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According to the United States Department of Labor’s Consumer Credit Protection Act (CCPA), wage garnishments are a complex legal process for employers to account for when it comes to employment matters. This article specifically refers to Title III of the Consumer Credit Protection Act.
Usually authorized through a court order, a wage garnishment directs an employer to withhold or garnish an employee’s wages for a certain amount or percentage to satisfy an outstanding debt. Wage garnishments also can be implemented for delinquent tax obligations and other debts owed to federal agencies of the U.S. federal government, as well as for state-level tax collectors.
Another consideration for Title III is that for a single debt, employees may not be fired; but if an employee’s earnings are garnished for two or more distinct debts, an employer has the discretion to involuntarily separate an employee from its business. This law also permits varying amounts and percentages of an employee’s “disposable earnings” that may be withheld.
The first step is determining how earnings are defined in the course of deciding the final wage garnishment calculation. Examples include but are not limited to retirement and pension payments to the employee, hourly wages, yearly salaries, commissions, bonuses, along with profit sharing, etc.
When it comes to lump-sum payments, the CCPA requires counting earnings that are for personal services, but not including non-personal service-related lump-sum payment compensation as the first step when calculating the final wage garnishment.

Defining Disposable Earnings

The final amount able to be garnished is determined by the employee’s disposable earnings. This is defined as the earnings remaining once legally mandated deductions are factored into an employee’s earnings. Example deductions include local, federal and state taxes, along with withholdings for unemployment, Medicare and Social Security taxes. Voluntary deductions, such as health premiums, voluntary retirement plan contributions, etc., are not factored into the disposable earnings calculation.
When it comes to regular garnishment guidelines, which include non-support, bankruptcy or tax-based requests, for both state and federal taxes, the maximum weekly amount is the smaller amount of either one-fourth of the worker’s disposable earnings or how much the worker’s disposable earnings exceed 30 times the U.S. minimum wage of $7.25 per hour x 30 hours = $217.50 (as of June 2023).
Looking at a weekly view, if disposable earnings are $217.50 or less, no garnishment can occur. If disposable earnings between $217.50 and up to $290 are considered, only $72.50 may be garnished, depending on how much the outstanding debt is in total. If the worker’s disposable earnings exceed $290 for a weekly pay period, up to one-fourth of the pay period’s disposable earnings can be considered to be garnished. It’s important to note that some bankruptcy court orders, state/federal tax debts and court orders for child support and/or alimony are not necessarily subject to the garnishment ceilings discussed above.
While this information is not comprehensive for employers, it’s important to understand all the federal, state and local regulations to ensure compliance is achieved to reduce the chances for adherence complications.

The emergence of digital currency is reshaping how businesses operate and account for financial transactions. As accounting professionals navigate this transformative wave, understanding the profound impact of digital currency on business accounting becomes not just relevant but imperative.

What is digital currency?

Digital currency is a form of currency that exists only in electronic or digital form, without a physical counterpart like coins or banknotes. There are two main types of digital currencies. First, there are decentralized cryptocurrencies such as Bitcoin or stablecoins such as USDC (that track to the US dollar at 1-1). Cryptocurrencies are always based on blockchain technology. The other main type and more likely to serve as a substitute for traditional government issued currencies are digital currencies such as central bank digital currencies (CBDCs). Unlike crypto-currencies, CBDCs are centralized and issued by issuing authority and also are not necessarily based on a blockchain or immutable ledger systems.

Immutable ledger systems ensure transparency, traceability and security in financial transactions. Technology also has given rise to decentralized finance, or DeFi, designed to offer access to financial services without the need for institutions such as banks. This translates into a paradigm shift for accounting professionals, as digital currency and crypto currency is continually adopted to make payments, investments and as a reservoir of value.

