Tag: tax requirements

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End of Year Tax Planning Checklist Guide for 2024

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It’s the holiday season, which means 2025 is just around the corner. Even though you might be focused on spending time with family and friends and ending your work year on a high note, don’t forget that now’s the time to make certain financial decisions. This is particularly true when it comes to taxes. The following is an overview of things you might want to do or think about before the end of 2024.

Item #1: Check Your Flexible Spending Account

If you have a Flexible Spending Account (FSA), and it’s like most others, then the money in the account must be used up by the end of the calendar year. If it’s not, then the money in the account could be lost forever. So, before January, check your FSA to confirm if it’s a “use-it-or-lose-it” type of account. If it is, see if there are healthcare costs you can pay for with FSA funds. If not, you can check to see if your employer provides an option to minimize a loss of funds. While not required, an employer who offers an FSA to its employees may allow employees to either:

  • Provide up to an extra 2.5 months in the following year for the employee to use the FSA funds, or
  • Allow the employee to carry over up to $660 of the FSA’s funds into the following year.

If your FSA allows for either of these options, they can give you extra time (or money) to pay your medical costs.

Item #2: Check Your Tax Deductions

If you’re like most individual taxpayers, you probably take the standard deduction. However, if you’re on the fence about whether to itemize or take the standard deduction, now’s the time to check your likely tax deductions for 2024. One of the things you’ll be looking for is to see if there are any deductions you missed, as well as whether you still have room to increase these deductions before the end of the year.

For instance, assume you want to itemize your deductions. Also, imagine you’ve made eligible charitable cash contributions that amount to 50% of your adjusted gross income (AGI) and the 60% AGI limit applies to you. In this case, you can consider making one or two final cash donations to take full advantage of this itemized deduction.

Item #3: Take Advantage of Your Losses with Tax-Loss Harvesting

If you’ve invested this year, then you probably have both some capital gains and some capital losses. If in line with your overall investing strategy, consider selling some of your losing investments to “lock in” the losses. Then you can use those losses to offset some, or all, of your capital gains. If you have losses left over, you can use some of those losses to offset ordinary income.

Before making use of tax-loss harvesting, be aware of two key things. First, don’t let the desire to save on taxes persuade you to make a poor investment decision. The last thing you want to do is sell a losing stock that was about to rise and become a profitable investment. Second, be aware of the wash sale rule. If you quickly buy back the investment in 2025 after selling it in 2024, the IRS may disallow you from using the capital losses to offset the capital gains.

Item #4: Maximize Your Tax-Advantaged Retirement Contributions to Your 401(k)

If you have a 401(k), see if you’ve made full use of the tax-advantage benefits it offers. You may not have because you simply didn’t have the funds to maximize your contributions. But, if you have extra money sitting around and haven’t hit your 2024 contribution limits, think about making an additional contribution in December. In case you’re wondering, you have until April 15, 2025 to make contributions to your IRA for the 2024 tax year.

Item #5: Consider Consulting with a Tax Planning Professional

Taxes are complicated, so it’s understandable if you don’t fully comprehend what financial decisions are best for you and your taxes. Because of this, consider contacting a tax-planning professional to discuss your available options. They can examine your tax situation and see if you’re missing something (you don’t know what you don’t know) and also help you avoid future tax problems and disputes with the IRS or CA FTB.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Tax Changes Coming in 2025

Tax Changes Coming in 2025

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If there’s one thing that’s as inevitable as death and taxes, it’s changes to the tax code and 2025 is no different. Luckily, not all of these changes are bad. Let’s take a look at some of the changes coming in 2025 that could affect your bottom line.

Change #1: Revised Tax Brackets

The 2025 tax year will see new tax brackets that apply to income tax returns. This isn’t a massive change or an unexpected one, as the IRS usually changes these each year to adjust for inflation. These are a good thing, as they help prevent taxpayers from getting pushed into higher tax brackets (and pay higher taxes) when they get an annual raise or cost of living adjustment to their income. The new tax brackets are as follows:

  • 10%: For incomes up to $11,925 (Up to $23,850 for married couples filing jointly)
  • 12%: For incomes more than $11,925 ($23,850 for married couples filing jointly)
  • 22%: For incomes more than $48,475 ($96,950 for married couples filing jointly)
  • 24%: For incomes more than $103,350 ($206,700 for married couples filing jointly)
  • 32%: For incomes more than $197,300 ($394,600 for married couples filing jointly)
  • 35%: For incomes more than $250,525 ($501,050 for married couples filing jointly)
  • 37%: For incomes more than $626,350 ($751,600 for married couples filing jointly)

