2024 END OF YEAR TO DO LIST
It’s hard to believe that Thanksgiving is almost here and 2024 is quickly drawing to a close. Here are some action items that you may want/need to take care of before 2024 is gone.
Corporate Transparency Act
If you haven’t heard by now, the Corporate Transparency Act (CTA) became effective on January 1, 2024. For companies that were in existence on or before January 1, 2024, unless covered by an exemption (and it is good to start with the presumption it is not), a beneficial ownership information (BOI) report will need to be filed with FinCEN before the end of 2024. Companies formed between January 2, 2024 and December 31, 2024, must file their BOI report within 90 days after creation. Companies created beginning on January 1, 2025 or later will only have 30 days to file the BOI report. Failure to comply with the CTA can result in substantial fines.
Annual Gift Tax Exclusion
While a lot of time this year has have been spent discussing large gifts because of the potential sunset of the current tax law, don’t ignore the cumulative benefit of smaller annual exclusion gifts. In 2024, the annual gift tax exclusion amount allows each person to give away up to $18,000 per person during the year without tax consequence. The gifts can be in cash or in kind. This amount can be given to as many people as you want each year. A husband and wife jointly can give up to $36,000 per person. Gifts of appreciating property are the best. In order to “count”, the gifts must be of a present and immediate interest. Gifts of a “future interest” do not qualify for the exclusion. The amount is cumulative and includes all gifts given to an individual during the year. Thus, paying a $4,000 debt, giving a birthday present worth $1,000 and then a year-end cash gift of $15,000 would mean total gifts of $20,000. A gift in excess of the annual exclusion limit will require the filing of a gift tax return and the use of a portion of the Lifetime Gift Tax Exemption. The IRS recently announced that this annual exclusion amount will increase to $19,000 per person in 2025.
The Lifetime Gift Tax Exemption is the amount of non-charitable gifts a person can give away over his/her lifetime without paying a gift tax. These gifts will also reduce the amount of available Estate Tax Exemption at death. The Lifetime Gift Tax Exemption for 2024 is $13.61 million. Normally that amount increases each year, and the IRS recently announced that it will increase to $13.99 million in 2025. But the current tax law is presently schedule to sunset at the end of next year. If it does so, that amount may be cut in half. In certain instances, it can make great sense to use some, or all, of your Lifetime Gift Tax Exemption to avoid future appreciation of an asset. Stay tuned in the coming months to see how this is being addressed.
Whether it is an annual exclusion gift or a lifetime exemption gift, it is important to remember, that lifetime gifting transfers the giver’s tax basis in the asset as well and as a result such transfers will not receive a stepped-up income tax basis at death.
Gifts for Medical and Educational Expenses
Gifts for medical and educational expenses are not subject to the gift tax so long as payment is made directly to the medical or educational institution. In order for an educational organization to qualify, it must be “one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” In addition, to qualify for the Educational Exclusion, the payment can only be for tuition. Payments for books, supplies, room and board, etc. do not qualify.
Medical expenses must be paid directly to the provider and must be for medical care that is deductible for income tax purposes. The Medical Exclusion does not apply to amounts that are reimbursed by the recipient’s insurance.
529 Plans
Another great gifting opportunity is presented by 529 College Savings Plans. Contributions to these plans qualify for the annual gift tax exclusion. Gifts in excess of $18,000 would normally require use of part of the lifetime exemption. However, an individual may contribute as much as $90,000 to a 529 plan in 2024 ($95,000 in 2025) if they treat the contribution as if it were spread over a 5-year period. This must be reported on A gift tax return for each of the five years. This is often called 5-year gift tax averaging or superfunding. This allows an individual to shelter a large amount of assets from estate taxes, while retaining control of the funds in the 529 account.
ABLE Accounts
An ABLE account is a program administered at the state level to provide a savings vehicle for people with disabilities. Income earned is generally tax-free or at least tax-deferred, and accounts will not cause a disabled person to lose eligibility for means-tested benefits such as Medicaid and Social Security insurance. Contributions to an ABLE account can be made by anyone, including the owner of the account, but are limited to an aggregate yearly contribution amount equal to the annual gift tax exclusion.
Qualified Charitable Distributions (QCDs) from Your IRA
An individual age 70½ or older can make direct charitable gifts from an IRA to public charities each year. The limitation in 2024 is $105,000 and will increase to $108,000 in 2025. The distribution cannot be to a donor advised fund, supporting organization or most private foundations. These distributions, which can include your required minimum distribution, are made tax-free. A QCD reduces your adjusted gross income and taxable income. You QCD can now be used to fund a charitable gift annuity (CGA). A CGA can provide a fixed income stream to a donor and their spouse for a specified term. This is a one-time option and is limited in 2024 to $53,000. This will increase to $54,000 in 2025.
Annual Business Valuations
Many Buy-Sell agreements or Operating Agreements require an annual agreement by the owners as to the value of the company. Failure to properly value the company as required by the agreement may result in a serious discrepancy (high or low) in the value given upon the occurrence of a triggering event. Be sure you have your annual valuation agreement in place.
Annual Review of Estate Planning Documents
Things are always changing. Things change in our personal life because of births, deaths, disabilities, divorces, etc. Laws are also very likely to change from time to time. There has been several significant changes in state and federal law in the last few years. We may be facing a significant change to the estate tax laws. Many older estate plans have been prepared to avoid a potential estate tax problem that no longer exists while exposing these same individuals to higher income taxes. Regular annual review and updating of your trust will go a long way toward making sure your trust works as well when it needs to as the day you signed it.
Annual Business Review Meeting
The annual business review meeting is an opportunity to review your organization’s legal documents to ensure that they are complete, up to date and in compliance with current law. It is also an opportunity to review your exit goals to determine what actions can and should be taken in the coming months to help achieve those goals. This is a meeting that should include your insurance, financial, legal and tax advisors.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.