Weekly Update–July 19th 2024: Tax Planning Around Your Long-Term Goals🎓💲💰and Be A Smarty & Learn from Your Brilliant Friends 🤓
With summer in full swing and no immediate deadlines it’s sometimes hard to “buckle down ” . We’ve created some “fake deadlines” but have not kept to them. It seems we are not alone though. We really have tried, we’ve reached out to our clients whose returns are on extension; we might be missing one or two pieces of information and are reluctant to finalize the return without it, but they too seem to have been “bit by the summer bug”. This week I attended a great “lunch and learn” webinar (see my take away), and just the other morning as Raquel arrived at work, I dragged her from her car and down the block to the beach for a quick trip. It was just too nice to go to the office quite yet…
It’s been such a nice weather week, even my husband David accompanied me on Wednesday before he made our morning coffee…
These days after lunch we check the garden for ripe blackberries and have them for dessert …
We’ve also had some cucumber salads and have been eating homemade pickles…
Monica’s daily walk takes her on a wooded trail…
I ended my walk at my house and found what Google Lens identified as bald-face hornets (cropped photo I took from many feet away), definitely cool, but dangerous. They are actually wasps and related to yellow-jackets…
It was a beautiful morning but I came right back to finish today’s blog and share…
It wouldn’t be a summer blog post from me without a shot out to my fig tree, it survived Hurricane Sandy, the dreaded spotted lantern flies last summer and this summer and is still going strong. I am taking bets on how many we will have this summer; 500?
After tasting special dried figs from Greece, I’m thinking about a new project with my friend Edith (neither of us have enough on our plates): Organic Dried Rockaway Figs. If you guess correctly you may get a batch. Mine are not ripe yet, but we may start picking basil and making and freezing pesto. I hope you have some great plans for your weekend too, maybe a bar-b-que, a party, pesto making marathon, or nice relaxing few days. Enjoy!
WEEKLY TAKE-AWAY
This week, our professional group hosted the first of several lunch & learns. Our speaker was Leilani Elias, CPA, a friend and someone I have worked with during my tenure as chapter and education foundation president, who I greatly respect for her expertise in many fields. She delivered a 1 hour, fast-paced presentation on Excel Tips & Tricks for working smarter, not harder.
I knew the time would be well spent, but I picked up so many useful tips that will absolutely make my professional life easier. Surprisingly, we only had approximately 53 attendees. Many people using Excel felt they already had a good grasp on the software. Another friend and co-president Robert Brown often remarks: “I never knew what I didn’t know until I attended one of our seminars.”
I will definitely need to re-watch the recording to start using some of Leilani’s ideas. Thank you, Leilani, additional lesson learned: if you are confident and smart, you will have an open mind and be willing to learn from others, then you can work smarter not harder!
TAX ISSUES/TAX PLANNING
Is a Contribution to My Child’s 529 Plan a Key Ingredient in a Tax Minimization Plan
The answer: Yes and No. My post ideas often come from recent questions posed by my clients. This question was a great one, from our long-time tax client and business owner who moved from NYS which did offer a “good” current tax benefit (approximately $600 of tax savings from a $10,000 contribution on a joint tax return for a married couple) to Massachusetts, beautiful but sorry the contribution limit and tax benefit from making a current contribution is minimal on the resident tax return there (approximately $100 of tax savings from a $2,000 contribution on a joint tax return for a married couple) . Remember, we are looking at the whole picture and have certain short term and long-term goals in mind. The long-term benefit from tax free growth and the forced savings may be enough.
Tax Savings from Contributions to 529 Plans:
1. Federal Tax Benefits:
- Tax-Free Growth: Earnings on investments in a 529 plan grow federal income tax-free, meaning you don’t pay taxes on the account’s earnings as long as the funds are used for qualified education expenses.
- Tax-Free Withdrawals: Distributions from a 529 plan are federal income tax-free when used for qualified higher education expenses, including tuition, fees, books, and room and board.
2. State Tax Benefits: Many states offer additional tax benefits for 529 plan contributions, such as tax deductions or credits. Here are some key states with notable tax benefits:
- New York: Offers a state income tax deduction of up to $5,000 per year for single filers and $10,000 per year for married couples filing jointly.
- Illinois: Provides a state income tax deduction of up to $10,000 per year for single filers and $20,000 per year for married couples filing jointly.
- Virginia: Allows a state income tax deduction of up to $4,000 per year per account, with unlimited carryforward for contributions beyond that amount.
- Pennsylvania: Offers a state income tax deduction of up to $15,000 per beneficiary per year for single filers and $30,000 per beneficiary per year for married couples filing jointly.
- Missouri: Provides a state income tax deduction of up to $8,000 per year for single filers and $16,000 per year for married couples filing jointly.
- Massachusetts: Offers a state income tax deduction of up to $1,000 per year for single filers and $2,000 per year for married couples filing jointly.
