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Gift and Estate Tax Primer

The tax code places limits on the amounts that individuals can gift to others (as money or property) without paying taxes. This is meant to keep an individual from using gifts to avoid the estate tax that is imposed upon the assets owned by the individual at their death. This can be a significant issue for family-operated businesses when the business owner dies; such businesses often must be sold to pay the resulting estate taxes. This is, in large part, why high-net-worth individuals invest in estate planning.

Exclusions – Current tax law provides both an annual gift tax exclusion and a lifetime exclusion from the gift and estate taxes. Because the two taxes are linked, gifts that exceed the annual gift tax exclusion reduce the amount that the giver can later exclude for estate tax purposes. The term exclusion means that the amount specified by law is exempt from the gift or estate tax.

Annual Gift Tax Exclusion – This inflation-adjusted exclusion is $18,000 for 2024 (up from $17,000 for 2023). Thus, an individual can give $18,000 each to an unlimited number of other individuals (not necessarily relatives) without any tax ramifications. When a gift exceeds the $18,000 limit, the individual must file a Form 709 Gift Tax Return. However, unlimited amounts may be transferred between spouses without the need to file such a return – unless the spouse is not a U.S. citizen. Gifts to noncitizen spouses are eligible for an annual gift tax exclusion of up to $185,000 in 2024 (up from $175,000 in 2023).

Example: Jack has four adult children. In 2024, he can give each child $18,000 ($72,000 total) without reducing his lifetime exclusion or having to file a gift tax return. Jack’s spouse can also give $18,000 to each child without reducing either spouse’s lifetime exclusion. If each child is married, then Jack and his wife can each also give $18,000 to each of the children’s spouses (raising the total to $72,000 given to each couple) without reducing their lifetime gift and estate tax exclusions. The gift recipients (termed “donees”) are not required to report the gifts as taxable income and do not even have to declare that they received the gifts on their income tax returns.

If any individual gift exceeds the annual gift tax exclusion, the giver must file a Form 709 Gift Tax Return. However, the giver pays no tax until the total amount of gifts more than the annual exclusion exceeds the amount of the lifetime exclusion. The government uses Form 709 to keep track of how much of the lifetime exclusion an individual has used prior to that person’s death. If the individual exceeds the lifetime exclusion, then the excess is taxed; the current rate is 40%.

All gifts to the same person during a calendar year count toward the annual exclusion. Thus, in the example above, if Jack gave one of his children a check for $18,000 on January 1, any other gifts that Jack makes to that child during the year, including birthday or Christmas gifts, would mean that Jack would have to file a Form 709.

Gifts for Medical Expenses and Tuition – An often-overlooked provision of the tax code allows for nontaxable gifts in addition to the annual gift tax exclusion; these gifts must pay for medical or education expenses. Such gifts can be significant; they include.

  • tuition payments made directly to an educational institution (whether a college or a private primary or secondary school) on the donee’s behalf – but not payments for books or room and board – and
  • payments made directly to any person or entity who provides medical care for the donee.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursements to the donee do not qualify.

Lifetime Exclusion from Gift and Estate Taxes – The gift and estate taxes have been the subject of considerable political bickering over the past few years. Some want to abolish this tax, but there has not been sufficient support in Congress to do that; instead, the lifetime exclusion amount was nearly doubled as of 2018 and has been increased annually due to an inflation-adjustment requirement in the law. In 2024, the lifetime exclusion is $13.61 million per person. By comparison, in 2017 (prior to the tax reform that increased the exemption), the lifetime exclusion was $5.49 million. The lifetime estate tax exclusion and the gift tax exclusion have not always been linked; for example, in 2006, the estate tax exclusion was $2 million, and the gift tax exclusion was $1 million. The tax rates for amounts beyond the exclusion limit have varied from a high of 46% in 2006 to a low of 0% in 2010. The 0% rate only lasted for one year before jumping to 35% for a couple of years and then settling at the current rate of 40%.

This history is important because the exclusions can change significantly at Congress’s whim – particularly based on the party that holds the majority. In fact, absent Congressional action, the exclusion amount is scheduled to return to the 2017 amount, adjusted for inflation, in 2026, estimated to be just over $6 million per person.

Spousal Exclusion Portability – When one member of a married couple passes away, the surviving member receives an unlimited estate tax deduction; thus, no estate tax is levied in this case. However, as a result, the value of the surviving spouse’s estate doubles, and there is no benefit from the deceased spouse’s lifetime unified tax exclusion.  For this reason, the tax code permits the executor of the deceased spouse’s estate (often, the surviving spouse) to transfer any of the deceased person’s unused exclusion to the surviving spouse. Unfortunately, this requires filing a Form 706 Estate Tax Return for the deceased spouse, even if such a return would not otherwise be required. This form is complicated and expensive to prepare, as it requires an inventory with valuations of all the decedent’s assets. As a result, many executors of relatively small estates skip this step. As discussed earlier, the lifetime exclusion can change at the whim of Congress, so failing to take advantage of this exclusion’s portability could have significant tax ramifications.

Qualified Tuition Programs – Any discussion of the gift and estate taxes needs to include a mention of qualified tuition programs (commonly referred to as Sec 529 plans, after the tax code section that authorizes them). These plans are funded with nondeductible contributions, but they provide tax-free accumulation if the funds are used for a child’s postsecondary education (as well as, in many states, up to $10,000 of primary or secondary tuition per year). Contributions to these plans, like any other gift, are subject to the annual gift tax exclusion. Of course, these plans offer tax-free accumulation when distributions are made for eligible education expenses, so it is best to contribute funds as soon as possible.

Under a special provision of the tax code, in a given year, an individual can contribute up to 5 times the annual gift tax exclusion amount to a qualified tuition account and can then treat the contribution as having been made ratably over a five-year period that starts in the calendar year of the contribution. However, the donor then cannot make any further contributions during that five-year period.

Basis of GiftsBasis is the term for the value (usually cost) of an asset; it is used to determine the profit when an asset is sold. The basis of a gift is the same for the donee as it was for the donor, but this amount is not used for gift tax purposes; instead, the fair market value as of the date the gift is made is used.