Change #2: Standard Deductions

You can sometimes save more money on your taxes if you itemize your deductions, but many taxpayers appreciate the convenience of standard deductions. The following list shows how much the new standards deductions will be:

  • Single filers: $15,000 (a $400 increase)
  • Married couples filing jointly: $30,000 (an $800 increase)
  • Head of household filers: $22,500 (a $600 increase)

Change #3: Earned Income Tax Credit

For the 2025 tax year, the maximum Earned Income Tax Credit limit goes up to $8,046 (this maximum was $7,830 for the 2024 tax year). This is the maximum Earned Income Tax Credit a qualifying taxpayer can expect if they have three or more qualifying children. As you might expect, these limits go down if there are fewer qualifying children:

  • Two qualifying children: The new maximum is $7,152 (up from $6,960 in 2024)
  • One qualified child: The new maximum is $4,328 (up from 4,213 in 2024)
  • No qualifying children: The new maximum is $649 (up from $632 in 2024)

Change #4: Estate Tax Credit

The 2025 tax year has a bigger basic exclusion amount of $13,990,000. In 2024 it was $13,610,000.

Change #5: Alternative Minimum Tax Exemption

In 2024, the exemption amount for unmarried individuals was $85,700 ($133,300 for married couples filing jointly). In 2025, these amounts rise to $88,100 for unmarried individual filers and $137,000 for married couples filing jointly. The phase-out threshold is also increasing, with a new amount of $626,350, up from $609,350 in 2024.

Change #6: Adoption Tax Credit

An adoption of a child now has a maximum credit of $17,280, which is up from the $16,810 maximum limit for the 2024 tax year.

Change #7: Transportation Fringe Benefit

The monthly qualified transportation fringe benefit rises to $325, a $10 increase from 2024.

Change #8: Foreign Income Exclusion

In 2025, this exclusion is rising by $3,500 to $130,000.

More Uncertainty Coming in 2025

One of the biggest changes in 2025 is the fact that many key parts of the Tax Cuts and Jobs Act of 2017 will expire. Unless they’re renewed by Congress, key tax benefits that many taxpayers enjoy will be reduced, such as the standard deduction, lower marginal tax rates, and the child tax credit. Given the uncertain political climate and the fact that 2024 is a presidential election year means it’s difficult to plan for these changes. However, consulting with a tax professional can help, especially when planning for worst-case scenarios. bject to Form 8938’s reporting and filing requirements, you should consult with a tax professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

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Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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An Overview of IRS Tax Audits

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The only thing that might be worse than preparing a tax return or writing a check to the IRS is going through a tax audit. That being said, if you’ve just found out that you’re being audited by the IRS, here’s some information to give you a rough idea of what to expect. If you haven’t been audited, you can read about some tips on how to avoid an IRS tax audit.

What is an IRS Tax Audit?

An IRS audit is where the IRS asks to review your financial records to confirm if the information contained on your tax return is accurate and complete. An audit can take place by mail or in person.

Audits by mail are known as “correspondence audits” and are the most common. During a correspondence audit, the IRS sends you a letter asking for more information about certain things on your tax return, like a credit, deduction, or source of income. The IRS will usually ask you to send them copies of documents to support the information or claim on your tax return.

In-person audits don’t happen as often because of how resource-intensive they are for the IRS. Yet you may have an in-person audit if the amount of records the IRS needs to review is too cumbersome to mail. An IRS audit can occur in person at various locations, such as your home or place of business (these are called “field audits”) or at an IRS office (these are called “office audits” or “desk audits”).

How the IRS Chooses Taxpayers to Audit

There are several reasons why the IRS picks a particular taxpayer to audit. The exact reasons and factors the IRS considers aren’t public knowledge, but here are a few potential reasons why your tax return may have been chosen for an audit:

  • Random selection: Few, if any, taxpayers get audited purely due to random chance. However, the IRS likely uses a computer to select a group of returns that are potentially at higher risk of containing a mistake or error, and then randomly selects returns to audit from this group.
  • Statistical comparison: The IRS will often compare your tax return to the returns of taxpayers who are similar to you in some way. If your return appears to be a statistical outlier, then there’s an increased chance the IRS audits your return.
  • Association with another audited taxpayer: If the IRS audits another taxpayer, and you have a financial connection to them, then the IRS may decide to audit you, as well.

