A. Leake Accounting

Tax Saving Opportunities for New Parents

If you welcomed a new child into your household in 2023, then you may qualify for one or more valuable tax credits that could significantly reduce your tax or increase your refund. In order to claim these benefits, you generally must first obtain a taxpayer ID number for your child. For most credits, that number must be a Social Security number (SSN), but in some cases you can use an individual taxpayer ID number (ITIN) or adoption taxpayer ID number (ATIN) instead.

Many people with children qualify for a Child Tax Credit (CTC) of up to $2,000 per child, of which up to $1,600 may be refundable as the Additional Child Tax Credit. Meanwhile, the fully refundable Earned Income Tax Credit (EITC) has significantly higher maximum credit amounts and income limits for people with children than for those with no children.

If you paid child care expenses in 2023 so that you could work or seek work, you may also be eligible for the nonrefundable Child and Dependent Care Credit. Other nonrefundable credits available to qualifying parents include the Credit for Other Dependents and the Adoption Tax Credit. A tax professional can help you find and claim all the tax benefits you qualify for, and file your return electronically to get your refund as quickly as possible.

IRS Online Account Setup Scams – Did You Know?

Each year, the IRS issues a list of the most prevalent scams that put taxpayers' identities and hard-earned money at risk. Some dangerous scams relate to IRS online accounts. Many taxpayers find that setting up an online account helps them stay on top of their taxes and make better planning decisions. Unfortunately, this IRS service has also drawn the attention of digital scammers.

In one common scheme, the scammer contacts a taxpayer, posing as a representative of a supposedly helpful service for people with limited computer skills. The scammer offers to help the taxpayer set up an online IRS account, asking for sensitive information like the taxpayer's address, photo ID, and Social Security number (SSN) or Individual Taxpayer Identification number (ITIN). The scammer then sells this information to criminals, who use it for tax fraud and other forms of identity theft.

The IRS warns taxpayers that ANY such offer is a scam. Most people can readily set up their own IRS online accounts by following the instructions at irs.gov. If you do need help, only seek it from a trusted person, like a family member or tax professional.

IRS Online Account: https://www.irs.gov/payments/your-online-account.

IRS Third Party Authorizations – Did You Know?

All U.S. taxpayers have the right to designate a third party to work with the IRS on their behalf. In order to exercise this right, taxpayers must formally grant permission to the third party to represent them. This authorization may take several different forms:

Oral Disclosure: This level of permission simply authorizes the IRS to share the taxpayer's tax information with another person present on a phone call or in a meeting.

Third-party Designee: On their tax returns, taxpayers may designate a third party to discuss the return with the IRS. This authorization is limited to that specific return and year.

Tax Information Authorization: Taxpayers may appoint a third party to receive and review their confidential tax information for a specific type of tax for a designated time period.

Power Of Attorney: This designation authorizes a person or firm to represent the taxpayer in federal tax matters. The person or firm must be certified to practice before the IRS.

Oral disclosure and third-party designee permissions expire automatically. Taxpayers have the right to revoke tax information or power of attorney authorizations at any time, either by notifying the IRS of the revocation, or simply by appointing a new representative.

Reducing Fees & Penalties - Did You Know?

If you are required to file your taxes, you should still file, even if you can't pay, as the failure-to-file penalty may be 10 times more than the failure-to-pay penalty. If you are unable to pay in full, try to file your tax return by the deadline of April 15th, 2024 and pay as much as you can. The IRS also has Installment Payment Plans available that you may qualify for.

In addition, April 15th is also the due date for Tax Year 2024 first quarter estimated tax payments for those making estimated payments.

Taxpayer Bill of Rights - Did You Know?

As a taxpayer, you have a set of ten fundamental rights that the IRS is obligated to protect:

1. The Right to be Informed.
2. The Right to Quality Service.
3. The Right to Pay No More Than the Correct Amount of Tax.
4. The Right to Challenge the IRS's Position and Be Heard.
5. The Right to Appeal an IRS Decision in an Independent Forum.
6. The Right to Finality.
7. The Right to Privacy.
8. The Right to Confidentiality.
9. The Right to Retain Representation.
10. The Right to a Fair and Just Tax System.

The Taxpayer Bill of Rights ensures that the IRS must fairly review any objections a taxpayer raises to an IRS decision. Before objecting to an IRS letter, taxpayers should remember that tax refunds may also be adjusted for a variety of non-tax reasons, such as past-due child support. If you feel strongly that an IRS adjustment to your tax return is incorrect or unfair, a tax professional can review your return with you to determine whether you may have a basis for appealing the decision.

