Dear Clients and Friends,

As we approach the end of another successful year, it’s the perfect time to reflect on your tax situation for 2024 and start planning for 2025. Now is the moment to tie up any loose ends and implement effective tax-saving strategies to help you avoid surprises come tax season. Given the complexity of tax laws, it’s impossible to cover every detail in a single letter. However, our goal is to highlight key updates and strategies that may have slipped under the radar and offer practical solutions to help reduce your tax liability.

This letter is intended to remind you that tax planning is a process, and successful planning favors the prepared. It is important to weigh the risks and rewards of tax-saving strategies you can make now while maintaining the ability to respond rapidly and effectively.

Also, there is a possibility that congress may pass additional laws that will affect the 2024 taxes. We will do our best to keep you informed of any of these changes as quickly as we are able.

Tyson J. Haws, CPA           tyson@foxpeterson.com

Dason Hatch, CPA             dason@foxpeterson.com

David Hakes, CPA              david@foxpeterson.com

Rachel Hutzler, CPA          rachel@foxpeterson.com

Rick Johnson, CPA             rick@foxpeterson.com

Nathan Wilding                  nathan@foxpeterson.com

Kaitlyn Burk                         kaitlyn@foxpeterson.com

Online Payment Apps – Have you ever paid for lunch and had your friends pay you back using Venmo? Starting this year, you could get a 1099 for all payments through third party payment apps. If it’s not related to a business then it isn’t taxable, but the IRS now requires that we report it on your tax return. Starting in 2024 Venmo, PayPal, Square, Cash App and other online payment apps are required to inform the IRS when you’ve received greater than $5,000 during the year. You will need to distinguish between personal use (reimbursing a friend for lunch) and payments related to goods and services. This information is required to be reported on your 1040. You will receive a form 1099-K from each vendor for this. 

Energy Efficient Home Improvement Credit – Did you put in new doors, windows or insulation this year? Did you know you may qualify for a tax credit for that? Be sure to inform your CPA if you’ve made these renovations to your home.  

SECURE Act 2.0 – This legislation brought a number of changes:

• Increased required minimum distributions (RMDs) age from 72 to 73 starting in 2023, and up to 75 in 2033.
• Failing to take RMDs when required resulted in a 50% penalty under old law, reduced to 25% (or as low as 10% in some cases).
• Emergency expense distributions – distribute up to $1,000 without the 10% early withdrawal penalty.
• In 2025, increases the catch-up contribution limits up to $10,000 for contributions to retirement accounts if you’re over the age of 60.

Electric Vehicle Credit – The IRS updated the limits and rules for which vehicles qualify for the EV credit (up to $7,500). A number of makes and models that had previously hit the IRS’s limit (such as Tesla) now qualify again. Here is a link to the IRS website for requirements to qualify. https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

Employee work related business expenses are still not deductible on the Federal return. If you incur a lot of these types of expenses, you need to discuss the use of an accountable plan with your employer.

IP PIN – If someone filed a fraudulent tax return using your information, the IRS can give you an Identity Protection PIN (IP PIN) to include on your tax return. You receive a new number each year and the tax return cannot be electronically filed without it. The IRS has created a portal where you can opt into the program. The IP PIN portal can be found at https://www.irs.gov/identity-theft-fraud-scams/retrieve-your-ip-pin. We strongly recommend requesting the IP PIN. Once you are in the program, be sure to keep the annual letter from the IRS with your tax files.

View your IRS account online – Did you know that you can log into the IRS website and access your tax records? You can also view your balances, create payment plans, make payments and more. Here is a link to access your account or to create your account. https://www.irs.gov/payments/your-online-account

1. In the current tax era of greatly increased requirements to itemize deductions, a tax “bunching” strategy is absolutely mandatory. The “bunching strategy” recognizes that the best tax deductions are obtained by putting deductions in one year rather than spreading them amongst several years. For example, in years where your charitable contributions are very low, hold off until the next year to catch up, then also pay the full amount of the next year’s contributions in the “catch up” year in order to double your chances of itemizing. Similarly, few Americans receive medical deductions anymore, but if you incur a large expense for say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental and vision exams, check-ups, etc.
2. If you have a Health Savings Account it is also mandatory that you deposit some amount into it, and do not let the balance drop to zero. The tax savings benefits are incredible and this is one of the single best plans available. For tax year 2024, maximum contribution amounts are $4,150 for self-only and $8,300 for families and can be made up to April 15, 2025.
3. Every year we are told “I pay too much in taxes” or “I want some of the tax loopholes that rich people get”. We can answer both statements with one answer. Rich people get no more tax deductions or “loopholes” than anyone else, they just take advantage of what is there to keep their taxes at a low legal level. The single greatest tax “loophole” that they use, which few average people use to its limit is the ability to defer $23,000 into a 401(k) if your employer has one. If your employer has a 401(k) and you are not putting the maximum deferral in it, there is no reason to even think about other tax planning ideas. If your employer does not offer a 401(k), there are other retirement accounts available, such as a traditional IRA. Depending on which type of retirement account you take advantage of, some contributions can be made as late as April 15, 2025.
4. Check into your employer’s handbook to see what employer provided fringe benefits are available. Taxpayers are often surprised at the available benefits, or at our explanation of what some benefits really mean.
5. There have been no major changes to the Estate Tax thresholds. Congress has discussed the idea of lowering the non-taxable limits and could potentially make a change before the end of the year. If any significant changes are made, we will send an updated letter. For 2024, the annual gift tax exclusion amount is $18,000, going up to $19,000 in 2025.

