Author: Service2Client

The New Era of “No Tax” Policies: Selective Tax Exemptions and Their Side Effects

4 min read

No Tax on Tips, No Tax on Over TimeFormer President and current candidate Donald Trump introduced a new policy of his in a recent Arizona rally: No more income tax on overtime pay. This follows both Trump and Vice President Harris’ proposal for a no income tax on tips policy, as well.

Below we will look at the two recent proposals and what they could mean for both taxpayers and businesses.

No Tax on Tips

The no tax on tips policy looks to lighten the tax burden on service industry workers. According to the Fair Labor and Standards Act, anyone who “customarily and regularly” receives $30 or more in tips per month is considered a tipped worker. The mechanism to exempt tip income could possibly come through three different mechanisms.

One option would be to categorize tips as gifts. Service employees are often paid wages lower than the minimum wage (as low as $2.31 per hour), with employers required to “top-up” an employee to the federal minimum wage of $7.25 if tips don’t at least make up the difference themselves. As a result, considering tips as gifts may not legally work.

A second option is to treat a specified amount of tips as non-taxable income. Consider a policy, for example, in which up to $25,000 in tips is treated as non-taxable income. Legally, this is straightforward, but it could have various knock-off effects on those it is intended to help. For example, a taxpayer’s gross income could fall so low they no longer qualify for the earned income tax credit and end up being a net negative.

Finally, there is a third option of creating a new deduction; allowing taxpayers to first claim the income and then take a deduction to offset it. The issue here is that given the claimed income level of most tipped workers, an additional deduction may not be one-for-one incrementally beneficial to the standard deduction. In other words, so much of their income is already non-taxable, this wouldn’t make much of a difference.

Side-Effects

Depending on how the policy is structured, there are negative side effects that could accompany the policy change. Compliance with reporting tip income is already spotty at best. It’s not uncommon for tipped workers to underreport their tip income, especially for cash tips. The main concern is that employers and employees may try to game the system. There is a real chance that who is tipped changes and people may try to change compensation schemes so that other types of income are then changed to tip income to take advantage of the changes; especially for taxpayers for whom the law was never intended to help.

Non-Taxable Overtime

The second proposal is to exempt overtime wages from income taxation. The idea is that it would help workers who get to keep more of their money; and at the same time helping businesses, since employees would be incentivized to work more hours, thereby negating the need to hire more employees. While on the surface it seems like a policy to help the hardest working, there are potential problems.

Unfair to Regular Wage Earners

There are two possible issues. First, it leaves behind hourly workers who cannot work overtime due to other responsibilities, health or their job’s duties. It also disadvantages those who have to work multiple jobs (because their job doesn’t offer overtime, but they need the money).

Second, it doesn’t consider salaried positions. There are many salaried positions, where workers are exempt from overtime laws – and a large swath of these are not highly paid positions.

Administrative Complications

Employers and the IRS would need to deal with distinguishing between regular wages and overtime earnings. What is considered overtime is not always clear when there are pay concepts such as bonuses, shift differentials, commissions or other alternative payment arrangements. It would also add significant complexity to payroll systems.

Conclusion

While both policies are well intended, the devil is in the details. Implementation would need to be carefully considered; the intended taxpayers might not be the main beneficiaries; and there is room for fraud.

7 Reasons You Need a Will

4 min read

7 Reasons You Need a WillDrafting a will is not something that people, for the most part, want to think about. But no one gets out of life alive. So, if you want to have a say in what happens to your property and assets after you’re gone, a will is a very smart idea. Here are a few specific reasons why having a will makes good sense.

Facilitates Probate

First, a definition: Probate is the legal procedure your estate goes through after you pass. During this process, a court will start the process of distributing your estate to those you designate. When you have a will, the probate process has a legal document as a guide, one the court uses that clearly defines your wishes. This way, there are fewer roadblocks. Things go a lot more smoothly.

Protects Your Estate

Now, if you don’t have a will, there’s no binding legal document that espouses what you want to do with your assets. Instead, the probate court will distribute your estate according to your state’s intestacy laws. There’s no guarantee that the state agrees with what you want.

