Since its enactment in 2017, the Tax Cuts and Jobs Act (TCJA) has significantly impacted the American tax landscape, introducing a slew of changes aimed at reducing tax burdens for individuals. However, many of these provisions were designed to sunset after a set period. Most are slated to expire in 2025. As this deadline approaches, it’s essential to examine the implications of these expiring provisions and how they might affect taxpayers across the nation.
Expiration of Individual Tax Provisions
Several key provisions of the TCJA affecting individual taxpayers are set to expire at the end of 2025.
Tax Brackets
The Tax Cuts and Jobs Act reduced the marginal tax rates across most individual tax brackets. But, once the sunset clause takes effect, these rates could revert to their prior levels.
Taxable Income (Single filer in 2023)
TCJA Marginal Rate
Pre-TCJA Marginal Rate
$11,000 or less
10%
10%
$11,001 to $44,725
12%
15%
$44,726 to $95,375
22%
25%
$95,376 to $182,100
24%
28%
$182,101 to $231,250
32%
33%
$231,251 to $578,125
35%
35%
$578,126 or more
37%
39.6%
Standard Deductions
The TCJA nearly doubled the standard deduction, making it more advantageous for many taxpayers to take the standard deduction rather than itemizing deductions.
2017 (Pre-TCJA)
2018
2024
2026 (Post-TCJA)
Single Filer
$6,350
$12,000
$14,600
Reverts Back
Married Filing Jointly
$12,700
$24,000
$29,200
Reverts Back
Head of Household
$9,350
$18,000
$21,900
Reverts Back
Tax Credits
Certain tax credits changed after the TCJA was enacted. Here are some tax credit provisions that could expire in 2025.
Child Tax Credit: Current at $2,000 per child. Prior to the TCJA, the credit was $1,000 per child. Single parents who earned more than $75,000 could only partially claim it. For married couples, this amount was $110,000. The TCJA increased these amounts to $200,000 and $400,000 respectively.
Credit for Other Dependents: Taxpayers can claim $500 for each dependent that doesn’t qualify for the child tax credit.
Tax Deductions
If the TCJA is not extended or made permanent, there are several tax deductions that will revert to pre-TCJA figures.
SALT Deduction: Currently capped at $10,000. However, a new proposal is aiming to raise this limit to $20,000 for married couples filing jointly who earn less than $500,000 for tax year 2023. Prior to the TCJA, there was no limit for the SALT deduction.
Mortgage Interest Deduction: Prior to the TCJA, homeowners could deduct interest paid on mortgages of up to $1,000,000, or $500,000 for married couples filing separately. Under the TCJA, anyone who takes out a mortgage between December 15, 2017, and December 31, 2025, can only deduct interest paid on the first $750,000. This amount reduces to $375,000 for married taxpayers filing separately.
Charitable Giving Deduction: You can currently deduct charitable contributions, up to 60% of your adjusted gross income. Once the TCJA sunsets, the cap will be 50% of your AGI.
Medical Expense Deduction: Currently capped at 7.5% of adjusted gross income. Prior to the TCJA, the cap was 10% of AGI.
Miscellaneous Deductions: The Tax Cuts and Jobs Act eliminated several miscellaneous deductions that were previously available. These include the cost of tax preparation, unreimbursed work expenses, moving expenses, and others.
Other Provisions
Estate and Gift Tax Exemptions: Currently capped at $13.61 million per lifetime for individual filers and $27.22 million for married couples filing jointly. The projected amounts after the TCJA sunsets in 2026 are $7 million for single filers and $14 million for married couples filing jointly.
529 Plan Gifts: Under the TCJA, 529 Plans now cover up to $10,000 per year for K-12 tuition. Funds can also be used to pay student loan debt.
Personal Exemptions: Prior to the TCJA, taxpayers could claim $4,050 for each personal exemption in addition to the standard deduction or their itemized deductions. The amount is now $0.
Uncertainty and Planning for the Future
The looming expiration of these TCJA provisions introduces uncertainty into the tax planning landscape for individuals. Taxpayers must consider the potential impact of these changes on their finances and prepare accordingly. For example, individuals may need to reassess their withholding allowances or adjust their financial strategies to mitigate any potential tax increases in the future.
