Tax Planning|Taxes

  • Noelle Merwin
  • No Comments

Age-Based Tax Triggers: What You Need to Know
Age-Based Tax Triggers: What You Need to Know 1200 1200 Noelle Merwin

They say age is just a number — but in the world of tax law, it’s much more than that. As you move through your life, the IRS treats you differently because key tax rules kick in at specific ages. Here are some important age-related tax milestones for you and loved ones to keep in mind as the years fly by.

Ages 0–23: The kiddie tax

The kiddie tax can potentially apply to your child, grandchild or other loved one until age 24. Specifically, a child or young adult’s unearned income (typically from investments) in excess of the annual threshold is taxed at the parent’s higher marginal federal income tax rates instead of the more favorable rates that would otherwise apply to the young person in question. For 2025, the unearned income threshold is $2,700.

Age 30: Coverdell accounts

If you set up a tax-favored Coverdell Education Savings Account (CESA) for a child or grandchild, the account must be liquidated within 30 days after the individual turns 30 years old. To the extent earnings included in a distribution aren’t used for qualified education expenses, the earnings are subject to tax plus a 10% penalty tax. To avoid that, you can roll over the CESA balance into another CESA set up for a younger loved one.

Age 50: Catch-up contributions

If you’re age 50 or older at end of 2025, you can make an additional catch-up contribution of up to $7,500 to your 401(k) plan, 403(b) plan or 457 plan for a total contribution of up to $31,000 ($23,500 regular contribution plus $7,500 catch-up contribution). This assumes that your plan allows catch-up contributions.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $3,500 to your SIMPLE IRA for a total contribution of up to $20,000 ($16,500 regular contribution plus $3,500 catch-up contribution). If your company has 25 or fewer employees, the 2025 maximum catch-up contribution is $3,850.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $1,000 to your traditional IRA or Roth IRA, for a total contribution of up to $8,000 ($7,000 regular contribution plus $1,000 catch-up contribution).

Age 55: Early withdrawal penalty from employer plan

If you permanently leave your job for any reason after reaching age 55, you may be able to receive distributions from your former employer’s tax-favored 401(k) plan or 403(b) plan without being socked with the 10% early distribution penalty tax that generally applies to the taxable portion of distributions received before age 59½. This rule doesn’t apply to IRAs.

Age 59½: Early withdrawal penalty from retirement plans

After age 59½, you can receive distributions from all types of tax-favored retirement plans and accounts (IRAs, 401(k) accounts and pensions) without being hit with the 10% early distribution penalty tax. The penalty generally applies to the taxable portion of distributions received before age 59½.

Ages 60–63: Larger catch-up contributions to some employer plans

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $11,250 to your 401(k) plan, 403(b) plan, or 457 plan. This assumes your plan allows catch-up contributions.

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $5,250 to your SIMPLE IRA.

Age 73: Required minimum withdrawals

After reaching age 73, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts (traditional IRAs, SEP accounts and 401(k)s) and pay the resulting extra income tax. If you fail to withdraw at least the RMD amount for the year, you can be assessed a penalty tax of up to 25% of the shortfall. However, if you’re still working after reaching age 73 and you don’t own over 5% of your employer’s business, you can postpone taking RMDs from the employer’s plan(s) until after you retire.

Watch the calendar

Keep these important tax milestones in mind for yourself and your loved ones. Knowing these rules can mean the difference between a smart tax strategy and a costly oversight. If you have questions or want more detailed information, contact your Smolin representative.

 

Tax Considerations When You Decide to Close a Business
Tax Considerations When You Decide to Close a Business 850 500 smolinlupinco

Shuttering your business is a significant milestone, often marked by a mix of relief and uncertainty. If you’ve opted to wind down operations on your business, it’s essential to tie up certain loose ends, especially tax-related ones. 

Return filings

Businesses must file specific federal income tax returns to finalize their situation. The type of return you need to file depends on the type of business you have. For instance:

  • Sole proprietors typically need to file a Schedule C, “Profit or Loss from Business,” with their individual returns for the year they close their businesses. This can also include self-employment taxes.
  • Partnerships must file Form 1065, “U.S. Return of Partnership Income,” to report capital gains and losses on Schedule D. This indicates that it’s the final return and partner shares are finalized on Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.”.
  • Corporations require Form 966, “Corporate Dissolution or Liquidation,” if they adopt a resolution or plan to dissolve an entity or liquidate any of its stock, along with:
    • Form 1120, “U.S. Corporate Income Tax Return,” for C-corps,
    • Form 1120-S, “U.S. Income Tax Return for an S Corporation,” for S corps
  • All businesses might need to file other tax forms to report sales of business property or asset acquisitions when selling a business.

Employee and contractor obligations

If you have employees, you’ll need to ensure final wages, taxes, and deposits are handled correctly. Failure to make federal tax deposits, report employment taxes, or deposit employee income can result in serious penalties. Additionally, Social Security and Medicare taxes can result in full personal liability for what’s known as the Trust Fund Recovery Penalty.

You also need to report if you’ve paid independent contractors at least $600 from the calendar year on Form 1099-NEC, “Nonemployee Compensation.”

Beyond the basics

Your tax responsibilities might extend beyond the above requirements. For instance:

If your business has a retirement plan for employees, you’ll need to terminate the plan and distribute benefits to participants. This includes health savings accounts (HSAs) and flexible spending accounts (FSAs). When you terminate these plans, there are specific notice, funding, timing, and filing requirements you need to meet. 

Once you address tax matters including debt cancellation, use of net operating losses, freeing up passive activity losses, depreciation recapture, and possible bankruptcy issues, you can cancel your Employer Identification Number (EIN) and close your IRS business account. Please note that you need to retain business records for a set amount of time.

If your business cannot pay all the taxes owed, you do have options! Contact your Smolin advisor to discuss your situation. Closing a business is never an easy choice but with a trusted Smolin advisor by your side, you can navigate the process more smoothly.

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