TAX REFORM BASICS FOR INDIVIDUALS & FAMILIES

New Corporate Act:2024

 

Beneficial Ownership Information Reporting Corporate Transparency ACT-FinCEN

FinCEN launched the BOI E-Filing website for reporting beneficial ownership information (https://boiefiling.fincen.gov) on January 1, 2024.

• A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report.
• A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
• A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.

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 Overview of the Tax Cuts and Jobs Act AND SECURE ACT 2.0

Some Major Changes UNDER SECURE ACT 2.0

 

529 Plan to Roth IRA

Roth Rollover Option for 529 Plans: Beginning in 2024, in limited circumstances (i.e., there are a lot of requirements that must be met including that the Roth IRA account must be in the name of the 529 plan beneficiary), some people may be able to rollover a 529 plan that they have maintained for at least 15 years to a Roth IRA.  

Annual limits for the rollover would have to be within the annual contribution limit and there will be a $35,000 lifetime limit on what can be rolled to the Roth IRA.

 

# Repeal of Maximum Age for Traditional Individual Retirement Account (IRA) Contributions: 

**New Law: Updated §219(d)(1) provides that for contributions made for tax years beginning after December 31, 2019, the SECURE Act 2.0 repeals the prohibition on contributions to a traditional IRA by an individual who has earned income and has attained age 70 ½. 

 

#Coordination with Qualified Charitable Distribution (QCD) Rules: 

**New Law: §408(d)(8)(A) provides for an annual exclusion from gross income for a taxpayer’s Required Minimum Distribution (RMD) amount. 2021 Federal Tax Update & Review Course The National Society of Tax Professionals - Chapter V-2 The amount of the exclusion cannot exceed $100,000. The exclusion is available for otherwise taxable traditional IRA distributions that are Qualified Charitable Distributions (QCDs). These distributions are specifically excluded from a taxpayer’s gross income 

 

#Increase in Age for Required Beginning Date for Mandatory Distributions 

**New Law: As a result of the SECURE Act, the RBD for traditional IRAs is April 1 following the calendar year in which the IRA owner attains age 72, instead of age 70 ½ and in 2023 is 73 and in 2033 it will be 75.

#Modification of Post-Death Required Minimum Distribution (RMD) Rules. 

**New Law: Generally effective for distributions with respect to employees or traditional IRA owners who die after December 31, 2019, the SECURE Act 2.0 modifies the Required Minimum Distribution (RMD) rules with respect to defined contribution plan and traditional IRA balances (including annuity contracts purchased from insured companies under defined contribution plans or IRAs) upon the death of the account owner. 

 

#100% Business Meal Deduction Allowed for Meals Provided by Restaurants in 2021 and 2022. 

**New Law Change: Under the Act, §274(n)(2)(D) provides that the 50% limit does not apply to expenses for food or beverages provided by a restaurant that are paid or incurred after December 31, 2020, and before January 1, 2023, as amended by TCDTR Sec. 210 

#Modification of Limitations on Charitable Contributions. 

**New Law Provision: §170(h)(l)(G)(i) has been updated and provides that for tax year, the percentage limitation rules for individual taxpayers making qualified cash charitable contributions to 50% charities do not apply (amended by TCDTR Sec. 213). Therefore the cash contributions are allowed as a deduction up to 60% of the taxpayer’s AGI. 

 

#Deduction for Qualified Tuition and Related Expenses to Increased Income Limitation on §25A Lifetime Learning Credit. 

**New Law Update: The Act removes the different phase-out rules for the AOTC and Lifetime Learning Credit and replaces them with a single phase-out amount effective for tax years beginning after December 31, 2020. (§25A(d)(l), as amended by Act Sec. 104(a)). These phase-out amounts begin at $80,000 for all taxpayers except married joint which begins at $160,000. The phase-out amount ends at $90,000 for all taxpayers except married joint which ends at $180,000.

Overview of the Tax Cuts and Jobs Act

Major tax reform that affects both individuals and businesses was enacted in December 2017. It’s commonly referred to as the Tax Cuts and Jobs Act, TCJA or tax reform. 

Changes in Tax Rates

For 2023, most tax rates have been reduced. This means most people will pay less tax starting this year. The 2023 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. 

In addition, for 2023, the tax rates and brackets for the unearned income of a child have changed and are no longer affected by the tax situation of the child’s parents. The new tax rates applicable to a child’s unearned income of more than $2,300 are 24%, 35%, and 37%. 

Major Changes in Tax Codes

Highlights of changes in Revenue Procedure 2021-45:

The tax year 2023 adjustments described below generally apply to tax returns filed in 2024.

The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1400.
   
• The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act. 
   
• Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The other rates are:
35%, for incomes over $231,250 ($462,500 for married couples filing jointly);
32% for incomes over $182,100 ($364,200 for married couples filing jointly);
24% for incomes over $95,375 ($190,750 for married couples filing jointly);
22% for incomes over $44,725 ($89,450 for married couples filing jointly);
12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
 

• For 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
   
• The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,728 for tax year 2021. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
   
• For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300.
   
