Buy A Preowned Clean Vehicle Get A Tax Credit

Buy A Preowned Clean Vehicle Get A Tax Credit

Used electric vehicles purchased after 2022 and before 2033 may qualify for a tax credit of up to $4,000.

Qualified buyers who acquire and place in service a previously owned clean vehicle, are allowed a credit equal to the lesser of $4,000 or 30% of the vehicle’s purchase price. No credit is available if the buyer’s modified AGI for the year of the purchase or, if lower, the preceding year exceeds $150,000 for MFJ ($112,500 for HOH, and $75,000 for all others).

Thinking about buying a previously owned clean vehicle? Be sure to check out the rules under IRS Code Sec 25E. Not all previously owned clean vehicles qualify for the credit neither do all purchasers.

Before you buy check IRS Code Section 25E which can be found on our website.

Internal Revenue Code § 25E Previously-owned clean vehicles.

Caution: Code Sec 25E, following, shall apply to vehicles acquired after 12/31/2022.

(a)  Allowance of Credit.

In the case of a qualified buyer who during a taxable year places in service a previously-owned clean vehicle, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the lesser of-

  1.  $4,000, or
  2.  the amount equal to 30 percent of the sale price with respect to such vehicle.

(b)  Limitation based on modified adjusted gross income.

  1. In general.

No credit shall be allowed under subsection (a) for any taxable year if-

(A)  The lesser of-

      1. the modified adjusted gross income of the taxpayer for such taxable year, or
      2. the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds

(B)  the threshold amount.

(2)  Threshold amount.

For purposes of paragraph (1)(B) , the threshold amount shall be-

      • (A)  in the case of a joint return or a surviving spouse (as defined in section 2(a)), $150,000,
      • (B)  in the case of a head of household (as defined in section 2(b)), $112,500, and
      • (C)  in the case of a taxpayer not described in subparagraph (A) or (B), $75,000.

(3)  Modified adjusted gross income.

For purposes of this subsection, the term “modified adjusted gross income” means adjusted gross income increased by any amount excluded from gross income under section 911 , 931 , or 933 .

(c)  Definitions.

For purposes of this section.

(1)  Previously-owned clean vehicle.

The term “previously-owned clean vehicle” means, with respect to a taxpayer, a motor vehicle-

      • (A)  the model year of which is at least 2 years earlier than the calendar year in which the taxpayer acquires such vehicle,
      • (B)  the original use of which commences with a person other than the taxpayer,
      • (C)  which is acquired by the taxpayer in a qualified sale, and
      • (D)  which-
        • (i)  meets the requirements of subparagraphs (C) , (D) , (E) , (F) , and (H) (except for clause (iv) thereof) of section 30D(d)(1), or
        • (ii)  is a motor vehicle which-
          • satisfies the requirements under subparagraphs (A) and (B) of section 30B(b)(3) , and
          • has a gross vehicle weight rating of less than 14,000 pounds.

(2)  Qualified sale.

The term “qualified sale” means a sale of a motor vehicle-

      • (A)  by a dealer (as defined in section 30D(g)(8) ),
      • (B)  for a sale price which does not exceed $25,000, and
      • (C)  which is the first transfer since the date of the enactment of this section to a qualified buyer other than the person with whom the original use of such vehicle commenced.

(3)  Qualified buyer.

The term “qualified buyer” means, with respect to a sale of a motor vehicle, a taxpayer-

      • (A)  who is an individual,
      • (B)  who purchases such vehicle for use and not for resale,
      • (C)  with respect to whom no deduction is allowable with respect to another taxpayer under section 151 , and
      • (D)  who has not been allowed a credit under this section for any sale during the 3-year period ending on the date of the sale of such vehicle.

(4)  Motor vehicle; capacity.

The terms “motor vehicle” and “capacity” have the meaning given such terms in paragraphs (2) and (4) of section 30D(d) , respectively.

(d)  VIN number requirement.