How far Back can the IRS Go When Auditing a Tax Return?

It depends. The IRS usually tries to act as quickly as possible once they receive a return they want to audit. This means most audit requests get sent out one to two years after the tax return has been filed. In most cases, the IRS won’t audit a return that’s older than three years.

In relatively rare situations, the IRS will go back even further if they find a large error. Even in these situations, the IRS usually doesn’t audit returns that are more than six years old.

How to Avoid a Tax Audit from the IRS

Keep in mind that you could be subject to an audit even if you’ve done nothing wrong. So, getting audited by the IRS is sometimes inevitable. However, there are things that the IRS looks for when deciding who to audit.

  • Wealthier taxpayers: The more money a person makes, the more likely they’ll be audited by the IRS, at least at the higher end of the income spectrum.
  • Poorer taxpayers: Taxpayers who report little to no income have a higher chance of getting audited than taxpayers who earn “middle-class” incomes.
  • Certain tax deductions: The IRS knows some deductions get abused more than others, such as the home-office and charitable deductions. If a taxpayer claims one of these deductions, there’s a greater chance of an audit. This is especially true if the deduction seems unusual, given the other information reported on the tax return, like reported income.
  • Consistent business losses: A business is supposed to exist to turn a profit, so when a business is in the red year after year, the IRS gets suspicious.
  • Missing income: If the IRS sees that income on a return doesn’t match the income being reported to them (through a 1099, for example), then there’s a greater chance of an audit.
  • Estate tax filings: Tax returns for estates are more likely to get audited because of the higher chance that the taxpayer is undervaluing assets.

Getting Help with an IRS Tax Audit Some audits are fairly simple in that you know exactly why the IRS chose to audit you, and getting them the information to clear things up is easy. But often, the IRS may audit you for reasons you don’t understand and/or ask for information you need help gathering and organizing. If you find yourself in this latter situation, it’s a good idea to talk to a tax professional. And if you think that the audit might reveal information that makes the IRS think you did something illegal, get in touch with a tax attorney before responding to the audit.

All of this can be quite complicated, and the above discussion is only an overview of Form 8938 and the IRS tax reporting requirements for foreign assets and bank accounts. Failing to comply can result in penalties of up to $60,000 and even criminal charges. Therefore, it’s strongly recommended that if you think you might be subject to Form 8938’s reporting and filing requirements, you should consult with a tax professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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Foreign Bank Accounts and Your Taxes

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If you have substantial wealth, spend a lot of time overseas, or both, there’s a fair chance that you have one or more foreign bank accounts. Whether it’s due to convenience or investing opportunities, you may have a legal obligation to report those accounts to the United States government.

The most well-known duty is often referred to as FBAR, or the Report of Foreign Bank and Financial Accounts. The Bank Secrecy Act requires eligible individuals and institutions to file an FBAR with the Treasury Department using Financial Crimes Enforcement Network Form 114. If you’re required to file an FBAR, you might also have to file a special form with the IRS, specifically Form 8938, Statement of Specified Foreign Financial Assets. Let’s take a brief look at this form and what it requires.

What is Form 8938?

This IRS form allows eligible taxpayers who have an interest in certain foreign financial assets to report those assets to the IRS. Often, but not always, if a taxpayer is required to file an FBAR, they’ll also need to file Form 8938.

When to File Form 8938

Form 8938 is usually filed along with the annual income tax return, typically due on April 15 each year. However, if a taxpayer isn’t required to file an income tax return for a particular tax year, then they don’t need to file Form 8938 for that year, either.

Who Must File Form 8938?

A covered individual or entity must file Form 8938 if they have an interest in a specified foreign financial asset and the value of that asset exceeds a certain threshold. There’s a lot of information here, so let’s break it down to better understand these requirements.

A covered individual or entity includes U.S. citizens, resident aliens of the United States, nonresident aliens who choose to be treated as resident aliens so they can file joint income tax returns, nonresident aliens who are bona fide residents of American Samoa or Puerto Rico, and specified domestic entities.

Specified domestic entities are closely held domestic corporations and partnerships with at least 50% of their gross income coming from passive income (or at least 50% of their assets producing or being held to create passive income) and certain domestic trusts with one or more specified persons or domestic entities as a current beneficiary.

