On December 26, the Fifth Circuit Court of Appeals reinstated a lower court’s injunction that temporarily blocks the enforcement of beneficial ownership information (BOI) reporting requirements outlined in the Corporate Transparency Act (CTA) and administered by the Financial Crimes Enforcement Network (FinCEN). This decision reverses an earlier order issued by the court earlier in the week, aiming to “preserve the constitutional status quo while the merits panel reviews the parties’ substantive arguments.”

The AICPA, CTCPA, and several state CPA associations have been advocating for the federal government to delay the original BOI reporting deadline of January 1, 2025, by at least one year. While these organizations await further clarification from FinCEN, professionals assisting clients with BOI filings are encouraged to continue collecting necessary information and remain prepared to file in case the injunction is lifted.

The Financial Crimes Enforcement Network (FinCEN) has extended the deadline for filing Beneficial Ownership Information (BOI) reports to January 13, 2025. This decision follows a court ruling reinstating the reporting requirements of the Corporate Transparency Act (CTA), which were temporarily blocked earlier this month.

The extension applies to most reporting companies and allows additional time for compliance, particularly for entities affected during the injunction period. Companies formed or registered before January 1, 2024, now have until January 13, 2025, to submit their initial BOI reports.

The CTA, enacted to combat money laundering, requires companies to disclose beneficial ownership details. The decision aligns with advocacy efforts by organizations like the AICPA, which had pushed for extended deadlines to ease the transition for affected companies.

For more information, visit:

• FinCEN BOI Reporting Resource Center: https://fincen.gov/boi

This holiday season, our BHCB teams in both the New Haven and Fairfield offices came together to support the Salvation Army Angel Tree program. We’re proud to help bring joy to children and families in need by making sure they have gifts to open this Christmas.

Learn more about this wonderful initiative here: saangeltree.org

New beneficial ownership information (BOI) reporting requirements that many small businesses were required to comply with by January 1, 2025, have been suspended nationwide under a new court ruling. However, businesses can still voluntarily submit BOI reports, according to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

How we got here

Under the Corporate Transparency Act (CTA), the BOI reporting requirements went into effect on January 1, 2024. The requirements are intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud. The CTA requires many small businesses to provide information about their “beneficial owners” (the individuals who ultimately own or control the businesses) to FinCEN. Failure to submit a BOI report by the applicable deadline may result in civil or criminal penalties or both.

Under the CTA, the exact deadline for BOI compliance depends on the entity’s date of formation. Reporting companies created or registered before January 1, 2024, have one year to comply by filing initial reports, which means their deadline would be January 1, 2025. Those created or registered on or after January 1, 2024, but before January 1, 2025, have 90 days to file their initial reports upon receipt of their creation or registration documents. Entities created or registered on or after January 1, 2025, would have 30 days upon receipt of their creation or registration documents to file initial reports.

New court ruling

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an order granting a nationwide preliminary injunction that:

1. Enjoins the CTA, including enforcement of the statute and regulations implementing its BOI reporting requirements, and,
2. Stays all deadlines to comply with the CTA’s reporting requirements.

The U.S. Department of Justice, on behalf of the Treasury Department, filed an appeal in the case on December 5, 2024.

FinCEN states on its website that it “continues to believe … that the CTA is constitutional,” but while the litigation is ongoing, it will comply with the order as long as it remains in effect.

“Therefore,” it adds, “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.”

This is the latest litigation related to the CTA. In two earlier cases, U.S. District Courts upheld the BOI reporting requirements. In another case, the CTA was ruled unconstitutional, but only the named plaintiffs and their members were allowed to ignore the BOI requirements while an appeal is pending. More than 30 million other businesses still needed to meet the January 1, 2025, deadline — until now.

The future is unclear

Be aware that the ruling is preliminary, so it could be overturned or modified by future court decisions or legislation. FinCEN stated that businesses can continue to submit BOI reports voluntarily. Contact us if you have questions about how to proceed.