IRS Tax Code Key Points
1. Section 529(e):
- Qualified Tuition Programs: Defined in the Internal Revenue Code (IRC) as programs that meet specific requirements, allowing for tax-free growth and withdrawals for qualified education expenses.
2. Tax-Free Growth and Withdrawals:
- IRC Section 529(c)(1): Earnings in a 529 plan grow tax-free.
- IRC Section 529(c)(2)(A): Distributions used for qualified education expenses are tax-free.
By leveraging 529 plans, you can not only save for your child’s future education but also take advantage of significant tax savings today. Each state has unique benefits, so consider your state’s specific tax advantages when contributing to a 529 plan.
For more detailed information, refer to IRS Publication 970, “Tax Benefits for Education.”
12 States That Rely the most on Income Tax Revenue & What This Means
The following, per research from the Tax Foundation [the nation’s leading nonpartisan tax policy 501(c)(3) nonprofit] is a list of states which rely heavily on local taxes (rather than real estate taxes).
Per the Tax Foundation Research: “Property taxes remain by far the most important source of local revenue in the United States, generating about 72 percent of local tax collections. However, state and local policymakers are constantly searching for other revenue sources that could potentially reduce the property tax burden and substitute for foregone property tax revenues. Many states have tried two alternatives: local income taxes and local sales taxes. But how do these taxes contribute to overall state and local tax competitiveness? Should one be preferred over the other? Is consumption or income a better tax base for local governments? What are the advantages and disadvantages of both?”
It is surprising, to me as a tax professional the numbers show on average local taxes typically account for only 5% of total local tax collections via sales and use tax or personal income and business franchise tax. As I reviewed the listing, I see that New York ranks 6th and I believe that New York City if separated out would show a much higher per centage.
When I compare notes with some of my professional friends, I lament the difficulty my firm has when creating tax minimization plans for our New York City businesses. We navigate pass through income taxed for federal and state purposes on the individual owner’s return at their tax rate, while those New York City corporation’s also pay city corporation tax of approximately 9% [at the entity level] . It’s a balancing act even given the help from pass through entity taxes as available for New York State and City business entities, and I still Love NY 💗. Washington, D.C. is on the list even though we know it is technically not a state.
- Maryland ranked 1st with local income taxes being 19.44% of local general revenue.
- Washington, D.C., ranked 2nd with local income taxes being 15.56% of local general revenue
- Kentucky ranked 3rd with local income taxes being 10.55% of local general revenue.
- Ohio ranked 4th with local income taxes being 9.49% of local general revenue.
- Pennsylvania ranked 5th with local income taxes being 8.29% of local general revenue.
- New York ranked 6th with local income taxes being 7.58% of local general revenue.
- Indiana ranked 7th with local income taxes being 3.58% of local general revenue.
- Missouri ranked 8th with local income taxes being 1.67% of local general revenue.
- Michigan ranked 9th with local income taxes being 1.26% of local general revenue.
- Alabama tied for 10th with local income taxes being 0.53% of local general revenue.
- Iowa tied for 10th with local income taxes being 0.53% of local general revenue.
- Kansas ranked 12th with local income taxes being 0.01% of local general revenue.
What does this really mean? When we work on tax plans we take all taxes into account, taxes paid out of each pocket: including, payroll, business franchise, pass through entity, and personal income tax.
IRS Collects $1 Billion in Delinquent Taxes from High Income Taxpayers
As reported in this recent article in AccountingToday:
“An initiative to collect tax debts from millionaires has brought in over $1 billion in less than a year, the Internal Revenue Service and the Treasury Department announced Thursday.
Launched in September 2023, the effort involved dozens of IRS employees reaching out to 1,600 taxpayers who had more than $1 million in income and owed more than $250,000 in taxes.
“This initiative has been a huge success,” Treasury Secretary Janet Yellen told reporters on a press call. “The IRS has collected $1 billion from millionaires and shown that it can successfully launch new strategic initiatives and get a significant return on investment.”
She and IRS Commissioner Danny Werfel stressed the impact of increased funding — and particularly the extra money made available by the Inflation Reduction Act — in enabling the agency to collect on delinquent taxes.
“Investments in enforcement technology and data, if sustained, will result in $851 billion in additional revenue over the next decade,” Yellen said. “Today’s milestone shows that efforts to increase tax fairness and bring in revenue from high-end taxpayers who have not paid what they owe will pay off.”
Werfel described the work that went into collecting the $1 billion: “The effort has a variety of different steps,” he explained. “First you identify the delinquent balance due and you confirm it, and then the first outreach to the taxpayer is a letter to their home. We give them a reasonable amount of time to respond with a dispute or a payment. A lot of the taxpayers we reach out to don’t respond, or we end up with a lot of back and forth to convince the taxpayer that they owe and that it’s in their best interest to pay. These cases typically get closed after a lot of back and forth after that initial letter. In cases where they don’t remit payment, levies can be introduced.””