Assuming a taxpayer is covered by Form 8938’s requirements, they must also have an interest in a specified foreign financial asset. In this context, “interest” means holding or disposing of a foreign account or asset that results in any income, gains, losses, deductions, credits, gross proceeds, or distributions that would normally need to be reported on an income tax return.

In addition to the above two requirements, there’s also a dollar value threshold for the foreign accounts and assets that must be reported. For individual filers (unmarried or married filing individually), the reportable assets or accounts for taxpayers living in the United States must have a total asset value of more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. These thresholds rise to $100,000 and $150,000 respectively for married taxpayers filing joint returns.

Taxpayers living outside the United States have thresholds that are quadruple in amount. So, individual filers (unmarried or married filing individually) must have a total asset value of more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year. Married taxpayers filing joint returns have thresholds of more than $400,000 on the last day of the tax year and more than $600,000 at any time during the year.

Only after all three of these requirements have been met will a taxpayer usually need to file Form 8938.

Are There Any Other Tax Filing Requirements in Addition to Form 8938?

Possibly. Depending on the type of tax return that taxpayer is required to file, they may need to answer questions relating to their foreign bank accounts and other overseas financial assets. Examples of other tax forms that may ask for information about foreign financial accounts include Form 1041, U.S. Income Tax Return for Estates and Trusts; Schedule B (Form 1040), Interest and Ordinary Dividends; Form 1065, U.S. Return of Partnership Income; and Schedule N (Form 1120), Foreign Operations of U.S. Corporations.

All of this can be quite complicated, and the above discussion is only an overview of Form 8938 and the IRS tax reporting requirements for foreign assets and bank accounts. Failing to comply can result in penalties of up to $60,000 and even criminal charges. Therefore, it’s strongly recommended that if you think you might be subject to Form 8938’s reporting and filing requirements, you should consult with a tax professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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Tax Deductions You May Not Know About

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If you have any experience with filing income tax returns, you probably have a general idea of what tax deductions are. Off the top of your head, you may know some of the more common deductions, such as the standard deduction, the charitable contribution deduction, and the mortgage interest deduction. But there are many others you could be eligible for, but don’t know about or fully understand. Let’s take a look at some of them in this month’s blog post.

Student Loan Interest Deduction

If you’re paying interest on your student loans, you can use some (or all) of the money spent on interest to lower your taxable income. For federal tax purposes, the money you spend on interest for your student loan payments is deductible, but only up to $2,500.

One of the nice things about this deduction is that it’s not an itemized deduction. However, you’ll only receive the full $2,500 deduction if your modified adjusted gross income is less than $70,000 ($145,000 if filing jointly). However, as long as your income is less than $85,000 ($175,000 if filing jointly), you may still be able to take this deduction, just not the full $2,500.

Medical Expense Deduction

One of the reasons you may not know about this deduction is that you probably won’t qualify for it unless you end up with some hefty medical bills. Generally speaking, you can only take this deduction for a tax year if you have unreimbursed medical (including dental) expenses that exceed 7.5% of your adjusted gross income for that tax year. These expenses can be deductible for not just your medical expenses, but also those of your spouse or dependent.

Deduction for Gambling Losses

Losing money at the casino or on a sports game is never fun, but there’s some consolation in the fact that some of your losses may be tax deductible. But before you start placing your bets, you need to understand that the deduction only applies to the extent of your winnings. In other words, the amount of your gambling deduction cannot exceed your gambling winnings.

For example, if you placed five $100 bets during March Madness and lost on all five of those bets, you don’t get to take a $500 tax deduction for your gambling losses. However, if you won two of those bets and lost three of them, then you could take a $200 gambling loss deduction (and not a $300 deduction). Another thing to consider is that you can only take this deduction if you itemize your deductions.

Another important consideration about this deduction is the need to detailed and complete records. You’ll want to document each bet, including how much you spent (including any fees), your wins/losses, as well as the source of the money used for the bets.

Deduction for Retirement Contributions

If you’re diverting some of your paycheck into an eligible 401(k) or traditional IRA retirement account, then some (or all) of what you’re saving could be tax deductible. With a traditional IRA, you’re limited to making contributions that don’t exceed the lesser of your total income for that year or $7,000 (if you’re under 50) and $8,000 (if you’re 50 and older).

With a 401(k), your deduction is not a deduction in the traditional sense. Rather, those contributions to your 401(k) get taken out of your paycheck before you even see the money. So you’re not claiming the contributions as a deduction later on in March or April when you prepare and file your taxes for the prior tax year. This is not only easier on you when you file your taxes, but you get the tax benefit immediately as the 401(k) contribution lowers your income subject to income tax withholding by your employer.