Congressional Action and Potential Reforms
As the expiration date approaches, there is likely to be increased debate over the fate of the TCJA provisions. Lawmakers may consider various options, including extending certain provisions, making them permanent, or implementing alternative reforms to the tax code.
However, reaching consensus on tax policy can be challenging, particularly in a politically divided environment. Consequently, taxpayers should stay informed about developments in tax legislation and be prepared to adapt their plans accordingly.
Tax Help for Those Affected by the TCJA
The impending expiration of Tax Cuts and Jobs Act provisions in 2025 has significant implications for taxpayers across the United States. As these provisions sunset, individuals must navigate potential tax increases and plan accordingly. While the future of these provisions remains uncertain, staying informed and proactive can help taxpayers mitigate any adverse effects and optimize their financial strategies in the years to come. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Today, Phil discusses his top 5 tax tips for 2024.
Tax Tip #5: Gather Your Tax Documents Early
Most tax forms, including your W-2s and most 1099s, should be sent to you by January 31. However, there are some tax documents that come in a bit later. For example, 1099-B and 1099-MISC are due to recipients by February 15. 1095 health coverage forms are due by March 1. Be sure to wait for all your documents to arrive before filing your tax return.
Tax Tip #4: Don’t Forget About Estimated Tax Payments
If you are a small business owner, investor, landlord, or any taxpayer who receives income outside your normal job, you might need to pay estimated quarterly taxes. The 2024 quarterly tax payment deadlines are April 15, June 15, September 15, and January 15, 2025. Knowing these deadlines can help avoid tax penalties. You can use Form 1040-ES to calculate your estimated tax for the year.
Tax Tip #3: Don’t Wait on Your Tax Refund
In general, it takes about 21 days to receive your tax refund. However, some returns may take more time to review than others. That said, it’s best to not rely on your tax refund to make a big purchase or cover large expenses. You can use the online Where’s My Refund tool on the IRS’s website to track your refund status within 24 hours after e-filing and within 4 weeks of mailing a paper return.
Tax Tip #2: Report 1099-K Income – Even If You Don’t Receive the Form
If you receive payments on Venmo, PayPal, Etsy, eBay, or other third-party sites for your business, you probably know what a 1099-K is. The 1099-K reporting thresholds have changed quite a bit in the last couple of years, making the topic confusing for many small businesses. In short, if you receive income from these third-party payment networks, you must report it on your tax return, even if you do not receive a 1099-K form. This income is still considered taxable income, which means not reporting it can result in taxes owed to the IRS.
Tax Tip #1: Create an IRS Online Account
The IRS Online Account allows taxpayers to access various services and information related to their tax obligations. Taxpayers can access their tax return transcripts, make payments, access IRS notices and letters, apply for installment agreements, view payment histories, and more. Put simply, it helps you know where you stand with the IRS.
Join us next Friday as Phil will answer your questions about FinCEN!
If you need help with your taxes in 2024, contact us today for a Free Consultation
Receiving a notice from the IRS can be anxiety-inducing for anyone. Among the various notices the IRS sends, Notice CP2000 stands out as one that often causes confusion and concern among taxpayers. However, understanding what Notice CP2000 entails and how to respond to it is crucial for resolving any discrepancies with your tax return. In this article, we’ll delve into the specifics of IRS Notice CP2000 and provide guidance on how to address it.
What is IRS Notice CP2000?
IRS Notice CP2000 is formally titled the “Notice of Proposed Adjustment for Underpayment/Overpayment.” It is sent when the IRS identifies a discrepancy between the income, payments, and credits reported on your tax return and the information reported to the IRS by third parties, such as employers, banks, or financial institutions. The notice typically outlines the proposed changes to your tax return and explains the adjustments the IRS believes are necessary.
Why Did You Receive Notice CP2000?
There are various reasons why you might receive Notice CP2000. Common discrepancies that trigger this notice include:
Underreported income: The IRS has information indicating you received income that was not reported on your tax return.
Overstated deductions or credits: The deductions or credits claimed on your tax return exceed what the IRS expects based on the information provided by third parties.
