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2023 has been a relatively quiet year from both a tax standpoint, and an overall economic standpoint for the United States. After 2022 saw historically high inflation as the economy rebounded from the impacts of the pandemic, inflation has cooled somewhat, and it appears that the chances of a recession have abated.

On the tax front, 2023 (as of now) has not seen any major legislation. In the meantime, the IRS has been busy issuing guidance implementing major pieces of 2022 tax legislation. However, much of this legislation, and the ensuing guidance, is very narrowly applicable, largely impacting green energy investment and retirement planning and saving.

This means fewer tax changes in 2023 than in years past. While there are always new strategies to consider, and indeed there are some changes from recent legislation that are in effect for 2023, the usual tactics of deferring income and increasing current deductions still apply for 2023.

LEGISLATION

As mentioned earlier, there have been no major tax bills passed during 2023. With Democrats controlling the Senate and White House, and Republicans controlling the House with a very slim margin, this is hardly surprising. Indeed, very little legislation of any type has been passed by Congress.

As always, however, there is a potential for that to change before the end of 2023. At the end of September, Congress passed a continuing resolution to avoid a government shutdown, but only extended that government funding to November 17. While it is widely believed another continuing resolution will be passed before that date to kick the can a little farther down the road, there is always the potential for any continuing resolution, or any final legislation funding the government for the 2024 fiscal year, to include some sort of tax legislation.

MINIMIZING INDIVIDUAL TAXES

Income taxes

The key to any year-end planning strategy is to minimize taxes.  This is generally done by either reducing the amount of income received or increasing the amount of deductions. In recent years, the possibility of increased rates on higher incomes due to proposed legislation, or changes in qualification for various stimulus proposals, made the decision of deferral or acceleration highly dependent upon individual circumstances. However, as the end of 2023

approaches, these factors are not really in play anymore.

The impact of inflation makes deferral of income a likely winner for almost all individuals. While the increase is much lower from 2023 to 2024 (approximately 5%) than it was from 2022 to 2023 (approximately 8%) due to easing inflation, it is still much higher than it was in many years prior to 2023.

Individuals may not necessarily see increases in earnings that keep up with that level of inflation, meaning that if deferral of income from 2023 into 2024 is possible, it would mean that more income would fall into a lower tax bracket. In the long run, that would mean a lower aggregate tax burden.

Delaying and reducing gains

Like taxes on ordinary income, taxes on capital gains also apply at different rates depending upon the amount of taxable income. For 2023, the rates are as follows:

For taxpayers whose income tends to fluctuate from year to year, it would be wise to examine the impact of sales of investment items.  For taxpayers who think they may have lower income in 2024, it would be smart to hold off on a sale of a capital item if their income is at or near a threshold for a higher capital gains bracket.

This type of consideration should not be limited to capital gain taxes, but also the net investment income (NII) tax. The 3.8% NII tax kicks in at $200,000 of modified adjusted gross income for single and head-of-household filers, $250,000 for joint filers, and $125,000 for married taxpayers filing separately.

Since the NII thresholds fall right in the middle of the 15% capital gains bracket, a taxpayer to whom the NII applies because of a sale of a capital item would likely not be able to reduce the tax to 0%. But a taxpayer who is barely in the 20% bracket could defer a sale and get into the 15% bracket, meaning a sale of a capital item would only be taxed at 18.8% instead of 23.8%.

Maximizing deductions

For 2023, the inflation-adjusted standard deduction amounts are $27,700 for joint filers, $20,800 for heads of households, and $13,850 for all other filers. With standard deduction amounts so high, coupled with the $10,000 limitation on the deduction of state and local taxes, it is difficult for many taxpayers to claim enough deductions to make itemizing deductions beneficial.  Thus, maximizing deductions may not be beneficial for all taxpayers.

One of the best ways to maximize the amount of deductions is to develop a bunching strategy. This involves accumulating charitable contributions, or even medical expenses, from two or more years into one year. For example, a taxpayer may have not made any of his or her normal charitable contributions in 2022, and then made double the normal amount in 2023 in order to help surpass the standard deduction amount.

Again, the impact of inflation must be considered here, as the standard deductions are higher for 2024 as compared with 2023. Even with bunching, it might be difficult to achieve itemized deductions high enough in 2024 to surpass the standard deduction.

The same strategy can be employed for deductible medical expenses where the timing is somewhat flexible, such as for elective procedures (remember that purely cosmetic procedures are not deductible).

