Year: 2024

If you want to start a new business and only have money in your IRA/401K to fund it, then you might be tempted to use a “ROBS” strategy whereby you can use your IRA/401K funds to start the business.  The result of this decision is that your new business is “trapped” in a C Corp inside a 401K “forever”.  This results in the least-efficient form of taxation trapped a vehicle that forever produces income taxed at your highest tax rates for the life of your business.  Please see us before making this decision.  We can show you how to tax-efficiently avoid using this strategy so that you can end up with your business in a more-tax-efficient S Corp where you can take advantage of all of the tax advantages of an S Corporation:  shareholder wage, QBID, PTET, long-term capital gains rates on sale, no double taxation.

The amount you pay for Medicare is based on your income from 2 years ago (for example, your 2024 Medicare premiums are based on your 2022 tax return).  The more income you made in 2022, the more you pay in 2024 as Medicare premiums.  If you find that your income has gone down since filing the 2022 return AND you had a life-changing event (the most common life-changing event is retirement), then you can ask Social Security (who administers the Medicare surcharges) to base your 2024 premiums off of your lower expected current income.  Other common life-changing events are the marriage, divorce, or death of a spouse, a work reduction or stoppage, the loss of pension income, or the non-voluntary loss of an income-producing property.  So, for example, if you sold your business in 2022, which caused you to have large income in 2022, then retire and get a letter from Social Security telling you that you are going to pay more Medicare premiums in 2024, then tell Social Security that you retired and your income will be less in 2024 than it was in 2022 and they will base your 2024 premiums off of your expected 2024 income.

If you filed your tax-return late or owed tax to the IRS past the 4/15 payment deadline, you will be assessed a “Failure to File Penalty” or a “Failure to Pay Penalty”.  These penalties can be up to 25% of your unpaid tax.  The IRS has a first-time abatement program whereby if you have not had a similar penalty in the previous 3 years, they will automatically waive these penalties if you call and ask them.  In order to take advantage of this, prepare the tax return without the penalty, don’t pay the penalty, and wait for the notice from the IRS assessing the penalty and asking you to pay it.  Then call the IRS and see if the penalty can be waived.

The IRS generally wants you to pay your tax liability to them throughout the year and charges you 8% interest if you don’t. If you didn’t pay enough throughout the year and find yourself still owing money to the IRS at the end of the year, consider taking an IRA withdrawal by year-end and withholding all of it. You then can take money from your checking account and contribute that money back to your IRA as a rollover (if done so within 60 days of the withdrawal). Your cash flow will be the same as if you gave the money directly from your checking account to the IRS but by using this two-step process, you will avoid paying 8% interest to the IRS since the IRA withholding is deemed to have been paid equally throughout the year even though it was actually paid at year-end.

An early IRA withdrawal, typically before age 59 & 1/2, is subject to a 10% penalty tax on the taxable portion. There are several exceptions to this penalty. Reach out to your tax advisor with questions.

1. Medical expenses: medical expenses exceeding 7.5% of AGI are exempt
2. Higher Ed expenses: qualified educational expenses can be considered penalty-free withdrawals
3. First-time home purchase: withdrawals up to a $10K lifetime limit are available for home acquisition costs.
4. Substantially equal periodic payments: penalty-free withdrawals require adhering to specific conditions.
5. Disability: withdrawals due to disability are penalty-free under specific conditions
6. Long-term care: beginning in 2025, withdrawals for qualified long-term care are exempt
7. Birth or adoption: withdrawals are possibly penalty-free up to $5K for birth or adoption expenses
8. Emergency expenses: a new provision permits up to $1K annually for emergency expenses
9. Disaster recovery: withdrawals are exempt up to $22K for qualified disaster recovery
10. Military: active-duty reservists can withdraw penalty-free
11. Terminal illness: withdrawals are penalty-free for the terminally ill
12. After-death withdrawals: withdrawals are penalty-free after the death of the account owner
13. Health insurance premiums during unemployment: withdrawals can be penalty-free for health insurance payments made during unemployment.
14. IRS levies: if a withdrawal is to pay an IRS levy against the IRA account, it is exempt from penalties
15. Victim of domestic abuse: withdrawals up to $10K are penalty-free for domestic abuse victims

Indiana offers a credit of 20% of your contributions to a 529 account with a maximum credit of $1,500. If you have a child in college or private K-12, then contribute $7.5K to their Indiana College Choice 529 account, and then turn around and put that money back into your personal checking account. You don’t need to leave the 529 funds in the 529 to get the $1.5K Indiana tax
credit (i.e., save $1.5K of Indiana tax each year you do this). Contributions are now based on
an April 15^th deadline. Meaning you can contribute towards the prior year up until April 15^th of the following year as long as you apply the contribution to the prior year. To ensure you get the credit, you must have an Indiana 529 account. Indiana does cross reference the account contributions with your return and will deny the credit if the account isn’t an Indiana account.

Inherited IRAs are subject to Required Minimum Distributions (RMDs) according to the SECURE Act. Per the SECURE Act, RMDs would be required for each of the first nine years following the decedent’s death with the remaining balance to be withdrawn in the tenth year. However, the IRS will not begin penalizing missed RMDs until 2025 at the earliest. The IRS announced that penalties will not be imposed on taxpayers who fail to take the RMDs on IRAs and Roth IRAs inherited from decedents who passed away after 2019 through year end 2024. While RMDs may not be required for 2024, we recommend that you strategize with your CPA on the best way to distribute funds from these accounts before the end of the tenth year so you don’t end up with a large tax impact in year ten.