Search Results

In a last minute about face, the IRS is rolling back the requirement for third-party payment providers to issue 1099-Ks for anyone receiving payments over $600 in 2022. They are moving the reporting requirement back to $20,000 in activity and 200 or more transactions as they transition to the lower threshold in 2023. Why the change The bottom line? The IRS is not ready to figure out how to automate the auditing of those under-reporting their income from things like Ebay, Esty and Amazon sales or from sales of tickets and other goods through payment systems like Venmo and Ticketmaster. What does not change While this last-minute change may keep you from receiving a 1099-K this year, don’t count on it. Many providers are already geared up to send them out and will probably do so, since the IRS reprieve in reporting is temporary. So keep your eyes open for these forms throughout January and early February. While the IRS informational return reporting is temporarily changing, what is not changing is your requirement to report this income. So if you have activities that provide income to you, including your side hustle buying and selling event tickets, that activity is reportable on your tax return. Stay tuned In further developments, Congress is up to their old tricks in changing the rules at the end of the year. Preliminary review, of the yet unsigned bill, indicates the major changes will impact 2023 and beyond. So stay tuned, future tax tips will lay out the basic tax law changes and how you can take advantage of them.

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The 4th quarter due date for the 2022 tax year is now here. Due date: Tuesday, January 17, 2023 You are required to withhold at least 90 percent of your 2022 tax obligation or 100 percent of your 2021 federal tax obligation.* A quick look at your 2021 tax return and a projection of your 2022 tax return can help determine if a payment by Tuesday, January 17, 2023 is necessary. Here are several other things to consider: Underpayment penalty. If you do not have proper tax withholdings, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a fourth quarter catch-up payment may not help avoid an underpayment penalty if you didn't pay enough taxes in prior quarters. Self-employed. Remember to also pay your Social Security and Medicare taxes, not just your income taxes. Creating and funding a savings account for this purpose can help avoid a cash flow hit each quarter when you pay your estimated taxes. Don't forget state obligations. With the exception of a few states, you are often required to make estimated state tax payments when required to do so for your federal tax obligations. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well. *If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.

In what is becoming a terrible habit, Congress and the IRS are once again making last-minute announcements and changes. Here is what you need to know. 1099-K reporting change is delayed If you use third-party billing services such as Venmo, PayPal, Apple Pay, Ticketmaster, or SeatGeek, or selling platforms like Amazon or eBay, you will see more of this activity reported to the IRS on Form 1099-K...but maybe not right now. In a last-minute about-face announced right before Christmas by the IRS, the implementation of this reporting change that would require third-party payment providers to issue 1099-Ks for anyone receiving payments over $600 has been postponed for 12 months. The IRS is moving the reporting requirement back to the initial reporting rules, $20,000 in activity AND 200 or more transactions, for the 2022 tax year. While you may not receive a Form 1099-K to include on your 2022 tax return because of this last-minute change, don’t count on it. Congress and the IRS have been telling taxpayers and businesses for the past 21 months to prepare for this reporting change, so many of these third-party providers are already geared up to send out these 1099-Ks that were supposed to be reported on your 2022 tax return. So whether or not you receive a Form 1099-K, remember that any income you earn is required to be reported on your tax return. If you have activities that provide income to you, such as a side business, a side hustle, or buying and selling event tickets at a profit, that activity is reportable on your tax return. 2023 mileage rates are announced The IRS announced on December 29th the long-awaited mileage rates for use beginning in January 2023. The rates are: Business miles: 65.5 cents (up 3 cents per mile) Medical/Moving miles: 22 cents per mile (no change) Charitable miles: 14 cents per mile (no change) Vast changes in retirement plans are coming A $1.7 trillion dollar, 4,000-page spending bill was signed into law on December 29, 2022. Within this bill are a number of changes to retirement plans. It will take some time to figure out all the elements, but most of them come into play in 2024 and beyond. One key change worth mentioning now is that the age you'll be required to start withdrawing funds from your retirement accounts will be 73, up from age 72.

