Are you struggling to keep up with the latest tax law changes that could impact your wallet or business?
Don’t worry–I’ve got you covered! In today’s post, I’ll break down the three most important tax updates for 2024 so that you can stay informed and stay ahead.
Big Tax Change #1: New Exceptions to Early Withdrawal Penalty for Retirement Funds
Some big tax changes for 2024 have to do with early withdrawal of money from your IRA or other retirement account. These changes are part of the SECURE 2.0 Act that passed in 2022, but the new exceptions to the early withdrawal penalty didn’t go into effect until 2024.
These exceptions could benefit you if you have certain types of emergency or life change situations that require you to take money out of a retirement account before you reach age 59 ½.
These tax changes now allow you to avoid the typical 10% early withdrawal penalty that you would normally owe. The main requirements for the new 2024 early withdrawal penalty exceptions include:
| Type | Proof | Amount | Frequency |
|---|---|---|---|
| Domestic Abuse Victim | Self-certification | $10,000 or 50% of vested balance (lesser of the two amounts) | Within 1 year of when abuse occurred (victim can repay within 3 years) |
| Disaster Recovery (must be federally-declared; retroactive to Jan 26, 2021) | Must have “abode” in state where disaster occurred and have suffered financial loss due to disaster | $22,000 | Within 180 days of disaster (victim can use and/or repay within 3 years) |
| Emergency Personal Expense | Written statement to plan administrator | $1,000 | Once every 3 years (every year if certain requirements are met) |
| Separation from Public Safety Service | None; withdrawals from employer’s retirement funds | Unlimited | Once you separate from service and have turned 50; or once you separate from service and have at least 25 years of service |
| Terminal Illness | Doctor statement that illness can reasonably be expected to result in death within 7 years | Unlimited | Unlimited |
One interesting note is that for the emergency personal expense exception to apply, the law states that you must need money “for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses,” so this could be used for a wide range of needs.
Additionally, you should know that if needed, you can use more than one of the early withdrawal penalty exclusions during the same tax year.
As a side note, there will also be a long-term care exception that will take effect in 2026. With that exception, you’ll be able to use withdrawn retirement funds to pay for long-term care insurance premiums.
Big Tax Change #2: Beneficial Ownership Information (BOI) Reporting Requirements
Starting in 2024, any newly-formed business must file a BOI report with the Financial Crimes Enforcement Network (FinCEN) within 90 days of formation. Existing businesses will have until January 1, 2025 to file the report. The BOI report is used to disclose the identities and contact information for all of the business’ owners.
I’ve written a complete guide on these new BOI reporting guidelines to fill you in on all of the details about who should be included on the report as well as how and when you must submit a BOI report.
Big Tax Change #3: Non-fungible Token (NFT) Taxed as Collectible
An NFT, which is a type of digital asset, gives the owner a unique digital certificate of ownership that can be traded online but can’t be easily converted into money or cryptocurrency. Since an NFT can be used as a type of collectible, the IRS will now be taxing NFTs that have been treated as collectibles differently than other types of digital assets.
To tax capital gains from the sale of NFTs, the IRS will now use the maximum capital gains tax rate for collectibles, which is 28%. This is higher than the 20% rate for other types of capital gains from selling assets.
Since the IRS classifies NFTs as digital assets, you’ll still need to check the “Yes” box to answer the digital asset question on you or your business’ income tax return if you or your business received, sold, gifted, or exchanged an NFT during the tax year. You may also need to check that box if you purchased NFTs unless you used “real” money to buy the NFTs.
You should work with a certified public accountant to determine if capital gains from your NFTs will be taxed at the collectibles tax rate and to make sure you’re checking the correct digital asset box on your Form 1040 or Form 1120.
Abridged by Amy
As is the case every year, the IRS and legislators make changes to our tax laws and regulations. If you think any tax changes will affect you or your business, make sure to speak to an accountant who can help you sort through the government jargon and determine your best course of action.
