To assist you in compiling the information necessary to prepare your 2024 individual income tax return, we are providing the following list and request you provide information to the best of your ability. In connection with all items of income, if married, please indicate whether the income is the taxpayer, spouse or joint (TSJ). When submitting materials, please include original and/or corrected source documents to ensure we have all copies or at a minimum the most current version (please note the date of changes on the tax documents).

The Internal Revenue Service and State Taxing Authorities are matching information returns submitted by businesses, employers and financial/investment institutions with amounts reported on individual tax returns.  Negligence penalties may be assessed when income is underreported. Please be certain to mail or bring with you all of the following original unstapled forms:

1)  Dependent information including names, relationship, date of birth and social security numbers (if a dependent is no longer a student please indicate).  Please remember that names and social security numbers must match exactly in order for the dependent to be allowed.  Also be sure to verify and update your contact information.

2)  All W-2 forms for wages.

3)  All 1099 forms for interest, dividends, sales of securities, pension / IRA distributions, social security benefits, commissions and other income received as well as brokerage statements and realized gain/loss schedules.  If you have a foreign bank account, please list it and all applicable information.  If you took any early distributions from retirement plans, please be sure to provide the details regarding the reason and amount of the distributions.  If any of these distributions were paid back to the retirement plan in full or in part within 60 days, please provide the details.  Congress has been sharply focused on requiring taxpayer reporting of foreign bank/financial accounts and assets for the last several years.  Besides filing the Report of Foreign Bank and Financial Accounts, information may be required to be attached to the taxpayer's income tax return for those assets with aggregate values exceeding specific thresholds.  If applicable, you will be requested to provide additional information. 

NOTE: Form 114 FinCEN (previously known as Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts) (FBAR) must be electronically filed via the BSA E-Filing System.  Our firm can assist you with the preparation and submission of the electronic FBARs; however, the primary responsibility for this filing remains with the taxpayer.  2024 FBAR filings are due April 15, 2025 with a maximum extension for a 6- month period ending October 15, 2025 to file.

4)  All notices from corporations, financial institutions or mutual funds that advise of special tax treatment for earnings.

5)  Report of tax-exempt interest and dividends received with payer identification.  Please be sure to include any supplemental information received regarding the taxability of this income by state, if applicable.

6)  Supporting information (including 1099-K, 1099-MISC & 1099-NEC forms) for business income and expenses.  For business use of your home, please include the square footage of your home used exclusively for business as well as total square footage of your home (this is required information).

7)  Copies of closing statements for any real estate, co-op or condominium purchases or sales which occurred during the year and a copy of the Form 1099-B received for gross proceeds.  Please remember to include the acquisition date of the property sold, the original cost and improvements. 

8)  All 5498 forms and support for 2024 retirement contributions made to date or anticipated to be made for the 2024 tax year.  Please indicate if you want maximum contribution limits calculated.

9)  All 1098 and 1099-MISC forms supporting rental income and expenses.  Please be sure to include details for all improvements made and capital assets purchased including acquisition dates.

10) All Schedule K-1 forms from partnerships, limited liability companies, S corporations, trusts and estates including all supporting literature received including state specific K-1s and transmittal/cover letters. 

11) All 1099-G forms for unemployment and state tax refunds/overpayments  issued/received from State Taxing Authorities and Departments of Labor.  These forms are only available online from the applicable Connecticut and New York departments so please be sure to retrieve them. 

12) Adjustments to Income – please be sure to include educator expenses, alimony paid/received, health savings account contributions/distributions and student loan interest paid including all 1098-E forms.  For Health Savings Accounts, please include a statement(s) and 1099 -SA and 5498-SA forms that recap the 2024 activity in order to verify the beginning and ending balances of the account.

13)  Real estate and personal property taxes paid – please be sure to include only taxes paid during the calendar year 2024.

14)  All 1098 forms for mortgage interest expense deductions - Please identify for each 1098 form if the loan interest paid is for a home mortgage (secured by principal residence or vacation home) or investment activity.  If your total debt exceeds $1 million for home acquisition loans acquired before December 15, 2017, please include the balance of each loan at January 1, 2024 and December 31, 2024.  In addition, please supply the balance of each loan at January 1, 2024 and December 31, 2024 for new home acquisition loans acquired subsequent to December 15, 2017 if the debt exceeds $750,000.

15) Contributions – be careful in reporting your contributions as the IRS is aggressively challenging those which appear to be excessive in dollars and valuation.  Please include supporting documentation for cash contributions with values in excess of $250 and noncash contributions with values that exceed $500 as well as the original costs of noncash items donated.

16) Child/Dependent Care expenses – Please provide the name, address and social security number and/or employer identification number of the providers as this is required.

17) Household Employment taxes including W-2 forms for wages paid and quarterly state unemployment returns filed for the 2024 tax year.

18)  A schedule of estimated taxes paid for federal and state income taxes including payments made in January 2025 for the 2024 tax year and payments made in January 2024 for the 2023 tax year.  Please be sure to include the FULL date for each payment made.

19)  All W-2G forms for gambling winnings.