What follows is a true story. A story with a sad ending. But one that has a lesson for everyone. Stick with the story, as there's a high degree of certainty you probably know someone in this exact situation. The tax ticker is set Joe purchased Series E saving bonds each year in the 1970s. With half down and promise of double value upon maturity, Joe amassed a nice $140,000 retirement fund. After 20 years the bonds matured. Joe did not yet need the money, so he converted them to Series H savings bonds. This effectively deferred the interest income on the Series E bonds since the bonds were not cashed. With the new Series H savings bonds, Joe paid federal income tax each year on the interest earned. Meanwhile the taxable interest from the series E bonds continued to be deferred. The result? Joe thought he was paying tax on the interest each year…BUT there was a sleeping tax bill on interest income of $70,000 just waiting until Joe cashed in his series H bonds! The tax bill explodes Joe received word that his series H bonds would no longer pay interest. So he tells his grandson to go to a bank and cash in the bonds. Why have bonds that no longer pay interest? And…it’s no big tax deal because he has been paying tax on his Series H bond interest income each year. The grandson has financial power of attorney so he does as his grandfather asks. Surprise! Joe receives a notice from the IRS saying he owes them $24,000, including penalties and interest! Lessons for all of us Never disregard 1099s or printed details. When the grandson cashed in the Series H bonds, if he looked closely on the face of the bonds, he may have noticed the deferred interest. But it would contradict what grandpa had told him. Further, his grandpa probably received a Form 1099 that was disregarded because he believed he was already reporting the interest as taxable income. Old savings bonds can be confusing. There are many different issues and flavors of savings bonds. When you see any uncashed bonds, conduct the necessary research to understand your potential obligations. This is especially true for bonds past their maturity date. Ask before you sell. Always understand the tax consequences BEFORE you selling any property, or executing any transaction for that matter. Even the most innocent of transactions can have their own tax time bomb. So call an expert before you buy or sell. Tax planning matters. While Joe would always owe federal income tax when he cashed the bonds, he could have reduced his effective tax rate by cashing them in over time instead of all in one year. In this case, it exposed a lot of income to a much higher tax rate. He could have saved over $10,000 in taxes with a little planning! Because neither the bank nor federal taxing authorities believe it their duty to help you make knowledgeable tax decisions, you are on your own. This one-way street of knowledge makes having an expert on your side more important than ever!

Here’s a roundup of several recent tax court cases and what they mean for you. Locked Out of Home Sale Exclusion (Webert, TC Memo 2022-32, 4/7/22) A very generous tax break is available when selling a primary home if several basic qualifications are met, one of which is living in the home for 2 of the preceding 5 years. Single taxpayers can exclude up to $250,000 of gain; married taxpayers can get up to a $500,000 exclusion. A partial exclusion may be available due to unforeseen circumstances if you don't meet the 2 of 5 years test. Facts: Steven and Catherine Webert started experiencing financial problems soon after they purchased a home in Seattle. They began renting out their home in 2009 to make ends meet, eventually selling the home in 2015 at a gain of $194,752. The Weberts reported the sale of their rental house on their 2015 tax return, but did not report the gain based on the home sale exclusion. The IRS argued that because the taxpayers hadn't lived in the rental property for the preceding 5 years before the sale, they didn't qualify for the home sale exclusion based on the 2 of the past 5 years test. The Tax Court agreed with the IRS that the Weberts owe tax on the $194,752 gain. Tax Tip: Don't forget to include your house and other assets when developing a tax planning strategy. Be familiar with the home sale exclusion rules so you don't end up with a tax surprise when selling your home. No Letter, No Deduction (Albrecht, TC Memo 2022-53, 5/25/22) Facts: Martha Albrecht donated to a museum approximately 120 items from her and her late husband's collection of Native American artifacts. Shortly after the donation, Albrecht executed a Deed of Gift to the museum that states that the taxpayer "hereby donates the material described below to the Wheelwright Museum..." Albrecht subsequently filed a 2014 individual tax return, recording the donation as a deductible charitable contribution on Schedule A. The IRS disallowed the deduction because Albrecht did not receive a letter from the museum that stated the following: the amount of cash and a description of any property other than cash contributed whether the museum provided any goods or services in return for the contribution a description and a good faith estimate of the value of the donated items The Tax Court agreed with the IRS decision to disallow the charitable contribution deduction because Albrecht failed to meet the documentation requirements. The Court actually complimented Albrecht for a good faith attempt to substantially comply with the Tax Code by executing a deed that identified the donation as unconditional and irrevocable. Substantial compliance, the Court then reminded the litigants, unfortunately does not satisfy the strict requirements for reporting a charitable contribution as a tax deduction. Tax Tip: When making a tax deductible donation, you are responsible for obtaining written acknowledgment from the donee organization that complies with IRS rules. Many organizations mail these acknowledgment letters without you needing to ask. But if you don't receive a letter, it's your responsibility to track it down and have it in hand before filing your tax return.