Example: In 2024, Pete gifts shares of stock to his daughter. Pete purchased the shares for $6,000 (his basis), and they were worth $25,000 in fair market value when he gifted them to his daughter. Their value at the time of the gift is used to determine whether the gift exceeds the annual gift tax exclusion. Because the gift’s value ($25,000) is greater than the $18,000 exclusion, Pete will have to file a Form 709 Gift Tax Return to report the gift; he also must reduce his lifetime exclusion by $7,000 ($25,000 – $18,000). His daughter’s basis is equal to the asset’s original value ($6,000); when she sells the shares, her taxable gain will be the difference between the sale price and $6,000. Thus, Pete has effectively transferred the tax on the stock’s appreciated value to his daughter.

If Pete’s daughter instead inherited the shares upon Pete’s death, her basis would be the fair market value of the stock at that time (let’s say it is $28,000) and if she sold the shares for $28,000, she would have no taxable gain.

This is only an overview of the tax law regarding gifts and estates; please call this office for further details or to get advice for your specific situation.

Maximizing Benefits and Navigating Pitfalls: Understanding the Tax Implications of Inheriting or Receiving a Home as a Gift

A frequent question, and a situation where taxpayers often make tax mistakes, is whether it is better to receive a home as a gift or as an inheritance. It is generally more advantageous tax-wise to inherit a home rather than to receive it as a gift before the owner’s death. This article will explore the various tax aspects related to gifting a home, including gift tax implications, basis considerations for the recipient, and potential capital gains tax implications. Here are the key points that highlight why inheriting a home is often the better option.


First let’s explore the tax ramifications of receiving a home as a gift. Gifting a home to another person is a generous act that can have significant implications for both the giver (the donor) and the recipient (the donee), especially when it comes to taxes. Most gifts of this nature are between parents and children. Understanding the tax consequences of such a gift is crucial for anyone considering this option.

Gift Tax Implications – When a homeowner decides to gift their home to another person (whether or not related), the first tax consideration is the federal gift tax. The Internal Revenue Service (IRS) requires individuals to file a gift tax return if they give a gift exceeding the annual exclusion amount, which is $18,000 per recipient for 2024. This amount is inflation adjusted annually. Where gifts exceed the annual exclusion amount, and a home is very likely to exceed this amount, it will necessitate the filing of a Form 709 gift tax return.

It’s worth mentioning that while a gift tax return may be required, actual gift tax may not be due thanks to the lifetime gift and estate tax exemption. For 2024, this exemption is $13.61 million per individual, meaning a person can gift up to this amount over their lifetime without incurring gift tax. The value of the home will count against this lifetime exemption.

Note: The lifetime exclusion was increased by the Tax Cuts and Jobs Act (TCJA) of 2017, which without Congressional intervention will expire after 2025, and the exclusion will get cut by about half.

Basis Considerations for the Recipient – For tax purposes basis is the amount you subtract from the sales price (net of sales expenses) to determine the taxable profit. The tax basis of the gifted property is a critical concept for the recipient to understand. The basis of the property in the hands of the recipient is the same as it was in the hands of the donor. This is known as “carryover” or “transferred” basis.

For example, if a parent purchases a home for $200,000 and later gifts it to their child when its fair market value (FMV) is $500,000, the child’s basis in the home would still be $200,000, not the FMV at the time of the gift. If during the parent’s time of ownership, the parent had made improvements to the home of $50,000, the parent’s “adjusted basis” at the time of the gift would be $250,000, and that would become the starting basis for the child.

If a property’s fair market value (FMV) at the date of the gift is lower than the donor’s adjusted basis, then the property’s basis for determining a loss is its FMV on that date.  

This carryover basis can have significant implications if the recipient decides to sell the home. The capital gains tax will be calculated based on the difference between the sale price and the recipient’s basis. If the home has appreciated significantly since it was originally purchased by the donor, the recipient could face a substantial capital gains tax bill upon sale.

Home Sale Exclusion – Homeowners who sell their homes may qualify for a $250,000 ($500,000 for married couples if both qualify) home gain exclusion if they owned and used the residence for 2 of the prior 5 years counting back from the sale date. However, when a home is gifted that gain qualification does not automatically pass on to the gift recipient. To qualify for the exclusion the recipient would have to first meet the 2 of the prior 5 years qualifications. Thus, where the donor qualifies for home gain exclusion it may be best taxwise for the donor to sell the home, taking the gain exclusion and gift the cash proceeds net of any tax liability to the donee.


Of course, there may be other issues that influence that decision such as the home being the family home that they want to remain in the family.

Capital Gains Tax Implications – The capital gains tax implications for the recipient of a gifted home are directly tied to the basis of the property and the holding period of the donor. If the recipient sells the home, they will owe capital gains tax on the difference between the sale price and their basis in the home. Given the carryover basis rule, this could result in a significant tax liability if the property has appreciated since the donor originally purchased it. Capital gains are taxed at a more favorable rate if the property has been held for over a year. For gifts the holding period is the sum of the time held by the donor and the donee, sometimes referred to as a tack-on holding period.

Special Considerations – In some cases, a homeowner may transfer the title of their home but retain the right to live in it for their lifetime, establishing a de facto life estate. In such situations, the home’s value is included in the decedent’s estate upon their death, and the beneficiary’s basis would be the FMV at the date of the decedent’s death, potentially offering a step-up in basis and significantly reducing capital gains tax implications, i.e., treated as if they inherited the property.


There are significant differences between receiving a property as a gift or by inheritance.

Basis Adjustment – When you inherit a home, your basis in the property is generally “stepped up” to the fair market value (FMV) of the property at the date of the decedent’s death. However, occasionally this could result in a “step-down” in basis where a property has declined in value. Nevertheless, this day and age, most real estate would have appreciated in value over the time the decedent owned it, and the increase in value will not be subject to capital gains tax if the property is sold shortly after inheriting it.

