Following the extended conclusion of the last tax season, our first ever experience with IRS providing an 11th hour second filing extension for an entire state, we’re eager to put 2023 behind us and welcome the opportunities and fresh experiences of 2024. We are hopeful that you, our clients, colleagues, friends, and neighbors are all hale and hearty this holiday season. We wish you a peaceful and bountiful new year and are grateful that you choose our team as your trusted tax advisors. 

It’s been an interesting year with important tax changes that may impact you. At the Federal level, we don’t anticipate any significant year-end tax legislation. We are ever optimistic that more comprehensive tax legislation will begin to take shape in 2024 and will share anything relevant as it materializes. Of note, our local congressman, Jimmy Panetta, has an intriguing capital gain exclusion adjustment for homeowners we hope will gain traction in the new year. Further, California is making progress at eliminating taxation of Military Retiree Pay. For these and more, stay tuned in 2024.

Several changes and updates to the tax code that may impact our clients are noted below. Of note, due to the Inflation Reduction Act of 2022, solar installations may be more financially prudent for our clients this year. The federal tax credit was originally expected to drop to 23% this year; however, that has now been restored to 30% of the total allowable installation, including standalone home backup batteries, and the 30% credit has been extended to 2032. Coupled with changes expanding the home energy efficient improvements credit to up to $3,200 annually, making improvements to take your home off-grid and more efficient may now make better financial sense.

The greatest compliment you pay us is the trust you place in us to walk with you each year. We are honored to share in your journey, to celebrate your successes, to regroup from adversity, and to rejoice in new opportunities. Second only to our work with each of you, is the great honor of your introducing us to likeminded folks, individuals, families, and business owners too, that share in your mindset, are driven and intentional in the lives they lead, and value the relationship between the client and their trusted tax advisor. Thank you for your business, thank you for your outstanding referrals, and thank you for continuing to lead impactful and inspiring lives that are transforming the communities in which we live and serve.  

Here are A FEW KEY ITEMS you need to know FOR 2024.

Tax Return Due Dates:

Individuals must file returns by April 15, 2024, for the 2023 tax year;

Partnerships and S-Corporations must file returns by the 15th day of the third month following the close of the taxable year (March 15, 2024 for calendar-year taxpayers);

C-Corporation returns are generally due by the 15th day of the fourth month following the close of the taxable year (April 15, 2024 for calendar-year taxpayers);

Exempt organizations are generally due by the 15th date of the fifth month following the close of the taxable year (May 15, 2024 for calendar year organizations); 

W-2s and 1099s must be filed by January 31, 2024 for the 2023 tax year; and

Barring flood or fire, automatic extensions of time to file must be filed by the original due date of the return, and will extend to September 16, October 15, and November 15, 2024 respectively for eligible taxpayers.  

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Cost of Living Increases:

Standard Deduction: Increasing at least $750 per taxpayer, the standard deduction in 2024 rises to $29,200 for married couples filing jointly, $14,600 for single filers, and $21,900 for heads of household.   

Medical Savings Accounts: For tax year 2024, self-only coverage health plans must have an annual deductible that is not less than $2,800. Maximum out-of-pocket expenses are $5,550. For families, the annual deductible minimum is not less than $5,550 and out-of-pocket expenses are capped at $10,200. 

Retirement Planning: For 2024, eligible taxpayers may contribute up to $7,000 to an IRA, or $8,000 for taxpayers over 50. The 401k/403b/457 plan contribution limit increases to $23,000, or up to $30,500 for taxpayers passing their mid-century mark. Yet another reason, as the incomparable Denzel Washington once opined, to really dig your “feck it 50s”.    CA Pay Transparency: In the new year, states are implementing new laws surrounding job-posting requirements and pay data disclosures.

CALIFORNIA ALERT: Employers with more than 5 employees are now required to provide a retirement savings plan or setup a plan through the State CalSavers plan. In 2025, Federal and State requirements will mandate Automatic Employee Enrollment in any newly established 401k or 403b plans for certain employers. If you are considering offering this benefit in the new year or anticipate growing your team to more than 5 employees, let’s discuss your options. In our experience, offering a retirement saving plan is an incredibly impactful and cost-effective opportunity for increasing morale and retention.

Secure Act 2.0

For taxpayers retiring in 2024, Required Minimum Distributions (RMD) are no longer mandatory for ROTH IRA accounts. RMDs are not required for taxpayers unless they will celebrate 73 years of age in 2024, at which point, their first RMD must be taken on required accounts no later than April 1, 2025.  

For those inheriting IRAs in 2024, you will now have 10 years to draw down the balance inherited in full.   

SIMPLE and SEP IRA plans are now authorized to accept ROTH (after-tax) contributions. Should you be looking to create a new plan or fund an existing plan, let’s chat about the impacts ROTH contribution could make to your tax planning.  

Please be sure to discuss these provisions with your financial advisors. We are always happy to hop on a call with you and your financial advisors to ensure all applicable tax ramifications are clear and that you are able to make the best informed choices for your specific needs.  