Embezzlement by employees can take many forms — from the simple use of a company credit card to buy inexpensive personal items to complex check forging schemes that result in massive losses. Take a look at these court cases, which illustrate some of the ways employers can be defrauded:

• A 34-year-old man pleaded guilty to embezzlement in Vermont and agreed to repay more than $40,000 in losses to his former employer, a shopping mall operator. According to court filings in the case, the man obtained the money by taking cash from bank deposits, stealing gift certificates, using mall credit accounts for the purchase of personal items and issuing checks to himself from the mall marketing checking account.
• A government employee in Michigan was sentenced to up to 10 years in prison after stealing more than $180,000 on the job. While working at the state’s Department of Environmental Quality, the 39-year-old man diverted money into his personal bank account that was sent by businesses for permit fees. The embezzlement continued for several months until an internal audit uncovered discrepancies.
• A 38-year-old Massachusetts office manager pleaded guilty to embezzling more than $1.1 million from her employer, a drywall company. The woman had three previous embezzlement arrests and had served time in jail. According to court records, however, the employer did not conduct a criminal background check before hiring her. She wrote more than 400 company checks to herself and other businesses that she owed money to personally. She entered the name of a legitimate payee in the company’s computer database, so it looked like the checks were going toward business expenses.
• The former finance director of the Arkansas Symphony Orchestra pleaded guilty to stealing $160,000 from the organization. The 48-year-old man misused orchestra credit cards, mostly for small expenses such as car repairs, gas, groceries and pet supplies. He also got company cell phones for himself and family members but never reimbursed the employer and collected a salary advance but never repaid it

These are just a few of the countless cases that wind up in courtrooms nationwide. When a company falls victim to embezzlement, the perpetrator is often an unlikely suspect. Fortunately, there are warning signs and ways to detect and prevent internal theft. Here are some steps your company can take to help avoid becoming another embezzlement statistic:

Where there’s Smoke, there May Be Fire

According to the Association of Certified Fraud Examiners, workplace fraud typically takes a year and a half to discover. One of the most important tools management has in uncovering potential embezzlement early is critical observation. Behavioral warning signs may suggest employee wrongdoing.

Some traits sometimes exhibited by those convicted of embezzlement include:

• Abrupt shifts in work schedules.
• Declining to take vacations.
• Sudden changes in lifestyle such as buying a larger home and driving a more expensive car.
• Problems with drug abuse, alcoholism or gambling.

On their own, these behavioral changes may be explainable. But take note if they arise in conjunction with financial abnormalities.

Listen to Employees. They May Know About Colleagues’ Fraudulent Behavior

Embezzlement usually occurs when motive combines with opportunity. In the workplace, if an employee is disgruntled or has financial problems, fellow staff members are often the first to hear about it. Having a system in place for colleagues to report suspicious behavior often makes the difference between embezzlement going undetected and having the information reach the desks of upper management.

One of the most useful and cost-effective internal controls is a hotline where employees can immediately report concerns or suspicious activity with a degree of anonymity. The Association of Certified Fraud Examiners found that workplaces with an employee hotline were able to detect fraud an average of nine months earlier than those that did not have a reporting system in place.

When a hotline is part of a system of internal controls, concerns can be investigated quietly and without necessarily confronting employees who may be innocent of wrongdoing. If circumstances are thoroughly investigated and suspicions found to be unwarranted, the employees involved may not have to know about them. Keep in mind that false accusations can lead to discrimination charges and other legal actions.

Consult a Forensic Accountant

When it comes to embezzlement, it is best to err on the side of caution because detecting crimes early can save your organization considerable further losses. Many times, a convoluted paper trail makes it difficult to determine whether embezzlement has occurred.

A forensic accountant can efficiently ascertain whether fraudulent activity is underfoot at your company. Like the old saying goes, an ounce of prevention is worth a pound of cure.

With year end rapidly approaching, many business owners are focusing on budgeting and strategic planning for 2025. But you shouldn’t overlook last-minute opportunities to cut taxes for 2024. Here are some tax-smart moves for businesses to consider executing by December 31.

Invest in Fixed Assets

If you’ve been planning to buy new or used machinery, equipment or computer systems, you can deduct a significant chunk of the purchase price this year if it’s placed in service before December 31, 2024. The first-year bonus depreciation percentage is only 60% for 2024 (down from 80% for 2023 and 100% for 2022). It’s scheduled to drop to 40% for 2025, absent congressional action. The bonus depreciation deduction also is available for software, certain vehicles, office furniture and qualified improvement property (generally, interior improvements to nonresidential property, including roofs; HVAC, fire protection and alarm systems; and security systems).

