Balance of 2023 Tax Calendar
Corporations: File calendar year Form 1120S if you timely requested a 6-month extension.
Corporations: Deposit the third installment of your 2023 estimated tax.
Partnerships: File calendar year Form 1065 if you timely requested a 6-month extension.
Withholding Agent: File calendar year Form 1042 if you timely requested a 6-month extension.
Partnerships: File Form 8813 quarterly payment voucher and pay any tax due.
Partnerships: File calendar year Form 8804 and Form 8805 if you timely requested a 6- month extension.
Individuals: Pay the third installment of your 2023 estimated tax – use Form 1040-ES or go online at irs.gov and pay directly.
File Form 730 and pay tax on wages accepted during August.
File Form 2290 and pay the tax for vehicles first used during August.
Individuals: File Form 1040 if you requested a 6-month extension.
Corporations: File Calendar year Form 1120 if you timely requested a 6-month extension.
Non-Resident Alien Individuals who received wages as an employee subject to U.S. income tax withholding: File Form 1040NR or 1040NR-EZ if you timely filed Form 4868.
File Form 720 for the third quarter.
File Form 730 and pay tax on wages accepted during September.
File Form 2290 and pay tax for vehicles used during September.
File Form 941 for the third quarter.
Deposit FUTA owed through September if more than $500.
File Form 941 for the third quarter if you timely deposited all required payments.
File Form 2290 and pay the tax for vehicles first used in October.
File Form 730 and pay tax on wages accepted during October.
Corporations: Deposit the fourth installment of your 2023 estimated tax.
Non-resident alien individuals who DID NOT receive wages as employees subject to U.S. income tax: File Form 1040NR or 1040NR-EZ if you timely filed Form 4868.
Partnerships: File Form 8813 quarterly payment voucher and pay any tax due.
What’s New – Individual
Energy Efficient Home Improvement Credit Effective for 2023, the nonbusiness energy property credit is renamed the energy efficient home improvement credit. The credit is increased to 30% of the cost of improvements and replaces the lifetime limitations with the following annual limitations.
Generally, the combined credit for all energy-efficient home improvements is limited to $1200 per year except for (5) below items:
- The credit for residential energy expenditures is limited to $600 annually.
- The credit for windows is limited to $600 in the aggregate for all exterior windows and skylights.
- The credit for doors is limited to $250 per year for exterior doors and $500 in the aggregate for all exterior doors.
- Notwithstanding paragraphs (1) and (2) above, the credit allowed for heat pumps, water heaters, biomass stoves, and boilers is limited to $2000 per year.
- The credit for energy audits is limited to $150 per year.
Residential Clean Energy Credit, Formally the Residential Energy Efficient Property Credit. The applicable percentages being modified as follows:
- In the case of property placed in service after December 31, 2021, and before January 1, 2033, 30%.
- After 2033, the credit gets reduced by 4% per year through 2035, and then it is gone.
- Property placed in service after December 31, 2032, and before January 1, 2034, 26%.
- Property placed in service after December 31, 2033, and before January 1, 2035, 22%.
Clean Vehicle Credit The new law eliminates the phase-out rules when a manufacturer reaches its 200,000th sale and replaces it with an expiration of the credit for all vehicles placed in service after 2032. Final assembly of the vehicle must occur within North America.
In addition to qualified electric vehicles, the credit also applies to qualified fuel cell motor vehicles.
No credit is allowed if the taxpayer’s modified AGI for the tax year or the preceding tax year exceeds the following:
- $300,000 for MFJ or QSS.
- $225,000 for HOH.
- $150,000 for single or MFS.
No credit is allowed if the manufacturer’s suggested retail price exceeds:
- $80,000 in the case of a van,
- $80,000 in the case of a sport utility vehicle,
- $80,000 in the case of a pick-up truck, and
- $50,000 in the case of any other vehicle.
The new law also provides a reduced credit for purchasing a previously owned clean vehicle.
Alternative Fuel Refueling Property Credit The new law extends the credit through the end of 2032 and increases the credit limitation for business-use property to $100,000. The new law also allows credit for bidirectional charging equipment, such as an electric vehicle charging station that converts the DC electricity stored in the car batteries back to AC electricity to power the house in case of a power outage.
What’s New – Business
Energy-Efficient Commercial Building Deduction Effective for tax years beginning after December 31, 2022, the new law modifies the maximum amount of the deduction as follows:
- The deduction under IRC section 179(D0(a) concerning any building for any tax year shall not exceed the excess (if any) of:
- The product of the applicable dollar value and the square footage of the building over,
- The aggregate amount of the deductions concerning the building for the three tax years immediately preceding such tax year.
- The applicable dollar value shall be an amount equal to $0.50 increased (but above $1.00) by $0.02 for each percentage point by which the total annual energy and power cost for the building is certified to be reduced by a percentage greater than 25%.