No credit shall be allowed under subsection (a) with respect to any vehicle unless the taxpayer includes the vehicle identification number of such vehicle on the return of tax for the taxable year.

(e)  Application of certain rules.

For purposes of this section, rules similar to the rules of section 30D(f) (without regard to paragraph (10) or (11) thereof) shall apply for purposes of this section.

(f)  Transfer of credit.

Rules similar to the rules of section 30D(g) shall apply.

(g)  Termination.

No credit shall be allowed under this section with respect to any vehicle acquired after December 31, 2032.

Ever Wonder Just How Long IRS Has To Collect What You Owe?

The answer is: forever if you fail to file the tax return. But if you file the required returns and just can’t pay then the amount of time the IRS has to collect is limited by the IRS’s Collection Statute of Limitations.

The IRS Collection Statute Expiration Date (CSED) is the date after which the IRS can no longer collect a tax debt.

In general, the IRS has 10 years from the date of assessment to collect taxes owed. However, this 10 year period can be extended by certain actions of the taxpayer. These actions include: the submission and processing of an offer in compromise, bankruptcy proceedings, and the agreement of the taxpayer to extend the period for collections.

The IRS’s Collections Statute Expiration Date (CSED) is the date after which the IRS can no longer collect a tax debt.  When things are simple, the CSED is easily calculated as 10 years from the date of assessment.

This CSED date is important to know when you have unpaid tax assessments.  It tells you the amount of time remaining that the IRS has to collect on those assessments.

 

It’s important to discuss your options with your tax advisor.

HIGHLIGHTS OF THE 2023 FUNDING BILL

President Biden signed the Consolidated Appropriations Act of 2023, which includes the SECURE 2.0 Act of 2022.

Here are some of the highlights:

  • Increases the age for required minimum distributions. Beginning January 1, 2023, the age is raised to 73, and to 75 on January 1, 2033
  • Expands employer tax credits for establishing retirement plans. The credit for small employer pension plan startup costs is modified to increase administrative costs eligible for the credit to 100% for employers with up to 50 employees. Employer contributions can also be considered for an additional tax credit up to a $1,000 per-employee cap.
  • Consideration of student loan payment when determining an employer’s 401(k) contribution. This permits employers to contribute to an employee’s 401(k) account if they make qualified student loan payments, even if they do not make retirement plan contributions. It will be applicable for plan years after December 31, 2023.
  • Increases catch-up contribution limits for people 60 to 63 years of age. While employees who have attained age 50 are permitted to make catch-up contributions, an additional catch-up contribution will increase the limits to $10,000 for those ages 60 through 63. The added contributions, indexed to inflation, would be effective after December 31, 2024.
  • Automatic enrollment of employees into company retirement plans. Automatic contributions begin at 3% and increase by one percentage point up to 10%, unless a participant opts out. There are exceptions for new businesses under three years and small businesses with less than ten employees. This will be applicable for plan years beginning after December 31, 2024.
  • Expands access to retirement plans for long-term, part-time workers. Part-time employees who provide two years with at least 500 hours of service annually are eligible to participate in a retirement plan.
  • Expands access to the Saver’s credit, a tax contribution for lower and middle-income employees. This increases the income thresholds eligible for the credit and increases the percentage of contributions eligible for a tax credit to 50%. This change is expected for taxable years after December 31, 2026.

The bill also includes $12.3 billion for the IRS, the same as in the fiscal year 2022. This continues the $2.8 billion of funding for taxpayer services designed to improve IRS customer service by increasing personnel.

Who Can Be A Dependent?

A dependent can be anyone that cannot be claimed on the return of someone else and is a qualifying child or a qualifying relatives.

The rules for 2022 are as follows.

