Summer is here – so that means it is time for another tax update! In last year’s newsletter, we were hoping for a less chaotic 2021 and a potential return to some semblance of normality. That did not happen in any way! And while there are not as many expected changes for the end of 2022, there are still some issues that we feel you should be aware of.
Office Status and Communication Methods
You may have missed it last year, but we have a website www.greensaigk.com . Now that we can communicate news and events online, this will be our last hard copy mailed newsletter. We will post a newsletter on the website next year. We encourage you to check the website regularly. Always feel free to contact our office if you need assistance.
Keep GSK Up To Date
It is critical to keep our records up to date with any changes to your information. Please let GSK know if you move, change your phone number, or have a new preferred email address.
Please keep our office updated with any new LLCs, business entities, or other significant life decisions that could impact filing requirements or create accounting/legal complications. It is often much easier (and less expensive) to prevent a problem before it is created.
Finally, if you are starting a new business or have a substantial change in profits, it may be beneficial to structure the business as an S Corporation for tax purposes to avoid large amounts of self-employment tax. Contact our office if you would like to discuss this possibility.
Communicating with the Government
If you receive any notice or communication from the government about tax returns, it is very important to let us know. Recent news articles have highlighted difficulties with the IRS. One alarming article reported millions of informational returns being destroyed, and the IRS has admitted to answering only about 19% of all phone calls. There have been many times this year that our office has been told that the IRS is not answering phone calls that day. Or, we get through and are on hold for about 2 hours and then we get disconnected! Be aware that attempting to resolve issues with the IRS will take longer than normal – there are still 2019 amended returns that have not been processed.
If you decide to handle any issues yourself, and mail documents to the government, make sure to keep a copy of anything you mail. We highly recommend that you use a method that has a tracking component. Priority or express mail is one option, but if you are going to use the regular mail, you should ask to have the mail sent certified with a return receipt. That will provide proof that you mailed something out, and that it was received. And of course, please provide us with a copy of what you sent!
New York Homeowner Tax Rebate Credit
New York announced that they will be sending out checks for the homeowner tax rebate credit over the next few months if you qualify. The checks already have started going out in the mail.
The homeowner tax rebate credit is a one-year program providing direct property tax relief to nearly three million eligible homeowners in 2022.
To be eligible, you must have:
- qualified for a 2022 STAR credit or exemption,
- had adjusted gross income that was less than or equal to $250,000 for the 2020 income tax year, and
- a school tax liability for the 2022-2023 school year that is more than your 2022 STAR benefit.
Mileage Rate
The IRS decided to increase the mileage rate effective July 1, 2022.
For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022.
Changes for the Upcoming Year
The biggest change this year to keep in mind is that many of the provisions enacted in the last one or two years were temporary in nature and have expired. The expanded child tax credit (including the advance payments), the expanded earned income credit rules, the larger dependent care credit, and the $300/$600 charitable deduction even when taking the standard deduction have all expired and are no longer in effect.
One change that did not expire is the increase from 50% to 100% deduction for meals at a restaurant; that is set to expire at the end of 2022.
Last year there was a big push to pass major tax legislation in the Build Back Better Act that would change multiple aspects of the tax code. That seems to be currently stalled in Congress, but our office is monitoring the situation.
Finally, the SECURE 2.0 Act is also currently stalled, after having passed the house with bipartisan support. If it passes through the Senate, it will make several substantial changes to retirement planning, including catch-up provisions, rules making Roth contributions easier, and automatic enrollment of employees in new retirement plans.
Emerging Issues
Most of the new issues for 2022 are either documentation requirements or increased disclosure forms from the government. For example, with an increasing number of divorces and extended family members taking care of children, there has been an increased push to make sure that any tax preparer has proof that the taxpayer is eligible to claim certain credits for dependents. Often this can be a school report card addressed to the child, but there are a variety of other documents that can also satisfy the requirements. Even regular mail addressed to a dependent can help satisfy the requirement. Please keep this in mind during the last half of the year.
The IRS has also announced a change in the 1099-K form that may impact many taxpayers. This form is used to report any payment you received over $600 from an online service like PayPal, Venmo, or eBay. Previously the form was only required if your proceeds were over $20,000. If you receive a 1099-K form, it is critical that you have a discussion with us about the source of the proceeds. It is currently unclear how the IRS will handle the new information (especially considering its recent problems) and the amount of reporting that it will require from taxpayers for things like used item sales, cash transfers that aren’t income related, and more.
Cryptocurrency is the biggest issue on the IRS radar and looks to be an area that will be under intense scrutiny. Some platforms like Coinbase and Robinhood provide excellent end of year documentation to help with tax reporting. Other platforms do not necessarily provide that information, so we recommend downloading activity on at least an annual (if not quarterly) basis. This way if accounts get frozen, hacked, or platforms go offline you still have a record of transactions. IRS regulations have struggled to stay current with the rapid pace of this industry, but when new regulations have been issued, they have been retroactive in nature. Keeping accurate records is important to be able to prove your original costs, transaction fees, and report accurate gains and losses. If you engage in regular cryptocurrency activity, we can advise how to keep records in an organized fashion to make tax reporting easier.
