Month: August 2024

As we move closer to 2024, various tax proposals are emerging that could significantly impact both individuals and businesses. These plans cover a wide range of topics, from income tax rates and capital gains taxes to corporate tax changes and adjustments to tax credits and deductions.

Here’s a brief overview of some of the key areas being discussed:

• Income Tax Rates: Potential adjustments could bring relief to middle-income households, but may also affect federal revenue.
• Capital Gains Tax: Proposals suggest higher rates for high-income earners, which could influence investment decisions.
• Corporate Taxes: Changes in corporate tax rates are being considered to spur economic growth, though their effectiveness is debated.
• Tax Credits and Deductions: Expansions and revisions, particularly to the Child Tax Credit and the SALT deduction cap, are on the table.
• Estate and Gift Taxes: Modifications to exemption thresholds could impact estate planning.
• International Tax Reforms: Reforms aimed at maintaining U.S. competitiveness in a global economy are also being discussed.

These proposed changes could have wide-reaching effects on financial strategies. To delve deeper into the specifics of these plans and what they might mean for you, check out the full article from the Tax Foundation here.

As these discussions progress, it’s important to stay informed and consult with tax professionals to understand how these potential changes could affect your financial planning in the coming year.

Bowman & Company is thrilled to announce the promotions of Sydney Taylor Cranston and Maribel Galan to managerial roles within the firm. Both Sydney and Maribel have demonstrated exceptional dedication, expertise, and leadership in their respective fields, and we are excited to see them excel in their new positions.

Sydney Taylor Cranston has been promoted to Audit Manager. Sydney joined the firm in 2019 and has quickly become a key member of the Audit Department. She holds a B.S. in Business Administration (Accountancy) from California State University, Sacramento, and is a licensed CPA in California. Sydney’s journey into accounting began with a passion for problem-solving and a continuous drive to learn and grow. Over the years, she has developed expertise in audits, reviews, financial statement preparation, and compliance audits, including single audits. Sydney specializes in working with for-profit entities, non-profit organizations, and affordable housing entities. In her new role, she looks forward to continuing to solve complex challenges and supporting her team with her versatile skill set.

Maribel Galan has been promoted to Tax Manager. She joined the firm in 2019, bringing with her a solid foundation in accounting and taxation. Maribel holds both a Master of Accounting (MAcc) from the University of Southern California and an MS in Taxation from Golden Gate University. She is also a licensed CPA in California. Maribel began her career at Ernst & Young in San Francisco, where she provided audit services to technology companies before discovering her true passion for tax. She is well-regarded for her commitment to high-quality work and her technical expertise in tax law which she leverages to help clients, including family-owned businesses and high-net-worth individuals, to minimize their tax obligations. Maribel’s dedication to continuous learning and her strong work ethic have made her an invaluable member of the tax team. In her new role as Tax Manager, she is excited to continue her professional growth and expand her influence within the firm.

Congratulations to Sydney and Maribel on their well-deserved promotions!

As Boomers and Gen Xers approach retirement, effective financial planning becomes crucial to ensure a comfortable and secure future. This article outlines essential tax and financial planning strategies tailored to the unique needs of individuals nearing retirement. By understanding and implementing these strategies, you can navigate the complexities of retirement planning with confidence.

Understanding Retirement Goals

Before diving into specific strategies, it’s important to clearly define your retirement goals. Imagine Jane, a 58-year-old marketing executive, who dreams of traveling the world and spending more time with her grandchildren. To achieve this, Jane needs to assess her retirement lifestyle expectations and estimate her retirement expenses. This foundational step helps in creating a realistic financial plan that aligns with her aspirations.

Maximizing Retirement Contributions

One of the most effective ways to prepare for retirement is to maximize contributions to retirement accounts. For those over 50, catch-up contributions allow you to contribute more to your 401(k) and IRA, helping to boost your retirement savings. Take the example of Tom, a 52-year-old engineer, who increased his 401(k) contributions by taking advantage of catch-up provisions. This strategic move significantly enhanced his retirement nest egg, providing him with greater financial security.

