The economic environment has been incredibly unpredictable in recent years. The COVID-19 pandemic shook up traditional business practices but also opened new investment doors. Now, with persistent inflation and high interest rates, investment and tax planning strategies have become even more complex. The constantly shifting tax and regulatory landscape adds to the challenge.
As a business owner or executive, it’s vital to adapt your planning as conditions change. As your income grows, so does your tax burden, making it crucial to make smart decisions for your long-term investments and your plans to pass wealth to the next generation. With 2023 ending and a new year beginning, it’s the ideal time to reassess your tax situation. Remember, effective tax planning means taking action well before your return is due.
In this guide, we’ll dive into the key tax considerations for business owners and executives in 2024. Stay with us to get the latest updates and strategies to optimize your tax planning.
Understanding the Basics of Tax Planning
Before diving into tax planning, it’s important to grasp the basics of income tax rates and deductions. When you decide to recognize your income and deductions can significantly impact how much tax you owe and when you pay it.
First off, let’s talk about tax rates. Different types of income get taxed at different rates. The bulk of your income will probably be ordinary income, which includes your salary, bonuses, self-employment earnings, business income, and distributions from retirement plans. Investment income like rent, royalties, and interest is also taxed as ordinary income.
However, there are special, lower tax rates for qualified dividends and long-term capital gains from assets held for more than a year.
The highest rate for ordinary income is 37%, while long-term capital gains and qualified dividends are taxed at a top rate of 20%. This doesn’t include employment taxes and the tax on net investment income, which we’ll cover later.
Even though the Tax Cuts and Jobs Act eliminated or reduced many itemized deductions, there are still several exclusions and deductions that can benefit individual taxpayers.
We’ve included a table with the latest 2024 figures for important tax rules and benefits for better tax planning.
| Tax Benefit Thresholds | 2023 | 2024 |
| Standard deduction | ||
| Single and married filing separately | $13,850 | $14,600 |
| Head of household | $20,800 | $21,900 |
| Married filing jointly | $27,700 | $29,200 |
| Additional deduction for aged or blind | $1,500 | $1,550 |
| Additional deduction for unmarried age or blind | $1,850 | $1,950 |
| Transportation fringe benefit | ||
| Transit | $300 | $315 |
| Parking | $300 | $315 |
| Kiddie tax | ||
| Not taxed | $0+ | $0+ |
| Taxed at child’s rate | $1,250+ | $1,300+ |
| Taxed at parent’s rate | $2,100+ | $2,600+ |
| Adoption benefits | ||
| Adoption credit | $15,950 | $16,810 |
| Employer adoption benefit income exclusion | $15,950 | $16,810 |
| Expatriation | ||
| Average income threshold for determining if subject to tax | $190,000 | $201,000 |
| Exclusion from tax | $821,000 | $866,000 |
| Foreign earned income exclusion | ||
| Per person | $120,000 | $126,500 |
| Retirement accounts | ||
| 401(k)/403(b) deferrals | $22,500 | $23,000 |
| 401(k)/403(b) catch-up deferral | $7,500 | $7,500 |
| IRA contribution | $6,500 | $7,000 |
| IRA catch-up contributions (not indexed) | $1,000 | $1,000 |
Effective Tax Deferral Strategies for 2024
Deferring taxes can be a smart move, especially when dealing with high inflation. By taking advantage of the time value of money, you can delay paying taxes and potentially earn a return that offsets the impact of inflation. The key is to postpone income recognition and accelerate deductions whenever possible. Here are some areas where you might have control over timing:
a. Income Sources
- Consulting Income: Delay invoicing clients until the next tax year.
- Self-Employment Income: Postpone receiving payments if possible.
- Real Estate Sales: Time your property sales to occur in the following year.
- Gain on Stock Sales: Hold off on selling stocks until after the new year.
- Other Property Sales: Schedule sales of other assets for a later date.
- Retirement Plan Distributions: Delay taking distributions if you don’t need the money immediately.
b. Expenses
- Losses on Sales of Stocks and Investments: Time your sales to maximise tax benefits.
