2023 Year-End Business Tax Planning

POSSIBLE LEGISLATION BEFORE YEAR-END

Each year we work to provide you with our year-end planning letter in time to implement possible tax saving strategies before December 31st. As a result, it’s possible Congress could pass new legislation between your receipt of this letter and year-end. However, as of the completion of this letter, it appears an omnibus spending package is the best chance for any provisions that may affect your 2023 tax return. Please contact our firm if you’d like an update on current legislation and how it could affect your business.

HIGHLIGHTS OF PROVISIONS INCLUDED IN SECURE ACT 2.0 FIRST EFFECTIVE AFTER 12/29/22 (DATE OF ENACTMENT) OR AFTER 12/31/22

On Thursday, December 29, 2022, the President signed H.R. 2617, the “Consolidated Appropriations Act, 2023,” providing appropriations for the Federal government’s fiscal year ending September 30, 2023. In the following summary, we’ve listed a few provisions of the Secure Act 2.0 (SECURE 2.0) segment of the Consolidated Appropriations Act, 2023.

First Year Elective Deferral For Sole Proprietor Who Is Only Participant In 401(k) Plan May Be Made By Initial Due Date Of Return. If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the due date of the tax return for the taxable year (including extensions), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. However, participants in a 401(k) plan were not able to make elective deferral contributions to such plans for that first plan year if the plan was established after the end of the taxable year. Good News! SECURE 2.0 provides that an individual who owns the entire interest in an unincorporated trade or business and who is the only employee of such trade or business, may make elective contributions to the business’s 401(k) plan on or before the due date (excluding extensions) of the owner’s tax return for the tax year ending after or with the end of the plan’s first plan year. Such elective deferrals are deemed made before the end of the first plan year. This provision only applies to the plan year in which the plan is established. Caution! This provision only applies to plans established by sole proprietors where the proprietor has no employees.

Summary Of Selected Other Changes Made To Retirement Plans By SECURE 2.0. The following is a brief summary of selected provisions of SECURE 2.0 first effective for 2023. Caution! A business wishing to implement any of these provisions should consult with the attorney handling the business’s qualified plan since these provisions may require plan amendments.

• Qualified Retirement Plans, §403(b) Plans, And §457(b) Plans May Permit Participants To Designate Employer Matching Contributions Or Nonelective Employer Contributions As Designated Roth Contributions After 12/29/22.
• SIMPLE Plans And SEP Plans May Allow Employees To Make Roth Contributions For Taxable Years Beginning After 2022.
• For Tax Years Beginning After 2022 SECURE 2.0 Provides An Up To 100% Credit For Plan Startup Costs For Employers With 50 Or Fewer Employees. The credit is available for the first three years of the plan. SECURE 2.0 also provides an additional credit of up to $1,000 of employer contributions for each employee. The full $1,000 per employee credit only applies to employers with 50 or fewer employees.
• New Credit For Military Spouse’s Participating In Employer’s Plan For Employers With 100 Or Fewer Employees For Preceding Year. For each of the first three years of a military spouse’s participation, the credit is 1) $200 plus 2) up to $300 of employer’s contributions to the plan for the military spouse (other than elective deferrals).

OTHER SELECTED RECENT DEVELOPMENTS

IRS Suspends Processing ERC Claims Received On Or After September 14, 2023. The IRS released the following statement: “Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams. IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.” [Emphasis added] The IRS says payouts for ERC claims received before September 14 will continue during the moratorium period but at a slower pace. IRS says, “With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim. * * *

The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in, Werfel said. ‘The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.’”

The IRS has now provided a special procedure to withdraw unpaid ERC claims for those who have filed an ERC claim, but the claim has not been processed. This option will allow the taxpayers to avoid possible repayment issues. The IRS says “Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.” IRS also suggests taxpayers “Work with a trusted tax professional if you need help or advice on this process or on the ERC.” Details, generally in the form of FAQs are available here – Withdraw an Employee Retention Credit (ERC) claim | Internal Revenue Service (irs.gov). These withdrawal procedures generally allow ERC claims to be withdrawn where the claim was made on an amended payroll tax return and either the IRS has not paid the claim or it has paid the claim, but the taxpayer has not cashed the check.

Extension For Filing Returns And Making Certain Payments Until February 15, 2024 For Taxpayers Living In Or Doing Business In Disaster Areas. The IRS has announced that individuals living in, and businesses located in the counties designated as “covered disaster areas” in Florida, South Carolina, and Georgia because of Hurricane Idalia now have until February 15, 2024, to file returns and to make certain payments due during the period beginning August 27, 2023, for Florida, August 29, 2023, for South Carolina, and August 30, 2023, for Georgia, and ending February 15, 2024. If you live or have a businesses located in FL, SC or GA, please go to the following website https://www.irs.gov/newsroom/taxrelief-in-disaster-situations for more information. This website also provides a listing of all federal disaster areas for 2023 and the due date for returns of taxpayers located in those disaster areas. Please consult this website if there has been a major disaster in your area to find the extended return due dates.

The Inflation Reduction Act Of 2022. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA). The IRA, among other things, extends and creates various energy provisions for businesses and introduces: 1) a 15% alternative minimum tax (AMT) and 2) a 1% excise tax on stock redemptions both of which apply to certain publicly traded corporations beginning in 2023. The following are a few of the changes made by the Inflation Reduction Act which may affect your year-end planning. If you would like more details about the Inflation Reduction Act of 2022, please call our firm.

