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The IRS released an official form for electing IRC § 83(b). This election has been around for quite some time. For many recipients, it is a tax advantageous election for unvested restricted stock received. No substantive change has been made to the law under IRC § 83(b). However, the IRS released Form 15620 which gives the transferor another way to elect 83(b).
What is an 83(b) election?
This election merely advances a taxable event to when unvested property is received. When filed timely by the transferor, it allows tax to be assessed at the grant date instead of the vesting date. Many times, this is used for startup companies with a low value; therefore, the taxation upon an 83(b) election is limited. The election also starts the clock for determining the holding period upon sale. When the stock vests, there is no tax paid as the compensation income was recognized upon the 83(b) election date. Once sold, you pay capital gains on the difference of sale price and the value of the stock when the compensation was recognized.
If no election is made, then you won’t pay taxes until the restricted stock vests. The risk with this is if the value at vesting is higher than grant, you will be paying ordinary rates on this compensation income at fair market value. This is a big cash flow issue for taxpayers, as tax is due even if the stock is not sold.
What the 83(b) election allows is the flexibility to pay ordinary tax at grant date, where value would be usually lower. Accelerating the income also provides for a higher chance of getting beneficial long-term capital gains rates. However, the downside to the election is if you have paid tax early and the value of the stock drops, then this will not result in a tax benefit.
Example
Let’s say you receive $1,000 worth of restricted stock with vesting in Year 3. If the 83(b) election is filed timely, then you would pay ordinary income tax on $1,000 of compensation in the year you received restricted stock. If ordinary rates are 37% at the highest bracket, you would pay $370. In Year 3, when stock vests at $20,000, there is no tax liability. If you decide to sell In Year 5 when the stock is $25,000, then you will pay capital gains tax on the difference between sale price and grant price which would be $24,000. Capital gains at 20% would translate to $4,800 tax due in Year 5.
Total taxes paid on this restricted block would be $5,170 ($370 + $4,800).
If we assume the same facts as above, but no 83(b) election was made, then you would have no tax due at grant date (Year 1). However, when stock vests in Year 3, you would be liable for $7,400 (ordinary rate of 37% times vesting amount of $20,000). And if you keep the stock until Year 5 and then sell it, the capital gain would be $5,000 (difference between vesting and sale price). Tax due at 20% would be $1,000.
Total taxes paid on this restricted block would be $8,400 ($7,400 + $1,000).
Takeaway
The IRC § 83(b)election has not changed. The IRS merely released a Form to make the election If you expect to receive nonvested property in connection with performance of services, and you believe the 83(b) election to be beneficial to you, it is imperative that the 83(b) election is made within 30 days as there is no late filing relief.
As this election can be murky, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please call us today at 630-953-4900.
The Internal Revenue Service recently announced the annual inflation adjustments for tax year 2025. Although the adjustments will generally apply to individual tax returns filed in 2026, it’s helpful to see how taxes will change in the future and understand how you may be affected. Here are some of the highlights of these changes.
Income Rate Brackets
The top tax rate for 2025 remains at 37%. The 37% rate will apply to individual single taxpayers with income greater than $626,350 and married couples filing jointly with income greater than $751,600.
The other rates are:
Standard Deduction updates
Due to an increase in inflation, the standard deductions will increase as well.
Adjustments to Retirement Accounts
The limits on annual contributions for qualified retirement plans have also been updated for 2025, along with the phaseout ranges.
Deductible IRA phaseout ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions including income limitations.
Roth IRA income phase out
Singles and head of households increased to between $150,000 and $165,000, up $4,000.
Married Couples Filing Jointly increased to between $236,000 and $246,000, up $6,000.
Annual Exclusion for gifts
Increases to $19,000, up $1,000.
Estate and gift lifetime exemption
Increases to $13.99 million, up from $13.61 million in 2024.
If you have any questions regarding the 2025 inflation adjustments, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.
Important changes to Illinois sales tax rates are coming your way. Effective January 1, 2025, several taxing jurisdictions in Illinois will impose new local sales taxes or update their existing rates on general merchandise sales.
What’s Changing?
The following local sales taxes will be affected:
These updates will be collectively referred to as “locally imposed sales taxes.”
What’s Being Taxed?
This locally imposed sales tax will apply to the same items of general merchandise reported on Line 4a of Forms ST-1 and ST-2 that are subject to State sales tax.