A qualifying child must be:

  1. The taxpayer’s child, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendent of any of them
  2. Be younger than the taxpayer and either (a) under age 19 or (b) under age 24 and a full-time student OR be permanently and totally disabled (any age) AND not provide over half of their own support.
  3. Have lived with the taxpayer for more than half the year (unless special dependency is waived in writing to a non-custodial parent)

A qualifying relative must meet ALL of the following:

  • The taxpayer provided over half of the individual’s support.
  • The individual was any one of the following:
    1. Taxpayer’s child, stepchild, eligible foster child, or a descendent of any of them
    2. Taxpayer’s brother, sister, niece, or nephew
    3. Taxpayer’s parent*, parent’s* sibling, grandfather, or grandmother
    4. Taxpayer’s half-brother, half-sister; stepbrother, stepsister, stepfather, stepmother; or any of the following in-laws—son, daughter, father, mother, brother, or sister
    5. Any other person who lived with the taxpayer ALL year as a member of the taxpayer’s household
  • The individual was not a qualifying child of another person
  • The individual had a gross income of less than $4,400

This means you may able to get the dependency credit for a person that moved into your home and is sharing a room with your adult child (if they live with you the entire year, can’t be claimed by anyone else, and have an income of less than $4,400).

Or maybe you are unmarried with a domestic partner that lived with you the entire year. If that person has no income of their own, and can’t be claimed by anyone else, you might even be able to claim the child of your domestic partners or the child of another person that lived with you for the entire year. IF you provided all the support.

This is why it’s important to meet with your tax professional each year and review any changes in whom lives in your household and what support, if any, you provide.

*A parent (or parents) do not have to live in your home to qualify as dependents as long as you pay more than 50% of the cost of their support including the cost of their household.

2023 Business Standard Mileage Rate 65.5¢

The IRS has announced the new 2023 standard mileage rates.

The rate for business use of an auto increases 3 cents per mile, from 62.5 cents in 2022 to 65.5 cents for 2023.

The standard mileage rate for medical miles remains 22 cents per mile for 2023 (the remaining the same as the last half of 2022).

The charitable rate is also unchanged at 14 cents per mile driven in service of charitable organizations.

These above rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

 

Be Careful Not to Violate Child Labor Laws

A recent investigation by the Department of Labor (DOL) found that 11 franchisees in 6 states of the Utah-based Crumbl Cookies bakery company violated federal child labor laws.

According to the Fair Labor Standards Act (FLSA), whether school is in session or not, 14 and 15-year-old workers cannot work more than eight hours per day (or exceed 40 hours per work week). Additionally, employers must not allow these individuals to work before 7:00 a.m. or after 7:00 p.m. on any day, except from June 1 through Labor Day, when nighttime work hours are extended to 9:00 p.m. All workers under the age of 18 are also banned from occupations considered hazardous by federal law.

Crumbl’s violations resulted in a penalty assessment of $57,854.

This is an important reminder to all business owner that is important to understand both state and federal laws when it comes to employing anyone under 18 years of age.

For more information on federal regulations when it comes to child labor laws check out the website for the Department of Labors (DOL), Wage and Hour Division (WHD), Child Labor at  https://www.dol.gov/agencies/whd/child-labor along a summary of Child Labor Laws by state at https://www.dol.gov/agencies/whd/state/child-labor/agriculture#age.

Did You Start a New Business Last Year?

If so, start-up expenses would be deductible as ordinary and necessary business expenses if incurred after the business is underway.  If expenses were incurred before the business is up and running you can elect to deduct up to $5,000 in pre-opening start-up expenses and can amortize amounts that exceed the $5,000 [under the rules provided by IRC Sec. 195(b)].

