What is the Trump Account?

Starting after July 4th, 2026, you may begin contributing to a Trump Account for eligible children. Here are the rules as we currently know them:

• Annual contribution. Deposit up to $5,000 per year for the benefit of a child under age 18. This will be indexed for inflation after 2027.
• No withdrawals. The funds must remain in the account until January 1st of the year in which the child’s 18th birthday falls. There are very few exceptions, but one is the disbursement of account funds upon the beneficiary’s (child’s) death.
• The investments of the funds in the account are subject to strict rules. You may not place funds in basic bank accounts. An eligible investment is generally a mutual fund or exchange-traded fund (ETF) that tracks an index of primarily U.S. companies.
• Only one account per beneficiary. Each child may only have one account. There’s also a published priority on who can open the account. The order of priority is as follows:

1. 1. Legal guardian
   2. Parents
   3. Adult siblings
   4. Grandparents

• At age 18, the Trump Account ceases to exist. The funds will then roll over or be distributed. Distributions are treated similarly to a traditional IRA.

The benefits of the Trump Account

The idea is that some incentives should start their adult lives with something of value so that the concept of the American Dream remains available to the next generation. To that end, there are incentives that you don’t want to miss:

• $1,000 in free money for new births. For any child born on or after January 1, 2025, through December 31, 2028, your child’s account will receive a $1,000 deposit from the federal government’s pilot program contribution to be invested and grow over time.
• Employer contributions. Regulations allow employers to contribute up to $2,500 per year to their employees’ Trump Accounts. These contributions will not add to the employee’s taxable wages. So stay tuned if your employer is considering adding this benefit.
• $250 in free money for children. 25 million children ages ten and under will receive a $250 gift courtesy of Michael and Susan Dell (Dell Computers) if they live in a zip code with a median income below $150,000.

What to do now

As a new program, details of the Trump Account will continue to evolve, but given the anticipated popularity, it is crucial to do the following right now:

1. Get program announcements. If interested in staying informed, go to www.trumpaccounts.gov and sign up to receive email updates on the program’s status. This should tell you when applications for the accounts are open.
2. Sign up as soon as possible. The IRS notice says you can sign up for the account using IRS Form 4547 or online at www.trumpaccounts.gov. You’ll want to do this as soon as they’re available.
3. Apply for the bonus deposits. You cannot do this yet, but when you can, treat it like buying tickets to a Taylor Swift concert. There will be separate applications to get these deposits. But also stay alert. There may be other philanthropists willing to help the next generation get a head start financially.

To recap

If you wish to take advantage of this new benefit for your kids or grandkids:

• Keep informed
• Set up the account as soon as possible
• Apply for additional account funding as quickly as possible

Contact our RRBB advisors if you have any questions or for more information.

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Leverage employer contributions

Employers that offer retirement plans such as 401(k)s, 403(b)s, and 457s often include an employee match or a safe harbor contribution. Make sure you understand this benefit and set up a donation of at least the minimum required to take advantage of any employer-provided benefits.

Maximize your retirement contributions

Review the retirement plans offered and maximize your contributions. If your employer offers traditional and Roth options, consider dividing your contributions between the two. Remember, Roth 401(k) plan contributions are after-tax, but their earnings are tax-free, unlike tax-deferred plans. And remember, if you’re age 50 or over, you’re eligible for an additional catch-up contribution.

A special word on catch-up contributions. Looking ahead to 2026, there are two things to consider with catch-up contributions:

1. If you are age 60 to 63, the $8,000 catch-up contribution is now $11,250.
2. If your income exceeds $150,000, all of your catch-up contributions must be placed in a Roth account (if your employer offers one). So be careful with your tax planning activity in this area.

Review and leverage tax-advantaged health insurance

HSA contributions. If your employer offers high-deductible health plans, you’re eligible for a Health Savings Account (HSA). If this is the case, try to maximize your annual contribution to this fund to ensure your qualified health expenses are paid on a pre-tax basis. This is important because unused funds can be carried over to future years. The limits for 2026 are $4,400 for those filing single and $8,750 for families, with a $1,000 catch-up contribution if age 50 or over.

FSA contributions. If your employer offers a flexible savings account (FSA) option, you will want to forecast and contribute to this account to pay for qualified and planned expenses. The annual limit for 2026 is $3,400, but only $680 can carry over into the following year.

