Learning Center for Tax and Financial Insights

Article Highlights: Qualified Transportation Fringe Benefits (QTFB) Group Term Life Insurance (GTLI) Accident and Health Benefits Flexible Spending Arrangement Exclusion for Qualified Employee Discounts Dependent Care Assistance Program (DCAP) Adoption Assistance Qualified Educational Assistance Working Condition Educational Assistance Travel Expenses Transportation Expenses Moving Expenses Reimbursements for Use of Employee-Owned Vehicles Employer-Provided Vehicles Awards and Prizes Professional Licenses and Dues The tax code allows employers to provide their employees with a variety of tax-free fringe benefits. Not all employers will offer all, or even some, of the possible fringe benefits. But you should check with your employer to see what, if any, fringe benefits might be available and which ones you might benefit from. A fringe benefit is a form of pay (including property, services, cash, or cash equivalent) in addition to stated pay for the performance of services. Under Internal Revenue Code (IRC) Section 61, all income is taxable unless an exclusion applies. Some forms of additional compensation are specifically designated as “fringe benefits” in the IRC; others, such as moving expenses or awards, are addressed by statutory provisions providing for special tax treatment but are not designated as fringe benefits by the IRC. This article uses the term “fringe benefit” broadly to refer to all remuneration other than stated pay for which special tax treatment is available. Fringe benefits for employees are taxable wages unless specifically excluded by the tax code. Employer contributions to retirement plans are certainly one of the most significant benefits employees may receive, but this is a separate topic and is not discussed in this article. The tax rules related to tax excludable fringe benefits and reimbursements are often complex. This article only provides an overview. Please contact this office for further details. Qualified Transportation Fringe Benefits (QTFB) – These benefits include the cost of: Commuter transportation in a commuter highway vehicle Transit passes Qualified parking Employers may provide an employee with any one or more of these benefits at the same time. To the extent the fair market value (FMV) of these benefits does not exceed monthly excludable limits, adjusted annually for inflation, the benefits are excluded from the employee’s income, i.e. they are tax free for the employee. The 2024 tax free QTFBs are limited to $315 per month (combined for the commuter highway vehicle and transit passes exclusions). The monthly limit was $300 in 2023). Any reimbursement more than the monthly limit would be included as taxable income by the employer. Group Term Life Insurance (GTLI) - The cost of the first $50,000 of GTLI coverage provided by an employer is excluded from an employee’s taxable income. Generally, life insurance isn't group-term life insurance unless it is provided, at some time during the calendar year, to at least 10 full-time employees. The cost of employer-paid group term coverage of more than $50,000 is treated as taxable income and added to the employee’s W-2, with the cost, and taxable amount being based on the IRS table illustrated below. This amount may be higher than the employer is paying for the insurance, which creates phantom income. GROUP TERM LIFE INSURANCE Cost of $1,000 of Protection per Month Age Bracket Cost Age Bracket Cost Under 25 $0.05 50-54 .23 25-29 0.06 55-59 .43 30-34 0.08 60-64 .66 35-39 0.09 65-69 1.27 40-44 0.10 70 Plus 2.06 45-49 0.15 - - For older employees, the after-tax cost of the additional coverage frequently exceeds the cost for an individual term policy. It may be appropriate for certain employees to only utilize the first $50,000 in coverage and acquire an individual policy for any additional needed coverage. Accident and Health Benefits - This income exclusion applies to contributions an employer makes to an accident or health plan for an employee, including the following: Contributions to the cost of accident or health insurance including qualified long-term care insurance. Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Contributions to Archer MSAs or health savings accounts (HSAs). This exclusion also applies to payments the employer directly or indirectly makes to an employee under an accident or health plan for employees that are either of the following. o Payments or reimbursements of medical expenses. o Payments for specific permanent injuries (such as the loss of the use of an arm or leg). The payments must be figured without regard to the period the employee is absent from work. An accident or health plan is an arrangement that provides benefits for employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The plan may be insured or noninsured and doesn't need to be in writing. An employee for this exclusion can be a current common-law employee, a full-time life insurance agent who is a current statutory employee, a retired employee, a former employee the employer maintains coverage for based on the employment relationship, a widow or widower of an individual who died while an employee, or a widow or widower of a retired employee. Flexible Spending Arrangement - Under a written employer plan (sometimes termed a cafeteria plan), the employee may choose to reduce salary and contribute to an account for medical expenses on a pre-tax basis. Maximum contribution for 2024 is $3,200. Amounts in the account may be used to pay for qualifying medical expenses, generally copays, medication and other out of pocket medical expenses. The contributed amount must generally