It's That Time Again

I know you are all excited that we’re finally getting into tax season! Okay… maybe that’s not the case for most of you. Oddly enough, I actually enjoy the physical act of doing my taxes, and I know I have my dad to thank for that. Justin and I were just talking yesterday about how Dad made us do our own taxes every year starting when we got our first jobs at age 16. We’d get the paper forms and instructions from the library, and go line by line, figuring it all out, calling out for Dad if we didn’t understand something. Nowadays I still do my own taxes, but I use online software, as I’m sure many of you do. However, a couple of years ago I did the paper forms again just for the nostalgic fun of it. Anyway, because it’s that time again, I’m going to use this month’s letter to cover a few tax-related items.

The first thing I want to mention is that if you have reportable activity from 2023 for your accounts, this year you will likely get two 1099s per account. One will be from TD Ameritrade for the first part of the year through August, and one will be from Schwab for any post-merger activity. Some of you may have already gotten these. If you haven’t, remaining 1099s should be sent out by mid-February. Also, depending on the preferences you have set up for your accounts, you will either get your documents by mail or will need to get them online from your Schwab account.

The second thing I want to be sure to mention is that if you did a qualified charitable distribution (QCD) from your IRA last year, this will not be marked on the 1099-R you receive. As a refresher, those 70 ½ or older can send funds directly to a qualified charity from their IRA, without paying tax on that amount, up to a certain dollar threshold (for 2024 that figure is $105,000). Therefore, if you usually give to charities and are responsible for taking a required minimum distribution (RMD), this can be a good strategy, assuming you do not need the RMD funds for something else. However, to make sure you get the tax benefit, you have to report this on your tax return. The 1040 form instructions explain how to do this, but here’s the gist: on line 4a you will enter the total of all distributions taken, and on line 4b you will enter only the taxable portion. To the side of line 4b you will write in “QCD.”

This brings me to RMDs. If you are turning 73 this year and have a traditional IRA account, you will need to start taking required minimum distributions from your account. Please give us a call and we can go over how much you’ll need to take and set up any arrangements to get those funds to you in the manner you’d like. Those of you who have been taking RMDs can do the same, of course. Usually around October, we’ll start contacting those of you who haven’t taken your required amount to make sure that you do. The maximum penalty for missed RMDs has been reduced to 25%, but that’s still a penalty you want to avoid.

Lastly, I’ll mention a few numbers for the year ahead. If you have earned income, you can contribute up to $7,000 to an IRA this year. Those who are 50 or older can contribute an additional $1000. Also, the annual gift tax exclusion for 2024 has been increased to $18,000 (or $36,000 for married spouses). You can give up to this amount to any number of people without having to report the gift. And finally, as I mentioned previously, the allowable amount for qualified charitable distributions from IRA accounts has been increased to $105,000. 

As always, if you have questions about any of this, or about anything else, give us a call, send us an email, or drop by.

Libby Anderson, CFP®