Mismatched taxpayer information: Discrepancies in taxpayer identification numbers, filing status, or other key information can also prompt the issuance of Notice CP2000.
How to Respond to Notice CP2000
Receiving Notice CP2000 does not necessarily mean you are being audited. It is essentially a proposal for adjustments to your tax return based on the IRS’s records. Here’s what you should do if you receive this notice:
Review the Notice Carefully
Take the time to thoroughly read through the notice and understand the proposed changes to your tax return. Pay close attention to the specific items that the IRS is questioning.
Compare with Your Records
Compare the information provided in Notice CP2000 with your own records, including W-2s, 1099s, and other relevant documents. Verify whether the discrepancies identified by the IRS are accurate.
Respond by the Deadline
Notice CP2000 includes a response deadline. It’s essential to adhere to this deadline to avoid further penalties or interest. You have the option to agree with the proposed changes, partially agree, or disagree entirely. If you agree, you should send the notice back to the IRS with the payment they are requesting. If you partially agree or completely disagree with the notice, you should respond pleading your case. Do not amend your tax return.
Provide Supporting Documentation
If you disagree with the proposed adjustments, you must provide supporting documentation to substantiate your position. This may include bank statements, receipts, or other evidence to support your tax return.
Await the IRS’s Response
It usually takes the IRS anywhere from 4 to 8 weeks to respond, so be patient. If the IRS rejects your response, you can submit an appeal.
Seek Professional Assistance
If you’re uncertain about how to respond to Notice CP2000 or need assistance in resolving the discrepancies, consider consulting a tax professional or accountant for guidance. Be prepared to show them your notice, any responses you’ve submitted, copies of your tax returns, and proof of eligibility for deductions and credits.
Tax Help for Those Who Receive IRS Notice CP2000
Receiving IRS Notice CP2000 can be unsettling, but it’s essential to address it promptly and accurately. By understanding the reasons behind the notice and following the appropriate steps to respond, you can effectively resolve any discrepancies with your tax return. Remember to carefully review the notice, compare it with your records, and provide supporting documentation as needed. Seeking professional assistance may also be beneficial in navigating the process and ensuring compliance with IRS requirements. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Death is an inevitable part of life, but what happens to our financial obligations when we pass away? Among the many considerations that arise after someone dies, tax liabilities can be a complex issue that requires careful attention and understanding. While tax liabilities don’t simply vanish upon death, the way they’re handled can vary depending on several factors. These include the type of liability, the estate’s assets, and applicable laws. Let’s delve into what happens to tax debt after death and explore the implications for their estate and heirs.
Types of Tax Liability
Tax liabilities typically falls into two categories: federal and state. Federal tax obligations are owed to the IRS, while state taxes are owed to the relevant state tax authority. These can arise from various sources, such as income taxes, property taxes, or estate taxes.
Responsibilities of the Estate
Tax liabilities are generally considered a personal liability. This means that it’s tied to the individual who incurred the balance rather than their heirs or beneficiaries. So, when you die, your tax balance doesn’t automatically transfer to your family members. When someone dies, their estate becomes responsible for settling any outstanding balances, including tax obligations. An estate encompasses all the assets, property, and liabilities left behind by the deceased individual. Executors or administrators, appointed to manage the estate, play a crucial role in this process.
Surviving Spouses
In community property states, where spouses share ownership of assets and liabilities incurred during the marriage, the surviving spouse may be held responsible for the deceased spouse’s back taxes. However, even in community property states, the IRS typically only pursues the surviving spouse for tax liabilities if they were also responsible for filing the tax return or if the tax owed is related to joint returns.
Settling Tax Liabilities
The settlement of tax liabilities from an estate typically follows a specific procedure:
Notification of Death: Executors or family members should inform relevant tax authorities of the individual’s death.
Filing Final Tax Returns: The executor must file the deceased person’s final income tax returns. These returns cover the period up to the date of death. They are also typically due by the usual April 15 tax filing deadline.
Payment of Tax Liability: Any taxes owed up to the date of death must be paid from the estate’s assets. This includes income taxes for the final year and any unpaid taxes from previous years.