be used in the year of the contribution or the employee forfeits any balance. However, in recent years there has been a grace period of 2½ months after the end of the plan year to spend an inflation-adjusted carryover amount which is $640 for 2024. Exclusion for Qualified Employee Discounts – This exclusion applies to a price reduction an employer gives to an employee on property or services the employer offers to customers in the ordinary course of the line of business in which the employee performs substantial services. It applies whether the property or service is provided at no charge (in which case only part of the discount may be excludable as a qualified employee discount) or at a reduced price. It also applies if the benefit is provided through a partial or total cash rebate. However, there is a limit on the amount of the discount that can be provided to an employee. An employer can generally exclude the value of an employee discount from the employee's wages, up to the following limits: For a discount on services, 20% of the price the employer charges nonemployee customers for the service. For a discount on merchandise or other property, the employer’s gross profit percentage times the price the employer charges nonemployee customers for the property. For the exclusion to apply, the employee must provide substantial services in the line of business of the employer in which the employer offers the property or services in question to non-employee customers. The exclusion does not apply to highly compensated employees if the qualified employee discounts are available on a discriminatory basis. Dependent Care Assistance Program (DCAP) - This exclusion applies to household and dependent care services the employer directly or indirectly pays for or provides to an employee under a written dependent care assistance program (DCAP) that covers only the employer’s employees. The services must be for a qualifying person's care and must be provided to allow the employee to work. These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. For this exclusion, the following individuals are treated as employees: A current employee. A leased employee who has provided services to the employer on a substantially full-time basis for at least a year if the services are performed under the employer’s primary direction or control. The employer if a sole proprietor. A partner who performs services for a partnership. The employer can exclude the value of benefits provided to an employee under a DCAP from the employee's wages provided it is reasonable to believe that the employee can exclude the benefits from gross income. An employee can generally exclude from gross income up to $5,000 ($2,500 if married filing separately) of benefits received under a DCAP each year. However, the exclusion can't be more than the smaller of the earned income of either the employee or employee's spouse. An employer can't exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don't favor highly compensated employees. For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests. The employee was a 5% owner at any time during the year or the preceding year. The employee received more than $155,000 in pay for the preceding year. This test can be ignored if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year. Adoption Assistance - An adoption assistance program is a separate written plan of an employer that meets all the following requirements. It benefits employees who qualify under rules set up by the employer that don't favor highly compensated employees or their dependents. See the dependent care assistance program for a definition of a highly compensated employee. It doesn't pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). The employer gives reasonable notice of the plan to eligible employees. The employee provides reasonable substantiation that payments or reimbursements are for qualifying expenses. The employer must exclude all payments or reimbursements the employer makes under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, the exclusion does not apply to wages subject to social security, Medicare, and FUTA taxes. The maximum exclusion for 2024 is $16,810.

As a small business owner, the word 'audit' can be a source of anxiety. However, understanding the common triggers for an IRS audit and taking proactive steps can significantly reduce the likelihood of facing one. This article explores the factors that could lead to an IRS audit for small and medium-sized businesses (SMBs) and provides practical tips on how to avoid them.Discrepancies in Reported IncomeOne of the most common triggers for an IRS audit is discrepancies in reported income. The IRS cross-references your reported income with the 1099s and W-2s they receive from other businesses and individuals. If there's a mismatch, it could trigger an audit. To avoid this, ensure that your reported income matches the income reported by your clients, customers, and employees.Excessive Deductions While it's perfectly legal to claim legitimate business expenses, excessive or unusual deductions can raise red flags. This includes high deductions for travel, meals, entertainment, and home office expenses. To avoid suspicion, only claim deductions that are necessary and ordinary for your business, and always keep detailed records to substantiate your claims. Large Cash Transactions If your business deals with a lot of cash, you may be more likely to be audited. The IRS requires businesses to report cash transactions over $10,000. Failure to do so can trigger an audit. To stay compliant, make sure to report all large cash transactions and keep meticulous records.

