INCOME TAX PLANNING

• Harvest capital losses to offset any realized gains or rebalance taxable investment accounts.
• Consider harvesting any capital gains that can be realized in the 0% tax bracket.
• Review charitable contributions to maximize income tax deductions.
  • Consider donation of appreciated assets that have been held for more than one year, rather than cash.
  • Opening and funding a Donor Advised Fund (DAF) as it allows for a tax-deductible gift in the current year and also the client’s ability to dole out those funds to charities over multiple years.
  • Qualified Charitable Distributions (QCDs) are another option for those over 70.5 and especially for those who don’t typically itemize on their tax returns.
• Weigh the benefits of converting Traditional IRA to a Roth IRA to lock in lower tax rates on some pre-tax retirement accounts.
  • Remember that Roth Conversions can no longer be recharacterized so there’s no reversing once executed.
  • Keep in mind that Roth conversions will be more beneficial when the tax can be paid by funds outside of the IRA.
• Remember that all IRA balances are included in the tax calculation of the conversion
• Maximize contributions to a retirement plan, SEP IRA (self-employed) and Health Savings Accounts.
• If age 72 or older or are a beneficiary of an applicable inherited IRA, take the required distributions before 12/31.
• If income is expected to increase in the future, consider making Roth 401(k) contributions.
• Review income tax withholding on retirement account distributions or wages and recommend any
• Review the timing of income and deductions such as payments for tuition.

ESTATE & GIFT PLANNING

• ake use of annual exclusion gifts.
• Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses.
• Consider gifting to a 529 plan by year-end if saving for a child's or grandchild's education.
  • Many states offer tax deductions for residents contributing to their state programs.
  • Consider gifting up to 5 years of the annual exclusion amount to an individual’s 529 plan and filing a gift tax return, electing to treat it as if it were made evenly over a 5-year period.
• Confirm wills, trusts, and power of attorneys are up-to-date and consistent with current plans.
• Review lifetime gift and GST gifting opportunities to use additional applicable exclusion and exemption amounts

RETIREMENT, INVESTMENTS AND OTHER PLANNING

• Are there any major life changes such as marriages or divorces, births or deaths in the family, job or employment changes, changes in residency, and significant planned expenditures (real estate purchases, college tuition payments, etc.)?
• Are pre-tax and Roth contribution amounts to retirement accounts for the new year updated and accurate?
• Review various insurance policies and confirm whether the amount of coverage and deductibles are still adequate.
• Review beneficiary designations and update, as necessary.
• Confirm that Flexible Spending Account balances have been spent or there is a plan to spend the entire balance and set next year’s contribution amounts.
• Review the investment portfolio and target asset allocation. Confirm whether the allocation is within the targeted ranges for each asset class as recent market performance could have caused allocations to drift dramatically.
• Review any scheduled 4th quarter estimated tax payment needs and assess any liquidity for payments.
• Consider an additional tax payment or increase in tax withholdings to eliminate a penalty or changes in a tax situation for the year.
• Evaluate progress towards financial goals and review goals for the year and any changes in long term goals.
• Plan for the unique change for IRA and 401(k) required minimum distributions for the upcoming year and beyond. With the change in the lifetime expectancy factors, required minimum distributions (RMDs) amounts could be somewhat smaller than prior years.

As the year draws to a close, now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money.

Update on Beneficial Ownership Information Reporting (BOI) – 12/31/2024 Deadline for LLCs and Other Certain Entities

As mentioned in last year’s letter and in several emails, the Corporate Transparency Act (CTA) went into effect 1/1/2024. Many legal entities (such as corporations, limited partnerships, limited liability companies, statutory trusts) are required to report information about the reporting company, as well as its beneficial owner’s and company applicant’s personal information to the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Entities existing as of 12/31/2023 will have until 12/31/2024 to comply and then 30 days from any change to information initially filed. New entities formed on or after 1/1/2024 will be required to file within 90 days of formation.

