Conner Ash PC

As the year winds down, you may want to combine smart estate tax planning with tax savings using the annual gift tax exclusion. You can give cash or property (up to a specified value) to an unlimited number of family members or friends each year without gift tax implications. That specified amount is subject to annual inflation adjustments. For 2024, the amount per recipient is $18,000. Notably, in 2025, this amount will increase $1,000 to $19,000 per recipient. Why is this significant? The amount was stagnant at $15,000 for several years (2018 to 2021). Beginning in 2022, the amount increased by $1,000 annually due to inflation. Contact us with any questions.

As year end approaches, you may be thinking about tax strategies. One way to reduce potential estate taxes and show generosity to loved ones is to give cash gifts before Dec. 31. Taxpayers can transfer large amounts using the annual exclusion. In 2024, the exclusion amount is $18,000. It covers gifts you make to each recipient. That means if you have three children, you can transfer $54,000 to them in 2024, free of federal gift taxes. Married couples can consent to give each recipient up to $36,000 a year. Other rules may apply, and you need to file a gift tax return if you give more than $18,000 or consent to give gifts with your spouse. We can prepare a gift tax return for you.

If the IRS contacts you about a specific tax matter, you can authorize a third party to handle it on your behalf. It could be a relative, friend or a tax pro at our firm, as long as you grant formal permission. You can do this by assigning your power of attorney to a person who is authorized to practice before the IRS. In addition, you can appoint an individual using a tax information authorization process for a specific tax issue. You can also name a third-party designee on your tax return when you file it to discuss that return only. Finally, you can give oral permission for someone to join you in a meeting or call with the IRS. Contact us with questions or visit: https://bit.ly/3Y6wOeR

For more than 70 years, the U.S. tax code allowed companies to currently deduct certain research and development (R&D) expenses. This benefitted manufacturers and businesses in other industries. However, under the Tax Cuts and Jobs Act, since 2022, companies have had to amortize R&D costs over a period of years. Specifically, R&D expenses covered under Sec. 174 include researchers’ wages, research supply costs and facility operating costs. The good news is there’s bipartisan support for proposals in Congress to bring back the immediate deduction for R&D expenses. However, the chances of one of these proposals becoming law depends largely on the outcome of the November election. Stay tuned.

The IRS has been increasing its audit efforts, focusing on large businesses and high-income individuals. Another area of focus is taxpayers who personally use business aircraft. With proper preparation, you should fare well if you’re selected. It helps to know what might catch the IRS’s attention. For example, some audit red flags are unusually high deductions, major inconsistencies between previous years’ returns and the current one, and expenses that are markedly different from those of similar businesses. The IRS usually has three years to conduct an audit. If you’re facing one, we can help you understand the issues, gather necessary documents and respond to inquiries effectively.

The Treasury Inspector General for Tax Administration recently issued a report on IRS spending under the Inflation Reduction Act (IRA). It found the IRS has spent nearly $6.9 billion of its approximately $57.8 billion in IRA funding through the third quarter of fiscal year 2024. Notably, the IRS has used supplemental IRA funding to fund operations because its annual appropriations weren’t enough to cover general operating expenses. The IRS received the same annual appropriation amount for FY 2024 that it received in FY 2023, with no inflation adjustment. For FY 2024, the IRS estimates it will use $1.6 billion of IRA funding to cover certain shortfalls. Read the report: https://bit.ly/3UaOaF2

Earlier this year, the U.S. Department of Labor announced a new final rule on the minimum annual salary threshold that partly determines whether employees are exempt from overtime pay. For employers, it renewed focus on compliance with the Fair Labor Standards Act. One way to ensure your organization complies with the law is to conduct voluntary “wage and hour” audits. These methodically review your compensation and labor practices, including employee classification, payroll records, timekeeping methods, rest and meal breaks, and wage deductions. Remember, if just one employee files a complaint with a government agency, you could be subject to a much more arduous involuntary audit.

Due to wildfire destruction, the IRS recently announced tax relief for certain parts of Arizona and Washington state. And, of course, the agency has issued several tax relief notices in recent days to assist victims of Hurricanes Helene and Milton in seven southeastern states. In general, many 2024 filing and payment deadlines have been postponed to 2025 for taxpayers affected by these disasters. But new deadlines and details may differ, depending on the disaster and region. For information specific to your location, check the IRS’s site (https://bit.ly/3UU9WO5), call its disaster hotline at 866-562-5227 or contact us.

As calendar-year entities wrap up financial reporting for 2024, external auditors are working behind the scenes to prepare for audit season. The planning process starts with an assessment of two types of audit risks, inherent risk and control risk, at the financial statement level and for each major account. A high-risk account (say, inventory) might warrant more extensive procedures and more experienced staff than one with lower risk (say, equity). Evidence obtained from further audit procedures may be ineffective if it’s not properly linked to the assessed risks. Let’s work together during the audit planning stage to help ensure your company’s results are reported accurately.