Matthews, Panariello P.C.

The Inflation Reduction Act created several tax credits to promote clean energy. You may want to take advantage of them before it’s too late. President-Elect Donald Trump has pledged to “terminate” the law so it may be repealed in 2025. For example, there’s an Energy Efficient Home Improvement Credit. It covers 30% of the cost of eligible improvements, such as installing energy-efficient windows, doors, and insulation, up to $1,200 a year. There’s also a credit of up to $2,000 for qualified heat pumps, water heaters and biomass stoves or boilers. And there’s a credit for 30% of the cost of installing solar panels. Contact us before making a large purchase to check if it’s eligible.

Employee stock options are a potentially valuable asset for employees who receive them. If you’re one of them, you’ll eventually sell shares acquired by exercising nonqualified stock options (NQSOs), hopefully for a nice profit. Your objectives should be to 1) have most or all of the profit taxed at lower long-term capital gain rates and 2) postpone paying taxes for as long as possible. When exercising NQSOs, the “bargain element” (difference between market value and exercise price) is treated as ordinary compensation income. Therefore, it’s subject to federal income tax and payroll tax withholding. You want to unlock the best possible tax results, and we can help with advance planning.

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.

Business owners may travel to visit customers, attend conferences, check on vendors and for other purposes. Managing tax-deductible travel costs can help ensure compliance and maximize tax savings. Assuming you meet the tax law requirements, there are a number of deductible business travel expenses. They include: air, train or bus fare to the destination; baggage fees; car rental expenses or the cost of using your vehicle; tolls; parking; transportation at the destination (such as taxis); lodging; tips and dry cleaning. Meal expenses are generally 50% deductible. The business travel deduction rules can be complicated. If you’re uncertain about the tax treatment of your expenses, contact us.

If you own a small business with no employees (other than your spouse) and want to set up a retirement plan, consider a solo 401(k) plan. This is also an option for self-employed individuals or business owners who wish to upgrade from a SIMPLE IRA or SEP plan. For 2024, you can make an elective deferral contribution of up to $23,000 of your net self-employment (SE) income ($30,500 if you’ll be 50 or older as of Dec. 31, 2024). On top of the elective amount, an extra contribution of up to 20% of your net SE income is allowed for solo 401(k)s. For 2024, the combined elective and extra contributions can’t exceed $69,000 ($76,500 for 50 or older) or 100% of net SE income. Questions? Contact us.

The Social Security Administration has announced that the wage base for computing Social Security tax will rise to $176,100 in 2025. This is up from $168,600 in 2024. (Believe it or not, it was just $3,000 from 1937–1950!) Wages and self-employment income above this amount aren’t subject to Social Security tax. The Federal Insurance Contributions Act imposes two taxes on employers, employees and self-employed workers. One is Social Security and the other is Medicare. A maximum amount of compensation is subject to the Social Security tax, but there’s no maximum for Medicare tax. For 2024 and 2025, the FICA tax rate for employers is 7.65% (6.2% for Social Security and 1.45% for Medicare).

Hiring a nanny, housekeeper or gardener can significantly ease the burden of childcare and daily chores. However, as a household employer, it’s critical to understand your “nanny tax” obligations. Hiring a household worker who isn’t an independent contractor may make you liable for federal income tax, Social Security and Medicare (FICA) tax, federal unemployment tax and possibly state tax. In 2024, you must withhold and pay FICA taxes if your worker earns $2,700 or more (increasing to $2,800 in 2025). You pay household worker taxes by increasing your quarterly estimated tax payments or withholding from wages. Employment taxes are then reported on your tax return. Contact us with questions.

Business driving may come to mind when you think about tax deductions for vehicle-related expenses. However, businesses aren’t the only taxpayers that can deduct driving expenses. Individuals may also be able to deduct them in certain circumstances. Unfortunately, under current law, you may be unable to deduct as much as you could years ago. For 2018 through 2025, miles may only be deductible in limited circumstances. The 2024, the per-mile rate varies depending on the purpose. For business, it’s 67 cents; for medical driving for eligible itemizing taxpayers, it’s 21 cents; for active-duty military moving, it’s 21 cents; and for charitable itemizers, it’s 14 cents. Questions? Contact us.