Category: Tax

Categories
Tax

IRS Announces Tax Season Begins Monday, January 23

Get ready to file your 2022 tax return! The IRS has announced that the 2023 tax season begins on Monday, Jan. 23. As always, taxpayers are encouraged to file well in advance of the April 18, 2023, deadline to beat the last-minute rush and help prevent tax identity theft. The IRS is expecting more than 168 million individual returns this tax season. Recently, it hired over 5,000 new customer service representatives, which should cut down on the long phone waits of recent years. Taxpayers who need an extension must file their requests by April 18, 2023. They will then have until Oct. 16, 2023, to file.

Contact us with your tax questions and for help preparing and filing your return.

Categories
Tax

2022 Year-End Tax Planning for Individuals

With rising interest rates, inflation, and continuing market volatility, tax planning is as essential as ever for taxpayers looking to manage cash flow while paying the least amount of taxes possible over time. As we approach year-end, now is the time for individuals, business owners, and family offices to review their 2022 and 2023 tax situations and identify opportunities for reducing, deferring, or accelerating their tax obligations.

The information contained within this article is based on federal laws and policies in effect as of the publication date. This article discusses tax planning for federal taxes. Applicable state and foreign taxes should also be considered. Taxpayers should consult with a trusted advisor when making tax and financial decisions regarding any of the items below.

 

Click here to view the year-end tax planning checklist for individuals.

Categories
Tax

2022 Year-End Tax Planning for Businesses

U.S. businesses are facing pressure to drive revenue, manage costs and increase shareholder value, all while surrounded by economic and political uncertainties. Disruptions to supply chains brought about by the pandemic have continued into 2022. Inflation and rising interest rates have made the cost of debt, goods and services more expensive and cooled consumer spending. The stock market has declined sharply, and the prospect of a recession is on the rise. What’s more, the outcomes of the upcoming November U.S. congressional elections — which as of the publication of this article are as yet unknown — will shape future tax policies. How do businesses thrive in uncertain times? By turning toward opportunity, which includes proactive tax planning. Tax planning is essential for U.S. businesses looking for ways to optimize cash flow while minimizing their total tax liability over the long term.

 

This article provides a checklist of areas where, with proper planning, businesses may be able to reduce or defer taxes over time.  Unless otherwise noted, the information contained in this article is based on enacted tax laws and policies as of the publication date and is subject to change based on future legislative or tax policy changes.

 

Click here to view the year-end tax planning checklist for businesses.

Categories
Tax

Plan Now to Make Tax-Smart Year-End Gifts to Loved Ones

Are you feeling generous at year-end? Taxpayers can transfer substantial amounts free of gift taxes to their children or other recipients each year through the proper use of the annual exclusion. The exclusion amount is adjusted for inflation annually, and for 2022, the amount is $16,000. The exclusion covers gifts that an individual makes to each recipient each year. So a taxpayer with three children can transfer a total of $48,000 to the children this year free of federal gift taxes. If the only gifts are made this way during a year, there’s no need to file a federal gift tax return. If annual gifts exceed $16,000, the exclusion covers the first $16,000 and only the excess is taxable.

 Note: This discussion isn’t relevant to gifts made to a spouse because they’re gift tax-free under separate marital deduction rules.

Gift splitting by married taxpayers

If you’re married, gifts made during a year can be treated as split between the spouses, even if the cash or asset is actually given to an individual by only one of you. Therefore, by gift splitting, up to $32,000 a year can be transferred to each recipient by a married couple because two exclusions are available. So for example, a married couple with three married children can transfer a total of $192,000 each year to their children and the children’s spouses ($32,000 times six). If gift splitting is involved, both spouses must consent to it. This is indicated on the gift tax return (or returns) of the spouses’ file. (If more than $16,000 is being transferred by a spouse, a gift tax return must be filed, even if the $32,000 exclusion covers total gifts.) 

The “present interest” requirement

For a gift to qualify for the annual exclusion, it must be a “present interest” gift, meaning the recipient’s enjoyment of the gift can’t be postponed to the future. For example, let’s say you put cash into a trust and provide that your adult child is to receive income from it while your child is alive and your grandchild is to receive the principal at your child’s death. Your grandchild’s interest is a “future interest.” Special valuation tables determine the value of the separate interests you set up for each recipient. The gift of the income interest qualifies for the annual exclusion because the enjoyment of it isn’t deferred, so the first $16,000 of its total value won’t be taxed. However, the “remainder” interest is a taxable gift in its entirety. If the gift recipient is a minor and the terms of the trust provide that the income may be spent by or for the minor before he or she reaches age 21 and that any amount left is to go to the minor at age 21, then the annual exclusion is available. The present interest rule won’t apply.

“Unified” credit for taxable gifts

Even gifts that aren’t covered by the exclusion, and are therefore taxable, may not result in a tax liability. That’s because a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $12.06 million for 2022. However, to the extent you use this credit against a gift tax liability, it reduces or eliminates the credit available for use against the federal estate tax at your death. 

Contact your ATA representative if you are interested in making year-end gifts to your loved ones or if you have any questions about tax planning.

Categories
Tax

Sen. John Thune and Sen. Ben Cardin Recently Introduced the Athlete Opportunity and Taxpayer Integrity Act

More than a year ago, the U.S. Supreme Court ruled that student-athletes can be compensated for the use of their names, images, or likenesses (NIL). Now, a new bipartisan bill would eliminate a tax incentive for contributions to tax-exempt affiliates of colleges and universities. Since the ruling, groups of college boosters (third-party entities that promote a program’s interests) have formed what are known as NIL collectives. Sen. John Thune (R-SD) and Sen. Ben Cardin (D-MD) recently introduced the Athlete Opportunity and Taxpayer Integrity Act, which would bar individuals and organizations from claiming tax deductions for donations used by collectives for NIL payouts to student-athletes.