For example, if a home was purchased for $100,000 and is worth $300,000 at the time of the owner’s death, the inheritor’s basis would be $300,000. If the inheritor sells the home for $300,000, there would be no capital gains tax on the sale.

In addition, the holding period for inherited property is always considered long term, meaning inherited property gain will always be taxed at the more favorable long-term capital gains rates.

Note: The Biden administration’s 2025–2026 budget proposal would curtail the basis step-up for higher income taxpayers.

In contrast, if a property is received as a gift before the owner’s death, the recipient’s basis in the property is the same as the giver’s basis. This means there is no step-up in basis, and the recipient could face significant capital gains tax if the property has appreciated in value, and they decide to sell it.

Using the same facts as in the example just above, if the home was gifted and had a basis of $100,000, and the recipient later sells the home for $300,000, they would potentially face capital gains tax on the $200,000 increase in value.

Depreciation Reset – For inherited property that has been used for business or rental purposes, the accumulated depreciation is reset, allowing the new owner to start depreciation afresh on the inherited portion and since the inherited basis is FMV at the date of the decedent’s death, the prior depreciation is disregarded. This is not the case with gifted property, where the recipient takes over the giver’s depreciation schedule.


Given these points, while each situation is unique and other factors might influence the decision, from a tax perspective, inheriting a property is often more beneficial than receiving it as a gift. However, it’s important to consider the overall estate planning strategy and potential non-tax implications.

Please contact this office for developing a strategy that is suitable for your specific circumstances.




Navigating the R&D Tax Credit Maze: What SMBs Need to Know Amid Legislative Uncertainty

The landscape of tax legislation in the United States has been marked by constant evolution, with changes often reflecting the broader economic and political priorities of the time. One area that has seen significant shifts, and consequent uncertainty, involves the treatment of research and development (R&D) expenses. Historically, businesses could immediately deduct R&D expenses in the year they were incurred, a provision that encouraged innovation and investment in new technologies.

However, the Tax Cuts and Jobs Act (TCJA) of 2017 introduced a significant change that has since cast a shadow of uncertainty over the ability of companies to deduct these expenses: the requirement to amortize R&D expenses over five years, or fifteen years for research conducted outside the U.S., starting from the midpoint of the tax year in which the expenses were paid or incurred.

This shift, effective for tax years beginning after December 31, 2021, represents a departure from previous tax treatment and poses a challenge for businesses engaged in R&D activities. The immediate deduction of R&D expenses was a critical factor in lowering the effective cost of investment in innovation. By spreading the deduction over several years, the TCJA provision increases the short-term tax burden on companies, potentially discouraging investment in R&D activities that are crucial for technological advancement and economic growth.

The Impact of Amortization

The requirement to amortize R&D expenses affects cash flow and financial planning for businesses. Immediate expensing allows companies to reduce their taxable income in the year expenses are incurred, providing a more immediate cash benefit. Amortization, on the other hand, delays this benefit, which could lead to reduced investment in R&D due to tighter cash flow, especially for startups and small businesses that are often more sensitive to cash flow constraints.

Moreover, the change complicates tax planning and increases administrative burdens. Companies must track R&D expenses over the amortization period, adjusting for any changes in their R&D investment strategies. This complexity adds to the cost of compliance and may divert resources away from productive R&D activities.

Legislative Responses and Uncertainty

In response to concerns raised by the business community and tax professionals, bipartisan bills have been introduced in both the House of Representatives and the Senate aiming to repeal the amortization requirement. If enacted, these bills would allow companies to continue fully deducting R&D expenses in the year they are incurred, maintaining the United States’ competitive edge in innovation and technology development.

However, the legislative process is inherently uncertain, and the outcome of these proposals is not guaranteed. The uncertainty surrounding the tax treatment of R&D expenses makes it difficult for businesses to plan their investment strategies. Companies may adopt a more cautious approach to R&D spending, awaiting clearer signals from Congress and the administration on the future of these tax provisions.

Early in 2024, a glimmer of hope emerged with the proposal of the Tax Relief for American Families and Workers Act, aimed at reversing these changes. However, the legislative process has been slow, leaving businesses in a state of limbo. The implications of this uncertainty are profound, influencing the way R&D expenses are reported.

The Potential Outcomes and Their Implications

Should the bill pass retroactively, businesses would once again be able to fully expense U.S.-based R&D costs for the current tax year through 2025. This would delay the requirement to amortize these expenses, providing significant relief.

However, if the bill does not become law, the current requirements under Section 174 will persist, necessitating the amortization of R&D expenditures over the stipulated periods. This could considerably impact your business’s financial planning and tax liabilities.

Alternative R&D Credit for Small Businesses

Amidst this uncertainty, there is a silver lining for small businesses in the form of the Research and Development (R&D) Tax Credit. This credit, aimed at encouraging businesses to invest in research and development, has been made more accessible to small businesses, including startups, through recent legislative changes.

For tax years beginning after December 31, 2015, qualified small businesses can elect to apply a portion of their R&D tax credit against their payroll tax liability, up to a maximum of $250,000 ($500,000 after December 2022). This provision, part of the Protecting Americans from Tax Hikes (PATH) Act, is particularly beneficial for startups and small businesses that may not have a significant income tax liability but still incur substantial payroll expenses.

To qualify, a business must have less than $5 million in gross receipts for the tax year and no gross receipts for any tax year preceding the five-tax-year period ending with the tax year.

This definition opens the door for many startups and small businesses to benefit from the R&D tax credit, supporting their investment in innovation even in the early stages of their development.

The Future

The legislative uncertainty surrounding the ability to deduct R&D expenses or having to amortize them over five years poses a significant challenge for businesses engaged in research and development. The potential shift from immediate expensing to amortization could have far-reaching implications for innovation, cash flow, and tax planning. As Congress considers proposals to repeal the amortization requirement, businesses must navigate this uncertainty, potentially adjusting their investment strategies to account for the changing tax landscape.

