Document and substantiate: the IRS has USD 60 billion in new funding, much of it earmarked for enforcement and also already launching compliance initiatives aimed at many common taxpayer issues. Taxpayers should expect increased scrutiny, so it’s critical to document and substantiate important positions, including R&D credit claims, transfer pricing positions, partner capital accounts, M&A transaction costs and many others.
Energy credits: the Inflation Reduction Act's energy tax package benefits companies beyond renewables. Pursuing energy projects aligns with ESG goals, offering both cost savings and tax benefits. Even tax-exempt entities can profit by selling energy credits, with risks involved.
Public Stock Buyback Tax: prepare for the new 1% tax on stock buybacks effective from 2023. Reporting and payments are due by April 30, 2024, with exceptions and varied treatment for M&A. Timing stock transactions gains significance.
SALT deduction: pass-through businesses can ease the impact of the USD 10,000 SALT deduction cap through state-level elections. Opting for entity-level taxation allows full state tax deduction against owners' income, requiring a thorough analysis.
Fixed Assets: full deduction for new equipment costs has diminished. Bonus depreciation drops to 60% in 2024. A repairs analysis identifies deductible costs, and cost segregation accelerates depreciation for eligible properties, mitigating reduced deductions' impact on tax liabilities.
Consider Timing: in an era of persistent inflation and high-interest rates, the time value of money becomes crucial. Individuals should focus on accelerating deductions and deferring income to shift tax obligations into future years. Controllable timing factors include consulting and self-employment income, real estate and stock sales, retirement distributions, mortgage interest, and charitable gifts.
Charitable Giving: while the charitable deduction remains popular, the IRS scrutinises it more closely. Taxpayers must obtain contemporaneous written acknowledgement for cash gifts exceeding USD 250 and for non-cash contributions over USD 500. Noncash contributions exceeding USD 5,000 require a qualified appraisal.
Leverage Retirement Account Tax Savings: maximise contributions to traditional retirement accounts like 401(k)s and IRAs, as they offer significant tax savings. Contributions reduce taxable income and grow tax-free until retirement. The 2023 contribution limits are USD 22,500 for a 401(k) and USD 6,500 for an IRA, with a deadline of April 15, 2024, for IRA contributions.
Make Required Minimum Distributions: individuals must start distributions from retirement accounts at a specified age, which recently increased to 73 for those turning 73 in 2023. It will rise to 75 for those turning 75 in 2033. Understand the rules, especially for inherited IRAs, and ensure required distributions are made by year-end to avoid costly penalties.
Address Tax Shortfalls with Increased Withholding: align withholding and estimated taxes with the eventual tax return amount. Individuals at risk of penalties for underpaying taxes can offset shortfalls through increased salary or bonus withholding. While a larger year-end estimated tax payment may still incur penalties for earlier quarters, increasing year-end wage withholding is considered paid rateably throughout the year, saving on penalties.
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