2023 Year End Newsletter

As we approach the end of the year, it's crucial to stay informed about recent developments in tax regulations and plan ahead for the upcoming year. In this edition of our tax newsletter, we bring you important updates and key reminders to help you navigate the ever-changing landscape of tax laws.

Our team at Gannon CPA thanks you for your business and wishes you and your family healthy and happy holidays! To a bright 2024!

Massachusetts Governor Maura Healey signed the long-awaited tax reform package on October 4, 2023, introducing several key provisions:

1.  Estate Tax Reform: Introduces a non-refundable credit of $99,600 per estate, effectively eliminating estate taxes for estates valued up to $2 million for deaths occurring after January 1, 2023, thereby eliminating the "cliff tax.
2. Renter’s Deduction: Boosted from $3,000 to $4,000.
3. Senior Circuit Breaker: Doubles the credit from $1,200 to $2,400.
4. Short-term Capital Gain Rate: Reduced from 12% to 8.5%.
5. Millionaires’ Tax Loophole: A new law mandates taxpayers to file a joint Massachusetts return in any year they file a joint Federal return, effective January 1, 2024, closing the loophole created by the 2023 Millionaires’ Tax. This ensures that the 4% surtax on income over $1 million applies per return, eliminating the option for married couples to file separately to avoid it.

The estate tax changes apply to estates created from January 1, 2023. Given that Massachusetts estate tax returns are due nine months from the date of death, personal representatives who may have already filed returns for estates under $2 million this year may need to file for an abatement, pending guidance from the Department of Revenue.

This increase in Massachusetts state personal income taxes was passed in 2022 and is effective as of 1/1/2023. It is assessed on the personal tax return and applies to all income above the threshold. If taxable income exceeds $1,000,000 there is an additional 4% tax on the amounts above the threshold.

For personal residences, there is an exclusion that reduces the gain taxability. For those that are married filing jointly there is an exclusion up to $500,000 and $250,000 if you’re single. Only amounts greater than the threshold would be included in this tax calculation.

We have a plan to mitigate this is and we will explore for all our clients.

With the failure of several companies in the digital currency space; this is a reminder that these items remain unregulated for the most part and remain risky investments.

Digital assets are defined under the U.S. tax code as any digital representation of value that may function as a medium of exchange, a unit of account and/or a store of value.

Digital assets may include virtual currencies such as Bitcoin and Ether, Stablecoins such as Tether and USD Coin (USDC) and non-fungible tokens (NFTs). NFTs being the new "hot item" on the market.

The sale or exchange of any of these assets have tax consequences or at the minimum disclosure on your tax returns. The virtual currencies, the use of such currencies to pay for goods or services or holding such currencies as an investment, generally require some level of reporting on your tax returns. The IRS continues to increase its scrutiny in this area. The IRS has increased year-end reporting to on these items, so be on the lookout for those reports from your digital wallets and investments for your tax returns.

Energy credits have been increased beginning in 2023. Tax credits are dollar for dollar tax savings. Here are some of the highlights:

The energy efficient home improvement credit:

• Increased tax credits of up to $1,200 for qualified: · Exterior doors, windows, skylights and insulation materials, Central air conditioners, water heaters, furnaces, and Home energy audits
• Tax credits of up to $2,000 if you install electric or natural gas heat pumps (and water heaters) and a biomass stove.
• These credits only apply to the primary residence.
• Provides up to 30% of the cost of installing residential solar, wind or geothermal power generation, solar water heaters, fuel cells, battery storage. This credit is available through 2034. And credits are dollar for dollar savings. This credit goes through 2033 and phases out thereafter.

Electric vehicles tax credits have also been enhanced. Both hybrid and used vehicles now qualify.

• The $7,500 tax credit has been extended to for new electronic vehicles through December of 2032.
• Does your vehicle qualify, check here.

For more information on which vehicles qualify before purchase, check here.



Limited to those with modified adjusted income of less than $150k ($300k if married filing jointly).

Streamline your bookkeeping operations with our exceptional accounting solutions, transition of your accounting department seamlessly to the cloud and begin utilizing automation (AI).

The benefits of going to the cloud include:

• Automate processes that save time and money in the office
• Eliminate routine data entry
• No more writing and mailing checks
• Accessibility - anywhere, anytime productivity and flexibility
• Increased collaboration with your accountant and staff
• Better internal controls 
• Save time and money by not processing paper
• Business continuity - auto backup of cloud information 
• Automatic software upgrades
• Scalable and more efficient
• Simplified PC, server and network maintenance

We have evaluated some amazing programs that will automate your accounting and save time in your office. If you are interested please contact us.