• “New Clean Vehicle Credit” For Vehicles Placed In Service After 2022 And Before 2033. Taxpayers may qualify for a credit of up to $7,500 for taking possession of a qualified new electric vehicle during 2023. This credit is available for vehicles used in a business (i.e., depreciable vehicles) and for vehicles acquired for personal use. However, more businesses should qualify for the credit for 3 commercial vehicles discussed in the next paragraph than for this credit. To qualify for the New Clean Vehicle Credit, the vehicle must be a qualified electric vehicle (EV) or a qualified fuel cell vehicle. The taxpayer must be the first user of the vehicle after the vehicle is sold, registered, or titled. No credit is allowed for a new vehicle if the manufacturer’s suggested retail price of the vehicle exceeds: $80,000 for SUVs, pickups, and vans; and $55,000 for other vehicles. In addition, no credit will be allowed for a new vehicle if the lesser of current or prior year modified adjusted gross income of the taxpayer is more than $300,000 for joint filers, $225,000 for head of households, and $150,000 for others. In addition, final assembly of the vehicle must occur in North America. Because of the complexity for determining whether a vehicle qualifies for the credit and determining the amount of the credit, we suggest using the IRS website to determine whether an EV acquired during 2023 qualifies for the new clean vehicle credit and the amount of the credit. The relevant web address is Federal Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After (fueleconomy.gov). Once at the website you will need to enter: 1) whether the vehicle was placed in service after April 17, 2023 or before April 18, 2023; 2) the model year; 3) the make of the vehicle (e.g., Chevrolet, Ford, Toyota); 4) the model (e.g., Bolt, Mustang Mach-E); and 5) whether the vehicle is all electric or a plug-in hybrid.
  • Credit For Qualified Commercial Clean Vehicles Acquired And Placed In Service After 2022 And Before 2033. The IRA provides an EV credit for depreciable commercial electric vehicles acquired and placed in service after 2022. The credit is not allowed if the taxpayer is allowed a Clean Vehicle Credit for the same vehicle. Planning Alert! A qualifying depreciable commercial EV means the vehicle is used in a trade or business or for the production of income. According to the IRS, “business use means any use in a trade or business of the taxpayer.” The credit is the lesser of: 1) 30% of the vehicle’s basis or 2) the incremental cost of the vehicle if the vehicle is 100% electric. The 30% credit amount is reduced to 15% if the vehicle has a gasoline or diesel component (i.e., if a hybrid). The “incremental cost” means the excess of the purchase price of the vehicle over the price of a comparable gas- or diesel-powered vehicle. The IRS has announced that the incremental cost of vehicles with a GVWR of less than 14,000 pounds is deemed to be $7,500 except for small hybrid vehicles where the incremental cost is deemed to be $7,000. The maximum credit allowed is $7,500 where the vehicle has a GVWR of less than 14,000 pounds and $40,000 for a vehicle with a GVWR of 14,000 pounds or more.
  • Qualified Commercial Clean Vehicle. A “Qualified Commercial Clean Vehicle” is a vehicle that: 1) is depreciable property; 2) is acquired for use or lease by the taxpayer, and not for resale; 3) is manufactured for use on public streets, roads, and highways, or is “mobile machinery” (including vehicles that are not designed to perform a function of transporting a load over the public highways); 4) has a battery capacity of not less than 15 kilowatt hours (7 kilowatt hours for vehicles weighing less than 14,000 pounds) and is charged by an external electricity source; and 5) is made by a qualified manufacturer that has a written agreement with the Treasury Department and provides reports to the Treasury Department. Qualified commercial fuel cell vehicles are also eligible for the credit. A list of qualified manufacturers can be found here – see https://www.irs.gov/creditsdeductions/manufacturers-for-qualified-commercial-clean-vehicle-credit.
  • It’s Easier To Qualify For The Commercial Clean Vehicle Credit Than The Clean Vehicle Credit Discussed Previously. The AGI limitations, the limitation on the cost of the vehicle, the requirement that final assembly of the vehicle must occur in North America, and the battery minerals and component requirements that apply to the Clean Vehicle Credit do not apply to the credit for Qualified Commercial Clean Vehicles. In addition, any unused Qualified Commercial Clean Vehicle Credit may be carried forward if the taxpayer does not have sufficient tax to use the credit. The Clean Vehicle Credit may not be carried forward.

TRADITIONAL YEAR-END TAX PLANNING TECHNIQUES

Planning With Timing Of Income And Expenses. It goes without saying that, for most business owners, the last several years have been challenging. Dealing with the pandemic, disruptions in the supply chain, and hiring and retaining good employees has caused many business owners to face issues they’ve never 4 experienced. One traditional year-end tax planning strategy for business owners includes reducing current year taxable income by deferring it into later tax years and accelerating deductions into the current tax year. This strategy has been particularly beneficial where the income tax rate on the business’s income in the following year is expected to be the same or lower than the current year. For businesses that have done well during the current tax year, this strategy would still generally be advisable. Caution! In the following discussions we include “timing” suggestions as they relate to traditional year-end tax planning strategies that would cause you to accelerate deductions into 2023, while deferring income into 2024. However, for businesses that expect their taxable income to be significantly lower in 2023 than in 2024, the opposite strategy might be more advisable. In other words, for struggling businesses, a better year-end planning strategy could include accelerating revenues into 2023 (to be taxed at lower rates), while deferring deductions to 2024 (to be taken against income that is expected to be taxed at higher rates). Please keep that in mind as you read through the following timing strategies for income and deductions.

First-Year 168(k) Bonus Depreciation Deduction. Traditionally, a popular way for businesses to maximize current-year deductions has been to take advantage of the First-Year 168(k) Bonus Depreciation deduction. Beginning with 2023, the §168(k) deduction is 80% and reduced as follows for property placed in service: 1) During 2024 – 60%, 2) During 2025 – 40%, 3) During 2026 – 20%, and 4) After 2026 – 0% (with an additional year for long-production-period property and noncommercial aircraft). Planning Alert! Used property temporarily qualifies for 168(k) bonus depreciation for qualifying property acquired and placed in service after September 27, 2017, and before 2027. Property that generally qualifies for the 168(k) Bonus Depreciation includes new or used business property that has a depreciable life for tax purposes of 20 years or less (e.g., machinery and equipment, furniture and fixtures, sidewalks, roads, landscaping, computers, computer software, farm buildings, and qualified motor fuels facilities). Vehicles used primarily in business generally qualify for the 168(k) Bonus Depreciation. However, there is a dollar cap imposed on business cars, and on trucks, vans, and SUVs that have a loaded vehicle weight (GVWR) of 6,000 lbs. or less. For qualifying vehicles placed in service in 2023 and used 100% for business, the annual depreciation caps are as follows: 1st year – $12,200; 2nd year – $19,500; 3rd year – $11,700; fourth and subsequent years – $6,960. Moreover, if the vehicle (new or used) otherwise qualifies for the 168(k) Bonus Depreciation, the first-year depreciation cap (assuming 100% business use) is increased by $8,000 (i.e., from $12,200 to $20,200 for 2023). Planning Alert! If a new or used truck, van, or SUV (which is used 100% for business) has a GVWR over 6,000 lbs., 80% of its cost (without a dollar cap) could be deducted in 2023 as a 168(k) Bonus Depreciation deduction.