Contact one of our experts with all your tax-related questions.

Categories
Tax

Deducting Eligible Medical Expenses

Taxpayers that itemize may be able to deduct eligible medical expenses they incurred for themselves, their spouses, and dependents, subject to limits. Taxpayers bear the burden to prove the expenses, to show they were paid during the tax year and weren’t reimbursed by insurance. 

 

One corporate executive and her husband deducted medical expenses of $41,648 on behalf of her father. They claimed the medical bills were paid by intrafamily loans but provided no proof that the loans had been repaid or that insurance hadn’t reimbursed them. Their records, they stated, were lost due to a hurricane and other setbacks. The U.S. Tax Court partially disallowed the deduction. (TC Memo 2022-99)

 

Contact one of our experts to discuss what expenses are eligible for deduction.

Categories
Tax

Hurricane Ian Victims in Florida Qualify for Tax Relief

-UPDATE-

Hurricane Ian is likely to rank as one of the most destructive storms in U.S. history. The federal government has announced tax relief for all of Florida’s residents and businesses. If you’ve been affected by Hurricane Ian, visit the IRS’s dedicated webpage for details, updates, and resources: https://bit.ly/3rqYnyI

–

The IRS has provided return filing and payment extensions to taxpayers who are located in FEMA-designated areas of Florida affected by Hurricane Ian. The relief postpones various deadlines that occurred starting Sept. 23, 2022, until Feb. 15, 2023. This means individuals who have a valid extension to file their 2021 tax returns due to run out on Oct. 17, 2022, now have until Feb. 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments aren’t eligible for this relief. For more information: https://bit.ly/3BWZyL0

Categories
Tax

Year-End Tax Planning Ideas for Individuals

Now that fall is officially here, it’s a good time to start taking steps that may lower your tax bill for this year and next. One of the first planning steps is to ascertain whether you’ll take the standard deduction or itemize deductions for 2022. Many taxpayers won’t itemize because of the high 2022 standard deduction amounts ($25,900 for joint filers, $12,950 for singles and married couples filing separately, and $19,400 for heads of household). Also, many itemized deductions have been reduced or abolished under current law. If you do itemize, you can deduct medical expenses that exceed 7.5% of adjusted gross income (AGI), state and local taxes up to $10,000, charitable contributions, and mortgage interest on a restricted amount of debt, but these deductions won’t save taxes unless they’re more than your standard deduction.

Bunching, pushing, pulling

Some taxpayers may be able to work around these deduction restrictions by applying a “bunching” strategy to pull or push discretionary medical expenses and charitable contributions into the year where they’ll do some tax good. For example, if you’ll be able to itemize deductions this year but not next, you may want to make two years’ worth of charitable contributions this year.

Here are some other ideas to consider: Postpone income until 2023 and accelerate deductions into 2022 if doing so enables you to claim larger tax breaks for 2022 that are phased out over various levels of AGI. These include deductible IRA contributions, child tax credits, education tax credits and student loan interest deductions. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. However, in some cases, it may pay to accelerate income into 2022. For example, that may be the case if you expect to be in a higher tax bracket next year. If you’re eligible, consider converting a traditional IRA into a Roth IRA by year-end. This is beneficial if your IRA invested in stocks (or mutual funds) that have lost value. Keep in mind that the conversion will increase your income for 2022, possibly reducing tax breaks subject to phaseout at higher AGI levels. High-income individuals must be careful of the 3.8% net investment income tax (NIIT) on certain unearned income. The surtax is 3.8% of the lesser of: 1) net investment income (NII), or 2) the excess of modified AGI (MAGI) over a threshold amount. That amount is $250,000 for joint filers or surviving spouses, $125,000 for married individuals filing separately and $200,000 for others. As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax depends on your estimated MAGI and NII for the year. Keep in mind that NII doesn’t include distributions from IRAs or most retirement plans.

It may be advantageous to arrange with your employer to defer, until early 2023, a bonus that may be coming your way. If you’re age 70½ or older by the end of 2022, consider making 2022 charitable donations via qualified charitable distributions from a traditional IRA — especially if you don’t itemize deductions. These distributions are made directly to charities from your IRA and the contribution amount isn’t included in your gross income or deductible on your return. Make gifts sheltered by the annual gift tax exclusion before year-end. In 2022, the exclusion applies to gifts of up to $16,000 made to each recipient. These transfers may save your family taxes if income-earning property is given to relatives in lower income tax brackets who aren’t subject to the kiddie tax. These are just some of the year-end steps that may save taxes.

Contact one of our experts to work on a plan that is best for you.

Categories
Tax

Time is Running Out for the October 17th Deadline

If you requested an extension from the IRS to file your 2021 tax return, the Oct. 17 deadline is coming up soon. Taxpayers who asked for an extension should file on or before the deadline to avoid a late-filing penalty. Although Oct. 17 is the last day for most people to file, certain taxpayers may have more time; including military members and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due. Also, taxpayers in federally declared disaster areas who already had valid extensions are given more time. Contact us right away to prepare your return to avoid penalties and claim any refund due.

Categories
Tax

Are you aware of the Residential Clean Energy Credit?

The Clean Vehicle Credit is getting some of the attention, but the Inflation Reduction Act (IRA) also includes many new or revised home energy improvement-related tax credits. For example, the credit previously known as the Residential Energy Efficient Property (REEP) Credit is now the Residential Clean Energy Credit. Individuals are allowed a personal tax credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes before 2024. Under the IRA, the credit has been extended for property installed before 2035. The credit is also available for qualified battery storage technology expenditures.

Contact one of our experts for more information.