• This is the second year for the Massachusetts "Passthrough Entity Level Tax". There is now an option for pass-through entities to pay state income taxes on an entity level to avoid the limitation on state tax deductions on the federal level. These payments should be paid in quarterly. This is a way to deduct more than the $10k state tax deduction on the federal personal tax return.
• Bonus depreciation remains for both used and new equipment through 2026. this deduction was reduced to 80% in 2023 and is expected to go down in each year as follows:
• 2024: Bonus rate is 60%
• 2025: Bonus rate is 40%
• 2026: Bonus rate is 20%
• 2027 & Later the bonus depreciation is eliminated
• If you are able to hire your children, you may be able to pay them up to the standard deduction for the current year federal income tax free. Amounts would be $12,950 for 2022; $13,850 for 2023. Please note, however, that you must have documentation of their hours and the tasks they performed.
• Increase owner's salary in order to maximize the 20% business deduction.

• There are increased reporting requirements and scrutiny of digital currency transactions. Keep track of your gains/losses and transfers for year end reporting. (In 2023, the brokerage houses of virtual currency will have to report gains/losses to the IRS)
• Maximize your retirement contributions. If you are over 50, you can put more away.
• If you have investments, harvest tax losses.
• Consider harvesting any capital gains that can be realized in the 0% tax bracket (available to lower income filers).
• Maximize your FSA through your company.
• Maximize on an HSA through your company or open your own HSA. (see more about this below)
• Contribute to a Roth IRA's using the rollover rules if your income is low in 2023 or using the "back door" Roth IRA contribution method.
• Consider 529
• Review charitable contributions to maximize income tax deductions.
• Consider donating appreciated assets that have been held for more than one year, rather than cash.
• Opening and funding a Donor Advised Fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and also the ability to dole out those funds to charities over multiple years.
• Qualified Charitable Distributions (QCDs) are another option for those over 70.5 and especially for those who don’t typically itemize.

The Corporate Transparency Act (CTA) enforces new reporting rules for US-based companies starting January 1, 2024. Reporting companies must disclose company and ownership details to FinCEN, facing fines or legal action for non-compliance. Any domestic or foreign company registered in the US falls under these rules, excluding specific entity types. Beneficial owners, defined as those with significant control or 25%+ ownership, require personal and ID information. The reporting process begins electronically in 2024 via the Beneficial Ownership Secure System (BOSS). Fines and penalties apply for inaccurate or missed reporting. Certain entities, detailed by FinCEN, are exempt from these regulations.

• Make use of annual exclusion gifts of $17,000 per donee, $34,000 per married couple.
• Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses.
• Consider intra-family loans and opportunities to leverage the current high-interest-rate environment.
• Review lifetime gift and GST gifting opportunities to use additional applicable exclusion and exemption amounts.
• The lifetime gift and GST exemptions which is expected to decrease from $12.92 million per person (2023 amount) to approximately $6 million in the next few years either through the sunsetting of the law or a change in the laws.

The Secure Act 2.0 brought significant changes to retirement laws and 529 plan regulations in the U.S., offering an advantageous opportunity for participants to maximize the benefits of 529s.

This new iteration of the Secure Act directly addressed concerns about potential money wastage in case a beneficiary doesn't pursue college education. It now allows Roth IRA conversions for 529 plans, enabling a maximum lifetime rollover of $35,000 from a 529 plan to a beneficiary's Roth IRA, beginning in 2024.

This alteration ensures that even if a child doesn't utilize the funds saved in a 529 plan for college or other purposes, contributing to this plan still secures their financial future and stability.

Additionally, beneficiaries of 529 accounts active for over 15 years have the option to gradually roll over up to $35,000 into a Roth IRA under their own name, providing an additional financial strategy.

Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, changes in residency, and significant planned expenditures (real estate purchases, college tuition payments, etc.).

• Update pre-tax and Roth contributions to retirement accounts for 2023.
• Review your various insurance policies and confirm whether the amount of coverage and deductibles are still adequate.
• Review beneficiary designations with your custodian and update, as necessary.
• Confirm that you have spent or have a plan to spend the entire balance in your Flexible Spending Accounts and set 2024 contribution amounts.
• Review your investment portfolio and target asset allocation. Confirm whether you are within the targeted ranges for each asset class as recent market performance could have caused allocations to drift dramatically.
• Review any scheduled 4th quarter estimated tax payments and assess any liquidity needs.
• Consider an additional tax payment or increase in tax withholdings to eliminate a penalty.
• Evaluate progress towards financial goals.
• Plan for for IRA and 401(k) required minimum distributions in 2023 and beyond.