Taxes

Cut Your 2024 Tax Bill with an IRA Contribution—But Act Fast
Cut Your 2024 Tax Bill with an IRA Contribution—But Act Fast 850 500 smolinlupinco

While the 2024 tax deadline is quickly approaching, it’s not here yet, which means you still have time to trim down what you owe. If you qualify, you still have time to make a deductible contribution to a traditional IRA right up until the April 15 filing deadline and lock in tax savings on your 2024 return.

Who qualifies?

Selling your home can come with a huge tax break. Unmarried sellers can exclude up to $250,000 in profit from federal income tax, while married couples filing jointly can exclude up to $500,000. 

You can make a deductible contribution to a traditional IRA if you meet one of the following criteria:

  • Neither you nor your spouse are active participants in an employer-sponsored retirement plan.

  • You or your spouse are covered by an employer plan, but your modified adjusted gross income (MAGI) is within the yearly limits based on your filing status.

2024 Income Limits for Deductible Contributions

If you’re covered by an employer-sponsored retirement plan, your ability to deduct a traditional IRA contribution depends on your income:

  • For married filing jointly, the deduction phases out if your MAGI is between $123,000 to $143,000.
  • For single or a head of household, the phaseout range is $77,000 to $87,000.
  • For married filing separately, the phaseout happens quickly, between $0 and $10,000

If you’re not covered by an employer plan but your spouse is, your deduction phases out between $230,000 and $240,000 of MAGI.

Traditional versus Roth IRAs

A deductible IRA contribution can help lower your tax bill now, and your earnings grow tax-deferred. But keep in mind—when you withdraw funds, they’ll be taxed as income. Plus, if you take money out before 59½, you could face a 10% penalty, unless an exception applies.

You also have until April 15 to contribute to a Roth IRA. Unlike traditional IRAs, Roth contributions aren’t deductible, but the trade-off is tax-free withdrawals—as long as the account has been open at least five years and you’re 59½ or older. There are income limits to make Roth IRA contributions.

If you’re married, you can still make a deductible IRA contribution even if you’re not working. Normally, you need earned income, like wages, to contribute to a traditional IRA; however, there’s an exception. If one spouse works and the other is a homemaker or not employed, the working spouse can contribute to a spousal IRA on behalf of the non-working spouse.

What are the contribution limits?

For 2024, if you’re eligible, you can contribute up to $7,000 to a traditional IRA and $8,000 if you’re age 50 or older. These contribution limits will stay the same for 2025.

Small business owners also have the option to set up and contribute to Simplified Employee Pension (SEP) plans until their tax return due date, including extensions. For 2024, the maximum SEP contribution is $69,000, which will increase to $70,000 for 2025.

How can you maximize your nest egg?

If you have questions or what to know more about IRAs and SEPs, reach out to your Smolin advisor. We can help you create the right tax-friendly retirement strategy so your savings work harder for you.

Your Need-to-Know Tax Guide for Inherited IRAs
Your Need-to-Know Tax Guide for Inherited IRAs 850 500 smolinlupinco

A 2019 change to tax law ended the “stretch IRAs” strategy for most inherited IRAs. This means that beneficiaries now have 10 years to withdraw all of the funds. Since then, there’s been a lot of confusion about required minimum distributions (RMDs).

Thankfully, the IRS has now issued final regulations clarifying the “10-year rule” for inherited IRAs and defined contribution plans, like 401(k)s. In a nutshell, the final regulations largely align with proposed rules released in 2022.

The SECURE Act and 10-Year Rule

Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, most heirs except surviving spouses must withdraw the entire balance within 10 years of the original account owner’s death. In 2022, the IRS proposed regulations to clarify the rule. It outlines that beneficiaries must take their taxable RMDs over the course of the 10-year period after the account owner dies. 

They are not permitted to wait until the end of 10 years to take a lump-sum distribution. This annual RMD requirement significantly limits beneficiaries’ tax planning flexibility and, depending on their situations, could push them into higher tax brackets during those years.

