2025 Practice Update - Welcome Vanessa!

Please join me in wishing a fond farewell and heartfelt gratitude to Brittney Davis, our long-serving and highly dedicated Director of Customer Relations and my extremely talented Executive Assistant. Brittney is off to explore new opportunities and we wish her immense success for her future. Brittney’s impact to our firm is immeasurable, and we are grateful for all the time, attention, and effort she has put into growing our practice and supporting our clients these several years.

We are pleased to welcome Vanessa Hendrick to our firm. I’ve known Vanessa for many years and value her integrity, professionalism, and dedication to excellence.

Thanks to Brittney’s fine attention to detail and immense care for our clients, Vanessa and Brittney have had a highly productive transition period and we are all in good hands. Please join me in welcoming Vanessa to The Mattox Group!

Very respectfully,

-J

2025 Tax Season Newsletter

Another year closes, and quite a year it has been. In July, we moved to our new offices at the Abrego Business Building, just around the corner from our old space in downtown Monterey. This year, we added a new service for our clients, joining the National Association of Registered Social Security Analysts brings powerful new software tools and in-depth insights into planning for social security benefits and the tax implications thereof. Further, we’ve expanded our experiments with the ever-growing artificial intelligence models, partnering with Blue J to bring a truly groundbreaking tax research tool into our firm. While we have many thoughts on AI tools, and the potential futures they herald, it is undeniable they are powerful, and we must proactively utilize their abilities to support outstanding outcomes for our clients.

In our community, J has joined the Board of Directors for the Ventana Wildlife Society, a notable regional conservation organization dedicated to California Condor recovery. It has been an eye-opening experience as VWS utilizes the power of satellite imagery, AI tracking tools, and good old-fashioned boots on the ground outreach to support our California ranchers in sustaining their livelihoods and ensuring the survival of nature’s greatest arial vacuum sweeper, our majestically ugly California Condors. Look for Condor Canyon a new documentary to air next year highlighting the lives of several of our local birds.

On the Homefront, J’s kiddos are now in 2nd and 6th grade and he and Elisabeth are navigating the trials and tribulations of a pre-teen in middle-school. Of note, school fundraisers, truly the bane of every parent’s existence. Recently, J & Elisabeth supported a fundraiser for their daughter’s upcoming science camp, to the tune of about $100. As a result of the collective efforts, they are “saving” $29 on the cost of the camp. Spent $100, to “save” $29, sounds just like a tax deduction. As we close this year, we urge one and all, don’t spent whole dollars to save 29 cents. Should your business have a need to spend dollars that will in turn generate new dollars, that’s gravy on the biscuit; however, chasing tax deductions for the simple desire to pay less to Uncle Sam – there be madness.

This past year, J had the opportunity to present at several seminars with our trusted colleagues in home lending, trusts and estates, and insurance. J has never shied to stand at a podium and wax poetically on matters of tax, finance, and the importance of good, buttered biscuits. We are grateful for the opportunity to serve in our community, and to meet so many new and interesting friends. Of note, this year brought home the somber fact, we are all on this great blue marble for a finite period, and disaster, tragedy, and loss are an integral part of the abundant lives we each lead. For this reason, we encourage one and all, if you haven’t yet planned for sharing your legacy with your loved ones, make a plan and begin to implement it now. We have several trusted colleagues with whom we are happy to make introductions to assist you in securing the future for you and your family that you most desire.

The election has come and gone, and countless opinions abound on the results. For our purposes, we will now likely see continuity in the tax code for the foreseeable future. Come January 1, 2026, new tax legislation is required at the federal level, or the tax code reverts in large measure to 2016 rules. Our expectation is an extension of the 2017 Tax Cuts and Jobs Act (TCJA) in largely similar form, which we internally refer to as TCJA 2.0. We anticipate a return to 100% bonus depreciation for business assets, and some changes to retirement plans, income tax brackets, itemized deduction limits, and other deductions and credits for businesses. We further expect significant changes to the tax credits for electric vehicles, solar panels, and home battery systems that were increased in the 2022 Inflation Reduction Act. We anticipate a more in-depth view of the potential changes later in 2025 as Congress begins their negotiations. That being said, we would encourage anyone wishing to take advantage of current EV/Solar credits to consider their purchase in 2025, cash flow permitting.

