charity Tax Exempt Status
• General Rules for Deducting Volunteer Expenses
• Away-From-Home Travel Expenses
• Vehicle Expenses
• Entertaining For Charity
• Uniforms
• Use of a Capital Assets
• Conventions
• Underprivileged Youths
• Foster Parents
• Church Deacon Substantiation Requirements

If you volunteer your time for a charity, you may qualify for some tax breaks. Although no tax deduction is allowed for the value of services performed for a charity, there are deductions permitted for out-of-pocket costs incurred while performing the services.

To claim a tax deduction for charity work, you must itemize your tax deductions using IRS Schedule A, and the charitable organization must have IRS tax-exempt status. Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. You will find descriptions of these organizations under Organizations That Qualify To Receive Deductible Contributions.

If you are unsure, you can double check if the organization is exempt by asking for a copy of the IRS letter showing their tax status.

These general rules apply to tax deductions related to charitable volunteer services:

• You can’t assign a value to your time or services and deduct it on your tax return.

Example: You volunteer 8 hours a week at the office of a qualified organization. An employee of the organization is paid $15 an hour for the same work. You CANNOT therefore deduct $120 as the value of your services.

• You can’t deduct expenses related to other’s volunteer expenses.
  
  
• You must itemize your deductions to benefit from any allowable deductions.
  
  
• The normal charity deduction limits and substantiation rules also apply.

Although you can't deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

• Unreimbursed.
  
  
• Directly connected with the services.
  
  
• Expenses you had only because of the services you gave, and that
  
  
• Are not personal, living, or family expenses.

Away-From-Home Travel Expenses – Eligible away-from-home travel expenses while performing services for a charity include out-of-pocket round-trip travel cost, taxi, and rideshare fares, and other costs of transportation between the airport or station and hotel, plus lodging and meals at 100%. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel, or if your services for a charity do not involve lobbying activities.

The deduction for travel expenses won't be denied simply because you enjoy providing services to the qualified organization. You are still entitled to a charitable contribution deduction for travel expenses if you are on duty in a real and significant sense throughout the trip. If the duties are insignificant or you don't have any duties, you won’t qualify to deduct your travel expenses.

Example: You are a troop leader for a tax-exempt youth group, and you take the group on a camping trip. You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. You participate in the activities of the group and enjoy your time with them. You oversee the breaking of camp, and you transport the group home. You can deduct your travel expenses.

Because travel expenses aren't business-related, they aren't subject to the same limits as business-related expenses. Thus, unlike business meals that are only allowed at 50% of the cost, charity-related meals are 100% deductible. Travel expenses include:

• Air, rail, and bus transportation.
  
  
• Out-of-pocket expenses for your car.
  
  
• Taxi and ride-share fares, or other costs of transportation between the airport or station and your hotel.
  
  
• Lodging costs, and
  
  
• The cost of meals.

The Tax Court has held that the cost of first-class accommodations are deductible if they are “reasonable” under the facts and circumstances, using criteria similar to those that would apply if the traveler were on a business trip.

If the qualified organization provides a daily allowance to cover reasonable travel expenses, including meals and lodging, the charity volunteer must include in income any part of the allowance that is more than the deductible travel expenses. The volunteer may be able to deduct any necessary travel expenses that are more than the allowance.

Vehicle Expenses - A charitable contribution can be claimed for unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of a car in giving services to a charitable organization. However, general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance cannot be deducted.

In lieu of deducting actual expenses, a standard mileage rate of 14 cents a mile can be used to determine the contribution amount. This amount was set by Congress decades ago and is not adjusted for inflation the way the standard business mileage rate is.

In addition, to the above, parking fees and tolls are deductible.

Entertaining for Charity – Another eligible expense is the cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor (but the cost of your own entertainment or meal is not deductible). The meals or entertainment on behalf of a charity may be provided in the taxpayer's home.

Uniforms - The cost of the uniforms worn when doing volunteer work for the charity, provided the uniform has no general utility, is deductible. The cost of cleaning the uniform can also be deducted.

Example: Jan is a volunteer nurse’s aide at a hospital. Jan can deduct the cost of buying and cleaning her uniforms if the hospital is a qualified organization, the uniforms aren't suitable for everyday use, and she must wear them when volunteering.

Use of a Capital Assets - A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he or she retains ownership of it. That’s true even if the asset is used exclusively for charitable purposes.

Conventions - If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention.

You can't deduct personal expenses for sightseeing, fishing parties, theater tickets, nightclubs, or similar activities. You also can't deduct travel, meals and lodging, and other expenses for your spouse or children.