The Impact of Digital Currency on Business Accounting

1. Enhance Financial Reporting – Digital currencies facilitate real-time transactions, eliminating the lag time associated with traditional banking processes. This newfound speed provides accounting professionals with instant access to financial data, enabling quicker and more accurate financial reporting. Businesses can now assess their financial health daily, leading to more informed decision-making.
2. Smart Contracts Streamline Auditing Processes – Smart contracts, self-executing contracts with the terms of the agreement written directly into code, bring automation to the auditing process. This reduces the risk of human error and accelerates auditing procedures. Accounting professionals can leverage smart contracts to automate routine tasks, allowing them to focus on higher-value analytical work.
3. Cross-Border Transactions Simplify Global Accounting – Accounting for international transactions has historically been intricate due to varying currencies and exchange rates. With digital currencies, businesses can streamline these processes, reduce the complexities associated with global accounting, and provide accounting professionals with standardized data for analysis.
4. Enhanced Financial Inclusion Accounting for a Broader Audience – Digital currencies can enhance financial inclusion by providing access to financial services for unbanked or underbanked individuals. Accounting professionals will need to consider the unique accounting challenges associated with this expanded user base, such as diverse transaction volumes and varying levels of financial literacy.

Challenges of Digital Currencies

Accounting professionals face both challenges and opportunities as businesses increasingly adopt digital currencies for transactions. Accounting standards may need to evolve to accommodate the unique characteristics of digital currencies.

The integration of digital currencies with traditional accounting systems is another critical consideration. Businesses will likely operate in a hybrid financial environment for the foreseeable future, necessitating seamless integration between digital and conventional accounting systems. Accounting professionals must adapt to this coexistence, ensuring data accuracy and integrity across platforms.

The volatile nature of digital currencies poses both risks and opportunities for businesses. While the potential for significant gains exists, so does the risk of value fluctuations. Accounting professionals play a pivotal role in developing robust risk management strategies, ensuring businesses can thrive in the evolving landscape of digital currency without exposing themselves to undue financial risks.

The regulatory environment surrounding digital currencies is still evolving. Accounting professionals must stay abreast of changing regulations to ensure businesses remain compliant. This adaptability is crucial as governments define and regulate digital currencies worldwide. For instance, the lack of a precise classification of digital currencies poses difficulties in determining their financial treatment. The absence of standardized guidelines complicates valuation, reporting and compliance, requiring accountants to navigate a complex landscape where traditional classifications may not fully capture the distinctions of these evolving assets. Therefore, a proactive approach to compliance will be integral to the long-term success of businesses in this space.

As digital currencies evolve, accounting professionals must commit to continuous learning. Staying ahead of technological advancements, regulatory changes and industry best practices is paramount. Professional development in areas such as blockchain technology, cryptocurrency taxation and digital auditing will be essential for accounting professionals aiming to thrive in the digital era.

Conclusion

The impact of digital currency on business accounting is transformative and far-reaching. Accounting professionals are at the forefront of this paradigm shift, navigating the challenges and harnessing the opportunities presented by the digital revolution. Embracing innovation, adapting to changing regulations and continuously honing skills will ensure businesses survive and thrive in this dynamic era of digital currency.

It’s that time of year again: time for year-end tax planning. With the end of 2023 coming fast, the time to act is now. In this article, we’ll look at the moves you can make to optimize your tax situation in 2023 as an individual taxpayer.

Itemized Deductions

Flexing your timing on itemized deductions is a solid strategic move. It can help you shift to a bigger itemized deduction in 2023 versus 2024 (but not both). This can be advantageous if you expect to be in a higher tax bracket in one year compared to the other. Key itemized deductions to consider are home interest, state and local taxes, charitable deductions and medical expenses.

Electric Vehicles

If you are in the market for a new car, consider buying an electric vehicle (EV) to save some taxes as well. Many new EVs can get you a credit of up to $7,500 and used versions up to $4,000. The credit is limited based on the cost of the vehicle, with more expensive model’s ineligible for the tax credit. Generally, the MSRP of a sedan cannot exceed $55,000, and SUVs, trucks and vans cannot be more than $80,000.