- Mortgage Interest: Pay your January mortgage payment in December to get an extra interest deduction.
- Margin Interest: Pay interest early to claim a deduction sooner.
- Charitable Contributions: Make donations before the end of the year to maximise deductions.
However, be mindful of certain factors that could influence your strategy:
- You might want to delay an itemized deduction to combine it with future expenses.
- Your tax planning could be affected by the Alternative Minimum Tax (AMT).
- There are limits on deducting prepaid expenses.
Planning over multiple years can provide the best benefits. Pay special attention to state taxes and charitable giving due to limits on state tax deductions and close IRS scrutiny of charitable contributions.
Using these tips, you can better manage your tax obligations and potentially save money in the long run.
SALT Deduction Strategies for Business Owners
The $10,000 cap on the state and local tax (SALT) deduction can be a significant hurdle for business owners and high earners, especially during years with substantial financial transactions.
However, there’s a workaround for owners of pass-through entities like partnerships and S corporations. In 2024, 36 states and one locality have implemented rules that allow these businesses to deduct SALT at the entity level. This shift means the business can deduct the full amount of state taxes from its income, bypassing the individual $10,000 limit.
This approach became more popular following the IRS’s 2020 guidance, which confirmed that these entity-level deductions are valid. But while this method can offer notable tax savings, it also comes with complexities.
The decision to elect into a pass-through entity (PTE) tax regime involves understanding both federal and state tax rules, which can vary widely.
State laws differ on when and how you can make this election. The timing of your deductions might depend on when you make the election and when the entity pays the tax.
Also, it’s important to note that PTE taxes paid in one state might not always be credited against taxes in other states where the business operates or where partners reside.
This strategy may benefit some partners more than others, especially in partnerships with operations and partners in multiple states. Before making any decisions, consider the costs and benefits of the entity-level tax and whether your partnership agreement allows for any necessary adjustments.
Given the evolving nature of state laws, it’s crucial to stay informed about the latest regulations.
Regularly review state-specific updates and thoroughly assess the potential impacts on your business and partners. This careful analysis will help you make the most informed decision about utilizing SALT deductions at the entity level.
Charitable Deductions
Donating to charity is not just a wonderful way to give back—it also offers some great tax benefits. With a little planning, you can make the most of these benefits. However, it’s crucial to understand the limits on charitable deductions, especially since the IRS is paying closer attention to this area.
Key Limits
Charitable deductions are usually capped at a percentage of your adjusted gross income (AGI). If your donations exceed this limit, you can carry over the excess to the next five years. The limits depend on whether you’re donating cash or property and the type of organization you’re giving to.
Here’s a simple breakdown of the AGI limits based on the type of donation and charity:
| Type of Donation | Public Charities and Private Operating Foundations | Private Foundations |
| Cash | 60% of AGI | 30% of AGI |
| Ordinary Income Property | 50% of AGI | 30% of AGI |
| Capital Gain Property | 30% of AGI | 20% of AGI |
| AGI limits on charitable contribution deductions | Public charity or operating foundation | Private nonoperating foundation |
| Cash, ordinary income property and unappreciated property | 50% | 30% |
| Long-term capital gains property deducted at fair market value | 30% | 20% |
| Long-term capital gains property deducted at basis | 50% | 30% |
Remember, the IRS guidelines can be detailed, so if you’re making substantial donations, consulting with a tax professional can ensure you maximize your benefits while staying compliant.
