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.

Traditionally, many Americans have viewed 65 as a target retirement age. However, there’s usually no legal requirement that you retire when you turn 65. Most Americans are free to retire either after or before this age if they have the financial resources to do so. So if you dream of retiring at age 60, 50 or even 40, you need to plan carefully in the years leading up to your anticipated retirement dates.

Sock Away Savings

Depending on your income and target date, you many need to slash current expenses, foregoing luxuries (and even non-luxurious discretionary spending,) and perhaps find a secondary source of income. Your goal should be to save as much money as you possibly can to help ensure a long retirement.

Retirement savings accounts like IRAs and 401(k)s are the main source of retirement income for many Americans. One of the best ways to retire early is to build up these accounts as quickly as possible by contributing the maximum amount allowed by law each year. You can contribute up to $23,000 (in 2024) to your 401(k) if you’re under the age of 50. If you’re age 50 years, you can make an additional catch-up contribution of $7,500, bringing the total annual 401(k) contribution limit in 2024 to $30,500.

Additionally, you can contribute up to $7,000 to your traditional or Roth IRA in 2024 if you’re under the age of 50 and meet other requirements. If you’re 50 years of age or over, you can make an additional catch-up contribution of $1,000, bringing the total 2024 IRA contribution limit up to $8,000. The IRS generally raises contribution limits for all types of tax-advantaged retirement savings plan annually to account for cost-of-living changes.

It’s important to keep in mind that if you plan to tap your 401(k) or IRA to retire early, you may be subject to an early withdrawal penalty. This depends on how old you are when you retire: If you’re under age 59½ when you start making withdrawals, you may have to pay a 10% early withdrawal penalty on distributions from a 401(k) and a traditional IRA.

Pensions and Social Security Income

Also consider other potential sources of retirement income, such as a company pension plan. If your employer offers a pension plan, talk to your human resources contact to find out if you can receive benefits if you retire early. Then factor this income into your retirement budget.

Of course, you’re likely planning on Social Security benefits comprising a portion of your retirement income. If so, keep in mind that the earliest you can begin receiving Social Security retirement benefits is age 62. And if you start receiving Social Security retirement benefits before reaching your “full retirement age” — which is 67 if you were born in 1960 or later — your monthly benefit amount will be smaller than if you wait until your full retirement age.

The flip side of planning to ensure adequate retirement income is reducing your living expenses during retirement. For example, many people strive to pay off their home mortgages early, which can possibly free up enough monthly cash flow to make early retirement feasible.

Plan in Place

It’s never too soon to start planning for retirement. But if you want to retire early, you should ideally put a plan in place while you’re still in the early stages of your career. By saving as much money as you can while you’re still working, carefully planning your Social Security distribution strategies and cutting your living expenses in retirement, you just might be able to make this dream a reality.

The outcome of the November 5 election is likely to significantly impact taxes. Many provisions in President-elect Donald Trump’s signature tax legislation from his first time in the White House, the Tax Cuts and Jobs Act (TCJA), are scheduled to expire at the end of 2025. Now, there’s a better chance that most provisions will be extended.

This is especially true as Republicans have won back a majority in the U.S. Senate. As of this writing, Republicans have 52 seats, with a few seats yet to be called, so their majority could grow. The balance of power in the U.S. House of Representatives remains up in the air, with quite a few seats yet to be called.

In addition to the TCJA, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:

Expiring provisions of the TCJA. Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.

Business taxation. President-elect Trump has proposed decreasing the corporate tax rate from its current 21% to 20% (or even lower for companies making products in America). He’d also like to expand the Section 174 deduction for research and development expenditures.

Individual taxable income. The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.

Housing incentives. President-elect Trump has alluded to possible tax incentives for first-time homebuyers but without specifics. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations and opening parts of federal lands to new home construction.

Tariffs. The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10%, with a 60% tariff on imports from China. (In speeches, he’s proposed a 100% tariff on certain imported cars.)

Which extensions and proposals will actually come to fruition will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. If you have questions on how these potential changes may affect your overall tax liability, please contact us.