Designates Who Gets What

This is one of the most important. If your family includes ex-spouses and/or estranged relatives, having a will helps prevent squabbles. An unhappy relative will think twice about protesting when you have a well-drafted will.

Disinherits People, Too

If you don’t have a will, again, probate courts will distribute your estate based on your state’s intestacy laws, which create a hierarchy of inheritance among your surviving family members. Because families – and life – can be messy, when you have a will, you can specify who doesn’t get parts of your estate. Better still, you can even specify certain people to receive your assets as beneficiaries, who aren’t necessarily relatives. When you’re this specific within a legal document, it can further safeguard your wishes.

Provides For Your Children and Pets

When you have a will, it gives you the power to decide who will care for your children if they’re minors when you pass. If you don’t decide, a court will appoint a guardian. It’s safe to say that most people don’t want this; you know your children best. Since pets are considered property and they can’t inherit, you can make sure your beloved furry family members are adopted by a person or organization that you know and trust.

Specifies the Executor and Administrator of Your Estate

You get to decide who these people are, though sometimes they can be the same person. Generally, their function is to make sure your beneficiaries receive the assets you’ve designated for them. Having these trusted people in place will give you peace of mind. When you don’t have these individuals in place, you give up the control you could have had.

Helps Minimize Estate Taxes

Yes, it’s true. Your family, should they inherit property from you after you’re gone, might have to pay taxes on it. That’s why it pays to look into estate planning tools. When you have a will, you can build these stipulations into it. Just ask your accountant and/or lawyer to help you navigate these waters. It’s well worth it.

These are just a few of the reasons you need a will. Probably the main reason is that tomorrow isn’t guaranteed. When you’re gone, you’ve missed your opportunity to legally draft your final desires. That’s why, when you’ve set up provisions for all the things you’ve worked so hard for and all the people you leave behind, it’s truly an act of love.

 

Sources

Top 10 Reasons to Have a Will (findlaw.com)

Executor vs. Administrator: What’s the Difference? – Policygenius

Probate – What Is Probate & How To Avoid It | Trust & Will (trustandwill.com)

 

Pre-Retirement Planning Guide Health Plan

5 min read

Pre-Retirement Planning Guide Health PlanStep 4: Putting Together a Health Plan

Planning for healthcare in retirement is a tricky business. Some hardcore smokers live past 100, while some hardcore exercise and fitness gurus drop dead in their sixties. You just don’t know – which is why you need a plan.

Medicare

Once you turn 65, Medicare is available to most Americans. The problem is deciding what type of Medicare plan to purchase. Here is an overview:

Medicare Part A – This plan covers hospital stays, skilled nursing, hospice and some home health services. It is free for eligible beneficiaries but caps some benefit coverage and requires a deductible for each inpatient hospital stay. When a hospital stay is longer than 60 days, you’re required to pay a per-day rate – and that can add up.

Medicare Part B – This plan does charge a premium, and you have to buy it in concert with Part A. Part B covers doctor visits, preventive care, screenings, treatments, and medical equipment. It does not cover dental, vision, or hearing care and only pays for procedures deemed medically necessary. This plan also features a much lower deductible than Part A, but beneficiaries are responsible for 20 percent of covered services after the deductible.

Collectively, Parts A and B are what’s known as Original Medicare.

Medicare Part C – This plan is more commonly known as Medicare Advantage (MA). It is a paid alternative that combines coverage from Part A and B, plus offers add-on options for drug coverage, dental, vision, long-term care, etc. Plans vary significantly by insurer and may include any combination of deductibles, copayments, and coinsurance.

Medicare Part D – This plan offers coverage for prescription drugs. It charges a premium determined by your income, and deductibles, copayments, and coinsurance vary by plan. You have the option to purchase a standalone Part D plan when you enroll in Original Medicare.

Medigap – Also known as a Medicare Supplement Plan, this policy is a good idea whether you go for Original Medicare or an MA plan. That’s because it offers coverage for a lot of the gaps in those plans that generate high out-of-pocket expenses, including deductibles and coinsurance.

