Michael Gray, CPA's Tax and Business Insight
January 3, 2024
© 2024 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy New Year!
- Fourth quarter estimated tax payment for non-corporate taxpayers is due January 16.
- Tax preparation materials will soon be on the way.
- Make your tax return preparation interview appointment now.
- Estates and trusts should plan distributions.
- Remember to take a physical inventory on January 1.
- Remember to "reset" payroll on January 1
- California FUTA makeup payment for 2023.
- W-2s, 1099s and DE 542 reminder.
- Will you be age 73 or older during 2024?
- FinCEN beneficial ownership information report released.
- Penalty relief for certain returns filed during the COVID-19 pandemic.
- Standard Mileage Rates for 2024 announced.
- IRS issues SECURE 2.0 Act guidance.
- Tax relief announced for Tennessee storm victims.
- California exemption from first-year annual tax expires.
- Mandatory sick leave benefits increased for California employees.
- 'Tis the season to exercise ISOs?
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: Empowerment
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Janet and me with the Great Pyramid of Khufu and the Pyramid of Kafre at Giza, Egypt, December 3, 2023 Happy New Year!
Happy New Year!
With wars continuing in Ukraine and Gaza, it seems hard to celebrate.
Somehow, we have to get on with our lives here, while praying for peace and sending financial suppot for charities providing aid to refugees.
The economic news in the U.S. is actually pretty good. Inflation seems to be calming down. The Federal Reserve says it might lower the discount rate soon. There are still opportunities to lock in higher interest rates for some investments. The stock market finished strong for last year.
Best wishes to you and your family for you to accomplish your dreams and to be safe in turbulent times.
Your CPA, enrolled agent, attorney and financial planner should be working with you to help you achieve your financial goals, but it's up to you to ask for that help.
Fourth quarter estimated tax payment for non-corporate taxpayers is due January 16.
The final 2023 estimated tax payment for individuals and calendar-year estates and trusts is due January 16, 2024. (Martin Luther King's birthday is celebrated on January 15.) Remember California taxpayers with taxable income of $1 million or more must pay their estimated taxes using the current year's facts.
See your tax advisor.
Tax preparation materials will soon be on the way.
ATL-CPAs & Advisors, Inc. is in the process of mailing instructions for sending their 2023 tax return preparation instructions. If you haven't received instructions by January 20 or you would otherwise like to receive instructions, contact Thi Nguyen at thi@atl-cpa.com.
Make your tax return preparation interview appointment now.
Most personal interview appointments for preparing 2023 individual income tax returns will be scheduled in February. Many clients send their information without having an interview, but if you need that personal attention, you should schedule your interview appointment now. Contact Ms. Thi Nguyen, CPA at thi@atl-cpa.com.
Estates and trusts should plan distributions.
The maximum 37% federal income tax rate and the 3.8% tax on net investment income hit estates and trusts especially hard. For 2023, they apply when the undistributed estate or trust income exceeds $43,450. If possible, the income of the estate or trust should be distributed to beneficiaries before the year-end, since the threshold for these taxes is much higher for individuals. (The income of some trusts is automatically considered distributed. See your tax advisor.) An election is also available to treat distributions made during the first 65 days of the following year (for example, January 31, 2024) as distributed for a taxable year (for example 2023).
In most cases, capital gains don't qualify for the distribution deduction. See your tax advisor.
The beneficiaries should be involved in this decision and be informed about the additional income to be reported on their income tax returns (in writing) to avoid unpleasant surprises.
Remember to take a physical inventory on January 1.
Calendar year businesses with inventories should take a physical count as of January 1. This creates a "clean" record for the income tax return.
Remember to "reset" payroll on January 1.
Software providers will issue updates including the new payroll tax tables as of January 1, 2024. Be sure you have installed those updates before processing your first payroll for 2024.
California FUTA makeup payment for 2023.
California employers will have an additional tax for a credit reduction on their Federal Unemployment Tax Return, Form 940, for 2023. The credit reduction is .03% of FUTA wages, or a maximum of $21.00 per employee.
W-2s, 1099s and DE 542 reminder.
Remember that most 2023 annual information returns, such as W-2s and 1099s, should be issued to payees and sent to the tax authorities by February 29, 2024, including electronically filed forms, except Form 1099-NEC and Form W-2 should be submitted by January 31, 2024. If you have a California business, be sure to send Form 1099-NEC to the Franchise Tax Board.
Amounts paid using a credit card or a payment service like PayPal should not be included on Form 1099. Those amounts are being reported by the merchant companies.
Also remember that Form 542, Report of Independent Contractors, should also be submitted for ongoing independent contractor arrangements by January 22. The due date is the earlier of 20 days after the date, $600 or more of payments have been made to the independent contractor or the date a contract has been entered for $600 or more of services during a calendar year.
Although requirements for real estate operators to issue Forms 1099 were repealed, real estate operators that claim their real estate operations are a trade or business (including for the 20% federal tax deduction for trade or business income) should prepare them anyway. See your tax advisor for details.
Will you be age 73 or older during 2024?
Required minimum distributions apply for traditional IRAs and employer retirement accounts (with some exceptions) for the year the plan participant reaches age 73. The first payment must be made by April 1 of the following year. Thereafter, the payment must be made by December 31, so there could be two payments required during the year following the year the plan participant reaches age 73. The two payments could throw you into a higher tax bracket or make qualified dividends or long-term capital gains subject to a higher tax rate. Calendar taking care of this. Consider scheduling automatic payments with the plan custodian. See your tax advisor.
FinCEN beneficial ownership information report released.
