Comiskey & Company, PC

Taxpayers involved in a tax dispute with the IRS may want to consider mediation. Also known as “alternative dispute resolution,” mediation can help taxpayers resolve issues quickly and with less hassle. The process is voluntary and nonbinding on both parties, not requiring either party to relinquish control. It offers a chance to avoid lengthy appeals and costly litigation. Taxpayers for whom mediation is a good option include those who don’t have many disputed issues or who are seeking an early resolution to issues under audit. Mediation doesn’t replace the audit or collection process and doesn’t allow taxpayers to present new information. Here’s more from the IRS: https://bit.ly/3RA7mea

If you or a family member is fortunate enough to have a student loan forgiven, will the amount forgiven be taxable? Generally speaking, forgiven debt constitutes taxable income. However, certain forgiven student debt is currently exempt from federal tax through 2025. In addition, most states exempt student debt relief from their income tax, but there are some exceptions. According to a recent analysis by the Tax Foundation, forgiven student debt may be taxable in Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin. However, state rules on this issue are in flux, so check with us about them.

The IRS recently released the inflation-adjusted amounts for Health Savings Accounts (HSAs) next year. For 2025, the annual contribution limit for an individual with self-only coverage under an HDHP will be $4,300. For an individual with family coverage, the amount will be $8,550. These are up from $4,150 and $8,300, respectively, for 2024. For calendar year 2025, an HDHP will be a health plan with an annual deductible that isn’t less than $1,650 for self-only coverage or $3,300 for family coverage. And annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) won’t be able to exceed $8,300 for self-only coverage or $16,600 for family coverage.

The tax rules involved in selling mutual fund shares can be complex. If you sell appreciated fund shares that you’ve owned for more than one year, the profit will be a long-term capital gain. The top federal income tax rate will be 20% and you may also owe the 3.8% net investment income tax. One challenge is that certain mutual fund transactions are treated as sales even though they might not seem like it. For example, many funds provide check-writing privileges. Each time you write a check on your fund account, you’re selling shares. Another issue may arise in determining your basis for shares sold. We can answer any questions you may have and explain how the rules apply to your situation.

The IRS has released a draft of Form 6765, Credit for Increasing Research Activities (also known as the research credit). The agency revised the form to respond to external feedback received during a comment period. Now, the “business component information” section will be optional for qualified small business taxpayers and those with total qualified research expenditures of $1.5 million or less (with some exceptions). The IRS has also reduced the number of components and amount of information about components that must be reported by taxpayers that still need to provide such data. The new rules won’t be effective until tax year 2025. Here’s the draft: https://bit.ly/3RJbdWp

When it comes to digital assets, it’s important to know that, unlike other asset types, they leave little to no “paper trail.” Thus, unless your estate plan specifically provides for them, it may be difficult for your family to access these assets (or even know that they exist). Account for your digital assets by taking an inventory of them. Then provide instructions for accessing them, particularly if they’re password protected or encrypted. And while providing your representatives with login credentials to access your digital assets is critical, it’s likely not enough. They’ll also generally need legal consent to gain entrance to and manage your accounts. Contact us for more information.

One of the lesser-known tax breaks available to qualified businesses and individuals is the rehabilitation credit. If you own (or in some cases, lease) a historically important building and renovate it, you may be able to claim a 20% credit of eligible rehabilitation costs. Covered expenses include those for renovation, restoration and rehabilitation, but not enlargement or new construction. In general, a qualified building must be listed on the National Register of Historic Places or belong to a “registered historic district.” And the cost of the renovation must exceed the greater of $5,000 or the building’s adjusted basis. For more details, visit https://bit.ly/3XrW2Vd or contact us.

The IRS is continuing to work toward achieving its digital transformation goals. IRS Chief Transformation and Strategy Officer David Padrino recently said that the IRS commissioner has “roughly a 10-year vision” for taxpayers to be able to satisfy all their tax obligations and communicate with the IRS online. The IRS’s modernization goals include creating electronic versions of tax and information returns, allowing taxpayers to respond to notices online, developing portals for certain tax credits, and consolidating tax account information in an accessible format. The IRS’s Transformation and Strategy Office created a “central team” to coordinate the various modernization projects.

The IRS has issued guidance addressing the increasing instances of abusive basis shifting by related-party partnerships. Taxpayers are inappropriately using partnership rules to inflate the basis of underlying assets without affecting the economics of their businesses. The basis-shifting transactions targeted in Notice 2024-54 fall into three groups: 1) transfer of partnership interests to a related party, 2) distribution of property to a related party and 3) liquidation of a related partnership. Generally, these transactions allow increased depreciation deductions or reduced gain on the sale of assets with little or no substantive economic consequence. To learn more: https://bit.ly/3VNqvvB

The Inflation Reduction Act established a corporate alternative minimum tax (CAMT), which imposes a 15% minimum tax on the adjusted financial statement income of large corporations. The CAMT generally applies to large corporations with average annual financial statement income exceeding $1 billion. In April, the IRS waived the estimated tax penalty imposed on corporations to the extent that any estimated tax underpayment is attributable to CAMT liability. The IRS has now extended the relief for failing to pay tax owed under the CAMT due on or before Aug. 15 with respect to a taxable year that began in 2024. Contact us for more information.