You can't deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention.

Underprivileged Youths - You can deduct reasonable unreimbursed out-of-pocket expenses you pay to allow underprivileged youths to attend athletic events, movies, or dinners. The youths must be selected by a charitable organization whose goal is to reduce juvenile delinquency. Your own similar expenses in accompanying the youths aren't deductible.

Foster Parents - Some of the costs of being a foster parent (foster care provider) may be treated as a charitable contribution if you have no profit motive in providing the foster care and aren't, in fact, making a profit. A qualified organization must select the individuals you take into your home for foster care. You can deduct expenses that meet both of the following requirements.

1. They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child.
   
   
2. They are incurred primarily to benefit the qualified organization.

Unreimbursed expenses that can't be deducted as charitable contributions may be considered support provided in determining whether the foster child can be claimed as a dependent. 

However, if you cared for a foster child because you wanted to adopt the child, and not to benefit the agency that placed the child in your home, your unreimbursed expenses aren't deductible as charitable contributions.

Church Deacon – A church deacon can deduct as a charitable contribution any unreimbursed expenses paid while in a permanent diaconate program established by the church. These expenses include the cost of vestments, books, and transportation required to serve in the program as either a deacon candidate or an ordained deacon.

No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the charitable organization (including a government agency). To verify your contribution:

• Get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
  
  
• You should submit a statement of expenses to the charity if you are paying out of pocket for substantial amounts, preferably with a copy of the receipts. Then, arrange for the charity to acknowledge the amount of the contribution in writing.
  
  
• Maintain detailed records of your out-of-pocket expenses—receipts plus a written record of the time, place, amount, and charitable purpose of the expense.

For additional details related to expenses incurred as a charity volunteer, please contact this office. 

• How Naming Beneficiaries Impacts Traditional IRA Distributions
• The Impact of Naming Your Trust as a Beneficiary
• IRA Beneficiary Taxation

The decision concerning whom you wish to designate as the beneficiary of your traditional IRA is critically important. This decision affects:

• Who will get what remains in the account after your death, and
• How that IRA balance can be paid out to beneficiaries.

What's more, a periodic review of your IRA beneficiaries is vital to ensure that your overall estate planning objectives will be achieved considering changes in the performance of your IRAs and in your personal, financial, and family situation. For example, if your spouse was named as your beneficiary when you first opened the account several years ago and you’ve subsequently divorced, your ex-spouse will remain the beneficiary of your IRA unless you notify your IRA custodian to change the beneficiary designation.

The issue of naming a trust as the beneficiary of an IRA comes up regularly. There is no tax advantage to naming a trust as the IRA beneficiary. Of course, there may be a non-tax-related reason, such as controlling a beneficiary’s access to money; thus, naming a trust rather than an individual or individuals as the beneficiary of an IRA could achieve that goal.

Generally, trusts are drafted so that IRA required minimum distributions (RMDs)will pass through the trust directly to the individual trust beneficiary and, therefore, be taxed at the beneficiary’s income tax rate. However, if the trust does not permit distribution to the beneficiary, then the RMDs will be taxed at the trust level, which has a tax rate of 37% on any taxable income in excess of $15,200 (2024 rate). This high tax rate applies at a much lower income level than for individuals.

Distributions from traditional IRAs are always taxable whether they are paid to you or, upon your death, paid to your beneficiaries. Once you reach age73(years 2023 through 2032),you are required to begin taking distributions from your IRA. If your spouse is under the age of73upon inheritance of your IRA he or she can delay distributions until he or she reaches age73.

The rules are tougher for non-spousal beneficiaries, who generally must begin taking distributions based upon a complicated set of rules. The following details the distribution options from an IRA inherited after 2019 by a non-spousal beneficiary, which includes several categories of beneficiaries.

SURVIVING SPOUSE BENEFICIARY 

The options available to surviving spouse beneficiaries include:

1. Treat it as their own IRA by designating themself as the account owner.
   
   
2. Treat it as their own by rolling it over into their own IRA, or to the extent it is taxable, roll it into a:
   
   a. Qualified employer plan (Sec 401(k) plan),
   b. Qualified employee annuity plan (Sec 403(a) plan),
   c. Tax-sheltered annuity plan (Sec 403(b) plan),
   d. Deferred compensation plan of a state or local government (Sec 457 plan), or
   
   
3. Treat themself as the beneficiary rather than treating the IRA as their own.

Treating It As Their Own – The surviving spouse will be considered to have chosen to treat the IRA as their own if:

• Contributions (including rollovers) are made to the inherited IRA, or
  
  
• The surviving spouse does not take the required minimum distribution for a year as a beneficiary of the IRA.