As we kick off our 18th tax season, we wish for fair weather, minimal extensions, and plenty of opportunities to converse with each of you, our treasured clients. 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.

We wish one and all a safe, joyous, and healthy holiday season.

Very respectfully,

Team Mattox

Here are some of the changes and issues you need to know for 2025.

Tax Return Due Dates:

Individuals must file returns by April 15, 2025, for the 2024 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 17, 2025 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, 2025 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, 2025 for calendar year organizations);

W-2s and 1099s must be filed by January 31, 2025, for the 2024 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 15, October 15, and November 17, 2025 respectively for eligible taxpayers.

Know a friend or colleague, who is outstanding like yourself,

and is in need of your Tax Advisor?

Refer us and receive a referral bonus when they sign up!

Cost of Living Increases: Social Security benefits, Veterans Disability Compensation and certain Federal retirees will see a 2.5% increase in 2025, down from 3.2% in 2024. Maximum taxable earnings for Social Security payroll taxes increases to $176,100 in 2025.

Standard Deduction: Increasing at least $400 per taxpayer, the standard deduction in 2025 rises to $30,000 for married couples filing jointly, $15,000 for single filers, and $22,500 for heads of household.

Tax Brackets: While the overall bracket percentages are unchanged, due to inflation adjustments more income will be taxed at lower rates in 2025.

Medical Savings Accounts: For tax year 2025, self-only coverage health plans must have an annual deductible that is not less than $1.650. Maximum out-of-pocket expenses are $8,300. For families the annual deductible minimum is not less than $3,300 and out-of-pocket expenses are capped at $16,600. Health Savings Account (HSA) contributions are capped at $3,400 for self-only plans and $8,550 for family plans. Taxpayers over 55 are allowed an additional $1,000 to those maximums.

Retirement Planning: For 2025, 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 $23,500, or up to $31,000 for taxpayers passing their mid-century mark and a special bonus of up to $34,750 for taxpayers aged 60-63.

SECURE 2.0 Act: For taxpayers retiring in 2025, 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 not later than April 1, 2025.

For those inheriting IRAs in 2025, you will now have 10 years to draw down the balance inherited in full.

SIMPLE and SEP IRA plans now are 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.

We’re especially excited by Solo-401k plans for self-employed business owners with no employees. With a simplified contribution matrix over SIMPLE and SEP IRA plans, these can be highly valuable retirement and tax tools for our clients. Remember, when seeking tax deductions, paying your future self a whole dollar is a savvier strategy than paying someone else.

Please be sure to discuss these provisions with your financial advisors.

Clean Vehicle Credits: Since 2023, taxpayers have three separate tax credits available for the purchase of 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 now, some of these credits can be claimed at the dealership at the time of purchase. Note, with a future omnibus tax bill looming for 2026, these credits may change, or be eliminated, thus we recommend making your new vehicle purchase in 2025, if needed.

Be sure to discuss the tax ramifications with us if you are unsure whether you qualify for a vehicle credit.

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 properly prepare your return and to maximize your capital gain exclusions.

1099s and K-1s: If you received 1099s or K-1s from investments in 2024, we may need to extend your return in case these documents are corrected after the original filing deadline. We are seeing increasing numbers of corrected information returns, which require taxpayers to amend their original tax returns to reflect the corrected amounts. In some cases, the amounts are vastly different and can create additional costs in amending the tax returns and potential penalties and interest levied against the return.

1099-Ks: The filing threshold for 1099-K, scheduled to drop to $600 for 2024, has been postponed until 2025, and will initially phase in at $2,500 annually, and then finally $600 in 2026, barring any future changes. 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 many 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, and may still submit forms even if not required, as they test their new systems.

Be sure to provide a copy of any 1099-Ks you receive, regardless of the income source. Do not ignore the 1099-K as the IRS will expect you to report the income. If the income stated on the 1099-K was not received in exchange for goods and services, then taxpayers may report the amount in a manner that ensures you are not taxed on it.

Home Loans: Interest rates have stabilized 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, 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 that you best 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 is 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, just to chase a quarter.

Gifting Tax Strategy: Leveraging the annual gift limit can be a resourceful way to reduce your taxable income. The annual gifting limit per recipient is $19,000 in 2025. Gifts over this allotted amount are taxable and require the filing of a gift tax return (Form 709). When determining the true gift amount, remember that 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 $13.99 million per taxpayer in 2025, will revert to 2016 levels after December 31, 2025. Additionally, several changes in inherited IRA accounts, and other impacts from SecureAct2.0 make solid estate planning a winning strategy for many taxpayers.