In addition to the price limit on the EV itself, the credit is limited by taxpayers’ income levels. Married couples modified gross income cannot be more than $300,000 to get the credit on a new EV and $225,000 for a used version. Single taxpayers are capped at $150,000 for a new version or $75,000 for a used EV.

One important distinction here is that if you buy an EV in 2023, you’ll need to claim the credit via your tax return, which means you won’t get the benefit right away. In 2024, however, you can choose to transfer the credit to the car dealer when you buy the vehicle and pay less as a result immediately. So, if you plan to buy it now or in early 2024, it may be better to wait if you have the choice.

Home Improvements

There are two tax credits you can get related to making “green” upgrades to your home. The first is the residential clean energy property credit, which is installing alternative energy systems such as solar, wind, geothermal, etc., giving you a credit of up to 30 percent of the materials and cost of installation. The second is the energy-efficient home improvement credit. This applies to smaller upgrades like boilers, central air-conditioning systems, water heaters, windows, etc., that meet qualifications for specific energy efficiency ratings. The credit is for 30 percent of the cost, with $1,200 yearly maximum (from all upgrades).

Charitable Donations

If you are considering making charitable donations, consider donating appreciated property, like stocks or mutual funds, where you have unrealized gains. This way, you’ll get to deduct the full amount of the fair market value without having to sell and pay taxes on the gains first.

Beware Required Minimum Distribution (RMD) Rules for IRAs

The penalty for failing to take your RMD dropped from 50 percent down to 25 percent with the Secure 2.0 Act in 2023, but it is wise to avoid the still hefty penalty. The general rule is that taxpayers 73 and older must take annual payouts, and there is a specific calculation behind it based on your age and account balance. You can also be subject to RMDs at a much younger age if you inherited an IRA. If you don’t feel comfortable making this determination, it’s best to check with your CPA or financial advisor to ensure you withdraw the right amount.

Max Out Retirement Plans

The deadline to fund workplace 401(k) plans is December 31, 2023, while 2023-year IRA contributions are allowed up until April 15, 2024. Taxpayers can contribute up to $22,500 in a 401(k) ($30,000 if age 50 or older); and $6,500 for IRAs ($7,500 if over 50).

Capital Gains and Tax Loss Harvesting

The capital markets have seen a volatile year, and interest rates have been at highs not seen in quite some time. This may create situations where tax loss harvesting is advantageous.

Generally, if you have losses in some securities, understand that you can take losses against positions with gains up to the number of gains you realize, plus a maximum of $3,000 against other income. Excess losses are carried forward to future years. So, if you have a combination of winners and losers in your portfolio, consider tax loss harvesting to lower your tax bill.

Beware of the wash-sale rules, however. The wash-sale rules forbid you to sell and then repurchase “substantially identical” securities within 30 days of the sale on loss positions. One nuance here is that cryptocurrencies are not subject to the wash-sale rule as of yet.

Increase Your Withholdings

If you expect to have a hefty tax bill, then it may be wise to have additional amounts withheld from your paycheck or make an estimated payment. This can help you avoid a penalty for underpayment of taxes. As long as you prepay via tax payments or withhold a minimum of 90 percent of your 2023 total tax bill or 100 percent of what you owed for 2022 (110 percent if your 2022 AGI exceeded $150,000), you are clear of the penalty.

Conclusion

As we prepare to enter the final month of 2023, now is the time to take a look at your financial and tax situation to see if there are any moves you can make to minimize your 2023 tax liabilities and maximize your wealth.

The Kiddie Tax was introduced in 1986 to prevent high-income parents from shifting their investment income to their children, who typically fall into lower tax brackets. While the term “Kiddie Tax” isn’t used in the tax code, it does succinctly describe this tax. The tax applies to unearned income, such as dividends, interest, and capital gains, of certain children under the age of 19, or under 24 if they are full-time students who aren’t self-supporting.