However, Section 179 expensing may give you more bang for your buck for 2024. With Sec. 179, you can deduct 100% of the purchase price of new and used eligible assets. The maximum deduction is $1.22 million for 2024. In addition, the deduction begins phasing out on a dollar-per-dollar basis when qualifying purchases exceed $3.05 million for 2024. The maximum deduction also is limited to the amount of your income from business activity.

You can carry forward excess amounts or claim the unused amounts as bonus depreciation, which isn’t subject to any income limits or phaseouts. Bonus depreciation can even create net operating losses (NOLs). Under the Tax Cuts and Jobs Act (TCJA), NOLs can be carried forward only and are subject to an 80% limitation.

Beware: Depreciation-related deductions can reduce qualified business income (QBI) deductions (see below) and certain other tax breaks that depend on taxable income. Your tax advisor can help determine what’s right for your situation.

Important: President-Elect Trump has expressed support for returning to 100% bonus depreciation, as well as doubling the phaseout threshold for Sec. 179 expensing. In 2025, the Republican-controlled Congress could pass legislation that includes these changes as part of its efforts to extend and expand the TCJA.

Timing Income and Deductions

If you conduct your business using a so-called pass-through entity — meaning a sole proprietorship, S corporation, limited liability company or partnership — your shares of the business’s income and deductions are passed through to the owners and taxed at your personal rates. Under current law, the 2025 individual federal income tax rate brackets will be the same as this year’s, with modest bracket adjustments for inflation.

So, the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year makes sense if you expect to be in the same or lower tax bracket next year. At a minimum, this strategy will postpone part of your tax bill from 2024 until 2025.

Most small businesses (including C corporations and personal service corporations) can use cash-method accounting for tax purposes. Assuming your business is eligible, cash-method accounting allows you to manage your 2024 and 2025 business taxable income to minimize taxes over the two-year period.

If you expect your business income will be taxed at the same or lower rate next year, there are specific cash-method moves that can defer some taxable income until 2025. On the income side, the general rule for cash-basis businesses is that you don’t have to report income until the year you receive cash or checks in hand or through the mail.

To take advantage of this rule, consider waiting until near year end to send out some invoices to customers. That will defer some income until 2025, because you won’t collect the money until early next year. Of course, this should be done only for customers with solid payment histories.

Other ways for cash-basis businesses to reduce taxable income for the current year include:

Charging recurring expenses at year end. You can claim 2024 deductions even though you won’t pay the credit card bills until 2025.

Paying expenses with checks and mailing them a few days before year end. The tax rules allow you to deduct the expenses in the year you mail the checks, even though they won’t be cashed or deposited until early next year.

Prepaying some expenses before year end. Prepaid expenses can be deducted in the year they’re paid if the economic benefit from the prepayment doesn’t extend beyond the earlier of 1) 12 months after the first date on which your business realizes the benefit of the expenditure, or 2) the end of the next tax year.

Important: Timing strategies that reduce business income may also reduce your QBI deduction (see below) and certain other tax breaks that depend on taxable income. Your tax advisor can help determine what’s right for your situation.

On the other hand, if you expect to be in a higher tax bracket in 2025, take the opposite timing approach: Accelerate income into this year (if possible) and postpone deductible expenditures until 2025. That way, more income will be taxed at this year’s lower rate instead of next year’s expected higher rate.

Maximize Your QBI Deduction

A noncorporate owner of a pass-through entity may be eligible for a deduction of up to 20% of the owner’s share of the entity’s QBI. This deduction is subject to complex rules and restrictions.

For example, it’s subject to limitations based on an owner’s taxable income. So, if you’re close to the income limit, you might consider deferring taxable income into next year and accelerating deductible expenditures into this year. However, you don’t want to lower taxable income too much — the QBI deduction itself is based on income from the business.

Additionally, the QBI deduction is subject to limitations based on the W-2 wages paid and the unadjusted basis of qualified property for the tax year. To increase your QBI deduction this year, consider increasing W-2 wages (possibly through year-end bonuses) or buying qualified property in 2024. (However, be aware that increasing wages or taking first-year depreciation deductions can have the unintended consequence of decreasing your QBI deduction.)

Note: The QBI deduction is currently scheduled to expire after 2025, unless Congress extends it or makes it permanent. There’s currently notable bipartisan support for extending this TCJA provision because it benefits small businesses.

