Unlock Your March Tax Wisdom
As we transition into March, we inevitably run into the good old season of tax preparation. At FKYG, we’re dedicated to empowering you with the knowledge and guidance needed to navigate through tax complexities seamlessly. In this edition of our newsletter, we’re excited to share some invaluable tax tips and insights tailored to optimize your financial strategies. Whether you’re a small business owner, an individual taxpayer, or managing corporate finances, we have expert advice to help you make the most out of this tax season and beyond. Let’s dig in to the latest IRS regulations updates, incoming tax deadlines for fishers & farmers, and a quick tutorial on “Single Partner Partnership” situation!
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Update on Emergency Savings Accounts: A Quick Overview
Effective from 2024 onwards, the SECURE 2.0 Act empowers plan sponsors to amend their retirement plans, including 401(k), 403(b), or governmental 457(b) plans, to incorporate emergency savings accounts for non-highly compensated employees.
Plan sponsors can establish these accounts, offering automatic enrollment up to 3% of salary or allowing participants to contribute voluntarily, with an annual cap of $2,500 (adjusted for inflation). Contributions are made post-tax, with excess amounts routed to a Roth account if available. Participants can withdraw funds monthly for any reason, subject to fees after the fourth withdrawal. Employers matching retirement plan contributions must also match contributions to emergency savings accounts. The IRS’s Notice 2024-22 addresses potential abuse, permitting reasonable anti-abuse measures by plan sponsors. Similarly, the DOL issued FAQs covering automatic enrollment, contribution limits, and permissible investments.
While these accounts offer financial flexibility, they come with significant administrative and fiduciary responsibilities. Some employers may find it simpler to allow penalty-free withdrawals under the SECURE 2.0 Act for immediate needs. Pension-linked emergency savings accounts provide an avenue for employees to access funds without resorting to tapping into retirement savings prematurely. Although optional, they offer valuable benefits for financial planning. If you believe you can benefit from this new act, don’t hesitate to let us know!
IRS Opens Applications for Low Income Taxpayer Clinic Grants
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The IRS is accepting applications until April 10, 2024, for Low Income Taxpayer Clinic (LITC) matching grants. These grants support the development, expansion, or maintenance of LITCs, ensuring fairness in the tax system by offering pro bono representation to low-income taxpayers. Priority is given to established organizations, particularly serving underserved areas. The President’s budget request includes continued funding at $26 million, with a $200,000 per award funding cap. If you have any questions or need assistance regarding this topic, feel free to reach out to us.
March 1st Deadline Alert for Farmers and Fishers
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A friendly nudge to farmers and fishers who skipped estimated payments: March 1, 2024, is your deadline to file your 2023 federal return and settle your taxes – avoid penalties by meeting this cutoff! For those who made estimated tax payments at least 66.67% of their 2023 total tax or 100% of their 2022 total tax by January 16, 2024, you have until April 15, 2024. Note that only those who earned at least two-thirds of their gross income from farming or fishing in 2022 or 2023 are eligible for this extension. Not sure which category you fit in and whether you want to extend? We’re always here to answer your questions.
There's Only One Partner after Partnership Interests Are Sold...
When it comes to selling partnership interests, including those in LLCs classified as partnerships, the tax landscape can get intricate. But what happens when there’s only one partner left after the dust settles? Let’s break it down. After a sale, if there’s only one partner remaining, the partnership is essentially terminated for tax purposes. This triggers some interesting tax consequences for the buyer. For the buyer, a series of “pretend” transactions unfold. They’re treated as if the partnership liquidated its assets and distributed them to the departing partner(s). Then, the buyer purchases these assets from the departing partner(s).
- Consider Jack and Bobbie, each owning half of Garden Designs LLC, a partnership. When Jack sells his half to Bobbie, Garden Designs transforms into a disregarded Single-Member LLC (SMLLC) for tax purposes. Jack reports capital gain on the sale, while Bobbie is treated as acquiring all assets from the liquidation, paying $100,000 for them.
- Now, if a third party like Aaron buys both Jack’s and Bobbie’s interests, the same principles apply. Garden Designs becomes an SMLLC, and Aaron calculates his basis as if he bought the assets from Jack and Bobbie post-liquidation.
In Conclusion, after a partnership interests sale leaves only one owner, there’s a series of “pretend” transactions for the buyer, shaping the tax implications. While it may seem complex, understanding these nuances is crucial for navigating tax obligations effectively. Let us be your compass through the intricacies of this topic. Get in touch for expert guidance tailored to your needs.