- Increased deduction amount for particular property:
- In the case of any property that satisfies the requirements of (B) below, the applicable dollar value is $2.50 increased (but not above $5.00 by $0.10) for each percentage greater than 25%,
- To qualify for the increased applicable dollar value in (A) above:
- Installation must begin before the date that is 60 days after the IRS publishes guidance concerning the prevailing wage requirements and apprenticeship requirements or
- Installation of such property satisfies the prevailing wage requirements and apprenticeship requirements.
What’s New – Retirement Plans
Credit for Small Employer Pension Plan Startup Costs Effective for 2023, the 50% credit is increased to 100% for certain small employers with no more than 50 employees. Certain small business employers are also allowed an additional credit for employer contributions equal to the applicable percentage of employer contributions, limited to $1,000 per employee. The appropriate percentage is 100% for years 1 and 2, 75% for year 3, 50% for year 4, 25% for year 5, and zero for years 6 and after.
Saver’s Match Effective for 2027, the credit is repealed with respect to IRA and retirement plan contributions and replaced with a tax paid by the IRS as a contribution to the eligible individual’s applicable retirement savings vehicle when he or she makes a qualified retirement savings contribution for the year. The matching contribution equals 50% of the qualified retirement savings contribution when AGI does not exceed $41,000 for MFJ and QSS, $30,750 for HOH, and $20,500 for single and MFS. The credit begins to phase out when AGI exceeds these limits and is entirely phased out when AGI reaches $71,000 for MFJ and QSS, $53,000 for HOH, and $35,500 for single and MFS. These phase-outs adjust for inflation beginning in 2028.
De Minimis Safe Harbor to Expense Assets Costing $2,500 or $5,000
For 2024, you can elect the de minimis safe harbor to expense assets costing $2,500 or less ($5,000 with audited financial statements or similar).
The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if you properly abided by the safe harbor rules.
Here are three benefits of this safe harbor:
- Safe harbor expensing is superior to Section 179 expensing and depreciation because you don’t have the recapture period that can complicate your taxes.
- Safe harbor expensing simplifies your tax and business records because you don’t have the assets cluttering your books.
- The safe harbor does not reduce your overall ceiling on Section 179 expensing.
Here’s how the safe harbor works: Say you are a small business that elects the $2,500 ceiling for safe harbor expensing, and you buy two desks costing $2,100 each. On the invoice, you see the quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup charge of $4,778.
Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778 ÷ 2), and then either Section 179 expensed or depreciated it. You would have kept the desks in your depreciation schedules until you disposed of them.
With the safe harbor, you expense the desks as office supplies—your tax records life is more straightforward.
You and I do a two-step process to benefit from the safe harbor. It works like this:
Step 1—You. For safe harbor protection, you must have in place an accounting policy—at the beginning of the tax year—that requires expensing an amount of your choosing up to the $2,500 or $5,000 limit. I can help you with this.
Step 2—Me. When I prepare your tax return, I make the election on your tax return for you to use safe harbor expensing. I do this with an election statement on your federal tax return and file that tax return by the due date (including extensions).
How to Rent Your Home to Your Business and Capture the Section 280A(g) Deduction
In a recent tax court case, Sinopoli v. Commissioner, the taxpayers sought to leverage IRC 280A(g). This provision allows business owners to rent their home to their business for up to 14 days per year, making the rental income tax-free and allowing the business to write off the expense.
The taxpayer’s S corporation reported over $290,000 in rental expenses over three years, purportedly for renting the shareholders’ homes for monthly meetings. The court found this excessive and reduced the deduction to $500 daily.
This case is critical because it affirms that business owners can rent their residence to their corporation, take a business deduction, and not declare the rental income taxable to the recipient.
History IRC 280A(g) includes what is commonly termed the “Master’s” rule, which permits a taxpayer to omit from their income any sums obtained from leasing their home, provided it is rented for no more than 14 days annually. The moniker “Master’s” alludes to the frequent utilization of this unique provision by Agusta, Georgia residents, during the annual Master’s Golf Tournament. Still, the provision is also used around other major sporting events, such as the Super Bowl.
Items to Observe:
- Schedule a meeting at your home.
- Remember, you cannot claim more than 14 days per year.
- The business purpose cannot be for entertainment.
- Put these meetings on your calendar.
- Schedule these meetings with current clients and people in business, not potential clients.
- These meetings need to be conducted for legitimate business purposes.
- Take corporate minutes if this is a shareholder meeting.
- Invoice the business and make a check to yourself as rent for the business use each time.
- Find comparable fees for your 280a deduction; if one hotel charges $1,000 per day for a particular event board room with drinks and snacks included, it is reasonable to assume others are. Check with Air B & B using similar-sized homes as an estimate.
