Article Highlights:

Standard Deductions
Personal & Dependent Exemptions
Child Tax Credit
Home Mortgage Interest Limitations
Tier 2 Miscellaneous Deductions
Phaseout of Itemize Deductions
SALT Limits
Moving Deduction
Commuting Tax Benefits
Personal Casualty Losses
Estate Tax Exclusion
Tax Brackets
Alternative Minimum Tax (AMT)
Qualified Business Income (QBI) Deduction

By now you have probably gotten used to the provisions in the Tax Cuts and Jobs Act (TCJA) that became effective January 1, 2018. But don’t forget, most of the tax changes made by the TCJA are not permanent and will expire (sunset) after 2025. This will have an impact on long range tax planning and will result in a mixed bag of tax increases and tax cuts. How it will impact individual taxpayers will depend upon which provisions of TCJA affect them. The following is a review of what will happen when TCJA expires if Congress doesn’t intervene.
Standard Deductions – The standard deduction is that amount of deductions you are allowed on your tax return without itemizing your deductions. The standard deduction is annually adjusted for inflation. In 2018, the TCJA just about doubled the standard deduction as illustrated in the table below that also illustrates the 2023 standard deduction amounts. With expiration of TCJA the standard deduction will be cut roughly in half.

HISTORICAL STANDARD DEDUCTIONS

Tax Year
2017 (pre-TCJA)
2018 (post-TCJA)
2023

Married Filing Joint and Surviving Spouse
$12,700
$24,000
$27,700

Head of Household
$9,350
$18,000
$20,800

Single
$6,350
$12,000
$13,850

Married Filing Separate
$6,350
$12,000
$13,850

The increased standard deduction under TCJA benefited lower income taxpayers and retirees, whose itemized deductions often were just barely more than the pre-TCJA standard allowance. The increased standard deductions also meant fewer taxpayers claimed itemized deductions – roughly 10% of filers now itemize versus 30% before TCJA – which helped simplify these filers’ returns.
Personal & Dependent Exemptions – Prior to 2018, the tax law allowed a deduction for personal and dependent exemption allowances. One allowance was permitted for each filer and spouse and each dependent claimed on the federal return. For the year prior to the TCJA’s suspension of the exemption deduction, the exemption amount was $4,050, which would have been inflation adjusted to $4,700 in 2023. The deduction for exemptions phased out for higher income taxpayers.
Child Tax Credit – Prior to 2018 the child tax credit was $1,000 for each child below the age of 17 at the end of the year. With the advent of TCJA the child tax credit was doubled to $2,000 for each child below the age of 17 at the end of the year. This more than made up for the loss of a child’s personal exemption deduction for lower income families.
The child tax credit is subject to phaseout for higher income taxpayers. However, TCJA substantially increased the income phaseout thresholds as illustrated in the table below, so much so that the credit became available to middle-income taxpayers. Also of note is the fact that the phaseout thresholds for the credit are not inflation adjusted. As a result, each year the credit benefit is gradually diminished for higher-income taxpayers.

