Charitable Contributions
Charitable Contributions & Your 2023 Taxes
The deduction of charitable contributions by non-itemizers has expired along with the enhanced deduction of itemized charitable contributions. However, considering charitable contributions for the year remains a viable tax strategy for itemizers — including bunching strategies in which charitable contributions are bunched into every other year in order to exceed the standard deduction in the year that charitable deductions are claimed.
Qualified charitable distributions from IRAs are available for taxpayers age 70 ½ or older up to $100,000 per year. This removes the distribution from adjusted gross income.
A new law change also permits a one-time distribution of up to $50,000 of the qualified charitable distribution to a dual beneficiary trust, such as a charitable remainder trust.
The annual gift tax exclusion is $17,000 for 2023.
FinCEN New Reporting
FinCEN Small Business Beneficial Ownership Information Reporting Compliance Guide
FinCEN Publishes Small Business Beneficial Ownership Information Reporting Compliance Guide: The Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide to help small businesses satisfy the new beneficial ownership information (BOI) reporting rules.
The Corporate Transparency Act (CTA) established uniform BOI reporting requirements for certain corporations, limited liability companies, and other similar entities created, or registered to do business, in the U.S. FinCEN issued final regulations implementing the CTA’s BOI reporting requirements in September 2022, which go into effect on 1/1/24.
The new Small Entity Compliance Guide is intended to help businesses determine if they are required to report their BOI to FinCEN under these final rules.
The guide addresses some core issues, including each of the BOI reporting rule’s provisions, answers to key questions, and interactive checklists, infographics, and other tools aimed at helping businesses comply. FinCEN also announced that guidance on how to submit BOI reports will be provided soon.
The FinCEN news release and link to the new guide can be found at www.fincen.gov/news/news-releases/fincen-issues-compliance-guide-help-small-businesses-report-beneficial-ownership
YEAR-END TAX SAVINGS OPPORTUNITIES
Tax planning is one of the best ways we know to reduce your tax bill, and at RMS Accounting we take a proactive approach to helping clients pay the lowest amount of tax allowed by law.
We do this through a two-step process. Step 1 requires us to keep up to date with the latest changes to the tax laws, and tax savings strategies. Step 2 is all about you our clients, it requires us to keep you updated on just what steps you can take to ensure that you can take advantage of ever tax saving strategy that will help you.
Since everyone’s situation is different the only way, we can assist you is to be available when you have questions and prior to year-end to review your situation with you, so that you can take the steps required to maximize your tax savings.
That is why every tax preparation engagement includes year-round access to our tax professionals and year-end tax planning, free when we have prepared your tax return for the prior year.
Below are links to this year’s tax planning letter which is mailed to all our clients along with links to planning worksheets for individuals and business. You can use these documents to help you get the most out of your tax planning consultation.
2023 Year End Tax Planning Letter
Ghosted By Some of Your Retirement Funds
Have You Been Ghosted By Some of Your Retirement Funds?
Losing track of retirement funds is a common problem in today’s world of corporate consolidations and job switching by employees.
As of May 2023, there were approximately 29.2 million forgotten 401k accounts in the United States that held approximately $1.65 trillion in assets. The recent increase in job switching, has increased the number of forgotten 401ks (which has grown by more than 20% since May 2021).
Here are some ways to locate and reclaim lost retirement accounts:
- Check with past employers. If you’ve changed jobs throughout your career, it’s important to follow up with past employers to make sure you didn’t leave any money behind.
- Search unclaimed property databases. Sometimes people lose track of their retirement savings when they move and forget to notify past employers of their new address. When an employer or financial institution is unable to reach an accountholder, it may turn over the account to the state’s unclaimed property office.
- Check the Department of Labor (DOL) abandoned plan database. If your past employer’s plan was terminated, the DOL’s Employee Benefits Security Administration consolidates information about unclaimed retirement benefits and makes it easy to track down missing funds.
- Contact the Pension Benefit Guaranty Corporation (PBGC). The PBGC can be a great resource if you lost track of a defined benefit pension plan at a previous employer. Visit pbgc.gov for more information.
- Track down forgotten IRAs. If you think you may have abandoned an IRA along the way, take inventory of past bank and investment account statements for any evidence of the account. You can also reach out directly to any financial institutions you’ve worked with in the past to inquire about any inactive or dormant IRAs associated with your name.
Remember it’s your money and while it might take a little work to find it and reclaim it, it belongs to you. You would be surprised at the size of some of the accounts our clients have been able to locate after putting in just a little effort.
Reasonable Compensation
Calculating Reasonable Compensation
Since reasonable compensation is important for S-Corporate Owners here is a list of some of the information that should be considered when calculating it.
What would you need to pay someone else to do what you do? Which leads to the question just what do you do as many business owners where a lot of hats and each of those hats can have a different value. For example, if your 40-hour week include the following activities the value you of each needs to be considered. 4 hours shopping for supplies, 6 hours making deliveries, 10 hours bookkeeping and administrative activities, 15 hours of sales activities and 5 hours of executive management activities the weekly amount of reasonable compensation might be calculated as follows.
Remember that every business owner’s job is unique and the time spent for each activity will vary along with the applicable rate. Applicable rate should be those paid by similar business of similar sizes. What is reasonable for a pizza delivery business owner would not be anywhere near what is reasonable for an attorney or doctor.
Teachers
Teachers – Out of Pocket Classroom Expenses Are Tax Deductible
Teachers and other educators can deduct up to $300 of out-of-pocket classroom expenses for 2023 when it comes time to file their federal income tax return.