Leverage Retirement Plan Credits

Eligible small employers that don’t already offer a retirement plan can reap multiple tax benefits by establishing a qualified retirement plan. For example, you can claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan, such as a 401(k) plan. Eligible costs are those incurred to set up and administer the plan and to educate employees about it.

A perk of this credit is that you can elect to claim it for the tax year before the plan starts, for the start-up costs paid or incurred that year. For instance, a qualified small employer (meaning one with no more than 100 employees) whose new plan doesn’t become effective until January 1, 2025, can elect to treat 2024 as the first credit year.

In addition, eligible small employers can claim a tax credit for contributions made to a defined contribution plan, SEP or SIMPLE IRA plan. An eligible employer that adds an auto-enrollment feature can claim a credit of $500 annually for three years, beginning with the first tax year the employer includes automatic enrollment.

Be Proactive

With significant parts of the TCJA scheduled to expire after 2025 and a new GOP majority in Congress, 2025 will likely bring some major shifts in the tax landscape. Contact your tax advisor to take advantage of current tax breaks to minimize your federal tax liability for 2024 and stay atop any new developments.

*AICPA UPDATE*

An injunction has been issued regarding the BOI filing requirement in connection with the Texas Top Cop Shot, Inc., et al. v. Merrick Garland, Attorney General of the United States case. As a result, FinCEN is currently prohibited from enforcing BOI filing requirements while the case remains unresolved; however, the deadlines technically remain in place.

Understanding Beneficial Ownership Information (BOI) Reporting

The Financial Crimes Enforcement Network (FinCEN) has implemented Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA). These regulations aim to combat financial crimes, such as money laundering and terrorism financing, by enhancing corporate transparency. Businesses must understand their obligations under these rules to ensure compliance and avoid penalties.

What is BOI Reporting?

BOI reporting requires certain entities to disclose detailed information about their beneficial owners—individuals who own or control the company. This information is collected to create a secure national database that supports law enforcement efforts and promotes transparency in business operations.

Who Must File BOI Reports?

Domestic Entities

Entities organized in the United States that must report include:

• Corporations
• Limited liability companies (LLCs)
• Any similar entity created by filing a document with a secretary of state or a similar office under the law of a state or Indian tribe.

Foreign Entities

Entities formed outside the U.S. but registered to do business in the U.S. may also be subject to BOI reporting requirements.

Exemptions

Certain organizations are exempt from reporting (see full list on fincen.gov website), including:

• Publicly traded companies
• Tax-exempt organizations

Large operating companies meeting specific criteria (e.g., having more than 20 full-time employees and $5 million in gross receipts, among other requirements).

What Information is Required?

BOI reports must include:

1. Company Details:
   • Name
   • Address
   • State or jurisdiction of formation
   • Taxpayer Identification Number (TIN)
2. Beneficial Owner Details:
   • Full legal name
   • Date of birth
   • Residential address
   • Unique identifying information (e.g., driver’s license or passport number.)

Deadlines for BOI Reporting

• New Entities: Entities formed on or after January 1, 2024, must file their BOI report within 90 days of formation or registration.
• Existing Entities: Entities in existence before January 1, 2024, have until January 1, 2025, to file their initial report.

Why BOI Reporting is Important

BOI reporting strengthens national security by preventing the misuse of anonymous corporate structures. The database created by these filings helps law enforcement track and combat illicit activities. For businesses, compliance ensures alignment with federal regulations and demonstrates a commitment to ethical operations.

How to File BOI Reports

BOI reports must be submitted electronically through FinCEN’s secure online filing system. Accuracy is critical, as non-compliance or false reporting can result in significant penalties.

Next Steps for Businesses

1. Determine Your Filing Obligations: Assess whether your entity is subject to BOI reporting requirements.
2. Gather Required Information: Compile the necessary details about your company and its beneficial owners.
3. Prepare to Meet Deadlines: Set up a timeline to ensure timely and accurate reporting.
4. Seek Professional Guidance: Consult with legal or tax advisors to navigate the complexities of BOI compliance.

For additional information, visit FinCEN’s BOI Reporting Page.

Don’t Delay—Stay Compliant

With deadlines fast approaching, now is the time to prepare for BOI reporting. Taking action today protects your business, ensures compliance, and supports efforts to enhance corporate transparency.

