Posts By :

smolinlupinco

Answers to Your Tax Season Questions

Answers to Your Tax Season Questions
Answers to Your Tax Season Questions 850 500 smolinlupinco

Ready or not—the 2024 tax season is officially open! The IRS is now accepting and processing 2023 income tax returns

Just as in years prior, we’re receiving an abundance of questions about this tax season. Let’s take a look at seven of the most relevant ones. 

1. What are the 2024 tax season deadlines?

For most taxpayers, returns and extensions must be filed by Monday, April 15, 2024.

However, Massachusetts and Maine state holidays will earn some taxpayers an extra two days. You may also be granted additional time to file if you live in a federally declared disaster area.

2. If I request an extension, when is my return due?

Taxpayers who request an extension must file before October 15, 2024.

Of course, it’s important to note that you will still need to pay any taxes owed before April 15. If not, you could face penalties. 

3. When’s the best time to file?

Filing for an extension or waiting until the last minute can be tempting, but filing early has its benefits. Namely, filing your return early in the tax season offers some protection against tax identity theft. 

4.  How does early filing help protect me from tax identity theft? 

When a thief uses another person’s sensitive information to file a fake tax return and claims a fraudulent refund, we call this tax identity theft.

Oftentimes, taxpayers only discover these scams once it comes time to file their return, and the IRS informs them their return is being rejected since a tax return with the same social security number has already been filed for the year. 

Proving which return is valid and which one is the fraud can be a frustrating, time-consuming process. It may also delay your refund.

If you file early, however, the IRS will reject fraudulent returns filed after your return.

5. Why else should I try to file my return early? 

If you want your refund as soon as possible, filing early can help.

In fact, the IRS asserts that “most refunds will be issued in less than 21 days.” If you choose to file electronically and elect to receive your refund via direct deposit, your wait could be shorter.

As an added benefit, receiving a refund via direct deposit eliminates the odds that your refund check could be caught in a mail delay or returned to the IRS as undeliverable, stolen, or lost.  

6. When should I expect to receive my W-2s and 1099s?

Before you can file your tax return, you’ll need all of your Forms 1099 and W-2.

January 31, 2024, is the deadline for employers to file 2023 W-2s and, generally, for businesses to file Form 1099s for recipients of any 2023 interest, dividends, or reportable miscellaneous income payments (including those made to independent contractors).

If early February arrives and you still haven’t received a W-2 or 1099, contact the entity that should have issued it. If that doesn’t work, contact your accountant. 

7. When should I contact Smolin to prepare my return?

An accurate, timely return is crucial to ensure you avoid penalties and receive all of the tax breaks you’re entitled to. Make sure you contact us as soon as possible to get the ball rolling. 

Questions? Smolin can help.

If you still have questions about the 2024 tax season, you’re not alone. Reach out to the friendly accountants at Smolin for more personalized tax advice.

A hybrid DAPT may offer the asset protection you need

A Hybrid DAPT May Offer the Asset Protection You Need
A Hybrid DAPT May Offer the Asset Protection You Need 850 500 smolinlupinco

Asset protection is a vital part of estate planning. Chances are you want to pass on as much of your wealth to family and friends as possible. To do this, you may need to shield your assets from frivolous creditors’ claims and lawsuits.

One option available to you as you plan your estate is to establish a domestic asset protection trust (DAPT).

What is a DAPT?

A DAPT is an irrevocable self-settled trust that empowers an independent trustee to manage and distribute trust assets to beneficiaries. This unique structure enables the trust’s creator (known as the “settlor” or “trustor”) to enjoy the advantages of both asset protection from external creditors and the beneficial use of trust assets. 

Domestic asset protection trusts can offer creditor protection even if you’re a trust beneficiary, but there are risks involved. Bear in mind that DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims.

Not all states currently recognize the DAPT. Those that do include: Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. 

Keep in mind that you don’t necessarily have to live in one of those states to qualify; what matters most is where the asset is located. So you can explore the possibility even if your state doesn’t currently participate.

