Professional Bookkeepers of LI

Opening Date for 2023 Tax Filing Season

The IRS will begin accepting 2022 tax returns for processing on January 23, 2023. Taxpayers may file their returns before that date, but may need to wait until January 23 or later to get confirmation that the return was accepted. The filing deadline for 2022 returns is April 18, 2023.

If you have a federal tax refund coming, you can track it by using the Where's My Refund tool (link below) once the IRS has accepted your return.

To avoid processing delays, make sure that your return is complete and free from errors. A tax professional can help you file an accurate return electronically and set up direct deposit, so that your refund comes as quickly as possible.

IRS Where's My Refund? Tool: https://www.irs.gov/refunds

Quarterly Estimated Tax Payments - Reminder

If you are making quarterly estimated tax payments to the IRS, the due date for the September 1st - December 31st, 2022 quarter of year is January 17th, 2023.

For payments made using IRS Direct Pay, you can make payments until 11:45PM EST, and for payments using a credit or debit card, payments can be made up to midnight on the due date.

IRS Delays Implementation of New Form 1099-K Rules – Did You Know?

The American Rescue Plan Act (ARPA) of 2021 changed the IRS reporting rules for payments sent through third-party payment processors like PayPal and CashApp. The new rules require payment processors to send a Form 1099-K to all recipients of $600 or more in payments for goods or services during a year. These rules were to take effect beginning with tax year 2022.

However, the IRS has now announced that 2022 will be treated as a “transition year” for the ARPA provisions regarding 1099-K forms. As a result, payment processors may choose to follow the previous rules, which stated that a Form 1099-K must only be sent if a business or individual received over $20,000 in payments through more than 200 transactions. The new $600 threshold will take full effect in tax year 2023.

Therefore, if you received between $600 and $20,000 for goods or services through a payment processor in 2022, with 200 or fewer transactions, you may or may not receive a Form 1099-K. Note that this transition policy applies only to the sending of 1099-K forms. You must still report all taxable income you receive through a third-party processing platform to the IRS, regardless of whether you receive a tax form showing the income. A tax professional can help you determine which payments you received may be taxable.

Standard Mileage Rates for 2023 – Did You Know?

The IRS has updated the 2023 standard mileage rates for vehicle uses that qualify for a tax deduction. These rates apply for most passenger vehicles, including cars, vans, SUVs and pickup trucks.

- 65.5 cents per mile for business use of a vehicle (up 3 cents from midyear 2022)
- 22 cents per mile for certain medical purposes or moving purposes for qualified active-duty Armed Forces members (same as midyear 2022)
- 14 cents per mile for vehicle use for qualifying charitable work (unchanged)

In most cases, taxpayers who qualify to claim a vehicle expense deduction may either use the standard mileage rate or actual expenses to figure their deduction. However, if you use your car or truck for business, you generally must use the standard rate for the first year you put the vehicle in service if you want to preserve this option for future years.

A tax professional can help you determine whether the standard mileage rate or actual expenses will result in a larger deduction in your circumstances. Keep in mind that if you choose to deduct actual expenses, you will need to keep detailed records of all vehicle-related costs.

'Tis the Season for Important Tax Paperwork

Keeping your records organized will help make sure you don't miss out on valuable deductions when it is time to file. Many taxpayers will receive year-end income statements from employers, banks, stock issuers and other sources in January and early February.

The most common documents include:

- W-2 forms from your employers, showing your wages and any taxes withheld
- Forms 1099-INT and 1099-DIV showing your interest and dividend income
- Forms 1099-MISC and 1099-NEC showing gig economy and other self-employment earnings, along with rents, royalties and other miscellaneous income
- Form 1099-K from payment processing services like PayPal and CashApp if you received $600 or more in payments through one of these platforms for goods or services
- Records of virtual currency (including crypto) transactions
- Charity donation receipts
- Health Insurance statements (like Form 1095)
- Proof of qualifying educational expenses (like Form 1098-T)
- Mortgage interest statements

December 31 IRA Deadline – Did You Know?