Long-Term Care

Among Americans who live past age 64, more than two out of three (70 percent) will at some point need long-term care. Whether you hire paid caregivers or move into a long-term care (LTC) residence, the cost of services currently averages between $60,000 and $100,000 a year in the United States. One of the biggest determinants of cost depends on whether you can get by with limited hours of help a day or need full 24-hour care. Note that for those with mobility issues (i.e., they cannot get to and from the toilet by themselves), 24-hour care is more likely.

Long-term care insurance (LTCi) can help you pay for this type of care so that you don’t deplete your savings quickly. This is especially important for couples, in which one spouse may need to enter an LTC residence while the other lives at home, with all the expenses that it entails.

The best time to buy LTC insurance is while you’re still healthy, as it is medically underwritten. The “sweet spot” is around age 55, but anytime in your mid-50s to early 60s is ideal. In most cases, policies are more expensive for women than men because women tend to live longer.

Caveats to Consider

  • Policies typically pay out a limited daily amount, which may not cover the full cost.
  • Policies typically pay out only for a limited period (e.g., 3 to 7 years)
  • A policy may have a lifetime amount cap

All this is to say that you may purchase a generous LTCi policy, but if you outlive its limits, you will need to use your own money to pay for caregiving and/or rely on Medicaid when you run out of funds.

Hybrid Insurance

The biggest risk to purchasing an LTC policy is that you may never need it. Some policies offer a form of premium return, but like most insurance policies, LTCi generally uses it or loses it. To avoid this scenario, another option is to purchase a life + LTC insurance plan – also known as a hybrid policy. It provides a certain amount of life insurance upon death. However, if you need long-term care before you pass away, the policy will allow you to tap that death benefit amount to pay for it. This allows you to use the coverage either for LTC or as a life insurance payout for your beneficiaries.

Plan For These Expenses Now

While everyone is usually thinking about how to pay for household expenses, travel excursions, or a second home in retirement – they often don’t think about a health plan. As you can see, Medicare doesn’t cover everything and those expenses can add up, especially for people who live a long time.

But if you start planning long before retirement, you can contribute to an earmarked account that builds over time and uses that money to pay for medical expenses. The Health Savings Account (HSA) requires enrollment in a high-deductible health plan, whether offered by an employer or purchased on your own. Contributions made to an HSA are tax-free (which reduces taxable income), and the funds can be invested for tax-free growth in a variety of investment options. Withdrawals are also tax-free as long as they are used to pay for eligible healthcare products and services.

Note that HSA proceeds are your money, no matter what. It differs from employer-sponsored accounts such as an HRA (health reimbursement account) or an FSA (flexible savings account) because you have only a limited time to use those funds – then they revert back to the employer. In other words, you can’t access that money once you retire.

U.S. Flag Mandate, Combatting Deepfake Pornography and Legislative Priorities of the Vice President Nominees in 2024 Election

1 min read

U.S. Flag Mandate, Combatting Deepfake Pornography and Legislative Priorities of the Vice President Nominees in 2024 ElectionAll American Flag Act (S 1973) – Introduced by Sen. Sherrod Brown (D-OH) on June 14, 2023, this bill requires that all U.S. flags used by the Federal government be manufactured domestically. This includes all raw materials. One exception to this mandate is if flags cannot be produced of acceptable quality and quantity as needed at competitive market prices. The bill passed in the Senate on Nov. 2, 2023, in the House on July 22, and was signed into law by the president on July 30.

Disrupt Explicit Forged Images and Non-Consensual Edits Act of 2024 (S 3696) – This bipartisan bill, also known as the DEFIANCE Act, is designed to protect victims of deepfake pornography. It defines civil action as a federal remedy for non-consensual parties who are identifiable in digital forgeries and depicted as nude or engaging in sexually explicit conduct. The bill, which was introduced on Jan. 30 by Sen. Richard Durbin (D-IL), passed unanimously in the Senate on July 23. It goes to the House next, where a similar bill has been introduced.

