Dear Clients
As the 2024 year ends, a new tax year is on the horizon with minimal changes to tax laws. Getting a handle on your 2024 projected income is more important than ever. If you have not spoken to us about 2024 year-end tax planning and wish to do so, call the office at 410-643-4477 and talk to Marie. Below are some helpful reminders heading into the new year.
1099's
The IRS has become serious about not issuing 1099s. The penalty for not issuing 1099's was $50 per event in prior years. For 2024, the penalty could be as much as $1,000 per omitted or incorrect 1099. A 1099 is required whenever you pay a non-corporate entity $600 or more in one year in business transactions. These are cash and check transactions; credit card payments are not included. 1099's must be provided to the taxpayer and filed with the IRS by January 31, 2025, or those penalties will apply. You may encounter sub-contractors who do not want you to issue them one, so make sure you get them to fill out a W-9 form before you issue them a payment. Form W-9: https://www.irs.gov/pub/irs-pdf/fw9.pdf. In December, we will send a more detailed email with the filing requirements for 2024 1099's.
State and Local Taxes
Businesses should monitor the tax laws and policies in their business states. Understanding tax obligations and identifying ways to minimize state tax liabilities and eliminate state tax exposure is essential. Have you reviewed the nexus rules in each state where you have property, employees, or sales to determine if you have tax obligations? Have you checked the nexus rules of your mobile or remote workforce?
State tax authorities are beginning to utilize technology to determine state nexus for income tax purposes. They use information from other state departments, such as unemployment agencies, to determine if a company has employment nexus to their state. State nexus rules are complex and vary by state; please reach out if you have any questions or concerns.
Sales Tax
If you have a website selling products or services or offer sales across state lines, you must familiarize yourself with these rules and protect your company. We do not monitor sales volumes or the number of transactions by state and do not register or file sales tax returns for you when we prepare your income tax returns. We can suggest software solutions or a sales tax service provider if you wish, but you need to act on this issue because it is not part of your income tax preparation.
Shareholder Health Insurance
For 2% or more shareholders, the premiums paid by the company need to be included in their W-2. If the spouse and dependents are included in the shareholder policy, the total is included for reporting on the W-2. Health Insurance is subject to federal and state withholding. Still, it may be subject to social security, Medicare, and unemployment taxes if the policy is discriminatory and NOT in compliance with the Affordable Care Act (ACA).
Maryland Family and Medical Leave Insurance (New in 2025)
Maryland is preparing to launch a new paid family and medical leave program! Starting July 1, 2026, workers will receive job protection and be able to take time away from work to care for themselves or a family member and still be paid up to $1,000 a week for up to 12 weeks. FAMLI is an insurance program. Employers and workers will make contributions to a fund administered by the State. Alternatively, an employer may apply to use a commercial or self-insured plan. When workers need to take leave, the State or the private plan will pay them a portion of their salary.
July 1, 2025: The contribution period for the State Plan begins.
This means payroll deductions will begin on July 1, 2025, and employers will remit the first payment to the State in October 2025.
July 1, 2026: Benefits for all workers begin.
The contributions employers remit to the State will create a trust fund. The fund will grow over time and be ready to pay out benefits to Maryland workers starting July 1, 2026.
State Plan contribution rates
The rate will depend on payroll size:
For fifteen or more employees, the rate will be 0.90% of covered wages up to the Social Security cap. Employers may withhold up to half (0.45%) of the contribution rate from the employees’ pay.
Fewer than 15: the rate will be 0.45% of covered wages up to the Social Security cap. Employers may withhold up to this full amount from the employees’ pay.
While the Department of Labor sets the contribution rate for the State Plan, private plans will set their rates. Employees can’t be charged more in a private plan than they would be through the State Plan.
Each February, the Department will announce a contribution rate for the following State fiscal year (July 1-June 30). It may change over time, but under current law, the total rate cannot exceed 1.2% of wages up to the Social Security cap.
Employers in the State Plan won’t be charged more depending on worker usage. Private plans may be structured differently.
