Retirement 10% Penalty Exceptions
See if you can avoid the 10% penalty for early retirement withdrawals.
1. Ordinarily, a 10 percent penalty must be paid if a taxpayer withdraws funds from an IRA
or other retirement account before reaching age 59 1/2. But there are exceptions, and the
SECURE Act 2.0 creates several new ones.
2. Starting in 2024, taxpayers may withdraw up to $1,000 from their retirement accounts
without penalty in case of a financial emergency, which is broadly defined.
3. Starting immediately, individuals who are terminally ill may withdraw any amount from
their retirement accounts penalty-free. The tax law defines a “terminal illness” as any
illness that is likely to result in death within a period of seven years.
4. Starting in 2024, individuals suffering domestic abuse from a spouse or domestic partner
may withdraw up to $10,000 from retirement accounts penalty-free.
5. Penalty-free withdrawals in the event of a federally declared disaster are made
permanent, but the amount is reduced to $22,000.
6. Penalty-free withdrawals are also allowed to help pay for long-term care insurance and
by public safety workers.
Deducting Business Meals
What counts as a tax-deductible meal?
General Rule: Meals need to be considered ordinary and necessary for business purposes.
What to Do:
Documenting Your Business Meals
You need to keep records that prove your business meals are ordinary and necessary business
expenses. You can accomplish this by keeping the following for each business meal:
• Receipt that shows the purchase (food and drinks consumed)
• Proof of payment (credit card receipt/statement or canceled check)
• A note that states the name of the person or persons with whom you had the meal
• Record of the business reason for the meal (a short note—say, seven words or fewer)
Example. You and Harry Smith, a client, have a Dutch-treat dinner that costs you $100. You
write on the receipt: Harry Smith, client, $100 (my half), maintain relationship. You keep the
receipt that shows the food and drink, and also the second receipt that shows the $100 charge to your credit card (assuming you and Harry split the charge with two credit cards).
Deducting Business Travel Expenses
Are these deductible?
What are travel expenses? In a nutshell, a travel expense is an expense of getting to and from the business destination and the expense of sustaining life while at the business destination. Ex. traveling by airplane, renting a car, baggage, meals and lodging while attending a conference.
Corporation or proprietorship? If you operate as a corporation, the corporation should reimburse you for the travel expenses or pay for them directly. Remember, you can’t deduct employee business expenses on Form 1040 anymore due to changes brought by the Tax Cuts and Jobs Act for 2018–2025.
Tax diary for business travel? Although not obligatory, keeping a timely record of your business travel expenses is essential. This record should prove each expenditure’s amount, time, place, and business purpose.
Travel meals versus other travel expenses? Due to specific legislation, tax deductions for travel meals are cut by 50 percent, so you separate them from other travel expenses.
Receipts. You must retain a receipt or similar documentary evidence for every lodging expense and any other travel expense over $75. A receipt should establish the expenditure’s amount, date, place, and essential character.
Credit card statements and canceled checks. These can’t serve as a receipt, as they only prove payment, not the purchase. Both receipt and payment proof are required to substantiate travel expenditures.
Timely kept record. The IRS considers a weekly or more frequent log of your activities and expenses as a timely kept record.
$75 rule and cheating. Even if you don’t need a receipt for a travel expense under $75, keeping one provides a more robust and reliable proof of the expenditure.
Submitting expenses to your corporation. If you operate your business as a corporation, you should submit your expenses for reimbursement under an “accountable plan” that conforms to IRS rules. You can submit an expense report along with the supporting receipts for reimbursement.
ERC Claims - What's happening?
What is the IRS doing?
Takeaways of what's happening?
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Immediate halt on ERC processing. Due to a surge in questionable claims, the IRS has put an
immediate stop to new ERC processing, at least until the end of 2023. But businesses with
legitimate claims should file now to secure their place near the front of the line. -
Delays in current claims. The IRS has a backlog of over 600,000 ERC claims. The new target
for processing these claims is 180 days, doubled from the original 90 days. If claims are subject to further review or audit, the processing time could extend even further.
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Documents. Businesses should ensure they have proper documentation to validate their ERC
claims. -
New Q&A chart. The IRS released a Q&A document, with an arguably negative tone, aiming to
assist tax professionals in convincing their clients they are ineligible for the ERC. -
Beware of aggressive promotions. The IRS warns businesses against aggressive promotions
misleading them into improper ERC claims. -
Hiring for compliance and audits. The IRS is looking to hire 3,700 new employees, with a
significant focus on auditing high-income earners, large entities, and promoters, particularly
those promoters aggressively pushing questionable schemes. -
In summary, while the IRS’s recent actions regarding the ERC might appear intimidating,
businesses should not be deterred from making legitimate claims. Proper documentation, duediligence, and caution against misleading promotions are crucial.
New FINCEN Filing Requirement - Could be triggered by new property purchases!
What is the requirement and what will happen?
If, in 2024 (right around the corner), you start a small business or buy a rental property using a
new limited liability company (LLC), you can trigger the need to file new federal reports and
keep them up to date.
Take This Seriously
The penalties for non-compliance with the requirements to file the newly required reports can be severe.
First, there are civil penalties of up to $500 for each day that a violation continues, capped at
$10,000.
Second, there are also potential criminal penalties—imprisonment for up to two years for any
person who willfully
• provides, or attempts to provide, false or fraudulent beneficial ownership information, or
• fails to report complete or updated beneficial ownership information to FinCEN.
If you get this wrong, you can avoid civil or criminal liability by submitting a corrected report
within 90 days.
Five major takeaways:
1. The CTA reporting begins for small businesses formed in 2024.
2. If your newly formed 2024 business entity is not exempt, you must file a BOI report with
FinCEN within 90 days after the entity is formed.
3. The BOI report must disclose the identities and contact information of all of the entity’s
beneficial owners—the humans who either
• control 25 percent of the ownership interests in the entity, or
• exercise substantial control over the entity.
4. The BOI report must also disclose the names and contact information for the company
applicants: one or two individuals who filed the documents to form the entity.
5. The BOI report is filed online in the new FinCEN BOSS database. There is no filing fee, and
the report never expires. But if the information in the report changes, you must update it within
30 days.
NOTE: we will be sending out additional information on this reporting requirement with detailed instructions for those affected.