March 2025
Here are some key takeaways from their conversation:
If you or someone you know has been affected by the fires, Ascend Tax and Business Advisors is happy to take calls from non-clients and answer questions about available tax benefits. Visit their website here.
Watch previous episodes here:
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Ep. 125 Protect Yourself from Fraud: Cybersecurity 101
Hello, everyone, and thank you for joining me for another FINANCIAL COMMUTE.
I'm your host, Chris Galeski. Joined in the conversation today is Scott Gilmore, CEO and managing partner of Ascend Tax and Business Advisors. Scott, thank you for joining us.
My pleasure to be here, Chris. Thanks for having me.
So we've got new year, new administration, lots going on. There's, you know, rumors about some potential upcoming tax law changes. I know that the Tax Cuts and Jobs Act, that was put into place in 2017, was set to expire at the end of this year. And so we're going to have a conversation about a number of different things, including what may happen with the current tax laws and changes.
Obviously, what happened in January affects a lot of us, our clients, our friends and our community as it relates to the fires. Let's talk a little bit about the fire and fire relief. The tax extensions, potentially net operating losses that people can take advantage of and what people are actually doing about this.
Yeah. Great question. So obviously tragic situation a lot of people impacted a lot of money at stake. Billions of dollars, insurance issues, all kinds of things. One of the things the tax code does do really well is it does provide relief for major disasters. The Tax Cut and Jobs Act did change the casualty loss rules a little bit.
And so we are under those new rules right now that you talked about sunsetting in 2025. And essentially what you can do is you do have casualty losses that you can take to help get you back on your feet from a rebuilding perspective. One of the most important things is this event took place in January of 2025. People haven't filed the 2024 tax returns yet.
So one of the rules that's associated with this is you were allowed to take that loss if you have a loss in 25 versus 24. So even though the event happened in January of 25, you can realize some of the benefits in filing your 2024 tax returns. The more important thing about the 2024 tax returns is the extensions that they provided.
As it stands right now, those extensions apply to people that live in LA County. They have not allowed any other counties to come into that. We thought that was possible. It's been a month or so. Nothing's happened, so I'm a little less optimistic. So either you live in LA County or if you're preparer is in LA county. The IRS has said they will respect the extensions.
Other folks, a little harder hill to climb if they want to try to get this extension. So what is the extension? Essentially, any tax deadline that falls between January 7th and October 15th has become October 15th. This is similar to what you saw when you filed 2022 tax returns that were due in 2023. Very similar extension, except this was like the entire state due to the rains and the floods that happened.
So what things are included in this extension? Filing your 2024 tax return, paying your estimates if you owe money in 2024- January 15th estimate Q4 extension payment in April. 2025 estimates, April 15th, June 15th. September 15th. All of those payments now are not due if you're in LA County 'till October the 15th. Six more months to hold on to your money.
Three months, depending on what payment we're talking about. That's significant. IRA contributions that are usually due by 4/15. Those are extended to 10/15. I think HSA contributions fall under these same categories. So there are a lot of filings that usually take place throughout the coming months that have all been delayed to October the 15th. So that's a big opportunity for some folks, depending on their tax situation.
And welcome to release to us practitioners who were impacted by this and were struggling to get honestly, January 15th, we were struggling to get people their payments because we were impacted by this disaster, not as some people are, but we were impacted.
Yeah. Horrible disaster. And that's it's good for people to know that those extensions have been pushed out until October 15th, whether it's the estimated tax payments or even filing. But even with that new change, it's difficult for you as a CPA to wait until the last minute and kind of file all of these returns. So it's it's still probably good for you to meet with your clients on a regular basis.
Gather the information as early as possible. So that way you're not at a rush to the deadline come October 15th, right?
God, I love what you're saying right now because this is what we're telling our clients. We try to make it a business as usual as the acronym that we're using. And essentially we still have the same staff, the same manpower, and the same number of returns to complete. And we've given ourselves usually, you know, there's a push to get them done by 4/15.
You do the extensions, there's another push, the next deadlines, 9/15 for your entity returns, 9/30 for your trust, 10/15 for your individuals. If you only have 30-60 days to do all those, it's relatively impossible. The quality of the work goes down, the planning goes down. So from a taxpayer perspective, it is business as usual. You do want to try to continue to get your stuff to your practitioner.
We are continuing to meet with our clients, get get our returns out the door. Our investor clients want their clients. We're looking to generate those. And really what I tell people, hey, you just don't need to make that payment till 10/15. But let's go ahead and get your returns on. There's no harm, no foul, and you'll have the knowledge of what's coming up.