More information can be found in IRS Publication 1: Your Rights as a Taxpayer, available here: https://www.irs.gov/pub/irs-pdf/p1.pdf.

Tax Debt Settlement Scams – Did You Know?

When a taxpayer owes more tax than they can pay without extreme hardship, the IRS sometimes accepts an offer-in-compromise (OIC). Under an OIC agreement, the taxpayer may settle their tax debt for less than the full amount owed.

However, the IRS warns taxpayers to watch out for "OIC mills," agencies that churn out stacks of OIC applications, costing the taxpayers they supposedly represent thousands of dollars. Many of these agencies make unrealistic claims in radio, TV and internet ads about settling tax debts for "pennies on the dollar." Often, a taxpayer gets talked into paying an OIC mill to file an application that the agency knows will be rejected, because the taxpayer does not qualify for the OIC program. Even when the IRS accepts an application from an OIC mill, the excessive fees charged by the agency may still cause the taxpayer financial harm.

If you are considering an OIC to settle your tax bills, do not believe the hype. You may check your eligibility using the IRS' Offer In Compromise Pre-Qualifier tool with the link below. Working with a trusted tax professional can also determine whether you qualify for the OIC program, as well as help you prepare an application with a better chance of being accepted.

Offer In Compromise Pre-Qualifier tool: https://irs.treasury.gov/oic_pre_qualifier/

Credits and Deductions Changes This Filing Season – Did You Know?

As the April 15th filing deadline approaches, the IRS recently reminded taxpayers of several key tax law changes that took effect in 2023. Taxpayers should review these changes to avoid making errors on their returns.

Standard deduction amounts increased significantly from 2022 to 2023, up to $13,850 for single and married filing separately status, $20,800 for heads of household, and $27,700 for joint filers and qualifying surviving spouses. The maximum Additional Child Tax Credit, which is the refundable part of the Child Tax Credit (CTC), also increased to $1,600 for 2023.

Congress is considering legislation that would retroactively enhance the CTC itself. However, there is no need to wait for the result of those discussions to file your return. If a law change entitles you to a larger 2023 CTC than you have claimed, the IRS will automatically adjust your return, and send you a refund for the added credit amount.

A tax professional can help you determine how the 2023 credit and deduction rules affect your taxes, and file your return electronically to get your refund as rapidly as possible.

Non-deductible Wellness Expenses – Did You Know?

The IRS recently issued a reminder that personal expenses for general health and wellness usually do not qualify as medical expenses for tax purposes. These costs typically cannot be claimed as itemized deductions, and are not eligible for reimbursement through a health flexible spending arrangement (FSA), health savings account (HSA) or similar tax-advantaged account.

Examples of non-deductible, non-reimbursable health and wellness purchases include healthy foods for weight or blood sugar management. Dishonest companies aggressively market food and wellness products, claiming that these items become eligible for FSA/HSA reimbursement when the seller provides a doctor's note to the buyer. In reality, a doctor's note generally does not change an ineligible expense into an eligible one.

Requests for FSA reimbursement based on these bogus marketing claims typically get denied, and may jeopardize the tax advantages of FSAs and similar plans. If you are unsure whether a particular health expense qualifies for reimbursement, check with your workplace benefits plan administrator before making the purchase.

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

Scammers often claim to represent the IRS in order to steal 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.

Earned Income Credit Eligibility - Did You Know?

The Earned Income Tax Credit (EITC) provides vital assistance to low- and middle-income workers and their families. Unfortunately, the IRS estimates that up to 20% of eligible individuals do not claim the EITC, potentially costing them thousands of dollars a year. For eligible workers with qualifying children, the maximum EITC amount for tax year 2023 is $7,430, up nearly $500 from 2022. Eligible workers without dependents may receive a credit of up to $600.

To qualify for the EITC, you must have earned income, and you and your qualifying children (and your spouse if you file a joint return) must all have Social Security numbers. Your adjusted gross income (AGI) must be below the limit for your filing status and number of children. For example, the 2023 AGI for a taxpayer with two qualifying children cannot exceed $52,918 if the taxpayer files under single or head of household status, or $59,478 if the taxpayer files a joint tax return. In addition, you cannot have more than $11,000 in investment income.

Because the EITC is fully refundable, you may receive the credit as an IRS refund even if you owe no tax. However, you must file a tax return to claim the credit. A tax professional can help you determine whether you qualify for the EITC, and if so, help you file a return electronically to get your refund as quickly as possible.