Many taxpayers with IRAs must take a withdrawal from their accounts each year, called a required minimum distribution (RMD). In general, taxpayers who will be 72 years of age or older by the end of this year must take a 2022 RMD from their traditional, SIMPLE or SEP IRA. Holders of Roth IRAs typically do not need to take RMDs.

The deadline for most 2022 RMDs is December 31. However, a different deadline applies if you turned 72 in 2022, and will be taking your first RMD. In this case, you may take your first RMD at any time until April 1, 2023, as long as you then take your second RMD by December 31, 2023. RMDs are generally taxable in the year when you receive the money.

Failure to take an RMD by the deadline, or withdrawing an insufficient amount, may result in a 50% tax penalty on the amount that was not withdrawn as required.

Many workplace retirement plans, such as 401(k) plans, have similar RMD rules. Taxpayers who inherited any type of IRA (including Roth) may also have to take RMDs. Your IRA trustee or administrator can help you determine whether you must take a 2022 RMD and if so, the correct amount. A tax professional can help you properly report the RMD and figure any tax due on it.

Spike in Tax-related Gift Card Scams – Did You Know?

The holiday season can bring a lot of joy, but unfortunately, it also brings a new wave of scammers trying to cheat people out of their hard-earned money. Many scammers impersonate the IRS or other government agencies and demand payment in gift cards.

In one common version of the scam, a caller posing as an IRS agent threatens a person with tax and/or criminal penalties if the person does not immediately pay off a fictitious tax debt. The scammer may also send threatening text, email or voice messages with a callback number. Ultimately, the scammer demands that the person make payment by purchasing gift cards and sharing the card numbers and PINs.

If you get a call or message from anyone demanding payment in gift cards, hang up or do not reply. The IRS will never call a taxpayer to demand payment in gift cards, prepaid debit cards or wire transfers. If you have legitimate concerns about your tax situation, including back taxes you may owe, a tax professional can help you handle the problem in a safe, secure way. To help protect others, you can report possible tax scams to [email protected].

Giving Tuesday and Charitable Donations - Did You Know?

Millions of Americans will contribute to their favorite charities on Giving Tuesday (November 29), and throughout the holiday season. Charitable donations are often described as tax-deductible, but whether you can claim a deduction for your contribution depends on several factors.

First, you generally must itemize deductions on your tax return to claim a deduction for charitable donations. Therefore, your donation will not be deductible if you use the standard deduction. Note that the special rules that allowed taxpayers who did not itemize to deduct certain monetary donations in 2020 and 2021 have now expired. A tax professional can help you determine whether itemizing deductions would be advantageous for you.

If you do itemize deductions, you may generally deduct donations of money or property to any eligible tax-exempt charity. If you are unsure whether an organization qualifies to receive tax-deductible donations, the IRS Tax-Exempt Organization Search tool (link below) can help.

Tax-Exempt Organization Search: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

Potentially Taxable Events – Did You Know?

In addition to traditional income sources like employee wages and business profits, there are a number of other activities and transactions that the IRS classifies as potentially taxable. It is important to consider all of these “taxable events” for your tax return.

The most commonly overlooked taxable events include:

- Investment income, including receiving stock dividends or cashing in bonds
- Converting a traditional IRA to a Roth IRA
- Forgiveness (discharge) of a loan or other debt, including student loans
- Sale of assets such as vehicles, musical instruments, or a home at a gain (that is, for more than you paid to purchase the assets)
- Sale or exchange of cryptocurrency (like Bitcoin), or making purchases with cryptocurrency
- Withdrawing funds from a retirement plan (or from the cash value of a life insurance policy if you withdraw more than you have paid in premiums)
- Gifts and inheritances

A tax professional can advise you about which events in your life may have tax implications, and how to properly report those events. For example, in some cases, you may only need to declare the event to the IRS if the amount of money involved exceeds a minimum threshold, known as an “exclusion.”

Charitable Contributions Can Reduce Tax on IRA Distributions – Did You Know?

In general, distributions from a traditional IRA are taxable income. However, if you have a traditional IRA and are age 70 1/2 or older, you may have the option of making tax-free charitable contributions through your IRA. A qualified charitable distribution (QCD) is a contribution made directly to an eligible charity from IRA funds. The account trustee, such as a bank or investment broker, must arrange and execute the contribution.