For small businesses, the R&D tax credit offers a valuable opportunity to offset some of the costs associated with innovation, providing a critical lifeline amidst broader legislative uncertainty. By allowing small businesses to apply the credit against payroll taxes, the government is reinforcing its commitment to fostering innovation across all sectors of the economy.

As the debate over the treatment of R&D expenses continues, it is clear that the outcome will have significant implications for the future of innovation in the United States.

Businesses, policymakers, and tax professionals alike must stay informed and engaged to ensure that the tax code supports, rather than hinders, investment in the technologies and ideas that will drive economic growth in the years to come.

How We Can Help

As your accounting partners, we understand the complexities and challenges the current legislative environment poses. We are committed to keeping you informed and providing strategic advice tailored to your situation. Whether you’re currently engaged in R&D activities or planning for future innovation, we can help you navigate the tax implications and explore all available options to optimize your financial position.

Our team closely monitors legislative developments and is ready to assist you in evaluating their potential impact on your business. Should the need arise, we can also guide you through filing for an extension or amending your tax returns to take advantage of any changes in the law.

Top Reasons Taxpayers End Up in Court and How to Avoid Them

Tax law is as complex as it is daunting. Each year, countless taxpayers find themselves entangled in disputes that lead to the tax court. Understanding the most litigated tax issues can empower you and your business to navigate the tax maze more effectively, ensuring compliance and avoiding unnecessary disputes with the Internal Revenue Service (IRS).

Here, we delve into the common areas of the tax code that frequently end up in tax court, offering insights and best practices to help you avoid IRS scrutiny. If you find yourself in a dispute with the IRS or another agency, remember that help is just a call away.

The Battlefield of Gross Income Disputes

Gross income, which encompasses unreported or underreported income, is at the top of the list of tax disputes. The IRS is keen to ensure that all income is accurately reported. Discrepancies often arise from misunderstandings about what constitutes taxable income or from simple oversight.

Best Practice: Maintain meticulous records of all income sources and consult with a tax professional to ensure you report all income accurately

The Dreaded Penalties: Filing and Payment Errors

Penalties for failing to file or pay taxes on time are also hotspots for litigation. These penalties can accumulate quickly, turning a small oversight into a significant financial burden.

Best Practice: Mark your calendar with all tax deadlines, and consider setting up electronic payments to ensure timely submissions. If you anticipate a delay, proactively communicate with the IRS to explore options such as payment plans.

The Quagmire of Itemized Deductions

Itemized deductions on Schedule A are another frequent subject of tax court cases. Taxpayers often struggle with understanding which expenses are deductible and the documentation required to support these deductions.

Best Practice: Keep detailed records of all potential deductions and seek guidance on their eligibility. When in doubt, err on the side of caution and consult a tax advisor.

The Sole Proprietorship Conundrum

For business taxpayers, especially sole proprietors, income and expenses reported on Schedule C are scrutinized. The IRS closely examines these to ensure that personal expenses are not being improperly deducted as business expenses.

Best Practice: Separate personal and business finances and record all business-related expenses. Regularly review IRS guidelines on deductible business expenses.

Innocent Spouse Relief: A Complex Escape Hatch

Taxpayers seeking innocent spouse relief navigate one of the more complex areas of tax law. This relief is sought when one spouse believes they should not be held responsible for a tax liability due to the actions of their spouse or ex-spouse.

Best Practice: Understand the eligibility criteria for innocent spouse relief and communicate openly about tax matters with your spouse. Documentation is key, as is timely action if you believe you qualify for this relief.

Steering Clear of Tax Disputes

Navigating the tax landscape requires diligence, knowledge, and proactive leadership. As tax and accounting professionals, we advocate for a leadership approach emphasizing education, meticulous record-keeping, and proactive engagement with tax obligations. Cultivating a culture of compliance within your organization or personal finances can significantly reduce the risk of disputes.

We’re Here to Help

Disputes with the IRS or other agencies can arise despite your best efforts. When they do, having experienced professionals by your side is crucial. Our team is equipped to guide you through the complexities of tax law, ensuring that your rights are protected and working towards a favorable resolution.

If you’re facing a dispute or want to ensure you’re on solid ground with your tax obligations, don’t hesitate to call our office. Our experts are here to provide the support and guidance you need to navigate the tax maze confidently.



How Health Savings Accounts Can Supercharge Your Tax Savings

In the labyrinth of financial planning and tax-saving strategies, Health Savings Accounts (HSAs) emerge as a multifaceted tool that remains underutilized and often misunderstood. An HSA is not just a way to save for medical expenses; it’s also a powerful vehicle for retirement savings, offering unique tax advantages. This article delves into who qualifies for an HSA, the tax benefits it offers, and how it can serve as a supplemental retirement plan.

Qualifying for a Health Savings Account – At the heart of HSA eligibility is enrollment in a high-deductible health plan (HDHP). As of the latest guidelines, for tax year 2024, an HDHP is defined as a plan with a minimum deductible of $1,600 for an individual or $3,200 for family coverage. The plan must also have a maximum limit on the out-of-pocket medical expenses that you must pay for covered expenses, which for 2024 is $8,050 for self only coverage and $16,100 for family coverage. But having an HDHP is just the starting point. To qualify for an HSA, individuals must meet the following criteria:

  • Coverage Under an HDHP: You must be covered under an HDHP on the first day of the month.
  • No Other Health Coverage: You cannot be covered by any other health plan that is not an HDHP, with certain exceptions for specific types of insurance like dental, vision, and long-term care.
  • No Medicare Benefits: You cannot be enrolled in Medicare. This rule applies to periods of retroactive Medicare coverage. So, if you delay applying for Medicare and later your enrollment is backdated, any contributions to your HSA made during the period of retroactive coverage are considered excess, are not tax deductible and subject to penalty, if not withdrawn from the account.
  • Not a Dependent: You cannot be claimed as a dependent on someone else’s tax return.
  • Spouse’s Own Plan: Joint HSAs aren’t allowed; each spouse who is eligible and wants an HSA must open a separate HSA.

