If you’re a business owner, own a rental property, or receive self-employment income and are registered with a Secretary of State, you may be subject to Beneficial Ownership Information (BOI) reporting. To provide ownership security to U.S. licensed companies, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN), is requiring initial BOI reports as of January 1, 2024 from domestic and foreign companies who file with a Secretary of State or similar offices in the United States.

Know when to file a report now to avoid headaches later

Whether you are involved in a partnership, LLC, or corporation, the importance of reporting to FinCEN is not just for security purposes. If not filed on time, BOI reporting can become a personal financial burden. There is no fee associated with BOI reporting, however those who fail to report or willfully violate the BOI requirements may be subject to civil penalties of up to $500 for each day the violation continues. Below are deadlines that will help individuals determine when they will need to file a BOI report:

• Entities created or registered on or after 1/1/2024: 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report.

• Entities created or registered before 1/1/2024: Must report an initial BOI before 1/1/2025.

• Entities created or registered after 1/1/2025: 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.

This is a one-time filing, but keep tabs on your future business changes

If changes occur with required information about your company or its beneficial owners, your company must file an updated report no later than 30 days after the date of the change.

Please note, company applicants cannot be removed from a BOI report even if that individual no longer has a relationship with the company.

Any individual associated with the reporting company is eligible to file the report on behalf of that group, but to mitigate any mistakes, seeking out a trusted legal professional such as an attorney, is recommended. Please visit the FinCEN BOI E-filing website and their thorough Q&A section for further information on BOI reporting.

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Don’t let time run out on these end-of-year tax plays. Not having a tax projection done can be a costly mistake. Besides giving you peace of mind in April, in order for you to pay the lowest percentage of taxes over your lifetime you have to plan and utilize every opportunity. Sometimes this means paying more dollars in tax in the current year to seize and maximize that lower rate.

For Lower Income Tax Brackets

 While your income is low, it may make sense for you to realize more income now and better utilize your low tax rates. 

1. Roth 401K and Roth IRA contributions: Contributing to a Roth 401k or Roth IRA may cost you more in taxes today, but it allows those dollars to grow tax-free. If you can do this early in your career and give your retirement dollars a long time to grow, the tax savings will be enormous.

2. 0% federal tax on capital gains: Many people are unaware that the IRS actually allows for a 0% tax on capital gains (Example: Gain from sale of stock). If your taxable income is below $44,625 Single $89,250 Married-Filed-Jointly, you may want to realize additional gains this year by selling stock to take advantage of these low rates. Keep in mind you may still need to pay state & local taxes on these sales but selling at the 0% federal tax bracket is an opportunity you can’t afford to pass up.

3. Lower your tax bracket when your income is low in retirement: Sometimes this situation occurs not when you are starting your career but when you are ending it. In the years between retirement and age 72, when Required Minimum Distributions start, there are opportunities to take advantage of these low tax brackets as well.

4. Lower your tax withholdings in January: If you are getting a large refund, adjust your withholdings on your paycheck for the next year. Adjusting early in the year keeps more money in your pocket each month. Do not give the IRS an interest-free loan.

For Middle Income Tax Brackets

As you start making more money and entering higher tax brackets, this is the time to start looking for deductions. 

1. Maximize your employee benefits: Have you maximized your employee benefits (including catch-up at age 50), H.S.A., and other benefits? When you are a W-2 employee, the best place to look for deductions is at work. Many companies will also offer some sort of match on retirement contributions. By not putting enough or anything into your workplace retirement plan, you may be leaving money on the table.

2. Tax loss harvesting: One place you might go looking for additional deductions is your brokerage account. While no one likes to lose money on their investments, Capital losses can offset up to $3,000 of ordinary income each year. If your income is high you may want to harvest losses for two reasons:

   1. Taking losses now allows you to put off paying tax in favor of paying down the road when it might be cheaper, potentially 0% or 15% federally.

   2. To stay out of the 20% highest capital gains bracket ($492,301 Single, $553,851 Married-Filed-Jointly for 2023)

3. Non-Deductible IRA contribution: If you are already doing the items above and want to put more away for retirement, you might consider funding a non-deductible IRA. You (and your spouse) can put up to $6,500 (for 2023) into an IRA each year. This puts after-tax dollars into an IRA which could later be converted to a Roth IRA, which can grow tax-free. Keep in mind that the IRS views all of your IRAs as one IRA. Any distribution or conversion must be done proportionally to your taxable and non-taxable balances. If you have taxable amounts in your IRA, you may owe tax on any conversions.

4. Raise your tax withholdings in January: If you owed a lot in April last year, it may be an indicator that you need to adjust your withholdings for the coming year or make estimated payments. The IRS requires you to pay the tax due at least quarterly. January is a good time to adjust your withholdings because you have the entire year for the changes to take effect. This means you can make the smallest change to your net pay and still yield the desired effect at year-end.

For Higher Income Tax Brackets

When you find yourself with a surplus of money, living generously may yield additional tax savings.

1. Charitable contributions using stocks: While contributing to charity generally does not save you more than you spend on your taxes if you have the heart to give there are efficient tax strategies that can allow your donation to go further. As changes to itemized deductions have vastly limited the amount of benefit many people can get from making charitable contributions, with careful planning, there are ways you may still save big.

   1. Contributing long-term appreciated stock may allow you to gain a charitable contribution for the fair market value of the stock and never pay the capital tax from the sale.

   2. Utilizing a donor-advised fund may allow you to bunch several years of donations into a single year. This could allow you to take larger deductions over several years.

   3. If you are over age 70.5 and not itemizing your deductions it may make sense for you to contribute straight out of your IRA with a Qualified Charitable Distribution. These donations get paid straight from your IRA and are not taxed.

