Executive summary:

Employee Retention Credit Voluntary Disclosure program

On Dec. 21, 2023, the IRS announced the details of an anticipated employee retention credit Voluntary Disclosure program (ERC-VDP) for employers who claimed and received an ERC refund for a quarter but were not eligible. The program allows claimants to repay ERC at a reduced rate of 80% of the credit.  In addition, the program waives penalties and interest on the full amount, not just the 80% returned. The IRS is only accepting applications for the program until March 22, 2024. Accepted applicants will be required to execute a closing agreement stating they are not entitled to ERC and must provide the name and contact information for any preparer or advisor who assisted in claiming the ERC. The IRS has also published a set of FAQs relating to the ERC-VDP.

The IRS also announced that they are issuing another round of letters proposing adjustments to tax issued to 20,000 employers that claimed an erroneous or excessive amount of ERC.

IRS announces details for ERC Voluntary Disclosure program 

ERC VDP continuation of ongoing IRS initiative to combat dubious ERC claims

Following the October announcement of the ERC withdrawal process, the IRS has released the details of the new ERC-VDP which will allow ERC claimants who have already received the refund or credit against employment taxes to apply to repay the ERC at a reduced rate of 80% of the claim, without penalties or interest. The ERC-VDP was developed mostly for employers who were induced into claiming ERC and now realize they were not entitled to the credits. In particular, the reduced amount required to be repaid was designed to allow employers who paid a contingency fee to a promoter to repay the improper credit at a lower financial cost. The required disclosure about preparers who assisted in filing the claim will help the IRS gather information on promoters who took aggressive positions in advising taxpayers to claim ERC.

Eligibility for ERC-VDP

Taxpayers who claimed ERC and have received the refund or the credit against their employment taxes are eligible to participate in the program. (Taxpayers who have not yet received an ERC credit or refund but no longer believe they are entitled to ERC can use the withdrawal process to withdraw their claim). Taxpayers are not eligible for ERC-VDP if any of the following apply:

• The taxpayer is under criminal investigation or has been notified that the IRS intends to commence a criminal investigation;
• The IRS has already received information alerting it to the taxpayer’s noncompliance;
• The taxpayer is undergoing an employment tax examination for the period for which it is applying; or 
• The taxpayer has already received a notice and demand for repayment of all or part of the claimed ERC.

Employers who claimed ERC using a third-party payer, such as a professional employer organization (PEO) or payroll agent, are eligible for ERC-VDP, but the third-party payer must submit the application on the employer’s behalf.  The announcement provides some guidance for third-party payers assisting with such applications.

In order to use the program for a given quarter, the taxpayer must give up the full amount of ERC that was applied for on the Form 941 X for that quarter.  Taxpayers who want to reduce only a portion of the ERC claimed in a quarter are not eligible for ERC-VDP or the withdrawal process; these taxpayers must file an amended return to adjust the ERC claimed.

Terms of participation in ERC-VDP

Employers who are approved to participate in the program (’participants’) will be required to execute a closing agreement which provides that they are not eligible for, or entitled to, any ERC for the tax period(s) at issue. The participant will repay 80% of the claimed ERC to the Department of Treasury. Participants will also be excused from repaying overpayment interest received on any issued ERC refund. Underpayment interest will not be required if the participant makes full payment prior to executing the closing agreement.

The program also provides for the possibility of repaying the ERC amount through an installment arrangement.  If the IRS approves repayment under an installment agreement, interest will only accrue prospectively from the agreement date. The IRS will not assert civil penalties against participants that make full payment of the 80% of claimed ERC prior to executing the required closing agreement.

For many taxpayers, the ERC impacted their income tax obligations as well. Because ERC cannot be claimed on wages that are claimed as a deduction against income, recipients of ERC were expected to reduce wage deductions for the 2020 and/or 2021 tax years equal to the ERC amounts. If participants had not already amended their income tax returns to reduce their wage deduction by any claimed ERC, they will not need to file amended returns or Administrative Adjustment Requests (AARs) to reduce their wage deduction. Participants who already reduced their wage deduction by the claimed ERC may file an amended return or AAR to reclaim the previously reduced wage expense. No income will be attributed to participants as a result of participating in the program.