20)  HEALTH INSURANCE: Notification received from the provider documenting the existence of health insurance coverage through the Marketplace for 2024 for you, your spouse and/or dependents.  Please provide all Forms 1095-A received for Marketplace insurance as this is required information to prepare your tax return.

21)  Copies of any notices or other communications received during the year from the Internal Revenue Service and State Taxing Authorities.

22)  Identity Protection Personal Identification Number – If you have received notification that an IP PIN has been assigned to you and/or your spouse by the IRS, it is imperative that this information be provided to us with your tax documents as you cannot efile your income tax return without it and our firm has no access to this information.  IP PINs can be retrieved online through the IRS website.  If you had one in the past but did not receive a letter for Tax Year 2024 from the IRS, you still have one issued to you so please retrieve via the IRS website before tax filing day arrives.  Please do not wait until the last minute to retrieve this information.

Because of government enforcement regulations and fraud prevention initiatives, we are requesting that you include copies of the social security cards for yourself, spouse and dependents.  If you provided us with copies of social security cards in the past, you do not have to provide it again; however, the driver’s license and passports on file must be current.  Also, if you are a new client to the Firm, include a copy of the current driver's license for yourself and your spouse as we are required to input the current information in order to electronically file.If you have any questions, please call our office to verify your information on file.  Please review and correct, if necessary, the personal and dependent information, including dates of birth. The spelling of names must match the social security cards issued or correspondence from the IRS will be generated.  Returns cannot be filed electronically if discrepancies exist between the tax return and the Social Security Administration.  Refunds will not be issued until the matter is resolved. 

When providing information related to the Sales of Stocks, Securities, Capital Assets & Installment Sales, special care should be taken in providing complete and accurate information, especially acquisition dates and cost. For re-investment programs, such as mutual funds and dividend reinvestment programs, it is necessary to provide all data since initial acquisition unless the fund/broker provides the cost information.  Taxpayers are required to complete Form 8949, Sales and Other Dispositions of Capital Assets, along with Schedule D to report this activity.  Form 8949 captures the detail data of each individual sales transaction in conjunction with cost basis information as reported by your broker/financial institution under reporting regulations.

In order to continue providing quality service on a timely basis, we urge you to collect your information as soon as possible.  If information from a “pass-through” entity such as a partnership, S corporation, limited liability company, trust or estate is the only data you are missing, please send the data you have assembled and forward the missing information as soon as it is available. Please clearly indicate which information is missing.  If we do not receive your complete information by March 21, 2025, we cannot guarantee timely completion of your tax returns for the April 15, 2025 filing deadline.  

Please be sure to include all of your contact information with your package - telephone numbers, fax numbers and email addresses, if applicable and the preferred method of contact.

If you or your spouse worked in New York with your residence outside of New York or you worked in Connecticut with your residence outside of Connecticut, please complete the enclosed Allocation of Wage and Salary Income worksheet.  If you held multiple jobs during the year, please provide a separate allocation schedule for each job.

We appreciate the opportunity to be of service to you. 

The following is a discussion of the rules applicable to the filing of 2024 individual income taxes and 2025 at this time.

TAX RATES - For 2024 there are seven income tax brackets ranging between 10% and 37% for ordinary income.  The 37% tax bracket is imposed on taxable income over threshold amounts as follows:

  · $731,200 for married taxpayers filing jointly and surviving spouses

  · $365,600 for married taxpayers filing separately

  · $609,350 for heads of households

· $609,350 for single taxpayers

· $15,200 for estates and trusts

For 2025, there are still seven brackets and the 37% tax bracket is imposed on taxable income over the following thresholds:

· $751,600 for married taxpayers filing jointly and surviving spouses

· $375,800 for married taxpayers filing separately

· $626,350 for heads of households

· $626,350 for single taxpayers

· $15,650 for estates and trusts

Besides the reduction in rates and expansion of the tax brackets, perhaps the biggest change to deductions was the elimination of the personal exemption effective 2018.  This was offset, in part, by the increase in the standard deduction.  For 2024, the standard deduction is $14,600 for single taxpayers, $21,900 for head of household and $29,200 for married couples filing jointly.  For 2025, the standard deduction is $15,000 for single taxpayers, $22,500 for head of household and $30,000 for married filing jointly.

LONG TERM CAPITAL GAINS AND QUALIFYING DIVIDENDS TAX RATE – The favorable rate of 0% for taxpayers in the 10% and 15% brackets remains unchanged from 2017.  In the Tax Cuts and Jobs Act (TCJA), these rates apply at different thresholds for 2024 and 2025 as follows:

The 0% tax rate applies to adjusted net capital gains up to $94,050 and $96,700 for joint filers and surviving spouses, $63,000 and $64,750 for heads of household, $47,025 and $48,350 for single filers and married taxpayers filing separately and $3,150 and $3,250 for estates and trusts;

· The 15% tax rate applies to adjusted net capital gains over the amount subject to the 0% rate, and up to $583,750 and $600,050 for joint filers and surviving spouses, $551,350 and $566,700 for heads of household, $518,900 and $533,400 for single filers, $291,850 and $300,000 for married taxpayers filing separately and $15,450 and $15,900 for estates and trusts; and

· The 20% tax rate applies to adjusted net capital gains over $583,750 and $600,050 for joint filers and surviving spouses, over $551,350 and $566,700 for heads of household, over $518,900 and $533,400 for single filers, over $291,850 and $300,000 for married taxpayers filing separately and over $15,450 and $15,900 for estates and trusts.