• For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $570, an increase of $200 from taxable years beginning in 2022.
   
• For tax year 2022, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,450, up $50 from tax year 2021; but not more than $3,700, an increase of $100 from tax year 2021. For self-only coverage, the maximum out-of-pocket expense amount is $4,950, up $150 from 2021. For tax year 2022, for family coverage, the annual deductible is not less than $4,950, up from $4,800 in 2021; however, the deductible cannot be more than $7,400, up $250 from the limit for tax year 2021. For family coverage, the out-of-pocket expense limit is $9,050 for tax year 2022, an increase of $300 from tax year 2021.
   
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
   
• For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
   
• Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
   
• The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
   
• The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950 up from $14,890 for 2022.

Deduction for home mortgage and home equity interest modified.

Your deduction for mortgage interest is limited to interest you paid on a loan secured by your main home or second home that you used to buy, build, or substantially improve your main home or second home. 

New dollar limit on total qualified residence loan balance.

The date you took out your mortgage or home equity loan may also impact the amount of interest you can deduct. If your loan was originated or treated as originating on or before Dec. 15, 2017, you may deduct interest on up to $1,000,000 ($500,000 if you are married filing separately) in qualifying debt. If your loan originated after that date, you may only deduct interest on up to $750,000 ($375,000 if you are married filing separately) in qualifying debt. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home. 

THIS MEANS THAT…if you do itemize…for existing mortgages, you can continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes but for new homeowners buying in 2018, you can only deduct interest on a total of $750,000 in qualifying debt for a first and second home. 

Deduction and Exclusion for moving expenses suspended

The deduction for moving expenses is suspended. During the suspension, no deduction is allowed for use of an automobile as part of a move. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station. 

Also, employers will include moving expense reimbursements as taxable income in the employees’ wages because the new law suspends the former exclusion from income for qualified moving expense reimbursements from an employer. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station as long as the expenses would qualify as a deduction if the government didn’t reimburse the expense. 

THIS MEANS THAT… unless you are a member of the U.S. military on active duty, you cannot deduct moving expenses and amounts reimbursed by an employer will be taxable income. 

Changes to Benefits for Dependents

Deduction for personal exemptions suspended 

FROM 2018, you can’t claim a personal exemption deduction for yourself, your spouse, or your dependents. 

THIS MEANS THAT…you will not be able to reduce the income that is subject to tax by the exemption amount for each person included on your tax return as you have in previous years. 

However, changes to the standard deduction amount and Child Tax Credit may offset at least part of this change for most families and, in some cases, may result in a larger refund. 

Child tax credit and additional child tax credit

FROM 2023, the maximum credit increased to $2,000 per qualifying child. No more extra refundable child tax Credit.

Credit for other dependents

A new credit of up to $500 is available for each of your qualifying dependents other than children who can be claimed for the child tax credit. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. The credit is calculated with the child tax credit in the form instructions. The total of both credits is subject to a single phase out when adjusted gross income exceeds $200,000, or $400,000 if married filing jointly. 

THIS MEANS THAT…you may be able to claim this credit if you have children age 17 or over, including college students, children with ITINs, or or other older relatives in your household. 

Social security number required for child tax credit

Beginning with Tax Year 2019 AND 2020, your child must have a Social Security Number issued by the Social Security Administration before the due date of your tax return (including extensions) to be claimed as a qualifying child for the Child Tax Credit or Additional Child Tax Credit. Children with an ITIN can’t be claimed for either credit. 

If your child doesn’t have a valid SSN, your child may still qualify you for the Credit for Other Dependents. This is a non-refundable credit of up to $500 per qualifying person. If your dependent child lived with you in the United States and has an ITIN, but not an SSN, issued by the due date of your 2020 return (including extensions), you may be able to claim the new Credit for Other Dependents for that child. 

Alternative minimum tax (AMT) exemption amount increased

The Alternative Minimum Tax 

 

1. Higher AMT exemptions. The AMT is indexed yearly for inflation. For the 2023 tax year, it’s $81,300 for individuals and $126,500 for married couples filing jointly.   
2. Higher income levels for exemption phaseout. The phaseout for the 2023 tax year starts at $578,150 for individuals and $1,156,300 for married couples filing jointly.

 

Repeal of deduction for alimony payments

Alimony and separate maintenance payments are no longer deductible for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018 and modified after that date. Further, alimony and separate maintenance payments are no longer included in income based on these dates, so you won’t need to report these payments on your tax return if the payments are based on a divorce or separation agreement executed or modified after December 31, 2018. 

 

Thanks,

Sanjay Lodha/Sulbha Bhagat

IRS Enrolled Agent, Chartered Accountant, CTP, and Certified Acceptance Agent

ETAX Services/Dwyer Lodha & Associates Inc…

(M) 916-612-4252/412-269-0499(O)

www.etaxservices.org/www.dwyerlodha.com