Article Highlights:

  • Not Needing to File a 2023 Return?
  • Are Your Children Attending College?
  • Did You Sell Your Home This Year?
  • Do You Have an Employer Health Flexible Spending Account?
  • Did You Become Eligible to Make Health Savings Account (HSA) Contributions This Year?
  • Is Your Income Unusually Low This Year?
  • Must You Take a Required Minimum Distribution (RMD)?
  • Do You Have Stocks That Have Declined in Value?
  • Do You Have Stocks That Have Appreciated in Value and Your Income Is Low This Year?
  • Have You Considered Prepaying State Income and Property Taxes?
  • Are You Planning Your Charitable Deductions?
  • Do You Have Outstanding Medical or Dental Bills?
  • Have You Forgotten the Annual Gift Tax Exclusion?
  • Do You Think You May Have Under-Withheld Taxes This Year?
  • Did You Suffer a Disaster Loss This Year?
  • Divorced or Separated This Year?
  • Do You Qualify for Energy or Environmental Tax Credits?
    • Credit for Energy Efficient Home Modifications
    • Solar Credit 
    • Clean Vehicle Credit
    • Previously Owned Clean Vehicle Credit
  • Are You a Working Shareholder in an S Corporation?
  • Are You Planning Business Purchases Soon?
  • Are You Self-Employed?
  • Do You Plan to Pay Your Employees a Bonus?
  • Business Awareness Issues
    • 2024 E-File Mandate
    • Corporate Transparency Act   

Blog: Year-end is rapidly approaching, as are the holidays. So, before you become distracted with the seasonal celebrations, it may be in your best interest to consider year-end tax moves that can benefit you for both 2022 2023 and 2023 2024. Here are last-minute tax issues you might consider:


Not Needing to File a 2023 Return? If your income and tax situation is such that you do not need to file for 2023, don’t overlook the opportunity to bring in some additional income, to the extent it will be tax-free. For instance, if you have appreciated stock that you can sell without incurring any tax, consider selling it, or perhaps take a tax-free IRA distribution if you are 59½ or older or if younger and qualify for an exception to the “early withdrawal” penalty.

Also, just because you are not required to file a tax return does not mean you shouldn’t. By not filing you may miss out on some substantial refundable tax credits.

Are Your Children Attending College?  If you qualify for either the American Opportunity or Lifetime Learning education credits, check to see how much you will have paid in qualified tuition and related expenses in 2023. If it is not the maximum allowed for computing the credits, you can prepay 2024 tuition if it is for an academic period beginning in the first three months of 2024. That will allow you to increase the credit for 2023. This is especially effective for students just starting college who only have tuition expenses for part of the year.

Did You Sell Your Home This Year? If so, and if you meet the ownership and occupancy tests, the gain from selling your main home will not be taxed, up to $250,000 ($500,000 if you file a joint return with your spouse who also meets the occupancy test). But if you don’t meet the requirements of both owning and using your home for 2 years in the 5 years counting back from the sale date, you may still qualify for a partial home sale gain exclusion. For example, you may qualify for a reduced exclusion if you sold your home to relocate this year because of a change in employment or due to health. We can determine the amounts of excluded income and taxable gain, and project how your taxes will be impacted.

Do You Have an Employer Health Flexible Spending Account? If so, and if you contributed too little to cover expenses this year, you may wish to increase the amount you set aside for next year. The maximum contribution for 2023 is $3,050. The amount you haven’t used in 2023 that may be carried to 2024 is $610 and must be used in the first 2½ months of 2024.

Did You Become Eligible to Make Health Savings Account (HSA) Contributions This Year? If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions for the entire year. This opportunity applies even if you first become eligible in December. In brief, if you qualify for an HSA, contributions to the account are deductible (within IRS-prescribed limits), earnings on the account are tax-deferred, and distributions are tax-free if made for qualifying medical expenses.

Is Your Income Unusually Low This Year? If your income is unusually low this year, you may wish to consider converting your traditional IRA into a Roth IRA. The lower income likely results in a lower tax rate, which provides you an opportunity to convert to a Roth IRA at a lower tax amount. Also, if you have stocks in your retirement account that have had a significant decline in value, it may be a good time to convert to a Roth.