Remaining unchanged from prior years is the 25% rate for unrecaptured Code Sec. 1250 gain, the 28% rate for collectibles and the gain on qualified small business stock equal to its partial exclusion.

Qualified dividends received from domestic corporations and qualified foreign corporations continue to be taxed at the same rates that apply to capital gains.  Certain dividends do not qualify for the reduced rates, including dividends paid by credit unions, mutual insurance companies and farmers’ cooperatives.

NET INVESTMENT INCOME TAX (NIIT) – An additional Medicare surtax of 3.8% is imposed on the lesser of net investment income (NII) or modified adjusted gross income (MAGI) above a specified threshold.  However, the Medicare surtax is not imposed on income derived from a trade or business, nor from the sale of property used in a trade or business.

NII includes the following investment income reduced by certain investment-related expenses, such as investment interest expense, investment brokerage fees, royalty related expenses, and state and local taxes allocable to items included in net investment income:

· Gross income from interest, dividends, annuities, royalties, and rents, provided this income is not derived in the ordinary course of an active trade or business

· Gross income from a trade or business that is a passive activity

· Gross income from a trade or business of trading in financial instruments or commodities

· Gain from the disposition of property, other than property held in an active trade or business

Individuals are subject to the 3.8% NIIT if their MAGI exceeds the following thresholds (which are not adjusted for inflation):

· $250,000 for married taxpayers filing jointly or a qualifying widower with a dependent child

· $125,000 for married taxpayers filing separately

· $200,000 for single and head of household taxpayers

ADDITIONAL HIGHER INCOME MEDICARE TAX - Higher income (HI) individuals continue to be subject to an additional 0.9% HI (Medicare) tax, not to be confused with the 3.8% Medicare surtax on NIIT. The additional Medicare tax means that the portion of wages received in connection with employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately) is subject to a 2.35% Medicare tax rate (normal 1.45% plus additional .9%). The additional Medicare tax also applies to self-employed individuals.   

ALTERNATIVE MINIMUM TAX (AMT) – The TCJA temporarily increased the alternative minimum tax (AMT) exemption amounts for 2024 and 2025 as follows:

· $133,300 for married taxpayers filing jointly and surviving spouses for 2024 and $137,000 for 2025

· $85,700 for unmarried taxpayers and heads of household, other than surviving spouses, for 2024 and $88,100 for 2025

· $66,650 for married taxpayers filing separately for 2024 and $68,650 for 2025

· $29,900 for estates and trusts for 2024 and $30,700 for 2025

Exemptions for the AMT are phased out as taxpayers reach high levels of alternative minimum taxable income (AMTI). Generally, the exemption amounts are phased out by an amount equal to 25% of the amount by which an individual’s AMTI exceeds a threshold level.  The threshold amounts for calculating the exemption phase-out are adjusted for inflation as follows:

· $1,218,700 in 2024 and $1,252,700 in 2025 for married taxpayers filing jointly and surviving spouses

· $609,350 in 2024 and $626,350 in 2025 for unmarried taxpayers and heads of household, other than surviving spouses

· $609,350 in 2024 and $626,350 in 2025 for married taxpayers filing separately

· $99,700 in 2024 and $102,500 in 2025 for estates and trusts

For 2024 and 2025, the AMT rates are 26% and 28% on the excess of AMTI over the applicable exemption amount. You should not ignore the possibility of being subject to the AMT as it can negate certain year-end tax strategies; however, tax planning strategies can be used to reduce its impact. As a general rule, taxpayers subject to AMT should accelerate income into AMT years and postpone deductions into non-AMT years.

STOCK LOSSES – Taxpayers should continually review their investments for return and portfolio balance.  They should monitor their investments to take steps necessary to time the recognition of capital gains and losses to minimize their net capital gains tax and maximize the benefit of capital losses.  Remember for tax purposes it is not how much your investments have gone up or down in value but rather how much gain or loss you have realized when an investment is sold since its original purchase date.  The maximum capital loss deduction available to offset ordinary income is $3,000 ($1,500 for married taxpayers filing separately) with the additional capital losses being carried forward until used.  Taxpayers also need to take “wash sale” rules into consideration when generating losses.  The wash sale rule defers use of a tax loss realized upon a sale of stock if the investor repurchases it within 30 days before or after the sale.  Worthless stock also generates an immediate capital loss; however, the rules for “worthless” stocks are very strict.  Stocks and securities must be totally worthless for a taxpayer to take a loss deduction; a mere decrease in value, no matter how great, will not trigger a loss deduction.

