This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites.
All rights reserved.

As a reminder, tax season is also tax scam season for savvy criminals. As you prepare to file your tax return, here are some things to know to reduce your risk of having your valuable personal information stolen. These tips are provided by the IRS and other experts.

• Scam sources are typically over the phone, email and even in person!
• The IRS DOES NOT initiate contact by email or request personal or financial information in this format.
• The IRS typically initiates contact via mail.
• On rare occasion the IRS will call. When this happens, get the IRS agent’s name and badge number. Then hang up and call the IRS independently (not the phone number they give you). Better still, call your tax professional!
• Email phishing. If you receive a suspicious email DO NOT OPEN IT or any links. Do not reply or open attachments. Report it to phishing@irs.gov.
• Phone scams. Do not give personal information to unsolicited phone calls from the IRS. Even if it looks legitimate. Scammers are getting good at spoofing legitimate phone numbers on your caller id. Report the caller ID and call back number to the IRS using phishing@irs.gov. Put IRS phone scam in the subject line.
• Payment. Only pay the US Treasury directly. DO NOT pay anyone else, even if they threaten you. No one is allowed to collect money directly from you.

Finally, the IRS and Federal Trade Commission have tons of material regarding these thieves and their techniques. Become familiar with them and reach out for help, as a tax professional may be able to help read through the scam.

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FinCEN BOI reporting requirement on hold once again

Required filing of beneficial owner information (BOI) on FinCEN.gov continues its roller coaster judicial journey. On December 26th, the requirement to file is (for now) officially on hold once again pending further judicial review. Last week the injunction to halt the filing requirement was overturned leaving your business until January 13, 2025 to file your report. Now that ruling is suspended. Go to FinCEN.gov to learn more.

The beginning of each year is a great time to start next year’s tax planning. One area to help reduce your tax obligation, that benefits from an early in the year start, is leveraging your kids to the fullest using the kiddie tax rules.

Background

The term kiddie tax was introduced by the Tax Reform Act of 1986. The rules are intended to keep parents from shifting their investment income to their children to have it taxed at their child’s lower tax rate. In 2025 the law requires a child’s unearned income (generally dividends, interest, and capital gains) above $2,700 be taxed at their parent’s tax rate.

Applies to

• Children under the age of 19
• Full-time students under the age of 24 and providing less than half of their own financial support
• Children with unearned incomes above $2,700

Who/What it does NOT apply to

• Earned income (wages and self-employed income from things like babysitting or paper routes)
• Children that are over age 18 and have earnings providing more than half of their support
• Children over age 19 that are not full-time students
• Gifts received by your child during the year

How it works

• The first $1,350 of unearned income is generally tax-free
• The next $1,350 of unearned income is taxed at the child’s (usually lower) tax rate

The excess over $2,700 is taxed at the parent’s rate either on the parent’s tax return

Planning thoughts

So while your child’s unearned income above $2,700 is a problem, you will still want to leverage the tax advantage up to this amount. Here are some ideas:

Create accounts in your child’s name. Establish a Uniform Transfers to Minor Act (UTMA) account at your favorite bank and/or investment institution. This will allow you to manage assets in the name of a minor child. Then gift cash or investments into the account. Gains and interest in the UTMA account will now create unearned income in the name of the child. Be aware of annual gift limits to keep reporting simple (currently $19,000 per individual per year in 2025). Build these accounts to provide up to $2,700 in unearned income each year.

Maximize your lower tax investment options. Look for gains in your child’s investment accounts to maximize the use of your child’s kiddie tax threshold each year. You could consider selling stocks to capture your child’s investment gains and then buy the stock back later to establish a higher cost basis.

Be careful where you report a child’s unearned income. Don’t automatically add your child’s unearned income to your tax return. It might inadvertently raise your taxes in surprising ways by reducing your tax benefits in other programs like the American Opportunity Credit.

Leverage gift giving. Each year, if your children are not maximizing tax-free investment income consider gifting additional funds to allow for unearned income up to the kiddie tax thresholds.

Properly managed, the kiddie tax rules can be used to your advantage. But be careful as your child reaches their legal adult age, this part of the tax code can create an unwelcome surprise if not handled properly.

