7 Exceptions tothe 10% Early withdrawlal penalty

Buying Your First Home Purchasing a first home is a life-altering event that may warrant the use of IRA funds. The IRS offers a boon to first-time homebuyers through a penalty-free withdrawal from an IRA of up to $10,000 for qualified acquisition costs, which include buying, building or rebuilding a home, as well as any usual or reasonable settlement, financing or other closing costs. Remember, this is a lifetime limit, and the funds must be used within 120 days of withdrawal. Medical Expenses Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year can lead to a penalty-free withdrawal from an IRA. For example, if your AGI is $100,000, only medical expenses exceeding $7,500 could be considered. IRS Levy An early withdrawal due to an IRS levy is exempt from the 10% penalty, as these funds are used to satisfy the tax debt. The process involves the IRS providing written notice of the impending levy and then, if the debt is not resolved, seizing assets including IRA funds. Substantially Equal Periodic Payments (SEPP) The establishment of substantially equal periodic payments (SEPP) allows individuals to withdraw funds from their IRA without penalty by setting up a series of substantially equal payments based on their life expectancy or the joint life expectancies of themselves and their designated beneficiary. Unemployed Health Insurance Individuals who are receiving unemployment benefits and use IRA funds to pay for health insurance premiums also may be exempt from the early withdrawal penalty. However, the person must be unemployed for 12 weeks and receive their benefits in the same year the early withdrawal is taken. Disaster Recovery Victims of federally declared disasters may access up to $22,000 in IRA funds without penalties to aid in disaster recovery efforts. This exception aims to provide financial relief to those affected by natural disasters such as hurricanes, wildfires, or floods. Death Beneficiaries of an IRA are exempt from the 10% early withdrawal penalty, with spouses having the option to transfer the funds into their own IRA, while non-spouse beneficiaries must follow specific IRS distribution rules based on the decedent’s age and the beneficiary’s relationship to the decedent. Returned IRA Contributions If you’ve contributed more to your IRA than allowed, the excess contributions can be withdrawn without penalty by the tax filing deadline (including extensions) of the following year, as long as the tax return has not been filed. However, this exception does not apply to the earnings of excess contirbutions. Military Reservists Members of the military reserve who are called to active duty for at least 180 days may be eligible to withdraw funds from their IRA penalty-free. This provision honors the service and sacrifices of military personnel and their families, providing access to funds when needed most. However, reservists who take advantage of this exception may not make new contributions to their plan for at least six months following the early withdrawal. Can I Make an Early Withdrawal After Losing My Job? An employee leaves her office after being laid off from her company. If you’re transitioning between jobs, you may be wondering whether you can withdraw from your IRA without penalty. The IRS does not classify job separation as an exception to the early withdrawal penalty rules for IRAs. Therefore, if you choose to make a withdrawal, you should weigh the potential costs against your immediate financial needs before proceeding with an early withdrawal from your IRA. Making this financial move requires a clear understanding of both the immediate and long-term consequences that could arise from tapping into your retirement savings prematurely. In the long term, early withdrawals can significantly impact the growth of your retirement savings due to the loss of compounding interest. Bottom Line While IRAs are designed to secure financial stability in retirement, understanding the various exceptions to the early withdrawal penalty is critical for managing unforeseen financial needs without undermining your long-term savings. Whether it’s due to disability, education expenses, a first home purchase, or any of the other specific exceptions outlined by the IRS, knowing these regulations can help you make informed decisions that can protect your nest egg. Retirement Planning Tips Required minimum distributions (RMDs) are mandatory withdrawals you must take from tax-deferred accounts, starting at age 73. These distributions will raise your taxable income for the year, increase your tax liability and potentially propel you into a higher tax bracket. That’s why it’s important to plan for them. Luckily, SmartAsset has a tool designed to help you calculate how much your RMDs could be. Don’t forget to account for Social Security benefits as you plan for retirement. SmartAsset’s Social Security calculator can help you estimate how much you may be eligible to receive based on your earnings and age at which you plan to claim your benefit. A financial advisor can help you invest your retirement savings and even manage your IRA for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Nurses Home Office Deduction

If you're a W-2 worker — meaning your employer withholds taxes from your paychecks — you can't take the home office deduction for 2023. However, freelance and contract workers with income reported via 1099-NEC may qualify.

Form 3922, what?

IRS Form 3922 is for informational purposes only and isn't entered into your return. Keep the form for your records because you'll need the information when you sell, assign, or transfer the stock. When the stock is sold, you will receive form 1099-B that will need to be reported on your tax return.

Diminishing Tax Refunds

Tax refunds so far this year are noticeably smaller than they were at the same time last year, according to early data published by the IRS.

150 hour rule to sit for cpa

the 150 hour tule to sut fir the cpa exam drives candidates aesy from trying to pass the cpa exam

Depreciate breeding dogs

Depreciate any dogs you keep for breeding purposes. According to IRS MACRS rules (Modified Accelerated Cost Recovery System), breeding dogs are seven-year property. This means that you depreciate them over the course of seven years.

You can board your animals in FL with no sales tax

Is a pet fee taxable in Florida? (a) Charges for boarding animals or for grooming animals are not subject to tax. (b) Items purchased for use in providing boarding or grooming are subject to tax. For example, cat food, dog food, nail care items, clippers, shears, brushes, combs, soaps, detergents, deodorizers, and colognes are subject to tax.

Do you have to file that inactive Corp?

an inactive Corp must still gile its annual tax rrturn eith the irs

Processed a W2 two times, whew, thon it is ok!

