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.