Bunching can be a very effective strategy, but it has to be effectively used, and potentially planned out two or three years in advance to maximize the benefit, while also taking into account shifts in tax policies as a result of political change.

Green energy

Some new or expanded provisions are in effect for the 2023 tax year as a result of the Inflation Reduction Act of 2022.

2023 is the first year that the new Energy Efficiency Home Improvement Credit is available. The credit is generally equal to 30% of the taxpayer’s qualified expenses up to annual maximum of $1,200 (which can include doors, windows, other qualifying energy property, and even a home energy audit). Also available is the Residential Clean Energy Credit, which is also equal to 30% of qualified expenses but with no annual maximum or lifetime limit. This credit is applicable to the installation of certain energy property like solar cells, small wind turbines, or battery storage. Restrictions and limitations do apply to both credits.

The much more broadly applicable credit for the purchase of electric vehicles was eliminated upon the passage of the Inflation Reduction Act of 2022. In its place are two new credits, one $7,500 credit for the purchase of a new clean vehicle (with much more stringent requirements as compared to the old credit) and a $4,000 credit for the purchase of a used clean vehicle.

Claiming any of these credits is not urgent. They are not scheduled to expire for many years. But there is no time like the present to claim a tax credit, and taxpayers looking to make these types of investments can realize immediate tax benefits for 2023 if they act before the end of the year. Additionally, these credits are not necessarily supported on a bipartisan basis, so any shift in control of Congress could lead to an accelerated expiration.

Retirement savings

Many of the changes made by the SECURE Act 2.0 are not applicable until 2024. However, there is one significant change applicable to 2023, and that is in the increase in the age at which required minimum distributions (RMDs) must begin. Starting in 2023, the age is increased to 73 for individuals who turn 72 after 2022 and age 73 before 2033.

Remember that taxpayers who are in their first RMD year have until April 15 of the following year to make that first RMD. So, while action isn’t absolutely necessary before the end of the year, affected taxpayers should start to plan for those RMDs.

SALT deduction

The Tax Cuts and Jobs Act capped the amount of the deduction for state and local taxes (SALT) at $10,000. As a result, many states have enacted legislation that permits certain pass-through entities (PTE) to elect to pay income tax at the entity level. By electing to be subject to income tax at the entity level, a PTE may reduce the federal income tax liability of its owners. Additionally, taxes paid by a PTE can be deducted by its owners and do not count towards the owner's $10,000 limit of their SALT deduction. Requirements vary from state to state, so taxpayers looking to take advantage of this new strategy should speak with their tax professionals.

Other year-end strategies

A number of other traditional year-end strategies may apply. These include:

• Maximizing Education Credits – Individuals can claim a credit for tuition paid in 2023 even if the academic period begins in 2024, as long as the period begins by the end of March.
• Increasing 401(k) Contributions – Adjusted gross income (AGI) can be reduced if individuals increase the amount of their 401(k) contributions.
• IRA Contributions – Individuals eligible for deductions for IRA contributions can claim deductions, and thus reduce AGI, for amounts contributed generally through April 15, 2024.
• Teacher deductions – Educators can claim a deduction for up to $300 of classroom expenses (like books, supplies, and computer equipment, as well as personal protective equipment, disinfectant, and other supplies used to prevent the spread of COVID-19), and should maximize those expenses by year-end.

Contact Us

Please call our office to schedule an appointment to discuss your year-end strategy. In addition to these year-end planning issues unique to 2023, the usual year-end planning strategies also still apply: maximizing qualified retirement contributions, managing gains and losses from taxable investments, considering year-end gifts and charitable contributions, and considering postponing income and accelerating deductions. There is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering the changing landscape. Please call our office to discuss all your options. 

2023 has been a relatively quiet year from both a tax standpoint, and an overall economic standpoint for the United States. After 2022 saw historically high inflation as the economy rebounded from the impacts of the pandemic, inflation has cooled somewhat, and it appears that the chances of a recession have abated.

On the tax front, 2023 (as of now) has not seen any major legislation. In the meantime, the IRS has been busy issuing guidance implementing major pieces of 2022 tax legislation. However, much of this legislation, and the ensuing guidance, is very narrowly applicable, largely impacting green energy investment and retirement planning and saving.

This means fewer tax changes in 2023 than in years past. While there are always new strategies to consider, and indeed there are some changes from recent legislation that are in effect for 2023, the usual tactics of deferring income and increasing current deductions still apply for 2023.