Given the broad nature of tax reform, this letter barely scratches the surface. Financial positions change on an annual basis, and effective tax planning requires a year-round effort. If you wish to discuss the provisions affecting you as well as the available tax strategies that would be appropriate to minimize your tax liability and maximize your tax savings, please give us a call at 480-898-7640 to set up an appointment.

Corporate Transparency Act – In 2021 Congress passed the Corporate Transparency Act aimed at reducing money laundering. It is a small business reporting requirement with potential penalties including prison for committing a felony by not reporting.  If your business is an LLC or corporation, including a single member LLC, you must fill out this form by the end of 2024, and if you start a new business in 2024, you must report within 30 days of formation. Reporting is done with a special electronic filing with the Treasury Department’s Financial Crimes Enforcement Network (Not the IRS). The required information includes owners and, for new businesses formed in 2024, the company applicants. To clarify, even if you have set up an LLC just to own a rental property this form is required, and a separate filing and form is required for every single entity, whether an LLC, an S corporation, or a C Corporation. We are able to complete this form for you, but only with your specific written authorization. Please reach out to your tax preparer if we can assist you in filing.

Initial Reporting: 
• New companies formed after 1/1/2024 within 30 days of formation.
• Existing companies formed before 1/1/2024 by 1/1/2025.

Updates: Within 30 days of change in beneficial ownership, name or address change

Annual reporting: None

Residential Rental Tax Changes – Starting January 1, 2025, residential rental property owners should no longer collect and remit any city transaction privilege tax (TPT) on the income derived from long-term lodging stays of 30 days or more to ADOR.

This applies to licensees that are registered and have filed using business code 045 indicating that license is engaged in the business classification of residential rental. Residential rental is the rental of real property for a period of 30 or more consecutive days for residential (i.e. noncommercial) purposes only. 

Currently, there is no state or county tax imposed on residential rentals, and the upcoming change to the tax law will eliminate the city TPT. While there will no longer be a city TPT obligation beginning January 1, 2025, you must still register the property with the county assessor to comply with landlord tenant laws and other compliance requirements from government entities. Owners can still file for prior periods online even if the license has been canceled or the location has been closed.

For tax periods before January 1, 2025:

• You must still comply with filing and payment requirements, and
• These periods remain subject to audit as allowed by statute.

$10,000 Schedule A State Income Tax Limit & Pass-Through Entity Tax – One of the tax law changes implemented in 2018 was the introduction of the $10,000 cap to how much state tax an individual can deduct on their Schedule A Itemized Deductions. For business owners making enough to hit this cap and lose out on the deduction of paying state tax in excess of $10,000, Arizona and several other states have since created an optional Pass-Through Entity Tax (PTET), which applies to Partnerships, LLCs, S Corps, and other flow-through tax entities. For Arizona, the business owners can elect into PTET and have the entity pay the tax liability at the entity level. This payment is a deductible federal business expense by the entity, reducing its net income. Upon filing their individual return, the business owners report the lower net business income which reduces their federal tax liability. On their Arizona return, they receive a tax credit for the tax that paid at the entity level. Please reach out to your CPA at Fox Peterson to get started with your year-end analysis and see if this elective PTET would be beneficial to your situation.

Mesa General Business License – This applies only to businesses located in Mesa. January 3, 2022 the Mesa City Council approved a new general business license. The purpose for this change is to help enhance the communication they have with business owners and allow information to reach operating businesses in a timely manner. Most businesses will need to apply for a license to do business in Mesa. You can visit their website to view frequently asked questions and complete the process to apply for your business license. A link to their website has been provided. https://www.mesaaz.gov/business/licensing/mesa-general-business-license

NOTE: This newsletter is issued annually to provide you with information about preparing for and minimizing your taxes. Do not apply this general information to your specific situation without additional details. Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that cannot be summarized easily. For details and guidance in applying the tax rules to your individual circumstances, please contact us.