Tax Planning Under a New Administration for 2024 and Beyond

By: Lee Osborne, CPA, CFE & Bruce Legawiec, CPA, of Osborne Rincon CPAs

We are rapidly approaching year-end 2024, and that means it’s time to review year-end tax planning.  For several reasons, many people have been holding off making certain financial and business decisions until after the results of the November presidential election. The election is now over, so it is time to plan and act.

On November 11 and 12, we attended the American Institute of Certified Public Accountants (AICPA) Annual National Tax Conference in Washington DC. Although presented by the AICPA, there were also representatives from the IRS speaking at the conference. We purposely attended this year knowing the schedule of the conference would be after the election with the hope of gaining insight as to any changes in tax policy that we might expect in the coming years. 

The one thing that is certain – there will be change. As to exactly what that change will be, only time will tell. However, we can make some “educated guesses” based on “conversations” during the never-ending election season.

Here are a few items we picked up during the conference:

The tax cuts of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025 if not extended. The good news is that there are still key tax benefits of TCJA in play for 2025. These include Section 199A QBI – Qualified Business Income deduction for pass-through entities, accelerated depreciation on purchase of business use assets, a higher standard deduction, lower individual tax rates and preferred lower tax rates on long term capital gains.  

The sentiment at the AICPA conference seemed to be that there will be no changes for 2025, however, some, but not all of the TCJA tax cuts will be extended. So, 2024 and 2025 are good years to utilize as many of the tax benefits as possible. An interesting point made was that most of the original writers of TCJA are no longer in office. So, whoever does write new tax laws will most likely be people that have not done this before.  

There is the hope and expectation that we will see at least a preliminary draft of tax law changes by December of 2025. If this is the case, we will certainly keep our clients informed so that we can assist in proper planning. There is great concern with the national debt and the rate of growth. This will have a major impact on those tax laws that are extended beyond 2025.

At one of the sessions we attended, the IRS did give an indication of their “hot topics” – a code phrase meaning, “these items are on their audit watch list.”

The current IRS hot topic list includes the Employee Retention Credit (ERC). Many businesses took advantage of filing for refunds using ERC. However, as you are probably aware, there were many “pop-up” businesses coming from nowhere claiming how easy it was to get a $26,000 refund for each employee by simply filing for an ERC claim.

The IRS has identified, and rightfully so, that many of the filings by third parties, in fact, do not qualify for the refund claims.  If – upon audit – it is determined an ERC claim does not qualify, not only will the taxpayer have to pay back any refund they received plus interest, the IRS will also slap on punitive penalties as well.

The IRS is looking to extend the audit period to 6 years, a normal audit period is 3 years. The point here is that if anyone used a third party to file ERC refunds, it is suggested to review the claim to make sure the filing qualifies.

The IRS is also looking at the amounts paid with extensions on April 15th. They understand that if you don’t have all the information needed to file your return, how does one accurately calculate how much to pay with an extension? There is talk of a new safe harbor amount of 125% of the prior year’s tax in total to have been paid prior to April 15th due date.

Other IRS hot topics include a review of taxpayer “basis” to make sure the taxpayer qualifies to:

1)      Deduct any losses claimed on a flow-though entity

2)      Classification as a “real estate professional” (to take losses on rental real estate activities)

3)      Proper computation of Net Operating Losses (NOL)

4)      Charitable deduction scams using inflated values on valuation of conservation easements to get excessive charitable donation amounts

5)      Under reporting of income

Although the IRS was supposed to increase its “service” team and “compliance /enforcement” teams as well, this did not really happen. IRS stats indicate the enforcement group in 2010 employed 50,000 agents. In 2021, the number of enforcement agents was down to 35,000. The IRS did indicate on most of the audits they have conducted in the past, they actually “lose” money (meaning the cost of conducting an audit costs more than funds recovered). So they are trying to target audits to the areas they have identified as abusive, meaning losses to offset income, unsubstantiated deductions and underreporting of income. This will primarily be targeted to the higher income levels. This was not clearly defined, but the indication is income that is in excess of $400,000. The IRS is hiring many new employees, however the training is limited and mistakes are being made.

On a positive note, the estate tax exemption of $13.61 million for 2024 and $13.99 million per person for 2025 will remain in place, so you may want to get with your estate planning attorney to be sure you have properly planned. The exemption amount is set to revert to pre-TCJA amounts at the end of 2025 – if not extended or not changed, beginning in 2026 the individual estate tax exemption amount will be about $7 million.  Once again, as we get updates on this we will let you know.

There is the new Corporate Transparency Act that you must register your corporation or limited partnerships prior to this year’s end. There are a number of current court cases going on, but none at this time that would eliminate this new reporting requirement.

As noted above, there is still time to plan for 2024.  Please give us a call to discuss your 2024 tax planning at 760-777-9805.