Confused beneficiaries reached out to the IRS trying to determine when they needed to start taking RMDs on recently inherited accounts. The uncertainty posed risks for both beneficiaries and the defined contribution plans. 

This is because beneficiaries could have been assessed a tax penalty on amounts that should have been distributed but weren’t. And the plans could have been disqualified for non-compliance.

In response, the IRS waived penalties for taxpayers subject to the 10-year rule who missed 2021 and 2022 RMDs due to the death of the account owner in 2020 or 2021, respectively. 

The waiver guidance also stated that the IRS would issue final regulations no earlier than 2023. When 2023 rolled around, the IRS extended the waiver relief to excuse 2023 missed RMDs if the participant died in 2020, 2021 or 2022.

As of April 2024, the IRS again extended the relief, this time for RMDs in 2024. If certain requirements are met, beneficiaries won’t be assessed a penalty on missed RMDs for these years, and plans will be safe from disqualification based solely on the missed RMDs.

2024 final regulations

The final regulations require certain beneficiaries to take annual RMDs from inherited IRAs or defined contribution plans within ten years following the account owner’s death. These regulations will take effect in 2025.

If the deceased hadn’t begun taking their RMDs before their death, beneficiaries have more flexibility. They can take annual RMDS or wait until the end of the 10-year period and take a lump-sum distribution. Ultimately, the IRS eliminated the requirement to take annual distribution, allowing beneficiaries greater tax planning flexibility. 

For instance, if Ken inherited an IRA in 2021 from his father, who had already begun taking RMDs, under the IRS-issued waivers, Ken doesn’t need to take RMDs for 2022 through 2024. Under the final regulations, he must take annual RMDs for 2025 to 2030, with the account fully distributed by the end of 2031.

If Ken’s father had not started taking RMDs, Ken could have waited until the end of 2031 to take a lump-sum distribution. As long as the account is fully liquidated by the end of 2031, Ken remains in compliance with the rules.

Contact us with questions

If you’ve inherited an IRA or defined contribution plan in 2020 or later, it’s understandable to feel confused about the RMD rules. Reach out to your Smolin advisor for help understanding these regulations and developing a personalized tax-saving strategy.

Tax Implications of Disability Income
Tax Implications of Disability Income 850 500 smolinlupinco

If you are one of the many Americans who rely on disability benefits, you might be wondering how that income is taxed. The short answer is it depends on the type of disability income you receive and your overall earnings.

Taxable Disability Income

The key factor is who paid for the benefit. When the income is paid to you directly from your employer, it’s taxable like your ordinary salary and subject to federal income tax withholding. Depending on your employer’s disability plan, Social Security taxes may not apply. 

Often, disability income isn’t paid by your employer but rather from an insurance policy that provides the disability coverage. Depending on whether the insurance is paid for by you or by your employer, the tax treatment varies. If your employer paid, the income is taxed the same as if it was paid directly to you by the employer as above. But if you paid for the policy, payments received are usually tax-free.

Even if the insurance is offered through your employer, as long as you pay the premiums instead of them, the benefits are not taxed. However, if your employer pays the premiums and includes that amount as part of your taxable income, your benefits may also be taxable. Ultimately, tax treatment of benefits received depends on tax treatment of paid premiums.

Illustrative example

Scenario 1: 

If your salary is $1,050 a week ($54,600 a year) and your employer pays $15 a week ($780 annually) for disability insurance premiums, your annual taxable income would be $55,380. This total includes your salary of $54,600 plus $780 in disability insurance premiums. 

The insurance premiums are considered paid by you so any disability benefits received under that policy are tax-free.

Scenario 2:

If the disability insurance premiums are paid for by your employer and not included in your annual wages of $54,600, the amount paid is excludable under the rules for employer-provided health and accident plans.

The insurance premiums are considered paid for by your employer and any benefits you receive under the policy, are taxable income as ordinary income.

If there is permanent loss of a body part or function, special tax rules apply. In such cases, employer-paid disability might be tax-free, as long as they aren’t based on time lost from work.