A hybrid DAPT in action

A “hybrid DAPT” may offer the best option to the person planning their estate and to the beneficiary. In this arrangement, you’re not initially named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

A hybrid domestic asset protection trust is initially set up as a third-party trust, meaning it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t considered a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the risks mentioned above.

Alternatives to a hybrid DAPT

Before forming a hybrid domestic asset protection trust, you should determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children, or other family members, either outright or in a trust, without retaining any personal control.

If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children, provided your relationship with them remains in good standing.

Questions about hybrid DAPTs? Contact Smolin.

The hybrid domestic asset protection trust can add flexibility while offering significant asset protection. It also minimizes the risks associated with DAPTs, while retaining your ability to convert to one should the need arise. 

Consult with your accountant today to assess whether a hybrid DAPT is right for you.

Higher Interest Rates Spark Interest in Charitable Remainder Trusts

Higher Interest Rates Spark Interest in Charitable Remainder Trusts
Higher Interest Rates Spark Interest in Charitable Remainder Trusts 850 500 smolinlupinco

If you wish to leave a charitable legacy while still generating income during your lifetime, a charitable remainder trust, or CRT, could be a viable solution. 

In addition to an income stream, CRTs offer an up-front charitable income tax deduction, as well as a vehicle for disposing of appreciated assets without immediate taxation on the gain. Plus, unlike certain other strategies, charitable remainder trusts become more attractive if interest rates are high. You may be considering this option as interest rates have been climbing. 

How these trusts work

A charitable remainder trust is an irrevocable trust to which you contribute stock or other assets. The trust pays you, your spouse, or other beneficiaries income for life or for a term of up to 20 years, then distributes the remaining assets to one or more charities. 

When you fund the trust, you’re entitled to a charitable income tax deduction (subject to applicable limits) equal to the present value of the charitable beneficiaries’ remainder interest.

Types of charitable remainder trusts

There are two types of CRTs, each with its own pros and cons. A charitable remainder annuity trust (CRAT) pays out a fixed percentage of the trust’s initial value, ranging from 5% to 50%. CRATs do not allow additional contributions once it’s funded.

A charitable remainder unitrust (CRUT) pays out a fixed percentage of the trust’s value, also ranging from 5% to 50%, but the value is recalculated annually, and you will be allowed to make additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. 

CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. CRUTs have the advantage of allowing you to make additional contributions, but you may want to consider the potential disadvantage that your payouts shrink if the trust’s value declines.

CRTs and a high-interest rate environment

To ensure that CRTs are used as legitimate charitable giving vehicle, the IRS requires that the present value of the charitable beneficiaries’ remainder interest be at least 10% of the trust assets’ value when contributed. 

Calculating the remainder interest’s present value is complicated, but it generally involves estimating the present value of annual payouts from the trust and then subtracting that amount from the value of the contributed assets.

The calculation is affected by several factors, including the length of the trust term (or the beneficiaries’ ages if you choose to make payouts for life), the size of annual payouts, and an IRS-prescribed Section 7520 rate. If you need to increase the value of the remainder interest to meet the 10% threshold, you may be able to do so by shortening the trust term or reducing the payout percentage.

In addition, the higher the Sec. 7520 rate is at the time of the contribution, the lower the present value of the payouts and, therefore, the larger the remainder interest. 

In past years, rock-bottom interest rates made it difficult, if not impossible, for many CRTs to qualify. But as interest rates soared, it has become easier to meet the 10% threshold and increase annual payouts or the trust term without disqualifying the trust.

Is now the time for a CRT? Smolin can help.

If you’ve been exploring options for satisfying your charitable goals while generating an income stream for yourself and your family, now may be an ideal time to consider a charitable remainder trust. Contact us if you have questions.

Will your court awards and out-of-court settlements be taxed

Will your court awards and out-of-court settlements be taxed? 
Will your court awards and out-of-court settlements be taxed?  850 500 smolinlupinco

Courts grant monetary awards and settlements for a range of reasons. 