Are You Required to Take a Required Minimum Distribution (RMD)? Once U.S. taxpayers reach the age of 73, they are required to take what is known as a “required minimum distribution” from their qualified retirement plan or IRA every year. If this is the first year that this rule applies to you and you haven’t withdrawn the required amount yet, there’s no need to panic – you don’t have to do so until sometime during the first quarter of next year. Of course, if you wait until 2024 to take your 2023 distribution, you’re going to end up having to take two distributions in one year – one for 2023 and one for 2024.

For those who have been required to take an RMD before 2023, you only have until December 31st to take the required distribution for 2023 if you want to avoid penalties.

Do You Have Stocks That Have Declined in Value? With the stock market’s ups and downs, you should review your stock portfolio and consider selling losers to offset capital gains that would otherwise be subject to the 15% or 20% long-term capital gains tax rate. Capital losses can also offset up to $3,000 ($1,500 in the case of a married taxpayer filing a separate return) of ordinary income if capital losses exceed capital gains by at least that amount. Recognizing capital losses to offset capital gains can also reduce the amount of income subject to the net investment income surtax. Be aware of the wash sale rules that don’t allow you to deduct a loss if you repurchase those loser stocks within 30 days before or after the sale date.

Do You Have Stocks That Have Appreciated in Value and Your Income Is Low This Year? There is a zero long-term capital gains rate for taxpayers whose taxable income is below the 15% capital gains tax threshold. This may allow you to sell some appreciated securities that aren’t in an IRA or retirement account that you have owned for more than a year and pay no or very little tax on the gain. The 2023 15% capital gains tax bracket starts at a taxable income of $89,251 for married joint filers, $59,751 for those filing as head of household, and $44,626 for all other filers.

Have You Considered Prepaying State Income and Property Taxes? You probably know that if you are not subject to the alternative minimum tax and you itemize your deductions, you are eligible to deduct both your property taxes and state income (or sales) tax up to a maximum of $10,000. But did you know that in some cases, and of course if you haven’t exceeded the cap, you can increase the amount that you deduct on your 2023 return by prepaying some of the taxes by December 31, 2023? You can ask your employer to boost the amount of your state withholding by a reasonable amount; or, if you are self-employed, pay your 4th-quarter state estimated tax installment in December (otherwise due in January) and increase your deduction. The same is true for your real estate taxes: if you pay your first 2024 installment in 2023, you can take it as part of your 2023 deduction. But be mindful of the so-called SALT limit – the maximum deductible amount of state and local taxes of all types is $10,000. So, don’t electively prepay state taxes if you are at or above the $10,000 cap.

Are You Planning Your Charitable Deductions? Many people who itemize take advantage of the ability to take a deduction for their donations to their favorite charities or house of worship. Did you know that you can choose to pay all or part of your 2024 planned giving in 2023 in order to increase the amount you deduct in 2023? Though this may not be appealing to those who itemize every year, if you alternate between taking the standard deduction one year and itemizing the next, this can give you a big boost.

Charitable contributions are deductible in the year in which you make them. If you charge a donation to a credit card before the end of the year, it will count for 2023. This is true even if you don’t pay the credit card bill until 2024. In addition, a check will count for 2023 if you mail it in 2023. For last-minute mailings, it may be appropriate to obtain proof of mailing from the USPS. And don’t forget to get an acknowledgment letter or document from each qualified organization that clearly states the donated amount and whether the charity gave you goods or services (other than certain token items and membership benefits) as a result of the contribution.

Did You Know You Can Make Charitable Deductions from Your IRA Account? Those who are age 70½ or older are allowed to transfer funds (up to $100,000 annually) from their IRA to qualified charities without the transferred funds being taxable, provided the transfer is made directly by the IRA trustee to a qualified charitable organization. If you are required to make an IRA distribution (i.e., you are age 73 or older), you may have the distribution sent directly to a qualified charity, and this amount will count toward your RMD for the year.