Hobby or Business - Did You Know?

Recent years have seen a rise in the number of people pursuing “side hustles,” such as delivery driving, dog walking and online craft selling. Many of these activities could be classified as either hobbies or business ventures, depending on how you pursue them. Since different tax rules apply for businesses and hobbies, it is important to know how the IRS will likely classify your side gig. The IRS considers a variety of questions, including:

- Do you depend on the activity for your livelihood?
- Do you pursue the activity in a professional, businesslike manner, and keep detailed records?
- Is the activity currently profitable for you, and if not, is there good reason to believe it will become consistently profitable in future years?
- Do you have the knowledge and skills needed to pursue the activity as a business?
- Do you approach the activity in a way that shows the intent to make a profit, such as changing methods to boost revenues?

In many cases, business income is subject to both income and self-employment tax, whereas hobbies may be subject to income tax. However, pursuing an activity as a business may enable you to reduce your taxable income by deducting business expenses, such as supplies, business vehicle use, and home office costs. A tax professional can help you determine how your side gigs should be classified, and how to account for that classification in your tax planning.

Refund Amounts - Did You Know?

If your refund amount is different than stated on the filed tax return, part or all of your refund may have been used to pay off (offset) past-due federal tax, student loans, state income tax or other past-due debts.

You'll receive a notice from the IRS if such an offset occurs that will show the original tax refund amount, the offset amount, as well as the name, address and telephone number of the agency receiving the payment.

If you haven't received your refund yet, you may be able to check the status using the IRS' "Where's my Refund?" tool: https://www.irs.gov/refunds.

Recipients of the Healthcare Premium Tax Credit Must File Form 8962 – Did You Know?

The health insurance Premium Tax Credit (PTC) helps millions of Americans with affordable healthcare. Most people who qualify for the credit receive it as a reduction in their monthly insurance premiums, known as the Advance Premium Tax Credit (APTC). If you purchased coverage through the Insurance Marketplace, watch your mail for IRS Form 1095-A (Health Insurance Marketplace Statement). This form shows whether you received the APTC during 2023.

The IRS requires all recipients of the APTC to file a 2023 tax return that includes Form 8962 (Premium Tax Credit), even if they would not otherwise have to file. On this form, you will reconcile your APTC premium reductions with your actual PTC amount for the year. If your credit amount exceeds those premium reductions, you may claim the excess credit as either a decrease in your tax or increase in your tax refund. However, if your premium reductions were greater than your actual PTC, you may need to repay part of the APTC.

If you qualified for the PTC in 2023 but did not receive APTC premium reductions, you may be able to claim claim your entire credit amount on Form 8962. A tax professional can help you complete the form, and file your return electronically to receive your refund as quickly as possible.

Common Tax Filing Errors – Did You Know? (2/2)

Every year, many taxpayers may make mistakes on their returns that cause IRS processing delays. Be sure to also check for the following:

Math Mistakes:
Even mathematicians sometimes make errors in simple addition and subtraction, and some of the calculations required for 1040 schedules can be complicated. Thoroughly double-check every bit of math on your return.

Incorrect Filing Status (Single, Married Filing Jointly, etc.):
The IRS will not accept a return showing a filing status that you are not eligible to claim. If you qualify for more than one status (for example, filing jointly or separately if you are married), the option you choose may significantly change your tax.

Incorrectly Figuring Credits or Deductions:
Once you determine that you qualify for a tax deduction or credit, you must carefully compute the amount that you can claim. Many taxpayers fail to take into account income limitations (including the calculations that must be made if your income falls within a “phase-out” range) and other restrictions. Others claim less than they could, or miss out on deductions and credits entirely by not filing the required forms and schedules.

Expired ITIN:
Those who file their IRS returns using individual tax identification numbers (ITINs) must keep in mind that ITINs periodically expire. Although a return filed with an expired ITIN may be accepted, the IRS generally will not allow any of the exemptions or tax credits claimed. The taxpayer must renew their ITIN in order to obtain the full refund that they are owed.

To avoid costly mistakes, a tax professional can help prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

Common Tax Filing Errors – Did You Know? (1/2)

Every year, many taxpayers may make mistakes on their returns that cause IRS processing delays. Some common errors may also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment.

The following mistakes may not change your tax, but they can cause processing problems. The IRS may even withhold your refund until the errors are corrected. Be sure to check for the following:

Missing or Inaccurate Social Security Number (SSN):
Even when filing electronically, many people mistype their SSNs and do not catch the error. If the SSN on your return does not match the number on your Social Security card, the IRS may not be able to process your return.