CHILD TAX CREDIT INCOME PHASEOUT THRESHOLDS

Filing Status
Pre-TCJA
Post-TCJA

Married Filing Joint
$110,000
$400,000

Married Filing Separate
$55,000
$200,000

Head of Household
$112,500
$200,000

All Others
$75,000
$200,000

If the credit is allowed to revert to the pre-TCJA amount of $1,000 and the lower income phaseout levels, it will have significant negative impact on families.
You may recall that for one year during the Covid-19 pandemic, the child credit amount was increased to $3,000 or $3,600, depending on the child’s age, and other temporary changes were made. Some in Congress want to permanently bring back these enhancements, so that possibility could become part of any legislation negotiations surrounding the sunsetting or extension of TCJA provisions.
Home Mortgage Interest Limitations – Prior to the passage of TCJA taxpayers could deduct as an itemized deduction the interest on $1 Million ($500,000 for married taxpayers filing separate) of acquisition debt and the interest on $100,000 of equity debt secured by their first and second homes. With the passage of TCJA, the $1 Million limitation was reduced to $750,000 for loans made after 2017 and any deduction of equity debt interest was suspended (not allowed). A return to pre-TCJA levels will tend to benefit higher income taxpayer with more expensive homes and higher mortgages.
Tier 2 Miscellaneous Deductions – TCJA suspended the itemized deduction for miscellaneous deductions for tax preparation fees, unreimbursed employee business expenses, and investment expenses. Most notable of these is unreimbursed employee expenses which allowed employees to deduct the cost of such things as union dues, uniforms, profession-related education, tools and other expenses related to their employment and profession not paid for by their employer. Investment expenses included investment management fees charged by brokerage firms and tax preparation fees, including the cost of tax return preparation and tax planning expenses. These types of expenses were allowed only to the extent they totaled more than 2% of the taxpayer’s adjusted gross income.
Phaseout of Itemized Deductions – Prior to TCJA itemized deductions were phased out for higher income taxpayers. The phaseout thresholds were annually inflation adjusted and for 2017, the year prior to TCJA taking effect, the AGI thresholds were $313,800 for married taxpayers filing jointly (half that for married filing separate), $261,500 for single filers, and $287,650 for those filing as head of household. Under TCJA the phaseouts were suspended, which only benefited higher income taxpayers. If the phaseout is reinstated, it will negatively affect upper income taxpayers, and increase the complexity of their returns.
SALT Limits – SALT is the acronym for ‘state and local taxes’. TCJA limited the annual SALT itemized deduction to $10,000, which primarily impacted residents of states with high state income tax and real property tax rates, such as NY, NJ, and CA. Several states have developed somewhat complicated work-a-arounds to the $10,000 limits that benefit taxpayers who have partnership interests or are shareholders in S corporations. The elimination of the SALT limitation will favor those residing in states with a state income tax and those with larger property taxes.
Moving Deduction – Prior to the implementation of TCJA taxpayers were able to deduct unreimbursed job-related moving costs where there was an increased commuting distance of 50 miles or more from the prior home and provided the individual worked at the new location full time for 39 weeks of the first 52 weeks (39 weeks first year and 78 weeks in first 2 years for self-employed persons). The moving deduction for active-duty military members was not suspended by TCJA. A restoration of this deduction would benefit taxpayers who are relocating because of job change where the employer is not reimbursing the cost of the move.
Commuting Tax Benefits – Prior to TCJA, an employer could reimburse an employee up to $20 a month for commuting to work on a bicycle, the $20 ($240 annually) was not taxable to the employee, and the employer could deduct the $20. TCJA suspended that benefit for bike commuters for years 2018 through 2025. In addition, although employers can provide a tax-free benefit to employees for transit passes, commuter transportation, and qualified parking, the employer is unable to deduct those expenses under TCJA. For 2023 the maximum monthly exclusion for these fringe benefits is $300 ($3,600 annually). The sunsetting of TCJA may provide an incentive for employers to once again provide the bicycle commuting benefit to their employees.
Personal Casualty Losses – Personal casualty losses are part of the Schedule A itemized deductions. TCJA suspended these losses that did not result from a federally declared disaster. If this deduction is restored, individuals will be able to deduct unreimbursed losses that exceed $100 per casualty and to the extent that these casualties exceed 10% of the individual’s AGI for the year.
Estate Tax Exclusion – TCJA virtually doubled the inflation-adjusted estate and gift tax exclusion as illustrated in the table below. This benefited wealthier taxpayers with larger estates. Also illustrated in the table is the inflation adjusted amount for 2023.

ESTATE AND GIFT TAX EXCLUSION

Tax Year

2017 (pre-TCJA)

2018 (post-TCJA)

2023

Maximum Exclusion

$5.49 Million

$11.18 Million

$12.92 Million

Most taxpayers have estates well under the pre-TCJA exclusion amount and will not be affected by a restoration of the lower amounts. However, this is not true of wealthier taxpayers, especially considering the estate tax rate is currently 40%.
Tax Brackets – TCJA altered the tax brackets and although most taxpayers benefited, higher income taxpayers benefited the most with a 2.6% cut in the top tax rate. The table only reflects different tax brackets. They may or may not apply to the same levels of income.

