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.

Determining the best time and best way to take Social Security benefits can make a big difference in the amount you receive over the balance of your lifetime. What is prudent, is understanding how it works and, if appropriate, running calculations prior to making your benefit decision. Here are some things to consider.

Full retirement age is quickly becoming 67. Your full Social Security retirement benefit can be claimed when you reach your target retirement age. This is age 66 for those born between 1943 and 1954. Those born after 1954 have their full retirement age increase by two months per year until full retirement age becomes 67 years old for those born in 1960 or later.

Taking it as early as 62. You may begin taking your Social Security benefit as early as age 62. But if you do so, your full retirement benefit amount will be reduced for each month you are short of your full retirement age. The Social Security Administration estimates up to a 30% reduction in your benefits if you choose to take benefits when you reach age 62.

Delaying the benefit up to age 70. After your full retirement target age, for each year you delay the start of receiving your Social Security retirement benefits (up to age 70), the benefit amount increases by approximately 8%.

Receiving survivor benefits. If a spouse dies, the surviving spouse is eligible to receive a Social Security Survivors benefit. The survivor benefit can be collected by as early as age 60. However, the benefit received is reduced for each month the survivor is short of their own full retirement age. You may not receive both a Survivor Benefit and your own Social Security retirement benefit, but you can switch from Survivor’s Benefits to your own retirement benefits and vice versa.

Taxability of benefits. Up to 85% of Social Security Benefits can be taxable. This can happen when you still work or are taking taxable funds out of retirement accounts.

Life expectancy comes into the calculation. Once you start your Social Security benefits, you will receive them until you pass away. Receiving benefits at an earlier date means receiving more payments over your lifetime, but at a lower benefit amount. Delaying the start means fewer, but higher, payments during your lifetime.

Benefit reduction risk. In addition to having your benefits subject to tax, you can also have your benefits reduced. This may occur when you are not at your full retirement age and you are also receiving wages or business income subject to Social Security tax.

Spousal benefits. Another variable to consider is the availability of receiving spousal benefits instead of receiving your own Social Security retirement benefit.

So what is your best bet? The best tip for all of us is to know how it works long before retirement and develop a plan before you begin receiving Social Security benefits.

Personally Identifiable Information, or (PII), is in the spotlight at the IRS, the Federal Trade Commission (FTC) and the Department of Labor (DOL), plus other federal agencies. Moving beyond the buzz and into understanding what it means for you relates directly to protecting your personal information from would-be thieves.

The Concept

PII is information that identifies you or relates specifically to you. This includes the obvious: name, address, phone number, and Social Security number. It also includes information that identifies your financial data, such as credit card information, emails, account numbers, user IDs, and passwords.

The point is that federal agencies are now focusing on identifying who legitimately has your PII and requiring that they have an active plan to protect it from hackers and thieves. In fact, anyone who has PII or other financial information must now have a Written Information Security Plan to outline how they plan to protect this information.

What you need to know

Your tax information is key PII. As you can imagine, your tax information is loaded with data that’s a target for thieves. So be aware of how you store this information. Also let vendors know you don’t want your Social Security number exposed on any mailed forms like W-2s and 1099s.

Know who has your PII. Be aware who has your personal data and be deliberate about deciding who really needs it. Close unused accounts and ask them to delete their records as soon as possible. Remember, this is not just your bank or tax professional. It includes any vender that stores your credit card number for future transactions or anyone you autopay with a link to your bank account.

Be watchful. As part of the federal requirements, any suspected security breach incident is to be reported to you on a timely basis. But despite these requirements, this does not always happen. So be diligent, and take advantage of the free annual credit report from each of the major credit reporting agencies to double check for any suspicious activity.

Your information is secure. As your tax professional, we protect your personal information and take this task seriously. While no one can guarantee something bad won’t happen (just look at recent cases of data theft at United Health Care and AT&T), it is our obligation to identify personally identifiable information, have a plan to protect it, and be constantly vigilant.

Mention the word IRS and everyone’s blood pressure tends to go up a bit. Unfortunately, thieves know this too and often use the IRS as a threat to get you to fall for their latest scam.

Every year the IRS mentions their dirty dozen tax scams and repeatedly tries to keep us all on alert. A review of recent alerts outlines some common traits of these scams. By being aware of them, you increase the chances of discovering the newest threat, even before anyone becomes a victim. Here are some common traits:

Personal information is always the target. Scammers are always going to ask for personal information. This is typically your Social Security number, your age, address, and birth date.

Getting your ID is a bonus. Thieves would love a copy of your passport or driver’s license. This ID is often required to prove your identity. So a common tax scam is to tell you that you have unclaimed refunds and must prove your ID to get the unclaimed money.

The more significant the threat, the more likely the scam. Threatening arrest, levy of your bank accounts, or sending the sheriff or police to your residence or business are great ways to intimidate. The IRS does not work this way.