Misspelled Name:
Take your time when filling in every blank on your return, even your name. A misspelling or illegible writing can prevent proper processing.

Incorrect Bank Account or Routing Number:
Getting your return filed electronically and requesting direct deposit is the fastest way to get your refund, IF you provide accurate information. An error in your banking info can cause big headaches.

Missing Signature:
Remember that in most cases, couples filing jointly must both sign their return.

To avoid costly mistakes, a tax professional can help prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

Discounted Repayment Program for Invalid ERC Claims

Between now and March 22, 2024, businesses that received employee retention credit (ERC) funds but did not qualify for the credit may apply to repay the credit at a discounted rate. While the ERC program gave vital assistance to many employers during the pandemic, it also became a target of scammers, who lured ineligible business owners into falsely claiming the credit.

Under this new voluntary disclosure program, taxpayers whose applications are approved by the IRS will only have to pay back 80% of the credit amount. The remaining 20% will be forgiven without penalty, since many businesses lost a percentage of their credit to ERC promoters. Note that if a business uses a third-party payroll management service, that third party must submit the application to participate in the discounted repayment program.

The IRS also reminds businesses to act quickly to withdraw pending questionable ERC claims. Taxpayers whose ERC applications have not yet been processed, or who received an ERC refund check but not cashed it, may be able to withdraw their applications (and return the check) without penalty. A business tax professional can help determine whether an ERC claim was valid, and if not, what steps can be taken to try to resolve the issue.

Increased Additional Child Tax Credit Available for 2023 – Did You Know?

The maximum Child Tax Credit (CTC) amount remained at $2,000 per qualifying child for tax year 2023 and generally isn't a refundable credit. However, many taxpayers who qualify for the CTC are also eligible for the Additional Child Tax Credit (ACTC), which may make the CTC partially refundable. In other words, if your CTC amount exceeds the tax you owe, claiming the ACTC may enable you to receive part of the excess credit as an IRS refund.

Unlike the basic CTC, the ACTC gets adjusted annually for inflation. For 2023, the maximum ACTC amount rose to $1,600 per qualifying child. Therefore, those who qualify for the ACTC may receive up to $1,600 per qualifying child as a tax refund. However, you must file a tax return to claim your refund, even if you do not owe any tax.

A tax professional can help you determine whether you qualify for the 2023 CTC and ACTC, and if so, help you file a return electronically to get your refund as quickly as possible.

Protecting Yourself from Tax Related Identity Theft - Did You Know?

Tax related ID theft is when someone uses your information (name, SSN, etc.) to file a false tax return and claim a fraudulent refund.

The number one thing you can do to prevent this type of ID theft is to file early and file electronically. The IRS is “first-come, first-served”, meaning whoever files first, electronically, will be the only electronic return accepted. All others for that SSN will be blocked and must file manually. This can lead to big delays for your refund. Filing season began January 29 this year.

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.”

Tax Filing Season Begins

The 2024 Tax Filing Season opens today, January 29th, 2024, for your 2023 returns. Here are some tips to make your tax filing season easier.

Gather Documents Showing Wage, Business And Other Income:

If you work as an employee, you should receive a W-2 from your employer(s) by early February, showing your earnings for the year and the total tax withheld from your paychecks. If you are self-employed (including gig economy work) or own a business, you may also receive 1099 forms from your clients showing fees paid to you.

Interest and dividend income, along with royalties from past work, are also reported on 1099 forms. Recipients of unemployment benefits and/or taxable Social Security benefits should receive a year-end statement detailing these payments as well. Store all of these documents with your tax records.

Organize Records Of Other Potentially Taxable Transactions:

The sale of major assets like stock, a house or any other “big ticket” item may yield a taxable capital gain. Many cryptocurrency transactions (such as buying and selling Bitcoin) also have tax implications, since the IRS classifies cryptocurrencies as property. Make sure you have complete records of all your significant financial and property transactions during 2023.

Start Early:

Assemble your records and file your taxes early. If issues come up, you'll have much more time to resolve them. A tax professional can help you with identifying and organizing your documents as well as filing your tax return.

Filing Deadline for W-2 and 1099 Forms

Taxpayers who paid employees or independent contractors in 2023 are reminded to file all required payment reporting forms by January 31, 2024.

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.

If you are an employee, you should expect to receive your W-2 from your employer soon, if you have not received it already.