The upcoming tax season is a prime opportunity for identity thieves who target your personal information through phishing scams. Here is what you need to know. Phishing requires bait Phishing is the act of creating a fake e-mail or website that looks like the real thing. This bait is then used to bring you into the scam by asking for private information. This includes your name, address, or phone number. It could also include potentially dangerous ID theft like your Social Security number, a credit card number or banking information. The bait is often very real looking - just like correspondence from the IRS or the IRS website. How to avoid the lure Here are some tips to know if the correspondence is fake. The IRS never initiates contact via email. If you get an unsolicited e-mail from the IRS requesting a response, do not reply! Instead forward the email to phishing@irs.gov. Never click or download. Perhaps even more important, never click on a link or open a file on a suspicious email. This is true even if the email comes from someone you know. Too often phishing comes from a thief impersonating someone you know. Know the web site. This includes the appearance, but more importantly the address. The valid address for the IRS is www.irs.gov. For the Social Security Administration, the address is www.ssa.gov. They may already have info about you. Competent phishers already have parts of your identity, so just because they know things like your middle name and birth date does not make them legitimate e-mails. Phishing over the phone. Phishing can also take place over the phone. If you receive an unsolicited phone call, get the person’s name and ID, then hang up. Then go to the IRS (or vendor) website, take down their phone number and call them back using this phone number. Most fake calls are ended quickly when taking this approach. Don’t forget social media. Phishing can also happen via social media and texting. Virtually every digital resource has the potential to be used as a tool for theft. Once you are in their net When the phishers have your information, they can file false tax returns requesting refunds, steal bank information, set up fake credit cards, establish false IDs, plus much more. Remember, if it smells like a phish, it probably is. So if you are netted by a clever phisher, take action quickly. Contact the IRS, local authorities, your financial institutions and credit agencies. Also review recommended steps as outlined on IdentityTheft.gov.

Legal instructions are important to leave behind in the event of your death. For most people that means having a will, but some people should consider having a living trust. A will tells a court what to do with your assets, while a living trust is a legal entity that controls your assets after you die. Here are three reasons why it may be helpful to have a living trust: 1. You want to avoid probate court. Living trusts avoid probate, which is a judicial process that many assets included in wills must go through. There are a lot of good reasons to want to avoid putting your heirs through probate. It’s a lengthy legal process that can delay their inheritance for several months or longer. It can be expensive and your state may charge fees based on a percentage of the assets you leave behind. Probate proceedings also create public records that anyone can view, so you’ll sacrifice some privacy. And, if you own property in multiple states, there will be a separate probate process carried out for each state, which can be a hassle. Assets in a living trust avoid probate court all together. When you pass away, control of the trust transfers to a person you choose, whether a relative or a paid professional trustee. They are tasked with managing the trust’s assets according to the instructions you leave behind. 2. You have heirs with special needs. A trust can provide ongoing financial management for an heir with special needs who may never be able to manage their own affairs. Your heir may also lose eligibility for some forms of government assistance if they are granted their inheritance outright through a will. A living trust could help avoid that situation. 3. You want ongoing conditions on an inheritance. While a will generally just distributes assets immediately after your death, a trustee can be given detailed instructions on how to handle the assets over the course of many years. You could, for example, instruct that an inheritance is doled out in thirds every ten years. Or, you could make an heir's access to inheritance funds dependent on them avoiding legal trouble or substance abuse. Remember, a trust only controls assets that have been placed into it, so assets outside the trust after your death won’t avoid the probate process. Most importantly, you must have a trustee you can rely on to manage the trust. How the instructions you leave behind are handled will be largely up to that person.

Here's a handy checklist to make sure your donations comply with IRS rules Donations are a great way to give to a deserving charity, and they also give back in the form of a tax deduction. The IRS, however, can be quick to disallow charitable contributions without proper documentation. Here are 6 things you need to do to ensure your charitable donation will be tax deductible. Make sure your charity is eligible. Only donations to qualified charitable organizations registered with the IRS are tax-deductible. You can confirm an organization qualifies by calling the IRS at (877) 829-5500 or visit www.irs.gov and click on the charities and non-profits tab. Itemize. You must itemize your deductions using Schedule A in order to take a deduction for a contribution. For 2022, you need to have at least $12,950 worth of deductions to itemize ($25,900 if married). If you're going to itemize your return to take advantage of charitable deductions, it also makes sense to look for other itemized deductions. These include state and local taxes, real estate taxes, home mortgage interest and eligible medical expenses over a certain threshold. Get receipts. Get receipts for your deductible contributions. Receipts are not filed with your tax return but must be kept with your tax records. You must get the receipt at the time of the donation or the IRS may not allow the deduction. Pay attention to the calendar. Contributions are deductible in the year they are made. To be deductible in 2022, contributions must be made by Dec. 31, although there is an exception. Contributions made by credit card are deductible even if you don’t pay off the charge until the following year, as long as the contribution is reported on your credit card statement by Dec. 31. Similarly, contribution checks written before Dec. 31 are deductible in the year written, even if the check is not cashed until the following year. Be extra careful with noncash donations. You can make a contribution of clothing or items around the home you no longer use. If you decide to make one of these noncash contributions, it is up to you to determine the value of the contribution. However, many charities provide a donation value guide to help you determine the value of your contribution. Your donated items must be in good or better condition and you should receive a receipt from the charitable organization for your donations. If your noncash contributions are greater than $500, you must file Form 8283 to provide additional information to the IRS. For noncash donations greater than $5,000, you must also get an independent appraisal to certify the value of the items. Keep track of mileage. If you drive for charitable purposes, this mileage can also be deducted on Schedule A. For example, miles driven to deliver meals to the elderly, to be a volunteer coach or to transport others to and from a charitable event, can be deducted at 14 cents per mile. A log of the mileage must be maintained to substantiate your charitable driving. Remember, charitable giving can be a valuable tax deduction -- but only if you take the right steps.