Locally imposed sales taxes do not apply to:
What Steps Should I Take Before January 1, 2025?
Make sure any cash registers and computer programs are updated to reflect the new tax rates beginning January 1, 2025. If a software vendor manages these processes, contact them immediately to begin implementing the changes.
Use the MyTax Illinois Tax Rate Finder here to verify your new combined sales tax rate (State and local sales taxes).
If a prior sale was subject to a sales tax rate different from the current sales tax rate, this should be reported on Line 8a of Forms ST-1 and ST-2.
What About Business District Sales Taxes?
Your business address determines whether business district sales tax applies to your sales. Remote retailers and marketplace facilitators who meet the tax remittance threshold should pay extra attention. If property is shipped or delivered to an address within a business district, the tax likely applies.
For more information, refer to the MyTax Illinois Tax Rate Finder, which provides a detailed list of business district addresses and corresponding rates.
Don’t Get Caught Off Guard in the New Year
Avoid headaches in the new year and prepare now for this sales tax rate update. If you have questions or need assistance navigating these changes, Cray Kaiser is here to help. Contact your trusted advisors at (630) 953-4900 to ensure you’re ready for the January 1, 2025, rollout.
Starting January 1, 2024, a significant number of businesses were required to comply with the Corporate Transparency Act (“CTA”). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. To learn more about the CTA, listen to this audio blog by Matt Richardson, a senior tax accountant at CK.
Transcript:
My name is Matt Richardson. I’m a senior tax accountant at Cray Kaiser.
So the Corporate Transparency Act is a piece of legislation that went into effect in 2024. And it requires certain companies to report their beneficial ownership information, also known as BOI. And this is a report that goes not to the IRS, but to the FinCEN, which is the Financial Crimes Enforcement network, which is the law enforcement arm of the US Treasury Department. Information that needs to be reported for the business includes the full legal name and any DBA names ortrade names, a business address and the state or jurisdiction of formation, and an IRS taxpayer ID number. Additionally, information has to be reported for each beneficial owner, including a name, address, and an ID number from a valid ID like a passport or a driver’s license. With a few exceptions, the filing is required for any domestic corporations, limited liability companies, or other entities that are formed by a filing with a secretary of state or a similar office to do business under a state or a tribal jurisdiction. Foreign-incorporated entities are also required to file if they’re registered with a state or tribal jurisdiction to do business, and domestic entities that are not created by filing with a secretary of state, like an unincorporated sole proprietorship, are not required to file this reporting.
So a beneficial owner under the CTA is any individual who has substantial control over the company, either directly or indirectly. It can also include anyone who controls at least 25% of ownership. And this is important to note because it’s not only ownership, but it’s also control. So a non-owner officer who has decision-making power can also be considered a beneficial owner under the legislation. The purpose of the BOI is to aid law enforcement and enforcement of financial crimes like fraud, money laundering, sanctions evasion, and the financing of other crimes like terrorism or drug trafficking. And this disclosure of corporate ownership is intended to make it harder for criminals to use shell companies to cover up the financial aspects of their criminal activities. So the BOI reporting requirement has exceptions for certain categories of companies, as well as what it calls large operating entities. The specific categories of companies are highly regulated areas like banking and publicly traded companies and non-profit entities. A large operating entity is defined as any company that has 20 or more employees, five million dollars in gross sales or more, and a physical presence in the United States.
Many are confused about why large companies are exempt from reporting rather than small companies. Since so many government reporting requirements do exempt small companies. But this is because in general these larger companies are going to be visible to law enforcement and regulators through other types of tax and payroll banking reports. Whereas the purpose of the legislation is to make these smaller companies more visible, I mean, easier to track ownership for law enforcement.
So there are different filing requirements for the BOI report depending on when the entity was formed. New entities created in 2024 have 90 days after their creation to file the report. New entities created starting January 1st, 2025 have 30 days to file the report and existing entities created before January 1st, 2024 have until January 1st, 2025 to file the report. And then any companies that have a change in their ownership information or have a correction of an error to report have 30 days from the discovery of the error or from the change in information to file an updated report.