Section 179 Deduction. Another popular and frequently used way to accelerate deductions is by taking maximum advantage of the up-front Section 179 Deduction (“179 Deduction”). For 2023 the 179 Deduction limitation is increased to $1,160,000 and the phase-out threshold for total purchases of 179 property is $2,890,000. To maximize your 179 Deductions for 2023, it is important for your business to determine which depreciable property acquired during the year qualifies as 179 Property. Generally, “depreciable” property qualifies for the 179 Deduction if: 1) It is purchased new or used, 2) It is “tangible personal” property, and 3) It is used primarily for business purposes (e.g., machinery and equipment, furniture and fixtures, business computers, etc.). Planning Alert! The 179 Deduction is now allowed for otherwise qualifying property used in connection with lodging (e.g., the cost of furnishing a home that the owner is renting to others would now qualify). New or used business vehicles generally qualify for the 179 Deduction, provided the vehicle is used more-than-50% in your business. Planning Alert! As discussed previously in the 168(k) Bonus Depreciation segment, there is a dollar cap imposed on business cars and trucks that have a vehicle weight of 6,000 lbs. or less. If applicable, this dollar cap applies to both the 168(k) Bonus Depreciation and the 179 Deduction taken with respect to the vehicle. Trucks, vans, and SUVs that have a loaded weight (GVWR) of more than 6,000 lbs. are exempt from the annual depreciation caps. In addition, these vehicles, if used more-than-50% in business, will also generally qualify for a 179 Deduction of up to $28,900 if placed in service in 2023 ($30,500 if placed in service in 2024). Planning Alert! The $28,900 cap applies only for purposes of the 179 Deduction. This $28,900 cap does not apply with respect to the 168(k) Bonus Depreciation deduction taken on vehicles weighing over 6,000 lbs. Tax Tip! A business may be able to deduct the most of the cost of the vehicle or other qualifying assets placed in service in 2023 by using tthe 179 deduction, then the 168(k) deduction for the 80% of the remaining cost when applicable. Neither the 179 Deduction nor the 168(k) Bonus Depreciation deduction requires any proration based on the length of time that an asset is in service during the tax year. Therefore, your calendar-year business would get the benefit 5 of the entire 179 or 168(k) Deduction for 2023 purchases, even if the qualifying property was placed in service as late as December 31, 2023!

Salaries For S Corporation Shareholder/Employees. For 2023, an employer generally must pay FICA taxes of 7.65% on an employee’s wages up to $160,200 ($168,600 for 2024) and FICA taxes of 1.45% on wages in excess of $160,200 ($168,600 for 2024). In addition, an employer must withhold FICA taxes from an employee’s wages of 7.65% on wages up to $160,200 ($168,600 for 2024) and 1.45% of wages in excess of $160,200 ($168,600 for 2024). Generally, the employer must also withhold an additional Medicare tax of 0.9% for wages paid to an employee in excess of $200,000. If you are a shareholder/employee of an S corporation, this FICA tax generally applies only to your W-2 income from your S corporation. Other income that passes through to you or is distributed with respect to your stock is generally not subject to FICA taxes or to self-employment taxes. Caution! If the IRS determines you have taken unreasonably “low” compensation from your S corporation, it will generally argue that other amounts you have received from your S corporation (e.g., distributions) are disguised “compensation” and should be subject to FICA taxes.

MAXIMIZE YOUR 20% 199A DEDUCTION FOR QUALIFIED BUSINESS INCOME (QBI)

First effective in 2018, the 20% 199A Deduction has had a major impact on businesses. This provision allows qualified taxpayers to take a 20% Deduction with respect to “Qualified Business Income,” “Qualified REIT Dividends,” and “Publicly Traded Partnership Income.” Of these three types of qualifying income, “Qualified Business Income” (QBI) has had the biggest impact by far on the greatest number of taxpayers. In certain situations, the rules for determining whether a taxpayer qualifies for the 20% 199A Deduction with respect to Qualified Business Income (QBI) can be quite complicated. Taxpayers who may qualify for the 20% 199A Deduction are generally taxpayers that report “Qualified Business Income” (QBI) as: Individual owners of S corporations or partnerships; Sole Proprietors; Trusts and Estates; and Certain beneficiaries of trusts and estates. Planning Alert! The 20% 199A Deduction is available for tax years beginning after 2017 through 2025 and is generally taken on the owner’s individual income tax return. The 20% 199A Deduction does not reduce the individual owner’s “Adjusted Gross Income” (AGI) or impact the calculation of the owner’s Self-Employment Tax. Instead, the deduction simply reduces the owner’s Taxable Income (regardless of whether the owner itemizes deductions or claims the standard deduction). Qualified Business Income (QBI) generally eligible for the 20% 199A Deduction, is defined as the net amount of qualified items of income, gain, deduction, and loss with respect to “any” trade or business other than: 1) Certain personal service businesses known as “Specified Service Trades Or Businesses” and 2) The Trade or Business of performing services “as an employee” (e.g. W-2 wages). Caution! QBI also generally does not include certain items of income, such as: 1) Dividends, investment interest income, short-term capital gains, long-term capital gains, income from annuities, commodities gains, foreign currency gains, etc.; 2) Any “guaranteed payment” paid to a partner by the partnership; 3) Reasonable compensation paid by an S corporation to a shareholder; or 4) Income you report as an independent contractor (e.g., sole proprietor) where it is ultimately determined that you should have been classified as a “common law” employee.

W-2 Wage And Capital Limitation On The 20% QBI Deduction. Generally, your 20% QBI Deduction with respect to each Qualified Trade or Business may not exceed the greater of: 1) 50% of the allocable share of the business’s W-2 wages allocated to the QBI of each “Qualified Trade or Business,” or 2) The sum of 25% of the business’s allocable share of W-2 wages with respect to each “Qualified Trade or Business,” plus 2.5% of the business’s allocable share of unadjusted basis of tangible depreciable property held by the business at the close of the taxable year. Caution! For 2023, the Wage and Capital Limitation phases in ratably as a taxpayer’s Taxable Income goes from more than $182,100 to $232,100, or from more than $364,200 to $464,200 (if filing jointly).