With ever-changing tax laws, knowing how much money to include in your quarterly estimated tax payments can be extremely challenging. To make matters worse, this uncertainty can create the need to write a larger-than-expected payment to the IRS, including possible interest and penalties! Here are some suggestions to get more accuracy in your tax forecasts and estimated payments. The basics of forecasting The objectives of an accurate tax forecast are to avoid IRS penalties and eliminate surprises. No penalties, please! To avoid IRS underpayment penalties, your estimated tax payments must be large enough to satisfy these thresholds: 1.) 90% of your current year tax liability, or 2.) 100% of your prior year tax liability (110% if your adjusted gross income is more than $150,000). So if you want to avoid any penalties you must calculate and pay estimated taxes throughout the year to satisfy the IRS. Avoiding a tax surprise. Most taxpayers want as much clarity as possible about next year’s potential tax bill way before April 15th arrives. Very few of us have a pile of cash sitting around to pay to Uncle Sam on tax day. So a tax surprise can quickly turn into a nightmare if you do not have the funds available to pay the tax. The only way to avoid the surprise is to know about it as early in the year as possible. Better tax forecasting Here are some suggestions for making your tax forecasts as accurate as possible. Make tax planning a year-round endeavor. Your initial tax forecast will naturally flow from your recently-filed tax return. But the best forecasting method reviews your situation at least once per quarter, about two weeks before quarterly estimated tax payments are due. So mark your calendar for April, June, September and January following the end of the year. If you make tax planning a year-round endeavor, you can continuously recalculate your tax liability to account for the increases and decreases in estimated income and expenses. Use a rolling average for passthrough entities. If you’re a limited partner in a partnership or a shareholder of an S corporation, consider using a 3- or 5-year rolling average of previous dollar amounts reported on past Form K-1 tax forms. This approach won’t always yield an accurate number, but using a rolling average can help eliminate some of the year-to-year volatility. Keep great books. Don’t wait until December to balance your books. This holds true for both individuals and small businesses. Create periodic income statements and project what the full year will look like. Then look at your projected cash balance. Remember, you will need to accumulate enough cash to make required estimated tax payments or face the consequences of late payment penalties. Get help! Preparing an accurate tax forecast can sometimes be very time consuming and complex. Please call if you have questions about preparing your own accurate tax forecast.

Higher property tax bills have accompanied the rising market values of homes over the past several years. If your property taxes have reached the stratosphere, here are some tips to knock them back down to earth. What is happening Property taxes typically lag the market. In bad times, the value of your home goes down, but the property tax is slow to show this reduction. In good times, property taxes go up when you buy your new home, but these higher prices quickly impact those that do not plan to move. To make matters worse, you can only deduct up to $10,000 in taxes on your federal tax return. That figure includes all taxes - state income, property and sales taxes combined! Here are some suggestions to help reduce your property tax burden. What you can do Your best bet is usually to approach your local tax assessor and ask for a property revaluation. Here are some ideas to cut your property tax bill by reducing your home's appraised value. Do some homework to understand the approval process to get your property revalued. It is typically outlined on your property tax statement. Understand the deadlines and adhere to them. Most property tax authorities have strict deadlines. Miss one deadline by a day and you are out of luck. Do some research BEFORE you call your assessor. Talk to neighbors and honestly assess the amount of disrepair your property may be in versus other comparable properties in your neighborhood. Call a few real estate professionals. Tell them you would like a market review of your property. Try to choose a professional that will not overstate the value of your home hoping to get a listing, but will show you comparable sales for your area. Then find comparable sales in your area to defend a lower valuation. Look at your property classification in the detailed description of your home. Often times errors in this code can overstate the value of your home. For example, if you live in a condo that was converted from an apartment, the property's appraised value could still be based on a non-owner occupied rental basis. Armed with this information, approach the assessor seeking first to understand the basis of the appraisal. Ask for a review of your property. Position your request for a review based on your research. Do not fall into the assessor trap of defending your review request without first having all the information on your property. Meet the assessor with a specific value in mind. Assessors are used to irrational arguments, that a reasonable approach is often readily accepted. While going through this process remember to be aware of the pressure these taxing authorities are under. This understanding can help temper your position and hopefully put you in a better position to have your case heard.