Penalties for willful non-compliance are steep, so the risk involved in shirking the requirements are serious. Consequences can include civil penalties of over $500 per day that the report has filed late, and those can escalate to up to $10,000 in criminal fines or up to two years in jail time. These requirements are generally covered by the Treasury Department’s criminal enforcement arm, which is different than the tax law and IRS matters that CPAs are generally authorized to address. And there are some legal complexities in determining who is a beneficial owner and who is subject to the requirement that need the expertise of a lawyer.
Although you can’t avoid taxes, you can take steps to minimize them. This requires proactive tax planning – estimating your tax liability, looking for ways to reduce it and taking timely action. To help you identify strategies that might work for you, we’re pleased to present the 2024 – 2025 Tax Planning Guide.
The IRS has recently launched the Second Employee Retention Credit Voluntary Disclosure Program (ERC-VDP), which presents a critical opportunity for businesses that may have inadvertently filed erroneous ERC claims for the 2021 tax period. This program, effective from August 15, 2024 to November 22, 2024, offers a path for businesses to correct these errors and avoid potentially severe penalties as the IRS ramps up its enforcement efforts against improper ERC claims.
Understanding the Second ERC-VDP
The Second ERC-VDP is different from the initial program, which closed in March 2024, offering a slightly different set of terms for repayment and eligibility. Under this new program, eligible businesses can repay 85% of the ERC amount they received. This is a more favorable rate compared to the first ERC-VDP, making it a viable option for those who missed the initial window.
It’s important to note that this program exclusively covers ERC claims for the 2021 tax periods. Businesses that need to rectify claims from 2020 are not eligible under this program and should seek alternative compliance options.
Key Eligibility Criteria
To qualify for the Second ERC-VDP, businesses must meet several stringent criteria:
Application Process
For those eligible and interested in applying, the process is straightforward but requires attention to detail. Businesses must complete Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program, and submit it via the IRS Document Upload Tool.
In cases where businesses cannot repay the required 85% upfront, they may apply for an installment agreement by submitting Form 433-B, Collection Information Statement for Businesses, alongside their application package. It’s also essential to include Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, if applicable.
What Happens After Application Approval?
Once the IRS approves the application, businesses will receive a closing agreement. They are then required to repay 85% of the ERC received, which can be done online or via phone using the Electronic Federal Tax Payment System (EFTPS). Penalties and interest will apply under the standard terms for those opting for an installment agreement.
Deadline and Resources
All application packages for the Second ERC-VDP must be submitted by 11:59 p.m. local time on November 22, 2024. The IRS has provided a comprehensive set of FAQs on their website, detailing the nuances of the program, including eligibility, application steps, and the consequences of non-compliance.
At Cray Kaiser, we understand that navigating these programs can be complex and daunting. Our team is here to help you assess your situation, determine eligibility, and ensure that your application is accurate and timely. Don’t let an improper ERC claim result in unnecessary penalties—reach out to the experts at CK today to explore your options under the Second ERC-VDP.
Late last month, the IRS provided an update on the processing of Employee Retention Credit (ERC) claims. In the update, the agency plans to deny tens of thousands of “high-risk” ERC claims while starting a new round of processing “low-risk” claims.
IRS Commissioner Danny Werfel said in the release: “The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims. We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”
The IRS has identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk category, showing clear signs of being erroneous claims for the pandemic-era credit. This high-risk group includes filings with warning signals that clearly fall outside the guidelines established by Congress.
Additionally, the IRS also estimates between 60% and 70% of the claims show an unacceptable level of risk. For this category of claims with risk indicators, the IRS will be conducting additional analysis to gather more information with a goal of improving the agency’s compliance review, speeding resolution of valid claims while preventing improper payments.
For taxpayers who made a questionable claim, there is a claim withdrawal process available. Many of these taxpayers may have been misled by promoters who incorrectly indicated the business qualified for the ERC. Evidence of the widespread fraud related to ERC is reflected in the IRS announcing over $2 billion in compliance efforts.
On a positive note, the IRS is concerned about small businesses waiting on legitimate claims, and the agency is taking more action to help. Between 10% and 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to last fall’s moratorium, the IRS will begin judiciously processing more of these claims.
For clients awaiting approval of their ERC claims, the IRS indicates that no further action should be taken. Frustratingly, they ask taxpayers to await further notification from the IRS. Cray Kaiser will keep you apprised of further ERC developments.