However, if the child is married or neither parent is alive on the last day of the year, the Kiddie Tax rules will not apply to the child and the child will be taxed at their own rate.

For 2023, the first $1,250 of a child’s unearned income is tax-free. The next $1,250 is taxed at the child’s rate, which is typically lower than the parents’ rate. However, any unearned income over $2,500 is taxed at the higher of the child’s tax rate or the parents’ rate, which can be as high as 37%. These amounts are inflation adjusted and for 2024 will be $1,300 and $2,600.

Where a child has earned income (income from working, generally W-2 income) that income is taxed at the child’s marginal rate. However, thanks to the standard deduction, which can offset earned income, and for 2023 for a single individual is $13,850, a child can earn$13,850 tax free. Inflation-adjustment is expected to bring the 2024 standard deduction to $14,600.

Earned Income Strategy: The child may also make deductible contributions to a traditional IRA for 2023 of the lesser of their earned income or $6,500. By combining the standard deduction and the maximum deductible IRA contribution, a child could earn $20,350 ($13,850 + $6,500) of wages and pay no income tax. If the child balks at contributing his or her hard-earned money to an IRA, the parent, or grandparents, might consider giving the child part or all of the IRA contribution as a gift. For long-term retirement benefits, it might be better to have the child contribute to a Roth IRA. Even though contributions to a Roth IRA are not tax deductible, all earnings are tax free at retirement which can be a huge benefit 50 or 60 years down the road.

In some cases, parents may elect to include their child’s interest and dividend income (including capital gain distributions) on their own tax return instead of the child filing a return of his/her own. If the child has other types of income, either earned or unearned, this election cannot be made. Where the child’s parents are not filing a joint return there are some complicated rules related to which parent includes the child’s unearned income on their return. Generally, it would be reported on the return of the parent with the highest amount of taxable income.

The IRS no longer allows children who have unearned income and are subject to the Kiddie Tax to file their returns using estimated parental tax information. If a child cannot get the required information about the parent’s tax return, the child (or the child’s legal representative) can request the necessary information from the IRS.

Kiddie Tax Avoidance Strategy – It is possible to avoid the Kiddie Tax by placing or moving a child’s funds into investments such as the following that produce little or no current taxable income (that would otherwise be subject to the Kiddie Tax), at least in the years until the investments need to be sold or redeemed to pay for education expenses:

• U.S savings bonds – Interest can be deferred until the bonds are cashed.
• Tax-deferred annuities – Interest can be deferred until the annuity is surrendered.
• Municipal bonds – Generally produce tax-free interest income (may be taxable to the state).
• Growth stocks – Stocks that focus more on capital appreciation than current income.
• Unimproved real estate – That provides appreciation without current income.

Navigating the complexities of the Kiddie Tax can be challenging. However, with a solid understanding of its implications, you can make informed decisions that align with your financial goals.

Remember, every family’s financial situation is unique, and what works for one may not work for another. If you have questions about the Kiddie Tax or need assistance with tax planning, don’t hesitate to give this office a call.

Filing taxes can be a complex process, and it’s not uncommon for mistakes to occur. Whether it’s a simple miscalculation or a more significant error, knowing how to navigate IRS tax problems is crucial for taxpayers. In this guide, we’ll walk you through the steps to take if you find yourself in a situation where you’ve made a mistake on your tax return. From recognizing the error to seeking professional help, we’ll provide you with actionable advice to ensure you’re on the right track.

Recognize the Mistake

Acknowledging a mistake on your tax return is the first crucial step. With over 160 million tax returns processed annually, errors are not uncommon. If you find a mistake, rest assured, you’re not alone. The important thing is to take swift and responsible action to rectify the error.

How will the IRS find out about your mistake?

The IRS matching program, also known as the Information Matching Program, is a system used by the Internal Revenue Service (IRS) to verify the accuracy of tax returns filed by taxpayers. The program works by comparing the information reported on individual tax returns with data received from third-party sources, such as employers, financial institutions, and other entities that provide income-related information.