Employer-Provided Vehicles
Personal use by an employee (including shareholders of S-Corporation of 2% or more) of a vehicle the employer provides is a fringe benefit. Personal use of the vehicle can include commute time between home and work, trips unrelated to the business, or someone other than an employee using the vehicle. Personal use needs to be recorded on your W-2. The taxable value is subject to withholding and reporting requirements.
De-minimis Business Purchases
In 2013, the IRS released sweeping changes in items considered deductible, such as repairs, maintenance, and small deductible purchases. These regulations allow, with the adoption of a $2,500 de minimis policy, businesses to deduct the first $2,500 of repairs, maintenance, and small purchases but require items costing more than the $2,500 de minimis to be subjected to up to 20 additional tests regarding a 12-month usage life, betterments, adaptations, and restorations. You will be responsible for adopting the policy and applying these tests to all repairs, maintenance, and equipment.
Section 179 Expenses and Bonus Depreciation
If you are considering acquiring business property between now and the end of the year, we can help you navigate that decision. Many factors can influence this decision, including current and future tax rates. If your business plans to purchase new or used machinery or equipment before year-end, you may be able to expense the entire cost in 2024 by combining bonus depreciation and Section 179.
The Tax Cuts and Jobs Act of 2017, bonus depreciation drops from 80% to 60% for property placed into service in 2024. After 2024, the percentages are as follows:
Business Meal Expenses
Meals are limited to a 50% deduction. However, meals that are for the convenience of the employers are still eligible for 100% deductibility.
Entertainment is still not a deductible expense.
Available Tax Credits
There are a variety of tax credits and other incentives to encourage employment and investment. These credits are offered across various industries, such as innovation and technology, renewable energy, and low-income or distressed communities. A business that incurs expenses related to qualified research and development (R&D) activities is eligible for the federal R&D Credit. Many states and localities also offer tax incentives. Please reach out if you have any questions regarding any of these credits.
Employee Benefit - Retirement
Employers have until the extended due date of their 2024 federal income tax return to establish a qualified retirement plan retroactively and to fund the new or existing plan for 2024. Contributions made to a qualified retirement plan by the extended due date of the 2024 federal income tax return may be deductible for 2024. Contributions made after this due date are deductible for 2024.
Beginning in September 2022, the new Maryland Saves Program (https://marylandsaves.com/) requires most businesses to offer a retirement plan. This program is a low-cost, simple solution for retirement plan savings with no employer fees or requirements.
Employee Benefit - Student Loans
Employers can reimburse employees tax-free for up to $5,250 per year in student loan debt through December 31, 2025. The employers must set up a broad-based IRC Section 127 educational assistance plan.
Employers seeking to attract and retain qualified employees may offer tuition assistance to future employees by providing forgivable loan agreements. The amount forgiven is taxable wages, subject to income and employment taxes (including the employer share of employment taxes.)
Beneficial Ownership Information Reporting
Who Needs to Report?
The rules currently apply to domestic reporting companies (LLCs, corporations, etc., formed in the US) and foreign reporting companies (entities formed under foreign laws but doing business in the US). Certain entities, such as publicly traded companies and not-for-profit organizations, are exempt from reporting.
Who is Considered a Beneficial Owner?
Beneficial owners own at least 25% of the company's interests or significantly influence major financial and operational decisions. They typically include senior officers and key board members.
Required Information about Beneficial Owners
Required Information about Company Applicants
Required Information about the Reporting Company
How to Report
Reports can be electronically filed on the FinCEN website. This method allows easy updates and resubmissions with no initial submission fees if necessary.
Reporting Deadlines
Penalties for Non-Compliance
Failure to comply with these guidelines may result in fines and imprisonment. Civil and criminal penalties can accrue for continued non-compliance.
For more detailed information and to access the necessary forms, please visit the following links:
Most business owners should be able to complete the online filing with little to no assistance using this link. If you need help or wish someone else to prepare the form, Kram, McCarthy, Ayers & Frost, LLC has partnered with Strategic Tax Planning to assist our clients with their streamlined online application.
If you have read this far, thank you. Keeping up with ever-changing tax laws can be overwhelming. If you have any questions, please reach out.
Christopher Williams CPA/PFS, CFP®, MST, chrisw@kmaf.cpa
Gregory Litvinuck CPA, gregl@kmaf.cpa
Office 410-643-4477