Yeah.
That's helpful. Obviously, the devastation that happened here in January in the Palisades and across Los Angeles. We have a number of clients, colleagues, friends, and potentially even family members that were affected. Let's talk a little bit about that net operating loss rule as it relates to, people that, you know, lost their home or had damage to their property and potentially aren't being recovered because of insurance payments, and they might have some losses, whether it's personal property or the house themselves.
How does that work?
Yeah. So essentially now the rules are very, very finicky and facts and circumstances matter. And what we'll talk about now is more into a personal residence situation. If you have a rental property, the rules are a little bit different. So I just want to make sure everybody understands that. But essentially an inner well can be generated if you have a loss.
After looking at it, the lesser of the decrease in your fair value or the cost basis in your home. Mostly for most people, particularly in the Palisades, it's going to be the decrease in fair value, which is what was your house worth pre-disaster. What is it worth today? And technically you get an appraisal to figure out that number.
But just looking around you can get a flavor of what that might look like. If that amount minus your insurance proceeds does not. Their insurance proceeds don't fully cover that loss in value. You can generate a net operating loss even if you itemize. This loss is what we call above the line and can be I can offset your other income.
And again, most people are going to do this in their 2024 returns, not wait till 2025 and use that loss against 2024 income and really bring down their tax liability. Given the fact that a lot of people were either uninsured or most likely underinsured, I believe FAIR plan is $3 million. From what I've heard from talking to clients I'm working with, there are a lot of losses because properties were in a way in excess of that number.
And so people have net operating losses that they can create tax attributes or benefit from against other types of income.
And if you use some of those losses against 2024 and you still have some losses left over, can you apply them to 2025 as well?
That's exactly right. So you no longer can carry them back. Prior to the TCJA you could there was a net operating loss carryback. There's not anymore. So whatever you don't use in 24 carries forward to 25 carries forward to 26 and goes on. There is a limitation, 80% of income on the NOL you can use in a given year.
Also part of the TCJA they didn't want to allow you to fully wipe out all your income and pay no tax, so they limit the NOL to 80% of your other income, plus or minus a few other little things. But essentially that NOL can carry forward. And you can have this tax benefit that can help offset income in the future, as opposed to getting cash in your pocket today, the way back in 2018 when the Woolsey fires happened, we used NOLs to carry back and get instantaneous refunds. That's not on the table today.
Yeah. So NOLstands for net operating loss. And the TCJA is the Tax Cuts and Jobs Act that was put into place in 2017. Obviously if people have questions they can reach out to their own CPA or your firm. You guys are happy to answer questions as it relates to this, that operating losses and what people could potentially do.
You know, we have tried to do everything we can to be a good member of the community. And, we've taken calls from non clients, friends, family. I don't care- if we can help you get through this tragedy. We're here to help any way we can and that's what it's all about.
Thanks, Scott. More on the Tax Cuts and Jobs Act. One of the things that was already sort of put into place to expire later this year was the estate tax limits.
What are your thoughts on these current estate tax limits? Looking to expire here at the end of the year. And what are you advising clients to do?
Yeah, so there's a lot of things that could potentially expire. But I think the estate tax is one of the largest ones. And essentially this year, the exemption's 13.99 million- 14 million for argument's sake make it simpler. They're all indexed for inflation. So next year, 2026, we don't know exactly what that exemption amount could be. But we are under the assumption it could cut in half.
It's going to be 7 million. It's going to be 7.5 million. So this year you have 14 million as an exemption, which is the amount you can give away during life or post death tax free to your heirs versus 7.5 million. That's a huge drop. There's a lot of people in between there who weren't subject to this tax that would be subject to this tax.
And so what I'm seeing for our clients is, look, we don't know what's going to happen, but if you've already started your gifting strategy and you've maximized the exemption, and every year because of the inflation, it does go up. Consider in 2025, maximizing that gift and giving up to the 13.99 million. If that's already part of your estate plan, best case scenario, it defaults.
You've done what you can. You've taken advantage of this time in this period in the huge $14 million exemption. What if it doesn't go backwards? Well, you probably would have made this plan anyways if it was part of your estate plan already with your attorney or your wealth advisor, and now you just have that much more that you can give in the future if it continues to go up for inflation.
So obviously every situation is different, but I have a lot of clients who are like, let's maximize this full $14 million exemption and not take the risk of it sunsetting backwards.