 

Congress is not in session Aug. 5-30, as members return to their districts. 

Looking at the Expanded Accounting Equation

3 min read

Expanded Accounting EquationWhether it’s a private equity transaction or an institutional or retail investor, analyzing a company’s financial statements is an important part of fundamental analysis. One important but basic way to analyze whether a company is worth investing in is through the expanded accounting equation. The most straightforward equation to analyze a business’s balance sheet is:

Assets = Liabilities + Shareholder’s Equity

However, there are more detailed equations that analysts can employ to more closely examine a company’s financial situation. One way to look at it is by more comprehensive equations that break down net income and the transactions related to the equity owners (dividends, etc.).

This equation is a building block of accounting because it focuses on double-entry accounting – or that each occurrence impacts the bifurcated accounting equation – requiring the correct solution to always be in balance. This system is used for journal entries, regardless of the type of transaction. Looking at this equation in greater detail, here’s a more granular example:

Assets = Retained Earnings + Liabilities + Share Capital

Assets are the capital that give a business the ability to benefit from projected, increased productivity and hopefully increased gains. Whether it’s short-term (less than 12 months) or long-term (more than 12 months), it can take the form of real estate, cash, cash-equivalents, pre-paid expenses, accounts receivable, etc.

Liabilities are the amounts owed to lenders due to past agreements. This is related to the sum of liabilities, which is the total of current (up to 12 months) liabilities, plus long-term (more than 12 months) debt and related obligations. This takes the form of loans, accounts payable, owed taxes, etc. Shareholder’s equity is how much the company owners may assert ownership on after accounting for all liabilities.

Another way this equation can be expressed is as follows:

Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenue + Expenses + Dividends

Depending on the financial outcome of the company, dividends and expenses may be negative numbers.

To further explain, these variations on the equation help analysts break down shareholder’s equity. Revenues and expenses illustrate the delta in net income over discrete accounting/earning periods from sales and costs, respectively. Stockholder transactions are able to be accounted for by looking at what capital the original stockholders provided to the business and dividends, or earnings distributed to the company’s stockholders. Retained earnings are carried over from a prior accounting period to the present accounting period. Despite being elementary, the information is helpful for business managers and investors to develop a higher level of analysis.

When it comes to evaluating bankruptcy, it can help investors determine the likelihood of receiving compensation. When it comes to liabilities, should debts be due sooner or over longer periods of time, these debts always have priority. When it comes to liquidated assets, these are then used to satisfy shareholders’ equity until funds are exhausted.  

While this is not a comprehensive look at how to analyze a company, it provides internal and external stakeholders with a way to build a strong financial analytical foundation.

Important Update on New Company Reporting Laws CTA – BOI

4 min read

Corporate Transparency Act (CTA), Beneficial Ownership Information (BOI)On Jan. 1, 2024, the U.S. government debuted the Corporate Transparency Act (CTA). This legislation established the requirement for the majority of private companies, both big and small, to file information with the Financial Crimes Enforcement Network (FinCEN).

As with most new laws, the initial guidance and interpretations have been both challenged and questioned. In response, FinCEN recently turned out new FAQs, which we review below.

Big Question First: To Report or Not

Reporting is generally required by all private, for-profit entities. This includes corporations, LLCs, S-Corps, etc., whenever the company was created by filing a document with the office of the Secretary of State. Entities formed under the laws of jurisdictions outside the United States are also likely subject to reporting if they are registered to do business in the United States.

To help visualize the above, you can take a look at this flowchart published on the FinCEN website.

Screenshot from FinCEN website

While the general rules seem (and are) broad in construction, there are 23 specific exemptions, including publicly traded companies, nonprofits, and certain large operating companies. The FinCEN’s Small Entity Compliance Guide checklist can help in determining if you fall under an exemption.

Now, let’s move on to more specific questions.

Who is a beneficial owner?

An individual who either directly or indirectly exercises substantial controls or owns 25 percent or more of the reporting company.

What constitutes substantial control?