A QCD counts toward your annual required minimum distribution (RMD). Therefore, if you do not need funds from your traditional IRA this year, making a QCD may enable you to satisfy RMD rules without owing tax on the distribution. You must report QCDs on your tax return on the line for IRA distributions, but you may usually report the taxable portion of a QCD as zero.

Limitations on the nontaxable amount of a QCD may exist, depending on factors like your recent IRA contribution amounts. A tax professional can help you verify your eligibility to make a tax-free QCD, and properly arrange and report the transaction to comply with all IRS rules.

Charitable Donations - Did You Know?

If you are thinking of making charitable donations by year-end, the IRS has a tool to make it easier to get information about charitable organizations. The Tax Exempt Organization Search website offers additional information as well as a mobile-friendly interface.

Search tool: hhttps://www.irs.gov/charities-non-profits/search-for-tax-exempt-organizations

2023 Healthcare Open Enrollment - Did You Know?

The 2023 open enrollment period for Marketplace health insurance starts today, November 1, 2022, and ends December 15, 2022. Plans will start January 1, 2023.

Once the Open Enrollment period is over, you will only be able to enroll if there's a qualifying life event for the Special Enrollment Period.

Enrollment can be done at https://healthcare.gov, and a simple checklist of documents you'll need can be found here: https://marketplace.cms.gov/outreach-and-education/marketplace-application-checklist.pdf.

Tax Considerations for People Changing Marital Status – Did You Know? (2/2)

A person is considered married for tax purposes if they are married on the last day of the year. Therefore, the IRS urges all taxpayers whose marital status changes during 2022 to consider several possible impacts on their taxes. In particular, for taxpayers who get married this year, or become divorced or legally separated, these issues may come into play:

UPDATING YOUR WITHHOLDING: Generally, if your marital status changes, you will need to file a new Form W-4 with your employer(s) so that your paycheck withholding may be adjusted accordingly. If you also have self-employment income or work multiple jobs, you may wish to use the IRS Withholding Estimator tool (link below) to check your withholding amounts. If you pay estimated taxes, you may need to adjust your payments based on your new marital status.

CHANGING FILING STATUS: If you are married as of December 31, 2022, you may select either Married Filing Jointly or Married Filing Separately status on your 2022 federal tax return. For many couples, joint filing may result in lower tax, but exceptions exist. If you are divorced or legally separated as of December 31, you may file under Single or, if you qualify, Head of Household status. Head of Household filers receive a larger standard deduction and other tax benefits.

A tax professional can help you sort out any tax issues related to your change in marital status, including choosing the most advantageous filing designation.

IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator

New Wave of Tax-related Text Scams – Did You Know?

The IRS recently issued a warning about a dramatic increase in the number of tax-related texting scams (also called “smishing”) occurring across the U.S. The scammers typically send a text message that appears to be from the IRS, which might include fake instructions to create an online IRS account, threats of tax penalties, or promises of tax or disaster relief. The message then urges recipients to click a link or call a phone number, where criminals stand ready to steal sensitive personal information like Social Security or bank account numbers.

If you receive a suspicious text claiming to be from the IRS, do not respond or click any links. The IRS does not send text messages requesting personal, tax or financial information. You can also help stop the scammers by reporting any smishing messages to [email protected]. Include a copy of the bogus message, the number that it came from, and the date, time and location you received it.

6-Month Filing & FBAR Extensions Deadline

For taxpayers who have extensions to file their 2021 returns, the filing due date for those returns is Monday, October 17, 2022.

The October 17 deadline to file under an extension applies to several common returns, including:

2021 INDIVIDUAL INCOME TAXES:

Most individual taxpayers who requested an extension to file their 2021 federal tax returns must file by October 17. However, additional extensions may be available to some taxpayers affected by recent disasters.

2021 CORPORATE INCOME TAXES:

The October 17 deadline also applies to C corporations that requested an extension to file their 2021 corporate income tax returns (Form 1120).