Review your investments

While you’re at it, now is a good time to review your retirement account investments and conduct any adjustments or rebalancing that you think makes sense. Depending on your age and situation, you may wish to review your plan and strategy to help optimize your tax obligations and risks as you look to the future.

Identify and review other benefits

Many employers offer an array of benefits that are often overlooked. Now is a great time to review all that’s provided and leverage as many of them as possible. Here’s a list of the most common that can provide significant benefits:

• Discounted or free insurance
• Group life insurance
• Disability insurance
• Long-term care insurance
• Dependent care assistance (up to $7,500)
• Education assistance (up to $5,250)
• Other fringe benefits: adoption expense help, stock options, and employee discounts

Each of these benefits can significantly increase your income and reduce your tax obligation, but only if you make it a habit to review your options each year. So, break out your employee handbook and take a look. Contact our RRBB advisors for more information or with any questions.

The post Setting up benefits for next year appeared first on RRBB.

© 2024

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Typical employee tax-free income

Health benefits. While now reported on W-2s, employer-provided health insurance premiums are not required to be reported as additional income by the employee. This includes premiums paid for the employee and qualified family members. In addition, the employee portion of premiums can be paid in pre-tax dollars.

Company Health Savings Account (HSA) contributions. Up to specified dollar limits, a qualified individual’s cash contributions to the HSA are exempt from the following:

• Federal income tax withholding
• Social security tax
• Medicare tax
• FUTA tax

Group term life insurance. You can generally exclude the cost of up to $50,000 of group-term life insurance from your wages.

More benefits to maximize savings

Credit card airline miles. Generally, credit card benefits like miles are not taxable income. So, those miles earned on corporate credit cards that go to you as an individual are not likely to increase your tax bill.

Employee tuition reimbursement. Up to $5,250 of tuition reimbursement from your employer is not additional taxable income.

Commuting expenses. You can generally exclude the value of transportation benefits you receive up to $300 per month for combined commuter highway vehicle transportation and transit passes. There is also up to $300 monthly for tax-free qualified parking benefits.

Small gifts. Small-valued gifts are not included in income, such as:

• Using the company copy machine
• Occasional meals
• Reasonably priced holiday gifts
• Tickets to a sporting event

Knowing what employee benefits are tax-free income can help you maximize their use to your greatest advantage. Please feel free to contact our RRBB advisors with any questions you may have.

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Health Savings Account

An HSA is a tax-advantaged savings account whose funds can pay qualified health care costs for you, your spouse, and your dependents. The account is a great way to pay for qualified healthcare costs with pre-tax dollars. You can contribute to an HSA via payroll deduction or directly to the account as a deduction adjustment on your tax return. Any investment gains on your funds are also tax-free if they are used to pay for qualified medical, dental, or vision expenses. In addition, unused funds may carry over from one year to the next. To qualify for this tax benefit, though, you must enroll in a high-deductible health plan (HDHP). If you have an HDHP, then you can add an HSA to pay for medical expenses with pre-tax income.

HSA limits

An HDHP plan has minimum deductible requirements that are typically higher than traditional health insurance plans. To qualify for an HSA, your health coverage must have out-of-pocket payment limits in line with the abovementioned maximums. The key is to maximize funds to pay for your medical, dental, and vision care expenses with pre-tax money. For tips on maximizing your HSA, check out our previous blog post, “Understanding tax terms: Health Savings Accounts (HSA).”

Because you know you will always have medical expenses, prioritize your HSA contributions to take advantage of its additional tax benefits. By building your account now, you could have a nest egg for unforeseen future expenses. Contact RRBB Advisors if you have any questions.

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A major tax break

If you have a high deductible health insurance plan (a plan with a deductible of at least $1,500 for an individual or $3,000 for a family), you can add an HSA to pay for medical expenses with pre-tax income. Contributions to an HSA can be made via payroll deduction or directly to the account and deducted as an adjustment on your tax return. This approach effectively reduces your medical bills by as much as 37%!