DIGITAL ASSETS / CRYPTOCURRENCY – Increased attention remains on digital assets (two examples are cryptocurrency and non-fungible tokens (NFTs)) due to their volatility and the publicized collapse of crypto giant FTX.  Holders of cryptocurrency claim it is a form of currency and fluctuations in value are not taxable.  IRS law defines it as property, like any other investment, where fluctuations in value are subject to gains and losses when realized.  When cryptocurrency is “spent”, exchanged for goods and services, the IRS expects the calculation of gains/losses from the original basis to be recognized.  The IRS continues to escalate attention to this area as it intends to launch broker reporting of cryptocurrency transactions in 2025.  The 2024 Form 1040 once again will prominently display a required question for Digital Assets right under the filing status information: “At any time during 2024, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”  Per IRS instructions, the following actions or transactions in 2024 alone, generally do not require a “Yes” answer: 1) holding a digital asset in a wallet or account, 2) transferring a digital asset from one wallet or account you control to another one you control, or 3) purchasing digital assets using US currency including through the use of electronic platforms such as PayPal and Venmo.

ROTH IRA CONVERSIONS - Modified gross income limitations applicable to Roth IRA conversions were repealed and 2010 was the first year in which a taxpayer could convert all or part of their traditional retirement accounts to a Roth account, regardless of income, age or filing status.  A conversion is a taxable transfer and is taxable in the year of conversion.  Under prior law, a taxpayer could recharacterize IRA contributions from one type of IRA to another.  TCJA provides that a recharacterization cannot be used to unwind a Roth conversion. A taxpayer may still make a contribution to a traditional IRA and convert the Traditional IRA to a Roth IRA but the change is that the Roth conversion can then not be unwound using recharacterization.

IRA & ROTH IRA CONTRIBUTIONS – The maximum contribution is $7,000 for 2024 and $7,000 for 2025 provided you have at least $7,000 of wage, salary or net self-employment earnings.  An additional “catch-up” contribution of $1,000 is allowed for taxpayers over 50 years of age by the end of the tax year for 2024 and 2025.  There is no age limit for making contributions to a traditional or Roth IRA as long as you have earned income.  Remember that IRA and Roth IRA contributions for the 2024 tax year can be made up to April 15, 2025.

401K AND 403B CONTRIBUTIONS - The annual limit on employee elective deferrals to these plans for 2024 is $23,000 and $23,500 for 2025. The maximum “catch-up” contribution to a 401K and 403B plan for taxpayers over 50 years of age by the end of the tax year is an additional $7,500 for 2024 and 2025.  Per the provisions of the SECURE 2.0 Act, this amount increases to $10,000 per year in 2025 for participants age 60 – 63.  Additionally, catch up provisions will be indexed for inflation commencing in 2026.

RETIREMENT PLANS - The SECURE Act primarily intended to encourage savings for retirement, though not entirely favorable to taxpayers. Most provisions took effect January 1, 2020. In addition to the above, the SECURE 2.0 Act of 2022 was part of the 2023 Omnibus Bill recently signed into law at the end of 2022. Among the key retirement provisions in these Acts are:

· The age requirement to begin taking RMDs increased from age 72 to age 73 starting on January 1, 2023 (with respect to individuals who attain age 72 after December 31, 2022 and age 73 before January 1, 2033) and then to age 75 on January 1, 2033 (with respect to individuals who attain age 74 after December 31, 2032). In addition, the penalty for not taking an RMD is reduced from the current 50%, to 25%, and in some cases to 10% if the failure is corrected timely.  In addition, beginning in 2024, the pre-death RMD distribution requirement for Roth 401(k) accounts will be eliminated.  Also in 2024, surviving spouses can elect to be treated as the deceased employee for purposes of RMDs.

· An exemption from the 10% tax penalty on early retirement account withdrawals of up to $5,000 within one year of the birth of a child or an adoption becoming final.

· Elimination of the “stretch” RMD provisions that have permitted beneficiaries of inherited retirement accounts to spread the distributions over their life expectancies.

· Expansion of access to open multiple employer plans (MEPs), which give smaller, unrelated businesses the opportunity to team up to provide defined contribution plans at a lower cost, due to economies of scale, with looser fiduciary duties,

· Elimination of employers’ potential liability when it comes to selecting appropriate annuity plans, A new requirement that employers allow participation in their retirement plans by part-time employees who’ve worked at least 1,000 hours in one year (about 20 hours per week) or three consecutive years of at least 500 hours.

· Defined contribution plan sponsors will be able to provide participants with the option of receiving matching and non-elective contributions on a Roth basis.

· Plan participants generally will be able to withdraw up to $1,000 per year from their retirement savings account for emergency purposes (unforeseeable or immediate financial needs relating to personal or family emergency expenses) without having to pay the 10% tax penalty for early withdrawal if they are under the age of 59 1/2.  The provision is effective for distributions made after December 31, 2023.

· Employers who start new retirement plans will be required to automatically enroll employees in the plan at a rate of at least 3% but not more than 10%, beginning in 2025. 

· Beginning in 2024, beneficiaries of 529 college savings accounts are permitted to rollover unused dollars (up to $35,000) over their lifetime from their 529 account to a Roth IRA tax and penalty free account under certain conditions including being subject to Roth IRA annual limits and the 529 account being open for more than 15 years.