FOREIGN BANK ACCOUNT REPORT (FBAR):

Many U.S. taxpayers, including individuals and businesses, must file an annual report of their foreign bank and other financial accounts, called an FBAR. Most taxpayers who are required to file a 2021 FBAR and have not yet done so must file by October 15.

Reasons to File a 2021 Federal Tax Return

Some taxpayers are not required to file federal tax returns, generally because their income falls below the filing threshold. However, choosing not to file a return may mean missing out on a tax refund. Therefore, the IRS urges all Americans who may qualify for a tax refund to file a 2021 return by the extension filing deadline of October 17, 2022 or earlier if possible.

Even if you had no tax withheld from your pay in 2021 and made no estimated tax payments, you may still be entitled to a refund if you qualify for certain federal tax credits, including:

Recovery Rebate Credit: If you were eligible for a third economic impact payment (EIP, also called a stimulus payment) in 2021, but did not receive it or got less than the full amount, you may be able to claim this credit.
Earned Income Tax Credit (EITC): Working taxpayers who had $57,414 or less in 2021 income may qualify for this credit, depending on their filing status and number of dependents. For those with dependents, the credit amount can be as high as $6,728.

Both of these credits are fully refundable, meaning that if you qualify, you may receive the credit as an IRS refund even if you owe no tax for 2021.

Child Tax Credit (CTC): You may be eligible for this credit if you had a qualifying child of age 17 or younger in 2021.
American Opportunity Tax Credit (AOTC): You may qualify for this credit if you, your spouse, or your dependent was enrolled at least half time at an institution of higher learning (such as a college, university or trade school) in 2021.

The CTC is fully refundable, while the AOTC is partially refundable.

You may also be eligible for a federal tax refund if your employer(s) withheld taxes from your paychecks, or if you made estimated tax payments at any time in 2021.

Deductions and Credits for Homeowners and New Home Buyers – Did You Know? (2/2)

Home ownership can provide a number of tax benefits. To make the most of these tax-saving opportunities, homeowners should familiarize themselves with the IRS rules on which expenses can and cannot be deducted.

In addition to home mortgage interest and mortgage insurance premiums, homeowners may generally deduct state and local property taxes. However, property tax deductions are subject to the general $10,000 deduction limit for state and local taxes. Also, in order to deduct property taxes, you must itemize deductions on your return, rather than taking the standard deduction.

Non-deductible home ownership expenses include utilities, repairs, insurance (other than mortgage insurance), most closing costs, depreciation, homeowners' association fees, and payments on the principal of a mortgage loan. A tax professional can help you determine which of your expenses you may deduct, and how to figure the deduction amounts.

Deductions and Credits for Homeowners and New Home Buyers – Did You Know? (1/2)

Home ownership can provide a number of tax benefits. For example, you may generally claim a tax deduction for mortgage interest for your main home, along with eligible mortgage insurance premiums, up to the current IRS limit. However, you may only claim these benefits if you itemize deductions, rather than taking the standard deduction for your filing status. The home mortgage interest deduction may be particularly valuable for new homeowners, since payments during the early years of a mortgage can consist primarily of interest charges.

If you receive a Mortgage Credit Certificate (MCC) from your state or local government, you may also qualify for the Mortgage Interest Credit. This credit can reduce your tax on a dollar-for-dollar basis, and you do not need to itemize deductions in order to claim it. A tax professional can help you determine whether you qualify for mortgage-related tax benefits, and if so, help you figure any deduction and/or credit amounts.

Quarterly Estimated Tax Payments - Reminder

If you are making quarterly estimated tax payments to the IRS, the due date for the June 1st - August 31st, 2021 quarter of year is Thursday, September 15th, 2022.

For payments made using IRS Direct Pay, you can make payments until 8PM EST, and for payments using a credit or debit card, payments can be made up to midnight on the due date.

Educator Expense Deduction for 2022 – Did You Know?

For tax year 2022, the maximum deduction amount has increased for the first time, to $300. Joint return filers who are both educators may deduct up to $300 per spouse.

You may qualify for this deduction if you work as a teacher, counselor, principal or aide for grades K-12 in a public or private school. You generally must work at the school for at least 900 hours during the school year.