For example, you may receive compensatory and punitive damage payments for personal injury, discrimination, or harassment. In this situation, some of the awarded amount you receive may be taxed by the federal government, and perhaps some will be taxed by your state government. 

Hopefully, you’ll never need to know how payments for personal injuries are taxed, but here are the basic rules if you or a loved one receive an award or settlement and need to understand the tax implications.

Under current tax law, you’re permitted to exclude from your gross income the damages received on account of a personal physical injury or a physical sickness. It doesn’t matter if the compensation is from a court-ordered award or an out-of-court settlement, and it makes no difference if it’s paid in a lump sum or installments.

Exceptions: Emotional distress, punitive damages, back pay

Emotional distress isn’t considered a physical injury or physical sickness and is excluded from the tax exemption. So, for example, you would need to include an award under state law that’s meant to compensate for emotional distress caused by age discrimination or harassment in your gross income. However, if you require medical care for treatment of the consequences of emotional distress, then you may exclude the amount of damages not exceeding those expenses from gross income.

Punitive damages for any personal injury claim, whether physical or not, aren’t excludable from gross income unless the court awards it under certain state wrongful death statutes that provide for only punitive damages.

The law doesn’t consider back pay and liquidated damages you may receive under the Age Discrimination in Employment Act (ADEA) to be paid in compensation for personal injuries. Therefore, if you receive an award for back pay and liquidated damages under the ADEA, you must include those awards in your gross income.

Court case examples

As you may suspect, the IRS and courts often decide that awards and settlements are taxable even if the recipient feels they should exclude them from taxable income. 

In one case, a taxpayer sustained an injury while at a hospital. She sued for negligence but lost her case. She then sued her attorney for legal malpractice, and the court awarded her $125,000. The IRS said the amount was taxable because her award wasn’t for any physical injuries. The U.S. Tax Court and the 9th Circuit Court of Appeals agreed. (Blum, 3/23/22)

In another case, the Tax Court ruled that married taxpayers weren’t entitled to income exclusion for a settlement the husband received from his former employer in connection with an employment discrimination and wrongful termination lawsuit. Although the settlement agreement provided for payment “for alleged personal injuries,” there was no evidence to support that it was paid on account of physical injuries or sickness. (TC Memo 2022-90)

Legal fees

You aren’t allowed to deduct attorney fees you incur to collect a tax-free award or settlement for physical injury or sickness. However, to a limited extent, attorney’s fees (whether contingent or non-contingent) or court costs paid by, or on behalf of, a taxpayer in connection with an action involving certain employment-related claims are currently deductible from gross income to determine adjusted gross income.

After-tax recovery

Keep in mind that while you want the best tax result possible from any settlement, lawsuit, or discrimination action you’re considering, non-tax legal factors, together with the tax factors, will determine the amount of your after-tax recovery. Consult with your attorney on the best way to proceed, and we can provide any tax guidance that you may need.

Questions? Smolin can help.

This article provides a basic overview of the tax implications of court awards and out-of-court settlements. If you need tax information about your award or settlement, the best course of action is to consult with your accountant.

11 Scenarios Avoid 10% Penalty Tax Early IRA Withdrawals

11 Scenarios Where You Can Avoid the 10% Penalty Tax on Early IRA Withdrawals
11 Scenarios Where You Can Avoid the 10% Penalty Tax on Early IRA Withdrawals 850 500 smolinlupinco

When financial challenges arise, it can be tempting to take an early withdrawal from your traditional IRA. However, making the decision without understanding the tax implications is risky.

Here’s what you need to know, including your options for avoiding the 10% early withdrawal penalty tax.

First off, the penalty doesn’t always apply.

A withdrawal from a traditional IRA will almost always constitute taxable income. The percentage of the withdrawal that will be considered taxable is dependent on whether you’ve made any nondeductible contributions to the account.

If you have made nondeductible contributions, each withdrawal consists of a proportionate amount of your total nondeductible contributions. This portion of the withdrawal is tax-free. The proportionate amount of each withdrawal that consists of deductible contributions and accumulated earnings is taxable.

Of course, 100% of a withdrawal is taxable if you’ve never made any nondeductible contributions.