The primary goal of the IRS matching program is to identify discrepancies or inconsistencies in reported income, deductions, and credits. If the information reported on a tax return does not align with the data received from third-party sources, it may trigger further review or an audit by the IRS.

For example, if a taxpayer reports a different amount of income than what their employer reported on their W-2 form, it could raise a red flag in the matching program. Similarly, discrepancies in interest income reported by financial institutions or other income sources can be flagged for review.

It’s important for taxpayers to ensure that the information they report on their tax returns is accurate and matches the data provided by third parties. Failing to do so can lead to penalties, interest charges, and potential legal consequences.

Overall, the IRS matching program is a critical tool in the IRS’s efforts to maintain tax compliance and ensure that taxpayers are reporting their income and deductions correctly.

Don’t Panic

Mistakes are a part of life, and the IRS understands this. Simple errors like math miscalculations or overlooking a section are often corrected by the IRS, who will send a notification letter. So, take a deep breath and remember, this isn’t the end of the world.

Understand the IRS’ Leeway

The IRS provides a substantial window for correcting mistakes. You have three years from the original filing date of your tax return or two years from the date you paid the owed tax to make corrections. This gives you ample time to address any issues that may have arisen.

Amend Your Return if Necessary

For more significant mistakes, like inaccurately reporting your income, you’ll need to file an amended return. This process allows you to rectify your errors and set things right. When filing an amended return, attention to detail is crucial. Keep in mind that the IRS may scrutinize amended returns more closely, underscoring the importance of thoroughness.

Know When to Seek Professional Help

If your tax situation is complex or you’re unsure about the correction process, it might be time to seek professional assistance. Our office can expertly guide you through amending your return, ensuring compliance with IRS regulations. We can also help you avoid potential penalties and interest charges.

Respond Promptly to IRS Notices

In the event of a notice from the IRS regarding your mistake, a swift response is essential. Delaying action when you owe additional taxes can result in penalties and accruing interest on the unpaid amount. The sooner you address the issue, the better it is for your financial situation.

Learn from Your Mistakes

Viewing a tax return mistake as a learning experience is valuable. Take the opportunity to understand where the error occurred and how to prevent similar mistakes in the future. As the saying goes, “to err is human, to forgive divine.” The IRS tends to be understanding when it comes to forgiving honest tax return mistakes, provided you take the necessary steps to correct them.

Making a mistake on your tax return is not a catastrophe, but it does require prompt and careful attention. Whether you choose to correct the error independently or seek professional help, the key is to act responsibly and learn from the experience. Remember, the IRS is there to work with you, not against you. So, take a proactive approach and navigate through the process with confidence.

The holiday season is customarily a time of giving gifts, whether to your favorite charity, family members or others. Some gifts have tax implications and can even provide a variety of tax benefits.

But be wary; during the holiday season, you may receive phone calls, texts, emails, snail mail, or appeals on social networking sites for donations for various causes. However, some of these appeals may come from fraudsters and not legitimate charities. Unfortunately, this happens every holiday season.

So, before writing a check or giving your credit card number to a charity that you aren’t familiar with, check them out so you can be assured that your donation will end up in the right hands. Follow these tips to make sure that your charitable contribution actually goes to the cause you are supporting:

• Donate to charities that you know and trust. Be alert for charities that seem to have sprung up overnight and that you are not familiar with.
• Ask if a caller is a paid fundraiser, who they work for, and what percentage of your donation goes to the charity and fundraiser. If you don’t get clear answers—or if you don’t like the answers you get—consider donating to a different organization.
• Don’t give out personal or financial information, such as your credit card or bank account number, unless you are sure that the charity is reputable.
• Never send cash or a gift card. You can’t be sure that the organization will receive your donation, and you won’t have a record for tax purposes.
• Never wire money to someone who claims to be from a charity. Scammers often request donations to be wired because wiring money is like sending cash: Once you send it, you can’t get it back.
• If a donation request comes from a charity that claims to help a local community group (for example, police or firefighters), ask members of that group if they have heard of the charity and if it is actually providing financial support.
• Check out the charity’s reputation online using Charity Watch or other online watchdogs.