Tips to maximize your HSA

1. Maximize your HSA contributions every year. Set a goal to contribute the total amount allowable by the IRS into your HSA each year. Unlike other funds, unused balances can remain in the account, giving you a great way to build up a nice emergency fund over the years. The 2023 total contribution limits are $3,850 for single taxpayers and $7,750 for a family (add $1,000 if you are 55 or older). You have until April 15 of the next year to make contributions, but when figuring out how much to contribute, remember to include contributions by your employer in your total.
2. Pay for medical expenses with your HSA. Typically you can pay for medical expenses directly from your HSA account via a debit card. If not, track all payments you make for medical expenses and take matching distributions from your HSA. If you don’t have enough in your HSA to cover an expense, make a contribution to your HSA first and then pay the bill. Keep ALL your medical bills and receipts to prove that the distributions are for qualified medical expenses.
3. Prioritize HSA contributions. HSA contributions are tax-deductible and distributions are tax-free (for qualified medical expenses). Traditional IRA distributions, on the other hand, are taxable. So it often makes sense to maximize HSA contributions over Traditional IRA contributions.
4. Look at every year as an opportunity. Remember, each year has an HSA contribution limit. If you do not maximize that year’s opportunity, it is gone. So try to find a way to make pre-tax contributions to your HSA up to the annual limit. Most of us will need money for medical, dental, or vision expenses. Wouldn’t it be nice to do this with pre-tax money?

Next steps

So knowing you will always have medical expenses, prioritize your HSA contributions to take advantage of its additional tax benefits. Contact our RRBB accountants and advisors for more information.

The post Understanding tax terms: Health Savings Accounts (HSA) appeared first on RRBB.

In July, your business mileage tax deduction became more valuable for 2022 after an announcement by the IRS. As of July 1, 2022, the standard mileage rate increased by 4 cents to 62.5 cents per mile. The medical and moving mileage rates also rose by 4 cents to 22 cents per mile.

However, the 2023 optional standard mileage rates are now available. These rates determine the deductible costs for driving a car for work, charity, medical, or moving purposes beginning January 1, 2023.

Standard mileage rates

Along with cars powered by gasoline and diesel, the rate changes also affect hybrid and electric vehicles. The following standard mileage rates will apply to the usage of an automobile, including vans, pickups, and panel trucks:

• The rate for the second half of 2022 will be 65.5 cents per mile driven for commercial purposes, an increase of 3 cents from the midyear rise
• For qualified active-duty members of the armed forces, the midyear cost will increase to 22 cents per mile driven for medical or moving purposes in the second half of 2022
• 14 cents per mile driven for charitable organizations (the statute regulates this and, therefore, will not change from 2022)

Maximize the value

An annual analysis of the fixed and variable costs of driving an automobile is the foundation for the standard mileage rate for business use. In addition, the rate calculation for moving and medical purposes is based on variable costs.

Due to the Tax Cuts and Jobs Act, taxpayers cannot write off unreimbursed employee travel as a miscellaneous itemized deduction.

Check out July’s blog post, “Your business mileage deduction just became more valuable,” for tips to make the most of your business’s vehicle expense deduction. Contact our RRBB accountants and advisors if you have questions about the new standard mileage rates.

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One of the pandemic’s many long-lasting results is that some companies let employees work remotely. This decision brings up compelling considerations about fringe benefits. For instance, the IRS responded to a question regarding a participant in a qualified transportation plan whose employer now permits him to work permanently from home. See IRS Information Letter 2022-0002. The participant requested permission to move unused compensation reductions to prevent losing money he had already set aside for parking. Instead, he hoped to transfer it to his health Flexible Spending Account (FSA). The employer did also provide that benefit through its qualifying cafeteria plan.

Unused compensation reductions

The letter notes that unused compensation reduction amounts under an employer’s qualified transportation plan may carry over to subsequent plan periods and apply to future travel costs. But there’s a caveat. Employees cannot receive benefits in any month that exceed the maximum excludable amount.

However, cash refunds aren’t allowed. Additionally, the U.S. Code does not permit cafeteria programs to provide qualifying transportation fringe benefits. Further, according to IRS regulations, you cannot move unused compensation reduction funds from a qualifying transportation plan to a cafeteria plan-offered health FSA.

The letter also mentions that employers can modify their cafeteria plans to permit midyear health FSA election adjustments for plan years ending in 2021.

Please note that IRS Information Letters do not apply generic statements of well-defined law to a particular set of facts. Instead, the IRS provides them in response to inquiries from taxpayers or members of Congress seeking broad information.

Qualified transportation plans

The qualified transportation rules for fringe benefits have proven themselves flexible enough to handle most situations arising from the pandemic.