These criteria ensure that HSAs are accessible to those who are most likely to face high out-of-pocket medical expenses due to the nature of their health insurance plan, providing a tax-advantaged way to save for these costs.

It should also be noted that unlike IRAs, 401(k)s and other retirement plans, it is not necessary to have earned income to be eligible for an HSA.

Tax Benefits of Health Savings Accounts – HSAs offer an unparalleled triple tax advantage that sets them apart from other savings and investment accounts:

  • Tax-Deductible Contributions: Contributions to an HSA are tax-deductible, reducing your taxable income for the year. This deduction applies whether you itemize deductions or take the standard deduction. Rather than being a tax deduction, HSA contributions made by your employer are just not included in your income.
  • Tax-Free Growth: The funds in an HSA grow tax-free, meaning you don’t pay taxes on interest, dividends, or capital gains within the account.
  • Tax-Free Withdrawals for Qualified Medical Expenses: Withdrawals from an HSA for qualified medical expenses are tax-free. This includes a wide range of costs, from doctor’s visits and prescriptions to dental and vision care, and even some over-the-counter medicine, whether or not prescribed.

The combination of these benefits makes HSAs a powerful tool for managing healthcare costs both now and in the future.

HSAs as a Supplemental Retirement Plan – While HSAs are designed with healthcare savings in mind, their structure makes them an excellent supplement to traditional retirement accounts like IRAs and 401(k)s. Here’s how:

  • No Required Minimum Distributions (RMDs): Unlike traditional retirement accounts, HSAs do not require you to start taking distributions at a certain age. This allows your account to continue growing tax-free indefinitely.
  • Flexibility for Non-Medical Expenses After Age 65: Once you reach age 65, you can make withdrawals for non-medical expenses without facing the 20% penalty that would apply to nonqualified distributions at a younger age, though these withdrawals will be taxed as income. This feature provides flexibility in how you use your HSA funds in retirement.
  • Continued Tax-Free Withdrawals for Medical Expenses: Regardless of age, withdrawals for qualified medical expenses remain tax-free. Considering healthcare costs often increase with age, having an HSA in retirement can provide significant financial relief.

To maximize the benefits of an HSA as a retirement tool, consider paying current medical expenses out-of-pocket if possible, allowing your HSA funds to grow over time. This strategy leverages the tax-free growth of the account, potentially resulting in a substantial nest egg for healthcare costs in retirement or additional income for other expenses.

Establishing and Contributing to an HSA – Opening an HSA is straightforward. Many financial institutions offer HSA accounts, and the process is like opening a checking or savings account. An individual can acquire a Health Savings Account (HSA) through various sources, including:

  • Employers: Many employers offer HSAs as part of their benefits package, especially if they provide high-deductible health plans (HDHPs) to their employees. Enrolling through an employer might also come with the benefit of direct contributions from the employer to the HSA.
  • Banks and Financial Institutions: Many banks, credit unions, and other financial institutions offer HSA accounts. Individuals can open an HSA directly with these institutions, like opening a checking or savings account.
  • Insurance Companies: Some insurance companies that offer HDHPs also offer HSAs or have partnered with financial institutions to offer HSAs to their policyholders.
  • HSA Administrators: There are companies that specialize in administering HSAs. These administrators often provide additional services, such as investment options for HSA funds, online account management, and educational resources about using HSAs effectively.

When choosing where to open an HSA, it’s important to consider factors such as fees, investment options, ease of access to funds (e.g., through debit cards or checks), and customer service.

Once established, you can make contributions up to the annual limit, which for 2024 is $4,150 for individual coverage and $8,300 for family coverage. Individuals aged 55 and older can make an additional catch-up contribution of $1,000.


What Happens If I Later Become Ineligible – If you have an HSA and then later become ineligible to contribute to it—perhaps because you’ve enrolled in Medicare, are no longer covered by a high-deductible health plan (HDHP), or for another reason—several key points come into play regarding the status and use of your HSA:

  • Contributions Stop: Once you are no longer eligible, you cannot make new contributions to the HSA. For example, enrollment in Medicare makes you ineligible to contribute further to an HSA. However, the specific timing of when you must stop contributing can vary based on the reason for ineligibility. If you enroll in Medicare, contributions should stop the month you are enrolled.
  • Funds Remain Available: The funds that are already in your HSA remain available for use. You can continue to use these funds tax-free for qualified medical expenses at any time. This includes expenses like copays, deductibles, and other medical expenses not covered by insurance, but not insurance premiums.
  • Investment Growth: The funds in your HSA can continue to grow tax-free. Many HSAs offer investment options, allowing your account balance to potentially increase through investment earnings.
  • Use for Non-Medical Expenses: As noted previously, if you are 65 or older, you can withdraw funds from your HSA for non-medical expenses without facing the 20% penalty, though such withdrawals will be subject to income tax. This makes the HSA function similarly to a traditional IRA for individuals 65 and older, with the added benefit of tax-free withdrawals for medical expenses.
  • No Required Minimum Distributions (RMDs): Unlike traditional IRAs and 401(k)s, HSAs do not have required minimum distributions (RMDs), so you can leave the funds in your account to grow tax-free for as long as you want.
  • After Death: Upon the death of the HSA owner, the account can be transferred to a surviving spouse tax-free and used as their own HSA. If the beneficiary is not the spouse, but is the beneficiary’s estate, the account value is included in the deceased’s final income tax return, subject to taxes. If any other person is the beneficiary, the fair market value of the HSA becomes taxable to the beneficiary in the year of the HSA owner’s death.

In summary, while you can no longer contribute to an HSA after losing eligibility, the account remains a valuable tool for managing healthcare expenses and can even serve as a supplemental retirement account, especially given its tax advantages.

Health Savings Accounts stand out as a versatile financial tool that can significantly impact your tax planning and retirement preparedness. By understanding who qualifies for an HSA, leveraging its tax benefits, and recognizing its potential as a supplemental retirement plan, individuals can make informed decisions that enhance their financial well-being.

Whether you’re navigating high-deductible health plans or seeking additional avenues for tax-efficient savings, an HSA may be the key to unlocking substantial long-term benefits.