What happens if you file a W-2 twice? You may have added the W-2 after you had already e-filed. In which case, return to the Wages & Income section and delete the W-2 to restore your return it to its original state when you e-filed. If you added the W-2 after you filed, adding the W-2 again will not change your original e-file submission.Jun 4, 2019

Tax Season

When is the tax deadline in 2024? April 15. Tax Day always falls on that date, unless April 15 falls on a weekend or holiday. Next year, it comes on that darkest of days, a Monday. When does tax season start? Late January. In 2023, the IRS set Jan. 23 as the official start of tax season, marking the date the agency began accepting 2022 tax returns. How early can I file my 2023 taxes? Again, late January. The IRS has not yet set the date it will begin accepting 2023 returns. What are the new income tax brackets? Income tax brackets jumped by 7% for 2023. Income tax is progressive: the more you earn, the more you pay as a percentage of your earnings. Each bracket represents a range of incomes subject to a particular income tax rate. Tax brackets will rise again in 2024. Here are the 2023 tax brackets: Related video: Money-saving moves to get in your finances on track in 2024 (TODAY) As 2023 comes to a close,Video Player is loading. TODAY Money-saving moves to get in your finances on track in 2024 For individual filers: ◾ 37% for incomes over $578,125. ◾ 35% for incomes over $231,250. ◾ 32% for incomes over $182,100. ◾ 24% for incomes over $95,375. ◾ 22% for incomes over $44,725. ◾ 12% for incomes over $11,000. ◾ 10% for income below $11,000. For married couples filing jointly: ◾ 37% for income greater than $693,750. ◾ 35% for incomes over $462,500. ◾ 32% for incomes over $364,200. ◾ 24% for incomes over $190,750. ◾ 22% for incomes over $89,450. ◾ 12% for incomes over $22,000. ◾ 10% for income below $22,000. What is the new standard deduction? The standard deduction for 2023 also increased by about 7%, to $13,850 for individuals and $27,700 for married couples filing jointly. What is the standard deduction for seniors? People over 65 qualify for an additional standard deduction. For 2023, it’s $1,850 if you are single or filing as a head of household, and $1,500 for married taxpayers. Both figures increased by $100 over 2022. Have itemized deductions changed? Itemized deductions “mostly remain the same” in 2023, according to Charles Schwab. A few specifics: ◾ State and local taxes: Taxpayers who itemize may deduct up to $10,000 in property, sales, or income taxes they have already paid to local or state governments. ◾ Mortgage interest: You can generally deduct interest paid on the first $750,000 of mortgage debt, according to NerdWallet. People who bought a house before Dec. 16, 2017, may deduct interest on the first $1 million. ◾ Medical expenses: You may deduct only medical and dental expenses that exceed 7.5% of your adjusted gross income. What are the new IRA and 401(k) contribution limits? Employees who participate in company retirement plans could generally contribute $22,500 to their 401(k) this year, up from $20,500 in 2022. Those who didn’t participate in an employer-sponsored plan could contribute $6,500 to an individual retirement account (IRA). People 50 and older have higher limits. For 2024, the limits rise to $23,000 and $7,000. What is the new health savings account (HSA) contribution limit? HSA contribution limits were $3,850 for individual coverage and $7,750 for family coverage in 2023, according to Fidelity. In 2024, they rise to $4,150 and $8,300. What is the income limit for child tax credits? The 2023 child tax credit is worth up to $2,000 per qualifying dependent under age 17, according to NerdWallet. The credit decreases if your modified adjusted gross income exceeds $200,000, or $400,000 for a married couple filing jointly. What’s the difference between filing as single or head of household? You can claim “Head of Household” status if you are single or unmarried and maintain a household that includes a child or relative. The status provides for a larger standard deduction and more generous tax rates, according to H&R Block. Early birds: Your single largest payday may be a 2023 tax filing away. File early to get a refund sooner Profile Picture Get unlimited digital access to USA TODAY and premium Sports+ stories One month free Get it now Where can I find a tax refund estimator? TurboTax, H&R Block, NerdWallet and AARP all offer tax refund estimators. When can I expect my refund? In a month or less, in most cases. The IRS says it issues most refunds within 21 calendar days. Paper returns, however, can take four weeks or more. Allow for time for the refund check to reach your bank account or mailbox. More of your 2024 tax season questions answered IRS announces new tax brackets for 2024. What does that mean for you? Flush with new funding, the IRS zeroes in on the taxes of uber-wealthy Americans Need a new tax strategy? These money-saving tips taken by Dec 31 may help pad your pockets Your single largest payday may be a 2023 tax filing away. File early to get a refund sooner Is it better to pay someone to do your taxes or do them yourself? We'll help you decide. New IRS tax brackets and standard deductions for 2024: See how much they were raised IRS delays 1099-K rules for ticket sales, announces new $5,000 threshold for 2024 IRS to offer pandemic-related relief on some penalties to nearly 5 million taxpayers Driving for work will pay more next year after IRS boosts 2024 mileage rate What is OASDI tax on my paycheck? Here's why you and your employer pay this federal tax. A 30% national sales tax? Abolishing the IRS? Here's what the FairTax Act of 2023 would do These 8 states don’t have an income tax. Does yours make the list? What is net pay? How it works, how to calculate it and its difference from gross pay Daniel de Visé covers personal finance for USA TODAY. This article originally appeared on USA TODAY: Tax season can be terrifying. Here's everything to know before filing your taxes in 2024.

Bonus Depreciation in 2023

In 2023, the bonus depreciation phase out begins. Businesses can write off only 80% — instead of 100% — of an eligible property's purchase price in 2023. In the years following, that percentage will reduce by 20 points each year until bonus depreciation is completely phased out by 2027.Sep 5, 2023

Cash basis accounting relief

In most cases, businesses with inventory cannot use the cash method. However, small businesses with inventories may be allowed to use the cash method.. source cch. The TCJA expands the availability of the overall cash method of accounting to any taxpayer — other than a tax shelter — meeting the new $25 million gross receipts test under Sec. 448 (c). It also removes the limitations placed on small taxpayers operating in certain industries from using the cash method of accounting.