What are your thoughts around what might happen? I mean, what are you hearing as it relates to the current, tax rules and, the administration pushing that forward?
Yeah, it's very, very high level right now. There is not a lot of specifics. You hear people want to pass a bill. There are limited, ways to do that. The majorities in the congressional houses are slim. So this is going to take some time. My best guess, and this is simply a guess, is we're not going to see anything until June.
But what I'm hearing is they want to extend all the 2017 tax off. They want to throw a little extra in there. No tax on tips, no tax on overtime, no tax on Social Security. You've heard this in the news. These are things that are floating out there to do. The question becomes how are they going to pay for them.
Because they've got to fall within this budget and deficit rules that are part of what's called budget reconciliation. But essentially, they want to continue to put in some of the things that were campaigned on. And the question is, can they get it through? Can they get the votes? And your guess is as good as mine on that right now.
They're just starting to unpack that.
Okay. I think that's helpful. Obviously, you know, there's a lot that goes into passing these tax laws and pushing them through. And you know hopefully, we have some clarity, you know, middle of this year as opposed to at the very end. So that way people can make informed decisions. One of the things as it relates to the Tax Cuts and Jobs Act is this state and local tax deduction.
There's been thoughts out there that, you know, hey, if these tax cuts expire all of a sudden, that the salt limitation in the state and local taxes that $10,000 cap that could go away. Yeah. What are your thoughts about the impact of that? Because I know a lot of your business owners, in us included, have been taking advantage of something called AB 150, and there's a lot of individuals out there that say, oh, well, I would might benefit by actually having, the state and local, tax limitation going away.
It's more involved than you would expect, which is typical with tax law. Yeah. It's just a little bit by way of background, prior to the Tax Cuts and Jobs Act, there was no cap. You could deduct your property taxes, the taxes you paid to the state. Plus here in California, a higher tax state were impacted more than other states by this.
Well, so the SALT limitation comes in and they say you can only deduct 10,000. But for a lot of us that's just our property taxes. We're not even deducting our state taxes anymore. So California came up with AB 150. AB stands for Assembly bill. That's the name of the label of the bill that was passed by the California Legislature, which basically gave a benefit to pass through entities, LLCs, S Corp.
So limited partnerships that gave them a workaround to this salt limitation. It didn't help your W-2 employee. They don't have any benefit from this. The thing to keep in mind is most people were subject to alternative that own tax Amt for short. And what Amt does is it takes the Salt deduction and adds it back into a lot of people who are like, wow, we don't have the Salt deduction anymore.
Might not have been getting it in the first place. And they're not sure depending on how much they're making, where it's coming from obviously nuance nuance issues. So if you're a passive business owner but LLC s Corp this AB 150 is pretty good for you. There's no limitation. You can pretty much count on it. So if the majority of your income is coming via K-1 from one of these entities, the current situation is workable.
Now that being said, the one thing I will also caution on is every state has the option to do an AB 150 of some sort. Some states have done nothing. Other states have done their own version of it. And so to truly take advantage, if you're filing in many states, you have to know the rules in every state.
So it is complicated as well.
So from your perspective, the current situation with no alternative minimum tax and being able to take advantage of AB 150. And if you're in the state of California, that's actually better for business owners as opposed to prior to the, 2017 Tax Cuts and Jobs Act.
For that subset of folks. Yeah. This is working well, yeah.
So we were also talking a little bit about the new standard deductions for this year. I think single filers it's 15 married filing jointly. It's 30. And we were talking as it relates to you know, what clients can do that aren't itemizing or potentially subject to these standard deductions. You mentioned bunching, the charitable contributions for charitable reasons, taking a look at, qualified charitable distributions versus donor advised fund contributions.
Talk to me a little bit about this bunching strategy that, that you mentioned that could really help somebody that might be subject to the standard deduction.
Yeah. So let's take a scenario for example. Right. Really tailored towards the California home or been in your home for a while. Your state and local tax, let's say your property tax is capped at 10,000. So we have a standard deduction of 30,000. You've paid off your mortgage or it's very small. So the interest deduction is limited. You have 10,000 state taxes.
Stay at this $20,000 delta before you quote unquote itemize. So you want to give five $10,000 to your favorite charity. Well guess what. The problem is. You've got this $30,000 deduction. So you're not making that deduction to the charity isn't even helping you. It's great that you're doing it, but it's not getting you the tax break that it did a cost that you were accustomed to because the standard deduction keeps going up.