Other Issues
Identity Theft
Unfortunately, we feel we need to mention Identity Theft each year since the problem keeps growing. There are many reported cases of scams involving the impersonation of IRS or state taxing authorities. Traditionally, almost all communication with the IRS or other government agencies has been done via mail. Recently, our office has had reports that some government agencies are making phone calls since many government officials are working remotely. You should not provide any new information to someone claiming to be a government official over the phone, especially if you have not received written correspondence on the issue previously. Even if you believe the person is a government employee, ask them to document their questions or requests in writing, and obtain their government ID number. This provides a record of what they are asking for and gives you a chance to document your response and verify who they are.
Individuals who are concerned that they may be the victim of identity theft can obtain a PIN from the IRS website. The PIN will then be required to be included on the 2022 tax return in order to be processed.
Rise of Required Financial Statements
We have seen an increase demand for business financial statements from lending institutions when self-employed individuals are applying for a loan. In the past, tax returns or forms were usually sufficient, but many lenders are asking for not only previous year financial statements but in some cases year to date financials. Depending on the accounting software you use, this new requirement can be an unexpected and significant burden. Our office can assist you in preparing statements, but we have industry practices and standards that we must meet. It is important to let us know well enough in advance to be able to assist you without slowing down the application process.
Planning Issues
Reminder: 401(k) Plan Reporting Requirements
The Individual or Solo 401(k) Plan was designed for self-employed individual or small business owner with no full-time employees. This plan is very simple to manage and typically does not have annual filing requirements unless the Solo 401k Plan balance exceeds $250,000 in assets. If this is the case, a short 2-page information return (Form 5500-EZ) is required to be filed with the IRS by July 31. Form 5500EZ doesn’t have to be filed if there are no rank-in-file employees and the assets are under $250k.
The administrator of your plan may or may not be filing the required 5500 form. The IRS can impose a penalty of $25 per day (up to $15,000) for not filing a Form 5500-EZ return by the required due date. However, under the penalty relief program (Revenue Procedure 2015-32) the IRS gives administrative relief when an eligible sponsor late files Form(s) 5500-EZ and pays a $500 fee per return (up to a maximum of $1,500 per plan). We advise all of our clients who have an Individual 401(k) plan to review their balances to see if it is over $250,000 and make sure any required 5500 form was filed.
Retirement Contributions
The maximum contribution to an IRA during 2022 is still $6,000, plus a $1,000 catch-up contribution if you’re 50 or older. The maximum contribution to an employer sponsored plans (401k, 403b etc.), is increased to $20,500, plus a $6,500 catch-up contribution if you’re 50 or older.
COVID Spending and Inflation
The federal government has spent about $3.75 trillion in response to COVID-19. To put that in perspective, the total amount of federal outlays in 2019 was $4.4 trillion, meaning that the federal government spent almost an entire year’s worth of expenses for COVID relief. Higher tax rates are almost certainly in the future!
Now that even Secretary of the Treasury Janet Yellen agrees that inflation is a problem, you may be wondering how high inflation and possible tax rate increases changes advice about long term planning and tax minimizing strategies. Please contact GSK if you have questions about any changes that might need to be made to previous plans or the impact of these items on any major financial decisions you are considering.
Extensions & 2022 Estimates
If you filed an extension for the 2021 tax year, the deadline is approaching quickly. We do send out reminders regularly, but it is important that we receive your information soon. We would like to have time to prepare the tax returns. So, please send in your documents if you are on extension whether it be for individual or business taxes.
We also want to remind you that if we recommended making estimated tax payments for the 2022 tax year that the third and fourth payments are due on 9/15/22 and 1/15/23 respectively. If you have not made any earlier payments, we recommend that you make them as soon as possible to avoid any potential underpayment penalties and interest. Contact our office If you feel that your situation has changed during 2022 and you would like us to consider any potential changes to making estimated payments.
For New York S-Corps or Partnerships that made a PTET Election, the third and fourth estimated payments are due on 9/15/22 and 12/15/22. Current NY rules state that the estimated PTET payments of the corporation do not relieve the individual from their personal estimate responsibility, even though that will result in a very large refund in April.
We hope you all enjoy your summer. Please reach out to us if you have any questions or need our assistance.
Bob, Alan, Rosemary, Lirong, Joanne, James, Jonathan, Dan, Kellie, Eileen, Jamie, Theresa, Huiling, Brian, Ajay and Daryia
Firm Summer Hours June – September
Monday – Thursday 8:00 am – 4:00 pm
Friday – 8:00 am – Noon (In July- Friday’s the office is closed)
Closed – Saturday, Sunday and Holidays
Greenebaum, Saiger & Kasdin PC 190 Office Park Way Pittsford, New York 14534
Telephone (585) 383-5600
General E-Mail GSK@Greensaigk.com
Website www.GreenSaigk.com