“Specified Service Trade Or Businesses” (SSTBs) Income Does Not Qualify For The 20% 199A Deduction For Owners Who Have “Taxable Income” Above Certain Thresholds. If “Taxable Income” for 2023 (before the 20% 199A Deduction) is $182,100 or below ($364,200 or below if married filing jointly), all the qualified business income from a “Specified Service Trade or Business” (SSTB) is eligible for the 20% 199A deduction. However, if for 2023 “Taxable Income” is $232,100 or more ($464,200 or more if married filing jointly), none of your SSTB income qualifies for the 20% 199A Deduction. A SSTB 6 is generally defined as: 1) a trade or business activity involved in the performance of services in the field of: health; law; accounting; actuarial science; performing arts; consulting; athletics; financial services; or brokerage services; 2) a trade or business involving the receipt of fees for celebrity-type endorsements, appearance fees, and fees for using a person’s image, likeness, name, etc.; and 3) any trade or business involving the services of investing and investment management, trading, or dealing in securities, partnership interests, or commodities. An “SSTB” does not include the performance of architectural or engineering services.

BE CAREFUL WITH EMPLOYEE BUSINESS EXPENSES

Un-Reimbursed Employee Business Expenses Are Not Deductible. For 2018 through 2025, “unreimbursed” employee business expenses are not deductible at all by an employee. For example, an employee may not deduct on the employee’s income tax return any of the following business expenses incurred as an “employee”, even if the expenses are necessary for the employee’s work – Automobile expenses (including auto mileage, vehicle depreciation); Costs of travel, transportation, lodging and meals; Union dues and expenses; Work clothes and uniforms; Otherwise qualifying home office expenses; Dues to a chamber of commerce; Professional dues; Work-Related education expenses; Job search expenses; Licenses and regulatory fees; Malpractice insurance premiums; Subscriptions to professional journals and trade magazines; and Tools and supplies used in your work. Generally, employee business expenses reimbursed under an employer’s qualified “Accountable Reimbursement Arrangement” are deductible by the employer (subject to the 50% limit on business meals), and the reimbursements are not taxable to the employee. Planning Alert! Generally, for a reimbursement arrangement to qualify as an “Accountable Reimbursement Arrangement”: 1) The employer must maintain a reimbursement arrangement that requires the employee to substantiate covered expenses; 2) The reimbursement arrangement must require the return of amounts paid to the employee that are in excess of the amounts substantiated; and 3) There must be a business connection between the reimbursement (or advance) and the business expenses. Caution! If an employer reimburses an employee’s deductible business food and beverage expense under an Accountable Reimbursement Arrangement, the employer could deduct 50% of the reimbursement.

OTHER SELECTED YEAR-END PLANNING CONSIDERATIONS FOR BUSINESSES

IRS Increases Standard Mileage Rates Effective January 1, 2023. The standard mileage deduction rate for deductible business miles was increased from 62.5 cents per mile to 65.5 cents per mile effective January 1, 2023. The charitable mileage rate is still 14.0 cents per mile and the rate for medical and moving mileage remained at 22.0 cents per mile for 2023. Planning Alert! Be sure to keep proper records for business, medical/moving, and charitable mileage for use as a possible deduction for 2023. Note! Moving expenses are not deductible for 2018 through 2025 except for certain military personnel.

Consider Simplified Accounting Methods For Certain Small Businesses. The Tax Cuts And Jobs Act (enacted in late 2017) provides the following accounting method relief provisions for businesses with Average Gross Receipts (AGRs) for the Preceding Three Tax Years of $29 Million or Less (for 2023): 1) Generally allows businesses to use the cash method of accounting even if the business has inventories, 2) Allows simplified methods for accounting for inventories, 3) Exempts businesses from applying UNICAP, and 4) Liberalizes the availability of the completed-contract method. Please call our firm if you want us to help determine whether any of these simplified accounting methods might be available to your business.

No Deduction For Expenses Of A “Hobby”. Previously, otherwise deductible trade or business expenses attributable to an activity that was “not engaged in for profit” (i.e., a hobby loss activity) were deductible: 1) only as miscellaneous itemized deductions, and 2) only to the extent of the activity’s gross income. Since these hobby loss expenses are classified as miscellaneous itemized deductions, no deduction is allowed for these expenses from 2018 through 2025. Planning Alert! This makes it even more important for owners engaged in activities commonly subject to IRS scrutiny, to take steps to demonstrate the business is operated with the intent to make a profit.

Lower Form 1099-K Threshold For 2023 Transactions. For each calendar year between 2010 and 2022, Payment Settlement Entities have been required to file Form 1099-K annually with the IRS with respect to payees and furnish information to the payees, reporting the gross amount of reportable payment transactions. However, prior to 2023, third-party settlement organizations were not required to file Form 1099-K where: 1) the payee had 200 or fewer otherwise reportable transactions during the calendar year and 2) the gross amount of such transactions during the calendar year was $20,000 or less. “Payment Settlement Entities” 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. Alert! The American Rescue Plan Act lowered the exception from filing Form 1099-K by Payment Settlement Entities to gross payments of $600 or less, with no minimum number of transactions. The new $600 reporting threshold applies beginning with 2023 transactions. Caution! The American Rescue Plan Act provided that only payments for goods and services are reportable third-party network transactions. Payment services such as PayPal and Venmo generally allow users to designate a payment as personal. The Taxpayer Advocate Service advises taxpayers to “Be sure to ask those friends or family members to correctly designate the payment as a non–business-related transaction and then make a note yourself of what the payment was for and from whom it was received.”

Don’t Forget To Properly Document And Provide Details For Charitable Contributions. It is important to provide the IRS with all the necessary documentation for any charitable contributions made during 2023 in order to deduct them against taxable income. The IRS recently denied Hobby Lobby’s charitable contributions in the amount of $84.6 million because the fair market value and basis of each item contributed was not properly reported on Form 8283. Please call our firm for help if you are concerned about what documentation you need to deduct a contribution.

2023 Year-End Individual Tax Planning

POSSIBLE LEGISLATION BEFORE YEAR-END

Each year we work to provide you with our year-end planning letter in time to implement possible tax saving strategies before December 31st. As a result, it’s possible Congress could pass new legislation between your receipt of this letter and year-end. As of the completion of this letter, it appears an omnibus spending package is the best chance for any provisions that may affect 2023 tax law. However, the Secure Act 2.0 segment of the Consolidated Appropriations Act, 2023 was passed on December 29, 2022, and has many provisions that are first effective in 2023. The following is a discussion of some of those provisions. Please contact our firm if you would like an update on possible legislation and how it could affect you.

HIGHLIGHTS OF PROVISIONS INCLUDED IN SECURE ACT 2.0 FIRST EFFECTIVE AFTER 12/29/22 (DATE OF ENACTMENT) OR AFTER 12/31/22

On Thursday, December 29, 2022, the President signed H.R. 2617, the “Consolidated Appropriations Act, 2023,” providing appropriations for the Federal government’s fiscal year ending September 30, 2023. In the following summary, we’ve listed a few provisions of the Secure Act 2.0 segment of the Consolidated Appropriations Act, 2023 that could impact your 2023 year-end planning.