CHILD TAX CREDIT (CTC) – The amount of the credit through 2025 is $2,000 per qualifying child up to age 17.  The credit is subject to phase-out at modified adjusted gross income (MAGI) levels of $400,000 for joint filers and $200,000 for all other returns.  A portion of the CTC is refundable for 2024 up to a maximum of $1,700 per child.

CHILD DEPENDENT CARE (CDC) CREDIT – Beginning 2022, this credit became nonrefundable and is subject to limit based on the taxpayer’s tax liability.  For 2024 and 2025, the maximum amount of qualifying expenses to which the credit may be applied is $3,000 for individuals with one qualifying child or dependent or $6,000 for individuals with two or more qualifying children or dependents. Generally, the qualifying child has to be under age 13.  The credit percentage is 35% up to adjusted gross income (AGI) of $15,000 subject to the maximum credit amounts.  The percentage decreases by one percentage point for each $2,000 (or fraction thereof) of additional AGI until it’s reduced to 20% (which applies at AGI over $43,000).

EDUCATION INCENTIVES – The following are education incentives which exist under current law:

American Opportunity Tax Credit: The American Opportunity Tax Credit (AOTC) was made permanent by the 2015 PATH Act and was not changed by TCJA.  This $2,500 maximum credit per eligible student is subject to the higher income phase-out ranges of $80,000 to $90,000 for single filers ($160,000 to $180,000 for joint filers) and contains a 40% refundable credit component.  The eligibility extension to the first four years of post-secondary education contains an inclusion for text books and course materials as eligible expenses. The Lifetime Learning Credit was also retained.

Student Loan Interest Deduction: The maximum $2,500 deduction allowed for interest paid on a student loan used for higher education is gradually reduced if your modified adjusted gross income during 2024 is between $80,000 and $95,000 ($165,000 and $195,000 for married filing jointly.  This figure will continue to be adjusted each year for inflation. 

Coverdell Education Savings Accounts (ESAs): Total contributions for the beneficiary of this account (under age 18) cannot exceed $2,000 in any year no matter how many accounts have been established.  Contributions to a Coverdell ESA are not deductible but amounts deposited in the account grow tax free until distributed. 

Employer-Provided Education Assistance: Employees are allowed to exclude from gross income and wages up to $5,250 in annual educational assistance provided under an employer's nondiscriminatory "educational assistance plan." 

Scholarship Programs: An amount received as a qualified scholarship and used for qualified tuition and related expenses is excludable from income.  The exclusion does not apply to any portion of the amount received which represents payment for teaching, research, or other services by the student as a required condition for receiving the qualified scholarship.  However, scholarship recipients with obligatory service requirements under the National Health Service Corps Scholarship Program and the Armed Forces Scholarship Program can exclude from income qualified tuition and related expenses as well as amounts that represent payment for services.

Section 529 Accounts:  TCJA expanded potential usage of 529 plans to include elementary and secondary school tuition for public, private and religious schools up to $10,000 per year per student.  Previously, only Coverdell ESA funds could be used for primary and secondary expenses.  New York opted not to follow TCJA; therefore, for New York purposes, withdrawals for kindergarten through 12^th grade school tuition are NOT qualified withdrawals under the New York 529 college savings account program.

MEDICAL EXPENSE THRESHOLD - For 2024, a deduction is allowed for expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse and the taxpayer’s dependents to the extent the expenses exceed 7.5% of adjusted gross income.

CHARITABLE GIVING –

· Congress has long used the tax laws to encourage charitable giving and for many individuals, charitable giving is also a part of their year-end tax strategy. The 2015 PATH Act made permanent the popular charitable giving incentive with tax-free IRA distributions to public charities by individuals age 70 1/2 and older up to a maximum of $105,000 per qualified taxpayer per year for 2024. Individuals taking this option cannot claim a deduction for the charitable gift as the distribution is not claimed as income.  Beginning 2024, the qualified charitable distribution is subject to annual adjustment for inflation; the limit for 2025 will increase to $108,000.   

· Congress tightened the rules for substantiation requirements for charitable contributions effective August 17, 2006.  The IRS will not allow charitable deductions, regardless of the amount, without proper documentation. Contributions of $250 or more must be substantiated by a written acknowledgement from the donee organization; the acknowledgement must include the date of the donation, amount of cash or a description of property donated and a description and good faith estimate of the value of any goods or services received in exchange for the contribution.  If the donor does not receive a written acknowledgment from a charitable organization, it is the donor’s responsibility to obtain it in order to claim the charitable contribution.  Contributions under $250 must be substantiated by cancelled checks, bank records or receipts from the donee organization.  If it would be impracticable to obtain a receipt, the donor must maintain reliable written records. 

· Just like the rules for cash gifts, the rules for substantiating deductions for donations of clothing and household items (i.e., furniture, furnishings, electronics, appliances) were tightened after August 17, 2006 and will only be allowed if the property is in “good used condition or better”.  Donors must have a written acknowledgement from the charity documenting the donation date, description of property donated, a description and good faith estimate of the value of any goods or services received in exchange for the contribution and a valuation/qualified appraisal of the property donated, if applicable.  A deduction for the noncash goods will be allowed, without regard to condition, only if a qualified appraisal is attached to the return for each single item or group of similar items over $500.  We recommend that pictures be taken of any noncash goods that are donated as it will be helpful in supporting the deduction.