2. $16,000 gifts to your children: If you are planning to transfer a large estate to your children upon your death it may make sense for you to utilize the annual gift limits and give each year to potentially lower taxes on your estate. These gift limits are annual and adjust with inflation. Current limits are $16,000 per year per individual. This means a husband and wife could give $16,000 each to a child for a total of $32,000. If that child is married, they could also give their child’s spouse the same amount without filing a tax return.

   To be clear, you can give all the way up to your lifetime limit in a given year without paying taxes, but giving more than $16,000 requires you to file a gift tax return and reduce your lifetime estate.

When it comes to taxes, Benjamin Franklin said it best when he said “failing to plan is planning to fail”. If you have not done so already, get your tax plan going before the end of the year. 

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Due to the newly proposed legislation (Inflation Reduction Act), if you are in the market for a new electric vehicle, you may want to rush to the dealership today (August 11th)!  In the proposed legislation, Congress extended the electric vehicle credit but has added new restrictions which will make qualifying for the credit more difficult.

Here is a list of the new limitations proposed for Electric Vehicles delivered in 2023:

1. 40% of the Battery must have been made in a country in which the US has a free trade agreement.

2. MSRP must be under $55,000 for sedans and $80,000 for vans and SUV’s.

3. Modified Adjusted Gross Income must be less than $300,000 for married joint returns and $150,000 for others.

4. On a positive note, the $200,000 sales limitation that has kept Tesla and a few other manufacturers from qualifying for electric vehicle credit will be removed. So if you are thinking about getting one of these models, you may want to wait until next year to see if these manufacturers can meet the above qualifications.

To use the old credit, you must take delivery of the car in 2022 or have a binding contract to purchase before the bill is signed into law. The bill has already been approved by the Senate and will head to the House for a vote on Friday, August 12. 

Which cars are still eligible for the old credit?

If you want to act quickly, this link contains a list of cars that are still eligible for the old credit.  Please note that Tesla and some other dealers are not eligible for the old credit, but may be eligible for the new credit given they comply with the limitations above. 

As always, we are here to help. Please reach out to your advisor team or email luke@humaninvesting.com if you have any questions.

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Imagine setting aside twenty billion hundred dollar bills

As many of you may have heard, the government is going to be depositing money into your account or possibly your neighbor’s.  The government is setting aside 2 trillion dollars to help stimulate the economy.  This is the third stimulus bill, and the government is already working on the fourth to help get us through this difficult time.  Given the size of this bill and the general speed at which things are changing, I thought it would be a good time to take a quick inventory of some important tax changes.    

When are my taxes due?

• The due date to file and pay your 2019 Federal and Oregon taxes (keep in mind each state is potentially different) is now July 15th.  While we now have more time to file and pay this tax, you might not want to wait.  Here is why:

  • It’s likely you will be getting a refund from Oregon if you paid Oregon tax in 2018 due to the large kicker this year.  You must file to get this money back. 

  • Keep in mind you can file your returns at any point and still wait until July to pay if you owe Federal.  There may even be an opportunity to use your Oregon refund to pay some of your Federal tax if you owe and can get it back in time.   

  • You will also have until July to decide on IRA and H.S.A. contributions for 2019. 

• Quarter 1 2020 Federal estimates are now due July 15th. However, Oregon did not extend this deadline.  You are still required to pay Quarter 1 2020 Oregon estimates by April 15th. 

• Quarter 2 2020 estimated payments are still due June 15th for Federal and State.

Am I receiving a stimulus check?

• Cash payments are $1,200 ($2,400 for married couples), with an additional $500 cash payment for each child.  These payments would not be subject to tax. 

• Full payments are available for Americans making up to $75,000 ($150,000 for married couples).  The payment is then phased out by $5 for every $100 over that limit.  The stimulus would be based on your 2018 or 2019 tax return.  If you have filed 2019, we are assuming the IRS will use that year. 

• It’s likely too late to try and manipulate this by filing or not filing.  However, to be safe, if you have not filed 2019 and income could be phased out, it might make sense to hold off until you receive a check. 

• If you made too much in 2018 or 2019, you may still be able to get some stimulus in the form of a refundable tax credit when you file your 2020 return. 

Can I make changes to my retirement account?

• If you’re a retiree, you are no longer required to take a Required Minimum Distribution for 2020.  This creates an opportunity for you to potentially realize some capital gains in the zero percent tax bracket or convert to a Roth IRA for tax-free growth. 

• They have eliminated the early withdrawal penalty of 10% for withdrawals up to $100,000 from qualified retirement accounts for retirement plan participants who qualify for COVID-19 relief.

  • Individuals could "re-contribute" the funds to the plan within three years without regard to contribution limits. While the law allows for these types of penalty-free distributions, individual plans can set more restrictive policies. 

  • Income tax on the distribution would still be owed but could be paid over a three-year period.   You would need to pay the tax for two years but then presumably get it back in the third year if you decided to recontribute. 

• They have increased the amount that can be taken as a loan from a qualified retirement plan from $50,000 to $100,000 for 2020.

Has charitable giving gotten more favorable?

• Yes. There is a new charitable deduction you can take for up to $300 in cash, even if you do not itemize on your 2020 tax return. 

• Prior to the CARES act, you could take up to 60% of adjusted gross income as a charitable contribution.  For 2020, you can now donate up to 100% of your income.

With all the changes going on, we will continue to update you as much as possible.  Please feel free to reach out if you have any specific questions

Sources

https://www.natlawreview.com/article/president-trump-signs-law-coronavirus-aid-relief-and-economic-security-cares-act

https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

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