Making the Most of Your Charitable Donations
Giving cash outright, whether by check, credit card, or payroll deduction, is the simplest way to donate. It also comes with higher AGI limits. However, donating property can often offer better tax benefits if done correctly. The deduction you get depends on the type of property you donate: long-term capital gains property, ordinary income property, or tangible personal property. It can also vary based on what the charity plans to do with the donated property.
a. Ordinary Income Property:
This includes items like stock held for less than a year, inventory, and depreciated property. For these, your deduction is the lesser of the fair market value or your tax basis.
b. Long-term Capital Gains Property:
These are assets like stocks and securities held for more than a year. They’re great for donations because you can deduct the current fair market value without having to pay tax on the gains. Sometimes, it might be better to deduct the original cost (basis) rather than the market value to take advantage of higher AGI limits. Whether this is beneficial depends on your AGI and if you can use the deduction within the next five years if you choose the market value and hit the 30% limit.
c. IRA Distributions:
If you’re over 70½, you can distribute up to $100,000 from your IRA to certain charities without including it in your gross income. This can be a more favorable tax move than a standard charitable deduction. More details on this can be found in the “required distributions” section of this guide.
Remember, each type of donation has its own rules and potential benefits, so it’s worth considering which one works best for your situation.
Important IRS Guidelines for Valuing Noncash Charitable Contributions
The IRS is very strict about the valuation of noncash gifts, making it a critical area of focus. Here are some key points you need to know:
- Written Confirmation from the Charity:
- If you donate over $250 in cash or more than $500 in noncash items, you need a written acknowledgement from the charity.
- This acknowledgement must include:
- A description of the donated property.
- A good faith estimate of the value of any goods or services you received in return unless they are insubstantial.
- A statement if the charity provides intangible religious benefits.
- Qualified Appraisal Requirement:
- For noncash contributions over $5,000, a qualified appraisal is required.
- This is particularly important for art or real property, which can be difficult to value.
- Ensure the appraiser has experience with the specific type of property you’re donating.
- Exceptions to this rule include donations of publicly traded securities.
- Digital Assets:
- Many digital assets are not traded on public exchanges and are subject to the appraisal requirement.
- Strict Filing Requirements:
- Complete all forms accurately and file them on time. Incomplete forms can result in the entire charitable deduction being disallowed.
- Other Key Rules:
- You can only deduct out-of-pocket expenses when you contribute your services to charity, not the value of the services themselves.
- Donating the use of property (e.g., a vacation home for an auction) does not result in a deduction.
- If you drive for charitable purposes, you can deduct 14 cents per mile.
- When donating a car, the deduction is limited to what the charity gets when it sells the vehicle, unless the charity uses the car in its tax-exempt function.
- Donated clothing or household goods must be in at least “good used condition” to be deductible.
By following these guidelines, you can ensure your charitable contributions meet IRS requirements and maximize your potential deductions.
Always keep thorough records and consult with a tax professional if you have any doubts or complex situations for perfect tax planning.
Alternative Minimum Tax (AMT) in 2024
The Alternative Minimum Tax (AMT) can be a frustrating surprise when doing your taxes. Just when you think you have your taxes figured out, you have to recalculate everything using a different set of rules.
The AMT is like a parallel tax system with its own guidelines. It targets high-income taxpayers to ensure they pay at least a minimum amount of tax by setting limits on certain tax benefits. Each year, you need to calculate your taxes under both the regular tax system and the AMT system, and then pay whichever amount is higher.
The good news is that far fewer people are affected by the AMT than before, thanks to the increased exemption amounts from the Tax Cuts and Jobs Act of 2017 and limits on certain deductions that used to trigger the AMT, like state taxes. However, millions of taxpayers are still impacted.
The AMT has lower tax rates than the regular system, with just two brackets at 26% and 28%, but it doesn’t allow many deductions and credits. Taxpayers with high incomes well above the exemption and significant deductions or benefits that are reduced or disallowed under the AMT end up paying it.
Knowing whether you’ll be subject to the AMT before your tax return is due is crucial.
It helps you make informed business and investment decisions that depend on your tax situation. Common triggers for the AMT include:
- Investment advisory fees
- Incentive stock options
- Interest on a home equity loan not used to improve your residence
- Tax-exempt interest on certain private activity bonds
- Accelerated depreciation adjustments and related gains or losses on property sales
Planning for the Alternative Minimum Tax (AMT)
You can take advantage of the AMT by using its lower rates with some careful planning. By looking ahead and planning over multiple years, you can move your income to years with lower AMT rates and save deductions for years with higher regular tax rates.