Here are some key changes to the tax code for 2022. Use this information to help understand your 2022 tax obligations and how it may change from last year’s tax return. New in 2022 Reporting of digital payments expands dramatically. If you receive more than $600 in digital payments and the IRS deems it to be business related, you will receive 1099-Ks this January. So if you use reseller platforms, receive digital payments through applications like Venmo, or digitally resell tickets, expect a more complicated tax return. Increased tracking of virtual currency transactions. More stringent reporting of cryptocurrency transactions to the IRS by brokers and dealers begins in 2023. Please be aware that many of these firms are implementing these changes throughout 2022. Increased teacher deduction. The deduction for out-of-pocket classroom supplies for teachers is $300, up from $250. If you’re married, you can deduct up to $600. Electric vehicle credit extended. The $7,500 tax credit for purchasing an electric vehicle has been extended through 2032. The problem, though, is that there are many, many more hurdles you'll have to clear before you can claim the credit. High efficiency home improvements credit extended. Qualifying high efficiency home improvements now qualify for an annual $1,200 credit, up from a $500 maximum lifetime credit. Energy efficient heat pumps, heat pump water heaters, central air conditioners, wood stoves, and natural gas or oil furnaces or boilers qualify for a $2,000 credit. Last chance for small business tax rules Two popular business rules are currently set to expire at the end of 2022 unless extended by Congress. Both involve small business expense deductibility. 100% meal deductibility. Business meals are typically only deductible at 50%. To help aid restaurants recover from the pandemic, you may deduct 100% of qualified meal expenses thru 2022. 100% bonus depreciation. This is the final year that qualified business assets can be completely expensed using the 100% additional first year bonus depreciation deduction. The bonus depreciation deduction decreases to 80% in 2023, 60% in 2024, 40% in 2025 and 20% in 2026 before expiring after December 31, 2026. Other key changes Charitable giving deductions. The deduction for charitable giving for taxpayers who don’t itemize is no longer available in 2022. This $300 reduction in income for single filers ($600 for married taxpayers) is now expired. You may now only deduct qualified charitable deductions if you itemize deductions on your tax return AND all qualified deductions exceed $12,950 if single and $25,900 if married filing jointly. Child tax credit. The advance payment of one half of this credit is gone and the dollar amount for each qualifying child rolls back to 2020 limits of $2,000 per child. Last year you could receive as much as $3,600 per child. Dependent care credit. The maximum tax credit you can earn for qualified childcare expenses is $1,050 for one qualifying individual (down from $4,000) or $2,100 for two or more qualifying individuals (down from $8,000). Mortgage insurance premium deductibility. This itemized deduction is back on the shelf for 2022 unless it is again extended by Congress. The 2017 Tax Cuts and Jobs Act eliminated this deduction, but it was reinstated by Congress as an itemized deduction through the end of 2021. Now is the time to review your situation to determine how these and other changes will impact your tax return in 2022.

As 2022 winds down, here are some ideas to help you prepare for filing your upcoming tax return and help manage your business. Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so. Shifting income and expenses. Consider accelerating income, or deferring earnings, based on profit projections. Fixed asset planning. Section 179 or bonus depreciation expensing versus traditional depreciation is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end. Leveraging business meals. Business meals are 100% deductible in 2022 if certain qualifications are met. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose on each receipt. Charitable opportunities. Consider any last-minute deductible charitable giving including long-term capital gain stocks. Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline out of a home office can be difficult to deduct, cell phone use can be documented and deducted for business purposes. Separation of expenses. Review business accounts to ensure personal expenses are not present. Reimburse the business for any expenses discovered during this review. Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit. Categorize income and expenses. Organize your records by major categories of income, expenses and fixed assets purchased to make tax return filing easier. Inventory review. Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction. Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs. Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full year earnings. Then make your 2022 4th quarter estimated tax payment by January 17, 2023.