An eligible educator can deduct up to $300 of qualifying expenses paid during the year. Two eligible educators that are married and filing a joint tax return can each deduct $300 of qualifying expenses paid during the year for a total deduction of up to $600 on a joint return.
Educators can claim this deduction even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.
Educators can deduct the unreimbursed cost of:
- Books, supplies, and other materials used in the classroom
- Equipment, including computer equipment, software, and services
- COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks; disinfectant for use against COVID-19; hand soap; hand sanitizer; disposable gloves; tape, paint, or chalk to guide social distancing; physical barriers, such as clear plexiglass; air purifiers; and other items recommended by the Centers for Disease Control and Prevention
- Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. For details, see IRS Publication 970, Tax Benefits for Education, particularly Chapter 3
Reasonable Compensation
What is Reasonable Compensation and Why Should I Care?
If you own all or part of a S-Corporation you are required to receive reasonable compensation as wages — subject to payroll taxes as an employee of that S-Corporation. Positions like President, Treasurer or Manager along with any other positions that requires you to provide services for the business should be included when calculating reasonable compensation. While calculating what is what is not reasonable can be complex, what is simple to understand is; 1) IRS has been talking about the problem of S-Corporate working shareholders failing to properly take reasonable compensation and the deficit this creates in Social Security and Medicare taxes, for a long time. 2) At least part of the 87,000 new employees the IRS is adding will be assigned to audit reasonable compensation.
A reasonable compensation audit could result in owner distribution or even loan payment being reclassified by the IRS to compensation. The result of this reclassification would be the assessment of additional Social Security and Medicare taxes, not to mention interest and penalties.
Now is the time to review exactly what services you provide for your S-Corporation. How much time do you spend and what is the value of those services and the time spent is? While you are at it it’s also important to document how you determined what the number for your reasonable compensation is. Before you get started you may want to learn just what kind of documentation and calculations the IRS looks for in reasonable compensation cases.
Need help evaluating your compensation and the documents required to support your position? Give us a call.
Social Security
Getting Close to Collecting Social Security? Here’s some things to consider.
1) Distributions from your IRA or pension will affect how your social security is taxed.
Single taxpayers receiving social security can pay tax on as much as 85% of their social security if modified adjusted income exceeds $34,000 (or for married couples filing jointly the number is $44,000). If modified adjusted gross income exceeds just $25,000 for single filers and $32,000 for married joint filers, then up to 50% of social security may be taxable.
Hint 1: Time large IRA or pension distributions so they take place BEFORE you start taking social security or in a year where social security is already 85% taxable.
Hint 2: Low-income years and those with net operating losses from business activities are the perfect time to reposition funds out of IRAs and Pensions to non-qualified (ordinary) accounts or ROTH conversion, so that funds will be available when needed without affecting the taxability of social security.
2) If you think you will retire in a higher or the same tax bracket, consider funding a ROTH IRA instead of a traditional IRA.
You will not get the tax deduction for your contribution but as long as you meet the other requirements the money you later take out will be tax free and this includes the growth.
3) Medicare Part B premiums depend on income.
Married taxpayers filing a joint return with income under $182,000 pay only $170.10 per person for Medicare Part B. For all others the threshold is $91,000. Depending on your income the Part B premiums can increase to as much as $578.30 per month per person.
Sales Taxes
Internet Sellers May Be Liable For Multiple State Sales Taxes
The responsibility for collecting sales tax for internet merchants [and those others selling and shipping products out of their home state] changed in 2018 with the U.S. Supreme Court decision, South Dakota v. Wayfair. This case held that states could require out-of-state (or remote) businesses to collect sales taxes even without a physical presence.
This decision added to the physical presence test an additional economic nexus test that allowed states to set standards for the total sales and/or number of total transactions of an out of state merchant that would trigger a sales tax collection requirement. The states responded quickly with new remote sales tax requirements, resulting in a complex patchwork of requirements with wide variation.
For example, states established different monetary and transactional (or economic nexus) thresholds exempting some small businesses from remote sales tax requirements and different rules for calculating those thresholds.
This adds to the complexity of interstate commerce and e-commerce when it comes to sales tax, as if sales tax rules for your own state are not already hard enough to navigate.
The chart below from GAO, gives an overview of the sales and transaction numbers each state has established which require out of state sellers that don’t have physical nexus to collect and submit taxes on sales shipped into their state.
Another Court
Another Court Affirms Employees Overtime & Time Worked Pay Requirement
The U.S. Court of Appeals for the Second Circuit has approved a ruling by a New York District Court finding that New York City Emergency Medical Technicians (EMTs) and paramedics were improperly denied overtime pay for all of the time spent on pre- and post-work tasks despite not specifically seeking approval for overtime.
The class action law suit that eventually grew to include over 2,500 New York City EMTs and paramedics alleged that they spent significant time doing necessary tasks before and after their shifts, but were not paid overtime, in violation of the Fair Labor Standards Act (FLSA). The city countered that they were not paid because they did not follow protocol and specifically requested overtime approval.
Trial court jury found that the city willfully violated the FLSA by requiring the EMT/paramedics to perform work before and after their shifts without paying them for that work unless they specifically requested overtime compensation from the city. The judge entered a judgment against the city for $17,780,063, allocated as follows: back pay in the amount of $7,238,513; plus the same amount in liquidated damages; and $3,303,037 in attorneys’ fees.
The Second Circuit affirmed the lower court’s opinion. The court first noted that an “an employee’s failure to report work the employer in fact knew about or required does not protect the employer from FLSA liability.”
This decision again sends the important message that employers must pay employees for all time worked regardless of whether of not the employee reports the time and requests payment.