A federal district court judge has struck down the Biden administration’s new rule regarding the salary threshold for determining whether certain employees are exempt from federal overtime pay requirements. The first phase of the rule took effect for most employers in July 2024 and affects executive, administrative and professional (EAP) employees.

With a Republican administration poised to take control of the U.S. Department of Labor (DOL), the court’s ruling may sound the death knell for the rule. Here’s what the ruling means for employers.

The rejected rule

Under the Fair Labor Standards Act (FLSA), nonexempt workers are entitled to overtime pay at 1.5 times their regular pay rate for hours worked per week that exceed 40. EAP employees are exempt from the overtime requirement if they satisfy three tests:

Salary basis test. An employee is paid a predetermined and fixed salary that isn’t subject to reduction due to variations in the quality or quantity of his or her work.

Salary level test. The salary isn’t less than a specific amount or threshold.

Duties test. An employee primarily performs executive, administrative or professional duties.

The new rule focused on the salary level test and increased the threshold in two steps. The first step occurred on July 1, 2024, when most salaried workers earning less than $844 per week or $43,888 per year became eligible for overtime (up from $684 per week or $35,568 per year). The second step was scheduled to kick in on January 1, 2025, when the salary threshold would have increased to $1,128 per week or $58,656 per year.

In addition, the rule raised the total compensation requirement for highly compensated employees (HCEs), who are subject to a more relaxed duties test than employees earning less. HCEs need only “customarily and regularly” perform at least one of the duties of an exempt EAP employee instead of primarily performing such duties.

As of July 1, 2024, this less restrictive test applied to HCEs who perform office or nonmanual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $132,964 per year (up from $107,432). It would have risen to $151,164 on January 1, 2025.

The rule also established a mechanism to update the salary thresholds every three years, based on current earnings data from the most recent available four quarters of data from the U.S. Bureau of Labor Statistics. However, the DOL could temporarily delay a scheduled update when warranted by unforeseen economic or other conditions.

The court’s ruling

In June 2024, the U.S. District Court for the Eastern District of Texas temporarily blocked the rule as far as its application to the State of Texas as an employer — so on an extremely limited basis — while it considered the state’s underlying legal challenge to the rules (State of Texas v. U.S. Dep’t of Labor). Multiple business groups joined Texas and asked the court to vacate the rule entirely.

On November 15, 2024, the court did just that. It found that the new rule exceeded the DOL’s authority to define terms because the EAP exemption requires that an employee’s status turn on duties, not salary — and the new rule impermissibly made salary predominate over duties. The court also found the automatic updating mechanism exceeded the DOL’s authority.

Notably, the court cited the U.S. Supreme Court’s recent decision overturning the doctrine known as “Chevron deference.” Under the doctrine, which had been in effect for decades, courts deferred to “permissible” agency interpretations of the laws they administer. The high court’s ruling empowers courts to reject agency rules more easily.

Employer response

As a result of the court’s ruling, the salary thresholds for EAP employees and HCEs return to their earlier levels: $684 per week or $35,568 per year for the former and $107,432 for the latter. On its face, that’s good news for employers. However, many businesses have started making moves in response to the new rule. For example, employers may have reclassified some employees as nonexempt, increased salaries to retain exempt status for others or reduced salaries to offset new overtime pay. Now what?

Of course, the DOL could appeal the ruling, which could make employers reluctant to institute any immediate changes. An appeal would be heard by the conservative Fifth Circuit Court of Appeals, which has repeatedly ruled against the Biden administration.

The best predictor of what’s to come may be the treatment of a similar DOL rule issued by President Obama’s administration. A court invalidated the rule in November 2016 in a ruling that was appealed while Obama was still in office. The DOL under President Trump’s first administration withdrew the appeal and issued the revised and less expansive rule that took effect in 2019.

Regardless, bear in mind that exempt employees also must satisfy the applicable duties test, whatever the salary threshold. An employee whose salary exceeds the threshold but doesn’t primarily engage in the applicable duties isn’t exempt from the overtime requirements.

Proceed with caution

Employers that roll back changes in status or salary increases that were implemented in anticipation of the new rule may find that employees — or their attorneys — begin to question whether their duties warrant an exemption. Even if they don’t pursue litigation, rollbacks must be weighed against the impact on employee morale in a competitive job market. The best course will vary by employer, and legal advice is strongly encouraged. We’ll keep you updated on the latest news regarding the ruling.