Exceptions to the 10% penalty tax

If any of these 11 exceptions are met, you may be able to avoid paying the 10% early withdrawal penalty tax on the taxable amount of your withdrawal.

1. The withdrawal is a substantially equal periodic payment (SEPP)

These annuity-like withdrawals must be taken for at least five years—or until you turn 59½. The rules for SEPPs are complicated, though, so it’s best to meet with an accountant before deciding to proceed with this route. 

2. The withdrawal is for qualified medical expenses

Medical expenses are a common reason to make an early withdrawal. If your qualified medical expenses exceed 7.5% of your adjusted gross income, the amount of excess won’t be subject to the tax.

3. The withdrawal is to cover higher education expenses

If you make the withdrawal and pay qualified higher education expenses in the same year, an equivalent amount of the withdrawal will be penalty-free. 

4. The withdrawal will cover health insurance premiums during a period of unemployment

If you have received unemployment compensation for 12 consecutive weeks or longer from the state or federal government during the current or previous year, you can use the withdrawal to cover health insurance premiums without a penalty. 

5. There is a birth or adoption in your immediate family

For each eligible birth or adoption, you may make a withdrawal of up to $5,000 penalty-free. 

6. You’re purchasing your first home

You may make a penalty-free withdrawal within 120 days of the purchase to cover qualified principal residence acquisition costs. However, this type of tax-exempt withdrawal is subject to a $10,000 lifetime limit.

7. You are a qualifying military reservist

If you are a military reserve member called to active duty for at least 180 days (or an indefinite period), your early withdrawal will be exempt from the penalty. 

8. You’re making the withdrawal after a qualifying disability

If you become mentally or physically disabled to the extent that you can no longer do your job or a similar gainful activity, your withdrawal will be exempt from the penalty tax IF the disability is expected to lead to death or be of long/indefinite duration.

9. The IRS makes a withdrawal to cover debt

If the IRS makes a withdrawal to levy against the account, the tax won’t be charged.

10. Withdrawals after death

In most cases, withdrawals taken from an IRA after the account owner’s death are exempt from the 10% penalty. If, however, the funds are rolled over into the surviving spouse’s IRA or the surviving spouse elects to treat it as their own account, the penalty will still apply.

11. A personal or family emergency is expected

Starting in 2024, a new exception for withdrawals used for unforeseeable or immediate financial needs relating to personal or family emergencies will be available thanks to the SECURE 2.0 law. Only one distribution of $1,000 is allowed per year, and you may repay it within three years. 

Be proactive

As you can see, exceptions to the 10% penalty tax are quite specific. As such, most or all of your early traditional IRA withdrawals will likely be subject to the tax. This can push you into a higher federal income tax bracket. This can possibly lead to you paying both a 10% early withdrawal penalty and higher state and federal tax payments.

Plan your finances accordingly if you plan to make a withdrawal. 

Questions? Smolin can help.

This article provides only general information, and many penalty tax exemptions have additional requirements we haven’t covered. If you’re considering making an early withdrawal from your traditional IRA account, the best course of action is to consult with your accountant.

Providing Beneficiaries Power Remove Trustee

Consider Providing Your Beneficiaries With the Power to Remove a Trustee
Consider Providing Your Beneficiaries With the Power to Remove a Trustee 850 500 smolinlupinco

Appointing a trustee who is, well, trustworthy is crucial to ensuring a trust operates as intended. As such, you may invest a large amount of time and mental energy in selecting the right person for the job. 

But what happens if your carefully chosen trustee fails to carry out your wishes? 

Your beneficiaries may want to remove or replace your trustee in this circumstance, but they won’t be able to without facing a lengthy and expensive court battle—that is, unless you grant them the power to remove a trustee.  

A trustee’s role and responsibilities 

A trustee holds the legal responsibility to administer a trust on behalf of its beneficiaries. This person’s authority may be broad or extremely limited, depending on the terms of the trust.

There are certain fiduciary duties to the beneficiaries of the trust that a trustee must uphold. For example, a trustee is expected to treat all beneficiaries impartially and fairly. They must also manage the funds in the trust prudently.