Contact this office for additional information and how an HSA might benefit your circumstances.



































Say Sayonara to Manual Transaction Entry in QuickBooks Online

Ditching manual transaction entry should be your number one priority now that QuickBooks Online streamlines the process of importing transactions from your bank. When you manually input transactions, you open the door to data transposition errors, potentially leading to inaccuracies in customer billing, reports, and taxes. Plus, it’s a time-consuming task that eats into hours you could spend running other aspects of your business.

If you’re still manually entering transactions into your accounting software, consider connecting your online bank accounts to QuickBooks Online. Once your transactions automatically transfer to your QuickBooks Online system, you can easily review their completeness before storing them. Finding and accessing your transactions whenever you need them becomes a breeze.

Here’s a breakdown of how it all works:

Connecting Accounts

To get started, make sure you’ve set up usernames and passwords for any online bank accounts you want to link. In QuickBooks Online, navigate to Bookkeeping > Transactions > Bank transactions. Click “Link account” on the right-hand side.

If your financial institution isn’t listed, enter its name in the search field. Choose the correct option and click “Continue.” Follow any security steps required by your financial institution. Next, select the account type (checking, credit card, etc.) from the drop-down list and follow the on-screen instructions to complete the connection.

Viewing Transactions

Once your bank accounts are connected, you’ll see them listed on the “Bank Transactions” page along with their balances and the number of transactions. Clicking on an account will show its register, along with three labeled bars: “For Review,” “Categorized,” and “Excluded”.

From here, you can view all transactions and filter by date, type, or description.

Individual Transactions

It is easy to review each downloaded transaction. Simply click on a transaction to open its detail box, where you can add or edit details like Vendor/Customer, Category, and Customer (if billable). Ensure accuracy before confirming the transaction.

Connecting your banks in QuickBooks Online is straightforward, but you are not alone if you have any problems. Reach out to us for assistance—we’re here to help ensure your transactions are processed accurately from the start, saving you time and headaches down the road.





Weather the Storm: How Small Businesses Can Thrive in a Tough Economy Flow

The current American economy is characterized by inflation, rising credit card debt, and the looming threat of a recession. As a result, small to medium-sized business owners face many challenges. A recent report indicating a GDP growth of 1.6% in the first quarter of 2024 – well below the expected 2.5% – alongside predictions of a recession by mid-2024, indicates the urgency business owners face to safeguard their finances. This article showcases comprehensive strategies business owners like you can use to navigate challenging economic headwinds, ensuring operations remain stable and cash flow positive.

Understanding the Economic Context

The economic indicators are clear: with credit card delinquency rates rising and retail sales experiencing a downturn, businesses of all kinds are dealing with financial difficulties. Challenges like these often starkly highlight the fact that cast flow management is key in tough economic times. If you’ve been tightening your company’s purse strings, read on.

Critical Strategies for Cash Flow Management

  1. Enhanced Cash Flow Monitoring

Establishing an effective cash flow monitoring system is the first step in safeguarding your business against economic fluctuations. This involves keeping a close eye on cash inflows and outflows, ensuring you always clearly understand your financial position. Accurate cash flow projections can help you anticipate future financial needs and adjust your strategies accordingly.

  1. Operational Efficiency

Operational efficiency is more important than ever in times of economic uncertainty. Reevaluating your business operations to identify areas for improvement can lead to significant cost savings, helping you and your core employees thrive in what could have otherwise been difficult times. This might involve outsourcing non-core activities, reducing part-time staff during slower periods, and renegotiating vendor contracts to secure better terms. Such measures can reduce operational costs without compromising the quality of your products or services.

  1. Leveraging Technology

Technology can be a powerful tool in streamlining business processes and improving efficiency. Modern accounting software, for example, can simplify the task of budgeting and cash flow forecasting, providing a comprehensive view of your financial health. Additionally, artificial intelligence (AI) platforms can help you save hours a day and potentially allow you to reduce staffing needs. Embracing technological advancements can help your business succeed, especially if your competitors are slow to adapt.

  1. Debt Management and Financing Options

In challenging economic times, managing debt and exploring financing options becomes crucial. Refinancing existing high-interest debt can reduce financial burdens while securing lines of credit during financially stable periods can provide a safety net for future downturns. Alternatively, financing options such as invoice factoring can offer immediate cash flow relief, allowing you to access funds tied up in unpaid invoices.

  1. Building a Cash Reserve

A cash reserve can act as a financial buffer, enabling your business to navigate unexpected downturns or seize growth opportunities without straining your cash flow. Balancing growth capital with working capital is challenging but essential for long-term sustainability. A financial planner or tax advisor can help you develop a savings plan that works for your company.

  1. Inventory and Sales Management

Optimizing your inventory and focusing on high-demand products and services can enhance your sales and improve cash flow. Regularly reviewing your inventory to eliminate underperforming items can free up cash and reduce holding costs, allowing you to invest in more profitable areas.

  1. Seeking Professional Advice

As we noted, seeking professional financial advice can be invaluable with the complexity of businesses’ economic challenges today. A financial advisor or accountant can provide personalized guidance tailored to your business’s specific needs and circumstances, helping you confidently navigate these uncertain times and future economic fluctuations.

What’s Ahead

As small to medium-sized business owners grapple with the possibility of a recession, adopting a strategic approach to cash flow management is more critical than ever. By enhancing cash flow monitoring, improving operational efficiency, leveraging technology, managing debt wisely, building a cash reserve, and optimizing inventory and sales, businesses can position themselves for resilience and growth no matter what is happening economically. Remember, the economy will always ebb and flow – all you can control is your preparedness!

Our office is here to support you in these efforts. If you’re facing financial challenges or seeking to enhance your cash efficiency, we invite you to schedule a meeting with us. Together, we can develop a strategic plan to navigate these turbulent economic times and secure the future of your business.






May 2024 Individual Due Dates

May 10 – Report Tips to Employee


If you are an employee who works for tips and received more than $20 in tips during April, you are required to report them to your employer on IRS Form 4070 no later than May 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.