These days, many people turn to social media for news, restaurant and product reviews, and other information. However, tax advice is one thing you generally shouldn’t get through sites such as Facebook, TikTok, Instagram and X (formerly known as Twitter).

The IRS has issued repeated warnings over the past year about inaccurate advice and outright scams circulating on such platforms by people without the proper credentials. Here are some recent bogus claims that businesses and individuals have fallen for, putting them at risk of costly civil and criminal penalties, interest, and fees.

Self-Employment Tax Credits

To be clear, there’s no “self-employment tax credit” under current tax law. But that hasn’t stopped nefarious promoters from marketing it on social media as a way for self-employed people to receive large payments for losses incurred during the pandemic. Their posts wrongly suggest that many people qualify for payments of up to $32,000.

The claims stem from a more limited tax break known as the sick leave and family leave credit. This legitimate credit generally was available to self-employed people who would’ve been eligible to receive the temporarily expanded qualified sick or family leave wages if they’d worked for an employer. However, the IRS has received tax returns from taxpayers claiming the credit based on income earned as employees, not as self-employed individuals.

Moreover, the credit applies only to narrow COVID-related circumstances in 2020 and 2021. Eligible taxpayers must have had one of various technical reasons that prohibited them from working during the covered period. For example, they must have needed to care for someone subject to a quarantine or isolation order.

Misuse of Forms

The IRS has identified multiple filing season hashtags on social media and posts involving the use of legitimate tax forms for the wrong reasons. One scheme, for example, relies on Form W-2, “Wage and Tax Statement.”

The scheme encourages people to use tax software to manually complete the form with false information and then file it electronically. Scammers suggest taxpayers include large income and withholding figures, along with fake employer names, to obtain substantial refunds based on the falsified withholding amounts.

Schedule H (Form 1040), “Household Employment Taxes,” is another subject of trickery. Misleading social media posts advise people to invent fictitious household employees and use the form to claim refunds based on false sick and family medical leave wages they never paid.

Social media users also may see “wildly inaccurate claims” regarding Form 8944, “Preparer e-file Hardship Waiver Request.” For example, some posts indicate taxpayers can use it to receive refunds, even if taxpayers have balances due. However, the form is only for tax professionals who need waivers to file tax returns on paper instead of electronically. It’s not a form that the average taxpayer should use.

Fuel Tax Credit

The fuel tax credit is legitimate, but it’s available only for off-highway business and farming use, which puts it outside most taxpayers’ use. The IRS is seeing a growing number of fictitious claims for the credit on Form 4136, “Credit for Federal Tax Paid on Fuels.”

According to the IRS, unscrupulous promoters or tax return preparers mislead taxpayers about deductions for fuel use and create fake documents or receipts for fuel. They often charge high fees for filing false claims. Taxpayers should be aware that the IRS has intensified its scrutiny of fuel tax credit claims, and those claiming it improperly are at risk of compliance action by the agency.

Employee Retention Tax Credit

Perhaps the most successfully promoted misuse of a tax break has centered around the Employee Retention Tax Credit (ERTC). This refundable credit generally was intended to help employers that continued to pay their employees when they were shut down during the pandemic or suffered major drops in gross receipts in 2020 and 2021. Eligible employers could potentially qualify for $26,000 in refunds per employee.

Scammers jumped on social media to promote far-fetched schemes, charging hefty fees to help employers claim the ERTC, regardless of whether they were eligible. Many weren’t, due to the strict requirements.

The IRS received a flood of invalid claims, resulting in an almost year-long moratorium on the processing of new claims. After reviewing about 1 million filings, the IRS announced it would deny tens of thousands of erroneous claims. Its review of 2020 claims found more than 22,000 improper claims, resulting in $572 million in assessments against employers.

The good news is that the IRS is providing employers with some avenues for relief, including a withdrawal program. For a limited time (through November 22, 2024), the IRS provided a Voluntary Disclosure Program to some taxpayers. If you’re uncertain about the legitimacy of an ERTC claim your business previously filed, contact your tax advisor to assess your options.

Reach Out for Trusted Advice

The IRS regularly urges taxpayers to consult with an experienced, reputable tax professional before filing claims based on social media posts from untrusted sources. At the very least, remember that if a tax strategy seems too good to be true, it probably isn’t legitimate.