Increase In Age For Required Minimum Distributions (RMDs). Required Minimum Distributions from IRAs and qualified plan accounts were generally required to begin no later than April 1st following the calendar year in which an individual reached age 72. The Secure Act 2.0 (The Act) provides that for an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, required minimum distributions from IRAs and qualified plan accounts are generally required to begin no later than April 1st following the calendar year in which the individual attains age 73. For an individual who attains age 74 after December 31, 2032, the applicable age is 75. Planning Alert! Individuals who reach age 72 in 2023 will not have a Required Minimum Distribution for 2023. An RMD will be required for 2024 and the required beginning date for that RMD is April 1, 2025.

Reduction In 50% Excise Tax For Failures To Take Required Minimum Distribution. Beginning with 2023, if the amount distributed from an employer plan or IRA is less than the calculated Required Minimum Distribution, the 50% penalty tax on the amount of the Required Minimum Distribution not distributed is reduced from 50% to 25%.

New Exceptions From 10% Penalty Tax For Certain “Early Distributions” From Retirement Accounts. A 6% excise tax is imposed on “excess contributions” to an IRA. To avoid the 6% excise tax on an excess contribution, the excess contribution, and any net earnings allocable to the excess contribution must be distributed from the IRA on or before the due date of a participant’s tax return (including extensions). If the excess contribution plus any earnings is distributed by the due date of the return (including extensions) the contribution amount distributed is treated as not contributed, and therefore is not subject to the 10% penalty tax. However, there was no specific exception from the 10% penalty for the earnings distributed. Note! The Act provides that the earnings distributed along with the excess IRA contribution are not subject to the 10% penalty tax. In addition: 1) Distributions made to a plan participant on or after the date such participant has been certified by a physician as having a terminal illness (i.e., an illness or physical condition which can reasonably be expected to result in death in 84 months or less after the date of the certification) will not be subject to the additional 10% tax on early distributions, and 2) Public safety employees may take distributions from a governmental plan on or after reaching age 50 or 25 years of service under the plan, whichever is earlier, without a 10% penalty tax.

Deductions For Charitable Conservation Easements Substantially Restricted. The Act provides that a contribution of a conservation easement by a partnership, S corporation, or other pass-through entity is generally not deductible if the contribution exceeds 2.5 times the sum of each owner’s basis in the partnership allocable to the portion of the real property with respect to which the contribution is made. This disallowance provision does not apply if substantially all the partnership interests are held, directly or indirectly, by an individual and members of the individual’s family. In addition, there is an exception for contributions to preserve buildings which are certified historic structures.

HIGHLIGHTS OF PROVISIONS INCLUDED IN THE INFLATION REDUCTION ACT OF 2022

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022. The following is a summary of selected provisions included in the Inflation Reduction Act that could impact your 2023 tax planning.

Credit For Energy Efficient Residential Property Improvements. The Inflation Reduction Act provides an increased 30% credit generally with an annual $1,200 limitation for qualified energy efficient residential property improvements beginning in 2023 and before 2032. The credit is only allowed for property used as a residence. The credit for a tax year equals 30% of the sum of: 1) the amount paid or incurred by the taxpayer for qualified Energy Efficiency Improvements installed during that year, 2) the amount of the Residential Energy Property Expenditures paid or incurred by the taxpayer during that year, and 3) amounts paid or incurred during the year for home energy audits of the taxpayer’s principal residence. The maximum credit for home energy audits is $150. Tax Tip! A 30% credit up to a maximum credit of $2,000 is allowed for qualifying heat pumps, heat pump water heaters and biomass stoves and boilers.

Residential Clean Energy Credit. After 2022, taxpayers are allowed a 30% credit for: 1) solar electric property expenditures (solar panels); 2) solar water heating property expenditures (solar water heaters); 3) fuel cell property expenditures; 4) small wind energy property expenditures (wind turbines); 5) geothermal heat pump property expenditures; and 6) battery storage technology expenditures. The credit applies to property installed in connection with a dwelling located in the United States and used as a residence by the taxpayer. The residence is not required to be taxpayer’s “principal residence” except for fuel cell property.

Note! Please see the IRS website at Frequently Asked Questions about energy efficient home improvements and residential clean energy property credits (irs.gov) for additional information concerning these 2023 energy credits.

Credits For Buying Electric Vehicles Placed In Service During 2023. Taxpayers may qualify for a credit of up to $7,500 for taking possession of a qualified new electric vehicle during 2023. To qualify for the New Clean Vehicle Credit, the vehicle must be a qualified electric vehicle (EV) or a qualified fuel cell vehicle. Because of the complexity for determining whether a vehicle qualifies for the credit and determining the amount of the credit, we suggest using the IRS website to determine whether an EV acquired during 2023 qualifies for the new clean vehicle credit and the amount of the credit. The relevant web address is Federal Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After (fueleconomy.gov). At the website you will need to enter: 1) whether the vehicle was placed in service after April 17, 2023 or before April 18, 2023; 2) the model year; 3) the make of the vehicle (e.g., Chevrolet, Ford, Toyota); 4) the model (e.g., Bolt, Mustang Mach-E); and 5) whether the vehicle is all electric or a plug-in hybrid vehicle.

Clean Vehicle Credit For Previously Owned Vehicles Placed In Service After 2022 And Before 2033. Individuals are allowed a credit equal to the lesser of $4,000 or 30% of the sales price for used EVs placed in service during 2023. The used EV must be purchased in a “qualified sale” which is: 1) a sale by a dealer licensed to sell vehicles in a state, D.C., Puerto Rico or other U.S. possession, an Indian tribal government, or any Alaska Native Corporation; 2) for $25,000 or less (including delivery charges, but not taxes & fees); and 3) the first sale since August 16, 2022, to a “qualified buyer” (an individual who purchases the vehicle for use and not for resale, who cannot be claimed as a dependent by another taxpayer, and has not been allowed a credit for a previously owned clean vehicle during the three-year period ending on the date of sale). There are additional requirements for the used EV to qualify for the credit. However, if the above requirements are met, an individual can use the following IRS website to determine if the vehicle qualifies for the credit Federal Tax Credits for Pre-owned Plug-in Electric and Fuel Cell Vehicles (fueleconomy.gov).