May 31 – Final Due Date for IRA Trustees to Issue Form 5498


Final due date for IRA trustees to issue Form 5498, providing IRA owners with the fair market value (FMV) of their IRA accounts as of December 31, 2023. The FMV of an IRA on the last day of the prior year (Dec 31, 2023) is used to determine the required minimum distribution (RMD) that must be taken from the IRA if you are age 73 or older during 2024.



Weekends & Holidays:


If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.


Disaster Area Extensions


Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:






Reminder: Claims for Recovery Rebate Credit About to Expire

In response to the economic fallout from the COVID-19 pandemic, the U.S. government enacted several measures to provide financial relief to Americans. Among these measures were the Economic Impact Payments (EIPs), also known as stimulus checks. These payments were part of broader legislation aimed at mitigating the financial strain on individuals and families across the country. However, not everyone who was eligible received these payments as expected. To address this, the IRS introduced the Recovery Rebate Credit (RRC), a mechanism allowing individuals to claim on their tax return any stimulus money they were owed but did not receive. With a May 17, 2024, deadline approaching for claiming 2020 refunds, it’s crucial for taxpayers to understand how to claim the 2020 credit if they didn’t previously receive it.

The first round of EIPs, authorized by the CARES Act in March 2020, provided up to $1,200 per eligible individual and $2,400 for married couples filing jointly, with an additional $500 for each qualifying child. A second round of payments, authorized in December 2020, offered $600 per eligible individual, $1,200 for married couples, and $600 for each qualifying child. In 2021, a third round of payments increased the amount to $1,400 per individual, $2,800 for joint filers, and $1,400 per dependent, regardless of age.

The Recovery Rebate Credit was designed for those who did not receive one or both stimulus checks they were entitled to in 2020. This credit is claimed on the 2020 tax return, allowing taxpayers to receive the amount they were owed as part of their tax refund. It’s important to note that the credit is also available for the third round of EIPs, but it is claimed on the 2021 tax return.

The deadline for filing 2020 tax returns was extended to May 17, 2021, providing taxpayers additional time to claim the Recovery Rebate Credit. This extension is critical for those who have yet to receive their full stimulus payment amount, as it offers an opportunity to rectify this and ensure they receive the financial support they were entitled to. In most cases there is a deadline for claiming a 2020 tax refund that expires 3 years after the original extended deadline, which brings it to May 17, 2024.

For those who have yet to claim their Recovery Rebate Credit, taxpayers must fill out their 2020 tax return accurately, paying special attention to line 30 on Forms 1040 and 1040-SR. This line is specifically designated for the Recovery Rebate Credit. Taxpayers should calculate the amount they believe they are owed and include it in their tax return. However, it’s essential to understand that the IRS will review each claim to ensure accuracy. The amount entered on the tax return may be adjusted based on the IRS’s calculations, which consider various factors, including dependency status and income levels.

Several reasons may explain why the amount a taxpayer believes they are owed differs from the IRS’s calculations. These include being claimed as a dependent on someone else’s tax return, calculation errors, changes in the number of qualifying children, and issues with Social Security numbers. Taxpayers should carefully review their situation and consult the IRS’s guidelines to understand how these factors might affect their Recovery Rebate Credit.

For those who find the process of claiming the Recovery Rebate Credit daunting, help is available. The IRS has set up a dedicated page on its website providing detailed information about the credit, eligibility criteria, and how to claim it. Additionally, this office can offer valuable assistance, ensuring that taxpayers accurately claim the credit and receive the full amount they are owed.

The Recovery Rebate Credit received does not count as income when determining eligibility for federal benefits such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Claiming the credit does not affect an individual’s immigration status or their ability to secure a green card or immigration benefits.

Eligibility for the 2020 Recovery Rebate Credit generally requires being a U.S. citizen or U.S. resident alien, not being a dependent of another taxpayer and having a Social Security number issued before the tax return’s due date. Additionally, the 2020 Recovery Rebate Credit can be claimed for someone who passed away in 2020 or later. The credit is intended for lower income individuals and phases out for higher income taxpayers, beginning for unmarried individuals at an income of $75,000, $112,500 for those filing Head of Household and $150,000 for married couples.

The Recovery Rebate Credit represents a critical opportunity for individuals who did not receive their full stimulus payments in 2020 to claim what they are owed. With the May 17, 2024, deadline approaching for 2020 returns claiming a refund, it’s essential for taxpayers to act promptly. By understanding how to claim the credit and seeking assistance if needed, taxpayers can ensure they receive the financial support provided by the government in response to the COVID-19 pandemic.

Proving Noncash Charitable Contributions

Tax legislation passed in late 2017 nearly doubled the standard deduction for years 2018 through 2025, and now about 90% of individuals filing a tax return are taking advantage of the higher standard amount and are not itemizing their deductions. For the 10% of filers still itemizing, one of the most common tax-deductible charitable contributions that can be claimed is the donation of household goods and used clothing to qualified charities.

The major complication of this type of contribution is establishing the dollar value of the item contributed as of the date of the contribution. According to the tax code, this is the fair market value (FMV), which is defined as the value that a willing buyer would pay a willing seller for the item.

FMV is not always easily determined and varies significantly based upon the condition of the item donated. For example, compare the condition of an article of clothing you purchased and only wore once to that of one that has been worn many times. The almost new one certainly will be worth more, but if the hardly worn item had been purchased a few years ago and had become grossly out of style, the more extensively used piece of clothing could be worth more. In either case, the clothing article is still a used item, so its value cannot be anywhere near as high as the original cost. Determining this value is not an exact science. The IRS recognizes this issue and, in some cases, requires the value to be established by a qualified appraiser.


Remember that when establishing FMV, any value you claim can be challenged by the IRS in an audit and that the burden of proof is with you (the taxpayer), not with the IRS. For substantial noncash donations, it might be appropriate for you to visit a local charity’s thrift shop or even a consignment store to get an idea of the FMV of used items. Online research may be another way of determining the value if you can find a comparable item for sale. But be careful when using items being auctioned, since the starting price may not be the same as the final sale price.