Open Filing Season for 2023 Tax Returns (2/2)

When this year's tax season officially opens on January 29, it will feature several improvements to IRS services. Two key upgrades relate to digital form submission and options for taxpayers to access their IRS account information online.

Enhancements to IRS paperless processing systems include the addition of 20 more tax forms to e-filing platforms, and new ways to respond to IRS letters online. Taxpayers with online IRS accounts will also discover new account features, including options to schedule and cancel future payments, and to securely save bank information for greater convenience.

A tax professional can help you file your tax return and any other required forms electronically, to save resources and ensure the fastest possible refund delivery.

Open Filing Season for 2023 Tax Returns (1/2)

The IRS will begin accepting and processing 2023 tax returns on January 29, 2024, marking the official opening of tax filing season.

After January 29, taxpayers who have filed their returns may use the IRS "Where's My Refund?" tool (link below) to check the status of their tax refunds. The newly updated tool now works seamlessly on mobile devices, and will provide clearer and more detailed information than past versions. For example, it will notify taxpayers if the IRS needs more information from them in order to process their returns.

Although the IRS will not confirm receipt of tax returns until January 29, you may file at any time. A tax professional can help you complete and submit your return electronically, so you get your refund 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, 2023 quarter of year is Monday, January 15th, 2024.

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.

New Tax Credit Rules for a Clean Vehicle Purchase in 2024 - Did You Know?

Starting January 1, 2024, buyers of new and used electric (EV), plug-in hybrid (PHEV) and fuel cell vehicles may be able to transfer the Clean Vehicle Credit to a car dealer in exchange for a lower price. These new tax credit rules will make clean vehicles affordable for a wider range of taxpayers, who previously had to wait until the next tax filing season to get the benefit of the credit.

The amount of the Clean Vehicle Credit depends on a variety of factors, including battery size and the origin of critical components. The maximum credit is $4,000 for used vehicles and $7,500 for new vehicles. You can find a complete list of EVs, PHEVs and fuel cell vehicles that qualify for the credit at the U.S. Dept. of Energy website (link below). If you transfer a Clean Vehicle Credit to a dealer, the dealer must provide a financial benefit equal to the credit amount, such as a price reduction.

For both new and used vehicles, the Clean Vehicle Credit is subject to income limits. A tax professional can help you determine whether you qualify for the credit, and what the credit amount might be for a particular vehicle.

Search for Eligible Clean Vehicles: https://fueleconomy.gov/feg/tax2023.shtml

Delayed Implementation of New 1099-K Rules – Did You Know?

Under a new rule enacted in 2021, third-party payment processors must issue a Form 1099-K to any individual who receives $600 or more in payments for goods or services during a year. However, IRS officials have noted that this rule could potentially cause widespread confusion, since many transactions completed through online payment platforms have no tax impacts. Examples of non-taxable transactions include settling up with friends and selling used personal items.

Therefore, the IRS will not enforce the new rules for tax year 2023. Instead, third-party payment processors may operate under the prior rules, only sending 1099-K forms to users who received over $20,000 in payments through over 200 transactions. In addition, 2024 will serve as a phase-in year, with the 1099-K reporting threshold set at $5,000.

Regardless of 1099 reporting rules, payments received through third-party platforms for self-employment activities or selling goods for profit are generally taxable income. A tax professional can help you properly report your 2023 income, and prepare for the future implementation of a lower threshold for 1099-K forms.

Preparing for Tax Filing Season

A new year and filing season for 2023 tax returns will soon be upon us. A little advance preparation can help prevent stressful tax time surprises. Here are some reminders of important steps you can take now to set yourself up for a more worry-free tax filing:

- Do one last withholding checkup. Time is running out to adjust your paycheck withholding to make sure you have paid enough tax throughout 2023. You can use the IRS Withholding Estimator tool (link below) to make sure your numbers are on track.
- If your name changed in 2023, report the change to the Social Security Administration (link below) as soon as possible.
- Locate your bank account information, including both your account number and the bank routing number, so you can receive your tax refund by direct deposit.
- Watch for year-end income statements, especially in late January and early February. These statements may include W-2 forms, along with 1099-NEC, 1099-MISC, 1099-INT, 1099-G and other 1099 forms. Note that some of these forms may come by mail, while others may be sent to you electronically. Keep all of the forms together and organized.
- Organize records for tax deductions and credits. These records may include Form 1095-A (Health Insurance Marketplace Statement), tuition statements (Form 1098-T), medical bills, mortgage interest statements, and home energy improvement or clean vehicle receipts or invoices.

IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator
Social Security Administration (SSA): https://www.ssa.gov/