Eligible classroom expenses include:
- Books, supplies and materials that you purchase for classroom use
- Classroom equipment, including computers, peripherals and software
- Items such as hand sanitizer and masks purchased to prevent the spread of COVID-19

Tuition and fees for professional development courses may also qualify for the Educator Expense Deduction. However, you may get a larger tax benefit by claiming the Lifelong Learning Credit or a different deduction for these costs. A tax professional can help you find the most advantageous way to report all your qualified expenses.

Newlyweds Have Special Tax Considerations – Did You Know?

If you get married in 2022, you may need to update your tax planning and report new information to the IRS and Social Security Administration (SSA). In particular, newly married couples should:

- Report any name changes to the SSA and get a new Social Security Card (link below)
- Report any address changes to the IRS and the U.S. Postal Service
- Recheck their paycheck withholding and/or estimated tax payment amounts. Marriage can affect your tax rate, as well as your deductions and credits. You can use the IRS Withholding Calculator (link below) to make sure you are staying on track.

One of the biggest tax decisions you will need to make as a newly married couple is whether to file separate returns or file jointly. A tax professional can help you determine which status is most advantageous for you.

Social Security Administration: https://www.ssa.gov/myaccount/
IRS Withholding Estimator: https://apps.irs.gov/app/tax-withholding-estimator

Crowdfunding and Taxes – Did You Know?

Crowdfunding has become one of the most popular ways to raise money for charities, businesses, and people enduring hardships. Depending on a variety of circumstances, money raised through a crowdfunding campaign may be either taxable or non-taxable.

In many cases, if people donate to a crowdfunding campaign and receive nothing in return, the IRS treats the donations as gifts. Therefore, the person who receives the funds may exclude them from their gross income for tax purposes. Also, if you organize a crowdfunding campaign for someone else's benefit, you may exclude the funds raised from your own income, as long as you do not keep any of the money for yourself.

However, there are situations where funds received through crowdfunding are taxable, such as when an employer contributes to a campaign for an employee. Taxpayers generally must also report income received via crowdfunding if contributors get goods or services in exchange for their donations.

If the funds raised exceed $600 or contributors receive goods or services, you may get a Form 1099-K from the crowdfunding website. Receiving this form does not automatically mean that you have to report or pay tax on the money raised. A tax professional can help you determine whether you must report income from crowdfunding, whether the income is taxable, and how to properly handle Form 1099-K and any other tax documents you receive.

Recognizing Scams: The IRS Does NOT Contact Taxpayers in These Ways

Scammers often claim to represent the IRS in order to steal Americans' identities or money. You can better protect yourself by learning how to distinguish legitimate IRS communications from fraudulent messages or calls. As a starting point, it is important to know that there are some types of messages that the IRS never sends.

With the exception of verification codes for secure online account login, the IRS does not contact people or businesses about tax issues via text or SMS messages. The IRS also does not send messages to taxpayers through social media platforms or chat services.

While the IRS may communicate with a taxpayer via email, the messages will not ask the taxpayer to provide personal or financial information by replying or clicking on a link. All official IRS emails will originate from an address ending in irs.gov. If you are not 100% certain that an email claiming to be from the IRS is legitimate, do not reply and do not click any links in the message. Instead, delete the message and call the IRS directly for more information.

Summer Income Tax Reminder - Did You Know? (2/2)

Americans of all ages with summer income from self-employment may need to pay estimated tax on a quarterly basis in order to avoid IRS penalties. Alternatively, if you have self-employment earnings but also work as an employee, the IRS Withholding Estimator tool (link below) can help you determine the correct withholding amount to cover your income and self-employment tax responsibilities.

You may also qualify to reduce your tax by deducting business expenses. A tax professional can help you comply with record keeping requirements, and fully prepare for any tax implications of your summer endeavors.

IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator

Summer Income Tax Reminder - Did You Know? (1/2)

Students and other young people who earn summer income, including gig economy and other self-employment income, should prepare now for potential federal tax obligations.

In particular, minors and young adults with self-employment earnings (including gig economy income) of at least $400 must file a federal tax return and may owe self-employment tax in addition to federal income tax.

$600 1099-K Threshold FAQs (3/3)

Here is an answer to one of the most common questions about the new over $600 1099-K rule.