CONSIDER RECENT CHANGES TO IRAS AND QUALIFIED RETIREMENT PLANS

Secure Act Imposes A New 10-Year Pay-Out Requirement. Effective for individuals dying after 2019, the Secure Act generally requires a decedent’s entire remaining IRA or qualified account balance to be distributed to a named beneficiary, other than an “eligible designated beneficiary”, by December 31 of the 3 10th year following the year of the decedent’s death. This required 10-year payout does not apply if the named beneficiary is an “eligible designated beneficiary” which includes the decedent’s spouse, or an individual with a qualified disability, who is chronically ill, or is no more than 10 years younger than the decedent. If the named beneficiary is a child under age 21, the 10-year pay-out requirement does not kick in until the child reaches age 21. On February 23, 2022, the IRS issued proposed regulations interpreting this new 10-year rule for beneficiaries that are not “eligible designated beneficiaries.” The proposed regulations proposed to require beneficiaries of a decedent dying on or after the decedent’s required beginning date (April 1st following age 72 or following age 73 for those turning 72 after 2022) to begin required minimum distributions (RMDs) in the calendar year following the year of the decedent’s death and also required any remaining account balance of that beneficiary to be distributed to the beneficiary by the end of the 10th calendar year following the year of the decedent’s death. However, the proposed regulations allowed beneficiaries who were not “eligible beneficiaries” of a decedent dying before the decedent’s required beginning date to take distributions in any manner as long as the entire account balance of the beneficiary was distributed by the end of the 10th calendar year following the year of the decedent’s death. Most believed a beneficiary that was not an “eligible designated beneficiary” was not required to take a distribution prior to the 10th calendar year following the decedent’s death whether the decedent died before or after the decedent’s required beginning date. Even the IRS’s own publication seemed to say that was the case. The interpretation in the proposed regulations meant that non-eligible beneficiaries of a decedent who died in 2020 or 2021 after the decedent’s required beginning date would have a 50% penalty if RMDs were not made in 2021 for beneficiaries of decedents dying in 2020 and in 2022 for decedents dying in 2021. New Development! In July of this year, the IRS released Notice 2023-54 which says the proposed RMD regs will not be effective any earlier than 2024. Notice 2023-54 taken together with a notice issued by the IRS in 2022 generally provide that beneficiaries of account owners in IRAs or defined contribution plans that are not “Eligible Designated Beneficiaries” and who are not taking lifetime distributions will not be penalized for failing to take RMDs in 2021, 2022, or 2023 where the account owner or “Eligible Designated Beneficiary” died in 2020, 2021, or 2022 after the employee or account owner’s required beginning date and the beneficiary would be subject to the 10-year rule under the proposed regs.

HIGHLIGHTS OF TRADITIONAL YEAR-END TAX PLANNING

In the following discussion we include traditional year-end tax planning strategies that allow you to accelerate your deductions into 2023, while deferring your income into 2024. Planning Alert! Individuals who have a significant drop in income during 2023, may decide the opposite strategy is more advisable and accelerate income into 2023 (to be taxed at lower rates), and defer deductions into 2024 (to be taken against income that is expected to be taxed at higher rates).

Tax Benefits Of Above-The-Line Deductions. Traditional year-end planning includes accelerating deductible expenses into the current tax year. So-called “above-the-line” deductions reduce both your “adjusted gross income” and your “modified adjusted gross income”, while “itemized” deductions (i.e., below-the-line deductions) do not reduce either adjusted gross income or modified adjusted gross income. Deductions that reduce your adjusted gross income (or modified adjusted gross income) can generate multiple tax benefits by reducing your taxable income and allowing you to be taxed in a lower tax bracket and potentially freeing up other deductions (and tax credits) that phase out as your adjusted gross income (or modified adjusted gross income) increases. If you think that you could benefit from accelerating abovethe-line deductions into 2023, consider the following:

• Possible Above-The-Line Deductions. Above-the-line deductions include: Military Moving Expenses; Qualifying Alimony Payments (if the divorce or separation instrument was executed before 2019); Deductions for IRA or Health Savings Account (HSA) Contributions; Certain Business Expenses; and, Student Loan Interest. Note! For 2018 through 2025, the deduction for moving expenses has been suspended for most individuals. Planning Alert! Generally, active members of the Armed Forces who move pursuant to a military order because of a permanent change of station may still deduct un-reimbursed qualified moving expenses as above-the-line deductions and may exclude the employer reimbursements of those moving expenses from income. In addition, effective for 4 “Divorce or Separation Instruments” executed after 2018, the deduction for alimony payments has been repealed altogether. The good news, however, is that these alimony payments are no longer taxable to the recipient. Alimony paid under a divorce instrument executed before 2019 will generally be grandfathered under the previous rules. Planning Alert! If you are currently paying or receiving alimony pursuant to a divorce or separation instrument executed before 2019, the tax treatment of the alimony payments does not change. That is, if your alimony payments were deductible before 2019, they should continue to be deductible (and includible in the recipient’s income).
• Accelerating Above-The-Line Deductions. As a cash method taxpayer, you can generally accelerate a 2024 deduction into 2023 by “paying” the deductible item in 2023. “Payment” typically occurs in 2023 if, before the end of 2023: 1) A check is delivered to the post office, 2) Your electronic payment is debited to your account, or 3) An item is charged on a third-party credit card (e.g., Visa, MasterCard, Discover, American Express). Caution! If you post-date the check to 2024 or if your check is rejected, no payment has been made in 2023 even if the check is delivered in 2023. Planning Alert! The IRS says that prepayments of expenses applicable to periods beyond 12 months after the payments are not deductible in 2023.

