Connect with us

Accounting

Financial planning for 2025 brackets and retirement rules

Published

on

Cooling inflation will bring some relief in the form of slightly lower taxes next year.

An average inflationary adjustment of 2.8% under IRS guidance for 2025 released earlier this month came in lower than the 5.4% hike for this year and a boost of more than 7% across the seven federal income brackets in 2023, according to an analysis by the nonpartisan, nonprofit Tax Foundation. 

At the same time, the slower rise in cost-of-living expenses this year led the agency’s subsequent annual announcement of the level of penalty-free limits on contributions to individual retirement accounts to stay the same, at $7,000. 

On the other hand, yearly contribution limits to 401(k), 403(b) and 457 retirement plans, as well as the federal government’s Thrift Savings Plan, will each rise by $500 in 2025 to $23,500 and a shift in the rules from the Secure 2.0 Act will give savers aged 60 to 63 a new “super catch-up” option for the first time.

READ MORE: With Congress slow to act, financial advisors plan ahead on estate taxes

The yearly protection against so-called bracket creep and the numbers involved with more than 60 other tax items put a bookend on “a continual conversation during the course of the year” about the question of “whether there are ways to reduce your income by booking losses” or “trying to take advantage of recognizing some income so you pay a lower amount of tax” for 2024 and 2025, according to Alan Weissberger, the senior tax and estate planning solution specialist with West Conshohocken, Pennsylvania-based Hirtle Callaghan. For financial advisors, tax professionals and their clients, the potential expiration of many provisions of the Tax Cuts and Jobs Act after 2025 is adding another layer to the standard year-end planning

“The actual inflation adjustment is relatively lower compared to what we’ve seen the last couple of years,” Weissberger said in an interview. “All things being equal, any taxpayer with the same amount of income is going to end up paying a little less in taxes.”

Experts often point out the significant differences in tax rates that come down to every single dollar worth of income. Via the Tax Foundation analysis, here’s how the federal tax brackets will look in 2025:

  • 10%: $0 to $11,925 (individuals or married filing separately); $0 to $23,850 (married filing jointly); $0 to $17,000 (heads of households)
  • 12%: $11,925 to $48,475; $23,850 to $96,950; $17,000 to $64,850
  • 22%: $48,475 to $103,350; $96,950 to $206,700; $64,850 to $103,350
  • 24%: $103,350 to $197,300; $206,700 to $394,600; $103,350 to $197,300
  • 32%: $197,300 to $250,525; $394,600 to $501,050; $197,300 to $250,500
  • 35%: $250,525 to $626,350; $501,050 to $751,600; $250,500 to $626,350
  • 37%: $626,350 or more; $751,600 or more; $626,350 or more

In terms of retirement savings, the two Secure Acts have altered many rules around planning. For example, many beneficiaries who have inherited IRAs know that they must begin taking their required minimum distributions in 2025 as part of a 10-year schedule that has replaced the “stretch” strategy after the IRS delayed that obligation for several years in a row.

READ MORE: Final IRS rules to IRA beneficiaries: Get going on those RMDs already

For 2025, the cost-of-living adjustments to retirement contributions did not make any impact on the ceiling on regular IRA contributions and the extra “catch-up” savings available to those 50 or older of $1,000. The “catch-up” contributions for 401(k) and other retirement-plan participants who are aged 50 or above will stay the same at $7,500, too. For those employee-plan participants between the ages of 60 and 63, a new “super catch-up” beginning next year will provide the flexibility to contribute as much as $11,250 on top of their allotted $23,500.

Those decisions could reverberate for decades in a saver’s portfolio, according to a blog earlier this year by financial educator Patrick Villanova for advisor matchmaking and personal finance service SmartAsset. Even though they started with the same value of $256,244 in their 401(k) at age 60, a sample investor named “Sam the Super Saver” racked up over $16,000 in additional savings compared to “Ian the Ignorer” by the time she turned 64 through the extra catch-up contributions. By their 90th birthdays, Sam had more than $23,000 more in portfolio value.

“Those extra dollars can add up over the course of a 25-year retirement and continue to compound along with retirement account investment growth,” Villanova wrote. “However, the potential long-term growth of those enhanced contributions simply may not be enough to entice some pre-retirees to save the extra money between ages 60 and 63.”