Taxpayers donating vehicles (i.e., car, truck, boat, and aircraft) to a charity valued over $500 must obtain from the charity and attach to the tax return Form 1098-C and/or a written acknowledgment of the contribution.  The donation amount is usually limited to the gross proceeds from the sale of the vehicle by the charity.

Gifting of appreciated securities for making charitable contributions continues to be a significant alternative instead of using cash.  In this manner, the appreciated value will not be taxed, low-cost basis stock is removed from your portfolio/estate and the fair-market value of the security will be used as the charitable contribution.

Individual taxpayers are allowed a deduction for cash contributions to public charities up to 60% of adjusted gross income (AGI) and 30% of AGI for noncash contributions. Donations to donor advised funds and private foundations are not eligible for the increased limit.

IRS has been aggressively reviewing and challenging charitable donations in response to these new substantiation requirements.  It is expected that this trend will continue.  The burden of proof will be on the taxpayer so it is imperative that good records and supporting documentation is maintained.

EDUCATOR EXPENSES – A grade K-12 teacher, instructor, counselor, principal or aide in a school for at least 900 hours during a school year is eligible to claim an above-the-line deduction up to $300 for qualified expenses paid out-of-pocket during the year.  Qualified expenses include educator expenses, professional development courses, books, supplies, classroom materials and COVID protective items.  The deduction will stay the same at $300 for 2025. 

BONUS DEPRECIATION & SECTION 179 BUSINESS EXPENSING ELECTIONS –

Bonus Depreciation: Pursuant to TCJA for qualified purchases placed into service after September 27, 2017, 100% of the purchase price can be expensed.  This 100% expensing continued until 2022 and then a scheduled phase-down by 20% per year started 2023 and ends at 20% in 2026, after which the provision is set to expire.  Unlike regular depreciation, where half-year and mid-quarter conventions may apply, a taxpayer is entitled to the full bonus depreciation level based on when the asset is purchased. Therefore, year-end placed in service strategies provide immediate “cash discount” for qualifying purchases, even when considering finance costs.  Bonus depreciation under old law is available only for new property (i.e., property whose original use begins with the taxpayer) depreciable under MACRS that (a) has a recovery period of 20 years or less, (b) is MACRS water utility property, (c) is computer software depreciable over three years, or (d) is qualified leasehold improvement property. An enticing provision under the new law whereby qualified property includes property that has been used (i.e., the original use does not have to originate with the purchaser).  A taxpayer may elect out of bonus depreciation with respect to any class of property placed in service during the tax year. Although this election may be factored into a year-end strategy, a final decision on making it is not required until the tax return is filed. Bonus depreciation is not a preference item for alternative minimum tax.

Code Sec. 179 Expensing: The PATH Act’s provisions made the enhanced Section 179 expense deduction permanent for taxpayers (other than estates, trusts or certain non-corporate lessors) that elect to treat the cost of qualifying property (generally defined as depreciable tangible property that is purchased for use in an active trade or business) as an expense rather than a capital expenditure. Thus, the current Section 179-dollar cap for 2024 and 2025 is $1,220,000 and $1,250,000, respectively, with an overall investment limitation of $3,050,000 and $3,130,000, respectively.

BUSINESS MEALS – The provision allowing 100% deduction of certain business meals under the Consolidated Appropriations Act of 2020 expired December 31, 2022.  Beginning January 1, 2023, the original limitation of 50% deductibility on qualifying business-related meals was restored.

BUSINESS MEALS – The provision allowing 100% deduction of certain business meals under the Consolidated Appropriations Act of 2020 expired December 31, 2022.  Beginning January 1, 2023, the original limitation of 50% deductibility on qualifying business-related meals was restored.

AUTOMOBILE MILEAGE RATE -Many taxpayers use the standard mileage rates to help simplify their recordkeeping. Using the business standard mileage rate takes the place of deducting the applicable business percentage of the actual costs of your vehicle such as maintenance, repairs, gas, insurance, license and registration fees.  If you choose to use the actual expense method to calculate your business vehicle deduction, you must maintain very careful records by keeping track of the actual costs during the year to maintain and run your vehicle.  One of the most important tools is a mileage log book that details date, miles driven, location and purpose for the vehicle during the calendar year.  Our office can help you compare the benefits of using the business standard mileage rate or the actual expense method.

Business standard mileage rate: The business standard mileage rate for 2024 is 67.0 cents per mile. The mileage rate is 70.0 cents per mile for 2025.

Medical/Moving standard mileage rate: The medical/moving standard mileage rate for 2024 and 2025 is 21.00 cents per mile.  The deduction for moving expenses was eliminated beginning 2018 except for members of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.

Charitable standard mileage rate:   Taxpayers who itemize deductions may be able to claim a deduction for miles driven in service of a charitable organization. The standard mileage rate for charitable miles as determined by IRS for 2024 and 2025 is 14.00 cents per mile.

