Author: Leon Clinton

If you have inherited (or may someday inherit) an individual retirement account (IRA), the 2025 changes may significantly impact your tax planning.

Key Updates

• RMD requirements. Starting in 2025, annual required minimum distributions (RMDs) are mandatory for most inherited IRAs. Failure to comply may result in penalties of up to 25 percent, reducible to 10 percent if corrected promptly.
• 10-year rule enforcement. Non-spousal beneficiaries must fully deplete inherited IRAs within 10 years of the original owner’s death, with annual RMDs generally required.

Spouses and Special Cases

• Surviving spouses can assume ownership of the IRA or withdraw from it as a beneficiary. Roth IRAs offer additional flexibility, allowing for tax-free growth without RMDs.
• Minor children have until age 31 to deplete the account, with the 10-year rule beginning at age 21.
• Disabled beneficiaries may be exempt from the 10-year rule indefinitely.

Planning Strategies

Strategic withdrawals can help you avoid higher tax brackets. For example, spreading withdrawals evenly over 10 years can minimize tax impact. Timing withdrawals based on expected tax rate changes can also optimize savings.

If you want to discuss inherited IRAs, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 7, 2025

You’re probably aware that when you sell your home, you may exclude up to $250,000 of your gain from tax if you’re unmarried (or married, filing separately) and $500,000 if you are married and file jointly. 

To claim the whole exclusion, you must have owned and lived in your home as your principal residence for an aggregate of at least two of the five years before the sale. You can claim the exclusion once every two years.

The home sale exclusion is one of the great tax benefits of home ownership. Many home sellers owe no tax at all when they sell their homes.

If a home sale is tax-free due to the exclusion, do you need to report the sale to the IRS on your tax return? It depends.

Your home sale may have already been reported to the IRS by your real estate agent, closing company, mortgage lender, or attorney. The IRS has a special information return for this purpose: Form 1099-S, Proceeds from Real Estate Transactions. This form lists the gross proceeds from the sale, the property address, and the closing date.

Typically, the 1099-S is issued at the home sale closing and is included in the closing documents you receive at settlement. If you received a Form 1099-S, you must report the sale on your tax return, even if your entire gain is tax-free due to the $250,000/$500,000 exclusion. Failure to do so will result in the IRS assuming that the selling price is the taxable gain (that’s a mess).

Form 1099-S need not be filed if your home sold for less than the applicable $250,000/$500,000 exclusion and you sign a certification stating that you qualified for the exclusion. You generally do this at the closing.

If Form 1099-S was not issued, the IRS does not require you to report the sale on your return. But doing so anyway can be a good idea because it can prevent the IRS from asserting that the six-year statute of limitations on audits should apply because you omitted more than 25 percent of gross income from your return.

Reporting the sale of a principal residence is not difficult. You must file IRS Form 8949, Sales and Other Dispositions of Capital Assets, with your annual return and enter your zero gain on IRS Schedule D.

If you want to discuss the sale of your home, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 4, 2025

Missing an estimated tax payment can result in non-deductible penalties. Make timely payments via IRS Direct Pay or EFTPS—secure and convenient methods to help you avoid the penalties.

Key Points

• Due dates. For tax year 2024, payment deadlines are April 15, June 17, and September 16, 2024, and January 15, 2025. For tax year 2025, payments are due April 15, June 16, and September 15, 2025, and January 15, 2026.
• Avoid penalties. Pay at least 90 percent of your current year’s tax or 100 percent of last year’s tax—or 110 percent if prior-year adjusted gross income (AGI) exceeds $150,000.
• Exceptions. Uneven income earners can use the annualized income method to align payments with earnings.
• Catch-up payments. Catching up when you miss a payment stops the penalty from accruing further but does not achieve forgiveness for the previous penalty assessed.

If you want to discuss estimated tax payments, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• January 29, 2025