Although you won’t get a tax deduction for the transferred amount, this qualified charitable distribution (QCD) will be excluded from your income, with the result that you may get the added benefit of cutting the amount of your Social Security benefits that are taxed. Also, since your adjusted gross income will be lower, tax credits and certain deductions that you claim with phase-outs or limitations based on AGI could also be favorably impacted.

If you plan to make a QCD, be sure to let your IRA trustee or custodian know well in advance of December 31 so that they have time to complete the transfer to the charity. If you have contributed to your traditional IRA since turning 70½, the amount of the QCD that isn’t taxable may be limited, so it is a good idea to check with this office to see how your tax would be impacted.

Have Outstanding Medical or Dental Bills? Taxpayers who itemize their deductions are able to deduct qualified medical and dental expenses that exceed 7.5% of their adjusted gross income. If you have reached that threshold or are close, then it may make sense for you to pay off any of those types of bills that are still outstanding rather than paying them over time. If you are near or above the limit, it may also make sense to look at what your medical and dental expenses will likely be for the next year and move those that you can into 2023 to increase the deduction. These expenses could include dental work or eyeglasses. An additional important issue: if you are thinking of doing this by paying using a credit card and you’re not going to pay the card balance immediately, make sure that you’re not paying more in interest than you’re saving with the increased tax deduction.

Have You Forgotten the Annual Gift Tax Exclusion? Though gifts to individuals are not tax deductible, each year, you are allowed to make gifts to individuals up to an annual maximum amount without incurring any gift tax or gift tax return filing requirement. For the tax year 2023, you can give $17,000 (up from $16,000 in 2022) each to as many people as you want without having to pay a gift tax. If this is something that you want to do, make sure that you do so by the end of the year, as you are not able to carry the $17,000, or any unused part of it, over into 2024. Such gifts need not be in cash, and the recipient need not be a relative. If you are married, you and your spouse can each give the same person up to $17,000 (for a total of $34,000) and still avoid having to file a gift tax return or pay any gift tax.  Speaking of spouses, there’s no limit on the excluded amount a spouse can gift to their wife or husband.

Do You Think You May Have Under-Withheld Taxes This Year? If you think there’s a chance that the income taxes you’ve paid to date for 2023 are insufficient, it’s a good idea to increase your withholding in the time that’s left before year-end to make up for it. Underpaying taxes makes you vulnerable to an underpayment penalty that is assessed quarterly. The good news is that even if you have underpaid for any or all of the first three quarters of the year and will owe taxes when you file your 2023 return, you can catch up by boosting your year-end withholding, since federal withholding is deemed paid ratably throughout the year. Plus, increased withholding and possible payment of estimated taxes can also reduce the fourth quarter underpayment penalty.

Did You Suffer a Disaster Loss This Year? 2023 has had some significant disasters, including Hurricane Idalia and others, wildfires in the West and on Maui, and severe storms and flooding throughout the U.S. Any property losses incurred because of a federally declared disaster can be claimed on the current year’s tax return or, at the election of the taxpayer, on the prior year’s return (2022 for 2023 disasters), generally providing quicker access to a tax refund. However, care must be exercised to ensure a disaster loss is claimed on the return of the year that will provide the greater benefit. In addition, after insurance reimbursement is accounted for, the result may not be as expected and should be determined before making the decision of which year to claim a loss.

Divorced or Separated This Year? A divorce or separation can have a significant impact on a couple’s tax filings. Filing joint or separate returns, who claims the children, the tax rules related to whether to take the standard deduction or itemize, how income and tax prepayments are allocated, and more issues need to be considered. Best to figure that all out in advance.