If a return preparer or advisor assisted the participant in claiming the ERC, the participant must provide the name, address, and phone number of the preparer or advisor as well as a description of services provided.

Under the new application form, a taxpayer can provide a power of attorney to allow another person to represent the taxpayer in making the VDP application.

Applications for ERC-VDP due by March 22, 2024, 11:59 pm local time. 

Taxpayers apply to participate in ERC-VDP by completing Form 15434, Application for ERC-VDP and submitting it via the IRS Document Upload Tool by March 22, 2024. Form 15434 must be signed by an authorized person under penalties of perjury. Taxpayers applying for ERC-VDP for a period ending in 2020 must include a completed and signed statute extension Form ERC-VDP SS-10.  Form 15434 will help calculate the payment required to participate in ERC-VDP. Paying the balance via Electronic Federal Tax Payment System (EFTPS) at the time of applying for ERC-VDP is encouraged and could speed up the resolution of the case. However, as discussed above, participants who are unable to pay the entire balance may be considered for an installment agreement.

The IRS FAQs state that ERC-VDP applications will be handled on a first come, first serve basis. The FAQs indicate that most cases should resolve quickly but also provide there is no way to estimate how long the process will take. Applicants can call the ERC-VDP hotline at 414-231-2222 and leave a voicemail to check on the status of their application or for assistance with the ERC-VDP process, including completing Form 15434.

If a taxpayer’s application is approved, the IRS will prepare a closing agreement under section 7121 of the Code and mail the closing agreement to the participant. Once a participant receives the ERC-VDP closing agreement package, they will be asked to review and return the signed agreement within 10 business days. Participants need to pay balances due prior to signing the agreement in order to receive all the benefits of the program. If the IRS denies a taxpayer’s application to participate in ERC-VDP, there is no method to review or appeal the denial. Further, a taxpayer’s participation in ERC-VDP does not preclude the IRS from later investigating any criminal conduct or provide any immunity from prosecution.

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This article was written by Anne Bushman, Alina Solodchikova, Karen Field , Marissa Lenius and originally appeared on 2023-12-22.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/irs-announces-details-for-erc-voluntary-disclosure-program-.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

The IRS has recently issued a reminder to taxpayers about the upcoming deadline of January 16th for final 2023 quarterly estimated tax payments. This is particularly important for those who may not have paid enough tax throughout the year to avoid a potential penalty or unforeseen tax bill when filing in 2024.

Taxes are typically paid throughout the year via withholding tax from paychecks, making quarterly estimated tax payments to the IRS, or a combination of both. This method ensures that taxpayers pay most of their taxes during the year as income is earned or received.

Who should be mindful of this deadline?

Primarily, this affects individuals with income that is not automatically subject to tax withholding. This includes self-employed professionals, independent contractors, and some freelancers.

Certain taxpayers should be especially mindful of the upcoming deadline to ensure they submit an appropriate estimated tax payment to avoid owing taxes and penalties when they file in 2024. These taxpayers include:

• Those who have switched from itemizing to taking the standard deduction,

• Two wage-earner households,

• Employees with non-wage sources of income, such as dividends,

• Those with complex tax situations, or

• Those who failed to increase their tax withholding.

What income is taxable?

Most types of income are taxable. This includes not just your primary earnings but also unemployment income, refund interest, income from gig work, digital assets, part-time work, side jobs, or income from the sale of goods.

In addition, late-year financial transactions could have an unexpected tax impact. These could include year-end bonuses, holiday bonuses, stock dividends, capital gain distributions from mutual funds, stocks, bonds, virtual currency, real estate, or other property sold at a profit.

Making your estimated tax payment

The most efficient way to make an estimated tax payment is electronically. Taxpayers can use IRS Direct Pay, IRS Online Account, or the Electronic Filing Tax Payment System (EFTPS). These tools allow taxpayers to schedule payments in advance, view payment history, and track and change scheduled payments.