The IRS has issued its 2025 inflation-adjusted contribution amounts for retirement plans in Notice 2024-80. Many retirement-plan-related limits will increase for 2025 — but less than in prior years. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings.

* A change that takes effect in 2025 under SECURE 2.0

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2025:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

• For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
  • For a spouse who participates, the 2025 phaseout range limits will increase by $3,000, to $126,000–$146,000.
  • For a spouse who doesn’t participate, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
• For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2025 phaseout range limits will increase by $2,000, to $79,000–$89,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,000 contribution limit for 2025 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

• For married taxpayers filing jointly, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
• For single and head-of-household taxpayers, the 2025 phaseout range limits will increase by $4,000, to $150,000–$165,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for traditional and Roth IRAs.)

Revisit your retirement plan

To better ensure that your retirement plans remain on track, consider these 2025 inflation-adjusted contribution limits. We can help you review your plans and make any necessary modifications.

© 2024

We’re excited to share that Dan Horvath represented Beers, Hamerman, Cohen & Burger (BHCB) at Southern Connecticut State University’s Annual Accounting Roundtable!

Held by SCSU’s School of Business in collaboration with the PEP Talks series and Accounting Society, this event brought together students and local accounting professionals for an engaging panel discussion on careers, industry trends, and what firms like BHCB seek in top talent.

Dan spent time connecting with aspiring accounting professionals, sharing insights about our industry, and answering questions on the path to a successful career in accounting. Events like these are an excellent way for students and firms to build valuable connections in Connecticut’s accounting community.

Thank you to SCSU’s Vivien Szaniszlo and the Accounting Society for organizing such an impactful event. BHCB is always proud to support initiatives that bridge the gap between education and career!

The Financial Crimes Enforcement Network (FinCEN) has extended the deadline for Beneficial Ownership Information (BOI) reporting by six months for businesses in areas affected by Hurricane Helene and designated for relief by FEMA and the IRS.

New Deadline: Applies to BOI reports due between September 22, 2024, and December 21, 2024.

This extension provides additional time for businesses in disaster areas to file their BOI reports, ensuring they can focus on recovery first. For details and eligibility, visit: FinCEN BOI Notice

The IRS has issued its 2025 inflation adjustment numbers for more than 60 tax provisions in Revenue Procedure 2024-40. Inflation has moderated somewhat this year over last, so many amounts will increase over 2024 but not as much as in the previous year. Take these 2025 numbers into account as you implement 2024 year-end tax planning strategies.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $325–$650, depending on filing status, but the top of the 35% bracket will increase by $10,200–$20,400, again depending on filing status.

Note that under the TCJA, the rates and brackets are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

Standard deduction

The TCJA nearly doubled the standard deduction, indexed annually for inflation, through 2025. In 2025, the standard deduction will be $30,000 for married couples filing jointly, $22,500 for heads of households, and $15,000 for singles and married couples filing separately.

After 2025, the standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them. Also worth noting is that the personal exemption that was suspended by the TCJA is scheduled to return in 2026. Of course, Congress could extend the suspension.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

As with ordinary income tax rates and brackets, those for long-term capital gains are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2025, the threshold for the 28% bracket will increase by $6,500 for all filing statuses except married filing separately, which will increase by half that amount.

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts in 2025 will be $88,100 for singles and $137,000 for joint filers, increasing by $2,400 and $3,700, respectively, over 2024 amounts. The inflation-adjusted phaseout ranges in 2025 will be $626,350–$978,750 for singles and $1,252,700–$1,800,700 for joint filers. Phaseout ranges for married couples filing separately are half of those for joint filers.

The exemptions and phaseouts were significantly increased under the TJCA. Without Congressional action, they’ll drop to their pre-TCJA levels (adjusted for inflation) in 2026.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks will generally remain the same in 2025. But most of these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges will generally remain the same or increase modestly in 2025, depending on the break. For example:

The American Opportunity credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the American Opportunity credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGIs in excess of $80,000 ($160,000 for joint returns). The maximum credit per eligible student is $2,500.