2024 Tax Brackets

Tax brackets for people filing as single individuals for 2024 10%: Taxable income up to $11,600 12%: Taxable income over $11,600 22%: Taxable income over $47,150 24%: Taxable income over $100,525 32%: Taxable income over $191,950 35%: Taxable income over $243,725 37%: Taxable income over $609,350 Tax brackets for joint filers in 2024 10%: Taxable income up to $23,200 12%: Taxable income over $23,200 22%: Taxable income over $94,300 24%: Taxable income over $201,050 32%: Taxable income over $383,900 35%: Taxable income over $487,450 37%: Taxable income over $731,200

IRS delays reporting Venmo, paypal

IRS is temporarily delaying the reporting of venmo and paypal whose recipients made over $600

Expats, exclude up to $120,000 if you are a Foreign Earned Income

Expats are allowed to exclude up to $120,000 of your income from US Taxes.

Efile W2

File your W-2 forms SOLVED•by QuickBooks•477•Updated 2 weeks ago Learn when and how to submit your W-2 forms to the Federal and state agencies through QuickBooks Online Payroll and QuickBooks Desktop Payroll. Sending your W-2 forms to the appropriate agencies on time is an important payroll task at the end of the year. Depending on your payroll product, we may do this for you, or you can file electronically using QuickBooks. Starting tax year 2023, if you have 10 or more combined 1099s, W-2s or other federal forms to file, you must file them electronically. To learn more, see IRS and Treasury issue final regulations on e-file for businesses. File your W-2s electronically Select your product below to get started. Note: Not sure which payroll service you have? Here's how to find your payroll service. QuickBooks Online Payroll QuickBooks Desktop Payroll Assisted QuickBooks Desktop Payroll Enhanced QuickBooks Desktop Payroll Standard, QuickBooks Desktop Payroll Basic Deadline to file your W-2s The deadline to file electronically is January 30. File your state W-2 forms If you use QuickBooks Online Payroll Core, Premium, or Elite, your state W-2s are automatically filed with your Federal W-2s. If you use QuickBooks Desktop Payroll Enhanced, see File state W-2 forms When to file a W-3 with the Social Security Administration (SSA) You don’t need to file a W-3 with the SSA if you send your W-2s electronically. The W-2s go to both the IRS and the SSA. Was this helpful? Yes No You must sign in to vote, reply, or post QuickBooks Online Payroll CoreQuickBooks Online Payroll EliteQuickBooks Online Payroll PremiumQuickBooks Payroll AssistedQuickBooks Payroll BasicQuickBooks Payroll EnhancedQuickBooks Payroll Standard Sign in for the best experience Ask questions, get answers, and join our large community of QuickBooks users. Sign In / Sign Up

Closing Costs of a building tax treatment

Closing costs on a business/rental building fall into 1 of 3 categories, 1) Deduct up front in the current year, 2) Amortize the closing costs over the life of the loan 3) Capitalize the asset and depreciate it over the life of the loan. Have to pick one option and stick with it!

EFTPS now requires 2 party authorization

Effective October 19, 2023, businesses and individual taxpayers who make payments electronically via the Electronic Federal Tax Payment System (EFTPS) must utilize Multi-Factor Authentication (MFA). The primary goal is to further enhance the website’s security and safeguard against unauthorized access threats. Multi-factor Authentication Required for EFTPS Effective October 1…

Donate from IRA and it may not count as income!

People who are age 70 ½ or older can contribute up to $100,000 from their IRA directly to a charity and avoid paying income taxes on the distribution. This is known as a qualified charitable distribution. It is limited to IRAs, and there are other exclusions and considerations as well.