It sounds simple, but when beneficiaries have competing interests, a trustee’s role can quickly become complicated. When it comes to making investment decisions, the trustee must find a way to balance the beneficiaries’ variable needs.

In some ways, choosing an executor and naming a trustee are somewhat similar. Both roles require financial acumen, dedication to the beneficiaries and the deceased person, and great attention to detail. 

Since investment expertise is important to the role, many people opt to choose a professional trustee rather than a friend or family member. Those who don’t should encourage their trustee that they can—and should—consult with financial experts as appropriate.   

“Cause” for removing a trustee 

If you don’t grant your beneficiaries the option to replace or remove a trustee, they would have to petition a court to remove the trustee. For a petition to be considered, the beneficiaries must be able to prove “cause” for the removal or replacement.

While the definition of “cause” isn’t the same in every state, there are some common grounds for removal, such as: 

  • Bankruptcy or insolvency that impacts the trustee’s ability to manage the trust 
  • Conflict of interest between the trustee and at least one beneficiary 
  • Fraud, misconduct, or other mismanagement of funds  
  • Legal incapacity 
  • Poor health 

While cause isn’t always difficult to prove, going to court can be expensive and time-consuming. Plus, many courts are hesitant to remove a trustee who’s been chosen by the trust’s creator.

With this in mind, it may be wise to include a provision in the trust document that empowers beneficiaries to remove or replace a trustee without cause if they’re dissatisfied with their management of the trust.

As an alternative, you might choose to list specific circumstances in the trust document under which your beneficiaries may remove a trustee. 

Alternative options to limit beneficiaries’ power

If you’re concerned about your beneficiaries having too much power over your trust, you might choose not to have them elect a removed trustee’s successor. Instead, you could opt to list a succession of potential trustees within the trust document.

If one trustee is removed, the next person on the list automatically becomes the trustee, instead of the beneficiaries choosing the next one.

Appointing a “trust protector” may also be a viable option. A trust protector is a person you grant power to make certain decisions regarding the management of your trust, including whether to remove or replace trustees.

Questions? Smolin can help.

For additional information on the role a trustee plays—and what your beneficiaries can do in the event that your person of choice fails to perform the job—contact a knowledgeable Smolin accountant.

Preparing Year-End Inventory Counts

Preparing for Year-End Inventory Counts
Preparing for Year-End Inventory Counts 850 500 smolinlupinco

Year-end is approaching quickly. If your business operates according to the calendar year, it’s time for a physical inventory account. While this task can feel tedious and time-consuming, it’s also a key chance to further develop your business’s operational efficiency.

As you prepare to undertake the count, let’s review some best practices that will help you make the most of the process. 

The Importance of Accuracy

Accuracy is crucial for many reasons. After all, why bother going through the process of a physical inventory count only to wind up with inaccurate numbers? In addition, you’ll need a trustworthy estimate of ending inventory in order to accurately estimate your company’s annual profits. 

For your income statement

For manufacturers, retailers, and myriad other businesses, the cost of sales is a major expense on the income statement. Calculating it is simple at the basic level. Simply subtract your ending inventory from the beginning inventory plus purchases during the year. 

However, things can become far more complicated without an accurate count. If the inventory balance for the end or the beginning of the year is incorrect, it’s impossible to determine how profitable your company truly is. 

For your balance sheet

When it comes to your company’s balance sheet, inventory is a major line item. In fact, inventory is often viewed as a form of loan collateral by lenders. Plus, stockholders review inventory-based ratios to evaluate the financial strength of your organization. 

And, of course, determining the amount of insurance coverage you’d need in the event of a major loss isn’t possible without an understanding of your true inventory. 

Importance of a Physical Count

Many companies use a computerized perpetual inventory. In it, value increases as you purchase goods (or raw materials are transformed into finished goods.) By contrast, it decreases as those goods are sold.

While this is a great first step, this method doesn’t always lead to an accurate count. This is why it’s so crucial to conduct physical counts at key times of the year as part of a strong internal control system.