Why have I never gotten 1099-K forms from payment processors before?

Prior to tax year 2022, the IRS only required third-party payment processors to file Form 1099-K for individuals and businesses that received over $20,000 in gross payments in a year. As a result of the dramatic lowering of this threshold, many people who have never received a 1099-K form will get one for 2022.

$600 1099-K Threshold FAQs (2/3)

Here is an answer to another one of the most common questions about this new over $600 1099-K rule.

When will I receive a 1099-K form if my payments exceed the threshold?

Third-party payment processors must file 1099-K forms to report 2022 payments by January 31, 2023. Therefore, you should receive the form in late January or early February.

$600 1099-K Threshold FAQs (1/3)

Here is an answer to one of the most common questions about this new over $600 1099-K rule.

Do payments from friends and families (splitting a check, gifts, etc.) count toward the form 1099-K filing threshold?

No, only payments for goods and services count toward the $600 limit. If you receive a Form 1099-K from a payment processor that includes non-business payments like gifts or settling up with friends, contact the processor and ask for a corrected form before you file your tax return. To help prevent this issue, remind friends and family to check the “Sending money to friends and family” option when sending payments.

Lower $600 1099-K Filing Threshold for Payment Processors – Did You Know?

A new IRS rule may affect millions of taxpayers who receive payments through third-party processors like PayPal, Venmo, Zelle and Square. The rule applies to payments for goods and services, including payments for independent contract, freelance and gig economy work.

Beginning in 2022, the annual threshold for filing a 1099-K form is $600 in gross payments for goods and services, with no minimum number of transactions. Payment processors must submit the form to the IRS and provide a copy to the recipient of the payments.

In most cases, you must report payments shown on a Form 1099-K as income on your tax return. Note that the form shows gross payment amounts, which may include processing fees. You generally must report the gross amount on your return, but you may be able to deduct processing fees and other charges as business expenses. A tax professional can help you properly figure your gross income and any deductions you are entitled to claim.

IRS Enhances “Where's My Refund” Tool – Did You Know?

The IRS has added a new feature to the “Where's My Refund?” tool, available online (link below) and in the IRS2Go mobile app. Previously, you could only use the tool to check your refund status for your most recently filed return, and only if that return covered one of the last two tax years. However, the tool can now provide information on refunds from any of the last three tax years (2019, 2020 and 2021).

To use the tool, you will need your filing status, taxpayer ID number (SSN or ITIN) and expected refund amount for that tax year.

IRS Where's My Refund? Tool: https://www.irs.gov/refunds

IRS Raises Standard Mileage Rate for Second Half of 2022 – Did You Know?

In recognition of the recent rise in gas prices, the IRS has announced an increase to the optional standard mileage rate for the second half of 2022. For January 1 through June 30 of this year, the rate is set at 58.5 cents per mile. The rate will then rise to 62.5 cents per mile for the period from July 1 through December 31.

Note that the standard rate of 14 cents per mile for eligible charitable activities will not change.

Quarterly Estimated Tax Payments & Overseas Filing Deadlines - Reminder

If you are making quarterly estimated tax payments to the IRS, the due date for the April 1 – May 31 quarter of the year is June 15th, 2022.

If you are a U.S Citizen or Green Card Holder living abroad or in active military service and have not filed your taxes yet, the deadline is also on June 15th.

For payments made using IRS Direct Pay, you can make payments until 8PM EST, and for payments using a credit or debit card, payments can be made up to midnight on the due date.

IRS Issues Answers to FAQ About 2021 Child Tax Credit (3/3)

Q: What happens if two different taxpayers claimed the CTC for the same qualifying child?

A: In some cases, a child meets all the IRS tests to be a qualifying child for multiple taxpayers. Generally, however, only one taxpayer may claim the child for the CTC. As a result, the IRS may reject a return because the taxpayer claimed the CTC for a child already listed on a return filed earlier by someone else. If this situation arises with your return, you will need to submit a paper return instead of filing electronically. You will then receive an IRS notice detailing next steps, so that IRS personnel can determine which taxpayer may actually claim the credit.