This is a legitimate business deduction, and the rental income is not taxable to the recipient under IRC 280A(g).
529 Plan Rollover to Roth IRS
Many individuals have not used the provisions of the 529 plan of savings for education because the beneficiary may not end up getting a higher education and utilizing the plan benefits. The Care Act 2.0 addressed this issue.
Beginning in 2024, individuals with excess 529 Plan values for the beneficiary can roll over to a Roth IRA as permitted by the Cares Act 2.0.
Beneficiaries of 529 accounts open for over 15 years can roll over up to $35,000 over time into a Roth IRA in their name.
Rolling over funds from a 529 plan to a ROTH IRA is subject to the earned income requirements, annual contribution limits, and income limits.
Recently, someone asked me if they could roll over an HSA to an IRA. The answer is NO. However, rolling over from one HSA to another is perfectly okay. You can also roll over from an IRA to a HSA; however, this can only be done once. Since it is a one-time deal, take your best shot. If you wanted to do this in 2024, the single limit is $4,150, and the family plan is $8,300; add $1,000 if older than age 50. Therefore, you could roll from an IRA as much as $9,300 to your HSA next year.
IRS Issue Number: IR-23-168
IRS: Georgia taxpayers impacted by Idalia qualify for tax relief; Oct. 16 deadline, other dates postponed to Feb. 15.
The tax relief postpones various tax filing and payment deadlines from Aug. 30, 2023, through Feb. 15, 2024 (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes originally due during this period.
This means, for example, that the Feb. 15, 2024, deadline will now apply to:
- Individuals with a valid extension to file their 2022 return due to running out on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.
- Quarterly estimated income tax payments are generally due on Sept. 15, 2023, and Jan. 16, 2024.
- Quarterly payroll and excise tax returns are generally due on Oct. 31, 2023, and Jan. 31, 2024.
- Calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023.
- Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023.
- Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023.
In addition, penalties for failing to make payroll and excise tax deposits due on or after Aug. 30, 2023, and before Sept. 14, 2023, will be abated as long as the deposits are made by Sept. 14, 2023.
IRS has made similar tax relief for victims of the Hawaiian wildfires.
Estate Planning Issue
The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation. The $5 million level is the pre-2018 level; therefore, if the indexing for inflation averaged 4%, estates over $6,842,845 would be subject to 40% tax.
Not many individuals need to worry about large estates, but gifting now makes much more sense for those who do. Remember, the gift tax exemption is $12,920,000 and, once given away, cannot be reassessed after 2025.
Gift planning is a specialty, and if you have questions, contact our office so we may assist you.
Taxpayer Rights Violated
TIGTA Report Number 2023-30-051, August 16, 2023.
Taxpayers have a right to representation in matters before the Internal Revenue Service. IRC section 7521(b)(2) and (c) provide taxpayers the right to representation during interviews. The law also protects taxpayer’s rights to representation by prohibiting IRS contact with a taxpayer if it knows the taxpayer is represented.
IRC section 6304(a)(2) states:
“The Secretary may not communicate with a taxpayer in connection with the
collection of any unpaid tax if the Secretary knows the taxpayer is represented
by any person authorized to practice before the Internal Revenue Service with
respect to such unpaid tax and has knowledge of, or can readily ascertain, such
person’s name and address, unless such person fails to respond within a
reasonable period to a communication from the Secretary or unless such
a person consents to direct communication with the taxpayer.”
The Treasury Inspector General for Tax Administration (TIGTA) must report annually on the IRS’s compliance with the law’s provisions that restrict the IRS from directly contacting represented taxpayers.
In two recent studies, one of 132 selected from among 1613 taxpayers, there were 12 violations by the IRS. In a second study, TIGTA found that for 129 potential violations, 48 taxpayers for whom the IRS did not comply with the law regarding the right to representation were affected. As a result, TIGTA recommended 5 measures that the IRS could take to reduce potential violations in the future. The IRS agreed with all 5 recommendations.
Why is this important? Taxpayers have rights under the Internal Revenue Code, and especially in collection matters, you should be represented.
Can You Deduct More Than One Business Vehicle?
Yes, even if you are a single practitioner business and say you use two different vehicles in your business less than full-time. As long as you keep good records concerning the business usage of each vehicle, it is perfectly correct to deduct the business use portion.
The courts have ruled in various cases (Melvin v Commissioner,88TC 63, 1987), (World of Service, Inc. v Commissioner, T.C. Memo 1995-225), and Fisher v Commissioner, T.C. Memo 1997-225).
IRS’s stance. IRS Publication 463 and IRS Form 4562 show that you can claim deductions for business usage on more than one vehicle.