Taxpayers can also pay using their debit or credit cards, though card processors (not the IRS) charge a service fee for this option.

Stay on track

To avoid surprises, use tools like the Tax Withholding Estimator or the worksheet in Form 1040-ES. These resources can help you determine if a payment is necessary and calculate the appropriate amount.

The upcoming deadline of January 16th for final 2023 quarterly estimated tax payments is fast approaching. It’s essential for taxpayers to plan ahead and ensure they’re on top of their tax obligations to avoid potential penalties or unexpected tax bills. For more information or assistance planning for quarterly estimated payments, please contact our office.

Executive summary: IRS to target large partnerships and wealthy individuals

Large partnerships and high net worth individuals are the target of a sweeping enforcement effort that artificial intelligence will support, the IRS announced Sept. 8, 2023. The agency will prioritize enforcement against the largest and most complex partnerships, as well as individuals with annual income over $1 million and more than $250,000 in tax debt.

The IRS has worked in conjunction with experts in data science and tax enforcement to create machine learning technology to identify compliance issues in the areas of partnership tax, general income tax and accounting, and international tax.

IRS shifts its focus to large partnerships and wealthy individuals

On the heels of the Inflation Reduction Act, which increased the agency’s funding, the IRS has initiated a broad effort to crack down on partnerships and wealthy individuals at risk for noncompliance, specifically targeting the largest partnerships as well as individual taxpayers with income exceeding $1 million and tax debt exceeding $250,000.

Large partnerships

The Government Accountability Office in July 2023 released data that detailed a significant increase in the formation of large partnerships between 2002 and 2019. The report revealed a 600% increase in large partnerships, which it defined as partnerships with at least $100 million in assets and 100 or more partners.

The report further determined the audit rate for these large partnerships had dropped to less than 0.5% since 2007. The report revealed 80% of the audits conducted resulted in no changes to the partnership return, perhaps as a result of the IRS’ inability to properly target noncompliant partnerships.

In October 2021, the IRS initiated the Large Partnership Compliance (LPC) pilot program via its Large Business and International Division in response to the need for a coordinated approach to audits of partnerships under the centralized audit regime enacted as part of the Bipartisan Budget Act of 2018. The LPC successfully engaged in examinations of some of the largest and most complex partnerships in the U.S.

Building on the success of the LPC program, the IRS in September 2023 announced its intent to target 75 of the largest partnerships—those with at least $10 billion in assets—in fiscal year 2024.

Introducing AI to enforcement efforts

To accurately select partnerships for examination, the IRS will use an AI solution, which was developed through a collaboration of experts in data science and tax enforcement who have been working together to develop machine learning technology. The AI will “identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage,” according to the IRS’ news release.

The news release stated that the IRS has also identified balance sheet discrepancies involving partnerships with over $10 million in assets. Specifically, the IRS will target partnerships whose returns show discrepancies exceeding $1 million between end-of-year balances and the beginning balances for the following year.

The agency will mail compliance letters requesting explanations of the discrepancies to around 500 partnerships, and, depending on the responses, may add these partnerships to the audit stream for additional review.

Individuals

The IRS is also targeting high net worth taxpayers with annual income above $1 million who have more than $250,000 in recognized tax debt.

The agency will engage dozens of revenue officers to focus on these high-end collection cases in fiscal year 2024. Through the first half of November 2023, the agency contacted 1,600 high net worth taxpayers that owe hundreds of millions of dollars. Through this effort, IRS collected $122 million in the first 100 cases.

Actions taxpayers should take

Partnerships and high net worth taxpayers should be prepared for an increase in IRS audit activity in the coming months and years. Maintenance and retention of financial records, as well as documentation supporting tax positions likely to be challenged, will be critical. Working with your tax advisor to ensure accurate reporting and prepare for an examination in advance would benefit taxpayers who may be affected by the IRS’ increased enforcement efforts.

Partnerships should regularly update basis schedules for partners. Attempting to re-create them years after the relevant transactions can be difficult due to a lack of adequate records.

