Sager & Associates, CPAs

Tips for Filing an Accurate 2022 Return (2/2)

Here are some additional key points to keep in mind as you prepare your 2022 tax returns. To avoid processing delays and potential IRS penalties, taxpayers must report all forms of potentially taxable income. In addition to wages or a salary that you receive as an employee, make sure to accurately report any income you had from:

- Business activities, including selling goods online, independent contract work, side gigs or other forms of self-employment
- Interest, dividends, gains from digital assets (cryptocurrency, non-fungible tokens, stablecoins) transactions or other investment returns
- Seasonal or other temporary or part-time work
- Prizes, awards, bonuses or gambling winnings

A tax professional can help you properly report all your income, and file your return electronically for faster processing.

IRS Clarifies Which 2022 State Tax Payments Are Non-Taxable – Did You Know?

Many states issued special tax rebates or other relief payments in 2022 and until now, it has been unclear whether recipients of these payments had to report them as taxable income on their 2022 federal tax returns.

According to the IRS, certain payments issued by 17 state governments may qualify as disaster relief or general welfare payments, which taxpayers may exclude from their income. Therefore, those who received these special rebates or relief payments generally do not have to report the payments on their federal tax returns as taxable income. The 17 states are: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. The IRS has published a list of the specific payments covered by this rule (link below).

Meanwhile, taxpayers in Georgia, Massachusetts, South Carolina and Virginia who received certain state tax payments in 2022 may be able to exclude these payments from their income if they were a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

A tax professional can help you determine whether any state tax payments you received in 2022 may be taxable, and if so, how to properly report them on your tax return.

List of State Tax Payments Covered: https://www.irs.gov/newsroom/state-payments.

Tips for Filing an Accurate 2022 Return (1/2)

The first step toward completing an accurate return and claiming every deduction and credit that you are entitled to is assembling critical records and documents. These include:

- Earnings statements like W-2s, 1099s and/or 1098s
- Social Security or other taxpayer ID numbers for all people listed on your return
- Any IRS letters you received in 2022 about deduction or credit amounts, adjustments made to your past tax returns, etc.
- Form 1095-A (Health Insurance Marketplace Statement), if you claim the Affordable Care Act Premium Tax Credit
- Form 1098-T (Tuition Statement), if you claim education expense credits or deductions

In addition, having your bank account and routing numbers handy will enable you to request your refund by direct deposit. A tax professional can help you file your return electronically and set up direct deposit for the fastest possible processing.

Missing or Incorrect W-2s or 1099s – Did You Know?

When the time comes to get your taxes filed, it can be frustrating to discover that you have not received the documents you need to complete your return. This problem occurs most often with Form W-2 (Wage and Tax Statement for employees) or the various versions of Form 1099 (for earnings as an independent contractor, pension or IRA distributions, etc.).

If you have not received an anticipated W-2 or 1099, you should first contact the employer or payer to request the missing document. The same applies if a form you received contains incorrect information.

If you have received an incorrect Form 1099-G for unemployment compensation from your state employment office, contact the agency immediately. An incorrect form may indicate that a scammer collected unemployment benefits using your Social Security Number (SSN).

Benefits of Filing Early - Did You Know? (2/2)

The IRS deadline for filing 2022 tax returns is April 18, 2023 but there are multiple advantages to filing electronically as soon as possible. These advantages include:

- Faster Refund: Processing of returns by the IRS may slow down in April, as the number of returns submitted increases. For early filers who provide direct deposit information, the IRS issues most refunds within 21 days, or by as soon as February 28 for those who claim the Additional Child Tax Credit or Earned Income Tax Credit.
- No Need to Request A Filing Extension: If you start early, then even if a problem comes up like a missing wage statement or other tax document, you will have plenty of time to resolve the issue before the filing deadline.
- More Time to Request An Installment Plan: Discovering at the last minute that you owe more tax than you can pay may lead to tax problems, including IRS penalties. Filing early may give you time to properly request an installment payment arrangement with the IRS, helping to minimize penalties and interest charges.
- Easier to Get Help: If you need assistance preparing and/or filing your tax return, help will be easier to find in February or early March than during the final days before the filing deadline.

A tax professional can help you efficiently complete your tax return, and file it electronically for greater security and faster processing.