Estate Tax Returns: If the estate’s value exceeds certain thresholds, an estate tax return may be required at the federal and/or state level. Estate taxes are assessed on the transfer of wealth from the deceased individual to their heirs and beneficiaries.
Payment of Estate Taxes: If estate taxes are owed, they must be paid from the estate’s assets before distribution to heirs.
Assets and Liabilities
The assets and liabilities of the estate play a significant role in determining how tax liabilities are settled. If the estate’s assets are insufficient to cover the tax obligations, certain assets may need to be sold to satisfy the balance. However, some assets, such as retirement accounts with named beneficiaries, may pass directly to heirs outside of the probate process and therefore not be subject to estate taxes.
Inheritance and Heirs
Heirs and beneficiaries of an estate are generally not personally responsible for the deceased individual’s tax balance. However, the amount they inherit may be affected if tax obligations deplete the estate’s assets. Sometimes, heirs may receive less than anticipated if a significant portion of the estate is used to settle tax liabilities.
Options for Resolving Tax Liabilities
If an estate lacks sufficient assets to cover tax liability, there are several options available:
Negotiation with Tax Authorities: Executors may negotiate with tax authorities to establish a payment plan or settle the balance for less than the full amount owed.
Sale of Assets: Selling assets from the estate can generate funds to pay off tax balance.
Abatement or Discharge: In certain circumstances, tax liabilities may be discharged or reduced, such as when it is disputed or when the estate qualifies for relief programs.
Seeking Professional Guidance: Executors and heirs should consider consulting with tax professionals or estate attorneys to navigate the complexities of settling tax liabilities. Doing so can help ensure compliance with applicable laws.
Estate Planning Strategies
To minimize taxes on your estate and loved ones, it’s essential to engage in proactive estate planning. This may involve creating a will, establishing trusts, making gifts to beneficiaries during your lifetime, and exploring tax-saving strategies. By taking these steps, you can potentially reduce the amount of taxes owed by your estate and ensure a smoother transfer of assets to your heirs.
Tax Help for Taxpayers Who Owe
Navigating tax liability after the death of a loved one requires careful attention to detail and an understanding of the legal and financial implications involved. Executors play a crucial role in ensuring that tax obligations are properly addressed and settled from the deceased individual’s estate. By following the appropriate procedures and seeking professional guidance when necessary, families can manage tax liability effectively and minimize the impact on heirs and beneficiaries. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Tax season often brings a sense of confusion and anxiety for many individuals, especially when faced with understanding complex tax forms. One such form, the W-2, plays a crucial role in the tax-filing process for employees. Understanding the W-2 form is essential for accurately reporting income and ensuring compliance with tax laws. In this article, we’ll break down the W-2 form, explaining its purpose, components, and how to interpret the information it contains.
What is a W-2 Form?
The W-2 form, also known as the Wage and Tax Statement, is a document provided by employers to their employees at the end of each calendar year. Its primary function is to report your annual wages and the amount of taxes withheld from your paychecks throughout the year. Employers are required by law to issue W-2 forms to all employees who earned wages during the tax year, regardless of whether taxes were withheld
Components of the W-2 Form
Understanding the W-2 form begins with knowing each component of it.
Employee Information
The W-2 form begins with the employee’s personal information, including their name, address, and Social Security number. It’s crucial to review this information for accuracy, as any discrepancies could lead to processing delays or errors in tax filing.
Employer Information
Next, the W-2 includes details about the employer, such as the company’s name, address, and Employer Identification Number (EIN). This section identifies the employer responsible for withholding and remitting taxes on behalf of the employee.
Wage and Salary Information
One of the most critical sections of the W-2 form is the breakdown of wages and salaries earned by the employee during the tax year. This includes wages, tips, bonuses, and other compensation received from the employer. Here is a closer look at each individual box that reports income.
Box 1
Box 1 shows what is probably the bulk of your income. It includes wages, tips, prizes, and other means of compensation for the year. The amount in box 1 should be directly transferred to line 1 of your 1040 tax return. However, if you have multiple jobs, then you’d include the sum of all box 1 figures and list that on line 1 of Form 1040.