LEGISLATION

As mentioned earlier, there have been no major tax bills passed during 2023. With Democrats controlling the Senate and White House, and Republicans controlling the House with a very slim margin, this is hardly surprising. Indeed, very little legislation of any type has been passed by Congress.

As always, however, there is a potential for that to change before the end of 2023. At the end of September, Congress passed a continuing resolution to avoid a government shutdown, but only extended that government funding to November 17. While it is widely believed another continuing resolution will be passed before that date to kick the can a little farther down the road, there is always the potential for any continuing resolution, or any final legislation funding the government for the 2024 fiscal year, to include some sort of tax legislation.

As an example, in the waning days of 2022, Congress passed an appropriations bill that included the SECURE 2.0 Act of 2022. The Act built upon the provisions of the original SECURE Act from 2019 and further ensured that more Americans can save for retirement and increase the amount they are able to save. The Act did this by expanding upon automatic enrollment programs, helping to ensure that small employers can easily and efficiently sponsor plans for employees, and enhancing various credits to make saving for retirement beneficial to both plan participants and plan sponsors.

The Act also improved various investment options for plan participants, streamlines plan administration for plan fiduciaries, and made important changes to required minimum distributions that will help retirees with plan selections and decisions that will enhance their ability to make better use of their retirement savings. Many of the provisions of the SECURE 2.0 were not immediately applicable to 2022, or even 2023, and some changes are phased in over the course of several years. However, there are a couple changes that are now in effect, and they do present some opportunities that are discussed below.

YEAR-END BUSINESS STRATEGIES

Retirement Plans

Many of the provisions of the SECURE 2.0 Act do not take effect until after 2023. However, one change that applies to employers in 2023 is the expansion of the credit for smaller employers to start a retirement plan for employees. Effective for tax years beginning after 2022, the amount of the credit is increased to 100 percent of startup costs for employers with 50 or fewer employees, and an additional credit for contributions is added for the first five years of a plan’s existence. 

Employee Retention Credits

One of the last remaining provisions from the various pieces of COVID-19-related legislation in 2020 and 2021 is the employee retention credit (ERC). While the employment period for which the credit can be claimed has long since passed (wages paid after 2021 do not qualify for any form of the credit) the period for claiming the credit is still open. Employers who paid employees during the applicable period should speak with a tax professional to see if a credit claim can be made.

Taxpayers should be careful of advice received with regard to the ERC. Many tax promoters have been helping employers make dubious claims for the credit, which can result in penalties to the taxpayer. Recently, the IRS placed a moratorium on credit claims through the end of 2023 in order to properly process claims and address a claim backlog. Additionally, the IRS has provided instructions for taxpayers to withdraw unprocessed claims if the taxpayer believes such claims was erroneously made.

Depreciation and expensing

The Tax Cuts and Jobs Act provided very generous depreciation and expensing limitations. Businesses may want to take advantage of 100-percent first-year depreciation on machinery and equipment purchased during the year. Additionally, Code Sec. 179 expensing has an investment limitation of $2,890,000 for 2023, with a dollar limitation of $1,160,000. Note however, that these provisions do not apply to 2023 only, so there is time to take advantage of them in later years.

Clean commercial vehicles

Beginning January 1, 2023, taxpayers may qualify for a credit if they buy a new, qualified plug-in electric vehicle or fuel cell electric vehicle. Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000.  The credit equals the lesser of:

• 15% of the vehicle purchase price for plug-in hybrid electric vehicles
• 30% of the vehicle purchase price for EVs and FCEVs
• The incremental cost of the vehicle compared to an equivalent internal combustion engine vehicle

Maximum tax credits may not exceed $7,500 for vehicles under 14,000 lbs. and $40,000 for vehicles above 14,000 lbs.

Contact Us

In addition to these year-end planning issues unique to 2023, the usual year-end planning strategies also still apply, such as managing gains and losses from taxable investments and considering postponing income and accelerating deductions. There is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering the changing landscape. Please call our office to discuss all your options.

Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

• Amount has increased for certain taxpayers
• Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
• May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cashflow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.

Qualifications and how much to expect

The child tax credit and advance payments are based on several factors, including the age of your children and your income.

• The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
• The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

• Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
• A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
• Income less than certain limits

You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

IRS’s child tax credit update portal

Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

The IRS also has a non-filer portal to use for certain situations.

Let us help you.

