Tax Season Recap and Financial Wellness
Thank you for your patience and for trusting FKYG with your taxes. We’ve successfully navigated through the most challenging time of the year together! As the dust settles on another busy tax season, we hope you’ve had a chance to relax and reflect on your financial goals. In this edition of our newsletter, we provide a recap of the recent tax season, highlight key updates from the IRS, and share some valuable financial wellness tips to keep you on track throughout the year.
Post Tax Season Summary
This year’s tax season brought us several important updates and reminders that are essential to note.
One major development was the IRS granting extensions to many taxpayers affected by natural disasters. If you were among those impacted, it’s crucial to be aware of the new deadlines to ensure you file your taxes on time without incurring penalties. Additionally, the expanded Child Tax Credit provided significant relief to many families. It’s important to keep detailed records of any advance payments you received, as these will need to be accurately reported in your tax filings next year.
Another significant aspect was the reporting of Economic Impact Payments. Properly accounting for these payments on your tax return is essential to avoid delays in processing. Many taxpayers faced issues due to inaccuracies in reporting these payments, so double-checking your records against IRS guidelines can save you from future hassles.
Financial Wellness Tips
Achieving financial wellness is a continuous journey that involves careful planning and smart decision-making.
Creating a budget is a fundamental step. By tracking your income and expenses, you can understand where your money is going and identify areas where you can save. This awareness can help you make informed financial decisions and avoid unnecessary spending.
Building an emergency fund is equally important. Aim to save three to six months’ worth of living expenses. This fund will provide a financial cushion in case of unexpected events like job loss or medical emergencies.
Investing wisely is another key component of financial wellness. Diversifying your investments helps manage risk and can lead to better returns over time. Consider consulting with a financial advisor to develop an investment strategy that aligns with your goals and risk tolerance.
Conservation Easement Update
A qualified conservation contribution, or conservation easement, under IRC Sec. 170(h), is a donation of certain rights over real property that permanently restricts its use for conservation purposes. These purposes can include public recreation, scenic preservation, wildlife habitat, or historic preservation. While the landowner retains ownership and control of the real estate, its future use is limited. In return, the owner enjoys significant tax benefits. In recent years, however, IRS has faced continuous challenges in its attempts to curb abusive transactions related to conservation easements. These challenges often cite violations of the Administrative Procedure Act (APA), which governs how federal agencies develop and issue regulations.
There has been multiple court cases surrounding Conservation Easement. The IRS’s “extinguishment regulations” under Reg. 1.170A-14(g)(6)(ii), which prohibits conservation easement if the donor reserves rights to remove property from the easement, has been frequently litigated. In March 2024, the Tax Court ruled in favor of Valley Park Ranch LLC, holding that the IRS’s rule on extinguishment clauses was “procedurally invalid” under the APA. In other cases like Tanyard Farms LLC, IRS faced scrutiny for its discovery process, particularly in how it communicated with individual LLC investors. The court required the IRS to issue revised letters clarifying their adversarial role and the voluntary nature of investor cooperation.
In November 2023, the IRS issued proposed regulations aimed at tightening conservation easement rules. These include a disallowance rule preventing taxpayers from claiming deductions exceeding 2.5 times their basis in the partnership or S corporation making the contribution. There are exceptions to this rule, but they come with stringent conditions. The proposed regulations have raised concerns due to their complexity, which may deter taxpayers from attempting such contributions. Critics argue that the IRS might be intentionally complicating the rules to discourage these transactions.
The invalidation of the extinguishment regulations might lead to less strict standards for future conservation easement deductions, but it also introduces uncertainty. The IRS may revise existing regulations or introduce new guidelines, so we might expect scrutiny of all regulations for APA compliance. As developments unfold, we should stay informed and prepared for potential changes.
Upcoming Important Tax Deadlines
- June 15: This is the deadline for making your second estimated tax payment for the year. Ensure you’ve calculated your taxes accurately to avoid any penalties.
- July 31: If you have an employee benefit plan, this is the deadline for filing Form 5500. Make sure all necessary documentation is prepared and submitted on time.
We’re Here to Help!
If you have any questions or need assistance with your financial planning, please don’t hesitate to contact our office. Our team is dedicated to helping you achieve your financial goals.
Thank you again for trusting us with your tax and financial needs.