The Lifetime Learning credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the Lifetime Learning credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGIs in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2025 — by $7,040. It will be $259,190–$299,190 for joint, head-of-household and single filers. The maximum credit will increase by $470, to $17,280 in 2025.

Note: Married couples filing separately generally aren’t eligible for these credits.

These are only some of the education and child-related tax breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible to claim one on his or her tax return.

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. In 2025, the amount will be $13.99 million (up from $13.61 million in 2024). Beware that the TJCA approximately doubled these exemptions starting in 2018. Both exemptions are scheduled to drop significantly in 2026 if lawmakers don’t extend the higher amount or make other changes.

The annual gift tax exclusion will increase by $1,000, to $19,000 in 2025. (It isn’t part of a TCJA provision that’s scheduled to expire.)

Crunching the numbers

With the 2025 inflation adjustment amounts trending slightly higher than 2024 amounts, it’s important to understand how they might affect your tax and financial situation. Also keep in mind that many amounts could change substantially in 2026 because of expiring TCJA provisions — or new tax legislation, which could even go into effect sooner. We’d be happy to help crunch the numbers and explain the tax-saving strategies that may make the most sense for you in the current environment of tax law uncertainty.

© 2024

Thanks to today’s favorable federal gift and estate tax rules, most people haven’t amassed enough wealth to worry about federal estate taxes. However, even if you haven’t had the good fortune to win the lotto or inherit millions from a wealthy relative, you still need an estate plan to protect your assets and your loved ones. Here are some critical estate planning issues to consider.

Wills

There are several reasons why you should put together a written will:

1. To name a guardian for any minor children,

2. To name an executor for your estate, and

3. To specify which beneficiaries (including charities) should get which assets.

The guardian’s job is to take care of your kids until they reach adulthood (age 18 or 21 in most states). The executor’s job is to pay your estate’s bills, pay any taxes due, and deliver what’s left to your intended heirs and charitable beneficiaries. 

Living Trusts

If you have significant assets, you should probably set up a living trust to avoid probate. Probate is a court-supervised legal process intended to make sure a deceased person’s assets are properly distributed. However, going through probate typically involves administrative red tape and legal fees — plus your financial affairs will become public information.

If you establish a living trust, you can transfer legal ownership of designated assets to the trust. The transferred assets won’t go through the probate process. Examples of assets you might want to consider transferring to a living trust include:

• Your primary residence,
• Vacation properties,
• Vehicles, and
• Antique furniture, artwork and other collectibles.

The trust documents name a trustee to be in charge of the trust’s assets after you die and specify which beneficiaries will get which assets from the trust. While you’re alive, you can function as the trustee — or you can designate your attorney, CPA, financial institution or a loved one to be the trustee. After you die, the trustee that you’ve named in the trust documents will take over. 

Because a living trust is revocable, you can change its terms at any time or even unwind it while you’re alive and legally competent. It’s called a living trust because it’s effectively “alive” as long as you are. Other common names for living trusts are family trusts, grantor trusts and revocable trusts. 

Living Trust Taxes While You’re Alive

For federal income tax purposes, your living trust is a “revocable grantor trust,” so it’s ignored while you’re alive. As such, you’re still considered to personally own the assets that are in the trust as far as the IRS is concerned. That means you’ll continue reporting on your federal tax return income generated by trust assets and deductions related to those assets, such as mortgage interest on your home. 

For state-law purposes, the living trust is not ignored. Done properly, it achieves the estate planning goal of avoiding probate.   

Living Trust Taxes After You Die

When you die, the assets in the living trust are included in your estate for federal estate tax purposes. However, assets that go to your surviving spouse aren’t included in your estate for tax purposes — assuming your spouse is a U.S. citizen — thanks to the unlimited marital deduction privilege. 

If you’re married, your living trust can cover both you and your spouse. Typically, the trust will maintain grantor trust status while your spouse remains alive. Your surviving spouse will be considered to personally own the assets that are in the trust as far as the IRS is concerned. So, your spouse will report on his or her tax return income generated by trust assets and deductions related to those assets. 