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

For our clients with young children, we encourage creating your first 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. We wish you great and continued success in this new year! Alons y!

Corporate Transparency Act Advisory

Re: Corporate Transparency Act – Immediate Action Required

Greetings Clients and Other Friends:

I’m writing today to alert you of a new federal law, called the “Corporate Transparency Act” (“CTA”), that now requires almost all LLC’s, corporations, limited partnerships, and other closely held entities to report the identities of their significant owners and managers to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) by January 1, 2025. If you have ownership or control of a business entity and you have not already submitted your information, this is not something that can be ignored.

Who Must Report.  Under the CTA, all “reporting companies” are now required to file Beneficial Ownership Information Reports (“BOIRs”) with FinCEN, providing information about the companies and their “beneficial owners” – the humans behind the companies. While certain large (including publicly traded) and tax-exempt companies are exempt, this new law affects virtually all small businesses created by filing a form with the Secretary of State of any state. Even if an entity has only one owner and that entity is ignored for federal income tax purposes (such as a single-member LLC), that entity still must file reports with FinCEN.

If you have 25% or more ownership interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include being an officer, director, manager, or chief financial officer), then you are required to provide your name, birthdate, address, and copy of your government-issued identification (such as your driver's license or passport) to the company to facilitate its report.

If one spouse owns 25% or more of a business, the other spouse may also have a legal interest in the business under community property laws. This means that both spouses may need to be reported as beneficial owners, even if only one is actively involved in the business.

It is the responsibility of the reporting company and its senior officers to identify its beneficial owners[1], and to report those individuals to FinCEN. Each reporting company is required to certify that its report is true, correct, and complete.

 [1] For companies formed on or after January 1, 2024, the reporting company must also identify its “company applicants” – i.e., the individual who directly files the document that creates or registers the company, and, if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. For example, both a legal assistant who submits the registration forms to the Secretary of State as well as his or her supervising attorney would be “company applicants.”

Deadline for Compliance.  For entities that existed prior to January 1, 2024, their initial reports are due by January 1, 2025. For entities created in 2024, their initial reports are due within 90 days from the creation of the entity. For entities created on or after January 1, 2025, the report is due within 30 days. As of now, there are no extensions available. There are stiff civil and criminal penalties for failing to file ($500 per day, up to $10,000, and up to two (2) years in jail).

Penalties.  Both individuals and the reporting company can be held liable for willful violations. This can include not only an individual who files false information with FinCEN, but also anyone who willfully provides the filer with false information to report. Both individuals and the reporting may also be liable for willfully failing to report complete or updated beneficial ownership information; in such circumstances, individuals can be held liable if they either cause the failure or are a senior officer at the company at the time of the failure.

Trust Reporting.  While a trust is not a reporting company, the trustee of the trust can be a beneficial owner of a reporting company if the trust owns 25% or more of the company, or if the trustee has “substantial control” over the company. If multiple trusts own interests in the reporting company, the interests would be aggregated so that if the same trustee is serving as such for each of the ownership trusts, these interests would be aggregated to determine the 25% ownership. To determine if a trustee has “substantial control” over the company, the particular facts and circumstances relating to the trust must be reviewed to “determine whether specific trustees, beneficiaries, grantors, settlors, and other individuals with roles in a particular trust are beneficial owners of a reporting company whose ownership interests are held through that trust.” (FinCEN FAQ D.15.)

In addition to the trustee, the trust’s beneficiaries’ identifying information may also be required. The reporting company must report the identity of any trust beneficiary who:

· is a sole permissible distribute of the trust’s income or principal, whether discretionary or mandatory, including the surviving spouse-beneficiary of a Bypass or Marital (QTIP) Trust; or

· holds a lifetime power of appointment over the trust assets; or

· holds the power to remove and replace the trustee who has substantial control of the reporting company or who has authority to dispose of trust assets.

 If multiple trusts own interests in the reporting company, and the beneficiary of each of those trusts is the same, those interests would be aggregated to determine the 25% ownership of a trust beneficiary.