Box 3
Box 3 on Form W-2 shows how much of your wages are subject to Social Security tax. The Social Security tax is 12.4%, but you and your employer split the cost of the tax. There is also a limit to how much will be taxed. This amount in 2024 is $168,600. This basically means that earnings that exceed this limit will not be subject to this tax.
Box 5
Box 5 shows how much of your wages are subject to Medicare tax. The total Medicare tax is 2.9% with you paying half and your employer paying half. Unlike Social Security tax, all your wages are subject to it. However, if you receive over $200,000 for the year, you’ll be required to pay an additional 0.9% Medicare tax. The amount increases to $250,000 for married couples filing jointly.
Box 7
The 7th box on Form W-2 shows how much tip income you reported to your employer for the year.
Box 8
Box 8 shows how much your employer paid you in tips.
Tax Withholding
The W-2 form also provides information on the taxes withheld from the employees’ paychecks throughout the year. This includes federal income tax, Social Security tax, Medicare tax, and any state and local income taxes withheld, if applicable. Here’s a closer look at each box.
Box 2
Box 2 on Form W-2 shows the total amount of federal income tax withheld from your pay throughout the year. The amount withheld is based on the information provided by you on your Form W-4.
Box 4
Box 4 shows the amount of Social Security tax withheld from your paychecks. Remember, only the first $168,600 will be taxed in 2024.
Box 6
Box 6 shows the amount of Medicare tax withheld from your pay. Remember, all your income is subject to this tax. If you are a higher earner, you’ll be taxed even more.
Other Compensation and Benefits
Additionally, the W-2 may include other forms of compensation and benefits provided to the employee, such as contributions to retirement plans, health insurance premiums, and other fringe benefits. Here are some examples referenced on Form W-2.
Box 10
Box 10 on Form W-2 shows the total amount of dependent care benefits that your employer either paid directly to you or incurred on your behalf. Any amounts over $5,000, or $2,500 for someone married filing separately, will also be included as wages in box 1. If you received this benefit, you’ll need to calculate the amount you can exclude from your income with Part III of Form 2441, Child and Dependent Care Expenses.
Box 11
Box 11 on Form W-2 shows any distributions from a nonqualified deferred compensation plan (NQDC) or other types of deferred compensation. Nonqualified deferred compensation refers to compensation that has been earned by an employee but has not yet received. This could include bonuses, commissions, or other types of income that are deferred for tax purposes.
Box 12
Various codes are shown in box 12 for reporting specific types of compensation or benefits, such as retirement plan contributions (code D) or health insurance premiums (code DD).
Box 13
The 13th box on Form W-2 shows whether you were classified as a statutory employee, exempt from federal income tax withholding, participated in an employer-sponsored retirement plan like a 401(k) or 403(b), or received sick pay from a third-party source, such as an insurance policy.
Box 14
Box 14 on Form W-2 is a catch-all box where employers can report additional information that may not fit into the other designated boxes on the form. Some examples of Box 14 contents include state disability insurance taxes withheld, uniform payments, union dues, and educational assistance.
Interpreting the W-2 Form
Understanding how to interpret the information on the W-2 form is essential for accurately filing taxes. Here are some key points to consider:
Verify the accuracy of all information, including personal details and wage amounts.
Pay close attention to the amounts withheld for federal and state income taxes, as well as Social Security and Medicare taxes.
Note any additional compensation or benefits reported on the form, as these may have tax implications.
Keep the W-2 form safe and accessible for tax filing purposes, as it is a vital document for completing tax returns accurately.
Filing Requirements
Employers must provide W-2 forms to their employees by January 31st of the following year. Employees must use the information on their W-2 forms to complete their individual tax returns, which are typically due by April 15th.
Tax Help for W-2 Employees
The W-2 form is a critical document for both employees and employers, providing essential information about wages, taxes withheld, and other compensation. By understanding the components of the W-2 form and how to interpret its contents, individuals can ensure compliance with tax laws and accurately report their income come tax season. If you have any questions or concerns about your W-2 form, it’s advisable to consult with a tax professional for guidance and assistance. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
