2024 Year-End Tax Planning Summary

 

To welcome the new year, we would like to share 2024 tax-saving opportunities and other relevant tax information with you. Please review the information below and contact us if you would like to discuss any of this information as it applies to your tax situation.

Individual Considerations

Asset Sales and Gains

  • Capital Gains Tax Rates: Long-term capital gains are taxed at 0%, 15%, or 20% based on taxable income. A 3.8% Net Investment Income Tax (NIIT) may also apply.
  • Offset Gains with Losses: Consider selling assets with losses to reduce taxable gains.
  • Charitable Contributions: Donating appreciated stock instead of cash avoids capital gains.
  • Installment Sales: Spread gains over multiple years to potentially lower rates and avoid NIIT.

Credits and Deductions

  • Solar Property: Federal credit of 30% and Hawaii credit of 35% apply.
  • New Clean Vehicle Credit: Eligible vehicles may qualify for up to $7,500, claimable at purchase starting 2024.
  • Standard Deduction:
    • Married: $29,200 (+$1,550 per spouse 65+).
    • Single: $14,600 (+$1,950 if 65+).
    • Head of Household: $21,900 (+$1,950 if 65+).
  • Itemized Deductions:
    • Consider prepaying mortgage interest, state taxes, or medical expenses to exceed thresholds.
  • Child Tax Credit: $2,000 per child under 17 ($500 for dependents 17+), with phaseouts starting at $400,000 (MFJ) or $200,000 (others).

Retirement Contributions

  • IRA Contributions: Limits increase to $7,000 (+$1,000 catch-up for 50+). Phaseouts apply for higher incomes.
  • 401(k) Contributions: Limit increased to $23,000 (+$7,500 catch-up for 50+).
  • Roth Conversions: Limit increased to $23,000 (+$7,500 catch-up for 50+).
  • Backdoor Roth: For high-income taxpayers, use non-deductible IRA contributions followed by Roth conversion.

Estate and Gifting

  • Annual Gift Exclusion: $18,000 per donee ($36,000 for couples).
  • Estate Tax Exemption: $13.61M per individual ($27.22M for couples).
  • Pre-2026 Planning: Make large gifts now before exclusion reduces post-2025.

Key Expiring Provisions After 2025

  • Individual Rates: Top rate reverts to 39.6%.
  • Standard Deduction: Nearly halves.
  • SALT Cap: $10,000 cap expires.
  • Miscellaneous Itemized Deductions: Return for expenses exceeding 2% of AGI.
  • Estate Tax Exemption: Cuts roughly in half.

Business Tax Considerations

Credits and Deductions

  • Bonus Depreciation: Deduct 60% of qualified assets in 2024; phases out by 2027.
  • Section 179 Expensing: Deduct up to $1,220,000; phases out above $3,050,000.
  • R&D Expensing: Potential legislation may restore immediate expensing.
  • Qualified Business Income (QBI): Deduct up to 20% of QBI through 2025.

Tax Planning Strategies

  • Net Operating Losses (NOL): Consider shifting income/deductions to maximize carryforwards.
  • Passthrough Losses: Increase basis through contributions or liabilities to deduct losses.
  • Cash Basis Accounting: Defer income or accelerate deductions for tax savings.
  • Accrual Basis Accounting: Write off bad debts and prepay expenses.

Beneficial Ownership Reporting

Starting January 1, 2024, U.S. businesses must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. Compliance is mandatory to avoid penalties. Due to recent court challenges this date is now January 1, 2026.

United States Department of the Treasury Financial Crimes Enforcement Network | FinCEN.gov

Update as of 12/27/2024

On Dec. 26, 2024, through a merits panel weighing the parties’ claims, the Fifth Circuit Court of Appeals vacated the motion to stay the BOI reporting injunction. In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. The FinCEN alert said. "However, reporting companies may continue to voluntarily submit beneficial ownership information reports”.

Hawaii Changes to the Pass-through Entity Tax (PTET)

The Hawaii PTE tax is a state-level tax that allows certain businesses structured as pass-through entities to elect to pay state income tax at the entity level rather than at the individual owner level. This type of tax may provide significant benefits for business owners due to its impact on federal tax deductions, particularly in light of the federal SALT (state and local tax) deduction cap.

  • Act 50 introduces significant modifications to the PTE tax, pass-through entities such as Partnership and S-Corporation. These changes may have notable implications for your Hawaii tax liability:
  • A qualified member is now defined as a member of an electing PTE that is an individual, trust, or estate.
  • The PTE tax rate is reduced from 11 percent to 9 percent.
  • Multi-tiered entities are no longer eligible for PTE taxation.
  • Act 50 allows the PTE credit to be carried forward to subsequent years until exhausted.

Additional Notes

  • Expiring Provisions After 2025: Plan now to utilize benefits like QBI deductions, enhanced estate exclusions, and lower individual rates.
  • Expected Tax Changes: Potential corporate tax rate reductions and extension of Tax Cuts and Jobs Act (TCJA) provisions may impact strategies.

Questions? Contact one of CWA’s tax experts if you would like to discuss any of this information as it applies to your tax situation.

Phone: (808) 531-1040 | Contact Us Form

Making Tax Season Easier

 

Tips & Tricks! As much as we love tax season, we know this is a stressful time for our clients. Many block it out and avoid the topic. The following are a few suggestions to help you tackle tax season:

ORGANIZE YOUR DOCUMENTS

As you are emailed many of these you may want to create a folder on your computer to drag your documents to as the emails come in. If receiving paper documents, set a drawer or box to collect the documents as they come.

MAKE AN APPOINTMENT WITH YOURSELF

Take time to go through your tax information and obtain anything missing. The tax organizer is a good guide as it will have the information used in the prior year. Consider new investments or accounts opened, solar installed, and major purchases.

BE EARLY

Providing your tax professional with documents as soon as you have them gives them more time to work on your return so you're not caught up in the March rush. Ideally, provide the information you have by mid-February. We understand there will be more to come, including K-1 forms, but we can get started and update as the later information comes available. This will also give you more time to think of things you might have forgotten.

DOUBLE-CHECK

Double-check any payments made or changes to refunds from the prior year. One of the largest causes of tax notices is reporting incorrect information on payments made.

REVIEW

If you have not done so, do a year-end review to prepare for potential tax liabilities or changes to 4th quarter estimates.