A situation where taxpayers often make tax mistakes, is when deciding if it is better to receive a home as a gift or as an inheritance. It is generally more advantageous tax-wise to inherit a home rather than to receive it as a gift before the owner’s death. This article will explore the various tax aspects related to gifting a home, including gift tax implications, basic considerations for the recipient, and potential capital gains tax implications. Here are the key points that highlight why inheriting a home is often the better option.
RECEIVED AS A GIFT
First, let’s explore the tax ramifications of receiving a home as a gift. Gifting a home to another person is a generous act that can have significant implications for both the giver (the donor) and the recipient (the donee), especially when it comes to taxes. Most gifts of this nature are between parents and children. Understanding the tax consequences of such a gift is crucial for anyone considering this option.
Gift Tax Implications – When a homeowner decides to gift their home to another person (whether or not related), the first tax consideration is the federal gift tax. The Internal Revenue Service (IRS) requires individuals to file a gift tax return if they give a gift exceeding the annual exclusion amount, which is $18,000 per recipient for 2024. This amount is inflation-adjusted annually. When gifts exceed the annual exclusion amount, and a home is very likely to exceed this amount, it will necessitate the filing of a Form 709 gift tax return.
It’s worth mentioning that while a gift tax return may be required, actual gift tax may not be due thanks to the lifetime gift and estate tax exemption. For 2024, this exemption is $13.61 million per individual, meaning a person can gift up to this amount over their lifetime without incurring gift tax. The value of the home will count against this lifetime exemption.
Note: The lifetime exclusion was increased by the Tax Cuts and Jobs Act (TCJA) of 2017, which without Congressional intervention will expire after 2025, and the exclusion will be cut by about half.
Basis Considerations for the Recipient – For tax purposes basis is the amount you subtract from the sales price (net of sales expenses) to determine the taxable profit. The tax basis of the gifted property is a critical concept for the recipient to understand. The basis of the property in the hands of the recipient is the same as it was in the hands of the donor. This is known as “carryover” or “transferred” basis.
For example, if a parent purchases a home for $200,000 and later gifts it to their child when its fair market value (FMV) is $500,000, the child’s basis in the home would still be $200,000, not the FMV at the time of the gift. If during the parent’s time of ownership, the parent had made improvements to the home of $50,000, the parent’s “adjusted basis” at the time of the gift would be $250,000, and that would become the starting basis for the child.
If a property’s fair market value (FMV) at the date of the gift is lower than the donor’s adjusted basis, then the property’s basis for determining a loss is its FMV on that date.
This carryover basis can have significant implications if the recipient decides to sell the home. The capital gains tax will be calculated based on the difference between the sale price and the recipient’s basis. If the home has appreciated significantly since it was originally purchased by the donor, the recipient could face a substantial capital gains tax bill upon sale.
Home Sale Exclusion – Homeowners who sell their homes may qualify for a $250,000 ($500,000 for married couples if both qualify) home gain exclusion if they owned and used the residence for two of the prior five years counting back from the sale date. However, when a home is gifted that gain qualification does not automatically pass on to the gift recipient. To qualify for the exclusion the recipient would have to first meet the two of the prior five years qualifications. Thus, where the donor qualifies for home gain exclusion it may be best taxwise for the donor to sell the home, taking the gain exclusion and gift the cash proceeds net of any tax liability to the donee.
Capital Gains Tax Implications – The capital gains tax implications for the recipient of a gifted home are directly tied to the basis of the property and the holding period of the donor. If the recipient sells the home, they will owe capital gains tax on the difference between the sale price and their basis in the home. Given the carryover basis rule, this could result in a significant tax liability if the property has appreciated since the donor originally purchased it. Capital gains are taxed at a more favorable rate if the property has been held for over a year. For gifts, the holding period is the sum of the time held by the donor and the donee, sometimes referred to as a tack-on holding period.
Special Considerations – In some cases, a homeowner may transfer the title of their home but retain the right to live in it for their lifetime, establishing a de facto life estate. In such situations, the home’s value is included in the decedent’s estate upon their death, and the beneficiary’s basis would be the FMV at the date of the decedent’s death, potentially offering a step-up in basis and significantly reducing capital gains tax implications, i.e., treated as if they inherited the property.
AS AN INHERITANCE
There are significant differences between receiving a property as a gift or by inheritance.