Social Security disability benefits 

Social Security Disability Insurance (SSDI) benefits have their own tax rules. Payments are generally not subject to tax as long as your annual income falls under a certain threshold. 

For individuals if your annual income exceeds $25,000, a portion of your SSDI benefits are taxable. The threshold for married couples is $32,000. 

State Tax Implications

Though federal law treats disability payments as taxable income as outlined above, state tax laws vary. It’s wise to seek out professional support to determine if disability payments are taxed or exempt in your state. 

As you determine your disability coverage needs, remember to consider the tax implications. If you purchase a private policy yourself, the benefits are generally tax free since you are using your after-tax dollars to pay the premium. 

On the other hand, if your employer pays for the benefit, you will lose a portion of the benefits to taxes. Plan ahead and look at all your options. If you think your current coverage will be insufficient to support you should the unthinkable happen, you might consider supplementing any employer benefits with an individual.

Reach out to your Smolin advisor to discuss your disability coverage and how drawing benefits might impact your personal tax situation.

Understanding Taxes on Real Estate Gains
Understanding Taxes on Real Estate Gains 850 500 smolinlupinco

If you own real estate held for over a year and sell it for a profit, you typically face capital gains tax. This applies even to indirect ownership passed through entities like LLCs, partnerships, or S corporations. You can expect to pay the standard 15% or 20% federal income tax rate for long-term capital gains.

Some real estate gains can be taxed at even higher rates due to depreciation deductions. Here are some potential federal income tax implications of these gains.

Vacant land

Specifically for high earners, the current maximum federal long-term capital gain tax on vacant land is 20%. For 2024, the 20% rate kicks in for 

  • Single filers with taxable income exceeding $518,900
  • Married joint-filing couples with taxable income exceeding $583,750
  • Head of household with taxable income exceeding $551,350. 

If your income is below these thresholds, you’ll only owe 15% federal tax on vacant land gains. Remember that you may also owe the 3.8% net investment income tax (NIIT) on some or all of the gain.

Gains from depreciation

Depreciation-related gains from real estate, also known as unrecaptured Section 1250 gains, are generally taxed at a flat 25% federal rate. However, if the gain would be taxed at a lower rate without this special treatment, this 25% rate does not apply. However, you could owe the 3.8% NIIT on some or all of the unrecaptured Section 1250 gain.

Gains from qualified improvement property

Qualified improvement property or QIP, refers to improvements to the interior of nonresidential buildings after being placed in service. QIP excludes enlargements such as elevators, escalators, and structural changes.

You can claim tax deductions for QIP through Section 179 deductions or bonus depreciation. When you sell QIP for which you’ve claimed Section 179 deductions, part of the gain may be taxed as ordinary income at your regular tax rate rather than the lower long-term capital gains rate. This is known as Section 1245 recapture. You may also owe the 3.8% NIIT on this portion of the gain.

If you sell QIP for which first-year bonus depreciation has been claimed, part of the gain might be taxed as ordinary income at your regular tax rate via Section 1250 recapture, rather than lower long-term gain rates. This applies to the portion of the gain that exceeds the depreciation calculated using the applicable straight-line method. Again, you may still owe the 3.8% NIIT on some or all of the recapture gain.

Tax planning point: Choosing straight-line depreciation for real property, including QIP, there won’t be any Section 1245 or Section 1250 recapture. You will only have unrecaptured Section 1250 gain from the depreciation taxed at a federal rate below 25%. The 3.8% NIIT on all or part of the gain may still apply.

Handling the complexities

The federal income tax rules for real estate gains are obviously very complex. There’s a lot to consider: different tax rates applied to different categories of gain, the possibility of owing the 3.8% NIIT, and potential state income tax. 

Our team of skilled tax advisors can help you understand the intricacies and minimize the tax liability of capital gains. Contact a Smolin advisor to discuss your specific situation.