Gifts with Tax Benefits

A Gift of College Tuition – An interesting quirk in the gift tax laws is that an individual can pay a student’s higher-education tuition directly to a qualified school, college, or university, and it will be exempt from gift tax and gift tax reporting. What student wouldn’t love to have part of their tuition paid? It would make a great gift. However, the giver isn’t allowed a charitable deduction on their income tax return for the tuition they generously paid.

As an aside, college tuition generally qualifies for a federal income tax credit. Another quirk in the tax laws says that the education credit goes to the individual who claims the child (student) as a dependent, generally resulting in a gift to the child’s parents in the form of the tax credit.

Example: Whitney is attending college and is the dependent of her mother and father. Whitney’s grandfather makes a tuition payment directly to the college; since it was made directly to the school, Whitney’s grandfather does not have any gift tax issues. Since Whitney is a dependent of her parents, her parents would claim any available tuition credit. Thus, by paying the tuition, Grandpa made a gift of tuition to his granddaughter and a gift of the tuition credit to her parents.

College Student’s Supplies – If you have a spouse or child attending college, the costs of certain course materials qualify for the American Opportunity Tax Credit (AOTC) if the course materials are needed as a condition of enrollment and attendance. Thus, for example, if a computer is needed as a condition of enrollment and attendance at the college, the computer’s cost would qualify for the AOTC of the individual who claims the student as a dependent. Other requirements apply to claim the AOTC; check with this office for details.

Payoff of Student Loan Debt – What student or former student wouldn’t appreciate having a portion of their student loan debt paid off in the form of a holiday gift. Such generosity lifts a huge burden off their shoulders. For 2023, up to $17,000 (less if other gifts were made to the same person during the year) can be gifted by one person towards the payment of another’s student loan debt without affecting the giver’s gift tax and gift tax reporting.

Clean Car Credit – If you purchase an electric car as a holiday gift for your spouse or even yourself, you will find that some come with a tax credit of up to $7,500. To qualify to claim the credit on your 2023 tax return, the car will have to be “placed in service” by December 31, 2023. So merely ordering the vehicle, even if payment for it is made at the time when the order is placed, won’t be enough – you will need to receive the car and start using it before New Year’s Day. There are also income limitations so that a high-income taxpayer will not qualify for the credit, and the vehicle purchase price (MSRP) is also limited to exclude high-end vehicles from qualifying for the credit. But before you leap, you should also know that the credit is non-refundable, meaning it can only offset your actual tax liability and that any excess credit over your tax liability will be lost. There is, however, an exception when the electric vehicle is used partially for business, in which case the portion of the credit allocated to the business use will become a general business credit that is carried back one year and then carried forward.

Qualified Tuition Program (Sec. 529 plans) – These arrangements allow taxpayers to put away large amounts of money, limited only by the projected cost of a college education, which varies from state to state with some plans capped at more than $525,000. The account’s earnings are tax-free if used to pay tuition and certain other college expenses, so the sooner the account is funded, the more it can earn. There are no limits on the number of donors or on age or income. The contributions are subject to the gift tax if the annual contribution exceeds the annual gift tax exclusion amount ($17,000 for 2023; $18,000 for 2024). A special provision allows up to 5 times the usual gift tax exclusion amount to be made to a 529 plan in one year; check with this office for details.

Distributions from a Sec 529 plan are tax free, up to $10,000 per year per designated beneficiary for tuition (no other expenses are allowed) in connection with enrollment or attendance at elementary or secondary schools, including public, private, and religious schools. However, this option should be considered cautiously, as Sec. 529 plans work best when the money put into the plan is allowed to grow for a long period of time.