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Small Business ALERT:

Department of Justice FinCEN Judicial order is overturned.

What this means. All firms must register their beneficial owners (BOI) through the FinCEN application as originally dictated by the law. The law was ruled an overreach by a judicial order earlier this month, but in an emergency ruling the Justice Department got the order overturned. The original filing deadline of 12/31/24 is now extended to 1/13/25. If you are a small business and have not registered your owners you will need to ensure you comply. Go to www.FinCEN.gov and review the information.

The Child & Dependent Care Credit provides a reduction in taxes to offset the cost of daycare when you are employed. The maximum amount of the credit is $3,000 for one dependent or $6,000 for two or more qualifying persons.*

To take advantage of the credit here is what you need to know.

1. Qualified dependent(s). Your dependent must be under the age of 13. A spouse or older dependent who is physically or mentally unable to care for themselves can also qualify.

2. Earned Income. You must have earned income to support the credit.

3. Qualified daycare expenses. You must actually incur the care expense for the qualified dependent.

4. Financial support requirement. You must maintain the home and financial support for the qualified dependent (more than half the cost and more than half the year).

Here are some tips;

• Partial expense coverage. The credit only covers a percentage of your qualified care expenses. The amount depends on your income with a high of 35% of qualified expense down to a low of 20% of the daycare expense.
• Obtain proper ID. Most daycare organizations will provide you with an expense summary at the end of each tax year. This form will tell you how much you spent in care and will provide you with the proper tax id for their organization. If you have someone else caring for your dependent, make sure you receive their tax information. It will be needed when you file for the credit on your tax return.
• Not equal. If you have two or more qualified dependents, the daycare expenses do not have to be equal for each of them. For example, you could use $5,000 for one dependent and $1,000 for the rest of them.
• Education expenses. Pre-school, nursery and other educational programs can qualify if levels are lower than kindergarten. Full-day kindergarten fees DO NOT qualify.
• Leverage summer. Summer day camps and similar activities can qualify for the credit. So too can hiring a nanny to care for the kids while you are at work and the kids are out of school.

Other details apply. Please ask for help if you wish to review your situation.

*Note: If your employer provides daycare reimbursement as a benefit on your W-2, the employer benefit is limited to $5,000 or $2,500 if married filing separate or single. You can still use excess daycare expenses to maximize your credit to the full $3,000/$6,000 amount.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites.
All rights reserved.

The Social Security Administration announced a 2.5% boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2025, another rate drop versus last year’s increase of 3.2%. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2024.

For those contributing to Social Security through wages, the potential maximum income subject to Social Security taxes is increasing to $176,100. This represents a 4.4% increase in your Social Security taxes! What’s of interest here is the percent increase in income subject to tax is much higher than the benefit increase. Here’s a recap of the key dollar amounts:

2025 Social Security Benefits – Key Information

What it means for you

• Up to $176,100 in wages will be subject to Social Security taxes, an increase of $7,500 from 2024. This amounts to $10,918.20 in maximum annual employee Social Security payments (an increase of $465!), so plan accordingly. Any excess Social Security taxes paid because of having multiple employers can be returned to you as a credit on your tax return.
• For all retired workers receiving Social Security retirement benefits, the estimated average monthly benefit will be $1,976 per month in 2025, an average increase of $49 per month.
• SSI is the standard payment for people in need. To qualify for this payment, you must have little income and few resources ($2,000 if single, $3,000 if married).
• A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2024 to 2025. The rates are 6.20 percent for Social Security and 1.45 percent for Medicare. There is also a 0.9 percent Medicare wages surtax for single taxpayers with wages above $200,000 ($250,000 for joint filers) that is not reflected in these figures. Please note that your employer also pays a 6.2 percent Social Security tax and a 1.45 percent Medicare tax on your behalf. These amounts are reflected in the self-employment tax rate of 15.3%, as self-employed individuals pay both halves of the tax rate.

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third quarter due date is now here.