College 529 Plans can roll into Roth IRA

Saving for college with multiple children: New considerations The new 529 rollover to Roth IRA - TOPICS/ Personal Financial Planning Education Planning To alleviate some of thechallenges that arise when funds are left unspent in qualified tuition plans,typically called Sec. 529 plans, once the beneficiary has completed their education, a new rule allows limited rollovers from 529 plans to Roth IRAs. This has also created new wrinkles for families with multiple children who have already started or even completed their educations. - Until the new rule goes into effect starting in tax year 2024, beneficiaries with leftover funds in a 529 account have had limited options to use these funds without triggering taxation and penalties on the growth of account assets. For families with multiple children, a helpful practice has been to fund 529 accounts for each child, knowing that leftover funds in one child's account can be transferred to the 529 account of another child should they be unused. - This has worked well and will continue to be a useful option, but the new 529-to-Roth transfer, which was included in the SECURE 2.0 Act (enacted as part of the Consolidated Appropriations Act of 2023, P.L. 117-328) has some parents rethinking these transfers. That rule allows for up to $35,000 to be rolled into a Roth IRA so long as the IRA is in the name of the same beneficiary as the 529 and certain other requirements are met. For background, see "Saving for College: The New 529-to-Roth IRA Transfer Rule," JofA, March 6, 2023. - New choices The new ability to roll funds from a 529 plan to a beneficiary's Roth IRA leaves families with certain options they didn't previously have. For instance, out of a sense of fairness, some parents may want to allow children who don't exhaust education savings that have been set aside specifically for their own use to be able to kickstart their retirement savings through the limited Roth IRA rollover option. (The child could also use the Roth IRA to, for example, help fund a first-time home purchase; see "3 Strategic Uses for Roth IRAs Beyond Retirement," JofA, Aug. 2, 2022). - The issue that arises, however, is that a tax-free transfer of funds to a Roth IRA is available only for a 529 account of a designated beneficiary that has been maintained for at least 15 years. And when the account owner, typically the parent, changes the beneficiary of an account, the 15-year clock resets. (See new Sec. 529(c)(3)(E)(i).) (Note: That the clock resets is a natural reading of the Code section and the safest assumption to make. As of this writing, the IRS has yet to issue guidance on the new 529-to-Roth transfer rule.) - For families that wish to continue the practice of sharing all education savings among their children while still allowing for leftover funds to be distributed to Roth IRAs fairly, there is a potential workaround that is mostly logistical. Rather than changing the beneficiary of an account to make those funds available for use by another family member, the account owner can instead request a rollover of funds under Sec. 529(c)(3)(C)(i)(II) to the other child's existing 529 account, leaving the original account (and its 15-year or longer tenure in the name of the original beneficiary) intact. - There are a couple pitfalls to avoid when employing this strategy. First, rollovers between 529 accounts are permitted only once every 12 months (Sec. 529(c)(3)(C)(iii)), so if funds were recently moved from one beneficiary's account to another, the owner will need to wait until at least a year has passed to reverse that transfer. - Additionally, if the rollover takes place between accounts that were established in different states, there may be tax clawback rules for any deductions taken in the state where the funds are being transferred from. Be sure to check the specific plan's rules before performing rollovers between state plans to plan adequately for any tax consequences. - An illustration For example, let's examine a common scenario that families with current college-aged or recently graduated children are facing. - The Patel family has three daughters. The oldest one has completed her education, the middle daughter is currently attending college, and the youngest daughter is a high school senior. A 529 account was established for the benefit of each daughter when they were born. When the oldest daughter completed school at an in-state university in 2021, she had $5,000 remaining in her 529 account and no plans for further education. - Prior to the 529-to-Roth transfer rule, most families would opt to use the leftover funds for the benefit of other family members. However, the Patels wish to allow their oldest daughter to transfer those remaining funds to her own Roth IRA as a reward for her fiscally conservative education choices. Complicating their plans, however, they have already transferred the remaining $5,000 in the oldest daughter's 529 account to the middle daughter's 529 account, and the funds were used to pay qualified expenses for the middle daughter. At this point, there is no way to reverse that transaction. - However, let's say that the youngest daughter was recently awarded a scholarship that will cover the majority of her education costs, meaning that most of the funds in her 529 account are not expected to be needed to pay for her education. As such, the Patels would like to use some of those funds to return the $5,000 to their oldest daughter's 529 so that she may then perform a rollover to a Roth IRA. - To do so, the oldest daughter's original account must still be open and in her name, which maintains the 15-year time limit for the ability to transfer funds to a Roth IRA. Additionally, the transfer must be performed as a direct rollover between the younger daughter's account and the oldest daughter's account. If a new account is established in the oldest daughter's name, then she must wait 15 years to perform the transfer to her Roth IRA. - In essence, whether the oldest daughter can perform a rollover to a Roth IRA without waiting 15 years will likely come down to how the original transfer of the oldest daughter's 529 account funds to the middle daughter's name was performed by Mrs. Patel, the account owner. - If Mrs. Patel simply changed the beneficiary on the existing account, this would reset the 15-year clock, and the oldest daughter would have to wait at least 15 years to perform the 529-to-Roth-IRA transfer. If, instead, Mrs. Patel transferred the funds from the oldest daughter's account to the middle daughter's while leaving the oldest daughter's account open, this would keep the 15-year timeline intact for purposes of 529-to-Roth-IRA distributions. If the accounts were established in two different states, this could cause unintended state tax consequences. A final option would be to have established a new account in the name of the middle daughter in the same state program as the oldest daughter's, then perform a direct transfer of the funds to the new account. As long as the oldest daughter's account remained open, the 15-year timeline would remain intact while also avoiding unnecessary state income taxes. This option does reset the 15-year rule for the middle daughter, but since she was planning to spend the funds anyway, that is irrelevant. To return the $5,000 to the oldest daughter's name, Mrs. Patel should request a direct rollover from the youngest daughter's 529 account to the oldest daughter's, noting again that there could be state income tax consequences if the two accounts were established in different states. - The 5-year rule for new contributions One other common question is how the IRS will apply the separate requirement of the 529-to-Roth transfer rule that no contributions to a 529 account, or earnings on those contributions, from the last five years can be rolled over to a Roth IRA (Sec. 529(c)(3)(E)(i)(I)). A reasonable reading of the Code is that transferring funds from one 529 to another will not be considered a contribution for purposes of this rule. In other words, the five-year clock will not reset. - Exhausting remaining funds when all children have completed their education A separate question on the Patels' mind is how to minimize the amount of leftover 529 funds when all the daughters have completed their education. To address the possibility that the youngest daughter will complete her education with a significant balance in her 529 account due to her scholarship, the family might consider any of the following additional planning moves to minimize unnecessary taxes and penalties while allowing their daughters to enjoy the funds set aside for their educations: - Have the middle daughter accept up to $10,000 in federal student loans to pay for her final education costs, then transfer $10,000 from the youngest daughter's 529 to the middle daughter's to pay off the loan upon graduation with a tax- and penalty-free distribution under Sec. 529(c)(9) (added by the SECURE Act of 2019, P.L. 116-94). This has the added benefit of boosting the middle daughter's credit score. Have the youngest daughter do the same, for the express purpose of withdrawing $10,000 from her 529 tax- and penalty-free. - - Begin 529-to-Roth-IRA transfers for the benefit of the youngest daughter as soon as she has earned income, until the aggregate total of transfers reaches the $35,000 limit. Remaining funds at that point could be transferred to the middle and older daughters' original accounts to allow them to perform 529-to-Roth-IRA transfers up to the $35,000 limit for each, as long as the 15-year timeline is met. - Any remaining funds can be kept in 529 accounts for the benefit of future grandchildren or other family members. For families who performed 529 beneficiary changes prior to the passage of the SECURE 2.0 Act, the ability to return unused funds to the original beneficiary for Roth IRA distributions will probably depend on whether the 15-year timeline is still intact or if it was broken due to the administrative choice made when funds were allocated to a different beneficiary. Each 529 administrator is likely to treat this transaction differently, so the most reliable source of information of whether a beneficiary can be deemed as having an account for at least 15 years will be the plan administrator. - Note, finally, that certain aspects of the 529-to-Roth transfer rule will become clearer once the IRS issues guidance. This article is intended to help readers plan in the meantime. — Kelley C. Long, CPA/PFS, CFP, is a personal finance coach and consultant in Arizona. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.