There are four (separate) ways to exercise substantial control:

  • The individual is a senior officer
  • Has the authority to appoint or remove officers or a majority of directors
  • An important decision-maker (regarding strategic, business, or finance)
  • They have any other form of substantial control as per the FinCEN’s Small Entity Compliance Guide.

Who is a company applicant for a reporting company?

Another of the more perplexing questions revolves around exactly who a company applicant of a reporting company is.

First, only reporting companies created or registered on or after Jan. 1, 2024, need to concern themselves with the company applicant rules; companies formed before are exempt.

There are two possible individuals who could be considered company applicants. One is the person who directly files the documents to create and register the company. This person will always exist and be an applicant of the reporting company. In the case where there were multiple people involved in the filing or registration, the individual who primarily controlled the filing is also considered an applicant.

Thankfully, FinCEN created another handy flowchart to help navigate through this rather confusing decision.

Screenshot from FinCEN website

What about sole proprietorships?

It depends. Sole proprietorships only have to report if the entity was created by filing a document with a secretary of state or similar office. In other words, if you just start freelancing and don’t file anything with a secretary of state office, you are not subject to the reporting requirements. Basically, if you didn’t form an LLC, you don’t need to report. For example, obtaining an employer identification number, a fictitious business name, or a professional or occupational license does not subject you to the FinCEN reporting requirements.

What if my company ceased to exist before the CTA requirements went into effect?

If a company ceased to exist on or before Jan. 1, 2024, then they are NOT subject to the reporting requirements.

Do I have to report more than once?

No, you only have to file an initial report once. There is NOT an annual report. You do, however, need to amend your original filing to update pertinent changes or corrections within 30 days of their occurrence.

What happens if I don’t file a report?

Willful violation can subject one to a fine of up to $500 per day until the violation is resolved. Criminal penalties could also be imposed, resulting in up to two years imprisonment and a fine of up to $10,000.

Conclusion

The FinCEN released its guidance to clarify uncertainties around the new CTA-created reporting requirements. The goal is to ensure full and accurate compliance without undue burden on companies and individuals.

From Likes to Leads: Converting Social Media Analytics into Business Opportunities

4 min read

Converting Social Media Analytics into Business OpportunitiesSocial media has become a powerful tool for helping businesses reach their prospects and customers. By using social media, a business can connect with its audience, build brand awareness, and drive sales. However, many struggle to convert social media engagement – likes, shares, comments, and followers – into tangible business opportunities. Transforming these engagements into actionable leads and sales is where the real power of social media lies. To successfully unlock this potential, businesses must effectively use social media analytics.

Understanding Social Media Analytics

Social media analytics involves gathering and analyzing data from social media platforms to help make informed business decisions. This data includes metrics such as engagement rates, reach, impressions, follower growth, and sentiment analysis, among others. By understanding what this data signifies, businesses can gain valuable insights into the behavior, preferences, and needs of their audience. These insights are then used to tailor marketing strategies, create more relevant content, and improve customer interactions.

The Shift from Vanity Metrics to Meaningful Insights

Sometimes, it’s easy to get caught up in vanity metrics, such as the number of likes or followers. It is important to note that these metrics do not necessarily translate to sales. To convert social media engagement into leads, businesses need to focus on meaningful insights that reveal how engaged their audience is and how this engagement can be leveraged.

For instance, instead of focusing on the number of likes, businesses should analyze which types of posts are receiving the most engagement and why. This includes checking the topics, formats or times of day that generate more interest and engagement. By identifying patterns and trends, businesses can enhance their content strategy to focus on what resonates most with their audience.

Identifying and Nurturing Potential Leads

After having a better understanding of what drives engagement, businesses can begin to identify potential leads within their social media audience. This is where advanced analytics tools come into play. Tools that track and analyze individual user interactions will help identify users who consistently engage with posted content.

For example, a user who frequently comments on posts, shares content, or clicks on links may demonstrate a strong interest in the business’s products or services. Businesses can categorize such users as potential leads. More focus is placed on this category by nurturing them through personalized content, direct engagement, and targeted offers.