Energy & Environmental Tax Credits There are currently several sizable tax credits available:

Credit For Energy Efficient Home Modifications – This tax credit for making energy saving improvements to taxpayers’ existing homes has been around since 2006. The dollar limits and credit percentages have been modified several times over the years. In addition, the credit had a lifetime credit cap which was recently $500, and the credit rate had been reduced to 10%. Being available for 16 years with a $500 lifetime cap had almost rendered this credit impractical. However, the Inflation Reduction Act has breathed new life into the credit by increasing the credit rate to 30% and by replacing the lifetime credit cap with an annual cap of $1,200. That allows individuals to annually make up to $4,000 of creditable home energy improvements. There are annual limits for certain types of improvements; for example, there is a $600 annual credit limit for residential energy property expenditures, windows, and skylights, and $250 for exterior doors ($500 total for all exterior doors). A new feature is being able to claim a credit of up to $150 in addition to the $1,200 annual cap for an energy audit performed by a certified home energy auditor on your primary residence.

This credit is non-refundable (meaning it can only offset the current tax liability) and there is no carryover. 

Solar Credit – There is a 30% nonrefundable federal tax credit for installing solar on your first and second homes (need not own the home). Unused credit can be carried forward to the subsequent year.  The credit begins to phase out in 2033.  Expenses of battery storage technology with a capacity of not less than 3 kilowatt hours count toward the credit. Battery and systems upgrades will qualify for credit even after the initial installation. 

Clean Vehicle Credit – The 200,000-unit limit per manufacturer no longer applies after 2022. But the maximum $7,500 credit depends partly on the vehicle being manufactured in North America and partially whether the critical minerals included in the battery were extracted or processed in the U.S. or a country with a free trade agreement or recycled in North America. Another qualification is that the manufacturer’s suggested retail price cannot exceed $80,000 for vans, SUVs, and pickups, or $55,000 for other vehicles. No credit is allowed if the buyer’s modified adjusted gross income (MAGI) for the credit year, or if less for the preceding tax year, exceeds $300,000 for married individuals filing joint; $225,000 for those filing head of household; and $150,000 for others.

Previously Owned Clean Vehicle Credit – Beginning in 2024, a credit is allowed up to the lesser of $4,000 or 30% of a used clean vehicle’s sale price. This credit is for lower income taxpayers and no credit is allowed if the taxpayer’s MAGI for the credit year, or if less for the preceding tax year, exceeds $150,000 for married individuals filing joint; $112,500 for those filing head of household; and $75,000 for others. The vehicle must be acquired from a dealer for a price of $25,000 or less and be the first transfer of the vehicle since this credit was enacted.

For both the new and used clean vehicle credit, the dealer must report required information to the buyer and the IRS, including the maximum credit allowed, the buyer’s name and tax ID number, and vehicle identification number.


Are You a Working Shareholder in an S Corporation? If so, you may not be aware of the IRS’s “reasonable compensation” requirements, which can influence your Section 199A (qualified business income) deduction and your payroll taxes. Reviewing the requirements as they apply to your circumstances may avoid future problems with the IRS.

Are You Planning Business Purchases Soon? If so, you can reduce taxable income if you make last-minute business purchases such as for office equipment, tools, machinery, and vehicles, and write them off using the 80% bonus depreciation or Sec. 179 expensing, provided you place the item(s) into business service by the end of 2023. (The bonus depreciation rate drops from 80% to 60% for business purchases put into service in 2024.) However, you must consider the impact that expensing the items will have on your taxable income and the Sec.199A 20% pass-through deduction. It may be appropriate to contact this office in advance of any last-minute business acquisition.

You might also make sure you are taking advantage of the de minimis safe harbor rule that allows small businesses to expense rather than capitalize the purchase of tangible property up to $2,500.

Are You Self-Employed? If you are self-employed, you can establish a self-employed retirement plan (SEP) and contribute 25% of your business net income, up to a maximum of $66,000 for 2023

Planning on Paying Your Employees a Bonus? Consider paying your employees bonuses before year-end, rather than after the start of the new year. That way you benefit from the tax deduction a year sooner.

Business Awareness Issues – The following are new requirements that every business needs to be aware of and prepared to deal with: 

2024 E-File Mandate –Beginning in 2024 an organization (generally a business) filing, in aggregate, 10 or more information returns or statements (previously more than 250) in a calendar year will be required to file electronically. The regulations also require e-filing of certain returns and other documents not previously required to be e-filed.  