All taxpayers should take care to document certain deductions or positions taken on a tax return, including but not limited to:

• Any position that has been identified as a campaign issue by the IRS’ Large Business and International Division
• Any position identified as a listed transaction
• Any position for which a Schedule UTP (uncertain tax position) is required
• Any position with respect to which a Form 8275 (Disclosure Statement) is included with the relevant return
• Any positions claiming a research credit
• Any position on a sale of partnership interest or sale of other assets
• Any positions where the IRS can question capital vs. ordinary gain treatment of an item

With respect to any of these deductions, credits or positions, taxpayers should make sure they can readily substantiate them to the IRS during an audit. Written memoranda with legal citations supporting positions taken should be drafted as the relevant tax return is prepared. A research credit should not be claimed unless there is a completed research credit study justifying the credit.

Prudent taxpayers should ask their advsors to perform an audit readiness assessment that identifies tax return items that the IRS is likely to examine. This will enable taxpayers to further support those items.

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This article was written by Alina Solodchikova, David McNeely, Jackie Sullivan, Mike Zima and originally appeared on 2023-12-08.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/business-tax/irs-use-ai-help-target-partnerships-high-net-worth-individuals.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

According to recent data, the average American can expect to enjoy approximately 20 years in retirement and will spend roughly $987,000 over that time. This redefines the concept of retirement from a fixed end point to a dynamic phase of life that demands careful planning. 

Gone are the days when retirement was seen as a singular event, marking the end of one’s career journey at a predetermined age. Today, with longer lifespans and a rapidly changing economic landscape, retirement is becoming more of a fluid process – a series of decisions that adapt to personal circumstances, financial situations, and even global trends. 

Redefining retirement

Many Americans are considering a more gradual transition from their career, referred to as phased retirement. This approach, which can include reducing work hours or responsibilities over time, allows individuals to adapt to a new lifestyle, balancing work and leisure as they transition into full retirement. It also facilitates the transfer of knowledge and skills to younger colleagues, making it a beneficial practice for both the individual and their workplace. 

Coinciding with this shift is the impact of increased life expectancies. Advances in healthcare and a greater focus on healthy living mean people are enjoying longer, more active lives. This extended lifespan necessitates more robust financial planning, as retirement funds now need to last longer. It also opens up possibilities for a second or third act in life, where post-retirement years become a time to explore new interests. 

In light of these changes, retirement planning is increasingly about striking a balance between financial security and achieving personal aspirations. This balance is unique to each individual and is shaped by factors such as health, financial status, family commitments, and personal goals. 

Weighing the decision: reasons to consider delaying retirement

First and foremost, it’s important to acknowledge that not everyone has the luxury of choosing their retirement age. Health concerns or the need to care for family members can make continued work untenable, necessitating an earlier retirement. 

However, for those who are able, postponing retirement can be beneficial in a number of ways. 

Enhancing retirement savings

One of the primary reasons for delaying retirement is the ability to contribute more to your retirement accounts or pension plan. Staying employed may also mean continued access to employer-matching contributions, effectively doubling the impact of each year’s additional savings. Moreover, after the age of 50, you become eligible for catch-up contributions, allowing you to add more to your accounts each year. 

With additional contributions, employer-matching, and catch-up contributions, you can not only boost your savings but also delay drawing down your existing retirement savings, allowing those funds more time to grow. 

Consider an individual who decides to delay their retirement for an additional five years. During this time, they maximize contributions to their 401(k) plan. Using 2024 figures, let’s break this down to see how much they can boost their retirement savings: 

• Annual maximum contribution: for 2024, the maximum contribution limit to a 401(k) is $69,000. This includes both the employee’s and the employer’s contributions, assuming there is a matching program in place. 

• Catch-up contributions: if this individual is over 50, they can make an additional catch-up contribution of $7,500 each year on top of the standard $69,000 contribution. 

Given these parameters, the individual’s additional contributions in their 401(k) account over this period would be approximately $382,500. Considering a moderate rate of return, this individual could likely boost their retirement savings by more than $400,000. 