IRS close to mandating Efile for tax returns

July 28, 2023 To combat fraud, IRS steps up ERC claim enforcement TOPICS Tax IRS Practice & Procedure Former IRS Commissioner Mark Everson compares the efforts of the IRS to go paperless to the interstate highway system of the 1960s, when he was a child. "You would drive from New York, where we lived, and I-95 ended in Providence," he said in an interview with JofA. "You'd be doing great and then, all of the sudden, bingo, there was no more interstate. "That's how the IRS has been operating. It's got certain forms and activities that have been automated and others have not." Until this week, that is. With much fanfare, the IRS announced Wednesday that by filing season 2024, taxpayers will be able to file most returns and documents electronically. And by filing season 2025, the IRS will digitize all paper-filed returns when they are received. If the IRS can meet these goals, the Service will curb the deluge of paperwork that overwhelms it each year. The IRS receives about 76 million paper documents each year. Scanning those paper returns will put an end to the work of entering the information by hand, keystroke by keystroke. "This is a big watershed moment that's approaching," said Everson, who served as IRS commissioner from 2003 to 2007 and now is a vice chairman of alliantgroup, a tax and business consulting group that works with over 4,000 CPA firms nationwide. "And it will make a difference to the taxpayer service." Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel emphasized the improved taxpayer service when they provided details of what they have dubbed paperless processing initiative during a visit Wednesday to an IRS facility in McLean, Va. The initiative "is the key that unlocks other customer service improvements," Yellen said in prepared remarks. "It will enable taxpayers to see their documents, securely access their data, and save time and money. And it will allow other parts of the IRS to rely on these digital copies to provide faster refunds, reduce errors in tax processing, and deliver a more seamless and responsive customer service experience." The announcement by Yellen and Werfel was not the first word of a paperless IRS. National Taxpayer Advocate Erin Collins told participants at the AICPA & CIMA ENGAGE 2023 in June that the IRS would be paperless by 2025. The Service will convert any paper files from taxpayers to digital before processing them, she said. Besides the electronic filing and digitization of incoming paper forms that are part of the initiative, older documents will also be digitized, which will give taxpayers access to their data and save the IRS about $40 million in annual storage costs, officials said. The move toward a paperless IRS has been at least 25 years in the making. In 1998, Congress passed the IRS Restructuring and Reform Act, P.L. 105-206, that said "paperless filing should be the preferred and most convenient means of filing federal tax and information returns." It set of goal of having at least 80% of all such returns filed electronically by the year 2007. And while approximately 94% of individual tax returns are now e-filed, millions still file on paper. Coupled with budget cuts, staffing shortages, and the effects of the COVID-19 pandemic this led to what was one of the most telling images of the IRS paper backlog: a photo of thousands of pieces of paper packed into what was supposed to be a cafeteria at the IRS campus in Austin, Texas. Werfel referred to that photo in his remarks Wednesday in Virginia. "The amount of paper still being used inside the IRS often feels more like the 1970s and 1980s than the 21st century," he said. "During the pandemic, you saw the photos of the IRS cafeteria in our Austin campus with racks and racks of paper absolutely filling the room not normally used for storage. Tens of millions of pieces of paper that require manual processing flood our campuses and offices. It is time to ensure that no cafeteria in the IRS ever looks like that again." The improvements are courtesy of the Inflation Reduction Act, P.L. 117-169, which provided the IRS with $80 billion over 10 years. The debt ceiling deal reached earlier this year deleted about $20 billion from that amount. "A digital IRS rather than a paper IRS is exactly what the was intended when Congress provided new funds under the Inflation Reduction Act, and our announcement today shows that we are taking steps to make on that promise," Werfel said. Early in his tenure as IRS commissioner, Everson said he mandated that large corporations and not-for-profits file their returns electronically. Since then, the Service has made "regular strides" toward electronic filing, but "the problem has been the ups and downs of the regular budget," he said. Continued, guaranteed funding equals a better IRS, he said. "The reason this is good is they have this pot of money, and they have the confidence that they'll have enough money to finish things," he said. — To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

ERC tax effect

While the ERC is technically not taxable income in and of itself, the ERC will still affect your payroll deductions. As an employer or business that receives the employee retention credit, you must reduce your payroll expense deduction by the amount of the ERC claimed.