Pay special attention to long-term capital gains and qualified dividends when considering the AMT. They are taxed at 15% and 20% under both the AMT and regular tax rules.
However, the extra income can reduce your AMT exemption, effectively increasing your rate to 20.5% instead of the usual 15%, or 25.5% for those in the 20% bracket. Always factor in the AMT before selling assets that could bring in significant gains.
To keep things simple: think ahead, plan your income and deductions wisely, and always check how your investments might impact your AMT situation.
Employment and Investment Taxes Changes: What You Need to Know
When planning your taxes, it’s essential to look beyond just income taxes, especially if you have business or investment income. This means understanding employment taxes and the net investment income tax (NIIT).
a. Effect on Earned Income
Employment taxes fund Social Security and Medicare and apply to salaries, wages, and bonuses. For 2024, the Social Security tax cap is $168,600, but there’s no cap on Medicare tax. Employees and employers each pay a 1.45% Medicare tax on earnings up to $200,000 (single) or $250,000 (joint). Above these amounts, the employee rate increases to 2.35%, making the total rate 3.8%.
If you’re a sole proprietor or partner, your business income is usually considered self-employment income, which means you pay both the employee and employer shares of the Medicare tax. You can, however, deduct the employer portion of the self-employment tax from your income.
b. Effect on Investment Income
The NIIT imposes a 3.8% tax on investment income if your adjusted gross income (AGI) exceeds $200,000 (single) or $250,000 (joint). This tax applies to income from rents, royalties, interest, dividends, and annuities unless the income comes from a business in which you actively participate. If you’re passive in the business, all related income counts as NII, including income from trading financial instruments.
c. Effect on Business Owners
For business owners, it’s crucial to consider both employment taxes and the NIIT. You won’t pay both taxes on the same income. Self-employment tax can be more favourable since you can deduct the employer portion. There are some situations where neither tax applies, but they are rare.
Owners of S corporations who actively participate in the business must take a reasonable salary and pay employment tax on their wages.
However, they might avoid self-employment tax and NIIT on their share of the S corporation’s income.
d. Effect on Partners and Self-Employment Taxes
The rules for partners are more complex, and the IRS is paying close attention. Under Section 1402(a)(13), limited partners might avoid self-employment tax on their distributive share of partnership income. However, they must also avoid NIIT by being active in the business.
A key case, Renkemeyer, Campbell, & Weaver, LLP v. Commissioner, made it harder for partners to claim they are limited partners while being active in the business. The court emphasized the nature of the partner’s activities over legal liability.
This analysis applies to LLCs and other partnerships, with several ongoing cases potentially impacting the treatment of limited partners.
e. Ongoing IRS and Legal Developments
The IRS is actively litigating whether limited partners under state law qualify for the SECA tax exception. Key cases, including Denham Capital Management LP v. Commissioner and Point72 Asset Management LP v. Commissioner, are still pending.
The Soroban Capital Partners LP case saw the Tax Court reject the argument that state law limited partners are exempt from SECA tax. The court ruled that a functional analysis is needed to determine eligibility for the exception.
The IRS has hinted at new regulations, reviving interest in an issue that had stalled since 1997 due to criticism and a temporary Congressional moratorium. In late 2023, the IRS prioritized this topic, and future guidance may clarify how to avoid both self-employment tax and NIIT.
However, escaping both taxes remains challenging, and proposed legislation might further narrow these options.
Maximizing Retirement Benefits for Business Owners and Executives
Retirement planning for successful business owners and executives is all about making the most of tax benefits. Recent changes in the law have made these benefits even better. If you have a significant portfolio, you should pay close attention to where your investments are held to take full advantage of tax-preferred retirement accounts.
a. Employer Accounts: Section 401(k) Plans
Employer-sponsored 401(k) plans offer several advantages over Individual Retirement Accounts (IRAs). Many employers match contributions, and there are no income limits for contributing. Traditional 401(k) contributions lower your current taxable income, and the assets grow tax-deferred, meaning you only pay taxes when you withdraw the money. In 2024, you can contribute up to $23,000, plus an additional $7,500 if you’re 50 or older.