Increasing Social Security benefits

Social Security benefits are computed based on the highest 35 years of earnings, increasing each year you postpone retirement until the age limit (70). Typically, your earning potential is at its peak during the final years of your career. Continuing to work allows you to replace years of lower earnings with these higher-earning years. This substitution can significantly increase your calculated average earnings. 

Also, the Social Security Administration increases your benefits each year you delay claiming them beyond your full retirement age (FRA). For every year you delay retirement, up to age 70, your benefits grow about 8% per year. This increase is a permanent adjustment, meaning your higher benefit amount continues for the rest of your life. 

If you’re married, delaying your retirement can also benefit your spouse, particularly if they will depend on your work record for their Social Security benefits. Spousal benefits are calculated as a percentage of the working spouse’s benefit. The longer the working spouse delays claiming Social Security, the higher the benefit for both individuals. Additionally, in the event of the working spouse’s death, the surviving spouse is entitled to survivor benefits, which are based on the amount the deceased was receiving. 

Retaining employer benefits

Continuing to work beyond the traditional retirement age allows you to retain valuable employer-provided benefits, such as healthcare coverage and life insurance. The financial impact of these benefits is substantial, often resulting in thousands of dollars in savings. 

Employer-provided healthcare is often more comprehensive and less expensive than Medicare or private insurance options available to retirees, especially when considering deductibles and out-of-pocket expenses. Likewise, employer-sponsored life insurance often provides more comprehensive coverage for less money than an independent life insurance policy, which can be exceptionally costly as you age. 

Delaying Required Minimum Distributions (RMDs)

For those with tax-advantaged retirement accounts like 401(k)s or traditional IRAs, delaying retirement allows you to postpone the mandatory distributions, possibly reducing tax liability. 

It’s important to note that this deferral only applies to the retirement plan of the employer for whom you’re currently working. RMDs from previous employers’ retirement accounts are still required. Also, if you own more than 5% of the business sponsoring your retirement plan, you cannot delay RMDs and must begin taking them at age 72, regardless of your employment status. 

Paying off debt

Working longer offers a valuable opportunity to pay off debts, such as credit card balances, loans, or mortgages, before entering retirement. Once you retire, your income typically becomes fixed, making debt payments more burdensome. Eliminating these debts while you are still working can ease financial strain in your retirement years and allow you to allocate funds to other pursuits instead of servicing debt. 

Delaying retirement can be a financially prudent choice for many, paving the way for a secure and fulfilling post-retirement life. This approach isn’t just about extending your work years; it’s about leveraging this time to significantly boost your retirement savings and maximize the benefits you receive. If you’d like to delve deeper into how this strategy might align with your personal circumstances, please contact one of our expert advisors.

As we move closer to the end of 2023, it’s crucial to stay informed about the adjustments affecting taxes, retirement contributions, and Social Security benefits for the upcoming year. These changes, influenced by inflation and cost-of-living considerations, have recently been announced by the IRS and Social Security Administration (SSA). 

Here’s a breakdown of what you need to know to plan effectively. 

Tax provisions

For the 2024 tax year, the IRS has announced inflation adjustments impacting more than 60 tax provisions. This section will highlight several key changes, focusing on those most likely to affect a broad spectrum of taxpayers. 

Standard deduction increases

One of the most notable changes is the increase in standard deductions, which differ based on filing status: 

• Married couples filing jointly: the standard deduction increases to $29,200, up by $1,500 from 2023.

• Single taxpayers and married filing separately: the standard deduction increases to $14,600, up by $750 from 2023. 

• Heads of households: the standard deduction increases to $21,900, up by $1,100 from 2023.

Earned Income Tax Credit (EITC)

The IRS has boosted the EITC to $7,830 for taxpayers with three or more qualifying children, up from $7,430. EITC eligibility depends on income levels and the number of qualifying children. It gradually decreases as income rises, eventually phasing out completely for taxpayers at higher income levels.

Healthcare coverage adjustments

Medical Savings Accounts (MSAs) are older tax-advantaged savings accounts generally limited to self-employed individuals and small businesses. Like Health Savings Accounts (HSAs), they must be paired with a high deductible health plan (HDHP), but they have different eligibility criteria and contribution limits. 