The trust becomes irrevocable after the grantor dies (or both spouses die if both spouses are the grantors). At that point, it falls under the trust income tax rules, and the trustee will need to do some planning to get the best tax results. Usually that will involve distributing trust income and gains to the trust beneficiaries and winding up the trust by distributing its assets to the beneficiaries.        

Reality Check

Wills and living trusts offer meaningful benefits, but you should mind the details to achieve the expected advantages. Consider the following tips:

• If you’re married, you and your spouse should have separate, but coordinated, wills. You never know who will die first.
• Wills and living trusts should be consistent with beneficiary designations and the manner in which assets are legally owned. For example, when you fill out forms to designate beneficiaries for life insurance policies, retirement accounts and brokerage firm accounts, the named beneficiaries will automatically cash in upon your death without going through probate. The same is true for bank accounts if you name payable-on-death beneficiaries. It makes no difference if your will or living trust document specifies something different. So, keep your beneficiary designations current to make sure the money will go where you intend.
• If you own real estate jointly with right of survivorship, the other co-owner(s) will automatically inherit your share upon your death. It makes no difference if your will or living trust documents say otherwise.
• If you set up a living trust, you must transfer legal ownership of assets for which you wish to avoid probate to the trust. Many people fail to follow through by transferring ownership to their living trusts, causing them to lose out on the probate-avoidance advantage.
• Wills and living trusts don’t avoid or minimize the federal estate tax or state death taxes. If you have enough wealth to be exposed to these taxes, additional planning is required to reduce or eliminate that exposure.

Important: Some states have death tax exemptions that are far below the $13.61 million federal estate tax exemption. So, you could be exposed to state death taxes even though you’re fully exempt from the federal estate tax.

Moving Target

Federal and state estate and death tax rules have proven to be unpredictable. Plus, personal circumstances may change. You might acquire new assets, win the lottery, lose relatives to death, disown relatives (or take them back) and gain children or grandchildren. Any of these events — and changes to tax laws — could require estate plan revisions. So, it’s important to review your estate plan at least annually and update as needed. Contact us for assistance.

Today, members of our team are representing Beers, Hamerman, Cohen & Burger (BHCB) at the American College of Physicians Annual Scientific Meeting at the Aqua Turf Club in Plantsville, CT.

This event offers top-notch educational content, CME and Maintenance of Certification credits, and is a great opportunity to connect with general internists, subspecialty internists, hospitalists, allied health practitioners, residents, and medical students. BHCB is excited to be part of this important gathering!

Here’s a little-known secret for parents planning to send their children to college in the future: Some of the tax-saving moves you make now could hurt your student’s chances for getting financial aid later.

That’s because of the way the financial aid system treats different assets. Retirement plans and IRAs don’t count for college aid purposes. You’re not expected to break into these accounts to pay for tuition.Another key point:The college aid formula requires 20% of the assets in your child’s name to be used for college costs. But the government-mandated formula only expects about 5.6% of the money in the parent’s name to be spent. So you’re better off keeping accounts in your own name, especially during the last two years of high school, which is generally when you’ll be asked to start providing tax returns.

Don’t assume you’re not eligible for assistance. With the high cost of college today, many schools now have programs available to relatively well-off families if they meet certain qualifications. For example, your child might be able to get a “merit award” based on high standardized test scores and superior grades.

The best strategy: If you expect to apply for financial aid, don’t hold back placing money in your own retirement plan in order to put away savings in a college account in your child’s name.

Contributions to retirement accounts are usually tax-deductible and the earnings are tax deferred until withdrawn. On top of these tax breaks, your family may also become eligible for more financial aid.

Remember that you can usually tap retirement accounts for college money. Many 401(k) plans allow loans to be taken. And thanks to a tax law that went into effect in 1998, you can generally withdraw a limited amount from your IRAs penalty-free to pay higher education costs for yourself, your children and grandchildren.