On December 3, 2024 a federal district court, finding that the Corporate Transparency Act (CTA) is likely unconstitutional, issued an order prohibiting the enforcement of the CTA. On December 5, the Department of Justice filed a notice of appeal. FinCen noted on its website that “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Given the possibility of either the Fifth Circuit or the Supreme Court staying the district court’s order pending appeal, reporting entities’ legal obligations are subject to change on short notice. If either the Fifth Circuit or Supreme Court stay the district court’s order pending appeal, the Reporting Rule will become enforceable again, though FinCEN may adjust the rule’s deadlines depending on how long the district court’s order remains in effect.

This BOI filing is not tax nor accounting, hence you will need to file the report yourself or work with your attorney or firms that specialize in BOI filings. If you have yet to file, you may file it voluntarily now. If you do decide to delay filing due to the injunction, please be sure to check the Beneficial Ownership Information Reporting | FinCEN.gov website for updates so you are not missing a crucial deadline.

My opinion is that the filing does not take much time, if you only have a few entities. You might just file it voluntarily and be done with it.

Secure Act 2.0 has many taxpayer friendly retirement related provisions, among them:

• SIMPLE IRAs and simplified employee pension plans (SEPs) can allow employees to treat contributions as nondeductible Roth contributions.
• The Act allows employers with no retirement plan to create “starter” 401(k) wage deferral plans. The plans allow employees to save up to $6,000 per year (indexed for inflation, with a $1,000 catch-up for those 50 and older) in a tax-preferred retirement account, without the administrative burden or expense of a traditional 401(k) plan for the employer. The plans do not permit employer contributions or require complex testing. All employees must be eligible to participate if age and service requirements are met, but they may opt out.

• Beneficiaries of 529 college savings plans can now roll over up to an aggregate of $35,000 of excess 529 plan funds to Roth IRAs throughout their lifetime. The 529 plan must have been open for at least 15 years, and the rollovers are subject to the annual Roth IRA contribution limit.

Congress enacted the TCJA in December 2017. It provided for several provisions to phase out, phase in, and in some cases, expire at the end of 2025. This was largely done to limit the cost of the TCJA to $1.5 trillion over the budget period of 2018–2027 in accordance with the budget reconciliation procedures. Many of the provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, among them:

• Federal individual income tax rates will increase from the current 10%, 12%, 22%, 24%, 32% 35% and 37% to pre-TCJA 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
• Mortgage interest deduction limit will increase from $750,000 of debt to $1 million.
• Itemized deductions for miscellaneous expenses (investment advisor fees, etc) will be reinstated.
• Deductions for pass-through entities (20% of qualified business income) will no longer be available.
• The basic exclusion for estate and gift tax will be reduced from $10 million to $5 million (adjusted for inflation).

For other expiring provisions, please visit our website.

With the Republican party controlling the White House, the Senate and the House, it is my guess that TCJA will be extended in some shape or form. However, with our national debt level, there may be some opposition from the deficit hawks.

With Initiative 2109 defeated, it looks like the Washington long term capital gains tax is here to stay, at least for now. Here are some tax planning strategies that can help minimize WA state capital gains tax bill.

• Spread the sale of your assets over several years to stay below the WA filing threshold • Harvest long term losses to offset long term gains • Sell an investment on installment sale so the gain can be recognized over the term of the note • If moving to another state, consider waiting to sell; but also consider the state tax implication of the new state • If there is net capital loss, consider harvest enough long term gains from highly appreciated shares to offset the capital losses. Buy back the shares if you like them, and the new shares will have high basis.

Here are some additional year-end planning ideas and some checklist items:

• Don’t forget to take your RMD (required minimum distributions) before year end. To avoid penalties (they are significant) for missed RMD, we recommend signing up for auto RMD payment with your financial institutions.
• Withholdings - the IRS requires prepayment of 110% of your 2023 taxes or 90% of your 2024 via payroll withholding or quarterly payments. Now is a great time to look at your projected tax. Doing this will help avoid unwanted penalties/interest (interest is 8%-7% for 2024) as well as helping you plan for cash flow needs. Adjust your withholding if needed before the end of the year.
• You can make a salary deferral to a retirement plan to reduce taxable income. Make sure your total salary deferral contributions do not exceed the $23,000 ($30,500 if over 50) limit for 2024. Goes up to $23,500 ($31,000 if over 50) in 2025. If you switched jobs, make sure the total of your contribution from all jobs does not exceed the limit. Those 401ks offering after-tax contributions and in-service distributions may want to consider a back-door Roth to “superfund” your Roth account.
• If your retirement portfolio is depressed, or you are in a low tax bracket this year, you might want to consider the Roth IRA conversion strategy. Please keep in mind the conversion is a taxable event, so careful planning is needed. Also note the 2018 Tax Reform now disallows recharacterization (undo the conversion).
• Qualified business income deduction - If you own a business or a rental property, you may qualify for this deduction (a potential 20% deduction on business profit). The deduction can be limited by taxable income, which means that planning to minimize income can be important.
• If you have investments with an unrealized loss, consider whether you should realize those losses by selling the investments before the end of the year, especially if you have capital gains to offset. If you like the stock and want to buy it back, be aware of the wash sale rules, which are 30 days before and after the sale.
• To the extent you can control the timing of your medical expenses, group them into the same tax year so they may exceed the yearly threshold to deduct them. The threshold is 7.5% of your adjusted gross income.
• If you are thinking about making gifts to charities, consider appreciated securities. With the increase in standard deduction, if you are borderline with the standard deduction vs. itemized, you may want to consider “bunching” your donations in certain years, so that in a year of high donation, you take the higher itemized deduction; in a year of low donation, you take the standard deduction. If you are unsure which charities to give yet, or won’t be itemizing next year, but want the tax deduction this year, consider a donor advised fund (DAF).
• Consider 529 plans to fund education. You can “superfund” it by front-loading 5 years of contributions with gift tax exclusion, so it will be gift tax free (a gift tax return is still required).
• Make your charitable donation via RMD if you are required to take RMD, the limit is $105,000 for 2024.
• If you paid household employees $2,700 or more, the payroll tax filings are due by 1/31/2025.
• The annual gift exclusion amount for 2024 is $18,000 per person; it will increase to $19,000 in 2025.
• If making a new electric vehicle (EV) purchase, keep in mind high cost EVs are not eligible ($55,000 for sedans and $80,000 for vans, SUVs and pickup trucks) and income limit applies ($300,000 for couples, $225,000 for household heads or $150,000 for singles).
• Now is a good time to Determine whether any updates are needed to your insurance policies or beneficiary designations.

If you are interested in scheduling a call to discuss year end planning moves, please contact us. For more tax planning tips and recent tax updates, please visit our website at www.bolsoncpa.com .

Getting Ready for Taxes

We want to make tax filings easy for you. We have developed the schedule below for you to use so the return preparation process can be efficient and effective.

January 2025	Engagement letters will be sent. Organizers are uploaded to your portal for you to access. Please use the tax organizers to minimize errors caused by omitted data. If you have received paper organizers in the past, they will be in the mail the 2nd – 3rd week.
February 1 - March 1, 20255	You may upload, drop off or mail in your tax data. If mailing, be sure to retain copies in case of misdirected mail. We recommend using our secure portal to upload your data. If you have to email, please password protect sensitive documents.
March 1, 2025	We must have the bulk of your tax data in order to prepare your tax return for filing by April 15, 2025.
April 1, 2025	We need your final open items, such as missing K-1s, to complete your return by April 15, 2025. This is also the deadline for you to provide us data if you want us to calculate extension payment(s).
April 15, 2025	Taxes must be paid, and returns or extensions filed; first 2025 estimated tax payment is due.
June 15, 2025	Your second 2025 estimated tax payment is due.
September 15, 2025	Your third 2025 estimated tax payment is due; if you are on extension, we need every last bit of your tax data!
October 15, 2025	Extended tax returns are due.

We do our best to work on tax returns whenever we receive your data, but we may not be able to complete returns by IRS deadlines when the data is submitted late. Our normal turnaround time for completion is 2–3 weeks. The turnaround for tax data received from late February on is typically about 4-5 weeks, please plan ahead.

Privacy

We respect your privacy. The personal, non-public information we collect about you has been derived from information that you have provided to us directly or indirectly and from transactions with us. We do not disclose personal information about you to anyone outside our firm, except at your specific request, as required by law, or to our software vendors in resolving an IT issue.