Cash or Accrual Accounting: Which is Right for Your Business?
Cash or Accrual Accounting: Which is Right for Your Business? 850 500 smolinlupinco

Your business can choose between cash or accrual accounting for tax purposes. While the cash method can provide certain tax advantages to those that qualify, the accrual method might be a better fit for some businesses. 

To maximize tax savings, you need to weigh both methods before deciding on one for your business. 

Small business tax benefits

Small businesses, as defined by the tax code, generally enjoy the flexibility of using either cash or accrual accounting. Various hybrid approaches are also allowed for some businesses. 

Before the Tax Cuts and Jobs Act (TCJA), the gross receipts threshold to classify as a small business was $1 million to $10 million depending on factors like business structure, industry, and if inventory significantly contributed to business income.

The TCJA established a single gross receipts threshold and increased it to $25 million (adjusted for inflation), expanding small business status benefits to more companies. In 2024, a small business is defined as having average gross receipts of less than $30 million for the preceding three-year period, up from $29 million in 2023.

Small businesses also benefit from simplified inventory accounting and exemptions from the uniform capitalization rules and business interest deduction limit.  S corporations, partnerships without C corporation partners, and farming businesses and certain personal service corporations may still use the cash accounting method, regardless of their gross receipts. 

Regardless of size though, tax shelters are ineligible for the cash accounting.

Potential advantages

Since cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid, they have more control over their tax liability. This includes deferring income by delaying invoices or shifting deductions forward by accelerating expense payments.

Accrual-basis businesses, on the other hand, recognize income when earned and expenses are deducted as they’re incurred, regardless of cash flow. This limits their flexibility to time income and deductions for tax purposes.

The cash method can improve cash flow since income is taxed in the year it’s received. This helps businesses make their tax payment using incoming funds. 

If a company’s accrued income is lower than accrued expenses though, the accrual method can actually result in a lower tax liability than the cash method. The accrual method also allows for a business to deduct year-end bonuses paid in the first 2½ months of the following tax year and tax deferral on some advance payments.

Considerations when switching methods

If you’re considering a switch from one method to the other, it’s important to consider the administrative costs involved. If your business follows the U.S. Generally Accepted Accounting Principles (GAAP), you’ll need to maintain separate books for financial and tax reporting purposes. You may also be required to get IRS approval before changing accounting methods for tax purposes. 

Reach out to your Smolin advisor to learn which method is best for your business.

Six Tax Issues to Consider During a Divorce
Six Tax Issues to Consider During a Divorce 850 500 smolinlupinco

Divorce is a complex legal process, both financially and emotionally. Taxes are likely the farthest thing from your mind. But, you need to keep in mind the tax implications and consider seeking professional assistance to minimize your tax bill and navigate the separation process more smoothly. 

Here are six issues to keep top of mind as you move through the divorce process.

1. Planning to sell the marital home 

When a divorcing couple chooses to sell their home, they can possibly avoid paying tax on up to $500,000 of gain if they owned the home and lived there for two of the previous five years. If the living situation is such that one spouse continues living in the home while the other moves out, as long as they both remain owners, they might be able to avoid gains on future sale of the home for up to $250,000 each. In this instance, there may need to be special wording in the divorce decree or separation agreement to protect this exclusion for the spouse who moves out.

If the couple doesn’t meet strict two-year ownership and use requirements to qualify for the full $250,000 or $500,000 home sale exclusion, they might still be eligible for a reduced exclusion due to unforeseen circumstances.

2. Dividing retirement assets

Pension benefits often represent a significant portion of a couple’s marital assets. To ensure fair division of property, a “qualified domestic relations order” or QDRO is typically necessary. A QDRO is a legal document that outlines how pension benefits will be split between divorcing parties and whether one former spouse has the right to share in the benefits.

Without a QDRO, the spouse who earned the benefits remains solely responsible for associated taxes, even though they’re paid to the other spouse. A QDRO essentially transfers a portion of the pension benefits to the non-earning spouse along with the tax liability for their share. 