The surviving spouse will only be considered to have chosen to treat the IRA as their own if:

1. The surviving spouse is the sole beneficiary of the IRA, and
   
   
2. The surviving spouse has the unlimited right to withdraw amounts from it.

However, if the surviving spouse receives a distribution from the deceased spouse's IRA, the surviving spouse can roll that distribution over into their own IRA within the usual 60-day time limit for rollovers, provided the distribution isn’t an RMD. This is true even if the surviving spouse is not the sole beneficiary of the deceased spouse's IRA.

Surviving spouse is sole designated beneficiary – If the IRA owner died on or after the RMD required beginning date and the surviving spouse is the sole designated beneficiary, the life expectancy the spouse must use to figure the RMD may change in a future distribution year. This applies where the spouse is older than the deceased owner or the spouse treats the IRA as his or her own.

Special Rules for Sole Surviving Spouse:

• Deceased IRA owner died before reaching the RMD starting date
  
  o   Spousal distributions do not need to begin until the surviving spouse reaches age 73 (years 2023 through 2032).
  o   If the surviving spouse dies before December 31 of the year the surviving spouse must begin RMDs, the surviving spouse will be treated as the owner of the IRA for purposes of determining RMDs for the surviving spouse’s beneficiaries.
  o   Use the Single Life Expectancy table to determine the surviving spouse’s RMD.

OTHER BENEFICIARIES (Except Eligible Designated Beneficiaries)

Can take a lump sum distribution or:

• Beneficiaries more than 10 years younger than the decedent are subject to the 10-year rule.
  
  
• Beneficiaries NOT more than 10 years younger than the decedent may take a lifetime payout.

Ten-Year Rule – The account must be depleted by the end of the year that includes the 10th anniversary of the account owner’s death. If the account owner died on or after their required beginning date (RBD), then the beneficiary must ALSO take annual distributions based their life expectancy and then distribute the balance in the 10th year.

ELIGIBLE DESIGNATED BENEFICIARIES

There is a special category for beneficiaries who are not subject to the rule requiring the account be totally distributed in 10 years (except as noted) and may take lifetime distributions or a lump sum distribution. In addition to a surviving spouse, this category includes:

10 Years Younger than the Account Owner - An individual who is not more than 10 years younger than the account owner (typically a sibling of the decedent but could be someone else).

Disabled or Chronically Ill Individual:

• A safe harbor for being considered disabled for this purpose is if the individual is determined to be disabled by the Social Security Administration.
  
  
• To be eligible the individual must provide to the plan administrator proper documentation of their condition by October 31 of the year following the account owner’s death.

Account Owner’s Minor Child –A minor child is one under the age of 21. These special rules apply to minor children:

• Annual payments based on the child’s life expectancy must be taken until the child reaches age 21, using the single life tables.
  
  
• Once reaching age 21, the child is then subject to the 10-year rule for the balance of the account.
  
  
• Of course, the beneficiary can always take a lump sum distribution.  

Beneficiary Of Account Owner Who Died After December 31, 2019. 

To ensure that your IRA will pass to your chosen beneficiary or beneficiaries, be certain that the beneficiary form on file with the custodian of your IRA reflects your current wishes. These forms allow you to designate both primary and alternate individual beneficiaries. If there is no beneficiary form on file, the custodian’s default policy will dictate whether the IRA will go first to a living person or to your estate.

This is a simplified overview of the issues related to naming a beneficiary and the impact on post-death distributions. Uncle Sam wants the tax paid on the distributions ,and the rules pertaining to how and when beneficiaries must take taxable distributions are very complicated.

It may be appropriate to consult with this office regarding your particular circumstances before naming beneficiaries.

The General Rule: The Taxman Cometh...

At the heart of any discussion on the tax ramifications of legal proceedings lies the Internal Revenue Code (IRC) Section 61. This foundational code stipulates a sweeping principle: all income, regardless of its source, falls under the umbrella of gross income unless explicitly exempted by another section of the code. In simple terms, the general rule dictates that any financial gains stemming from legal actions are taxable.

...But There's More to the Story

While the general rule paints a broad stroke of taxation, exceptions abound in the realm of lawsuit settlements and judgments. Unlocking these exceptions hinges on IRC Section 104, which carves out exclusions from taxable income for specific categories of lawsuit settlements and awards. The nature of the payment and the circumstances surrounding it play a pivotal role in determining its taxability.

