10. I contributed money to my kids’ 529 education plans. What is the deduction for that?

A: Federally, none. The money grows tax free and comes out tax free as long as it’s used for qualified educational expenses. In certain states with a state income tax, there are possible deductions on the state return.

9. I am an employee for an organization and receive a W2. I also work from home and have some work expenses I pay for. Where do I deduct those?

A: Unfortunately, under the current tax law, there is no deduction for these items. The goal of congress was for employees to not have to pay for expenses that should be covered by the employer.

8. I have a home office as a self-employed person or business owner. How do I deduct that?

A: First, the home office must be considered your primary place of business. Secondly, your home office must be used exclusively as a home office and not be doing double or triple duty as a dining room table and home school area as well for example. There are many other items to consider and discuss around home offices with your tax advisor.

7. I donated my time to a charity. What is my deduction for that?

A: Unfortunately, there is no deduction for time. You can only deduct actual costs of dollars spent.

6. If I take a distribution from my business, how is that taxed?

A: In general terms, it is not taxed directly, unless it is a dividend from a C-Corp. If you have basis in your Company’s equity, there won’t be a tax consequence from the distribution. This is because you pay tax on the net income from the business in the year in which it’s earned. If you have retained cash in the Company’s bank accounts, you have already paid tax on that, so taking it out as a distribution doesn’t affect the tax situation.

5. I gifted money this year to my kids or a family member. What is my tax deduction for that?

A: There is no tax deduction for gifting money to family members. Nor is it income to the recipient. However, there is an informational filing requirement (Form 709) if such gift is over the annual exclusion amount of $18,000 for 2024.

4. I donated money to someone’s GoFundMe campaign. That counts towards my charitable donations, right?

A: No. This is not considered a charitable contribution by the IRS. A qualified charitable deduction must be a donation to a 501(c)(3) organization, a qualified not for profit organization, a charitable fund, or donor advised fund.

3. Do I really have to make estimated tax payments?

A: No, you don’t have to. I always say no one in dark sunglasses and a black suit will show up at your door if you don’t. However, you may be subject to penalties if you haven’t paid enough tax, and those penalties really sting with the IRS penalty rates at approximately 8%. To avoid penalty, the rules require you to pay tax throughout the year as you earn the income. Or you can use a “safe harbor” that requires you to pay between 100-110% of your prior year tax liability. You can pay the tax by withholding paychecks, retirement payments, etc. And if withholding is not enough, you will need to make quarterly estimated tax payments.

2. I don’t want to or can’t pay my full tax liability right now. Can we extend my return so I can pay it later?

A: An extension of your tax return only extends the time to file the return and not the time to pay any estimated tax liability. If you don’t pay what you think you may owe with your extension, you may be subject to much higher additional penalties and interest when you file.

1. I don’t want to extend my tax return because I fear it could cause me to be audited.

A: Statistically, there is no connection between extended returns and returns being audited. Returns filed both before the deadline and during the extension period are just as likely to be audited based on the contents of the return versus the timing of the return.

As for extending, there are direct benefits. First, it allows you more time to make sure you have accounted for all income and deductions possible. Second, it gives us more time to see how the current year is going. This might give us more reasons to accelerate or hold back on depreciation write-offs. Third, it allows us more time with you, our clients, to be sure we have addressed everything with you that can be considered for your tax return and planning needs.

These answers don’t cover everything. Be sure to consult with your KT tax advisor as everyone’s tax situation is unique.