Corporate Transparency Act – The Act requires corporations, limited liability companies (including single member LLCs), and similar entities to report certain information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. This information includes the beneficial owners’ full legal names, dates of birth, current residential or business street addresses, and unique identification numbers from acceptable identification documents.

  • A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. FinCEN plans to have their secure online reporting process in place as of January 1, 2024.
  • A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Every taxpayer’s situation is unique, and the suggestions offered here may not apply to you. The best way to ensure that you are putting yourself in a tax-advantaged position is to seek advice from an experienced, qualified tax professional. Stop stressing and contact this office for assistance.

What You Need to Know about Gift & Estate Taxation

Article Highlights:

  • Annual Gift Tax Exemption
  • Gift Splitting
  • Lifetime Estate Tax Exemption
  • Education Exception
  • Medical Exception
  • Qualified Tuition Plan Contributions
  • Spouse’s Unused Estate Tax Exclusion
  • States With Estate Taxes
  • Why Should You Be Concerned?
  • Gift & Estate Tax Rates

Gift and estate taxes are both part of the federal transfer tax system and are interconnected.

Gift tax applies to transfers of wealth during a person’s lifetime. If a person gives another person a gift that exceeds the annual gift tax exclusion ($17,000 in 2023), the giver (also referred to as the donor) may have to pay gift tax. However, there is also a lifetime gift tax exemption ($12.92 million in 2023), which means that a person can give away up to that amount over their lifetime without paying gift tax. When the amount given to another person during any year exceeds the annual exclusion for that year, the donor is required to file a Gift Tax Return (IRS Form 709), even if no gift tax is owed because the donor’s lifetime exemption hasn’t been exceeded. The IRS requires this filing so that they can keep track of how much of the donor’s lifetime exclusion has been used up.

Estate tax, on the other hand, applies to transfers of wealth after a person’s death. The value of the deceased person’s estate is calculated, and if it exceeds the estate tax exemption $12,920,000 in 2023), the estate may owe estate tax.  

The interaction between gift and estate taxes comes into play because the lifetime gift tax exemption and the estate tax exemption are coordinated. This means that any portion of the lifetime gift tax exemption that is used reduces the amount available for the estate tax exemption. For example, if a person gives away $1 million over the annual exclusions during their lifetime and dies in 2023, their estate tax exemption would be reduced to $11.92 million.

Annual Gift Tax Exemption – As of 2024, the annual gift tax exemption is $18,000 per recipient (up from $17,000 in 2023). This means that in 2024 you can give up to $18,000 to as many individuals as you want in a single year without incurring a gift tax or reducing your lifetime estate exemption. If you give more than $18,000 in 2024 to a single individual, the excess amount is subject to gift tax. Thus, for example, let’s say you have 4 children. You can gift each of them an amount equal to the annual gift tax exemption without triggering any gift tax or gift tax reporting requirements or reducing the lifetime estate tax exemption.  Gifts to be counted are cash and property, including birthday and holiday gifts.

Gift SplittingA husband and wife can each make annual exclusion gifts, thereby increasing the exclusion from $17,000 to $34,000 per year (based upon 2023 amounts). However, only one of the spouses may have available property to give. IRC Section 2513 allows the spouses to elect (on a Form 709) to treat a gift made by one spouse as being made by both spouses.  

Example – Gift Splitting – John and Jane are married and have two children. In 2023 when the annual exclusion limit is $17,000, they would like to exclude $68,000 ($17,000 x 2 donors x 2 donees) in gifts. Jane received a large inheritance some years back; John has only a modest estate.  Jane gives the children $34,000 each. Then the couple elects to gift split so that the $34,000 gift is treated as given one-half by Jane and one-half by John (or $17,000 each). The gifts all qualify for the annual exclusion.

