J HEATH & CO

The IRS’s second Voluntary Disclosure Program for employers who claimed improper COVID-related credits ended Nov. 22. However, certain programs for businesses with Employee Retention Tax Credit (ERTC) claims that haven’t been processed remain open. The Claim Withdrawal Program is available for businesses that request the IRS not process ERTC claims that haven’t yet been paid. The IRS will treat the claims as though the taxpayers never filed them. No interest or penalties will apply. Also, the IRS extended a similar program for third-party payers through Dec. 31, 2024. The consolidated claim process for third-party payers was set to close Nov. 22. For more details: https://bit.ly/495NM0M

As a small business owner, managing health care costs for yourself and your employees is challenging. So you may want to provide some benefits through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs are a tax-advantaged way to set aside funds (or have their employers do so) to meet medical needs. An eligible employee must be covered by a “high deductible health plan.” For 2025, a high-deductible health plan has an annual deductible of at least $1,650 for self-only coverage, or $3,300 for family coverage. For self-only coverage, the 2025 limit on deductible contributions is $4,300. For family coverage, the 2025 limit on deductible contributions is $8,550.

If charitable giving is on your mind, consider a tax reduction strategy called “bunching.” Only donations to IRS-approved charities are deductible, and only if you itemize. However, itemizing is less common since the standard deduction nearly doubled (for 2018-2025, unless extended by Congress). Bunching may allow you to benefit from the standard and itemized deductions by consolidating donations into alternating years. In gift years, make larger donations and itemize. In off years, skip donations and claim the standard deduction. This strategy can also apply to other eligible itemizable expenses, such as mortgage interest, property taxes and planned medical costs.

Business owners who are preparing to file Beneficial Ownership Information (BOI) reports by Jan. 1, 2025, should be alert. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is warning of scams designed to steal sensitive information by targeting BOI filers. Scammers may reference fake forms, such as “Form 4022” or “Form 5102,” or they might refer to a non-existent agency, the “U.S. Business Regulations Dept.” Other red flags include requests for fee payment, threats of penalties, and suspicious URLs or QR codes. FinCEN advises businesses to verify the sender before answering correspondence. For questions visit: https://bit.ly/3YZH2gn

BOI FinCEN Filings On Hold Effective Immediately On December 3, 2024, a federal district court in Texas granted a preliminary nationwide injunction against the Corporate Transparency Act (CTA), which mandates U.S. businesses to report their beneficial ownership to the Treasury Department. The court ruled that while Congress has the power to regulate corporate activity, the Commerce Clause does not allow for mandatory disclosure of information for law enforcement purposes, deeming the CTA unconstitutional in that aspect. The injunction affects approximately 32.6 million existing reporting companies. We are uncertain at this time as to how the Financial Crimes Enforcement Network (FinCEN) will react or if the filing deadlines will be adjusted. Stay tuned for further updates.

The IRS recently announced next year’s inflation-adjusted tax amounts. The 2025 standard deduction will increase to $15,000 for single taxpayers, $30,000 for married couples filing jointly and $22,500 for heads of household. This is up from the 2024 amounts of $14,600 for singles, $29,200 for joint filers and $21,900 for heads of household. For 2025, the highest tax rate of 37% will affect singles and heads of households with income exceeding $626,350 ($751,600 for joint filers). This is up from 2024 when the 37% rate affects single taxpayers and heads of households with income exceeding $609,350 ($731,200 for joint filers). The 2025 gift tax exclusion is $19,000, up from $18,000 in 2024.

Business-related meal deductions can be valuable, but the rules can be complex. Under current law, your business can’t deduct most entertainment expenses. For example, you can’t deduct any part of the cost of taking clients out for a round of golf. You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment. In a handful of cases, you can deduct more. For example, you can deduct 100% of food, beverage and entertainment costs incurred for recreational, social, or similar activities that primarily benefit all employees (for example, at a company holiday party).

How much can you and your employees contribute to your 401(k)s next year? The IRS recently announced the 2025 cost-of-living adjustments. With inflation easing, the amounts aren’t increasing as much as in recent years. The 2025 401(k) contribution limit will increase to $23,500 (from $23,000 in 2024). This amount also applies to 403(b) and most 457 plans. The catch-up contribution limit for employees who are age 50 or over and participate in 401(k)s will remain $7,500. However, there will be a new catch-up contribution amount for taxpayers age 60, 61, 62 or 63. For them, the 2025 catch-up amount will be $11,250. This change takes effect next year under the SECURE 2.0 law.

The IRS has issued final regulations intended to help organizations that co-own clean energy projects access clean energy tax credits through elective pay (often referred to as “direct pay”). Before the Inflation Reduction Act, entities eligible for elective pay couldn’t benefit from clean energy tax credits because they had little or no federal tax liability. Elective pay allows eligible organizations access to the full value of clean energy incentives by making certain clean energy credits refundable. The final regs provide clarity and flexibility for elective-pay-eligible organizations that want to jointly invest in clean energy projects. For more information: https://bit.ly/48Wy7km

Taxpayers who owe more taxes than they can currently pay may request a Collection Due Process (CDP) hearing. This is a chance to dispute the amount of tax owed and discuss alternatives if conditions are met. However, CDP hearings aren’t available for nontax penalties. In one case, a married couple was denied a request for a CDP hearing after they were assessed Foreign Bank Account Report (FBAR) penalties. FBAR penalties aren’t technically taxes imposed under tax law. The U.S. Tax Court said, “a taxpayer may only file a petition for review with this Court where the administrative determination concerns a tax over which the Court generally has jurisdiction.” (163 TC No. 7, 10/22/24)