Tax Services Archives - Cooper, Travis & Company, PLC

Under the SECURE Act 2.0, signed into law on December 29, 2022, at what age am I now required to begin taking required minimum distributions?

Under the Act, the age when minimum distributions (RMD) are required increased to 73 in 2023 and increases to 75 in 2033. Previously, RMD had to begin at 72.

Additionally, the penalty for failing to take an RMD decreased from 50% to 25% of the RMD amount in 2023. The penalty can further be reduced to 10% for IRA account distributions if the RMDs are corrected promptly.

Are the credits received under the Employee Retention Tax Credit program taxable?

The short answer is yes. The credits are taxable for federal income tax purposes. Under section 2301(e) of the CARES Act, the qualifying payroll and health plan expenses are reduced by the amount of the credit obtained.

The taxability of the ERC funding stands in contrast to the Paycheck Protection Act grant funding received by many businesses. It took a congressional act, but PPP was finally clarified as nontaxable for federal income tax purposes.

Can I still deduct meals and entertainment expenses?

In prior years, businesses could deduct 50% of business meals and entertainment costs on their tax return. However, the TCJA changed this deduction, eliminating the deduction for entertainment expenses, such as tickets to a sporting event, concert, or golf game with a client or customer.

General Rule: The cost of business meals is still deductible at 50%. The cost of entertainment that includes food and drink must have an invoice showing the amount related to food and drink to take the 50% deduction for that portion of the cost. Meals and entertainment expenses provided to the general public as a way of advertising are deductible in full as advertising costs.

What is Section 179 and Bonus Depreciation?

Section 179 Deduction. The Section 179 deduction is an election to recover all or part of the cost of certain qualifying property (new or used, as long as the previously used equipment is new to you). You can elect the Section 179 deduction instead of recovering the cost by taking annual depreciation deductions.

In 2024, the maximum Section 179 deduction for property placed into service was $1,220,000. However, businesses exceeding $3,050,000 of purchases in qualifying equipment are subject to the Section 179 deduction dollar-for-dollar phase-out. Accordingly, the election is eliminated if qualifying purchases exceed $4,050,000.

In 2025, the maximum Section 179 deduction is $1,250,000. The dollar-for-dollar phase-out begins at $3,125,000, and the deduction is eliminated if total purchases exceed $4,050,000.

Bonus Depreciation. Bonus depreciation allows you to elect to expense up to 100% of the cost of certain vehicles and equipment purchased and placed into service in the 2021 tax year. TCJA increased bonus depreciation from 50% to 100% and eliminated the rule that the asset be new. Therefore, bonus depreciation can be taken on new or used purchases (as long as it is new to you and not purchased from a related party, along with other limitations) with a useful life of 20 years or less. The ability to expense 100% of asset purchases goes through December 31, 2022. After that, the deduction decreases to 80% for the 2023 tax year, 60% for 2024, 40% for 2025, and 20% thereafter.

Are there income limitations for the Qualified Business Income Deduction?

As mentioned above, the QBID is a 20% deduction on qualified business income. The 20% deduction is taken on the lesser of the qualified business income or the taxpayer’s taxable income.

Income limitations on the QBID apply to taxpayers whose taxable income is above certain thresholds. For 2024, the threshold amounts are:

$383,900 for married filing jointly;
$191,950 for all other returns

If the taxpayer’s taxable income is above the threshold amounts, the QBID is subject to limitations. Limitations include a reduction in the amount available for the 20% deduction based on W2 wages paid and qualified assets owned.

The QBID is complicated. For further questions on the QBI deduction, please consult one of our tax professionals.

What is the Qualified Business Income Deduction?

The Qualified Business Income Deduction (“QBID”; also known as Section 199A) was enacted with the Tax Cuts and Jobs Act of 2017 and created a deduction for qualified pass-through entities. The QBID was a congressional attempt to mirror the reduced tax rate of 21% afforded C-Corporation under the TCJA to pass-through entities.

The Qualified Business Income Deduction (QBID) is a 20% deduction for qualified business income. Certain income limitations apply and are discussed later.

The deduction is taken at the individual level. It is available for taxpayers with ownership in a pass-through entity such as a sole proprietorship, partnership, or S Corporation.

Partnerships and S Corporations will include the necessary information for the deduction on the taxpayer’s Schedule K-1. Your business must be a qualified trade or business to be eligible for the deduction.

Exceptions under the Act include specified service trades or businesses, which include any trade or business whose principal asset is the reputation or skill of one or more of its owners, such as accounting, law, investment management, financial services, athletics, trading, or dealing in certain assets. Under TCJA, these businesses do not qualify for the deduction if the taxpayer’s income exceeds the income limitations described below.

What is the Net Investment Income Tax?

For individual taxpayers, the net investment income tax is 3.8% on the lesser of:

Your net investment income, or
The excess of your modified adjusted gross income over the following threshold amounts:
- $250,000 for married filing jointly or qualifying widow(er)
- $125,000 for married filing separately
- $200,000 for those filing as single or head of household

Generally, investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading financial instruments or commodities and businesses that are passive activities to the taxpayer.

Will I be subject to the Additional Medicare Tax (0.9%) in 2024?

You are liable for Additional Medicare Tax if your wages, compensation, or self-employment income (together with that of your spouse if filing a joint return) exceeds the threshold amount for your filing status. For those with a filing status of married filing jointly, the threshold amount is $250,000 (married filing separately is $125,000). The threshold is $200,000 for those filing as single, head-of-household, or qualifying widow(er) with a dependent child.

If total wages, compensation, or self-employment income paid to you (including your spouse’s income if filing a joint return) exceeds the applicable threshold amount, then you are subject to the Additional Medicare Tax on that excess. The Additional Medicare Tax rate is 0.9%.

What are self-employment taxes?

Self-employment tax is a social security and medicare tax primarily for self-employed individuals. Self-employed individuals who earn over $400 during the year are subject to self-employment tax. For 2024, income up to $168,600 ($176,100 for 2025) is taxed at a rate of 15.3% (12.4% Social Security tax and 2.9% Medicare tax). For 2024, income over $168,600 ($176,100 for 2025) is taxed at the 2.9% Medicare tax rate. (A 0.9% additional Medicare tax may also apply. See the next question below.) One-half of your self-employment taxes are deductible from your adjusted gross income on your tax return.

Your self-employment tax payments contribute to your coverage under the Social Security system. Social Security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

How much can you contribute annually to an IRA? Are my contributions deductible?

The annual contribution limit for 2024 is $7,000, or $8,000 if you’re 50 or older. Your Roth IRA contributions may also be limited based on your filing status and income.

Traditional IRA contributions may be deductible on your tax return. If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full. ROTH IRA contributions are not deductible.