Lee Osborne CPA, CFE, is president and CEO of Osborne Rincon CPAs, and Bruce Legawiec, CPA, is a partner. Both have been long-term leaders of the firm.

The Bookkeeper: Key to Your Company's Success

By: Lori Siler, Senior Bookkeeper with Osborne Rincon CPAs

Good bookkeeping is essential for business owners, as it guides informed decisions about operations, investment opportunities and other financial options. Proper bookkeeping also gives banks, investors and the government the ability to determine the current and forecast the future financial health of the business.

In bookkeeping, financial transactions are recorded based on supporting documentation like a receipt, an invoice, a purchase order, a contract or some other type of financial record showing that the transaction took place. Transactions can be logged in by hand in a journal or by using a spreadsheet program like Microsoft Excel. Most businesses now use specialized computer software like QuickBooks Desktop or QuickBooks Online to keep records of their financial transactions.

Bookkeeping is an important, but preliminary, function in relation to the official accounting- of-record for the business. It collects the documentation for each financial transaction, records the transactions in the accounting journal, classifies each transaction as one or more debits and one or more credits, and organizes the transactions according to the chart of accounts.

Bookkeepers are financial professionals who document and record the financial transactions of a business. Depending on its size and staffing resources, a business can have an in-house bookkeeper, hire an independent contractor bookkeeper, or use a public accounting firm such as Osborne Rincon CPAs.

The Many Roles of a Good Bookkeeper

Tasks a bookkeeper regularly undertakes include reviewing accounts receivable, and accounts payable (money the company owes), determining available cash, reconciling bank statements, and tracking payroll data. They also often create detailed reports and notify business owners of any accounting errors they may find.

Bookkeepers often customize the chart of accounts based on the needs of the business. Some basic types of business accounts are:

·         Cash (receipts and disbursements)

·         Inventory (unsold products to be sold)

·         Accounts receivable and payable (money owed to and by the business)

·         Sales (revenue produced from selling products or services)

·         Cost of Goods Sold (money spent on goods needed to operate)

·         Retained earnings (profits reinvested back into the business)

Tracking income and expenses is necessary to file an accurate tax return. It is also essential to manage the successful growth and profitability of the business. When you have a good accounting system, it helps you make management decisions based on the numbers and facts.

Tips Regarding Potential Accounting Errors

There are several common accounting errors that you should watch for when reviewing your company’s books such as, recording deposits or payments twice, classifying a capital expenditure as a current expense, or failing to maintain accurate amortization schedules for fixed assets or loans. To avoid these and other errors and to optimize your financial reporting, here are some best practices when it comes to bookkeeping:

·         Keep your personal and business bank accounts separate.

·         Establish guidelines for the processing of accounts payable and accounts receivable.

·         Optimize your chart of accounts.

·         Embrace accounting software to track expenses, streamline your process, and increase efficiency.

·         Ask your vendors to provide electronic documents so that they can be integrated into your accounting software.

·         Continually review your work including validity and accuracy of invoices before paying them.

·         Plan for taxes in advance.

Whether you opt for in-house or hire outside resources to do your bookkeeping, it is important to maintain a high level of accuracy in your recordkeeping and accounting tasks. Keeping an accurate financial record of your business starts with your bookkeeping practices.

Lori Siler graduated from the College of the Desert with a degree in HSAD, and after working in the addiction field for five years, she was drawn back into the accounting field. Lori brings with her 30 years of accounting management and bookkeeping experience. Lori has worked with diverse clients from independent contractors, law firms and major corporations to television products and real estate companies. Prior to moving to California 17 years ago, Lori lived most of her life in South Florida.

Estate Planning: Essential Steps to Secure Your Legacy and Protect Your Family

By: Jeffrey Becker, CPA, Tax Manager, Osborne Rincon CPAs

Estate planning is a crucial aspect of financial management that often goes overlooked until it's too late. For many, the topic might seem daunting, or they may believe it's something only necessary for the wealthy. However, estate planning is essential for anyone who wants to ensure their assets are distributed according to their wishes, protect their loved ones, and minimize potential legal and financial complications. At its core, estate planning is about peace-of-mind and securing a future where your legacy is handled as you envision.

Be in Control of Your Asset Distribution

One of the primary reasons estate planning is so important is that it allows individuals to control how their assets will be distributed posthumously. Without a comprehensive estate plan, state laws will dictate how your property and assets are divided, which may not align with your personal wishes. This could lead to unintended consequences, such as assets going to estranged family members or being distributed in a manner that doesn't reflect your values. An estate plan ensures that your assets are allocated in a way that honors your intentions, whether that means leaving a legacy for your children, supporting charitable causes, or providing for a surviving spouse.

Beyond asset distribution, estate planning also addresses the care of minor children or dependents with special needs. Through proper planning, you can designate guardians who will care for your children in the event of your untimely passing. This decision is far too important to leave to chance, and a well-thought-out estate plan ensures that your children will be raised by individuals who share your values and beliefs.