The wording doesn’t seem right. If you see an IRS notice with title case or mixed fonts, or perhaps the margins don’t look right, these are all signals that the notice may be fraudulent.

Demands for payment. Demands for payment of any kind over the phone or via email is not how payments to the IRS are made. All payments are paid to the U.S. Treasury. So that request for your credit card number is a clear scam attempt.

Your best defense against scams is to be wary and alert. When in doubt, go to www.irs.gov and contact the agency along with your tax professional. This is the best way to get independent confirmation of any claims being made on your tax record.

The kids are out of school, which means now is a great time to review the rules to deduct eligible summer activities on your tax return. Tax deductible related daycare expenses through the use of the Child and Dependent Care Credit can be a great opportunity to reduce your child care expenses this summer. Here is what you need to know.

What is deductible?

The credit equals 20% to 35% of qualified unreimbursed expenses with a maximum amount of expenses being $3,000 for one person (maximum credit of $1,050) and $6,000 for two or more qualifying persons (maximum credit of $2,100).

How it works

To receive the credit you must:

• have a dependent under the age of 13 or have a spouse or dependent who is physically or mentally unable to care for themselves
• have earned income (wages) to support the dependent
• have qualified expenses (that allow for care while you work or look for work)
• financially support and maintain a home for the dependent
• if married, both you and your spouse must be working or looking for work

Some summertime tips

1. Daycare expenses are the most common qualifying expense for the Dependent Care Credit.
2. In-home daycare during the summer months also qualifies. Your sitter cannot be a dependent, a spouse, or someone under the age of 19.
3. Day camps qualify for the credit.
4. OVERNIGHT camps and summer school/tutoring do NOT qualify.
5. Track the mileage of transportation to and from any qualified activity. For instance, if your daycare provider takes the kids on a field trip, the mileage would be part of the qualified activity.
6. Even cooking and housekeeping expenses can count if at least partly done for the protection and safety of a qualifying person.
7. Placing your child in a day camp while one of you volunteers at a charity would not work in determining qualified dependent care expenses.

Remember to get the provider’s name, address, and Social Security number/Tax ID number. Also retain any receipts and canceled checks to support your proof of payment. This information will be required when you fill out your tax return.

For most taxpayers, you have until April 15th of the following year to contribute up to $7,000 ($8,000 if age 50 or over) into a Traditional IRA or a Roth IRA. Is an IRA an option worth considering for you? If so, which is better?

Traditional IRA

Roth IRA

• Traditional IRA contributions that qualify for pre-tax treatment will allow a larger beginning investment to compound over time versus a Roth IRA.
• Roth IRA contributions, though smaller because of tax treatment, could create earnings that are never taxed.
• Roth IRA accounts have more flexible contribution and withdrawal rules.

So the answer is. . .it all depends. If you think tax rates will be significantly higher when you withdraw your retirement savings, then think seriously about a Roth IRA. This is the case in 2026 when temporary tax laws expire and the maximum tax rate returns to 39.5% (currently 37%).

If you think your retirement account investments will perform well, then perhaps the earnings growth in a Traditional IRA will more than pay for the additional tax at time of withdrawal.

Unless Congress takes action, a number of temporary tax laws are going to expire at the end of 2025. This means you have this year and next to take advantage of the current rules. That doesn’t mean Congress won’t extend the current laws, but why take the chance? Here are some of the larger changes to consider:

• Tax rates will go up, with very different income brackets.

Result: Most taxpayers will be subject to higher tax rates with the top rate moving from 37% to 39.5%. The income subject to these rates will also change dramatically. Now is the time to effectively manage tax brackets to avoid higher rates!

• Many more taxpayers will itemize deductions and have them subject to phase outs.

Result: Standard deductions may go down and your deductions may be lowered if your income exceeds certain thresholds. There is good news as the $10,000 tax limitation will be removed, and currently-excluded deductions are planned to be reintroduced.

• More will be impacted by the alternative minimum tax

Result: Many more families will be subjected to a potential second tax calculation with the higher of the two tax rates being used to tax your income.

• The child tax credit will be reduced, as will the phaseout for qualifying for the credit

Result: Most families with children will see a higher tax bill.

• There will be different capital gain tax rules

Result: Planning sales of assets will be more important than ever and is a tremendous tax planning opportunity to consider prior to the tax change!

• Exemptions will be re-introduced

Result: This tax reduction provision may take some of the sting out of the rollback of temporary tax laws.

• Small businesses may lose their 20% QBI deduction

Result: While small businesses in flow through tax entities, such as S Corporations, partnerships and sole proprietorships, will lose a valued tax break, look for Congress to re-introduce other tax incentives to combat the perceived lack of tax fairness when compared with other countries.

Given these pending changes on the tax horizon, now is a great time to see if you can take advantage of the current tax laws BEFORE they are scheduled to change.