MSAs allow taxpayers to save for qualified medical expenses that the HDHP does not cover, including the deductible. However, insurance plans must meet a minimum deductible threshold to qualify as an HDHP. There are also out-of-pocket maximums for these types of plans. 

For Medical Savings Accounts in 2024: 

• Self-only coverage: the minimum annual deductible is $2,800 (up by $150), and the maximum out-of-pocket expense is $5,550 (up by $250). 

• Family coverage: the deductible range is $5,550 (up by $200) to $8,350 (up by $450), with an out-of-pocket limit of $10,200 (up by $550). 

HSAs share many similarities with MSAs; however, they are more widely available than MSAs and have different contribution limits and rules. 

For Health Savings Accounts in 2024: 

• Self-only coverage: the minimum annual deductible is $1,600, and the maximum out-of-pocket expense is $8,050.

• Family coverage: the minimum annual deductible is $3,200, and the maximum out-of-pocket expense is $16,100. 

Estates and gift exclusions

The estate exclusion, also referred to as the estate tax exemption, is the amount that can be passed on to heirs tax-free upon a person’s death. It is a threshold below which the estate does not owe federal estate tax. For 2024, the exclusion amount for estates of decedents is set at $13,610,000, up from $12,920,000 in 2023. 

The annual gift exclusion refers to the amount an individual can give to another person in a single year without incurring federal gift tax or reducing their lifetime estate exclusion. For 2024, the annual exclusion for gifts has been raised to $18,000, up by $1,000 from 2023. 

Retirement contribution limits and phase-out ranges

2024 brings encouraging news for those saving for retirement. The IRS has announced an increase in the contribution limit for 401(k) plans to $23,000, up from $22,500 in 2023. This adjustment is also available to participants in 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. However, it’s important to note that the catch-up contribution limits for these plans remain the same at $7,500. 

The limit for annual contributions to traditional and Roth IRAs will also be raised to $7,000, a $500 increase from this year. The $7,000 limit is a combined maximum for contributions to both types of IRAs. For those aged 50 and older, there is an additional catchup contribution allowance of $1,000, allowing for a cumulative total of $8,000 in 2024. 

Adjusted income phase-out ranges

The IRS has also recalibrated the income phase-out ranges for contributions to traditional and Roth IRAs, as well as the income limits for claiming the Saver’s Credit. 

Traditional IRA phase-out ranges for 2024

• Single taxpayers with workplace retirement plans: the phase-out range for singles covered by a workplace retirement plan starts at $77,000 and ends at $87,000. 

• Married filing jointly with a covered spouse: for married couples filing jointly where the contributing spouse is covered by a workplace plan, the phase-out range will be $123,000 to $143,000. 

• Married with non-covered contributor and covered spouse: if the contributor is not covered by a workplace plan, but their spouse is, the phase-out range is adjusted to $230,000-$240,000.

Roth IRA Phase-Out Ranges for 2024

• Singles and heads of household: the phase-out range begins at $146,000 and ends at $161,000.

• Married filing jointly: the phase-out range for married couples filing jointly begins at $230,000 and ends at $240,000.

The Saver’s Credit is a valuable tax credit designed to encourage low and moderate-income individuals to contribute to their retirement accounts. The credit can be claimed for contributions to a 401(k), 403(b), 457 plan, Simple IRA, or SEP IRA as long as taxpayers fall within a specified income range. For 2024, the IRS has adjusted the income limits upward, expanding the availability of this credit to a broader range of taxpayers. 

• Married couples filing jointly: the income limit for claiming the Saver’s Credit has been increased to $76,500.

• Heads of household: the limit is now $57,375.

• Singles and married filing separately: the income limit has been raised to $38,250. 

With these increased contribution and phase-out limits, it may be wise to adjust your budget to allocate more toward your retirement savings. Even small increments can compound significantly over time. 

Social Security cost-of-living increase

Social Security beneficiaries are also set to see a slight uplift in their benefits. A 3.2% cost-of-living adjustment (COLA) has been announced for 2024 to reflect current economic trends. 