Ensure Your Estate Isn’t Consumed by Taxes

Moreover, estate planning helps mitigate the tax burden on your heirs. In the absence of an estate plan, significant portions of your estate could be consumed by taxes, diminishing the inheritance your loved ones receive. Through strategic planning, such as setting up trusts or making charitable donations, you can reduce the tax implications on your estate, preserving more of your wealth for your beneficiaries.

Another critical component of estate planning is the ability to make decisions about your medical care and financial affairs in case you become incapacitated. Life is unpredictable, and an illness or accident could leave you unable to make decisions for yourself. By preparing a durable power of attorney and a healthcare directive, you ensure that trusted individuals are empowered to make decisions on your behalf, reflecting your wishes and best interests. This not only protects you, but also spares your loved ones from the stress of making difficult decisions during an already challenging time.

Protect Your Privacy and Avoid Probate

Estate planning also plays a vital role in protecting your privacy. If you die without a will, your estate will go through probate, a public process where the details of your estate become part of the public record. A comprehensive estate plan can help you avoid probate or at least minimize its impact, keeping your affairs private and your family's financial matters out of the public eye.

The current estate tax exemption for 2024 is $13.61 million per individual, and $27.22 million for a married couple. The exemption is scheduled to automatically sunset to $5 million, indexed to inflation (approximately $7 million) on January 1, 2026, unless Congress acts to change the sunset.

Estate planning is not just for the wealthy; it is an essential process for anyone who wants to protect their assets, care for their loved ones, and ensure that their wishes are respected. By taking the time to create a thorough estate plan, you are investing in the future security and well-being of those you care about most.

Osborne Rincon CPAs does not provide legal advice. While the firm may have a general understanding of estate planning concepts, Osborne Rincon does not employ licensed attorneys. Estate planning involves complex legal matters that require the expertise of an attorney. If you require legal advice regarding estate planning, please consult with a qualified attorney.

Jeffrey Becker graduated with a Bachelor of Science in Accounting from Southern Louisiana University, furthering his education at Tulane University by earning a Master of Business Administration in Finance & Management. Jeffrey has more than 15 years of experience in accounting which includes taxation, forensic accounting, and financial reporting.

Understanding the Tax Distinctions Between Hobbies and Businesses

By: Tatyana Kuperstein, Staff Accountant

Filing taxes requires a clear understanding of whether an activity is a hobby or a business. The fundamental difference lies in their purpose: businesses aim to generate profit, while hobbies are pursued for pleasure or recreation. This distinction has significant tax implications, as hobby expenses may be deducted only to the extent of hobby income.

When individuals receive payments through apps such as Zelle of Venmo for goods and services, regardless of whether the activity is a hobby or a business, they might get an IRS Form 1099-K for those transactions. These payments are considered taxable income and must be reported on federal tax returns.

Weighing Out the Factors

Determining whether an activity is a hobby, or a business involves evaluating various factors. No single criterion is decisive, so a comprehensive review is necessary. Taxpayers should consider the time and effort invested in the activity to determine if there is an intention to make a profit. If substantial time and resources are devoted with the expectation of financial gain, the activity is more likely to be classified as a business.

The activity’s profitability over the years is another crucial factor. If the activity generates profit over a period of years, even if occasionally, it suggests it is a business. On the other hand, consistent losses may indicate a hobby. Understanding the reasons behind any losses – whether they are due to factors beyond one’s control or are typical for the startup phase of a business – is also essential in making this distinction. Evaluating whether future profits can be anticipated from the appreciation of assets used in the activity also helps in this determination.

Modifying operational methods to improve profitability reflects a business mindset. A willingness to adapt and refine strategies to achieve financial success is a characteristic of business operations. Conducting the activity in a businesslike manner, with complete and accurate recordkeeping, is another indicator of a business.

How an Experienced Tax Advisor Can Help

The expertise and knowledge of the taxpayer and their advisors play a critical role in this determination. Proficiency and informed decision-making are crucial components of successful business operations. Dependence on income generated from the activity is another consideration. If the income is necessary for the taxpayer’s livelihood, it strongly indicates a business.

Navigating the distinctions between hobbies and businesses is vital for accurate tax reporting. By considering all relevant factors and maintaining diligent records, taxpayers can make informed decisions and comply with IRS requirements. For personalized advice tailored to your specific situation, consulting with a CPA can provide clarity and guidance. Our CPA firm is here to assist you with all your tax-related needs, ensuring you stay compliant and make the most of your financial activities.

Tatyana Kuperstein graduated from the University of Foreign Languages in Ukraine in English and French in 1994. She also graduated from the University of Business with a diploma in Business Administration and a key focus in Accounting.  Tatyana furthered her education in 2014 by graduating from the College of the Desert with a certificate in Accounting. Prior to Osborne Rincon’s merger with Lund & Guttry, Tatyana worked as a Staff Accountant I with Lund and Guttry CPA.