Benefits of Filing Early – Did You Know? (1/2)

The IRS deadline for filing 2022 tax returns is April 18, but there are multiple advantages to filing electronically as soon as possible. Early filing can protect you from tax-related identity theft, where a scammer files a fake tax return using your Social Security number (SSN). The IRS only accepts one electronically filed return per SSN, so if someone else files a bogus return with your number before you, your return may be rejected.

A tax professional can help you efficiently complete your tax return, and file it electronically for greater security and faster processing.

Reporting Digital Asset Transactions to the IRS – Did You Know?

Since 2020, the IRS has required taxpayers to answer a question about their involvement with virtual currencies on their tax returns. For tax year 2022, the IRS has replaced the term “virtual currencies” with “digital assets,” a category that includes not only cryptocurrencies and stablecoins, but also non-fungible tokens (NFTs).

Generally, you must answer “Yes” to the digital asset question if any of the following occurred in 2022:
- You received digital assets as payment for labor, goods or services.
- You traded digital assets or gave them away as gifts.
- You received digital assets as an award or reward, as a result of a hard fork, or due to mining, staking or similar activities.
- You sold a digital asset for cash, exchanged it for other (non-digital) property, or otherwise disposed of your financial interest in it.

You may generally answer “No” to the question if you simply held digital assets throughout 2022, moved digital assets between your digital wallets, or purchased digital assets for cash.

Generally, if you receive digital assets as payment for labor or services, you must report the value of the assets as employee income or, if you are self-employed, as business income. Many other transactions could result in a taxable capital gain. A tax professional can help you properly report your digital asset transactions, and figure and pay any tax due on them.

Filing Deadline for W-2 and 1099 Forms

Taxpayers who paid employees or independent contractors in 2022 are reminded to file all required payment reporting forms by January 31, 2023.

If you operate a business and pay employees, you generally must file a Form W-2 for each employee with the Social Security Administration (SSA) by January 31. You must also send each employee a copy of their W-2

January 31 is also the deadline for 1099 forms if you are required to file 1099-MISC and 1099-NEC forms.

A business tax professional can help you determine whether you need to file W-2 or 1099 forms, and may also be able to help you submit the forms electronically.

Year-End Transactions Can Change Your 2022 Tax Refund – Did You Know?

Now is the time to prepare to file your 2022 tax return, and the IRS is reminding taxpayers that certain end-of-year financial transactions might have significant tax impacts. Tax withholding from paychecks does not ordinarily take into account income sources like yearly or holiday bonuses, stock dividends, or selling real estate or other property at a profit. If you receive such income, you might end up getting a smaller tax refund than you have been anticipating, or even owing tax and penalties for underpayment.

In addition, the IRS reminds taxpayers that if they have outstanding debts like unpaid taxes from previous years, past-due child or spousal support, or overdue student loan payments, their 2022 tax refunds might be reduced by these amounts under the Treasury Offset Program (TOP).

A tax professional can help you determine the tax implications of income you received late in 2022.

Opening Date for 2023 Tax Filing Season

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

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

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

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

Quarterly Estimated Tax Payments - Reminder

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

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

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

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

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

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

Standard Mileage Rates for 2023 – Did You Know?

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

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

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

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

'Tis the Season for Important Tax Paperwork

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

The most common documents include:

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

December 31 IRA Deadline – Did You Know?

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

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

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

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

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

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

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

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

Giving Tuesday and Charitable Donations - Did You Know?

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

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

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

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

Potentially Taxable Events – Did You Know?

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

The most commonly overlooked taxable events include:

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

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

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

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

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

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

2023 Healthcare Open Enrollment - Did You Know?

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

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

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

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

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

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

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

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

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

6-Month Filing & FBAR Extensions Deadline

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

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

2021 INDIVIDUAL INCOME TAXES:

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

2021 CORPORATE INCOME TAXES:

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

FOREIGN BANK ACCOUNT REPORT (FBAR):

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

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

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

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

Quarterly Estimated Tax Payments - Reminder

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

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

Educator Expense Deduction for 2022 – Did You Know?

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

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

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

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

Newlyweds Have Special Tax Considerations – Did You Know?

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

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

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

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

Crowdfunding and Taxes – Did You Know?

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

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

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

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

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

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

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

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

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

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

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

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