Lifetime Estate Tax Exemption – As previously discussed, thelifetime gift and estate tax exemption are coordinated, meaning they apply to both gifts given during your lifetime more than the annual exception and assets left at your death. So, if you use part of the exemption for lifetime gifts, only the remaining amount is available to shield your estate from estate tax when you die. However, the lifetime estate exemption is only reduced by gifts you made during your lifetime that exceed the annual gift tax exemption. To keep track of that amount, the IRS requires Form 709, Gift Tax Return, to be filed when gifts exceed the annual exception.  

Medical and Education Exceptions – In addition to the annual gift tax exception there are also medical and education exceptions included in the U.S. tax code that allow individuals to make certain types of payments on behalf of others without those payments being subject to the gift tax. They include:

  • Education Exception: Any payments made directly to an educational institution for someone’s tuition are not considered taxable gifts, regardless of the amount. This means you could pay for a child’s, grandchild’s, or even a friend’s tuition costs without incurring the gift tax. However, this exception only applies to tuition costs. Other expenses, such as books, supplies, or room and board, are not covered by this exception. Contributions to a Sec 529 plan don’t count for this exception but have their own rules (see below).
  • Medical Exception: Like the education exception, any payments made directly to a medical care provider for someone’s medical expenses are not considered taxable gifts. This includes payments for procedures, treatments, and hospital stays. In both cases, it’s important to note that the payments must be made directly to the institution or provider. If you give the money to the individual for them to pay the expenses, it will not qualify for the exception.

Sec 529 Qualified Tuition Plan Contributions – Section 529 plans, also known as Qualified Tuition Programs, are tax-advantaged savings plans designed to encourage saving for future education costs. Contributions to a 529 plan are considered completed gifts for tax purposes and are subject to the gift tax rules.

Since under the annual gift tax exclusion an individual can give up to the annual gift tax exclusion amount to another individual without triggering gift taxes or reducing the donor’s lifetime gift and estate tax exclusion, this means that the amount of the annual gift tax exclusion can be contributed to a 529 plan for a beneficiary without incurring gift tax.

However, 529 plans have a special provision that allows for a five-year gift tax averaging. This means that you can contribute up to five times the annual gift tax exclusion amount in a single year and spread the gift evenly over five years for gift tax purposes. This allows you to make a large contribution to a 529 plan without incurring gift tax, if you don’t make any other gifts to the same beneficiary during the five-year period.  

If you contribute more than the annual gift tax exclusion amount or the five-year averaged amount to a 529 plan, the excess may be subject to gift tax and could also reduce your lifetime gift and estate tax exclusion.

It’s also important to note that while contributions to a 529 plan are considered completed gifts and leave your taxable estate, you still retain control over the assets in the plan. You can decide when withdrawals are made and for what purpose, and you can even change the beneficiary of the plan.

Spouse’s Unused Estate Tax Exclusion – “Portability” is a provision in the U.S. tax code that allows a surviving spouse to use any unused portion of the deceased spouse’s estate tax exclusion. This can effectively increase the amount that the surviving spouse can transfer tax-free at death.

As of 2023, everyone has a lifetime estate and gift tax exclusion of $12.92 million. If a spouse dies and their estate does not use up all this exclusion, the unused portion can be transferred to the surviving spouse. This is referred to as the Deceased Spousal Unused Exclusion (DSUE).

Using 2023 as an example, say the husband dies and uses $5 million of his $12.92 million exclusion. His wife could add his remaining $7.92 million exclusion to her own exclusion. Assuming she dies in 2024 when the inflation adjusted exclusion is $13.61 million, her estate tax exclusion would allow her to transfer up to $21.53 million tax-free at her death.

To take advantage of portability, the executor of the deceased spouse’s estate must make an election on a timely filed estate tax return (Form 706), even if the estate is not otherwise required to file a return. The return must include a computation of the DSUE amount.

It’s important to note that portability applies only to the last deceased spouse. So, if a surviving spouse remarries and is again widowed, they can use the DSUE from the most recently deceased spouse, not from both.

Having an estate tax return prepared is generally expensive and a surviving spouse may choose to forgo having one prepared thinking his or her estate will not be large enough to benefit from their deceased spouse’s unused exemption amount. That decision should be well-thought-out not knowing what the future might hold, and considering the exemption amounts can be changed at the whim of Congress. In fact, the amounts established by the Tax Cuts & Jobs Act of 2017 expire after 2025, and the exemption, without Congressional action, would revert to about $6 million. 