Basis Adjustment – When you inherit a home, your basis in the property is generally “stepped up” to the fair market value (FMV) of the property at the date of the decedent’s death. However, occasionally this could result in a “step-down” in basis where a property has declined in value. Nevertheless, in this day and age, most real estate would have appreciated in value over the time the decedent owned it, and the increase in value will not be subject to capital gains tax if the property is sold shortly after inheriting it.
For example, if a home was purchased for $100,000 and is worth $300,000 at the time of the owner’s death, the inheritor’s basis would be $300,000. If the inheritor sells the home for $300,000, there would be no capital gains tax on the sale.
In addition, the holding period for inherited property is always considered long term, meaning inherited property gain will always be taxed at the more favorable long-term capital gains rates.
Note: The Biden administration’s 2025–2026 budget proposal would curtail the basis step-up for higher income taxpayers.
In contrast, if a property is received as a gift before the owner’s death, the recipient’s basis in the property is the same as the giver’s basis. This means there is no step-up in basis, and the recipient could face significant capital gains tax if the property has appreciated in value, and they decide to sell it.
Using the same facts as in the example just above, if the home was gifted and had a basis of $100,000, and the recipient later sells the home for $300,000, they would potentially face capital gains tax on the $200,000 increase in value.
Depreciation Reset – For an inherited property that has been used for business or rental purposes, the accumulated depreciation is reset, allowing the new owner to start depreciation afresh on the inherited portion and since the inherited basis is FMV at the date of the decedent’s death, the prior depreciation is disregarded. This is not the case with gifted property, where the recipient takes over the giver’s depreciation schedule.
Given these points, while each situation is unique and other factors might influence the decision, from a tax perspective, inheriting a property is often more beneficial than receiving it as a gift. However, it’s important to consider the overall estate planning strategy and potential non-tax implications.
Please contact the tax experts Cray Kaiser at (630) 953-4900 for developing a strategy that is suitable for your specific circumstances.
If you’ve been thinking about ways to save on medical expenses, now may be the perfect time to open a Health Savings Account (HSA). Thanks to persistent inflation, the IRS recently announced historic bumps to contribution limits for HSAs, making planning for health savings more beneficial than ever.
Established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Health Savings Accounts (HSAs) are a type of medical savings account with tax advantages. Individuals contribute pre-tax income to savings accounts that may be used to pay for qualified medical expenses. Funds in an HSA roll over from year to year, meaning it is possible to establish significant reserves for future medical costs while saving money by lowering your taxable income.
HSA funds can be used for a variety of qualified medical expenses, including office visits, dental care, eyeglasses, over-the-counter medications, and more. Funds may even be used for costs related to healthcare, like transportation expenses.
HSAs are available to those enrolled in High-Deductible Health Plans (HDHP). HDHPs are defined as a plan where the deductible is higher than the average, as determined by the IRS. For 2024, an HDHP includes any plan “with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage.”
In addition to being enrolled in an HDHP, you may not be enrolled in Medicare and must not be claimed as dependent on someone else’s tax return.
For 2024, the IRS has raised the contribution limit for an individual to $4,150, an increase of $300 from the previous year, and $8,300 for family coverage, an increase of $550 from 2023. These amounts represent the largest yearly adjustments since the accounts’ inception and reflect rising healthcare-related expenses due to ongoing inflation.
HSAs can provide advantages in both the short term, by lowering your taxable income, and in the long term, by helping establish a cushion for future medical expenses. Increased contribution limits make HSAs more beneficial than ever. If you have any questions about HSAs or tax-advantaged medical savings accounts, please call Cray Kaiser at (630) 953-4900 or contact us here.
CPA | CK Principal
Here we are again, on the precipice of another round of significant tax changes. The last round of significant tax law changes occurred in 2018, with the Tax Cuts and Jobs Act (TCJA). Most of the tax changes made by the TCJA are not permanent and will expire (sunset) after 2025. With little time before December, 2025, we are encouraging all to review your 2024 and 2024 tax planning – NOW!
We’ll highlight some of the significant provisions deserving of everyone’s attention.
Estate Tax Exclusion – TCJA significantly increased the inflation-adjusted estate and gift tax exclusion. Before TCJA, the estate and gift tax exclusion was $5.49 million (meaning, estates with more than that level of assets faced the prospect of federal estate tax). Post TCJA, the 2024 exemption is dramatically higher at $13.61 million.