Qualified Charitable Distribution (QCDs) – Individuals age70½ or over can transfer up to $100,000 annually from their IRAs to qualified charities without the distribution being taxable. So, you might want to consider using QCDs for your smaller contributions. Contact your IRA custodian or trustee to arrange the transfer, which needs to be completed by December 31, 2023, to count for 2023. Since December 31, 2023, falls on a Sunday and is New Year’s Eve, it’s best not to wait until the last minute to initiate the transfer.

A word of caution about QCDs: Congress increased the IRA required minimum distribution (RMD) age to 73 but still allows QCDs once the taxpayer reaches age 70½, and they repealed the age restriction for making traditional IRA contributions beginning in 2020. This means a taxpayer can make traditional IRA contributions and QCDs after reaching age 70½. As a result, Congress included a provision in the tax law requiring a taxpayer who qualifies to make a QCD to reduce the QCD non-taxable portion by any traditional IRA contribution made after reaching 70½ that was deducted, even if the contribution and deduction are not in the same year. This is a complication you would want to consult this office about before making a QCD.

Example – Jack makes a traditional IRA contribution of $7,000 when he is age 71 and another $7,000 contribution at the age of 72. He claims an IRA deduction of $7,000 on his tax return for each year. Then later when he is 74, he makes a QCD in the amount $10,000 to his church’s building fund. Since Jack had made the IRA contributions after age 70½, his QCD must be reduced, by the post-70½ contributions that were deducted, and as a result the $10,000 is taxable ($10,000 – 14,000 = (4,000)). However, he can claim $10,000 to the church building fund as a charitable contribution on Schedule A if he itemizes his deductions.

Donor-Advised Funds (DAFs) – If you would like to make a substantial tax-deductible charitable donation this year but spread the actual distribution of funds to specific charities over a number of years, a donor-advised fund may fill that need. There are any number of reasons individuals choose DAFs, including making a substantial charitable donation in an exceptionally high-income year.

A DAF is a separate fund (account) set up within a public charity to which a donor makes a contribution. The donor then advises the sponsoring organization on how to ultimately distribute the funds from the account as charitable gifts over the course of many years. The fund isn’t required to follow the donor’s requests, but most do.

Tax law allows the sponsoring organization to be independent, community-based, religiously affiliated, or connected with a financial institution. Minimum contributions typically range from $5,000 to $25,000. The sponsoring organization manages the administration of the fund and handles the tax reporting, usually for an annual fee of 1%.

You get to take a tax deduction for your entire donation in the year you contribute the funds or assets to the DAF. In addition, the funds that are not distributed are invested and grow until eventually being disbursed to the charitable organization(s).

Work Equipment – If your spouse is self-employed and you purchase tools or electronics used in your spouse’s business, the costs of gifts qualify as a business tax deduction on the return for the year when the equipment is put into service.

Employee Gifts – It is common practice this time of year for employers to give employees gifts. If the gift is infrequently offered and has a fair market value so low that it is impractical and unreasonable to account for it, the gift’s value would be treated as a de minimis fringe benefit. As such, it would be tax-free to the employee and tax-deductible by the employer.

A gift of cash, regardless of the amount, is considered additional wages and is subject to employment taxes (FICA) and withholding taxes. Caution: If the gift recipient is a W-2 employee, the employer may not issue them a 1099-MISC for a holiday gift of cash; the amount must be treated as W-2 income. If an employer gives gift certificates, debit cards or similar items that are convertible to cash, their value is considered additional wages, regardless of the amount. However, if the gift is a coupon that is nontransferable and convertible only into a turkey, ham, gift basket or the like at a particular establishment, then the gift coupon would not be treated as a cash equivalent.