3. Determining your filing status

If you’re still legally married as of December 31st, you still need to file taxes as married jointly or married separately, even if you are in the process of getting divorced. However, if you’ve finalized your divorce by year-end, you could potentially qualify for “head of household” status if you meet certain requirements, such as having dependent children reside with you for more than half the year. 

4. Understanding alimony and spousal support 

The Tax Cuts and Jobs Act of 2017 made significant changes to the way alimony and spousal support are treated regarding taxes. For divorce or separation agreements executed after December 31, 2018, alimony and support payments are no longer deductible by the payer and are not taxable income for the recipient. This means alimony and spousal support are now treated similarly to child support payments for tax purposes. 

It’s important to note that divorce or separation agreements executed before 2019 generally still follow the old tax rules, where alimony is deductible for the payer and taxable for the recipient.

5. Claiming dependents

Unlike alimony, regardless of when the divorce or separation agreement was executed, child support payments are neither tax-deductible for the payer nor taxable income for the recipient. 

Determining which parent claims the child as a dependent or tax purposes often depends on standing custody agreements. Generally the custodial parent —the one the child lives with the majority of the year—can claim the child as a dependent; however, there are a few exceptions.

For instance, if the non-custodial parent provides more than half of the child’s support, they may be able to claim the child. It’s essential to coordinate with your ex-spouse to determine who will claim the child and thus access any related tax breaks.

6. Dividing business assets 

Divorcing couples who own a business together face unique tax challenges. The transfer of business interests in connection with divorce, can trigger significant tax implications.  For instance, if one spouse owns shares of an S corporation, transferring the shares could result in loss of valuable tax deductions such as forfeiting suspended losses ie. when losses are carried over into future tax years rather than being deducted for the year they’re incurred. 

Similarly, transferring a partnership interest can lead to even more complex tax issues  involving partnership debt, capital accounts, and valuation of the business. 

Seeking professional guidance

These are just some of the tax-related issues you may face when getting a divorce. You may need to adjust your tax withholding to reflect your new filing status. Be sure to also notify the IRS of any address or name changes. You likely also need to re-evaluate your estate plans to align with your new circumstances.

Proper planning is essential to ensure a fair division of assets while minimizing your tax liability. Our skilled team of Smolin advisors can help you navigate the complex financial issues involved with your divorce.

Tax Treatment of Business Website Expenses
Tax Treatment of Business Website Expenses 850 500 smolinlupinco

Most businesses today rely on websites, but despite their widespread use, the IRS hasn’t provided formal guidelines for deducting their costs.

However, some guidance can be gleaned from existing tax laws that offer business taxpayers insights into the proper treatment of website cost deductions. 

Tax implications of hardware versus software

The hardware costs you might need to operate a website fall under the standard rules for depreciable equipment. For 2024, you can deduct 60% of the cost in the first year they are operational under the first-year bonus depreciation break.

This bonus depreciation rate was 100% for property placed in service in 2022, 80% in 2023, and will continue to decrease until it’s fully phased out in 2027 unless Congress acts to extend or increase it.

On the other hand, you may be able to deduct all or most of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. These deductions are subject to certain limitations.

For tax years beginning in 2024, the maximum Section 179 deduction is $1.22 million, subject to a phaseout rule. If more than $3.05 million in 2024 of qualified property is placed in service during the year, the deduction is phased out.

You also need to consider the limit on taxable income as your Sec. 179 deduction can’t be in excess of your business taxable income. The Section 179 deductions can’t create or increase an overall tax loss. However, any portion of Section 179 that can’t be claimed in the current year can be carried forward to future tax years, subject to applicable limitations.

Purchased software is generally treated similarly to hardware for tax purposes but there is a key difference when it comes to software licenses. Payments for licenses used on your website are typically considered ordinary and necessary business expenses, which means they can usually be deducted as business expenses for the current tax year.

What about software developed internally?

If you develop your website in-house or hire a contractor with no financial risk for the software’s performance, bonus depreciation might apply as explained above. If bonus depreciation doesn’t apply, taxpayers have two options:

  1. Immediate deduction. Deduct the entire cost in the year you pay or incur it.
  2. Amortization. Spread the cost over a five-year period,  starting from the middle of the tax year when the expenses were paid or incurred. This is generally the only option if bonus depreciation does not apply. 