TAX BRACKETS

Pre-TCJA

10%

15%

25%

28%

33%

35%

39.6%

Post-TCJA

10%

12%

22%

24%

32%

35%

37%

A return to the pre-TCJA rates would have the largest negative effect on higher income taxpayers.
Alternative Minimum Tax (AMT) – As part of TCJA Congress did eliminate the Corporate AMT, and even though they had also vowed to eliminate the individual AMT, when the final TCJA was passed, it was still there. But they did include a modest increase of the AMT exemption amounts and a huge increase in exemption amount phase-out thresholds. These, in addition to several other regular tax changes made by TCJA that eliminated certain itemized deductions that caused the AMT in the past, virtually wiped away the AMT for most taxpayers that were affected by it in years before 2018. Depending what changes Congress makes when TCJA expires, the AMT could again cause grief for many taxpayers.
Qualified Business Income (QBI) Deduction – As part of TCJA, Congress changed the tax-rate structure for C corporations to a flat rate of 21% instead of the former graduated rates that topped out at 35%. Needing a way to equalize the rate reduction for all taxpayers with business income, Congress came up with a new deduction for businesses that are not organized as C corporations.
This resulted in a new and substantial tax benefit for most non-C corporation business owners in the form of a deduction that is generally equal to 20% of their qualified business income (QBI).If allowed to sunset with TCJA, businesses (generally small businesses) will lose a substantial deduction.
Of course, these potential changes assume Congress does not extend or alter them. And they aren’t the only tax issues impacted by the December 31, 2025, TCJA sunset date, but are probably those that will affect the most taxpayers. Depending upon your particular circumstances, these possible changes can potentially impact your long-term planning such as buying a home, retirement planning, estate planning, future tax liability and other issues. Please contact this office with any questions.

Due to the admittedly complicated nature of the tax code in the United States, the idea that someone might experience issues when filing is not exactly unheard of. Oftentimes people will calculate certain aspects of their returns wrong, fail to submit the necessary paperwork, or something similar. That’s part of what amended returns are for – eventually, either you or the IRS will discover the mistake and at that point, things can be properly corrected.
Of course, the chasm between a “minor accident” and “intentional fraud” when it comes to your taxes is a big one, indeed. The latter can get you into a significant amount of trouble and may even venture into criminal territory if you’re not careful.

The Case With Criminal Charges and the IRS: What You Need to Know
Whenever this topic comes up, the first question that most people ask involves “What does ‘criminal conduct’ mean within the context of the IRS, anyway?” The answer, unfortunately, is pretty broad. The government defines it as ANY action you take that violates tax laws or regulations. So if you’ve claimed a deduction that you weren’t entitled to in order to reduce your tax liability, that would be considered criminal conduct. If you underreported your income in an attempt to get a bigger refund, that would be criminal conduct.
Just because that may be true doesn’t mean the IRS will prosecute anyone and everyone it finds that falls into this category, however.
Overall, know that the IRS doesn’t go to the trouble of pursuing criminal charges for any old taxpayer with a basic filing issue, regardless of how negligent they may be. Ultimately, it will come down to a few different factors including the severity of the issue in question, whether they can prove an intent to defraud, and of course the Statute of Limitations.
To start in the reverse order, know that the Statute of Limitations is the amount of time that the IRS has to legally begin criminal prosecution in the first place. If you haven’t filed taxes at all or have underreported your income (and they can prove it), they have six years from the date the correct return was supposed to be in their hands to do anything about it.
If you have a fraudulent return, however – meaning you’ve intentionally lied about things like your income sources – there is no statute of limitations. So don’t make the mistake of assuming you’ll be able to “wait them out” on this one.
The IRS will also need to be confident that they’d be able to prove their case should they choose to bring criminal charges. If they suspect something like filing false returns, unpaid taxes, mail fraud, or even bank fraud, the most likely next step will be to begin an investigation. This will likely involve not only the dreaded audit but interviews with yourself and other key witnesses, subpoenas to obtain your financial records like bank statements, and more.
If key evidence is uncovered throughout all this, the Criminal Investigation Division (CID) of the IRS will likely get involved.