Monetary Gifts to Individuals – If you have a high net worth, you are no doubt aware that when you pass away, your estate may be subject to federal (and possibly a state) estate tax once the value of your estate exceeds an excludable amount. With the passage of the Tax Cuts and Jobs Act (TCJA), effective in 2018, the estate tax exclusion amount was more than doubled, from $5.49 million in 2017 to $11.18 million in 2018. It has been inflation-adjusted each year since, so the 2023 exclusion amount is $12.92 million ($13,610,000 for 2024).

However, in case you have forgotten, most of the provisions of the TCJA are temporary and expire after 2025, at which time the estate tax exclusion will revert back to the pre-TCJA level adjusted for inflation. Estimating the inflation adjustments, the 2026 exclusion amount would be reduced to approximately $6.75 million. Any amount of your estate more than the exclusion amount will be subject to the estate tax, which currently has a top rate of 40%.

The value of gifts you make to individuals during your lifetime reduces the estate tax exclusion amount available to offset the value of your estate when you pass away. However, the estate tax exclusion is only reduced when the gifts you make during life exceed an annual amount, which is $17,000 for 2023 and $18,000 for 2024. That annual exclusion applies per individual, meaning you can give up to the exclusion amount to as many people as you’d like every year, whether or not they are related to you, without reducing the estate tax exclusion. Unlike gifts to qualified charitable organizations, gifts to individuals are not tax deductible.

In addition to the annual exclusion, a donor may make gifts (with no specific dollar limitation) that are totally excluded from the gift tax in the following circumstances:

• Payments made directly (Sec 529 plans are not direct) to an educational institution for tuition. This includes college and private primary education. It does not include books, supplies or room and board.
• Payments made directly to any person or entity providing medical care for the done.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursement paid to the donee will not qualify. The tuition/medical exclusion is often overlooked, but these expenses can be quite significant. Parents and grandparents interested in estate reduction should strongly consider these gifts.

Of course, depending which political party is in control in Washington, D.C. after the 2024 elections, the lifetime gift and estate tax exclusion could be reduced before 2026, or could be extended or made permanent. Congress would need to agree to lower the exclusion amount or extend the higher amount.

Even though gifting assets while living may reduce your estate’s tax liability, the decision to gift assets while still living is a personal one depending upon your particular circumstances.

Additionally, while the estate tax exclusion could decline after 2025, the IRS has said that the value of gifts made before then (when a higher lifetime gift and estate tax exclusion applied) won’t have to be adjusted for a reduced exemption.

Documentation – To claim a tax deduction for gifts to qualified charitable organizations, you must have substantiation, which must be in your hands by the earlier of the date you file your tax return for the year of the donation or the due date of that return. For cash contributions (gifts paid by cash, check, electronic funds transfer or credit card), you cannot claim a tax deduction, regardless of the amount, unless you have a bank record (canceled check, bank or credit union statement or credit card statement) showing the name of the qualified organization, the contribution date and the amount of the contribution. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution and the amount of the contribution can be substituted for a bank record. For cash contributions of $250 or more and noncash donations, additional requirements not covered in this article apply.

With documentation requirements in mind, here are some words of caution about charitable contributions during the holiday season:

• When you are shopping at a mall and drop cash into the holiday collection kettle, you likely won’t get a receipt for your contribution, and a cash charitable contribution cannot be claimed as a tax deduction without documentation.
• The same goes for buying and giving new, unused toys to holiday toys-for-kids drives, which have become very popular. Tip: Save the purchase receipt for the toys and request verification of the contribution from the sponsoring organization. If the drop point for the toys is unmanned and it is not possible to obtain a contribution verification from the organization, the IRS will allow a deduction of up to $249, provided you document the purchase of your donation.

Timing – Charitable contributions are deductible in the year in which you make them. If you charge a gift to a credit card before the end of the year, it will count for 2023. This is true even if you don’t pay the credit card bill until 2024. In addition, a check will count for 2023 as long as you mail it in 2023.

If you have questions about how any of these suggestions might impact your tax situation, please give this office a call; happy holidays.