There is an exception for advertising, though. If your website’s primary purpose is advertising, you can typically deduct the full development cost as an ordinary business expense.

What if you pay a third party?

Many businesses outsource website management to third-party providers. In these instances, payments made to those providers are typically considered ordinary and necessary business expenses and are deductible.

What about expenses before business begins?

Start-up costs can include website development expenses. You can generally claim up to $5,000 of these expenses in the year your business begins. However, if your total start-up costs exceed $50,000, this $5,000 is gradually reduced. Any remaining start-up costs must be capitalized and spread out (amortized) over 60 months, starting from the month your business officially launches. 

Determining business expenses and deductions can be a complex process. Reach out to your Smolin advisor for help finding the appropriate tax treatment of your website costs. 

Maximize Your Estate Planning with the Roth 401(k) Contributions
Maximize Your Estate Planning with the Roth 401(k) Contributions 850 500 smolinlupinco

When deciding on contributions to your 401(k) plan, you might wonder whether it’s better to choose pre-tax (traditional) contributions or after-tax (Roth) contributions.  The best choice depends on your current and anticipated future tax circumstances, as well as estate planning goals.

Traditional vs. Roth 401(k)s

The main difference between a traditional and a Roth 401(k) plan is how they are taxed. With a traditional 401(k), contributions are made with pre-tax dollars, which means you get a tax deduction when you contribute. Your money grows tax-deferred, but you’ll pay taxes on both your contributions and earnings when you withdraw them. 

In contrast, Roth 401(k) contributions are made with after-tax dollars, so you don’t get a tax break upfront but qualified withdrawals, including contributions and earnings, are tax-free. Plus you can contribute to a Roth 401(k) plan no matter how hight your income is.

For 2024, the salary deferral limits for both traditional and Roth 401(k) plans are the same: $23,000,  plus an additional $7,500 if you’re 50 or older by the end of the year. Combined employee and employer contributions can go up to $69,000, or $76,500 if you’re 50 or older.

The rules for taking distributions from traditional and Roth 401(k)s are similar. You may take penalty-free withdrawals when you reach age 59½, or if you die or become disabled (with some exceptions). For Roth 401(k)s, the account must be open for at least five years to take withdrawals.

One key difference is that traditional 401(k) accounts require a minimum distribution (RMD) at age 73 (or age 75 starting in 2032). Roth 401(k) accounts do not have RMDs starting in 2024.

From a tax perspective, with a Roth 401(k) means you pay taxes now, while a traditional 401(k) defers taxes until you withdraw the funds. Mathematically speaking, that means the best choice depends on whether you expect to be in a higher or lower tax bracket in retirement.

If you’re a high earner and expect a lower bracket when you retire, a traditional 401(k) might be more beneficial. On the other hand, if you expect to be in a higher tax bracket later (perhaps due to higher income or potential tax increases), a Roth 401(k) might be a better choice. 

Estate planning factors

Tax implications during your lifetime aren’t the only thing to think about. Estate planning factors are important too. Roth 401(k)s, with their elimination of RMDs, can be a powerful estate planning tool. If you don’t need the funds for living expenses, you can let the grow tax-free for as long as you want. And if the account is at least five years old, your heirs can withdraw the money tax-free.

On the other hand, a traditional 401(k) requires you to withdraw funds according to RMD rules, which might reduce the amount left for you heirs. Plus, their withdrawals will be taxable.

If you need help deciding which 401(k) account is best for your situation, reach out to a Smolin advisor to discuss your options. 

Maximize Giving and Minimize Taxes with the Power of Qualified Charitable Distributions
Maximize Giving and Minimize Taxes with the Power of Qualified Charitable Distributions 850 500 smolinlupinco

Are you a philanthropic person nearing or past retirement age and facing required minimum distributions (RMDs) from your traditional IRA? There is a smart strategy that allows you to support the causes you care about while reducing your tax burden: Qualified Charitable Distributions (QCDs).