The increase translates to an average boost of $50 or more in monthly payments for more than 66 million Social Security recipients. The precise impact of this increase varies among different groups of recipients. For instance, retirees will see an average monthly increase of $58.

These financial adjustments for 2024 reflect the government’s response to ongoing economic changes, and taxpayers should consider these updates in their financial planning strategies. It’s advisable to consult with an expert advisor to understand the full impact of these changes on your individual situation. To ensure you’re optimizing tax-saving opportunities, please contact our office for more information. 

As the year draws to a close, it’s crucial for taxpayers to stay ahead of the curve with the latest tax updates from the IRS. From updated tax brackets to increased retirement contribution limits, understanding these developments is essential for maximizing your tax benefits and minimizing liabilities. 

In this article, we’ll review the latest IRS news releases and provide you with actionable year-end strategies to ensure you’re in the best possible position for the upcoming year. 

IRS news and updates

Updated tax brackets 

The IRS has made adjustments to the federal income tax brackets for the 2023 tax year to accommodate the effects of inflation, which have been the highest in decades. While the actual tax rates remain unchanged, the brackets themselves have been increased by approximately 7%. 

2023 tax brackets for single filers

2023 tax brackets for married filing jointly

Employers who filed for the ERC have options for withdrawing or correcting their claim

The employee retention credit (ERC) is a refundable tax credit aimed at businesses and organizations that continued to pay their employees amid pandemic-related shutdowns or significant declines in gross receipts. 

Unfortunately, scams tied to the ERC prompted the IRS to impose a moratorium on the processing of new ERC claims. The IRS has now established a special withdrawal process for businesses that previously filed an ERC claim and are unsure about its accuracy. This allows businesses to withdraw their submission, thus avoiding future repayments, interest, and penalties. 

The withdrawal method is only available to those who have not yet received a refund and whose claim is currently in process with the IRS. For more information about ERC withdrawal eligibility and how to request a claim withdrawal, please see the IRS’s guidance or contact our office, as you must follow different steps depending on your situation. 

Year-end tax strategies

All taxpayers can take advantage of this last quarter to prepare for the upcoming tax season. Here are some proactive moves to consider before the end of the year: 

• Maximize tax savings on retirement planning. Keep an eye on your contribution limits for retirement accounts and ensure you take the required minimum distributions if you’ve reached the eligible age. 

• Decide between the itemized and standard deduction. If your itemized deductions exceed the standard deduction (or are close to the threshold), consider ways you may be able to increase itemized deductions before the end of the year so you can benefit more from deductions when you file in 2024. 

• Plan your medical expenses. Only medical expenses exceeding 7.5% of your AGI are deductible. If you plan to itemize and your expenses are hovering around this limit, consider scheduling medical appointments or procedures within the year. 

• Be mindful of your income tax brackets. If you foresee a change in income, scheduling certain expenses for the higher-tax-bracket year could be a wise strategy. 

• Charitable donations. If you plan to itemize, you might consider charitable contributions as a way to maximize your deductions. If you’re contemplating a donation, it could be wise to do so before the end of the year. Remember to request proper documentation from the charity. 

• Tax loss harvesting. If you’ve realized capital gains from selling investments at a profit, you can offset those gains by selling other investments at a loss. This maneuver can reduce your taxable income and lower your tax bill. However, be wary of the wash-sale rule, which prohibits repurchasing the same security within 30 days after the sale at a loss. 

• Business expense planning and deductions. For business owners, the year’s end is a crucial time to assess your expenses and strategize for the upcoming year. Consider making necessary business-related purchases before year-end to claim deductions for the current tax year. Also, review potential deductions and ensure you have the appropriate documentation ready.

As the tax terrain continues to evolve, it is imperative to stay informed and make decisions that will optimize your tax position. Our expert advisors are always available to provide guidance and discuss these updates in detail. Should you have any questions or wish to discuss these IRS updates and strategic tax moves for the coming year, please do not hesitate to contact our office. Our goal is to help you navigate these changes and make the most of your financial future.