IRS Cannot Locate Sensitive Tax Account Information Stored on Microfilm
TIGTA Report No. 2023-IE-R008, August 8, 2023. TIGTA reported that the service center in Ogden, Utah, improperly stored 15 pallets of microfilm tapes, making them unavailable for access. Steps are being taken to find and get this information back into the system. Data stored on microfilm will be kept for 30 years in a safe and retrievable location.
What is The Net Investment Income Tax (NIIT) and What does It mean to You?
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts with net investment income above applicable threshold amounts.
In the case of an individual, the NIIT is 3.8 percent on the lesser of:
- the net investment income, or
- the excess of modified adjusted gross income over the following threshold amounts:
- $250,000 for married filing jointly or qualifying surviving spouse
- $125,000 for married filing separately
- $200,000 for single or head-of-household
Estates & Trusts
In the case of an estate or trust, the NIIT is 3.8 percent on the lesser of:
- the undistributed net investment income, or
- the excess (if any) of:
- the adjusted gross income over the dollar amount at which the highest tax bracket begins for an estate or trust for the tax year. (For estates and trusts, the 2023 threshold is $14,450. If the estate or trust’s AGI is less than $14,450, it is not subject to the NIIT.)
Definition of Net Investment Income and Modified Adjusted Gross Income
In general, net investment income for this tax includes, but isn’t limited to:
- interest, dividends, certain annuities, royalties, and rents (unless derived in a trade or business in which the NIIT doesn’t apply),
- income derived in a trade or business which is a passive activity or trading in financial instruments or commodities, and
- net gains from the disposition of property such as stocks, bonds, mutual funds, and real estate (to the extent taken into account in computing taxable income), other than property held in a trade or business to which NIIT doesn’t apply.
- net gains from selling a passive partnership or S corporation ownership interests.
The NIIT applies to income from a trade or business that is (1) a passive activity, as determined under Section 469, of the taxpayer or (2) trading in financial instruments or commodities, as determined under Section 475(e)(2).
Consider this tax as an additional Medicare tax (Medicare surtax) because this is where the tax is to be applied.
Why is this important? There are ways to reduce this tax with proper planning. For example, assume a married couple is about to sell a parcel of land. Their MAGI usually is $100,000, and the taxable capital gain on this sale is $300,000. They would have $150,000 of NIIT ($100,000 + $ +$300,000= $400,000). Since $400,000 exceeds the threshold of $250,000 by $150,000, they would incur an NIIT of $5,700. If they sold this property as an installment sale over two years, receiving half this year and half next year, there would be $0.00 NIIT ($100,000 + $150,000 = $250,000), hence no excess MJGI.
The Biden administration wants to expand the NII tax in two ways:
- He would hike the rate to 5% for people with income above $400,000, and
- Currently, if you materially participate in a business entity (LLC, partnership, or S corporation), you are exempt from NIIT. He wants to include all entities mentioned in the NIIT.
- Example: S Corporate owner receives distributions of earnings and profits of $500,000 during the year, above his salary of $500,000. Under current law, this is not considered passive or subject to NIIT. Under this proposed law change, he would owe $25,000 in NIIT.
This tax, from the beginning, was supposed to go to the Medicare Hospital Insurance Fund, the reason it was dubbed “Medicare surtax”; however, it has been going to the general fund. The Biden administration wants to change this.
IRS News Wire IR-2023-169
To protect taxpayers from scams, the IRS orders an immediate stop to new Employee Retention Credit processing amid a surge of questionable claims; concerns from Tax Pros and aggressive marketing to ineligible applicants highlight unacceptable risks to businesses and the tax system.
Required Minimum Distribution Rules Under Secure Act 2.0
RMD Age Table
Birth Year The Latest date/age at which RMDs can begin
Born before July 1, 1949 April 1 of the year following the calendar year individual
reaches age 70 ½.
Born after June 30, 1949 April 1 of the year following the calendar year in which
Individual reaches age 72.
1951 – 1959 April 1 of the year following the calendar year in which an
Individual reaches 73 (Secure Act 2.0)
1960 or later April 1 of the year following the calendar year in which an
Individual reaches age 75. (Secure Act 2.0)
NOTE: Individuals born in 1959 will need a technical correction since they meet both age categories. Congressional intent is that an individual born in 1959 would be required to receive RMDs at age 73, not 75.
I do hope this information is helpful.
Al Whalen, EA, ATA, CFP®
Bradford Tax Institute
Accountants Daily Insights
Kiplinger Tax Letter
National Association of Tax Professionals (NATP)
NAPT Tax Pro Magazine (September Issue)
CPA Practice Advisor
The Tax Book
Journal of Accountancy
IRS Issue Number IR-23-168
IRS Topic No. 559
Nancy Eade, Proof Reader, Whalen Financial