COLLEGE SAVINGS PROGRAMS/PLANS – Connecticut allows a deduction from federal adjusted gross income for contributions made into a CT higher education trust fund (CHET).  New York allows a deduction from federal adjusted gross income for contributions into a New York 529 college savings plan.  The maximum deduction in each state is $5,000 for a single taxpayer and $10,000 for married filing joint.  However, Connecticut allows contributions in excess of these limits to be carried forward for five years while New York does not allow any carry forward. 

RESIDENTIAL ENERGY CREDIT – As amended by the Inflation Reduction Act (IRA), the energy efficient home improvement credit is increased for years after 2022, with an annual credit of generally up to $1,200.  Beginning January 1, 2023, the amount of the tax credit is equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, including 1) qualified energy efficiency improvements installed during the year, 2) residential energy property expenditures during the year and 3) home energy audits during the year.  There are limits on the allowable annual credit and the amount of the credit for certain types of qualified expenditures.  The credit is allowed for qualifying property placed in service on or after January 1, 2023 and before January 1, 2033.  The IRA added reforms as follows:

· The energy efficient home improvement credit provides for an increased and broadened nonrefundable tax credit limited to 30%, not exceeding $1,200 in any year, of the sum of expenditures for installation of qualified efficiency improvements (energy efficient windows, skylights, exterior doors and energy audits).

· Annual limitations apply to exterior windows and skylights ($600), exterior door ($250, individually and $500 in the aggregate), and home energy audits ($150).

· A separate nonrefundable tax credit of 30% of expenditures limited to no more than $2,000 is allowed for heat pump and heat pump water heaters and biomass stoves and boilers meeting specified requirements purchased and installed between January 1, 2023 and December 31, 2032.

· Energy-efficient home improvement credits allowed for a taxpayer’s expenditure reduces the taxpayer’s basis in the property by the amount of the credit allowed.

The residential clean energy property credit is a 30% credit for expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, battery storage technology, qualified small wind energy property and qualified geothermal heat pump property.  The credit for these property expenditures applies to those placed in service in 2022 through 2032.  Beginning January 1, 2033, the credit phases down to 26%, 22% in 2034 and no credit after that.

HEALTH CARE REFORM - The Affordable Care Act (ACA) brought a sea of change to our traditional image of health insurance.  Taxpayers and employers will continue to weigh the benefits and costs of obtaining coverage in a public marketplace or a private insurance exchange for themselves and their employees.  Small businesses may be eligible for a tax credit to help pay for health insurance.  Individuals may qualify for a premium assistance tax credit, which is refundable and payable in advance, to offset the cost of coverage.  Those who obtained insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which will explain their coverage and detail any premium tax credit they received in advance.

Individuals with flexible spending accounts (FSAs) and similar arrangements should take a look at their annual spending habits and project how they will use these tax favored funds in the future.  The maximum salary reduction contribution to an FSA is $3,200 for 2024 and $3,300 for 2025.  Adjusted for inflation, the annual limitation on deductible contributions to health savings accounts (HSAs) for an individual with self-only coverage under a high deductible health plan (HDHP) is $4,150 for 2024 and $4,300 for 2025; $8,300 for 2024 and $8,550 in 2025 for family coverage. The HSA catch up contributions for age 55 or older is $1,000 for 2024 and 2025 for both single and family coverage.

GIFT TAXES – Slow and steady estate planning can yield dramatic results - take advantage of the annual gift giving limits to reduce your income and estate tax liabilities. For 2024, the annual exclusion was $18,000 ($36,000 per person for couple).  For 2025, the annual exclusion is $19,000 ($38,000 for couple.)  Remember that if you gift stock, the recipient of the gift takes over the donor’s cost basis and holding period for the security; therefore, the donor needs to provide the recipient with this information.  Current Federal and Connecticut legislation has the estate and gift tax thresholds at $13,610,000 for 2024 and $13,990,000 for 2025.   Direct payments of educational expenses to a qualified institution for family members, or other beneficiaries, is not treated as a gift for tax purposes and does not count against the annual exclusion amount or the lifetime exemption. Please note that absent any new legislation on a federal level, these higher exemptions are scheduled to sunset on December 31, 2025 and return to a $5 million exemption, indexed upward for inflation as established under 2012 legislation.  At this time, it is not known what Connecticut will do when federal levels sunset.

ESTATE TAX REFORM – While TCJA retains the estate tax rate at 40% for 2024 and 2025, the estate tax exemption moved up to $13,610,000 and $13,990,000 respectively. TCJA did not repeal the death tax as had been a goal and also did not make the above changes permanent as they expire after 2025. The portability election remains as part of the tax law. Portability allows the second spouse to have the benefit of the deceased spouse’s unused portion of the exemption even if the second spouse dies when a lower exemption is in effect, possibly after 2025.  No changes were made in TCJA with respect to step up in basis despite the increase in the exemption.