Unless you do a qualified charitable distribution.
So that stays out of your income altogether. Right. Goes directly to the charity doesn't impact your income. That works great. But for those that want to give to multiple charities and don't have to take from a retirement account and just want to give it out of post-tax earnings, you've got to give $20,000 in my example to max to actually get tax benefit for it.
So what do you do in that case? Bunching strategy. You either give every other year, maybe every third year, so that you eclipse that $30,000 threshold. Or better said, maybe you have a big income here. Maybe you don't and you give it to a donor-advised fund where you can get that one-time huge deduction and your favorite charity that's counting on your deduction or your donation every single year.
You can give them that money out of the donor-advised fund every year. Charities happy they're funded. You maximize your deduction. Everybody kind of wins in that scenario.
So in that scenario let's say if somebody wants to give $10,000 a year to charity, they could put 30 or $40,000 into a donor advised fund, get the deduction that year for itemized. And now you've just taken care of 3 to 4, maybe even four and a half, depending on how it's invested 3 to 4 and a half years of your charitable donations.
Not to mention, like you said, the tax-free earnings on that money, why it's sitting in the donor-advised fund that 30 could become 35 or even better.
Yeah, I love the bunching strategy. And also trying to look and see, you know, does a qualified charitable distribution make sense versus a donor-advised fund. Yeah. Something that we're happy to have conversations and strategy with clients around. Let's talk a little bit about the 1031 delays as well. So you were talking about the fire and the tax relief there.
It's also provided some delays for 1031 exchanges, correct?
Yeah. So we see with our clients, a lot of our clients are in the real estate world. They do exchanges, and they were stressing to find, you know, their certain identification and purchase periods that come with 1031 exchanges of real estate where you sell one property and buy another one. And we're able to defer the taxes associated with it.
Well, all of a sudden, if that period of time was around January 7th and I don't know the exact dates on it, you have an extension until 1015. So now all of a sudden, the quote unquote real gun is not to your head. You can find the property you're looking for, you can close on that property, and perhaps an asset will come on the market that wasn't there before that you like a lot more.
So there's you always want to try to find a silver lining. Right. And it's hard in this situation. So many people's lives are upended and it's it's tough. But for certain folks, there are some small silver linings that you can take advantage from. And this is one of them.
Yeah. The quickest way to overpay in real estate is to be forced to have to make a decision via 1031. So having a little bit more time, you might be able to identify a better property. One of the last things that I want to end on, unless you have anything, any other tips or tricks for people to kind of help save or find money via taxes?
Is the retirement plan contributions? There's been some adjustments or new things associated with this. So the current, amount that you can contribute if you're under the age of 50 is $23,500 per year. Right. And that's up from $23,000 flat. If you're over the age of 50, you have the catch up contribution of an additional 7500. But if you're between the ages of, what, 60 and 63, you have an extra, what, $3,750 that you can contribute during those years?
It's the special window now, as I call it. So this is a new law and the catch up has always been there and the numbers have varied. So anybody can do the 23 500 once you reach age 50 and we're using the numbers for 2025, you have the extra 7500. Now you're up to 31,000. But if you wait 60 to 63 for those golden four years, you have an extra $3,000, which in this year would be $34,000 total.
So 20,500. And for the majority of folks, certain folks are going to be able to put $34,000 away. And if your higher earning years come as you're reaching these ages or you're looking for tax deferral, take advantage of these strategies are not around forever. There is a certain window in which, based on your age, you can use them. And so this is a new one.
And peep folks do want to take advantage of it.
Yeah. And you don't have to wait until you turn that age. It has to be the year in which you turn that age. So if I'm 59 today, you know, turning 60 in January, I can make that extra, extra contribution, correct?
Correct.
Scott, this has been a fun conversation. I know that, you know, it's informational for a lot of people, but, any other things that you're seeing out there that you'd like to kind of, you know, give people some tips or ideas on.
The best thing I can tell people, and this isn't overly specific, but it gets them where they need to go, is things are changing. The rules change every year to some degree. More importantly, there's going to be a tax bill this year. Could be very simple, could be a continuation, could have new things. Stay engaged with your advisors.
That's my best bet that you have professionals out there who know the stuff and the strategy and the structure that you use, depending on what that law looks like, could change. And every situation is different. So you and I can talk about a strategy today that's great for seven people, but there's three people there's a different strategy for.
And so really engaging with your advisors and dealing with folks who are up to date on the current and the latest changes will get you where you want to go.
Thanks so much, Scott.
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