It is also good to note that social media analytics is a powerful tool for analyzing competitors’ strategies, too. By monitoring their comment sections, a business can identify gaps or unmet needs in their audience that present opportunities to capture market share.

Leveraging Social Media Ads for Lead Generation

Social media advertising is another effective way to convert social media engagement into leads. Platforms like Facebook, Instagram, LinkedIn, and X (formerly Twitter) offer advanced targeting options that allow businesses to create highly personalized ad campaigns based on user data. Businesses can create ads specifically designed to appeal to their most engaged followers.

For instance, if analytics reveal that a particular segment of followers is highly interested in a specific product, businesses can create ads that feature this product and offer a special promotion or discount.

Turning Engagement into Sales Through Conversion Optimization

Once potential leads are identified and targeted through ads or personalized content, the next step is to optimize the conversion process. This involves ensuring a seamless journey from social media engagement to lead capture and eventual sale. A critical aspect of this process is the landing page – a dedicated page on the business’s website designed to capture leads.

The landing pages must be tailored to match the expectations set by the social media content or ads that drove the traffic. For example, if an ad on a social media platform promises a free or discounted offer, the landing page should prominently feature this offer. Additionally, it helps A/B test different landing page designs, headlines and calls to action to identify the most effective strategies.

Using Analytics to Measure and Improve ROI

Unlike traditional marketing channels, social media analytics can track and measure the effectiveness of marketing campaigns. By tracking key performance indicators (KPIs) such as reach, click-through rates, conversions, and cost per lead, businesses can measure the effectiveness of their social media campaigns and make necessary adjustments.

Continuous monitoring and optimization ensure that social media efforts drive engagement and contribute to the business’s bottom line.

In conclusion, converting social media engagement into actionable leads and sales opportunities requires a strategic approach leveraging social media analytics’ power. Businesses can tailor their content, identify and nurture potential leads, and optimize their conversion strategies by moving beyond vanity metrics and focusing on meaningful insights. This will ultimately drive business growth and success in today’s competitive digital landscape.

Accounting Considerations for Capital Expenditures and Operating Expenses

3 min read

Accounting Considerations for Capital Expenditures and Operating ExpensesWhen it comes to running a business, there are a lot of expenses incurred during operations. As of January 2024, New York University’s Stern School of Business had recorded nearly $1.2 trillion in capital expenditures by U.S. sectors. Considering this, there are two important concepts that are imperative to study for effective accounting treatment: capital expenditures (CapEx) and operating expenses (OpEx).

Defining CapEx and OpEx

Operating expenses (OpEx) are required outlays a company incurs on a more frequent basis to take care of day-to-day expenditures. Capital expenditures (CapEx), conversely, are larger purchases that businesses intend to use over the long term (at least 12 months). 

Different Considerations

OpEx

This type of asset is more of a short-term consideration. Expenses that fall under this category include utilities, wages, rent, taxes, selling, general and administrative expenses (SG&A). Unlike CapEx, businesses may benefit from tax deductions for these types of expenditures as long as the business incurs the expense during the same tax year. These expenses reduce a company’s net income. However, they are not eligible for depreciation, which is how CapEx reduces a business’ net income. Since the entire expense is recognized right away, they’re reported on the income statement.

CapEx

This type of asset is intended to have a useful life of more than one year. Examples of these types of assets include warehouses, data centers, work trucks, etc. Many of these items fall under PPE or property, plant, and equipment (PP&E) on the balance sheet. On the cash flow statement, it can be reported under the investing activities section.

Since these items are intended to last for a considerable time frame, such investments are planned to improve the profitability/capabilities of the business. Unlike OpEx, these expenditures are not tax deductible. It’s also important to understand this applies to intangible assets, such as patents, goodwill, etc.  

These types of assets are financed by either collateral or debt. Businesses also can issue bonds or get creative with their financing partners. Listed as a capitalized asset on the balance sheet, it’s depreciated over the asset’s useful life. However, it’s important to note that land is not depreciated.