Planners and their clients will also be watching closely to see how this week’s election and the current sunset date at the end of 2025 for a lot of the Tax Cuts and Jobs Act affect their estate and income taxes. Absent Congressional action, the minimum value of estates subject to taxes as high as 40% will revert back to half its present level.

READ MORE: 30 tax questions to answer by the end of the year

Ultrahigh net worth families that are part of the base of Hirtle Callaghan’s clients generally fall into one of three categories around the estate tax, Weissberger noted. Some have been updating their plans every year, others shifted slightly in anticipation of potential tax changes during President Joe Biden’s term and the third group includes “some clients who have done absolutely nothing for any estate planning,” he said.

“A lot of clients haven’t done anything, and they’ve been waiting and thinking that this problem is eventually going to solve itself — which doesn’t look like it’s going to happen,” Weissberger said.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Accounting

Tax Fraud Blotter: Partners in crime

Published

on

Captive audience; some disagreement; game of 21; and other highlights of recent tax cases.

Barrington, Illinois: Tax preparer Gary Sandiego has been sentenced to 16 months in prison for preparing and filing false returns for clients. 

He owned and operated the tax prep business G. Sandiego and Associates and for 2014 through 2017 prepared and filed false income tax returns for clients. Instead of relying on information provided by the clients, Sandiego either inflated or entirely fabricated expenses to falsely claim residential energy credits and employment-related expense deductions.

Sandiego, who previously pleaded guilty, caused a tax loss to the IRS of some $4,586,154. 

He was also ordered to serve a year of supervised release and pay $2,910,442 in restitution to the IRS.

Ft. Worth, Texas: A federal district court has entered permanent injunctions against CPA Charles Dombek and The Optimal Financial Group LLC, barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies.

The injunctions also prohibit Dombek from preparing any federal returns for anyone other than himself and Optimal from preparing certain federal returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.

According to the complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a scheme throughout the U.S. to illegally reduce clients’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or improperly claim personal expenses as business deductions. As alleged by the government, Dombek also promoted himself as the “premier dental CPA” in America.

The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed clients’ returns reflecting the sham transactions, expenses and deductions.

The government contended that the total harm to the Treasury could be $10 million or more.

Kansas City, Missouri: Former IRS employee Sandra D. Mondaine, of Grandview, Missouri, has pleaded guilty to preparing returns that illegally claimed more than $200,000 in refunds for clients.

Mondaine previously worked for the IRS as a contact representative before retiring. She admitted that she prepared federal income tax returns for clients that contained false and fraudulent claims; the indictment charged her with helping at least 11 individuals file at least 39 false and fraudulent income tax returns for 2019 through 2021. Mondaine was able to manufacture substantial refunds for her clients that they would not have been entitled to if the returns had been accurately prepared. She charged clients either a fixed dollar amount or a percentage of the refund or both.

The tax loss associated with those false returns is some $237,329, though the parties disagree on the total.

Mondaine must pay restitution to the IRS and consents to a permanent injunction in a separate civil action, under which she will be permanently enjoined from preparing, assisting in, directing or supervising the preparation or filing of federal returns for any person or entity other than herself. She is also subject to up to three years in prison.

jail2-fotolia.jpg

Los Angeles: Long-time lawyer Milton C. Grimes has pleaded guilty to evading more than $4 million in federal taxes over 21 years.

Grimes pleaded guilty to one count of tax evasion relating to his 2014 taxes, admitting that he failed to pay $1,690,922 to the IRS. He did not pay federal income taxes for 23 years — 2002 through 2005, 2007, 2009 through 2011, and 2014 through 2023 — a total of $4,071,215 owed to the IRS. Grimes also admitted he did not file a 2013 federal return.

From at least September 2011, the IRS issued more than 30 levies on his personal bank accounts. From at least May 2014 to April 2020, Grimes evaded payment of the outstanding income tax by not depositing income he earned from his clients into those accounts. Instead, he bought some 238 cashier’s checks totaling $16 million to keep the money out of the reach of the IRS, withdrawing cash from his client trust account, his interest on lawyers’ trust accounts and his law firm’s bank account.

Sentencing is Feb. 11. Grimes faces up to five years in federal prison, though prosecutors have agreed to seek no more than 22 months.

Sacramento, California: Residents Dominic Davis and Sharitia Wright have pleaded guilty to conspiracy to file false claims with the IRS.