Other parties to a trust may be “beneficial owners” as well, such as:

· the settlor of a revocable trust;

· the settlor of an irrevocable trust who holds a swap power;

· a trust protector who holds the power to remove and replace a trustee with substantial control over the reporting company;

· a trust director who holds the power to direct distribution of trust assets; and

· a trust investment advisor who holds the power to dispose of trust assets.

Subsequent Reporting.  There is no annual reporting requirement after the initial report is made. However, if there is any change to the required information about the company or its beneficial owners – even just their address – the reporting company must file an updated report no later than 30 days after the date of the change. These events include:

· Any change to the information reported for the reporting company, such as registering a new business name;

· A change in beneficial owners, such as a new CEO, or a transfer that changes who meets the ownership interested threshold of 25%; and

· Any change to a beneficial owner’s name, address, or unique identifying number previously provided to FinCEN. If a beneficial owner obtained a new driver’s license or other identifying document that includes a name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

What to Do Now.  Given the impending January 1 deadline, if you are an officer, director, manager, chief financial, or other active participant in any privately-owned corporation, partnership, or LLC, you should reach out to the business’ shareholders, partners, or members now to obtain their identifying information – full name, birthdate, address, and copy of their government-issued identification (such as driver’s license or passport) – and submit the BOIR report as soon as possible. Similarly, if you or your spouse own a 25% interest in or exert control over a privately-owned entity, you should contact the business management immediately and provide them with the information they need to submit the report in time for the deadline.

How to Report.  Information about Beneficial Ownership Information reporting is available at FinCEN’s website: https://www.fincen.gov.boi. You can self-report by following the links on that webpage. Within that website is a link to the “Small Entity Compliance Guide”, which can walk you through the reporting requirements. However, if you have any concerns about whether you will be reporting correctly, or need assistance in submitting the report online, you may wish to request assistance from me.

My Role.  I am happy to help in any way I can. However, I will not undertake to prepare the Beneficial Ownership Information Report unless you separately engage me to do so. If you do engage my services for this task, I will not undertake to assemble a list of your privately-held entities for you. Because you may have formed entities years (even decades) ago, I may not have accessible records to identify all such entities. Also, you may have had other advisers form entities of which I am not aware. You may have even formed entities on your own. As a result, I will be relying upon you to provide me with the list of entities and contact information for each entity’s senior manager. From there, once engaged for the task, we will begin the process of determining whether you or someone else will assume responsibility for the reporting.

One Final Comment: The Corporate Transparency Act has been challenged on constitutional grounds by a number of people and organizations. On March 1, 2024, the U.S. District Court for the Northern District of Alabama issued its ruling in National Small Business United v. Yellen, finding in favor of the plaintiffs and prohibiting FinCEN from enforcing the CTA against them (but only them). The government defendants are appealing the district court’s ruling to the U.S. Court of Appeals for the Eleventh Circuit. The appeals process is currently ongoing, with oral arguments heard on September 27, 2024. In addition to the lawsuits challenging the CTA, legislation was recently introduced to repeal the CTA, posing additional uncertainty to the fate of the CTA in the wake of the ruling in National Small Business United.

In the meantime, the FinCEN reporting requirement and failure-to-report penalties remain in place and it is uncertain whether a final ruling on the constitutionality of the CTA, or its repeal, will take place before the January 1, 2025 deadline. For this reason, I nonetheless recommend that you now gather the information and identification documents so you (or we) are ready to submit your report before January 1 of the coming year.

If you think you will need my assistance, please contact me as soon as possible, as I expect that many of my clients will be contacting me as the deadline approaches, and I want to make sure I am able to service everyone’s needs.

If you have any questions, please call.

Very Respectfully,

J. Alan Fagan, CEO

The Mattox Group

2024 Tax Season Newsletter

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.  

Know a friend or colleague, who is outstanding like yourself, and is in need of your Tax Advisor?

Refer us and receive a 10% referral bonus when they sign up!

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

2022 California Relief Payments Not Taxable

Update to our previous post, the Internal Revenue Service has clarified the tax treatment for special payments made by California in 2022 to offset the impact of inflation on gas prices. IRS has determined these payments will not be taxable at the Federal level, conforming to State guidance to treat these payments as non-taxable. This guidance applies to taxpayers in 21 states which received similar payments from their respective states. The full news release from IRS can be read here.