Considerations between CapEx and OpEx

When it comes to CapEx, it’s important to know that some transactions can be paid for during the acquisition period, but acquisition costs can also occur over multiple accounting periods if it’s a long-term project, such as building a manufacturing plant or warehouse.

CapEx can determine the financial health of a company. If a company can reinvest in itself through patents, machinery, equipment, etc., along with maintaining or increasing its dividend payments to shareholders, then the company is on solid financial footing.

Depreciation for CapEx items is advantageous for companies because it provides a balance to the investment by lowering the company’s net income.   

There is another reason why both types of expenses exist. OpEx is a better choice if a business wants to be more agile and protect capital. CapEx would be used if a business is aiming to invest for long-term profitability and competitiveness.

Understanding how these two expenses are classified and accounted for is essential for businesses to navigate the accounting requirements and tax code effectively.

Sources

https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/capex.html

Are You Ready for Major Tax Changes in 2026?

4 min read

Are You Ready for Major Tax Changes in 2026?The enactment of the Tax Cuts and Jobs Act (TCJA) in 2017 brought with it major changes to the tax code on both personal and business levels. While many taxpayers have not only enjoyed but come to see these tax provisions as normal over the past seven years, many provisions of the TCJA are set to expire at the end of 2025. This makes 2026 and beyond potentially a very different tax landscape than the one we operate in today. This article reviews main provisions of the TCJA that could be affected and what it could mean for taxpayers.

Return of Higher Tax Rates

Lower tax rates were a hallmark of the TCJA. Rates on all income brackets were lowered (except the lowest 10 percent bracket). Without an extension of this act, tax rates will automatically return to their former levels, with the highest at 39.6 percent for federal income taxes.

Look for Return of Lower Standard Deductions; Higher Personal Exemptions; Unlimited SALT Deductions

The TCJA created a sort of trade-off by raising the standard deduction but lowering personal exemptions and limiting the state and local tax deductions (SALT) for itemizers. The reversal of these provisions can be either a net positive or negative, depending on each taxpayer’s situation. Generally, for those who reside in high tax brackets (income tax and/or property tax) or with a lot of dependents, the reversion will be favorable.

Currently, the standard deduction is $29,200 (married filing jointly) or $14,600 (single). These amounts will be almost cut in half to $16,600 and $8,300, respectively.

Offsetting these deduction losses, personal exemptions return. Currently, there are no personal exemptions, but this will go back to pre-TCJA levels adjusted for inflation, approximately $5,300 for each taxpayer, spouse and dependent.

The SALT deduction is capped at $10,000 under the TCJA. This limit will be eliminated; potentially giving dramatic benefit to taxpayers in high-income tax and property tax states.

Finally, it should be noted that materially lower standard deductions may create a lot more taxpayers who would benefit from itemizing deductions versus taking the standard deduction. In addition, the SALT cap, currently at $10,000 per tax return (not per person), will be eliminated.

Tax-Deductible Mortgage Interest on Large Loans

The TCJA limited tax-deductible interest on mortgages taken out in 2018 and after to interest on $750,000 of mortgage debt, versus the previous $1 million cap. This will revert back to the higher $1 million limit.

Lower Alternative Minimum Tax (AMT) Exemptions and Phase-Outs

Significant increases in AMT exemptions and phase-out limits were part of the TCJA and, as a result, millions of taxpayers were no longer subject to the AMT. This provision will revert as well, subjecting millions of taxpayers to the AMT. In particular, taxpayers who take large, itemized deductions and benefits from incentive stock compensation schemes will be the most negatively impacted.

Lower Estate and Gift Tax Limits

The TCJA nearly doubled the federal lifetime estate and lifetime gift tax exemption from $7 million to $13.61 million for a single taxpayer. These amounts double for couples making joint gifts. The limits would revert back to the $7 million level. Note that the annual gift tax exclusion of $18,000 per person is not expected to change.