Between March 2019 and April 2022, they caused at least nine fraudulent income tax returns to be filed with the IRS claiming more than $2 million in refunds. The returns were filed in the names of Davis, Wright and family members and listed wages that the taxpayers had not earned and often listed the taxpayers’ employer as one of the various LLCs created by Davis, Wright and their family members. Many of the returns also falsely claimed charitable contributions.

Davis prepared and filed the false returns; Wright provided him information and contacted the IRS to check on the status of the refunds claimed.

Davis and Wright agreed to pay restitution. Sentencing is Feb. 3, when each faces up to 10 years in prison and a $250,000 fine.

St. Louis: Tax attorneys Michael Elliott Kohn and Catherine Elizabeth Chollet and insurance agent David Shane Simmons have been sentenced to prison for conspiring to defraud the U.S. and helping clients file false returns based on their promotion and operation of a fraudulent tax shelter.

Kohn was sentenced to seven years in prison and Chollet to four years. Simmons was sentenced to five years in prison.

From 2011 to November 2022, Kohn and Chollet, both of St. Louis, and Simmons, who is based out of Jefferson, North Carolina, promoted, marketed and sold to clients the Gain Elimination Plan, a fraudulent tax scheme. They designed the plan to conceal clients’ income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity. Kohn and Chollet fabricated the fees.

Kohn and Chollet advised clients that the plan’s limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.

Simmons earned more than $2.3 million in commissions for selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons.

Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.

In total, the defendants caused a tax loss to the IRS of more than $22 million.

Each was also ordered to serve three years’ supervised release and to pay $22,515,615 in restitution to the United States.

Continue Reading

Accounting

On the move: KSM hired director of IT operations

Published

on


Hannis T. Bourgeois celebrates 100 years with charitable initiative; KPMG and Moss Adams release surveys; and more news from across the profession.

Continue Reading

Accounting

AICPA wary of new PCAOB firm metrics standard

Published

on

The American Institute of CPAs is still concerned about the Public Company Accounting Oversight Board’s new firm and engagement metrics standard, despite some modifications from the original proposal. 

During a board meeting Thursday, the PCAOB approved two new standards, on firm and engagement metrics, and firm reporting. Both would have significant implications for firms. 

Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. The metrics cover the following eight areas:

  • Partner and manager involvement;
  • Workload;
  • Training hours for audit personnel;
  • Experience of audit personnel;
  • Industry experience;
  • Retention of audit personnel (firm-level only);
  • Allocation of audit hours; and,
  • Restatement history (firm-level only).

The AICPA reacted cautiously to the announcement. “We’re still studying the components of the final firm metrics requirements but, as we stated in our comment letter to the PCAOB this past summer, these rules will place a significant burden on small and midsized audit firms and could lead some to exit public company auditing altogether,” said the AICPA in a statement emailed Friday to Accounting Today. “This is not just conjecture: a majority of respondents (51%) to a recent survey we did of Top 500 firms with audit practices said they would rethink engaging in public company audits if the requirements were approved.”

AICPA building in Durham, N.C.

The PCAOB it made some modifications to the original proposal in  response to the comments had received since April:

  • Reduced the metric areas to eight (from 11);
  • Refined the metrics to simplify and clarify the calculations;
  • Increased the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and,
  • Updated the effective date. (If approved by the SEC, the earliest effective date of the firm-level metrics will be Oct. 1, 2027, with the first reporting as of September 30, 2028, and engagement-level metrics for the audits of companies with fiscal years beginning on or after Oct. 1, 2027.)

The AICPA welcomed those changes but doesn’t think they go far enough. “We’re glad the PCAOB took some comments to heart by extending implementation dates, particularly for smaller firms, and lowering the number of required metrics,” said the AICPA. “But the potential consequences of the remaining requirements — reduced competition and market diversity in the public audit space — are a significant risk. We hope the SEC will give these unintended outcomes the weight they deserve before giving final approval to the requirements.”

The Securities and Exchange Commission would still need to give final approval to the standard, as well as the new firm reporting standard. Last week, the PCAOB decided to pause work on its controversial NOCLAR standard, on noncompliance with laws and regulations, until next year. On Thursday, SEC chairman Gary Gensler announced he would be stepping down in January, which may affect the timing of its approval or disapproval by the SEC. With the incoming Trump administration, the SEC is expected to take a far less aggressive stance on enforcement and regulation. On Friday, the SEC announced that it filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history.

Continue Reading

Trending