For high earners, catch-up contributions will need to be made on a Roth basis starting in 2026. This change applies to those with wages over $145,000.
b. Individual Retirement Accounts (IRAs)
IRAs have some limitations, especially for high-income earners. If you have access to an employer-sponsored retirement plan, your traditional IRA contributions may not be deductible. However, recent legislation has removed the age cap for contributing to an IRA. Required minimum distributions (RMDs) now start at age 73, giving you more time for your investments to grow tax-free.
IRAs offer flexibility in investment choices, including self-directed IRAs. High-income earners can make nondeductible contributions and roll them into a Roth IRA, though this can be complex due to pro-rata rules.
c. Roth Accounts
Both 401(k) plans and IRAs have Roth versions. Roth accounts offer tax-free growth and tax-free withdrawals, but contributions are not tax-deductible. With a traditional account, you get a tax break upfront and pay taxes later. With a Roth account, you pay taxes upfront but enjoy tax-free withdrawals.
There are income limits for Roth IRA contributions, but you can get around this by contributing to a traditional IRA and then converting to a Roth IRA. Be careful of potential tax implications during the conversion process.
d. Required Minimum Distributions (RMDs)
You must start taking RMDs from most retirement accounts at age 73 if you turn 73 in 2023 or later. The age will increase to 75 for those turning 75 in 2033. RMDs are calculated based on your account balance and life expectancy. Missing an RMD can result in a 50% penalty on the amount you should have withdrawn. If you’re still working for the employer who sponsors your plan, you might not need to take RMDs.
e. Inherited IRAs
If you inherit an IRA, different rules apply. For IRAs inherited from someone who died in 2020 or later, non-spouse beneficiaries must empty the account within 10 years. Spouses have more options, including rolling the inherited IRA into their own. The IRS has provided relief from penalties for missed distributions in 2021, 2022, and 2023.
f. Planning Tips
Keep as much money as possible in your tax-advantaged retirement accounts. These accounts grow tax-free, and you defer taxes until you withdraw the money. Use your taxable accounts first to maximize tax-deferred growth. If you have money left in your IRA when you pass away, your heirs can continue to benefit from tax deferral.
Consider making a tax-free charitable contribution from your IRA to satisfy RMD requirements. This lowers your adjusted gross income (AGI) and can reduce your overall tax bill, unlike taking a taxable distribution and then donating the money.
By understanding and utilizing these strategies, you can make the most of your retirement benefits and keep more of your hard-earned money.
Tax Incentives and Opportunities for You
Congress has packed the tax code with incentives designed to encourage specific business activities and investments. These programs can offer valuable opportunities for individual investors, including energy credit transfers and opportunity zones.
a. Opportunity Zones
Opportunity zones let you delay paying capital gains tax if you invest the amount from your asset sale into an opportunity zone fund within six months. This fund should invest in areas designated as opportunity zones by the state. You won’t recognize the deferred gain until you sell the opportunity zone investment or by December 31, 2026, whichever comes first.
The real benefit kicks in if you hold the investment for at least 10 years. In that case, you won’t pay any tax on the appreciation of the opportunity zone investment. This double advantage creates a strong tax benefit, and there are plenty of opportunities to use it. Over 8,700 census tracts qualify as opportunity zones, including multiple areas in every major U.S. city and many spots ready for development.
Remember, there are strict rules on how you must make the investment and specific requirements the funds must meet for you to enjoy these tax benefits.
b. Energy Credit Transfers
The Inflation Reduction Act has introduced a way for you to sell energy credits to unrelated parties. If you have a significant tax bill, you might consider buying energy credits at a discount to lower your tax payment. A growing market is seeing these credits sell for 85% to 95% of their value.
However, there are some important risks and limitations, especially for individuals. For instance, if the IRS audits and disputes the amount of the credit or if there’s a recapture due to a change in ownership, the buyer takes on significant risk. Indemnification clauses and tax insurance can help mitigate these risks but may also come with costs that reduce your return.