IRS enforcement sets sights on the well-to-do

The IRS allocated some of its funding from the Inflation Reduction Act to tax enforcement, and tax-evading millionaires and billionaires are targets. The agency has already closed approximately 175 delinquent tax cases, resulting in a $38 million payday for the U.S. government. With billions of dollars of potential IRS funding on the line (some of which Republican lawmakers have clawed back), the agency is motivated to continue tax collection efforts against the wealthy, and the IRS is nowhere near done. According to IRS Commissioner Danny Werfel, the recently collected $38 million in taxes from the wealthy is “just the start.” Tax enforcement for millionaires Any taxpayer can face an IRS audit, but the IRS has its sights set on wealthy taxpayers who refuse to pay up (or falsify their tax returns), such as millionaires and billionaires buying Bentleys (as happened in a case cited by the agency) instead of paying their tax bills. And now that the IRS has the funding to better identify wealthy tax evaders, millionaires that “bend the tax rules” should beware. Millionaire tax “loopholes” With its new funding, the IRS is digging into some common scenarios some wealthy taxpayers use to evade big tax bills, which include (but are not limited to) the following: A taxpayer claiming residence in Puerto Rico (without actually having real residency there). A taxpayer claiming exemptions based on treaty rules between the U.S. and Malta. A taxpayer failing to file tax returns but making luxury purchases (such as Bentleys and other luxury cars). The IRS also plans to allocate resources to identify taxpayers who illegally move assets into offshore accounts, including Malta personal retirement scheme transactions, to hide taxable income. Chances of an IRS audit IRS audits of wealthy taxpayers dropped in recent years, according to a 2022 report from the U.S. Government Accountability Office (GAO). But the IRS attributed this drop to a lack of resources. That’s partly because conducting audits of wealthy taxpayers’ tax returns requires more time and agents than auditing “every day” tax returns. (The IRS has recently come under fire for auditing some taxpayers more than others.) Now that the IRS has more staff and money to dedicate to auditing millionaires, wealthy taxpayers’ chances of an audit could increase. Although, since IRS audit rates of wealthier taxpayers have historically been low, it’s hard to know what an increased audit rate for those taxpayers will look like. And while the IRS is focusing enforcement on the wealthy, non-millionaire taxpayers are still subject to audits. Taxpayers can reduce audit risk by avoiding common IRS red flags, such as failing to report income and claiming excessive tax write-offs on Schedule C. Thanks to Kathy Washington for this article.

Republicans trying to give families $4,000

Republicans are trying to enact legislation to give most families (mfj)a rax credit of $4,000. Head if Household filers would get $3,000. Same bills attempt to raise rhe contract laborer threshold to $5,000

Hobbby or Business?

Does it matter for your taxes if you spend $500 on your hobby, or if you spend the same amount promoting your side hustle where you earn extra money? It sure does. If your activity is a hobby, your expenses are not tax deductible. But if you are running a business (even a very small business), you can write off your expenses. That may cut your costs in half, letting the IRS pay for the other half. As you can guess, that makes the line between hobby and business one the IRS watches carefully. Say you lose $20,000 a year in the "business" of breeding, training and caring for whippets. You can report the loss on Schedule C to your Form 1040 and write if off against your salary. Assuming that your combined state and federal tax rate is 40%, your whippet breeding really only costs you $12,000. If your whippets are a hobby, you can't claim a loss. But before you decide to turn your nondeductible hobby into a deductible business, be careful. This is an area of intense IRS scrutiny. According to the IRS, the biggest difference between hobby and business is that businesses operate to make a profit, while hobbies are for pleasure or recreation. Not everyone makes a profit right away, so the IRS says you are presumed to be operating for profit if you make a profit in 3 years out of 5. But you may still be able to convince the IRS that you are running a business, even if you have a profit in only 1 year out of 10. Still, don’t expect that to be easy, and expect to have to take the IRS to court. Good records, and operating in a business like way are very important. Whether someone is having fun with a hobby or running a business, if they accept more than $600 for goods and services using online marketplaces or payment apps, they could receive a Form 1099-K. Profits from the sale of goods, including personal items, and services is taxable income that must be reported on tax returns. Do they carry out the activity in a businesslike manner and keep complete and accurate books and records? Does the time and effort they put into the activity show they intend to make a profit? Does the activity make a profit in some years – if so, how much profit does it make? Can they expect to make a future profit from the appreciation of the assets used in the activity? Do they depend on income from the activity for their livelihood? Are any losses due to circumstances beyond their control or are the losses normal for the startup phase of their type of business? Do they change their methods of operation to improve profitability? Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business? Here are some tips: 1. Match income and loss. The IRS is less likely to question whether you're engaged in a business if your income from the activity exceeds your expenses. 2. Keep good records. It matters whether you conduct yourself in a businesslike manner. If you keep good records and hold yourself out as running a business, it will help. 3. Show a profit three years in five. If you can manage to eke out a profit three years out of every five (or two years out of seven, if your activity is horse breeding), the IRS will presume you're in business to make a profit. That presumption is worth a lot since you probably won't have to mud wrestle with the IRS over a more amorphous facts and circumstances test. 4. Plan income and expenses. Our tax system is annual and so are profit-and-loss determinations. You may have more control than you think over when you receive income and especially when you incur expenses. That control can help you make a profit three years out of five. 5. Delay a profits determination. You can elect to defer the determination of profit motive until the fourth year of your "business," or your sixth year in the case of an activity involving horses. To make this election you file a Form 5213, postponing the determination of whether you've met the three-out-of-five-years profit presumption. The idea of the election is to give you time to ramp up and achieve a profit. But be careful, most advisers don't recommend this election since it could flag the profit-motive issue. Plus, it has the effect of extending the IRS statute of limitations beyond the normal three years. The IRS can examine all the years in question after the deferral period has passed. Whether taxpayers have a hobby or run a business, good record keeping is key when it’s time to file taxes. Also check out these IRS publications: Publication 535, Business Expenses Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) Small Business and Self-Employed Tax Center at IRS.gov Understanding Your Form 1099-K Thanks to Robert W Wood for much of this info publishedd in Forbes

Pastor's Housing Allowance and reporting on the W2

Regarding reporting a pastor's housing allowance, you can exclude the housing allowance from gross income on the W2. Report the housing allowance in Box 14. Box 14 presentation is not required, but is suggested by publication 517. A church can also report housing allowance to a pastor by providing a statement separate from the W2.