Article Highlights:Estate and Gift TaxPersonal ExemptionsStandard DeductionsHome Mortgage Interest DeductionLimitation on Tax Deductions (SALT)Suspension of Tier 2 Miscellaneous Itemized DeductionsSuspension of the Limitation on Itemized DeductionsIndividual Tax RatesChild Tax CreditSpecial Rule for Certain Discharges of Student LoansEmployer Payments of Student LoansMoving ExpensesBicycle CommutingDischarge of Indebtedness on Principal ResidencePremium Assistance CreditCasualty LossesAchieving a Better Life Experience (ABLE) AccountsPaid Family and Medical Leave CreditNew Markets CreditWork Opportunity CreditBonus DepreciationEmployer De Minimis Meals and Related Eating FacilitiesBack in late 2017 Congress passed the Tax Cuts & Jobs Act of 2017 (TCJA) that made enormous changes to income tax laws as outlined below. However, most of the provisions of TCJA were only temporary changes that will expire after 2025. During the Covid pandemic Congress made other tax law changes that will also soon expire. So far Congress has not addressed these expiring tax provisions. Will they extend them, let them just expire and return to old law, or address them individually with new legislation? With the potential for significant tax changes on the horizon, taxpayers should begin thinking more urgently about their estate and income tax planning.What Congress might do is up in the air, especially with2024being an election year. It is expected these expiring issues will not be addressed until after the elections. However, to give taxpayers a heads up to the TCJA and other legislation provisions expiring after 2025 the following list has been compiled of the more significant expiring provisions compared to pre-TCJA tax law.Estate and Gift Tax – Probably the most significant of expiring provisions is the exemption from estate and gift tax, which was about doubled under TCJA and is $13.61 million for 2024. Under pre-TCJA law the exemption would have been approximately $5.49 million adjusted for inflation in 2024. How Congress deals with the exemption amount will mean significant estate planning issues for the more well to do.Personal Exemptions – Prior to TCJA, taxpayers were allowed an exemption deduction for everyone included in the family. The exemption amount adjusted for inflation is $5,050 for 2024. As an example, if a married couple filing jointly had 2 children dependents and the exemption deduction was allowed for 2024, they would have an income deduction of $20,200 (4 x $5,050). However, TCJA suspended the exemption deduction through 2025. Standard Deduction – Under TCJA the deduction for taxpayers not itemizing their deductions, termed the standard deduction, was approximately doubled from the pre-TCJA amounts. As an example, the 2024 standard deduction for a married couple filing jointly is $29,200. Under pre-TCJA law it would have been approximately $14,950 adjusted for inflation. The higher standard deduction under TCJA has allowed more taxpayers to skip having to itemize their deductions.Home Mortgage Interest Deduction – TCJA limited the itemized deduction for home mortgage interest on a taxpayer’s principal and second homes to the interest on a combined acquisition debt of $750,000 ($375,000 for married individuals filing separately) and eliminated the deduction for interest on $100,000 of equity debt. Since that time, homes have soared in value, and correspondingly the amount of mortgage loans, and interest rates have increased significantly. Pre-TCJA law allowed an interest deduction on up to $1 million of home acquisition debt and $100,000 of equity debt. The real estate market will feel the effects of how the deduction for home mortgage interest is treated after 2025.Limitation on Tax Deductions (SALT) – SALT is the acronym for state and local taxes. Pre-TCJA taxpayers who itemized their deductions were allowed an unlimited deduction on their federal return for property taxes and state and local income tax. TCJA imposed a $10,000 limit on that deduction, which generally impacted higher income taxpayers and those who reside in states with high state income taxes such as CA, NJ, and NY. Many states developed workarounds.Suspension of Tier 2 Miscellaneous Itemized Deductions – Tier 2 miscellaneous itemized deductions are those which are deductible to the extent they exceed 2% of a taxpayer’s income (AGI). TCJA prohibited these expenses from being deducted. They include legal expenses, which, when not deductible, can be a substantial hardship for someone who wins a taxable lawsuit and then must pay taxes on the entire award or settlement without being able to deduct the amount paid for legal services, which in many cases are 40% of the award or settlement. Tier 2 miscellaneous deductions also include employee business expenses, and not being able to deduct these costs can also be a hardship for employees who must supply their tools, uniforms, supplies or have unreimbursed work-required vehicle or other transportation expenses. Also included are investment fees, job-search expenses, home office for employees, and other work-related expenses.Suspension of the Limitation on Itemized Deductions – Pre-TCJA itemized deductions were subject to a phaseout that generally affected higher income taxpayers. That provisionlimited itemized deductions to the lesser of 3% of income (AGI) or 80% of those otherwise allowable deductions for the year.Individual Tax Rates – TCJA not only reduced the top tax bracket for individuals from 39.6% to 37% (this generally only impacts higher income taxpayers), but also reduced the tax rates at almost every level, and adjusted the bracket thresholds.