With any tax law change, it’s important to revisit your full financial roadmap. We can help you determine how much credit you may be entitled to and whether advance payments are appropriate. How you choose to receive the credit (partially advanced via monthly payments or solely on your next year’s return) could have many impacts to your financial plans.

Please contact our office today at 941-366-3600 to discuss your specific situation. As always, planning ahead can help you maximize your family’s financial situation and position you for greater success.

IRS has announced that there are 2 new online tools available to taxpayers wanting to manage their Child Tax Credit payments. 

Taxpayers wanting to find out if they qualify for child tax credit payments, as well as update their eligibility information, including unenrolling from receiving advance child tax credit payments, are now able to do so on irs.gov website.

Click here to read more about the latest IRS announcement.

Internal Revenue Service has issued additional information pertaining to the issuance of economic impact payments, also known as stimulus checks, and we highly recommend that you visit the IRS website for up to date information on coronavirus relief. Please click below for more detail:

Economic impact payments - what you need to know

Dear clients and friends,

We hope you are all staying safe and healthy during this unprecedented time.  CODIV-19 has changed the definition of normal, and one of them is filing taxes on April 15th. As you are all aware, the IRS has extended the filing deadline and payment deadline of some returns to July 15th. On March 24th, the IRS has published Frequently Asked Questions pertaining to the new filing deadline. Please use the IRS website (click bold text above) to learn more. 

As always, should you have any questions, feel free to contact us.

With the passage of the Tax Cuts and Jobs Act, known as TCJA, you may have heard about some changes to the deductability of some business expenses such as meals and entertainment. 

In general, the new law has eliminated the deduction for entertainment, while leaving the deduction for the business meals.  In the latest news release, the IRS has provided taxpayers with additional guidance on the law changes. 

Click here to read more about the changes to the business expense deductions for meals and entertainment 

In wake of Hurricane Florence, the Internal Revenue Service is reminding everyone that criminals are once again trying to take advantage of those trying to help out people in need. Please read the following news release to avoid various scams and schemes:

IRS news release on Natural Disasters scams

We also would like to take this time to remind you that tax scammers are continuing making phone calls and sending emails impersonating IRS and at times tax practitioners.  Per IRS:

Telltale signs of a scam

The IRS (and its authorized private collection agencies) will never:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
• Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
• Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
• Ask for credit or debit card numbers over the phone.

If you receive an email that seems strange, please call our office to verify its validity.  We are always here to answer your questions. 

Please read this important Scam Alert from the IRS pertaining to erroneous tax refunds: 

IRS Scam Alert

As always, when in doubt, call our office with any questions. Do not send money to anyone without speaking to us. IRS does not demand money over the phone and always sends you a correspondence.

Tax-related identity theft continues to be an ever-growing national crisis.

The Government Accountability Office (GAO) estimated that in tax year 2013, fraudulent tax refunds misdirected to identity thieves was about $5.8 billion and impacted over 2.4 million U.S. taxpayers.  Unfortunately, this fraudulent activity has continued to rapidly expand since 2013.  All taxpayers must be diligent in further protecting themselves from becoming identity theft victims.   

As a valued client, we want to share with you some proactive steps and resources to help in your defense of tax-related identity theft. However, should you become aware that you are a victim of identity theft or that your private financial information has been compromised, please contact us immediately for additional information and assistance.

Suggestions to Protect You and Your Family from Identity Theft

Secure private personal information. Safeguard family names and birthdates, account numbers, passwords, and Social Security numbers. Carefully consider all requests to provide your Social Security number before giving it out and don’t hesitate to ask why your private information is being requested. Secure your Social Security card in a safe or safety deposit box and never in your purse or wallet. Proactively shred all documents that contain personal data before disposing of them, even solicitations and “junk” mail that may unknowingly contain account numbers and personal information.

Monitor personal information shared on social media. Cybercriminals methodically gather data from online sources, including commonly used identifiers such as birthdate, maiden name, pet name, hometown, significant other, and/or children’s information. Be cautious who you communicate with online and be selective before accepting electronic invitations from people you do not know or recognize. Separate what you post publicly from what you post with your personal contacts. Do not post personal and family data.  

Secure your computer. Use current versions of antivirus, malware protection, and firewalls and update these programs frequently. Consider having this software updated automatically, as well as using different computers for business and finances than you do for social media and personal matters. Use strong passwords, change them frequently, and do not share them with others. Review IRS Publication 4524, Security Awareness for Taxpayers, for additional tips.