In addition to double-checking the system’s accuracy, a physical count also signals to potential thieves and fraudsters that your company takes theft seriously and keeps a firm watch on its assets. 

Challenges Involved in Estimating Inventory Values

Your balance sheet might include inventory that consists of finished goods, works-in-progress, and raw materials, depending on the nature of your company’s origins. Under U.S. Generally Accounting Principles, inventory items are recorded at the market value or the lower of cost.

Subjective judgment calls could be involved when it comes to estimating the market value of inventory, particularly if your business creates and sells finished goods from raw materials. For works-in-progress, assessing value objectively can be particularly challenging because it includes overhead allocations. Percentage of completion assessments could also be needed.

Prepping for the count

Completing some tasks before you begin counting will help the entire process run more smoothly. Steps include:

  1. Create (or order) inventory tags that are prenumbered
  2. Examine inventory ahead of time and look for potential challenges that should be addressed prior to counting
  3. Create two-person teams of workers and assign them to specific count zones
  4. If any inventory items are defective or obsolete, write them off. 
  5. If any items are slow-moving, count them ahead of time and separate them into sealed, clearly marked containers. 

Additional procedure for companies that issue audited financial statements 

Arrange for at least one member of your external audit team to be present throughout your physical inventory count. However, don’t expect them to help with the counting.

Instead, they’ll be responsible for: 

  • witnessing your procedures (including any statistical sampling methods employed)
  • evaluating inventory processes
  • assessing internal controls over inventory
  • running an independent count to compare counts made by your employees with your inventory listing 

Questions? Smolin can help.

Over the years, we’ve witnessed the best (and worst) practices you could imagine when it comes to physical inventory counts. If you’re looking for more specific guidance on how to conduct a physical inventory count at your company—or simply additional recommendations on how to manage your inventory more efficiently year-round—we can help.

Contact your accountant to learn more.  

Navigating Tax Implications Restricted Stock Awards

Navigating the Tax Implications of Restricted Stock Awards
Navigating the Tax Implications of Restricted Stock Awards 850 500 smolinlupinco

Equity-oriented executive compensation can take many forms, but restricted stock awards are a popular option. In fact, many businesses offer them as an alternative to stock option awards in light of the fact that options can lose most or all of their value if the price of the underlying stock decreases. This is less of an issue with restricted stock. If the price declines, companies can issue additional restricted shares to balance the difference. 

If you’re in a position to receive a restricted stock award, it’s important to know what to expect in regard to your taxes. 

Restricted stock: How it works 

Typically, when a company grants an employee restricted stock, the shares are subject to certain limitations. The restricted shares are transferred to the employee, but the employee won’t actually own them until they become vested.

Oftentimes, you must continue working for the company for a particular length of time. If you leave the job before the designated date, you may be forced to forfeit the restricted shares. 

Tax rules for awards of restricted stock

Before the shares become vested, you won’t have taxable income from a restricted share award. In other words, there won’t be an immediate tax obligation associated with the shares.

Once the shares become vested, however, you’ll receive taxable compensation income equal to the difference between the value of the shares on the vesting date and the amount they paid for them (if anything).

Federal income tax for compensation is up to 37%, and you may also owe an additional 3.8% net investment income tax (NIIT). You could also owe state income tax on the income.

Appreciation occurring after the shares are vested will be treated as capital gain. If you hold the stock for a year or more after vesting date, you’ll be subject to a lower-taxed, long-term capital gain on that appreciation. For long-term capital gains, the current maximum federal tax rate is 20%, but you may also be subject to state income tax and the 3.8% NIIT. 

Section 83(b) election

You’ll also have the option to make a special Section 83(b) election, which gives you the option to be taxed at the time they receive the restricted stock award rather than when the shares vest. In this case, income will equal the difference between the amount that you paid for the shares (if anything) and the value of them.

This income will still be treated as compensation and subject to federal employment taxes, federal income tax, and state income tax. However, making a Section 83(b) election offers the benefit that further appreciation in the value of the stock will be treated as lower-taxed, long-term capital gain if the stock is held for over a year. It also provides a level of protection against higher tax rates that could be in place when the shares become vested. 