Itemized Deductions. Although itemized deductions (i.e., below-the-line deductions) do not reduce your adjusted gross income or modified adjusted gross income, they still may provide valuable tax savings. Starting in 2018 and through 2025, recent legislation substantially increased the Standard Deduction. For 2023, the Standard Deduction is: Joint Return – $27,700; Single – $13,850; and Head-of-Household – $20,800. Recent legislation also made changes to the following itemized deductions:

• Charitable Contributions. Starting in 2018 (with no sunset date), a charitable contribution deduction is not allowed for contributions made to colleges and universities in exchange for the contributor’s right to purchase tickets or seating at an athletic event (prior law allowed the taxpayer to deduct 80% as a charitable contribution). Planning Alert! If you think your itemized deductions this year could likely exceed your Standard Deduction ($27,700 if filing jointly, $13,850 if filing single and $20,800 if filing head of household) and you want to accelerate your charitable deduction into 2023, please note that a charitable contribution deduction is allowed for 2023 if the check is “mailed” on or before December 31, 2023, or the contribution is made by a credit card charge in 2023. However, if you merely give a note or a pledge to a charity, no deduction is allowed until you pay the note or pledge. In addition, if you are considering a significant 2023 contribution to a qualified charity (e.g., church, synagogue, or college), it will generally save you taxes if you contribute appreciated long-term capital gain property, rather than selling the property and contributing the cash proceeds to the charity. By contributing capital gain property held more than one year (e.g., appreciated stock, real estate, Bitcoin, etc.), a deduction is generally allowed for the full value of the property, but no tax is due on the appreciation. If instead you intend to use “loss” stocks to fund a charitable contribution, you should sell the stock first and then contribute the cash proceeds. This will allow you to deduct the capital loss from the sale, while preserving your charitable contribution deduction.
• Casualty Losses. From 2018 through 2025, the itemized deduction for personal casualty losses and theft losses has been suspended. However, personal casualty losses attributable to a Federally declared disaster continue to be deductible. Planning Alert! Personal casualty losses generally continue to be deductible to the extent the taxpayer has personal casualty “gains” for the same year. In addition, casualty losses with respect to property held in a trade or business or for investment are still allowed. Alert! The IRS has announced that individuals living in, and businesses located in the counties designated as “covered disaster areas” in Florida, South Carolina, and Georgia because of Hurricane Idalia now have until February 15, 2024, to file returns and to make certain payments due during the period beginning August 27, 2023, for Florida, August 29, 2023, for South Carolina, and August 30, 2023, for Georgia, and ending February 15, 2024. If you live or have a businesses located in FL, SC or GA, please go to the following website https://www.irs.gov/newsroom/tax-relief-indisaster-situations for more information. This website also provides a listing of all federal disaster areas for 2023 and the due date for returns of taxpayers located in those disaster areas.
• Medical Expense Deductions. If you think your itemized deductions this year could likely exceed your standard deduction of $27,700 if filing jointly ($13,850 if single), but you do not expect your itemized deductions to exceed your Standard Deduction next year, you could save taxes in the long run by accelerating elective medical expenses (e.g., braces, new eyeglasses, etc.) into 2023. Planning Alert! For 2023, you are allowed to take a medical expense itemized deduction only to the extent your aggregate medical expenses exceed 7.5% of your AGI.
• $10,000 Cap On State And Local Taxes. From 2018 through 2025, your aggregate itemized deduction for state and local real property taxes, state and local personal property taxes, and state and local income taxes (or sales taxes if elected) is limited to $10,000 ($5,000 for married individuals filing separately). Foreign real property taxes are not deductible at all unless the taxes are paid in connection with a business or in an activity for the production of income. You are still allowed a full deduction (i.e., an above-the-line deduction) for state, local, and foreign property or sales taxes paid or incurred in carrying on your trade or business (e.g., your Schedule C, Schedule E, or Schedule F operations).
• Limitations On The Deduction For Interest Paid On Home Mortgage “Acquisition Indebtedness.” The Tax Cuts And Jobs Act (TCJA) reduced the dollar cap for Acquisition Indebtedness incurred after December 15, 2017, from $1,000,000 to $750,000 ($375,000 for married filing separately) for 2018 through 2025. Generally, any Acquisition Indebtedness incurred on or before December 15, 2017, is “grandfathered” and will still carry the $1,000,000 cap. Planning Alert! If you think your itemized deductions this year could likely exceed your Standard Deduction, paying your January 2024 qualifying home mortgage payment before 2024 should shift the deduction on the interest portion of that payment into 2023.

Postponing Taxable Income May Save Taxes. Generally, deferring taxable income from 2023 to 2024 may also reduce your income taxes, particularly if your effective income tax rate for 2024 will be lower than your effective income tax rate for 2023. Moreover, deferring income from 2023 to 2024 may provide you with the same tax benefits listed previously when you accelerate deductions into 2023 (i.e., Freeing up other deductions and tax credits that phase out as your adjusted gross income or modified adjusted gross income increases; Reducing your modified adjusted gross income below the income thresholds for the 3.8% Net Investment Income Tax; Reducing your household income to a level that allows a “refundable” Premium Tax Credit; or, Reducing your taxable income to a level that maximizes the 20% 199A Deduction). Planning Alert! The deferral of income could cause your 2023 taxable income to fall below the thresholds for the highest 37% tax bracket (i.e., $693,750 for joint returns; $578,125 if single). Also, if you have income subject to the 3.8% Net Investment Income Tax (3.8% NIIT) and the income deferral reduces your 2023 modified adjusted gross income below the thresholds for the 3.8% NIIT (i.e., $250,000 for married filing joint, $125,000 for married filing separate, and $200,000 for all others), you may avoid this additional 3.8% tax on your investment income. In addition, if you reduce your modified adjusted gross income below the NIIT thresholds above, you may not be subject to the additional Medicare tax of 0.9%. If you are a selfemployed individual using the cash method of accounting, consider delaying year-end billings to defer income until 2024. Planning Alert! If you have already received the check in 2023, deferring the deposit of the check does not defer the income. Also, you may not want to defer billing if you believe this will increase your risk of not getting paid.

TAX PLANNING FOR INVESTMENT INCOME (INCLUDING CAPITAL GAINS AND NIIT)

Planning With The 3.8% Net Investment Income Tax (3.8% NIIT). The 3.8% Net Investment Income Tax (3.8% NIIT) applies to the Net Investment Income of higher-income individuals. This tax applies to individuals with modified adjusted gross income exceeding the following thresholds: $250,000 for married filing jointly; $200,000 if single; and $125,000 if married filing separately. The 3.8% NIIT is imposed upon the lesser of an individual’s: 1) Modified adjusted gross income in excess of the threshold, or 2) Net investment income. The 3.8% NIIT not only applies to traditional types of investment income (i.e., interest, dividends, annuities, royalties, and capital gains), it also applies to “business” income that is taxed to a “passive” owner unless the passive income is subject to S/E taxes. If you believe that the 3.8% NIIT may apply to you, call our office so we can discuss possible steps we can take before year-end to help reduce your NIIT exposure.