Tax-Efficient Withdrawal Strategies

Understanding the tax implications of your retirement accounts is essential. Required minimum distributions (RMDs) must be taken from traditional IRAs and 401(k)s starting at age 73 for years 2023 through 2032. Planning your withdrawals strategically can help minimize your tax burden. Consider the benefits of Roth IRAs, which offer tax-free withdrawals. For instance, Sarah, a 65-year-old business owner, diversified her retirement accounts by converting a portion of her traditional IRA to a Roth IRA. This allowed her to manage her tax liabilities more effectively during retirement.

Social Security Optimization

Maximizing Social Security benefits requires careful planning. Delaying benefits until age 70 can result in higher monthly payments. Evaluate your financial situation to determine the optimal time to claim Social Security. John, a 67-year-old teacher, decided to delay his Social Security benefits until age 70. This decision increased his monthly benefits, providing him with a more substantial income stream during retirement.

Healthcare and Long-Term Care Planning

Healthcare costs can be a significant expense in retirement. Ensure you understand Medicare options and consider supplemental insurance to cover additional costs. Planning for long-term care is also crucial, as these expenses can quickly deplete your savings. Mary, a 60-year-old nurse, invested in a long-term care insurance policy. This proactive step ensured that she would have the necessary resources to cover potential long-term care expenses, protecting her retirement savings.

Estate Planning Essentials

Estate planning is not just for the wealthy. Having a will and, if necessary, a trust, ensures your assets are distributed according to your wishes. Be aware of the tax implications of your estate plan to minimize the tax burden on your heirs. Consider the story of Robert, a 62-year-old entrepreneur, who established a trust to manage his estate. This not only provided clarity on asset distribution but also minimized estate taxes, ensuring a smoother transition for his heirs.

Investment Strategies for Retirement

As you approach retirement, your investment strategy should balance risk and return. Diversification and proper asset allocation can help protect your savings while still providing growth potential. Consider shifting to more conservative investments as you near retirement. Lisa, a 59-year-old financial analyst, rebalanced her investment portfolio to include more bonds and dividend-paying stocks. This strategy reduced her exposure to market volatility while still generating a steady income stream.

Managing Debt Before Retirement

Carrying debt into retirement can be risky. Develop a plan to pay down high-interest debt before you retire. Reducing your debt load can improve your financial security and provide peace of mind. Mark, a 55-year-old architect, focused on paying off his mortgage and credit card debt before retiring. This decision significantly reduced his monthly expenses, allowing him to enjoy a more financially stable retirement.

Selling a Company

For those who own a business, selling the company can be a significant part of retirement planning. Properly valuing the business, understanding the tax implications, and planning the sale can ensure you maximize the financial benefits. Consider the example of Susan, a 60-year-old small business owner, who sought professional advice to prepare her company for sale. By optimizing her business operations and understanding the tax consequences, Susan was able to sell her company at a premium, providing her with a substantial retirement fund.

It’s Not Too Late To Plan

Effective tax and financial planning is essential for Boomers and Gen Xers approaching retirement. By understanding your goals, maximizing contributions, planning tax-efficient withdrawals, optimizing Social Security, preparing for healthcare costs, managing debt, and considering the sale of a business, you can ensure a secure and comfortable retirement.

To navigate these complexities and tailor these strategies to your unique situation, seek professional advice from our office. Our experts can help you analyze best practices and develop a personalized financial plan that aligns with your retirement goals.

Contact us today to start planning for a prosperous retirement.

The Employee Retention Credit (ERC) was introduced as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to help businesses keep employees on their payroll during the COVID-19 pandemic. The credit was designed to provide financial relief to businesses that experienced significant declines in revenue or were forced to suspend operations due to government orders. However, the complexity of the ERC and aggressive marketing by some promoters have led to a significant number of erroneous claims being filed.

The IRS has been diligently working to identify and address these improper claims. A recent review has revealed that a substantial portion of the claims submitted show a high risk of being improper. As a result, the IRS has announced new measures to ensure compliance and protect taxpayers.

IRS’s Current Position on ERC Claims – In a recent announcement (IR-2024-169), the IRS outlined its plans to deny tens of thousands of high-risk ERC claims while resuming the processing of low-risk claims. This decision comes after months of digitizing information and analyzing data to assess the validity of over 1 million ERC claims, representing more than $86 billion.

