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A Note from the Accountant’s Corner:
Dec-2022 / Jan-2023
Greetings from the Accountant’s Corner
First & foremost, allow me this opportunity to pause to wish you all a blessed holiday season and a prosperous 2023!!! As you know, every new year carries the start of another tax season. But this may be the first new tax season in quite a while that doesn’t bring with-it last-minute tax changes, new tax laws, and the like. The last major legislation that we’ve seen was the passage of the Inflation Reduction Act (I.R.A.) back on August 16, 2022. If you haven’t done so already, I would encourage you to check out my exclusive September newsletter (I.R.A. newsletter) focused entirely on the I.R.A. This article will briefly focus on some practical tax preparation reminders while also highlighting a few noteworthy tax-law expirations & considerations:
Let’s face it, there’s no way around sound record-keeping, especially for business owners (and taxpayers too). Now is a great time to review your record-keeping system and ensure that you’re properly filing and documenting all of your tax and financial records. While I’m not making any suggestions here on the best record-keeping system, I would suggest that your system, whether it’s software-based, manual, and/or cloud-based, is properly maintained, secured, accessible, and reliable. Make sure that you can securely and accurately access your bank statements, W-2s, 1099s, business expenses, deductions, and other important tax and financial documents.
There’s been a lot of buzz and discussion concerning the IRS’ new $600 threshold on popular, third-party processors like Venmo, PayPal & Cash App issuing a Form 1099-K to those of us who use these convenient apps to send and receive money. However, many of you who receive money using these tools can expect to receive a Form 1099-K at the end of the year if your transaction volume exceeds $600.00. And since there’s no way for these third-party processors to differentiate between personal exchanges between family and friends, and those involving business transactions, it's likely that you may receive a tax form that includes both, business and personal transactions. Be prepared to report these Forms 1099-K as additional, taxable income, while also reviewing your individual transactions and helping your tax preparer identify business versus personal activities. Otherwise, you could be on the hook for paying income taxes on monies you received that could represent gifts, reimbursements, and the like.
Electric Vehicle Credit:
As discussed in my previous article, the Inflation Reduction Act made significant changes to the plug-in electric vehicle credit, which is now called the Clean Vehicle Credit and includes fuel-cell and hydrogen vehicles. The credit is now extended through 2032, and the previous 200,000 vehicle cap per manufacturer is lifted beginning in 2023, which is a boost for makers like Tesla, Inc. In addition to the $7,500 credit for new vehicles, there is a new $4,000 credit for used, plug-in vehicles purchased. Buyers also have the option of getting the credit as a price reduction at the time of purchase rather than waiting until tax-time. However, the legislation also puts limits on the price of eligible vehicles ($80,000 for SUVs & pick-up trucks and $55,000 for all other vehicles) and income earned by eligible taxpayers ($150,000 for single filers & $300,000 for
married filing joint filers). These restrictions may limit the vehicles eligible for the credit for some period of time.
Online IRS User Account:
Do you have an IRS online user account? If not, why not? If you haven’t done so, I strongly recommend all taxpayers to visit www.IRS.gov to create a new online account. Many of us have experienced the difficulties of contacting the IRS by telephone. The task is extremely daunting. Having an IRS user account can help eliminate the telephone hassles while also obtaining important tax information at your fingertips. Here is a view of the benefits:
1. Obtaining Tax Transcripts
2. Making A Secure Payment
3. Reviewing Your Tax Account History
4. Checking Your Account Balance
5. Creating An Installment Plan
6. Reviewing IRS Notices & Letters
7. Reviewing Your Tax Return History
Now days, it’s a no-brainer to have a tax account in order to gain access to this crucial information, without having to wait on hold for hours. Please note that in order to create an account, it will be helpful to have two forms of identification available, a smart-phone, and a computer.
Expired Tax Provisions:
As the saying goes, “all good things must come to an end,” and so is the case with temporary tax provisions that many of us have benefitted from. Here is a list of some of the more popular tax saving provisions that expired at the end of 2021 and will not be available to us for the up-coming tax season:
· $300/$600 Charitable Contribution Deduction. This deduction was available to those taxpayers in 2020 & 2021 who didn’t itemize their expenses.
· Qualified Mortgage Insurance. This deduction has been available to those taxpayers who did itemize. It’s was scheduled to expire at the end of 2021, and thus far has not been extended.
· Enhanced Child & Dependent Care Tax Credit. For tax year 2021 only, this credit was made refundable and the amount of expenses used to calculate the credit was increased from $3,000 to $8,000, if a taxpayer had one qualifying child, and from $6,000 to $16,000 if a taxpayer had two or more qualifying children. These one-time enhanced tax benefits are now longer available in 2022.
· Enhanced Child Tax Credit. The tax law also allowed a one-year increase in its child tax credit from $2,000 per child to $3,000 per child for children 6-17 years old, and $3,600 per child for children 0-5 years old. This increase credit was also issued to most taxpayers in advance over a six-month period. For 2022, these enhancements are no longer available, and we revert back to the $2,000 child tax credit limit with no advanced payments.
· Earned Income Credit. 2021 also brought special, increased earned income credit limits for those childless taxpayers. The maximum credit was temporarily increased from $543 to $1,502 in 2021. This increased benefit has expired and is no longer available.
· Recovery Rebates. Remember those economic stimulus payments (rounds 1, 2 & 3)? The last one provided a benefit of $1,400 per eligible individual. These impact payments are no longer available in 2022.
· Employer-Provided Dependent Care Assistance. For 2021, the tax law temporarily increased the maximum amount of qualifying child care expenses that eligible taxpayers could exclude from their income from $5,000 to $10,500. This benefit only carried a 1-year term and is also now expired and not available in 2022.
Increased Retirement Contribution Limits for 2023:
As usual, the IRS has increased our maximum retirement contribution limits for 2023. Specifically, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $22,500, up from $20,500. The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.
So here we are. I hope I’ve provided you with some things to consider as you begin to prepare for the upcoming tax season. Please feel free to visit our online Newsletter (https://4was.com/newsletter.html) throughout the year for more detailed and update-to-date tax information. As usual, I would encourage you to get organized now and schedule your tax appointments early.
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