However, with the sunset of the TCJA, the exemption would revert back to pre-TCJA levels. Many estate planning professionals are advising clients to act now to reduce their taxable estate, usually through gifts to family members. Especially notable is t the IRS has indicated they will not challenge this strategy. According to the IRS, “Individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.”
With the additional clarification of the lifetime gift exclusion availability for future estates, wealthy donors should strongly consider ensuring that their gifting strategy maximizes future tax benefits.
Corporate tax rate/Qualified Business Income (QBI) Deduction – As part of TCJA, Congress changed the tax rate structure for C corporations to a flat rate of 21% instead of the former graduated rates that topped out at 35%. If allowed to sunset with TCJA, businesses organized as C corporations will face significant tax increases. In fact, the after-tax rate of corporate distributions will well exceed 50%.
Needing a way to equalize the rate reduction for all taxpayers with business income, Under the TCJA, Congress came up with a new deduction for businesses that are not organized as C corporations. This resulted in a new and substantial tax benefit for most non-C corporation business owners in the form of a deduction that is generally equal to 20% of their qualified business income (QBI). Notably for personal service industries (lawyers and accountants for example), the QBI was limited.
Given the potential increase in C corporation tax rates and the elimination of the QBI deduction, businesses may need to revisit their tax structure after 2025.
SALT Limits – SALT is the acronym for “state and local taxes”. TCJA limited the annual SALT itemized deduction to $10,000, which primarily impacted residents of states with high state income tax and real property tax rates, such as New York, New Jersey, and California. Several states have developed somewhat complicated work-a-arounds (called the pass-through entity tax, or PTET) to the limits that benefit taxpayers who have partnership interests or are shareholders in S corporations. The future of the PTET is uncertain with an expired TCJA.
Standard Deductions – The standard deduction is the amount of deductions you are allowed on your tax return without itemizing your deductions. The standard deduction is annually adjusted for inflation. In 2018, the TCJA just about doubled the standard deduction which generally benefited lower income taxpayers and retirees. The increased standard deductions also meant fewer taxpayers claimed itemized deductions – roughly 10% of filers now itemize versus 30% before TCJA.
Personal & Dependent Exemptions – Prior to 2018, the tax law allowed a deduction for personal and dependent exemption allowances. One allowance was permitted for each filer and spouse and each dependent claimed on the federal return. Under current law, there is no dependency exemption. It’s possible that in 2026, the tax benefits related to personal exemptions will come back into play.
Child Tax Credit – Prior to 2018 the child tax credit was $1,000 for each child below the age of 17 at the end of the year. With the advent of TCJA the child tax credit was doubled to $2,000 for each child below the age of 17 at the end of the year. This more than made up for the loss of a child’s personal exemption deduction for lower income families.
Home Mortgage Interest Limitations – Prior to the passage of TCJA, taxpayers could deduct as an itemized deduction the interest on $1 Million ($500,000 for married taxpayers filing separate) of acquisition debt and the interest on $100,000 of equity debt secured by their first and second homes. With the passage of TCJA, the $1 Million limitation was reduced to $750,000 for loans made after 2017 and any deduction of equity debt interest was suspended (not allowed). A return to pre-TCJA levels will tend to benefit higher income taxpayers with more expensive homes and higher mortgages.
Tier 2 Miscellaneous Deductions – TCJA suspended the itemized deduction for miscellaneous deductions for tax preparation and planning fees, unreimbursed employee business expenses, and investment expenses. Most notable of these is unreimbursed employee expenses which allowed employees to deduct the cost of such things as union dues, uniforms, profession-related education, tools and other expenses related to their employment and profession not paid for by their employer. Investment expenses included investment management fees charged by brokerage firms. These types of expenses were allowed only to the extent they totaled more than 2% of the taxpayer’s adjusted gross income. These expenses are currently not deductible.
Tax Brackets – TCJA altered the tax brackets and although most taxpayers benefited, higher income taxpayers benefited the most with a 2.6% cut in the top tax rate. A return to the pre-TCJA rates would have the largest negative effect on higher income taxpayers.
The tax changes to occur with the sunset of TCJA will be dramatically impacted by the November 2024 elections.
Depending upon your circumstances, these changes may impact your long-term planning such as your business structure, estate planning, buying a home, retirement planning, and other issues. It’s going to be an interesting year, for sure, and best to get planning now. Please contact Cray Kaiser at (630) 953-4900 with any questions.