The next big issue is documenting your contribution. Many taxpayers believe that the doorknob hanger left by the charity’s pickup driver is sufficient proof of a donation. Unfortunately, that is not the case, as a United States Tax Court case (Kunkel T.C. Memo 2015-71) pointed out. In that case, the court denied the taxpayer’s charitable contributions, which were based solely upon doorknob hangers left by the drivers who picked up the donated items for the charities. The court stated that “these doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.”


The IRS requires the following documentation for noncash contributions based on the total value of the donation:

  • Deductions of Less Than $250 – When claiming a noncash contribution with a value under $250, you must keep a receipt from the charitable organization that shows:
  1. The name of the charitable organization,
  2. The date and location of the charitable contribution, and
  3. A reasonably detailed description of the property.

Note: You are not required to have a receipt if it is impractical to get one (for example, if you left the property at a charity’s unattended drop site).


  • Deductions of At Least $250 But Not More Than $500 – If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you’ll need to keep an acknowledgment of the contribution from the qualified organization. If the deduction includes more than one contribution of $250 or more, either a separate acknowledgment for each donation or a single acknowledgment that shows the total contribution is required. The acknowledgment(s) must be written and must include:
  1. The name of the charitable organization,
  2. The date and location of the charitable contribution,
  3. A reasonably detailed description of any property contributed (but not necessarily its value), and
  4. Whether the qualified organization gave you any goods or services because of the contribution (other than certain token items and membership benefits).

If the charitable organization provided you goods and/or services, the acknowledgement must include a description and a good faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so, and in this case, the acknowledgment does not need to describe or estimate the value of the benefit.


  • Deductions Over $500 But Not Over $5,000 – To claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, you must attach a completed IRS Form 8283 to your income tax return and must have the same acknowledgement and written records that are required for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include:
  1. How you obtained the property (for example, purchase, gift, bequest, inheritance, or exchange),
  2. The approximate date you acquired the property or—if you created, produced, or manufactured the property—the approximate date when the property was substantially completed, and
  3. The cost or other basis, and any adjustments to this basis, for property held for less than 12 months and (if available) the cost or other basis for property held for 12 months or more (this requirement, however, does not apply to publicly traded securities).

If you have a reasonable case for not being able to provide information on either the date the property was obtained or the cost basis of the property, you can attach a statement of explanation to the return.

  • Deductions Over $5,000 – These donations require time-sensitive appraisals by a “qualified appraiser” in addition to other documentation. When contemplating such a donation, please call this office for further guidance about the documentation and forms that will be needed.

Caution: The value of similar items of property that are donated in the same year must be combined when determining what level of documentation is needed. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, privately traded stock, land, and buildings. For example, say you donated $5,300 of used furniture to 3 different charitable organizations during the year (a bedroom set valued at $800, a dining set worth $1,000, and living room furniture worth $3,500). Because the value of the donations of similar property (furniture) exceeds $5,000, you would need to obtain an appraisal of the furniture to satisfy the substantiation requirements—even if you donated the furniture to different organizations and at different times during the year. The IRS has strict rules as to who is considered a qualified appraiser and the timing of when the appraisal is to be done.

To help you document some of these noncash contributions, you can download a fillable Noncash Charitable Contribution Statement. The statement includes an area for the charity’s agent to verify the contribution and a check box denoting whether the qualified organization provided any goods or services because of the contribution. Although not specifically blessed by the IRS, this statement includes everything needed for noncash contributions of up to $500—provided, of course, that you and the charitable organization’s representative accurately complete the form.

Do not include items of de minimis value, such as undergarments and socks, in the deductible amount of your contribution, as they specifically are not allowed.


5 Steps You Should Take Every Time You Open QuickBooks

When it comes to managing your small business finances, establishing a consistent routine is important. This is especially true when using QuickBooks, a powerful accounting software system that can help you stay organized and make informed decisions about your finances daily. Here are five key steps you should take every time you open QuickBooks:

  1. Look at the Income Tracker

Start each QuickBooks session by taking a look at the Income Tracker. Located under the Customers tab, the Income Tracker provides a quick overview of the status of your receivables. With colored bars indicating various transaction types and dollar totals, you can easily monitor unbilled sales orders, unpaid invoices, and overdue payments. Use the options to create invoices, receive payments, and perform batch actions to simplify customer billing and other payments you are owed.

  1. Review Snapshots for Insights

Next, check QuickBooks’ Snapshots feature to gain valuable insights into your company’s financial health. Explore the Company and Payments Snapshots to analyze key metrics and identify trends. Additionally, charts and tables allow you to easily assess business performance over time and proactively address any issues you may not have previously noticed.

  1. Monitor Inventory Levels

If your business involves selling products, monitoring inventory levels should be a major part of your day-to-day workflow. Utilize QuickBooks’ Inventory Stock Status by Item report to track stock levels, set reorder points, and anticipate shortages. By adjusting reorder points as needed in real-time, you can avoid sellouts and ensure seamless operations.

  1. Check Payments to Deposit

Regularly review the Undeposited Funds section in QuickBooks. This will help you identify any payments that need to be deposited. Navigate to the Company tab and select Chart of Accounts to access the Undeposited Funds account. From there, you can easily record deposits and reconcile payments, ensuring that your funds are properly accounted for.

  1. Utilize Bill Tracker for Payables

Finally, it’s important to check QuickBooks’ Bill Tracker each time you open the software. This feature is specifically for managing payables. To access it, navigate to the Vendors tab and select Bill Tracker to view outstanding bills and upcoming payment deadlines. You can avoid late fees and maintain positive relationships with your vendors by staying organized and managing your payables on a regular schedule.


By following these five essential steps each time you open QuickBooks, you can streamline your workflow, stay informed about your financial status, and make smarter decisions for your business. Whether tracking receivables, monitoring inventory, or managing payables, QuickBooks provides the small business accounting tools you need to keep your finances in order and achieve your dreams.