AUTOMATIC REFUND REDUCTIONS - With the number of information sharing acts signed by federal and state taxing authorities as well as other organizations, please be aware that refunds could be automatically reduced for the following matters: delinquent federal taxes, delinquent state taxes, back spousal and/or child support and delinquent non-tax federal debts such as student loans.  If the Department of Treasury’s Financial Management System (FMS), which disburses IRS refunds, offsets the refund for a delinquent amount (correctly or incorrectly), they will send a letter to the taxpayer explaining the reduction and giving the taxpayer the right to challenge the offset.

MAILING & RECORDKEEPING OF TAX PAYMENTS AND TAX RETURNS - When mailing tax returns or payments to federal and state taxing authorities, we advise the use of registered or certified mail to prove timely filing.  We also recommend that you make copies of the checks before mailing for your records and maintain records for proof of mailing.  The IRS has stated that other than direct proof of actual delivery, a mail receipt would be the only evidence of the timely delivery of tax documents.  It is also a good practice to make sure that you have good copies of the front and the back of the check images (where available) once your payments clear the bank in case you have to present this information at a later date.  The IRS, as well as many state taxing authorities, are providing options to make direct payments electronically via direct links and established account log ins; therefore, you may want to consider making estimated tax payments and paying notices via these methods in the future.  Please keep in mind that as electronic systems of filing continue to be required, manpower at the federal and state taxing authorities will continue to decline causing longer delays in resolution of matters and placing the burden of proof on the taxpayer.  With the staff shortages and remote work environment, these delays have only increased.

INCREASED REPORTING PROVISIONS ARE IN EFFECT AIMED AT COMPLIANCE AND REVENUE GENERATION - Banks and other processors of merchant payment cards are required to report a merchant’s annual gross payment card receipts to the IRS along with the merchant’s EIN #.  The law also requires reporting of third-party network transactions such as ones used by online retailers.  Expanded information reporting will continue to assist the IRS in increasing the compliance among merchants.  The IRS plans to compare the merchant’s overall volume of payment card sales in relation to expenses claimed and cash transactions reported; however, IRS knows this will be a daunting task with an estimated 44 million forms to be filed for 2024, rising by 5% each year reaching 62 million in 2031.

We have also seen an increased emphasis by IRS and state taxing authorities on enforcement of tax provisions.  Additionally, several pieces of legislation provided increased resources for enforcement activities by the IRS, which may affect more than the wealthy.  The Treasury Department has stated that increased enforcement through additional staff and information reporting systems could raise revenue.

In 2013, new rules were fully implemented that required brokers to file information returns that not only provided the IRS and customers with details on the sales proceeds from each trade executed during the year, but also the customer's adjusted basis in the security and whether any realized gain/loss is short or long term. These information reporting requirements effect business customers as well. Securities subject to the reporting requirements include stocks, bonds, debentures, commodities, derivatives and other financial instruments designated by Treasury.  Brokers notified customers in 2011 regarding elections to make in their accounts concerning the methods to be used for reporting cost basis.  In response to broker reporting changes, the IRS introduced Form 8949 Sales and other Dispositions of Capital Assets in 2011.  Form 8949 is used to list all capital gain and loss transactions previously reported on Schedule D of Form 1040.  The subtotals from Form 8949 are then carried over to Schedule D where realized gain or loss is calculated in the aggregate.  Accurate reporting and matching of data from taxpayer returns to that reported by the brokers directly to the IRS is the key compliance focus and purpose of this form.

Form 1099-DA, “Digital Asset Proceeds From Broker Transactions:  The first-ever tax form created specifically for digital assets will dramatically change the legal landscape for crypto tax reporting.  The form is being created specifically for reporting digital asset transactions and is part of a broader regulatory effort to enhance tax compliance in the rapidly growing digital asset market, including cryptocurrencies, NFTs and stablecoins. The planned effective date is January 1, 2025, meaning all 2025 trades performed through digital asset brokers will be reported to the IRS in 2026.  The Joint Committee on Taxation estimates that digital asset reporting will increase revenue by $28 billion over 10 years after implementation.

Foreign Compliance Activities:  Foreign Account Tax Compliance Act (FATCA) dominated international news beginning in 2014 and continues today.  Along with FACTA, the U.S. has been expanding its tax treaties and information agreements with foreign jurisdictions to encourage greater transparency and authorities are getting tighter with compliance efforts.  FinCen Report 114, Report of Foreign Bank and Financial Accounts (FBAR), reporting for tax year 2023 is due by April 15, 2025 with an automatic 6-month extension available until October 15, 2025.

Identity Theft:  Tax fraud and identity theft have become a growing problem over the years.  Further initiatives continue to be taken by the industry to combat identity theft issues for taxpayers throughout the country.  IRS has joint efforts with various state taxing authorities and tax preparation software companies to create a security plan to safeguard taxpayer information.  Taxpayers who have experienced identity theft issues have been issued IP PIN numbers which are required to be input by tax preparers when submitting your return for electronic filing.  These numbers are unique by tax year and it is the responsibility of the taxpayer to supply the tax preparer with this information.  Tax preparers are also required to input the current driver’s license state identification number, issue date and expiration date for ALL taxpayers prior to e-filing without exception.