Traditional Year-End Planning With Capital Gains And Losses. Generally, net capital gains (both short- term and long-term) are potentially subject to the 3.8% NIIT. This could result in an individual filing a joint return with taxable income for 2023 of $553,850 or more ($492,300 or more if single) paying Federal income tax on net long-term capital gains at a 23.8% rate (i.e., the maximum capital gains tax rate of 20% plus the 3.8% NIIT). In addition, an individual’s net short-term capital gains could be taxed as high as 40.8% (i.e., 37% plus 3.8%), for Federal income tax purposes. Consequently, traditional planning strategies involving the timing of your year-end sales of stocks, bonds, or other securities continue to be as important as ever. The following are time-tested, year-end tax planning ideas for sales of capital assets. Caution! Always consider the economics of a sale or exchange first! Note! For individuals filing a joint return with 2023 taxable income less than $89,250 (less than $44,625 if single), their long-term capital gains and qualified dividends are taxed at a zero percent rate. The zero percent rate for long-term capital gains and qualified dividends is particularly important to lower-income retirees who rely largely on investment portfolios that generate dividends and long-term capital gains. Planning Alert! If you have substantial capital loss carryforwards coming into 2023, consider selling enough appreciated securities before the end of 2023 to decrease your net capital loss to $3,000. Stocks that you think have reached their peak would be good candidates. All else being equal, you should sell the short-term gain (held 12 months or less) securities first. This will allow your net capital loss (in excess of $3,000) to offset your shortterm capital gain, while preserving favorable long-term capital gain treatment for later years.

SELECTED MISCELLANEOUS YEAR-END PLANNING CONSIDERATIONS

Contributing The Maximum Amount To Your Traditional IRA. As your income rises and your marginal tax rate increases, deductible IRA contributions generally become more valuable. Also, making your deductible contribution to the plan as early as possible generally increases your retirement benefits. As you evaluate how much you should contribute to your IRA, consider the following limitations. If you are married, even if your spouse has no earnings, you can generally deduct in the aggregate up to $13,000 ($15,000 if you are both at least age 50 by the end of the year) for contributions to you and your spouse’s traditional IRAs. You and your spouse must have combined earned income at least equal to the total contributions. However, no more than $6,500 ($7,500 if at least age 50) may be contributed to either your IRA account or your spouse’s IRA account for 2023. If you are an active participant in your employer’s retirement plan during 2023, your IRA deduction is reduced ratably as your adjusted gross income increases from $116,000 to $136,000 on a joint return ($73,000 to $83,000 on a single return). However, if you file a joint return with your spouse and your spouse is an active participant in his or her employer’s plan and you are not an active participant in a plan, your IRA deduction is reduced as the adjusted gross income on your joint return goes from $218,000 to $228,000. Caution! Every dollar you contribute to a deductible IRA reduces your allowable contribution to a nondeductible Roth IRA. The sum of your contributions for the year to your Roth IRA and to your traditional IRA may not exceed the $6,500/$7,500 limits discussed above. For 2023, your ability to contribute to a Roth IRA is phased out ratably as your adjusted gross income increases from $218,000 to $228,000 on a joint return or from $138,000 to $153,000 if you are single. Planning Alert! Unlike the rule for traditional IRA contributions, the amount you may contribute to a Roth IRA is reduced if your adjusted gross income falls within these phase-out ranges regardless of whether you or your spouse is a participant in another retirement plan. In addition, contributions to a Roth IRA are not deductible. Planning Alert! You have until April 15, 2024, to make a 2023 traditional IRA contribution.

If You Are 70½ Or Older By December 31st, Consider A Qualified Charitable Distribution (QCD). A Qualified Charitable Distribution (QCD) allows a donation to a charitable organization of up to $100,000 from a traditional IRA. These contributions are excluded from income and count toward your RMD for 2023. Caution! These contributions are not deductible as itemized deductions. However, if you normally take the standard deduction, a QCD could be even more beneficial since the distribution will be excluded from your income.

IRS Increases Standard Mileage Rates Effective January 1, 2023. The standard mileage deduction rate for your deductible business miles was increased from 62.5 cents per mile to 65.5 cents per mile effective January 1, 2023. The charitable mileage rate is still 14.0 cents per mile and the rate for medical and moving mileage remained at 22.0 cents per mile for 2023. Note! For 2018 through 2025, the deduction for moving expenses is not allowed except for active members of the Armed Forces who move 7 pursuant to a military order because of a permanent change of station. Planning Alert! Be sure to keep proper records for business, medical/moving, and charitable mileage for use as a possible deduction for 2023.

The 20% 199A Deduction For Qualified Business Income. Don’t overlook the 20% Deduction under Section 199A (20% 199A Deduction) with respect to “Qualified Business Income,” “Qualified REIT Dividends,” and “Publicly-Traded Partnership Income.” The 20% 199A deduction does not reduce your adjusted gross income or impact your calculation of self-employment tax. Instead, the deduction simply reduces your taxable income (regardless of whether you itemized deductions or claim the standard deduction). In other words, the 20% 199A Deduction is allowed in addition to your itemized deductions or your standard deduction. Note! The 20% 199A Deduction expires after 2025! It is not feasible to provide a thorough discussion of the 20% 199A Deduction with respect to Qualified Business Income (QBI) in this letter. However, if you own an interest in a business as a sole proprietor, an S corporation shareholder, or a partner in a partnership, you are a very good candidate for the 20% 199A Deduction. If you want more information on the 20% 199A Deduction, please call our firm and we will be glad to provide you with more details.

Gift And Estate Tax Planning. For 2023, a donor can gift $17,000 to each donee. It is not a taxable gift to the donor and gifts are not included in the recipient’s income. That exclusion amount will go to $18,000 in 2024. Each taxpayer’s amount of unified credit if used against gift tax or estate tax is $12,920,000 for 2023 and is scheduled to go to $13,610,000 in 2024. Planning Alert! Using the annual gift tax exclusion (i.e., $17,000 for 2023) is an effective tool to move assets out of your estate without creating any gift tax or using any of your unified credit amount.

Use The IRS Tax Withholding Estimator To Avoid Surprises. As you get to the end of 2023, it’s a good idea to revisit your withholding and estimated tax payments to avoid an unexpected tax bill which could include penalties and interest. The IRS encourages taxpayers to use its Tax Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator to ensure they have the correct amount of taxes paid-in before December 31st. Planning Alert! It is especially important to review your withholding if you have had a significant event occur during 2023 such as a job change or loss, additional income stream, marriage, divorce, etc. If you believe your tax liability has been affected because of a significant event, and you have questions, please call our firm so we can discuss.