As the end of the year draws near, savvy taxpayers look for ways to reduce their tax bills. This year, the sense of urgency is higher for many because of some critical factors.

Indeed, many of the Tax Cuts and Jobs Act provisions are set to expire at the end of 2025, absent congressional action. However, with President-Elect Donald Trump set to take power in 2025 and a unified GOP Congress, the chances have greatly improved that many provisions will be extended or made permanent. With these factors in mind, here are tax-related strategies to consider before year end.

Bunching itemized deductions

For 2024, the standard deduction is $29,200 for married couples filing jointly, $14,600 for single filers, and $21,900 for heads of households. “Bunching” various itemized deductions into the same tax year can offer a pathway to generating itemized deductions that exceed the standard deduction.

For example, you can claim an itemized deduction for medical and dental expenses that are greater than 7.5% of your adjusted gross income (AGI). Suppose you’re planning to have a procedure in January that will come with significant costs not covered by insurance. In that case, you may want to schedule it before year end if it’ll push you over the standard deduction when combined with other itemized deductions.

Making charitable contributions

Charitable contributions can be a useful vehicle for bunching. Donating appreciated assets can be especially lucrative. You avoid capital gains tax on the appreciation and, if applicable, the net investment income tax (NIIT).

Another attractive option for taxpayers age 70½ or older is making a qualified charitable distribution (QCD) from a retirement account that has required minimum distributions (RMDs). For 2024, eligible taxpayers can contribute as much as $105,000 (adjusted annually for inflation) to qualified charities. This removes the distribution from taxable income and counts as an RMD. It doesn’t, however, qualify for the charitable deduction. You can also make a one-time QCD of $53,000 in 2024 (adjusted annually for inflation) through a charitable remainder trust or a charitable gift annuity.

Leveraging maximum contribution limits

Maximizing contributions to your retirement and healthcare-related accounts can reduce your taxable income now and grow funds you can tap later. The 2024 maximum contributions are:

• $23,000 ($30,500 if age 50 or older) for 401(k) plans.
• $7,000 ($8,000 if age 50 or older) for traditional IRAs.
• $4,150 for individual coverage and $8,300 for family coverage, plus an extra $1,000 catch-up contribution for those age 55 or older for Health Savings Accounts.

Also keep in mind that, beginning in 2024, contributing to 529 plans is more appealing because you can transfer unused amounts to a beneficiary’s Roth IRA (subject to certain limits and requirements).

Harvesting losses

Although the stock market has clocked record highs this year, you might find some losers in your portfolio. These are investments now valued below your cost basis. By selling them before year end, you can offset capital gains. Losses that are greater than your gains for the year can offset up to $3,000 of ordinary income, with any balance carried forward.

Just remember the “wash rule.” It prohibits deducting a loss if you buy a “substantially similar” investment within 30 days — before or after — the sale date.

Converting an IRA to a Roth IRA

Roth IRA conversions are always worth considering. The usual downside is that you must pay income tax on the amount you transfer from a traditional IRA to a Roth. If you expect your income tax rate to increase in 2026, the tax hit could be less now than down the road.

Regardless, the converted funds will grow tax-free in the Roth, and you can take qualified distributions without incurring tax after you’ve had the account for five years. Moreover, unlike other retirement accounts, Roth IRAs carry no RMD obligations.

In addition, Roth accounts allow tax- and penalty-free withdrawals at any time for certain milestone expenses. For example, you can take a distribution for a first-time home purchase (up to $10,000), qualified birth or adoption expenses (up to $5,000 per child) or qualified higher education expenses (no limit).

Timing your income and expenses

The general timing strategy is to defer income into 2025 and accelerate deductible expenses into 2024, assuming you won’t be in a higher tax bracket next year. This strategy can reduce your taxable income and possibly help boost tax benefits that can be reduced based on your income, such as IRA contributions and student loan deductions.

If you’ll likely land in a higher tax bracket in the near future, you may want to flip the general strategy. You can accelerate income into 2024 by, for example, realizing deferred compensation and capital gains, executing a Roth conversion, or exercising stock options.

Don’t delay

With the potential for major tax changes on the horizon, now is the time to take measures to protect your bottom line. We can help you make the right moves for 2024 and beyond.