Elimination of 20% Qualified Business Income Deduction and Bonus Depreciation

Pass-through business owners (e.g., S-corps, LLCs) benefitted from up to a 20 percent deduction on qualified business income under the TJCA (subject phase-outs). Business owners also benefitted from bonus depreciation as part of the TCJA – as high as 100 percent at one point. Both of these business-friendly provisions are set to expire completely unless Congress takes action.

Plan For Change

Whatever may be in the near-term, the only constant when it comes to taxes is that they will certainly be here. History teaches us to never get comfortable with the current tax code. The exact iteration of an extension of the TCJA or lack thereof is uncertain at this point, but the provisions at risk are known. For some taxpayers, this article is more of an FYI; while for those with multi-year planning strategies, the time to consider various outcomes and work with your tax advisor is now.

Pre-Retirement Planning Guide Financial Plan

4 min read

Pre-Retirement Planning Guide Financial Plan

Step 3: Develop a Financial Plan

We all have a different vision for our golden years – and we are also on individual financial tracks to meet our financial goals for retirement. But if you’re not where you think you should be by age 50, consider ways to step up your efforts. Some ideas frequently recommended by financial planners include the following:

Reduce Your Expenses

You could give up some streaming services and your Friday night out with friends, but those are not likely to be impactful moves. Besides, let’s face it, those will be important entertainment and social outlets once you are in retirement, so you might not want to give them up now. A better move would be to reduce big-ticket expenses. These include your home (mortgage payments, insurance, taxes, maintenance), your car/s (payments, insurance, taxes, maintenance), tuition payments, and expensive vacations.

If it helps, break down these expenses into purposes to put them in perspective. A home provides shelter. A car gets you from point A to point B. Tuition is to educate your children and set them on a course for a meaningful life. Vacations enhance your daily life, expose you to new places, and help you bond with loved ones. Now ask yourself this: Can you achieve those four functions with a less expensive home, car, college, or vacation destination? It would be tough to say no.

Once you’ve identified these savings opportunities for a more financially secure retirement, it’s up to you to decide what to do about them. And remember, if you are considering relocation at any point – even in retirement – it is better to move sooner than later. This gives you more time to assimilate to new surroundings and make good connections (family, friends, doctors, social activities) to accompany you throughout retirement.

Invest Smartly

It’s a good idea to work with an experienced retirement financial planner who will take the time to understand your needs and objectives and make appropriate recommendations. Tip: To be assured of objective advice, consider hiring an advisor who charges by the hour rather than one who earns income via sales commissions.

Bear in mind that investing smartly can include a lot of different strategies. It could mean diversifying a current stock-dominant portfolio to include more bonds and cash – but adding a few well-researched, aggressive stocks for high-growth potential. It could mean moving a portfolio laden with high expenses to less expensive options, such as exchange-traded funds. At some point, your advisor will likely recommend transitioning your portfolio to more conservative holdings for the duration of your retirement.

And of course, use this time before retirement to max out your retirement plan contributions: In 2024, up to $23,000 + $7,500 catch-up (age 50 and older) for employer plans; up to $7,000 for a traditional and/or Roth IRA (combined total) + $1,000 catch-up.

Consolidate Your Accounts

Plan to have your accounts consolidated by the time you retire. It will be a lot easier for you (and eventually, your power of attorney and estate executor) to manage your finances if they are all in one or two places, such as a bank and/or an investment portfolio custodian.

Auto Pilot

Note that many retirement planners recommend you put your financial life on autopilot at some point in your 70s based on neurological studies that show decreased cognitive functioning as we age. But honestly, there is no reason why you shouldn’t start earlier.

Thanks to today’s technology, our financial lives are made easier no matter what age we are. We can program our bills to be paid automatically each month. We can balance our checkbook and check our credit card, savings, and investment balances online. We can have money sent to us (free of charge) via direct deposit, Venmo, and Zelle. We can schedule automatic investments, conduct buy and sell trades online, and have distributions transferred directly into our accounts.

All the methods of putting finances on autopilot that will benefit you in retirement will also benefit you right now. So, if you’re not using them yet, learn them and stay up-to-date with new technology so it won’t be intimidating as you get older. And as always, find a retirement planner who you trust to guide you in this process.