The knowledge you need

In late January, the House of Representatives passed important bi-partisan tax legislation that provides several saving opportunities for families and businesses. The Tax Relief for American Families and Workers Act of 2024 (Act) calls for the extension of several credits and incentives that expired at the end of last year. It includes an increase to the reporting threshold for Form 1099s, changes to federal Section 174 research and development (R&D) credit expense rules, an extension of bonus depreciation, and updates to the Child Care Credit. There is also a provision that calls for a ban on accepting new Employee Retention Tax Credit claims effective January 31, 2024

Last month, the IRS announced a second reporting deadline extension for auto dealerships that sold eligible electric and other clean energy vehicles (EVs) in 2023. The first extension was issued in January when there was a two-week extension to the filing deadline from January 15th to January 31st. This extension means dealers now have until February 15th to submit the required time of sale reports for 2023 transactions. The additional time is needed to help sellers navigate compliance regulations including various filing options.

The SECURE Act 2.0 passed into law in December 2022 calls for several updates to plan operations. Due to the comprehensive nature of the legislation, many updates are set to phase in over five years. Provisions effective in 2024 include introducing Starter 401k plans, student loan matching payments, deferral failure corrections, and introducing a new emergency savings account (PLESA). These accounts are limited to $2,500 in annual contributions and the first four withdrawals are tax-free. While regulations guiding all new provisions have yet to be issued, the IRS recently released Notice 2024-22 which provides important details on PLESA anti-abuse rules.

There has long been concern that workers have been improperly classified as independent contractors to avoid required pay minimums, insurance benefits, overtime pay, and other employment-based protections. Earlier this month, the Department of Labor (DOL) issued Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FSLA). This new guidance relies on the economic reality test supported by various reality factors. These include worker opportunity for profit or loss, nature, and degree of control over the work, permanency of the work relationship, and more. Other factors may be considered when determining economic dependence on the employer.

For those companies that had already received payment, the IRS indicated there would be a voluntary disclosure program to help. Earlier this month, the details of the program were announced in IRS Announcement 2024-3 outlining how the program will work. Not only does it provide a way to resolve civil tax liabilities, but includes information on eligibility, program terms, repayment options, and more.

Over the past decade, the Department of Labor (DOL) has expressed growing concern about the quality of employee benefit plan audits. When there are deficiencies or other issues, it means that plan participants may not be receiving the important protections offered by a properly conducted audit. To better understand the issue and identify contributing factors, the DOL has published several plan audit quality reports in 1997, 2004, and 2015. Key details about deficiencies, quality by size of CPA firm, and other important information have been reviewed and analyzed. The findings have been useful to regulators and companies when hiring a new plan auditor.

Starting in 2024, many businesses will be required to report certain information about company ownership to the Financial Crimes Enforcement Network (FinCEN). The new requirement is mandated by the Corporate Transparency Act which passed in 2021. The purpose of the legislation is to make it easier for the federal government to fight tax fraud, money laundering, and terrorist activities financed through domestic companies. Under new rules, new and existing small businesses and limited liability companies are required to disclose information about their beneficial owners. This includes the name, date of birth, and address of each owner along with a unique identifying number from a passport or driver’s license is required.

axpayers who receive payments through providers such as PayPal, Venmo, and Etsy will be happy to learn the IRS has again delayed reporting changes. While the IRS was originally planning to require distribution of the forms for anyone who received $600 in payments or more through these third-party providers, the agency just announced another delay. This means the current payment threshold of $20,000 and 200 transactions will be in place for the current tax year. The higher reporting limits mean many will not be required to pay federal income tax on income earned through these sources.

Earlier this week, in IR-2023-230, the IRS provided additional details on the results of enhanced enforcement efforts. Specifically, there will be 20,000 letters sent to taxpayers notifying them of disallowed ERTC claims. These letters specifically address those ineligible because their entity did not exist during the pandemic, or they did not have any employees during the eligibility period. This illustrates just how pervasive aggressive marketers have become when thousands of claims do not meet the most basic criteria.

As the closing weeks of the year quickly approaches, there are many steps that individuals and families can take to reduce taxes. These steps can not only yield immediate savings but also set up additional opportunities in 2024 and beyond. While tax planning is most effective when conducted on an ongoing basis, there are steps to take now that can have an immediate impact. This includes optimizing gifting strategies, maximizing retirement plan contributions, prepaying university expenses, IRA conversions and tax loss harvesting. To reap the full benefit, it is essential to take action before December 31st.