Start-up expenses generally include;

  1. Due diligence and business investigation expenses (surveys, market studies, feasibility studies, consultants’ fees)
  2. Pre-opening advertising and promotional efforts (including digital marketing such as creating a website and advertising on social media platforms)
  3. Travel (for efforts to find a location, to secure suppliers, distributors, customers, etc.)
  4. Salaries, employee benefits, insurance, and overhead costs
  5. Pre-opening repairs and maintenance of capital assets to be used in the business
  6. Accounting and legal fees that are not organizational costs
  7. Employee training costs
  8. Rent and utilities for spaces maintained in the pre-opening phase
  9. Costs of expanding an existing business, or beginning a new business, if a new entity is used

Don’t overlook accounting as a start-up expense when meeting with your tax advisor, as some or all of these expenses are generally paid before the business bank accounts are set-up they can easily be over looked. Be sure to review items paid from personal accounts or credit card accounts.

Remember your tax professional can’t take deductions on your return that he or she knows nothing about. When in doubt be sure to talk to your tax professional about expenses you may have incurred, this helps ensure you get the maximum deduction possible.

 

What Does $1.7 Trillion Buy?

Here’s what you need to know about the $1.7 trillion spending bill passed by Congress and signed by the President, known as the Consolidated Appropriations Act of 2023 (CAA).

This is the largest spending bill in history, and other than authorizing the government to spend more money than most of us can even imagine for questionable special projects and government operations with zero accountability, it also contains changes to the IRS code and other laws that will have a broad effect on businesses and individuals.

CAA expands funding of the IRS and the Department of Labor (DOL). This funding is intended to increase enforcement and assist with the catch-up of backlogs created by Covid down time. The DOL receives additional funds for the Wage and Hour Division (WHD). One of the WHD’s functions is to conduct investigations into Fair Labor Standards Act (FLSA) violations by employers.

The bill also appears to place a degree of importance on the IRS’s SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) worker classification program. This is the process the IRS uses to address complaints by those treated as independent contractors that feel they should have been treated as employees, making the employer responsible for employment taxes such as employer Social Security and Medicare, along with any other benefits provided to employees.

Another section of the bill calls for the DOL to take all necessary steps to ensure prompt processing of H-2B, for temporary nonagricultural workers.

The SECURE Act 2.0 retirement plan provisions were also incorporated into the CAA. These retirement plan provisions include; expanding automatic enrollment in retirement plans, modifying the credit for small employer pension plan startup costs, higher retirement plan catch-up limit, the treatment of student loan payments as elective deferrals for the purpose of matching contributions, starter Code Sec 401(k) plans for employers with no retirement plan, and improving coverage for part-time workers. Employers should be sure to understand how these changes affect their existing retirement plans.

IRS Makes Big Changes To 1040 Tax Forms This Year

The simple 1040 return that was never really simple just got more complicated. The new 1040 for 2022 includes lots of changes to what we have seen in the past. These changes include more reporting on page on of the 1040, with 11 new items to track. It also includes a host of new schedules and forms.

Why all the changes, well the IRS is not saying much but  those of us who have been around a few years see more items that can be verified against third party reporting and a road map for those 87,000 new auditors the IRS is currently hiring.

One thing we know for certain is that more people than ever will need help this year as they will not just be able to use last year’s return as a templet.

Business or Hobby – Hobby Expenses Are Not Deductible

If the IRS decides that your business is actually a hobby, its losses are classified as “hobby losses” and Business vs Hobby Picturemay not be deductible, even against that year’s income from the hobby.

In today’s economy, it is not unusual to have more than one source of income. Sometimes these additional income sources are to supplement wages from an employer, while others result from a business owner trying to broaden the scope and reliability of the income they are receiving. Not every attempt at generating additional income generates profits, at least in the early years.

The IRS uses the Hobby Loss Rules to target businesses that present losses over three or more years, and that have a high probability of personal benefit and a low probability of profit. Examples of the latter are things like horse racing, small animal breeding, boat rental, and dealing in collectibles. The rules can also apply to any kind of business that does not make a profit, especially if losses are being funded by another business (or wages from a high-paying position).

To prevent the IRS from classifying a budding business as a hobby, and therefore disallowing the losses and/or all expenses, it’s important to understand the 9 factors that courts have determined show an owner has a business intent. Failure to make a profit does not mean that the endeavor is a hobby.