• High-Risk Claims – The IRS has identified that between 10% and 20% of the ERC claims fall into the highest risk category. These claims exhibit clear signs of being erroneous, or even fraudulent in some cases, and fall outside the eligibility guidelines established by Congress. The IRS will be denying these high-risk claims in the coming weeks. This group includes filings with warning signals such as:
  • Claims that significantly deviate from the established eligibility criteria.
  • Claims submitted by businesses that do not meet the revenue decline or suspension of operations requirements.
  • Claims that appear to be inflated or fraudulent.
• Medium-Risk Claims – In addition to the high-risk claims, the IRS estimates that between 60% and 70% of the claims show an unacceptable level of risk. These claims will undergo additional analysis to gather more information and improve the agency’s compliance review. The goal is to speed up the resolution of valid claims while protecting against improper payments. Taxpayers with claims in this category may experience delays as the IRS conducts further investigations.
• Low-Risk Claims – Approximately 10% to 20% of the ERC claims are considered low-risk, showing no eligibility warning signs. The IRS will prioritize the processing of these claims to ensure that eligible taxpayers receive their refunds promptly. Businesses with low-risk claims can expect to see their refunds processed in the coming months, provided there are no additional issues identified during the review.

Generally, the IRS will work on the oldest claims first, but no claims received after September 14, 2023, when the IRS’s moratorium on processing claims began, will be processed at this time. The IRS has emphasized that businesses with pending ERC claims should not call the service’s toll-free numbers as information on the status of the processing of claims isn’t available to the phone assisters.

Availability of a Voluntary Withdrawal Program -The IRS has also introduced a special ERC Withdrawal Program to help businesses that may have submitted improper claims. This program allows taxpayers to withdraw their ERC claims voluntarily, avoiding future compliance issues and potential penalties. The withdrawal process is particularly beneficial for those who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Who should consider withdrawal:

• Businesses with Unprocessed Claims – If your ERC claim has not yet been processed by the IRS, you can use the withdrawal program to request that the IRS not process your claim. This will prevent any future compliance issues and potential penalties.
• Businesses with Uncashed Refund Checks – If you have received an ERC refund check but have not yet cashed or deposited it, you can still withdraw your claim. The IRS will treat the claim as though it was never filed, and no interest or penalties will apply.
• Businesses with Concerns About Claim Validity – If you are concerned about the validity of your ERC claim and believe it may not meet the eligibility criteria, it is advisable to consider the withdrawal program. This will help you avoid potential audits and compliance actions by the IRS.

How to Withdraw an ERC Claim:

To take advantage of the claim withdrawal procedure, follow the special instructions provided by the IRS at IRS.gov/withdrawmyERC. Here is a summary of the steps:

• Consult with Your Payroll Company: If your professional payroll company filed your ERC claim, consult with them. Depending on how the claim was filed, the payroll company may need to submit the withdrawal request on your behalf.
• Submit a Withdrawal Request: If you filed your ERC claim yourself and have not received, cashed, or deposited a refund check, you can fax your withdrawal request to the IRS using a computer or mobile device. The IRS has set up a special fax line to receive these requests, enabling the agency to stop processing before the refund is approved.
• Mail the Withdrawal Request: If you are unable to fax your withdrawal request, you can mail it to the IRS. However, this method will take longer for the IRS to receive and process.
• Respond to Audit Notices: If you have been notified that your ERC claim is under audit, you can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
• Return Uncashed Refund Checks: If you have received a refund check but have not cashed or deposited it, you can still withdraw your claim. Mail the voided check along with your withdrawal request using the instructions provided by the IRS.

The IRS’s recent actions to deny high-risk ERC claims and resume processing low-risk claims are part of a broader effort to ensure compliance and protect taxpayers. Businesses that have submitted ERC claims should carefully review their eligibility and consider the voluntary withdrawal program if they have any concerns about the validity of their claims.

It is strongly advised that all businesses exercise caution and seek professional guidance when dealing with ERC claims. The complexity of the ERC and the aggressive marketing tactics used by some promoters have led to a significant number of improper claims. By taking proactive steps, such as withdrawing questionable claims and ensuring compliance with IRS guidelines, businesses can avoid potential audits, penalties, and other compliance actions.

If you have any questions or need assistance with your ERC claim, please do not hesitate to contact our office. We are here to help you navigate this complex process and ensure that your business remains in compliance with IRS requirements.