Additional Considerations About Your Taxes
Understand that when you’re talking about criminal charges and the IRS, this is not a situation to be taken lightly. The average amount of jail time given to people for tax ovation is between three and five years, for example.
But that’s not all – you could also easily get fined up to $100,000 (again, depending on the severity of the crime) or up to $500,000 if you’re a corporation. The IRS takes all of this incredibly seriously which means that you need to as well.
In the end, all of this helps to underline the importance of making sure that your taxes are done properly in the first place. Obviously, showing an intent to defraud the federal government when filing your taxes is a situation that you would do well to avoid at all costs. But you also want to guarantee that everything is submitted exactly as it should be and that you’ve ultimately paid everything you owe (whether you like it or not).
Even if you don’t rise to the bar of criminality, underpayments, late payments, and other issues could still get you hit with significant fees and other penalties. If you don’t feel like you’re able to handle things on your own, don’t be afraid to enlist the help of an experienced financial professional to do so on your behalf. That way, you’ll be able to rest easy knowing that all matters with the IRS are being taken care of.

Article Highlights:

What is the Work Opportunity Tax Credit?
Maximum Credit
Who Can Claim the Credit?
Qualified Employees
Pre-screening and Certification
Tax-exempt Employers

Summer is upon us, which signals the need for seasonal employees to fill in for workers who are on vacation during the busy months ahead and even for some gearing up for the upcoming hectic holiday season. However, given the current labor shortage many businesses are facing a tight jobs market. So, it may be time to become creative.
One solution might be hiring family members. Financially, it makes more sense to keep the family employed rather than hiring strangers, provided, of course, that the family member is suitable for the job.
You might even consider hiring your children to work in your business. Rather than helping to support your children with your after-tax dollars, you can instead hire them in your business and pay them with tax-deductible dollars. Of course, the employment must be legitimate and the pay commensurate with the hours and the job worked. Click here for information related to hiring your children in your business and the associated tax breaks.
Another solution might be hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. Doing so may allow you to benefit from the Work Opportunity Tax Credit (WOTC).
The Work Opportunity Tax Credit (WOTC) is a general business tax credit that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.
The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups.
In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:

Is in their first year of employment with the business;
Is certified as being a member of a targeted group; and
Performs at least 400 hours of services for that employer.

However, an employer cannot claim the WOTC for employees who are rehired.
Maximum Credit – Thus, the maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be considered in determining the WOTC for certain qualified veterans.
Who Can Claim the Credit – Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and in certain U.S. territories. Taxable employers claim the WOTC against income taxes, and in general, may carry the current year’s unused WOTC back one year and then forward 20 years. ‘Carrying back’ the credit means that the tax return filed for the prior year will need to be amended to claim the credit on that return. The procedure is different for eligible tax-exempt employers; please contact this office for details.
Qualified Employees – An employer may claim the WOTC for an individual who is certified as a member of any of the following targeted groups:

Qualified IV-A Recipient (relates to Temporary Assistance for Needy Families (TANF))
Qualified Veteran
Qualified Ex-Felon
Qualified Designated Community Resident (DCR)
Qualified Vocational Rehabilitation Referral
Qualified Summer Youth Employee
Qualified Supplemental Nutrition Assistance Program (SNAP) Recipient
Qualified Supplemental Security Income (SSI) Recipient
Qualified Long-Term Family Assistance Recipient
Qualified Long-Term Unemployment Recipient

Pre-screening and Certification – An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850. The instructions to Form 8850 provide details about the targeted groups.
Please contact this office for additional information and assistance to determine if hiring family members or hiring individuals who qualify for the WOTC is appropriate for your business.