Beware of impersonators. Criminals utilize sophisticated computer technology, such as dialers and automated questions, to contact thousands of targets daily. Do not provide personal information to callers you do not know. If any caller requests that you verify personal information, be extremely cautious and ask for further confirmation of their identity, such as their telephone number, website, email address, supervisor’s name, and mailing address. The IRS never initiates contact by telephone.

Beware of unsolicited emails and current phishing scams. Don’t open attachments or electronic links unless you know the sender. Internet sites should have a lock symbol to show the site is encrypted. Always beware of entering sensitive data. Forward emails received from IRS impersonators to phishing@irs.gov. The IRS never initiates contact by email, text message, or social media channels. For more guidance on phishing scams, go to irs.gov/uac/report-phishing.

Monitor your personal information. Review your bank and credit card statements often.

Consider electronic transmission of financial information. No sensitive tax or personal information should be sent via unsecured email, even information being transmitted to CPAs, bankers, and/or financial advisors. A secure portal, encrypted email, or physical mailing of sensitive information is necessary.

Order your free annual credit report. Call 1-877-322-8228 or go to www.annualcreditreport.com to request your report and/or search for creditors you do not know. Choose to use only the last four digits of your Social Security number on your report. Consider placing a credit card freeze on your account so only creditors you approve are allowed to access your file.

What to Do if You Become a Victim of Tax-Related Identity Theft

You may learn that your identity has been compromised by receiving a letter in the mail from the IRS. Alternatively, your CPA may contact you when your personal income tax return is electronically filed and subsequently rejected. If you receive a notice indicating identity theft, please contact us immediately to schedule a meeting to receive assistance in taking the appropriate steps with the IRS to resolve the matter.

Other ways you may discover your identity has been stolen include:

• Finding purchases on your credit card that you did not make
• Discovering withdrawals from an account that you did not make
• Seeing that your address has been changed for certain accounts, or no longer receiving your regular bills. (Cyber criminals may change your address when filing a return.)

The unfortunate reality is that personal data is already at risk everywhere, but we will work with you to reduce the likelihood of you being victimized by cyber criminals. As your CPA and trusted advisor, we understand the need to protect your privacy and take data protection very seriously. Our security and data integrity meets the highest industry standards established by the IRS and Federal Trade Commission. We have also established protocols to guard access to client files.

Please don’t hesitate to contact us at [phone/email] with questions or concerns or if you would like to meet with us to discuss this issue or any financial or tax needs.

Receiving an envelope from an IRS may seem daunting, however you must always take that first step and make sure to open the envelope to look at its contents.  If you have received an IRS notice, timely response is always important, and we can always help you with that process. Please read below these helpful tips on how to handle an IRS notice or a letter.  Remember to always contact us for assistance and sucessful resolution.

IRS Summertime Tax Tip - IRS Notice or Letter

Next time your phone rings, and you see an unfamiliar number, pause before answering your phone, especially if the number on your display is not a local number. Tax scam is on the rise, and in the latest IRS bulletin, you will find a listing of the latest scams going around. Read below for more, and if you ever get contacted by the IRS, please make sure to let us know.

IRS Bulletin

On May 25, 2017 Governor Rick Scott signed House Bill 7109, which is supposed to reduce the state sales tax rate on commercial leases from 6% to 5.8% starting 1/1/18. This rate decrease will be applicable to new leases. In addition, there is no change to the local surtax, which for Sarasota county is currently 1%. As a result, effective rate in Sarasota County for leases starting on or after January 1, 2018, would be 6.8%. 

IRS has issued a very urgent alert to employers about a W-2 phishing scam that is being distributed via email.  Everyone should be on alert and question any request that comes in for a W-2 information from a superior.  Please read this alert below and feel free to contact our office with any questions.

Dangerous W-2 Phishing Scam

Should you ever receive an email, a phone call or a pop-up online informing you that you owe money to the IRS, this is a sign of a scam.  The IRS never calls you or emails you or reaches you online, and the IRS never demands that you make any payments over the phone.  If you ever receive any communication from the IRS, please contact our office.

Please click here to read a very important IRS Newswire   

New tax season is almost upon us, but what do we do with our prior documents and tax returns? According to the IRS, you should keep copies of your tax returns and supporting documentation for at least three years.  Certain documents should be kept for 7 years should you need to amend your return.  Documents pertaining to the sale of real estate should also be kept for 7 years. For more information, and full text of this informative IRS Newswire, please see the link below.  As always, feel free to call our office with any questions. 

Click here to see full text of the IRS Newswire