ECONOMY
The U.S. is Winning the Inflation Fight, Setting Scene for a Long-Awaited Interest Rate Cut
As per this recent article by NBCnews.com: “Price increases slowed more sharply than expected in June, adding to evidence that high inflation has subsided and potentially clearing the way for the Federal Reserve to lower interest rates that affect everything from mortgages to credit card payments. The Consumer Price Index rose 3% year over year in June, slower than the 3.3% annual rate the month before. From May to June, prices fell 0.1% — the first time the monthly reading meaningfully declined since May 2020, early in the pandemic.”
Here’s How to Learn if Your Data Was Stolen in AT&T’s Massive Hack
As per this link from CBSnews.com: “AT&T on Friday disclosed that hackers had accessed records of calls and texts of “nearly all” its cellular customers for a six-month period between May 1, 2022 to Oct. 31, 2022. In its statement, AT&T said the compromised data doesn’t include the content of the calls or texts, or personal information such as Social Security numbers, birth dates or other personally identifiable information. The company said hackers downloaded the data “from our workspace on a third-party cloud platform.” The telecom giant said that it learned about the illegal download in April, and that it is working with law enforcement, noting that “at least one person has been apprehended.” While the files don’t include call or text content, AT&T said the data identifies telephone numbers that an AT&T number interacted with during the periods. ”
June price drop may shorten the Federal Reserve’s Last Mile on Inflation
As reported in this recent article from Reuters.com: “The “last mile” of the Federal Reserve’s battle against inflation may have shortened to a last lap after U.S. consumer prices unexpectedly fell in June, shoring up policymakers’ confidence that they are winning the fight and paving the way to interest-rate cuts in coming months. The consumer price index slid 0.1% last month after being unchanged in May, the Labor Department’s Bureau of Labor Statistics said on Thursday. It was the weakest monthly reading since May 2020, early in the pandemic, while the 3% year-over-year rise was the lowest reading in a year.”
Inflation Remains Top Problem for Main street
As reported in this recent article from NFIB.com: “The NFIB Small Business Optimism Index reached the highest reading of the year in June at 91.5, a one-point increase from last month. The last time the index was higher was in December of 2023 when it reached 91.9. Even so, this marks the 30th month below the historical average of 98. Inflation is still the top small business issue, with 21% of owners reporting it as their single most important problem in operating their business, down one point from May.
“Main Street remains pessimistic about the economy for the balance of the year,” said NFIB Chief Economist Bill Dunkelberg. “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”
Key findings include:
- Seasonally adjusted, a net 22% plan to raise compensation in the next three months, up four points from May.
- A net negative 2% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in June, up six points from May’s lowest reading since October 1981.
- A net negative 2% (seasonally adjusted) plan inventory investment in the coming months, up four points from May.
- Fifty-two percent reported capital outlays in the last six months, down six points from May and the lowest reading since August 2022.
- Four percent of owners reported that all their borrowing needs were not satisfied, up one point from May and the highest reading since August 2022.
As reported in NFIB’s monthly jobs report, a seasonally adjusted 37% of all small business owners reported jobs openings they could not fill in their current period, down five points from May. Of the 60% of owners hiring or trying to hire in June, 85% reported few or no qualified applicants for the positions they were trying to fill.
Fifty-two percent of owners reported capital outlays in the last six months, down six points from May and the lowest reading since August 2022. Of those making expenditures, 35% reported spending on new equipment, 22% acquired vehicles, and 14% improved or expanded facilities. Ten percent spent money on new fixtures and furniture and 5% acquired new buildings or land for expansion. Twenty-three percent (seasonally adjusted) plan capital outlays in the next six months, unchanged from May.”
GENERAL RESOURCES
- IRS resources for stimulus payments:
- Use the Get My Payment tool to check on EIP payment status
- Eligibility and general information about Economic Impact Payments
- A list of frequently asked questions for stimulus payments
- IRS information about the Advance Child Tax Credit Payments
- Portal to update information
- A list of frequently asked questions on the advance Child Tax Credit Payments
- The best source for up-to-date and accurate health information is the Center for Disease Control (CDC)
- Our prior blog posts, videos and prior weekly newsletters
- Entrepreneur put together a listing of free tech resources for remote work
- The Consumer Financial Protection Bureau has warnings about COVID-related scams
- The New York Times has an online newsletter on K-12 and higher education
- The Wall Street Journal has a collection of articles on education
- The Louvre has digitized 482,000 artworks from its collection
- How to create a strong password
We sincerely hope that you and your family are well and remain well. If you have any questions or concerns, don’t hesitate to reach out to us. We are here for you.
If you need help with your accounting, want to create a tax minimization plan, want to discuss your business growth plan or your finances, are concerned about retirement goals or need to be held accountable for your 90 day action plan, contact us for a complimentary discovery session or an appointment to just get started
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