Here’s how it works:

Once you reach age 70½, you can make a cash donation to an IRS-approved charity out of your IRA. This method of transferring assets to charity leverages the QCD provision so you can direct up to $105,000 of their distributions to charity in 2024 (or $210,000 for married couples). 

By making QCDs, the money given to charity counts toward your RMDs but won’t increase adjusted gross income (AGI) or generate a tax bill.

There are several important reasons to keep your donation amount out of your AGI. When distributions are taken directly out of traditional IRAs, federal income tax of up to 37% (in 2024) and possible state income taxes must be paid. A QCD avoids these taxes. 

Here are some other potential benefits:

  1. You might qualify for other tax breaks. A lower AGI can reduce the threshold for itemizers who deduct medical expenses, which are only deductible to the extent they exceed 7.5% of AGI.
  2. You can skip potential taxes on your Social Security benefits and investment income, avoiding the 3.8% net investment income tax.
  3. It might help you bypass a high-income surcharge for Medicare Part B and Part D premiums that are triggered when AGI falls above a certain level.

Note: You can’t claim a charitable contribution deduction for a QCD that is not included in your income. Also, remember that the age after which you must begin taking RMDs is now 73, but the age you can start making QCDs is 70½.

To benefit from a qualified charitable distribution for 2024, you must arrange for the payment from your IRA to go directly to a qualified charity before December 31, 2024. 

QCDs are truly a win-win. You can use them to fulfill all or part of your RMD for the year. 

Think of it as a double-duty approach, supporting a cause you care about while meeting your IRA withdrawal needs. For example, if your 2024 RMDs are $20,000 and you make a $10,000 QCD, you only need to withdraw another $10,000 to satisfy your requirement.QCDs aren’t right for everyone, though. Depending on your unique situation, additional rules and limits may apply. Contact a Smolin advisor to discuss whether this strategy makes sense for you.

Decoding Corporate Estimated Tax: Which Method is Best for You?
Decoding Corporate Estimated Tax: Which Method is Best for You? 850 500 smolinlupinco

With the next quarterly estimated tax payment deadline coming up on September 16, it’s the perfect time to brush up on the rules for computing your corporate federal estimated payments. Ideally, your business can pay the minimum amount of estimated tax without triggering any penalties for underpayment. 

But how do you determine that amount? To avoid penalties, corporations must pay estimated tax installments equal to the lowest amount calculated using one of these four methods: 

Current Year Method

Pay 25% of the tax shown on the current tax year’s return (or, if no return is filed, 25% of the tax for the current year) by each of four corporate installment due dates –  generally April 15, June 15, September 15 and December 15. If a due date falls on a Saturday, Sunday or legal holiday, the payment is due the following business day.

Preceding Year Method 

Pay 25% of the tax shown on the return for the preceding tax year by each of four installment due dates. For 2022, corporations with taxable income of $1 million or more in any of the last three tax years can only use the preceding year method to determine their first required installment payment. Additionally, this method is not available to corporations whose last tax return covered less than a full year (i.e. new corporations) or corporations without a tax return from the previous year showing some tax liability.

Annualized Income Method

Under this option, a corporation can avoid the estimated tax underpayment penalty if it pays its “annualized tax” in quarterly installments. The annualized method estimates tax based on the corporation’s taxable income for the months leading up to the installment due date. It also assumes income will stay consistent throughout the year.

Seasonal Income Method

Corporations with recurring seasonal patterns of taxable income can annualize income by assuming income earned in the current year is earned in the same pattern as in preceding years. There’s a somewhat complicated mathematical test corporations must pass to establish that they meet the threshold to qualify to use this method.

If you think your corporation might qualify, reach out to your Smolin Advisor for assistance making that determination.If you find yourself needing to adjust estimated tax payments, corporations are able to switch between the four methods during the given tax year. Let the Smolin team help you determine the best method for your corporation.

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