However, recognizing taxable income the year the restricted stock award is received does come at a risk. The election can be a financial disadvantage in the event that the shares are later forfeited or decline in value. If you do go on to forfeit the shares, you may be able to claim a capital loss for the amount paid for them (if anything).

To make a Section 83(b) election, you must notify the IRS either before the stock is transferred or within the following 30 days. 

Questions? Smolin can help. 

While the tax rules for restricted stock awards are fairly simple, deciding whether to make a Section 83(b) election is still a time-sensitive decision that has the potential to impact the true financial benefit of your award.

Before making the decision to opt for a Section 83(b) election, contact your accountant for more personalized guidance. 

New Per Diem Business Travel Rates Effective October 1st

New Per Diem Business Travel Rates Effective October 1st
New Per Diem Business Travel Rates Effective October 1st 850 500 smolinlupinco

Do traveling employees at your business find documenting expenses tedious? Are you equally frustrated at the energy and time needed to review business travel expenses? If so, relief is on its way. In Notice 2023-68, the IRS set forth special “per diem” rates, which became effective on October 1st.

These rates may be used to substantiate expenses for lodging, incidentals, and meals when traveling away from home. (Note: Employees in the transportation industry can use the transportation industry rate.)

How to use the “high-low” method

Rather than tracking actual business travel expenses, the high-low method provides a simplified alternative through fixed travel per diems. These amounts are provided by the IRS and vary by locality.  

For certain areas with higher costs of living, the IRS establishes an annual flat rate. Any location within the continental United States that the IRS does not list as a “high-cost” area should automatically be considered “low-cost” under the high-low method. 

Areas such as Boston and San Francisco, for example, may be considered high-cost, while less metropolitan areas could be considered low-cost. Some areas, like resort areas, could be considered high-cost only during certain times of the year.

For business travel, this method can be used in lieu of the specific per-diem rates for business destinations.

When employers provide lodging or pay for the hotel directly, employees may only receive a per diem reimbursement for meals and incidental expenses. For employees who don’t incur meal expenses for a calendar day (or partial day) of travel, there is also a $5 incidental-expenses-only rate. 

Recordkeeping simplified

Employees working for companies that use per diem rates don’t need to meet the typical recordkeeping rules required by the IRS. Generally, receipts aren’t required under the high-low per diem method.

However, employees are still responsible for substantiating the business purpose, place, and time of travel. Per diem reimbursements aren’t typically subject to payroll tax withholding or income tax withholding reported on an employee’s Form W-2. 

What to know about the FY2024 rates

For travel occurring after September 30, 2023, FY2024 rates apply. The high-cost area per diem increased by $12, and the low-cost area per diem increased by $10. 

High-cost area per diem in 2024

The 2024 rate for all high-cost areas within the continental United States is $309. This can be broken down as follows.

Lodging: $235
Meals and incidental expenses: $74

Low-cost area per diem in 2024

For all other areas within the continental United States, the per diem rate is $214 for travel occurring after September 30, 2023. This may be broken down as follows:

Lodging: $150
Meals and incidental expenses: $64

Special considerations

The rules and restrictions that apply to reporting business travel expenses are nuanced. 

As an example, companies using the high-low method for an employee must continue using the same method to reimburse expenses for travel within the continental United States throughout the calendar year. However, the company may reimburse the same employee for travel outside of the continental United States using any permissible method during that calendar year.

In the last three months of a calendar year, employers must continue to use the same method (high-low method or per diem) for an employee as they used during the first nine months of the calendar year. 

Also worth noting: per diem rates don’t apply to individuals who own at least 10% of the business. 

Questions? Smolin can help. 

Now is the time to review travel rates and consider switching to the high-low method in 2024. Reduce the time and frustration associated with traditional travel reimbursement benefits managers and traveling employees alike.

For more information, contact your accountant.

Start Typing
in NJ & FL | Smolin Lupin & Co.