Clean Vehicle Credit:

Starting in 2023, taxpayers have three separate tax credits available for clean vehicles - a credit for new vehicles, a credit for previously owned vehicles, and a credit for business vehicles. Each credit contains many rules and limitations, and starting in 2024, some of these credits can be claimed at the dealership at the time of purchase. Be sure to discuss the tax ramifications with us if you are unsure whether you qualify for a vehicle credit.

Additionally, the Clean Vehicle Credit is not eligible for vehicles with a manufacturer's suggested retail price greater than $80,000 for vans, pickup trucks, or SUVs and $50,000 for all other vehicles. More information and a list of eligible vehicles can be found here:

Property Transactions:

Did you sell any real estate this year? Be sure to provide copies of escrow statements, the Closing Disclosure form, and California Form 593, Real Estate Withholding Tax Statement. We need these documents to prepare your return properly and maximize your capital gain exclusions.

1099s, K-1s, and 1099-Ks:

If you received 1099s or K-1s from investments in 2023, we may need to extend your return in the event that these documents are corrected after the original filing deadline. We are seeing an increasing number of corrected information returns, which require taxpayers to amend their original tax returns. In some cases, the corrected amounts are vastly different and can create additional costs in amending the tax returns, potential penalties, and interest levied against the return. 

The filing threshold for 1099-K, scheduled to drop to $600 for 2023, has been delayed until 2024, and will initially phase in at $5,000 annually, down from $20,000. If you receive income through a third-party settlement provider (such as a credit card company or even a mobile phone app like Venmo or Apple Pay, among others), then you may receive a 1099-K for that income even if you haven’t in the past. Many providers were preparing to file forms at the $600 level to test their new systems.   

Be sure to provide a copy of any 1099-Ks you receive, and let’s discuss the source of the income. In the case of mobile phone payment apps, if you designated your account as a business account but receive payments for non-business items, then you may receive a 1099-K for income that should not be taxable to you.

Do not ignore the 1099-K. The IRS will expect you to report the income. If the income was not in exchange for goods and services, then taxpayers may report the 1099-K in a manner that ensures you are not taxed on it. 

HOME OWNERSHIP

Following recent years of relatively “free” money, interest rates are returning to more historical norms. More taxpayers are becoming aware of 2018 changes that capped the Primary Residence Mortgage Interest Deduction at the first $750,000 in home acquisition debt. For many California taxpayers making a home purchase in the past year, this limit may have a significant impact on their taxable income. Deductions simply reduce the amount of income subject to tax, but they don’t directly reduce your taxes.   

When considering the average California homebuying household, their combined effective income tax rate is generally less than 25%. This means for every $1 paid to a mortgage lender, the taxpayer is only saving $0.25 in taxes. Further, for homes that exceed the $750,000 limit, the mortgage interest above that threshold makes no impact on your taxes. So, remember, buying a home isn’t a “tax strategy”; it’s an investment in the lifestyle you want for your family. It’s about you, first and always.  

We’re huge fans of home ownership. We believe every person should have a safe, comfortable, and secure home, and ideally be able to own that home. For a variety of reasons, that opportunity isn’t the best choice, or even an available choice for many. We encourage SMART home ownership: buying a sustainable home in a marketable area that achieves your goals while providing a reasonable return on your investment and which was acquired and maintained in concert with a talented team of professionals that have your objectives in their best interests.  

We’re always willing to walk through your numbers and connect you with our expert home ownership professionals to help support your SMART homebuying opportunity. We’re also always going to tell you when we don’t feel a financial decision is in your best interests, and we’re never going to encourage spending your hard-earned whole dollars to chase a quarter.

Gifting Tax Strategies:

Leveraging the annual gift limit can be a resourceful way to reduce your taxable income. The annual gifting limit per recipient is $18,000 in 2024. Gifts over this allotted amount are taxable and require the filing of a gift tax return (Form 709). Remember that when determining the true gift amount, tuition paid directly to a qualified educational organization and direct medical payments to a medical provider are usually not considered gifts.

Estate Planning:

Under current law, the lifetime maximum estate tax exemption, increasing to $13.61 million in 2024, will revert to 2017 levels after 2025. Additionally, several changes in inherited IRA accounts and other impacts from the Secure Act 2.0 make solid estate planning a winning strategy for many taxpayers.  

We have outstanding colleagues to navigate these matters and are happy to make an introduction when needed.   

For our clients with young children, we encourage creating a estate plan. For well-established clients, considering a Charitable Remainder Trust or a See-Through Trust, along with other strategic planning, may allow larger tax-advantaged distributions to your desired beneficiaries and may even reduce your tax liability today.

As always, never hesitate to reach out with any questions about these, or any other matter.

We appreciate each of you, we’re awed by your stories and the impactful lives you lead, and we wish you great and continued success in this new year! Alons y! 

Team Mattox