Tax Law Test for Real Estate Professionals

Tax Law Test for Real Estate Professionals Generally, investors in activities such as real estate in which they don’t materially participate can only take deductions up to the amount of their passive income for the year. The IRS often scrutinizes large deductions for rental real estate losses claimed by so-called “real estate professionals.” In a new case involving a couple that wholly owned a partnership, Dunn, TC Memo 2022-112, 11/29/22, the Tax Court denied losses because neither spouse met the requisite tax law test. Generally, investors in activities such as real estate in which they don’t materially participate can only take deductions up to the amount of their passive income for the year. Thus, they can’t claim any annual passive activity loses (PALs), although there’s a limited PAL write-off for real estate investors qualifying as “active participants.” Normally, you can use up to $25,000 of loss to offset non-passive income if you are an active participant. But the $25,000 offset is phased out for a modified adjusted gross income (MAGI) between $100,000 and $150,000 of MAGI. Note: This phase-out provision is not indexed for inflation. However, if your real estate activities rise to the level of being a real estate professional, you can deduct a loss against non-passive income, just like any other business. There are two key requirements for qualifying as a real estate pro. 1. More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. 2. You must spend more than 750 hours on your real property trades or businesses. As long as you satisfy this two-part test, real estate activities in which you materially participate aren’t treated as passive activities. But the IRS sticks to the strict letter of the law. Facts of the new case: A married couple, residents of Georgia, formed a partnership to manage heir real estate properties. Each spouse had a full-time job during the tax years in question. The couple filed joint tax returns for 2013 and 2014. They reported losses of $85,260 and $48,740, respectively, relating to the real estate properties subject to the PAL rules. The couple produced logs purportedly show their collective rental real estate activities during that time. The logs show 767 hours worked in 2013 and 407 hours worked in 2014. However, the logs didn’t specify which spouse worked these hours. In addition, the Tax Court said that the hours recorded in the logs were inflated to include hours spent physically present at the properties. Does either spouse qualify under the test for real estate professionals? The Tax Court examined the facts. First, the couple contended that they both spent more than one-half of the personal services they performed in a trade or business in real property trades or business. But the Tax Court disagreed. The evidence didn’t support this conclusion. Second, the couple further argued that they met the 750-hour requirement. To meet this requirement, only one spouse needs to have reached the 750-hour mark. But the Court wasn’t convinced that either spouse satisfied this burden. Accordingly, the Tax Court ruled that the test for real estate professionals wasn’t met. Taxes Internal Revenue Service (IRS) Article Income Taxes real estate taxes

IRS Delays $600 reporting on 1099-K forms for 1 year

IRS delays Form 1099-K $600 reporting threshold December 23, 2022 RELATED December 21, 2022 2023 brings lots of new to the IRS while keeping one problem: backlogs December 15, 2022 The AICPA’s tax policy and advocacy work: 2022 highlights December 12, 2022 Final regs. issued on centralized partnership audit regime TOPICS Tax IRS Practice & Procedure The IRS on Friday announced a delay in the $600 reporting threshold for third-party settlement organizations, which had been in effect for the 2022 calendar year. As a result, the IRS says third-party settlement organizations will not have to report tax year 2022 transactions on a Form 1099-K, Payment Card and Third Party Network Transactions, to the IRS or the payee for the lower, $600 threshold amount that was enacted as part of the American Rescue Plan Act (ARPA) of 2021, P.L. 117-2. Until the changes enacted by ARPA, third-party settlement organizations were allowed a de minimis exception to filing Form 1099-K with respect to payees with 200 or fewer such transactions during the calendar year with an aggregate gross amount of $20,000 or less. ARPA amended this de minimis amount to $600, with no minimum number of transactions, effective for calendar years beginning after Dec. 31, 2021. Third-party settlement organizations generally include banks or other organizations that process credit card transactions on behalf of a merchant and make an interbank transfer of funds to the merchant from a customer. Form 1099-K must be furnished to the participating payees on or before Jan. 31 of the year following the calendar year for which the return was made and must be filed with the IRS on or before Feb. 28 (March 31 if filing electronically) of the year following the calendar year for which the return was made. The new $600 minimum has been subject to widespread criticism. Last week, the AICPA sent a letter to the chairs and ranking members of the Senate Finance and House Ways and Means Committees, expressing "deep concerns" about the implementation of the $600 reporting threshold. In that letter, sent by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, the AICPA warned that the lower threshold would "lead to significant confusion in the tax system in the next several months." The AICPA also was concerned that an IRS matching program for 2022 Forms 1099-K could "result in significant taxpayer misunderstanding, and also lead to a growth in the IRS correspondence and processing backlog." Therefore, in Notice 2023-10, the IRS announced that it will regard calendar year 2022 as a "transition period" for purposes of IRS enforcement and administration of the $600 de minimis exception for third-party settlement organizations and third-party network transactions as provided in the notice. This means that for returns for calendar years before 2023, a third-party settlement organization is not required to report payments in settlement of third-party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. The IRS says that for years after 2022, it will enforce the $600 de minimis reporting threshold. The AICPA, according to Ed Karl, CPA, CGMA, vice president–Tax Policy & Advocacy, continues to call on Congress to raise the $600 de minimis exception for reporting by instituting a cost-of-living adjustment (COLA) using 1954 as the base period for the COLA.\ Information gathered by Nevine, J.D.