Physical Injury or Sickness

Among the notable exceptions are damages received due to personal physical injuries or sickness. According to IRC Section 104(a)(2), such damages—whether from a lawsuit, settlement, or periodic payments—are generally exempt from inclusion in gross income. This exclusion encompasses compensatory damages intended to cover losses and even punitive damages aimed at penalizing the offender.

Emotional Distress and Other Non-Physical Injuries

The tax treatment of damages stemming from emotional distress or non-physical injuries requires a more nuanced approach. Typically, these damages are included in gross income, unless directly linked to a physical injury or sickness. However, expenses for medical treatment related to emotional distress, not previously deducted, may qualify for exclusion.

Punitive Damages

Punitive damages typically fall under taxable income, save for specific exceptions in certain wrongful death cases where state law limits punitive damages.

Employment-Related Lawsuits

Damages received for employment-related disputes—such as wrongful termination or discrimination—are typically taxable. This encompasses compensatory damages covering lost wages or benefits. However, the tax treatment can vary based on case specifics and award nature.

The Power of Documentation

The tax treatment of any settlement or judgment hinges on case specifics and payment characterization. Adequate documentation, including settlement agreements, plays a pivotal role in deciphering the tax implications. A clear understanding of the claim's nature and payment characterization is crucial in evaluating taxability.

Reporting Requirements

Recipients of lawsuit settlements or judgments may face reporting obligations. Depending on the settlement nature, the payer—be it an insurance company or the defendant—may need to issue a Form 1099 to the IRS. Tax exceptions may alleviate reporting requirements.

Seek Professional Help

Navigating the tax implications of plaintiff awards is paramount for individuals embroiled in legal disputes. While the general rule dictates taxable income, exceptions exist—especially concerning damages related to personal physical injuries or sickness. Taxpayers should meticulously assess settlement or judgment nature, and seek counsel from this office to ensure compliance and optimize your tax situation. While the IRS offers resources and guidance, the complexity of individual cases often necessitates expert advice.

The terrain of tax consequences in legal settlements may be daunting, but armed with knowledge and guidance, taxpayers can confidently navigate the financial aftermath of their victories.

If you feel like you aren’t using your QuickBooks system to its full potential, you’re in the right place! While we recommend seeking professional guidance for a comprehensive understanding, here are five essential tips all business owners should know.

QuickBooks relies heavily on lists to streamline your financial tasks. Transaction forms provide access to pre-existing data, simplifying processes like customer selection with dropdown menus. Additionally, QuickBooks offers standalone lists accessible via the Lists menu, including the Item List, Sales Tax Code List, and Class List, which enable you to manage items, enter sales receipts, and run relevant reports.

One of the most powerful features of QuickBooks is its customizable Chart of Accounts. Tailoring this list to your business's specific needs allows for accurate categorization of income, expenses, assets, and liabilities. Take the time to review and customize your Chart of Accounts to reflect your company’s financial structure, ensuring clarity and consistency in your financial reporting.

When transactions seemingly vanish into thin air, QuickBooks provides tools to track them down easily. Access the “Voided/Deleted Transactions Summary” or “Detail” report to locate accidentally voided or deleted transactions. Similarly, the “Audit Trail” report tracks all entered or modified transactions, highlighting discrepancies or alterations made by multiple users.

Maximize efficiency by leveraging "Local" menus or right-click menus available in most QuickBooks windows. These menus offer quick access to related actions, such as duplicating invoices, memorizing transactions, viewing transaction history, or receiving payments, streamlining your workflow.

Before diving into live data, familiarize yourself with QuickBooks features using sample files provided by the software. Select a product- or service-based business sample file upon opening QuickBooks, allowing you to experiment with different features and workflows without risking errors in your company files.

f you encounter challenges or feel overwhelmed with QuickBooks, don't hesitate to ask for professional assistance. Whether you need guidance on specific functions, wish to optimize your software usage, or are considering an upgrade, our team is here to help. Contact us to schedule a consultation and enhance your accounting experience for improved productivity and effectiveness.

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

File a 2023 calendar year income tax return (Form 1120-S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) or substitute ScheduleK-3 (Form 1120-S).

To request an automatic 6-month extension of time to file the return, file Form 7004 and pay the tax estimated to be owed. Then file the return; pay any tax, interest, and penalties due; and provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) by September 16.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations