2025 Tax reform

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Tax-advantaged educational savings accounts, also known as 529 plans, provide a way for parents to help their children or other family members save for college or to pay other educational expenses. However, not every beneficiary uses the full amount they paid into the plan. Beginning in 2024, the SECURE 2.0 ACT allows beneficiaries to roll over unused funds into a Roth IRA without having to pay a penalty. However, there is a lifetime limit of $35,000 per beneficiary and the 529 account must have been open for at least 15 years. The rollover amount cannot exceed the beneficiary’s annual IRS contribution limit.

Using the extra funding it received in the 2022 Inflation Reduction Act, the IRS is moving forward with its plans to prioritize enforcement efforts against high-income earners, partnerships, large corporations and promoters abusing U.S. tax laws. The agency is touting this increased enforcement as part of its efforts to restore fairness to the U.S. tax system and will focus its efforts on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt.

As a reminder for energy efficient home improvements that began after Jan. 1, 2023, there is a credit equal to 30% of qualified expenses, including:

· Energy efficient home improvements

· Residential energy property expenses

· Home energy audits

The maximum credit that can be claimed each year is:

· $1,200 for energy property costs, including certain energy efficient home improvements

· $250 per door, up to $500

· $600 for windows

· $150 for home energy audits

· $2,000 per year for heat pumps, biomass stoves or biomass boilers

There’s no lifetime dollar limit for the credit, so a taxpayer can claim the maximum amount each year until the credit expires in 2033.

If your business or tax-exempt entity is thinking about purchasing a commercial vehicle, it might make sense to consider an electric or fuel cell vehicle that is eligible for a tax credit of up to $40,000. The maximum credit amount is $7,500 for vehicles weighing less than 14,000 pounds, such as cars, vans and many pickup trucks, but the maximum credit jumps to $40,000 for vehicles that weigh 14,000 or more, such as buses and semi-trucks.

Beginning in 2022, third-party settlement organizations (TPSOs) like Paypal, eBay, Etsy and Venmo were supposed to begin issuing Forms 1099-K, Payment Card and Third Part Network Transactions, if an individual received $600 or more in payments. Prior to the implementation of the rule, TPSOs were not required to issue Forms 1099-K unless a taxpayer received over $20,000 and had more than 200 transactions. However, the IRS postponed implementing the new lower threshold until the 2023 tax year. Then in late 2023, the IRS announced it was postponing implementation of the $600 threshold until the 2025 tax year and 2024 would be a transition year. For 2024 returns, the threshold for issuing Form 1099-K will be $5,000.

Despite the IRS posponing the $600 threshold until the 2025 tax year, some taxpayers are still being issued the form based on it. Remember if you have received a 1099-K from a TPSO, you must include it in your income for the year, even if the TPSO was not required to issue it. Failure to do so can result in letters from the IRS.

The Treasury Department and IRS recently finalized regulations to implement recent legislation that made significant changes to the tax treatment of certain distributions from qualified retirement plans. The final regulations largely adopted the IRS’s controversial interpretation of the 10-year rule for required minimum distributions (RMDs) from retirement accounts inherited by non-eligible designated beneficiaries when the deceased had already begun taking their RMDs. The agencies also proposed several new regulations to address legislative changes to the RMD rules that were made after the finalized regulations were first proposed.

Non-eligible designated beneficiaries (non-EBDs) include most non-spouse beneficiaries more than 10 years younger than the deceased account owner who aren’t their minor children (under age 21).

The qualified retirement plans subject to the final and proposed regulations include Traditional IRAs, 401(k) plans, 403(b) plans, 57(b) plans. Qualified retirement plans also include IRA based plans, such as simplified employee pension (SEP) IRAs, SIMPLE IRAs and SARSEPs.

 You have probably seen ads on social media where a business claims it can settle your tax bill for pennies on the dollar and wondered how they can do that. The truth is that these ads are often placed by unscrupulous promoters who charge high fees to submit offers-in-compromise (OICs) to the IRS to settle a tax bill. What those advertisements fail to tell you is that the IRS often rejects the OICs, but the promoter keeps their fee, regardless of the outcome.

The IRS is warning taxpayers about these unscrupulous “OIC mills” that sell their services to unsuspecting customers. OICs are a legitimate tool for taxpayers to reduce their tax bills in limited situations where they can prove they are unable to pay the full amount due, but the IRS only accepts an offer when the taxpayer can prove that they truly cannot pay or work out a payment arrangement.

If you have an unresolved tax bill that you are unable to pay, please contact me for help. I can review your financial situation to see whether you really are a candidate for an OIC. If not, we can often work out another payment arrangement with the IRS to resolve your tax bill.