Due date: Monday, Sept. 16, 2024

You are required to withhold at least 90 percent of your 2024 tax obligation or 100 percent of your 2023 obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

• Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. A quick payment at the end of the year may not help avoid the underpayment penalty.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough funds to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed. Remember to pay your Social Security and Medicare taxes in addition to your income taxes. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
• Don’t forget state obligations. You are also normally required to make estimated state tax payments if you’re required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

*If your income is more than $150,000 ($75,000 if married filing separately), you must pay 110 percent of your 2023 tax obligation to be safe from an underpayment penalty.

One of the best audit tips available can be summed up in one simple word – Match.

Spend a minute or two pretending you work for the IRS. What would you do to identify tax returns worth auditing? If you suggest matching information on filed tax returns with the information provided about that taxpayer from other sources, you would be right on the mark. The IRS runs an automated matching program that kicks out mismatches and helps identify audit targets without much effort on their part. Knowing this:

If you receive a notice from the IRS that something does not match what was submitted by you, consider requesting a copy of the information reported to them to determine where the mismatch occurred.

A common misconception in tax filing has been that if you use the standard deduction versus itemizing your deductions you have few additional benefits available to reduce your tax bill. This is often not the case.

Standard or Itemize?

Every taxpayer can take the standard deduction to reduce their income prior to applying exemptions. However, if your deductions are going to exceed the standard amount you may choose to itemize your deductions. The primary reason someone itemizes deductions is generally due to home ownership since mortgage interest and property taxes are deductible and are generally high enough to justify itemizing.

Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, and high medical expenses.

What is Available

So what opportunities are available to reduce your taxable income if you use the standard deduction? Here are some of the most common:

• IRA Contributions (up to $7,000, or $8,000 if age 50 or over)
• Student Loan Interest (up to $2,500)
• Alimony Paid (if divorce or separation agreement is effective prior to 1/1/2019)
• Health Savings Accounts (if you qualify)
• Donating appreciated long-term capital gain stock.
• Self-employed health insurance premiums
• One-half of self-employment tax
• Numerous education incentives such as Savings Bond Interest, Coverdell accounts, American Opportunity (Hope) Credit and Lifetime Learning Credit
• Plus numerous other credits including the Earned Income Credit, Child & Dependent Care Credit, Child Tax Credit, and Elderly or Disabled Credit.

Income limitations often apply to these tax reduction opportunities, but for those who qualify, the tax savings can be significant. This list is by no means complete. What should be remembered is to rely on a complete review of your situation prior to jumping to the conclusion that tax breaks are just for someone else. That someone else might just be you, the standard deduction taxpayer.

Basis is a common IRS term, but probably does not enter into your everyday conversation. This IRS term is important because it impacts the taxes you pay when you sell, exchange or give away property.

What basis is

The IRS describes basis as:

The amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In plain language, basis is the cost of your property as defined by the tax code.

There are a few different types of basis that apply to different situations, including cost basis, adjusted basis, and basis other than cost.

Types of basis

Cost basis. Your basis usually starts with what the item cost. Cost basis also includes sales tax paid, freight, installation, testing, legal fees, and other fees to purchase the property. If you acquire a business you must often allocate the purchase price to each of the assets to establish their basis.

Tip: Retain records of any major transaction. Ensure the documentation includes all allowable costs that could be applied to your basis. This will help reduce taxes when you sell or dispose of the property.

Adjusted basis. When you sell, exchange or dispose of property, such as your home, you may have to adjust its basis to account for changes to the property since you acquired it. This is known as its adjusted basis. A common example of adjusted basis is when you add the costs of capital improvements to property that have a useful life for more than one year.

Adjusted basis can decrease the value of property as well. This is the case when property is affected by things such as casualty or theft losses, depreciation and other deductions.

Home tax tip: Adjusted basis applies to many home improvements. These could include a full roof replacement, adding a room to your home, or even special assessments for local improvements. Create a folder and retain all documentation that could add to your home’s basis. It may lower your capital gain when you sell your home.

Basis other than cost. What is the basis when you inherit property, receive property for services or receive property as a gift? In most cases, the basis is the fair market value of the item. This is the price a willing buyer would pay for the item and a willing seller would be willing to receive for that item. But there are also special basis rules for:

• Inherited property
• Like-kind exchange of property
• Involuntary conversions
• Property transferred to a spouse

Should any of these situations apply to you, please ask for a review of your circumstances, as establishing basis can become fairly complex.