These nine factors are:

  1. Business-like manner: Keep copious records of expenses, sales, contracts, potential clients, industry connections, and especially marketing efforts. Draft a written business plan, revise it to include new strategies informed by those records, and update it as the business develops. While a business owner may feel like there is nothing to show for frustrated efforts, a record of those can be compelling, such as correspondence with potential clients, trade conferences that were attended, advertising, or changed plans.
  2. Expertise: Obtain education relevant to the business. This can include prior education that led to the business owner’s interest in the field and on-the-job training, including industry conferences and subscribing to industry publications. Hiring advisors that are experts either in the field or in business/finance can also demonstrate this, whether they are consultants or employees (even if their advice has turned out to be bad or if the taxpayer has good reason to depart from it).
  3. Time and effort: Log the work. Most business owners put an incredible amount of time and energy into their businesses, but it often goes unrecorded. Keep a calendar of days traveling for business, days on site, and days at conferences and meetings. If that is impractical, keep a sporadic diary recording projects and accomplishments, even if they did not generate business. When a business is growing, months can be spent working on a strategy that is abandoned; that work should be memorialized, not forgotten.
  4. Appreciating assets: Keep a record of assets’ changes in value, especially if the industry is volatile. If the value of a business’s asset fluctuates substantially, and then is sold at a loss, demonstrating that it had previously appreciated will support a for-profit motive. Because IRS exams can occur years after business activity, it may become difficult to document those assets sold at a loss had previously appreciated and showed promise.
  5. Success in other activities: Keep a resume of entrepreneurial activities. While this factor is ostensibly about past “success” in practice it is more about establishing a track record of entrepreneurial intent, so include all past attempts at entrepreneurship in any role in any field, regardless of success. This is particularly important if the business is a “side hustle” that might otherwise look like a hobby; a string of side-hustles can show entrepreneurial intent.
  6. History of income and loss: Keep a record of external events that impacted profitability. The Treasury Regulation specifically contemplates that continued losses can result from “drought, disease, fire, theft, weather damages, other involuntary conversions, or depressed market conditions.” Some businesses can suffer from multiple such events, and some businesses simply have a long start-up period, such as five to ten years.
  7. Occasional profits: Keep a record of unrealized opportunities to make a significant return on any investments. If the business receives an offer to purchase an asset, such as IP, real estate, or chattel, make a record of the offer and the reason for declining it. Turning down an offer to sell at a profit because one has a business plan to further increase or leverage the asset’s value may demonstrate a profit motive, despite future loss. Such records can also serve as evidence that the business is a “highly speculative venture” and therefore undertaken with a motivation to earn large profits despite a low likelihood of success.
  8. Financial status: Record the owner’s personal financial motivation for engaging in the business. For example, if the owner’s income from other activities is variable, insecure, or illiquid, that will support the owner’s profit motive, even if the owner’s financial picture is strong in retrospect. A particular financial goal, such as setting up one’s child in a business, can also be persuasive. This is particularly important if the business is a “side hustle” that might otherwise look like a hobby financed by the owner’s primary business.
  9. Personal pleasure or recreation: Create boundaries between the owner’s activities on behalf of the business and personal activities. Avoid having the business make personal purchases. Logging the owner’s work will also help. Keep a record of aspects of the job that might appear unpleasant to the average person, such as when it requires dirty or dangerous work, grunt work, or hands-on management. Business owners often overlook the sacrifices they make day-to-day in their passion for their work, but that dedication shows a for-profit motive.

While the IRS may believe that a business that provided personal pleasure and/or fails to make a profit is possibly a hobby and not a business, the courts have used the above nine factors as indicators that activities were business, and not hobbies, in the past allowing owners to keep their loss and expense deductions…even when no profit was shown.

As the courts see it, making a profit is less important than an intent to make a profit. Proving intent is done using the nine factors shown above.

Business vs Hobby Picture