FinCEN is now accepting beneficial ownership information reports. Reports are required to be submitted no later than January 1, 2025 for business entities that are required to register with a Secretary of State that existed before 2024. Single member LLCs are required to report. Entities that register with the SEC aren't required to report. Here is a URL for the FinCEN web page to efile the report. https://www.fincen.gov/boi
Penalty relief for certain returns filed during the COVID-19 pandemic.
The IRS has announced relief from late payment penalties for income tax returns for tax years 2020 and 2021. The relief applies for individuals, businesses and tax-exempt organizations that weren't sent automated collection reminder notices during the COVID-19 pandemic. The IRS will resume sending notices relating to those years.
The waiver applies for late filing penalties but not for interest relating to the late payment of tax.
The relief period is the period beginning on later of the the date the IRS issued an initial balance due notice to the eligible taxpayer or February 5, 2022 and ending on March 31, 2024.
An eligible taxpayer:
- Had assessed income tax for the tax year 2020 or 2021, as of December 7, 2023, that was less than $100,000, excluding any applicable additions to tax, penalties or interest;
- Was issued an initial balance due notice on or before December 7, 2023, for tax year 2020 or 2021; and
- Is otherwise liable during the relief period for accruals of additions to tax for the failure to pay under Code Section 6651(a)(2) or Code Section 6651(a)(3) with respect to an eligible return for tax year 2020 or 2021.
The relief is automatic. Taxpayers don't have to apply for relief. The IRS will send notices of the relief that is granted.
(IRS Notice 2024-7.)
Standard Mileage Rates for 2024 announced.
The IRS has issued the 2024 optional standard mileage rates for computing the deductible costs of operating an automobile for business, charitable, medical or moving.
Effective January 1, 2024, the standard mileage rates are:
- 67¢ per mile driven for business (65.5¢ for 2023.)
- 21¢ per mile for medical or moving (22¢ for 2023.)
- 14¢ per mile driven for charitable purposes (unchanged statutory rate.)
(IRS Notice 2024-8.)
IRS issues SECURE 2.0 Act guidance.
The IRS has issued 81 pages of question and answer guidance relating to retirement plans for the SECURE 2.0 Act of 2022.
(Notice 2024-02.)
Tax relief announced for Tennessee storm victims.
The IRS has announced tax relief for individuals and businesses in parts of Tennessee affected by severe storms and tornadoes that began on December 9, 2023. Those taxpayers now have until June 17, 2024 to file various federal individual and business tax returns and make tax payments.
The relief applies to individuals and households that reside in or businesses located in Davidson, Dickson, Montgomery and Sumner counties.
(IR-2023-250, December 22, 2023.)
California exemption from first-year annual tax expires.
An exemption for the $800 annual tax for new limited partnerships, limited liability companies and limited liability partnerships has expired. Those new entities are subject to the tax for 2024, unless the California legislature reinstates the exemption. The tax only applies to entities doing business in California.
The $800 annual tax for limited partnerships and limited liability partnerships is due by the original due date of FTB Form 565, Partnership Return of Income, which is March 15 of the following year for calendar-year entities.
Limited liability companies are required to make the payment by the 15th day of the four month of the LLCs current taxable year (April 15 for calendar year LLCs).
(Spidell's California Taxletter, December, 2023, p. 6, "LLC, LP and LLP annual tax exemption expiring in 2024.")
Mandatory sick leave benefits increased for California employees.
Effective January 1, 2024, California SB 616 has increased the amount of paid sick leave benefits an employer must provide to their California employees from the greater of 24 hour or three days per year to the greater of 40 hour or five days per year. Employees who work 10-hour shifts could potentially receive up to 50 hours of paid time off.
The legislation also expands certain provisions of the sick leave mandate to cover some employees who are covered by collective bargaining agreements.
Employers have the choice of either frontloading the benefits or providing them on an accrual basis (earned throughout the year).
All employers of California employees must provide the benefits to employees who have worked for them at least 90 days.
These are not covered employees:
- Employees, including construction workers, covered by certain collective bargaining agreements;
- Certain flight deck and crew employees of air carriers; and
- CalPERS retired annuitants.
See your Labor Law attorney for any questions that you have.
(California SB 616.)
'Tis the season to exercise ISOs?
Since stock received from exercising an incentive stock option has to meet two holding period tests (more than two years after grant and more than one year after exercise) to avoid having the excess of the fair market value over the option price taxed as ordinary income, exercising early in the year can be advantageous when you decide to hold the stock after exercise. The reason is you have the alternative of selling the stock before the end of the year of exercise and possibly avoiding the alternative minimum tax if the value of the stock drops after exercise. I call this tax strategy the "escape hatch."
If the company's stock isn't publicly traded and you can't sell the shares, this strategy won't work.
Be careful about blackouts. I have had some individuals call me who wanted to use the escape hatch during December, only to discover they were prohibited from selling their shares because they were subject to an employee blackout. Sometimes blackouts can happen unexpectedly, like when an employer becomes a party to a lawsuit. There's no magic solution in these cases - you could be stuck with a significant tax liability.
For many people, the exercise and immediate sale of the shares is the most comfortable alternative, even if the tax bill is higher.
Also remember the wash sale rules can spoil an "escape hatch" transaction. You can't repurchase the shares or even receive an employee stock option or buy a put option during the period starting 30 days before the sale to 30 days after the sale.
Another advantage of an exercise early in the year is to be able to meet the holding period requirements and sell the shares before the tax is due on April 15. But check the estimated tax payment requirements to avoid penalties for late estimated tax payments. (The alternative minimum tax liability should be included in estimated tax payments.)
Do you sell products, services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@profitadvisors.com.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. http://www.eztrialbalance.com
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
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Michael Gray, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - Friday
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