Additionally, the initial IRS guidance states that the credit will be considered a passive activity credit, meaning you can only benefit if you have passive activity income.
The credit also faces other individual-level limitations. These rules are currently proposed, so there’s a chance that more favourable regulations might come later to make the credit market more appealing for individuals.
Estate and Gift Tax Planning Tips for 2024
In 2024, the lifetime exclusions for estate, gift, and generation-skipping transfer taxes are at a high of $13.61 million. This has reduced the number of people who might have to pay these taxes. But remember, these limits are set to drop by half in 2026 unless new laws are passed.
So, if you’re a successful business owner or executive, you could end up facing estate and gift taxes unexpectedly.
a. Using Current Exemptions to Your Advantage
The IRS has made it easier to use the current high exemptions without worrying about future changes taking away these benefits. Basically, the estate tax can be calculated using the exemption amount you used for gifts during this higher exemption period or the exemption amount at the time of your death, whichever is greater.
If you don’t use these increased exemptions by making gifts before 2026, you could miss out on these benefits.
b. High Interest Rates and Estate Planning
With the current high interest rates, tax planning for estate taxes can be tricky. Many strategies rely on assets growing faster than the interest rates set by the IRS. So, it’s essential to consider the current interest rate outlook and focus on assets that are likely to be appreciated in this environment.
c. Annual Gift Tax Exclusion
Another useful tool is the annual gift tax exclusion. In 2024, this exclusion is $18,000 per person. If you’re married, you can double this to $36,000 by splitting gifts with your spouse. This means you and your spouse can give a total of $144,000 to four individuals in 2024 without any gift tax.
If you have more people you want to help, you can remove even more money from your estate each year. Be sure to use the 2024 exclusion by December 31, so you don’t miss out on this opportunity.
Staying on Top of Reporting and Payment Duties
The IRS has a lot of rules about tax planning, reporting and paying taxes, and ignoring them can be expensive. High-income earners, business owners, and those with international dealings need to be extra careful. Here are some key things you should keep in mind:
a. Regular Tax Payments
Throughout the year, you need to pay your taxes through withholding from your paycheck or by making estimated tax payments. If you earn $150,000 or more, you typically need to pay either 90% of your current year’s taxes or 110% of your previous year’s taxes. Check your withholding and estimated tax payments before the year ends to avoid penalties.
If you’re at risk of an underpayment penalty, increase your withholding on your salary or bonuses. Remember, increasing withholding is seen as if it was paid evenly throughout the year, which can help avoid penalties for previous quarters.
b. Foreign Bank Accounts (FBAR)
If you have a financial interest in or control over a foreign bank account that exceeds $10,000 at any time during the year, you must file an FBAR by April 15. Failing to do so can lead to hefty fines, especially for business owners or executives with authority over business accounts.
c. Reporting Beneficial Ownership
Starting January 1, 2024, many corporations, LLCs, and other entities doing business in the U.S. will need to report their beneficial owners under the Corporate Transparency Act. New companies formed in 2024 must report within 90 days, while existing companies have until January 1, 2025, to comply.
d. Foreign Gifts and Trusts
If you receive gifts from foreign individuals or have dealings with foreign trusts, you might need to report this to the IRS using Form 3520 or 3520A. There are many types of transactions that require reporting, such as using property owned by a foreign trust or receiving a loan from one. The penalties for not reporting can be severe, so make sure you’re aware of these requirements.
By staying on top of these reporting and payment responsibilities, you can avoid costly penalties and ensure you’re compliant with the IRS.
Final Thoughts
As 2024 brings new tax laws and challenges, it’s crucial for business owners and executives to stay proactive. Understanding these changes can help you save money and make informed financial decisions. If you need more guidance, consider speaking with our tax professionals. We offer a free consultation call to help you navigate these updates and optimize your tax planning. Book your first free consultation call with us today and ensure you’re making the best choices for your business and personal finances.