In the wake of the pandemic, remote work has become the new norm for many American workers. As businesses across a wide range of industries have shifted to a remote model, employees and employers alike have experienced numerous benefits such as reduced overhead costs, increased employee satisfaction, and access to a broader talent pool. However, it has also introduced a complex web of tax implications, particularly for small and medium-sized businesses (SMBs). Understanding these implications is crucial for SMBs to avoid potential penalties and ensure compliance with tax laws. Understanding the concept of a tax nexus is one of the most significant challenges for many business owners. A tax nexus is a specific kind of legal relationship between a taxing jurisdiction, such as a municipality or state, and a business. It is established when a business has a sufficient physical presence in a state, triggering tax obligations. In the context of remote work, an employee working from a different state can create a nexus, making the employer liable for additional state taxes in the state where the employee resides. This can often come as a surprise to many SMBs, who may not be aware of the tax obligations associated with remote work.Employer Federal ResponsibilitiesAs an employer, you should be aware of the following U.S. payroll taxes and your responsibilities when it comes to withholding taxes for all full-time (or W-2) employees. This includes all employees working remotely from another state permanently. Employers must withhold federal income taxes and pay payroll taxes, which consist of:Federal Unemployment Tax (FUTA):This tax is only paid by employers and aims to provide financial support to individuals with temporary job loss.Social Security and Medicare Taxes:These taxes are shared equally between employers and workers and enforced by the Federal Insurance Contribution Act, otherwise known as FICA. FICA assists retirees over 65, children, and those with disabilities in healthcare and hospitalization.Employer State ResponsibilitiesEmployers must withhold state income taxes, where applicable. For example, Washington doesn't have a state income tax but has unique employment taxes and mandatory benefits such as paid family, medical, and sick leave. State-wise, payroll taxes may consist of: State Unemployment Tax (SUTA):This tax is paid by employers in all states except Alaska, New Jersey, and Pennsylvania, where employees are also required to pay. It is meant to provide financial support to individuals with temporary job loss.Disability Fund Tax:This tax is used to fund state programs that provide benefits to workers who become disabled and cannot work.Worker’s Compensation Tax:This tax funds state programs that provide benefits to workers who get injured or become ill due to their jobs.

A ghost preparer is someone who doesn't sign tax returns they prepare and charges a fee for preparing the returns. Unscrupulous ghost preparers often fabricate tax benefits to inflate refunds. This video gives a brief intro on what to watch out for when choosing a tax professional for your filing.

Since we're still in the early weeks of 2024, now is the perfect time to improve your business operations with QuickBooks for a more efficient and prosperous year ahead. QuickBooks Online continues to provide a wide array of bookkeeping and accounting features to simplify financial management tasks, particularly for small business owners. One notable feature is the capability to set up recurring transactions, a powerful tool that can save time and automate certain expenses.Whether you prefer QuickBooks Online or QuickBooks Desktop, integrating recurring transactions into your financial processes can significantly streamline day-to-day operations. Here, we look at the strategies you can use to optimize recurring transactions specifically within the QuickBooks Online system.Mastering Recurring Transactions In QuickBooks OnlineFor businesses with regular monthly expenses (excluding bills), QuickBooks Online's recurring transactions feature can be an incredibly useful tool. By establishing recurring templates for specific costs, business owners can automate processes, ensuring timely payments. This feature is particularly beneficial for businesses with subscription-based revenue models, allowing effortless creation of recurring invoices, thereby saving time and preventing delays in subscriber payments.Creating Recurring TemplatesAccess Your Settings: Log in to your QuickBooks Online account and go to the Settings ⚙ menu.Select Recurring Transactions: In the Settings menu, find and select "Recurring Transactions."Create a New Template: Click on "New" to create a new recurring template.Choose Transaction Type: Select the transaction type you want to make recurring (excluding bill payments and time activities). Click "OK."