Many businesses let employees change their benefits selections at least once per month. Some programs let current members carry over unused amounts permanently. For example, suppose the plan authorizes it and the maximum monthly benefit has not run out. In that case, compensation reductions for one qualified transportation benefit, like parking, may be used for another qualified transportation benefit, like public transportation.

The IRS information letter’s curious participant discovered that the flexibility of the fringe benefit laws has its bounds. When providing employees with the option of a pay cut, employers should be sure to explain to them the possibility of some financial loss that could result from changing circumstances.

Offering fringe benefits

The correct fringe benefits might help your company recruit and keep talented workers. As you can see, there are many complexities to consider. Contact our RRBB accountants and advisors to assist you in evaluating the benefits and hazards of any fringe benefits you are presently providing or considering.

© 2022

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As the summer draws to a close, back-to-school advertising is ramping up. Parents, guardians, and teachers can take advantage of tax benefits tucked away in giving time, money, or supplies to a school. Here are five methods for saving:

Tax benefits for giving to the school

1. Donate money rather than purchasing a raffle ticket. Fun ways for schools to collect money include raffles, subscription drives, and silent auctions. Give up the potential prize to maximize your capacity to write off your donations. The total contribution is then unquestionably deductible. When donating, don’t forget to request a receipt.
2. Keep in mind the costs you incurred personally for your voluntary work. You might volunteer your time at school events, give books to the library, or aid the teaching staff. It would be best to track your out-of-pocket costs and mileage for charitable deduction reasons.
3. Use checks rather than cash. If you typically give cash donations to the school (such as extra funds to support other students attending field trips), consider giving a check instead. The check will serve to help prove your donation.

For parent and teacher classroom contributions

1. Watch for tax deductions on the supply list. Schools usually send out a list of requested materials for the school year. Some of the items on the list are clearly for personal use, while other items on the list are often for school use and classroom use. Examples include 24 pencils or paper towels rather than the typical eraser or a ruler. Keep note of these non-cash donations to classrooms and schools for potential tax deductions. Or much better, give money.
2. Teachers: save your spending! According to a recent survey, 94% of instructors spend their own money on classroom supplies, up to $1,000 yearly. Even if they use the standard deduction on their 2022 tax return, teachers are still entitled to a $300 deduction. You can write off up to $600 in educational materials if you’re married.

Last but not least, remember to study state regulations regarding educational costs. There are often credits available for out-of-pocket school and other educational expenses. Contact our RRBB accountants and advisors if you have questions about this or any other tax matter.

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Your business mileage tax deduction is now more valuable for the rest of 2022 after a recent announcement by the IRS. As of July 1, the IRS’s business mileage rate is increasing by 4 cents to 62.5 cents per mile. In addition, the medical and moving mileage rates are also rising by 4 cents, to 22 cents per mile.

Business mileage tax deduction

Here are some tips to make the most of your business’s vehicle expense deduction.

1. Don’t slack on recordkeeping. You won’t be able to take advantage of the increased mileage rates without proper documentation. The IRS mandates contemporaneous recordkeeping. This means that you must track your vehicle expenses as they happen. You cannot wait until right before filing your tax return to compile all the necessary information needed to claim a vehicle deduction. Pick a method to track your mileage and actual expenses that’s most convenient for you, whether a physical notebook that you stick in your glove compartment or a mobile phone app.
2. Keep track of both mileage and actual expenses. The IRS generally lets you use one of two methods to track vehicle expenses—the standard mileage rate method or the actual expense method. But even if you use the standard mileage method, you can still deduct other expenses like parking and toll fees. So keep good records.
3. Consider using standard mileage the first year a vehicle is in service. If you use standard mileage the first year your car is in service, you can choose which expense tracking method to use in subsequent years. Suppose you initially use the actual expense method the first year your car is in service. In that case, you’re stuck using actual expenses for the duration of using that car in your business. For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate for the first year.

Maximize the value

1. Don’t forget about depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. Think: heavy SUVs, trucks, and vans with a manufacturer’s gross vehicle weight rating above 6,000 pounds. 100% bonus depreciation is available through the end of the 2022 tax year. That is, if the vehicle is in use more than 50% for business purposes. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied.

Contact our RRBB accountants and advisors if you have questions about maximizing your business’s vehicle expense deduction.

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