Health Savings Account Contributions

If you make contributions into a qualified health savings account, or HSA, the contributions you make directly into your HSA may be tax deductible.

Deduction for Expenses Incurred as a Self-Employed Worker

Contractors and freelancers can deduct certain expenses they incur as a result of their work. Some of these include money spent on home office expenses, health insurance premiums, continuing education costs, vehicle mileage, self-employment taxes, and office supplies.

Education Expense Deduction

Eligible teachers and educators can deduct up to $300 spent on classroom and teaching supplies.

Bottom Line

Tax deductions offer a great way to lower your tax bill, but they often have special conditions or limitations. You may also need to itemize your taxes to take advantage of them. To learn more about how these deductions work and whether it may be worth taking them, speak with your tax professional. If you take one or more deductions when you’re not supposed to, you could find yourself in trouble with the IRS.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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tax lien and tax levy

What’s the Difference Between a Tax Lien and a Tax Levy?

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If a taxpayer has unpaid taxes and doesn’t make arrangements with the IRS to pay that tax balance off over time, then the IRS will initiate the tax collection process. It will begin with letters and notices, asking the taxpayer to pay their tax bill. But, pretty soon, the IRS will send a written warning to the taxpayer that a lien or levy is imminent.

If the IRS files a tax lien against you or levies your property, what does that mean exactly, and should you care which method the IRS uses?

What is an IRS Tax Lien?

When the IRS files a Notice of Federal Tax Lien against you, the IRS is telling the general public that you owe back taxes. This makes it practically impossible to sell or transfer your property unless you first remove the tax lien. This is because no one wants to buy property from you, knowing the IRS may have the legal right to step in and take it from them to pay off your tax debt.

When it comes to your credit history, the tax lien no longer has the negative effect it used to have. Now, IRS tax liens do not show up on your credit report or have an impact on your credit score. That being said, a tax lien can still hurt your credit in that it makes it more difficult (and/or more expensive) to get a loan.

If you’re trying to buy a new car or house by borrowing money, it will be extremely difficult to do so with a tax lien. Not only does a tax lien signal you’re struggling financially, but it also means the creditor likely can’t get a security interest in your property to secure the loan.

For instance, if you wanted a car loan, your lender would probably expect your car to serve as collateral for the loan in case you default. But if there’s a tax lien in place, the car will automatically have a tax lien on it after you buy it (IRS tax liens apply to current and future properties).

This means the car loan lender may not be able to repossess the car from you in case you default on the car loan. The practical consequence is that you either get denied the car loan, or you get it but with a larger down payment and/or a higher interest rate.

What is an IRS Tax Levy?

IRS tax levies can pose a bigger problem than a tax lien. Unlike a tax lien, which is basically a legal warning to others that your property could be used to pay a tax debt, a tax levy is the actual taking of property to satisfy a tax debt. For example, the IRS might levy your bank account and withdraw money from it without your consent, or they might levy your paycheck in the form of a wage garnishment.

Can the IRS File a Lien or Place a Levy on My Car or Home?

Yes, for liens, and almost never for levies. When the IRS files a lien against you, it attaches to not just a specific piece of property, but almost anything you own, including your home and your primary vehicle.

And although the IRS can, theoretically, levy your home or car, it’s very rare for the IRS to do so. There are several reasons for this. First, it’s not worth the trouble, as using a bank levy or paycheck levy (wage garnishment) is almost always a more effective and efficient way to collect back taxes.

Second, the IRS understands that taking away your car or home could hurt your ability to earn income, and they know you need income if you are to pay off a tax debt.

Third, taking your car or home is a bad look for the IRS. The IRS already has a less-than-positive reputation with most people (and members of Congress). A viral story about how they made you go homeless or got you fired because you could no longer get to work is just asking for unnecessary scrutiny and political pressure.

Bottom Line

The IRS trying to collect taxes from you is bad news, regardless of whether the IRS decides to use a lien or levy. However, when it comes to your financial health and daily living, a levy is more likely to cause problems for you in the short term.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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Is a Tax Credit Better Than a Tax Deduction?

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Whether you’re tax planning or preparing your income tax return, you’ve probably heard about tax credits and deductions. You also probably know that they’re both good to have when it comes to owing less money to the IRS. Let’s take a closer look at both of these tax benefits, including which one is better, how they work, and how they’re different from each other.

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