2022 Capital Gains Rates

2022 Long-Term Capital Gains Tax Rates Tax filing status 0% rate 15% rate 20% rate Single Taxable income of up to $41,675 $41,676 to $459,750 Over $459,750 Married filing jointly Taxable income of up to $83,350 $83,351 to $517,200 Over $517,200 Married filing separately Taxable income of up to $41,675 $41,676 to $459,750 Over $459,750 Head of household Taxable income of up to $55,800 $55,801 to $488,500 Over $488,500

IRS Delays $600 1099-K reporting requirement

IRS delays Form 1099-K $600 reporting threshold By Alistair M. Nevius, J.D. December 23, 2022 RELATED December 21, 2022 2023 brings lots of new to the IRS while keeping one problem: backlogs December 15, 2022 The AICPA’s tax policy and advocacy work: 2022 highlights December 12, 2022 Final regs. issued on centralized partnership audit regime TOPICS Tax IRS Practice & Procedure The IRS on Friday announced a delay in the $600 reporting threshold for third-party settlement organizations, which had been in effect for the 2022 calendar year. As a result, the IRS says third-party settlement organizations will not have to report tax year 2022 transactions on a Form 1099-K, Payment Card and Third Party Network Transactions, to the IRS or the payee for the lower, $600 threshold amount that was enacted as part of the American Rescue Plan Act (ARPA) of 2021, P.L. 117-2. Until the changes enacted by ARPA, third-party settlement organizations were allowed a de minimis exception to filing Form 1099-K with respect to payees with 200 or fewer such transactions during the calendar year with an aggregate gross amount of $20,000 or less. ARPA amended this de minimis amount to $600, with no minimum number of transactions, effective for calendar years beginning after Dec. 31, 2021. Third-party settlement organizations generally include banks or other organizations that process credit card transactions on behalf of a merchant and make an interbank transfer of funds to the merchant from a customer. Form 1099-K must be furnished to the participating payees on or before Jan. 31 of the year following the calendar year for which the return was made and must be filed with the IRS on or before Feb. 28 (March 31 if filing electronically) of the year following the calendar year for which the return was made. The new $600 minimum has been subject to widespread criticism. Last week, the AICPA sent a letter to the chairs and ranking members of the Senate Finance and House Ways and Means Committees, expressing "deep concerns" about the implementation of the $600 reporting threshold. In that letter, sent by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, the AICPA warned that the lower threshold would "lead to significant confusion in the tax system in the next several months." The AICPA also was concerned that an IRS matching program for 2022 Forms 1099-K could "result in significant taxpayer misunderstanding, and also lead to a growth in the IRS correspondence and processing backlog." Therefore, in Notice 2023-10, the IRS announced that it will regard calendar year 2022 as a "transition period" for purposes of IRS enforcement and administration of the $600 de minimis exception for third-party settlement organizations and third-party network transactions as provided in the notice. This means that for returns for calendar years before 2023, a third-party settlement organization is not required to report payments in settlement of third-party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. The IRS says that for years after 2022, it will enforce the $600 de minimis reporting threshold. The AICPA, according to Ed Karl, CPA, CGMA, vice president–Tax Policy & Advocacy, continues to call on Congress to raise the $600 de minimis exception for reporting by instituting a cost-of-living adjustment (COLA) using 1954 as the base period for the COLA. In the letter to Congress, the AICPA also said it supports a recommendation by the National Taxpayers Union Foundation to raise the threshold to $5,000.

Republican House trying to Roll back IRS funding boost

87,000 new IRS employees at a cost of $80 billion, not if Representative McCarthy can remove this from the Climate and Health Care Package. McCarthy has said if he becomes Speaker he will push the reduction of this $80 billion piece of the Climate bill.

IRS still processing millions of returns

 IRS still coping with millions of unprocessed tax returns

By  Michael CohnNovember 10, 2022, 2:52 p.m. EST4 Min Read

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The Internal Revenue Service had 4.4 million unprocessed individual returns received this year as of Oct. 28, including tax year 2021 returns and late-filed returns from the prior year, as IRS funding has become more of an issue during election season.

The IRS reported in the latest update this week on the status of its mission-critical operations during COVID-19 that of those 4.4 million unprocessed returns, 1.9 million require error correction or other special handling, while 2.5 million are paper returns still waiting to be reviewed and processed. The work typically doesn't require the IRS to correspond with taxpayers, but does require special handling by an IRS employee so, in those cases, it's taking the IRS more than 21 days to issue any related tax refund.

Internal Revenue Service headquarters in Washington, D.C.

Samuel Corum/Bloomberg

Some of the problems holding up tax returns come from amended returns that arrived at the IRS and problems with tax returns indicating pandemic-related benefits such as expanded unemployment insurance and employee retention credits, for which the rules and thresholds changed, and that were exploited in some cases by criminals and fraudsters. The IRS is also still trying to hire thousands more employees to fill the ranks as workers retire.

Bonus depreciation, what is allowed?

 What can be depreciated using bonus depreciaiton?

According to the IRS, qualified property eligible for bonus depreciation includes:

• Tangible property depreciated under MACRS
• New tangible property (other than buildings or structural components)
• Used tangible property (other than buildings or structural components)
• Certain production property
• Qualified film, television, and live theatrical productions.
• Property that will last 20 years or less
• Computer software, as defined in and depreciated under section 167 (f) (1).

IRS penalty, try the First Time Abatement approach

 It can only apply to 1 year. Generally, the first year if you have multiple years with penalties. The idea behind the first-time penalty abatement procedure is that if you have a clean tax history for the past 3 years, you are granted a mistake without getting penalized.