Frequently Asked Questions
Ques. 1. What are the major tax law changes in 2024 for businesses?
Ans. 1. The major tax law changes in 2024 for businesses include adjustments to tax rates and thresholds, changes in deductions, and new rules for state and local tax (SALT) deductions at the entity level for pass-through entities. Additionally, there are updates to the limits for retirement contributions and adjustments in the Alternative Minimum Tax (AMT) exemptions.
Ques. 2. How do the new 2024 tax laws affect small businesses tax planning?
Ans. 2. Small businesses are affected by the new 2024 tax laws primarily through the adjustments in tax deductions and credits. The SALT cap workaround allows pass-through entities to deduct state and local taxes at the entity level, which can lead to significant tax savings. Small businesses should also consider new opportunities for deferring income and accelerating deductions to optimize their tax liabilities.
Ques. 3. What are the new tax rates for 2024 tax planning?
Ans. 3. For 2024, ordinary income tax rates remain progressive, with the highest rate for individuals at 37%. Long-term capital gains and qualified dividends are taxed at lower rates, with a top rate of 20%. There are also specific thresholds for self-employment taxes and the net investment income tax (NIIT), which applies a 3.8% tax on certain types of income.
Ques. 4. How can businesses maximize their tax deductions in 2024?
Ans. 4. Businesses can maximize their tax deductions in 2024 by carefully planning their income recognition and deductions. Key strategies include deferring income to future years, accelerating expenses into the current year, utilizing the SALT cap workaround for pass-through entities, and taking full advantage of available credits and deductions for retirement contributions, charitable donations, and energy investments.
Ques. 5. What is the SALT deduction workaround for pass-through entities in 2024?
Ans. 5. The SALT deduction workaround for pass-through entities allows these businesses to deduct state and local taxes at the entity level, bypassing the $10,000 individual deduction cap while tax planning. This strategy, available in 36 states and one locality, enables partnerships and S corporations to reduce their taxable income by deducting the full amount of state taxes paid.
Ques. 6. What are the key retirement account changes in 2024 tax planning?
Ans. 6. Key changes to retirement accounts in 2024 include higher contribution limits for 401(k) plans, which now allow up to $23,000 with an additional $7,500 catch-up contribution for those 50 and older. IRA contribution limits have also increased, and required minimum distribution (RMD) ages have been adjusted, providing more flexibility in retirement planning.
Ques. 7. How does the Alternative Minimum Tax (AMT) impact high-income earners tax planning in 2024?
Ans. 7. The AMT impacts high-income earners by ensuring they pay a minimum amount of tax regardless of deductions and credits available under the regular tax system. The AMT exemption amounts have increased, reducing the number of taxpayers affected. However, those with significant deductions or benefits that are limited under the AMT system may still be subject to this tax.
Ques. 8. What are the benefits of making charitable donations under the new tax laws?
Ans. 8. Under the new tax laws, charitable donations can provide significant tax benefits, especially if planned strategically. Cash donations to public charities can be deducted up to 60% of adjusted gross income (AGI), while donations of appreciated assets like stocks can offer even greater tax advantages. Understanding the limits and requirements for charitable deductions is crucial for maximizing benefits.
Ques. 9. What are the new reporting requirements for foreign bank accounts in 2024?
Ans. 9. For 2024, the reporting requirements for foreign bank accounts (FBAR) remain stringent. If you have a financial interest in or signature authority over foreign financial accounts exceeding $10,000 at any time during the year, you must file an FBAR by April 15. Non-compliance can result in severe penalties, making it essential to stay compliant with these reporting obligations.
Ques. 10. How can business owners use opportunity zones for tax benefits in 2024?
Ans. 10. Opportunity zones allow business owners to defer capital gains taxes by investing in qualified opportunity funds. These investments can lead to significant tax benefits, including deferred tax on the initial gain until 2026 and potentially tax-free growth if the investment is held for at least 10 years. The strict rules governing opportunity zone investments require careful planning to maximize these benefits.
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