Should the surviving spouse decide to forgo filing for the deceased spouse’s unused exemption amount, he or she should expect their tax preparer to ask them to sign a statement to that effect, so beneficiaries will not hold the tax preparer responsible should the unused exemption be needed.  

Portability can be a valuable estate planning tool, especially for couples whose combined estates may exceed the individual estate tax exclusion. However, it’s also important to consider other estate planning strategies, as portability does not apply to the generation-skipping transfer tax and some states do not recognize portability for state estate tax purposes.

States With Estate Taxes – As of 2023, the following states levy some form of estate tax: Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. 

In addition, the following states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.   

Why Should You Should Be Concerned? Because you want as much of your estate as possible to go your designated beneficiaries rather than to government taxes. Currently, at least until the Tax Cuts and Jobs Act expires after 2025, the federal estate tax rates range from 18% to 40% with taxable amounts more than $1 million taxed at 40%. 

If you have questions or would like an appointment to discuss how these issues might apply to your specific situation, please give this office a call. 

Taxes and Holiday Gift Giving 

Article Highlights:

  • Watch Out for Holiday Gift Scams
  • Gifts with Tax Benefits
  • Gift of College Tuition
  • Gift of College Student’s Supplies
  • Payoff of Student Loan Debt
  • Clean Car Credit
  • Qualified Tuition Programs
  • Qualified Charitable Distribution
  • Donor-Advised Funds
  • Work Equipment
  • Employee Gifts
  • Monetary Gifts to Individuals 
  • Documentation
  • Timing

The holiday season is customarily a time of giving gifts, whether to your favorite charity, family members or others. Some gifts have tax implications and can even provide a variety of tax benefits.  

But be wary; during the holiday season, you may receive phone calls, texts, emails, snail mail, or appeals on social networking sites for donations for various causes. However, some of these appeals may come from fraudsters and not legitimate charities. Unfortunately, this happens every holiday season.

So, before writing a check or giving your credit card number to a charity that you aren’t familiar with, check them out so you can be assured that your donation will end up in the right hands. Follow these tips to make sure that your charitable contribution actually goes to the cause you are supporting:

  • Donate to charities that you know and trust. Be alert for charities that seem to have sprung up overnight and that you are not familiar with.
  • Ask if a caller is a paid fundraiser, who they work for, and what percentage of your donation goes to the charity and fundraiser. If you don’t get clear answers—or if you don’t like the answers you get—consider donating to a different organization.
  • Don’t give out personal or financial information, such as your credit card or bank account number, unless you are sure that the charity is reputable.
  • Never send cash or a gift card. You can’t be sure that the organization will receive your donation, and you won’t have a record for tax purposes.
  • Never wire money to someone who claims to be from a charity. Scammers often request donations to be wired because wiring money is like sending cash: Once you send it, you can’t get it back. 
  • If a donation request comes from a charity that claims to help a local community group (for example, police or firefighters), ask members of that group if they have heard of the charity and if it is actually providing financial support.
  • Check out the charity’s reputation online using Charity Watch or other online watchdogs. 

Gifts with Tax Benefits 

A Gift of College Tuition – An interesting quirk in the gift tax laws is that an individual can pay a student’s higher-education tuition directly to a qualified school, college, or university, and it will be exempt from gift tax and gift tax reporting. What student wouldn’t love to have part of their tuition paid? It would make a great gift. However, the giver isn’t allowed a charitable deduction on their income tax return for the tuition they generously paid.

As an aside, college tuition generally qualifies for a federal income tax credit. Another quirk in the tax laws says that the education credit goes to the individual who claims the child (student) as a dependent, generally resulting in a gift to the child’s parents in the form of the tax credit.

Example: Whitney is attending college and is the dependent of her mother and father. Whitney’s grandfather makes a tuition payment directly to the college; since it was made directly to the school, Whitney’s grandfather does not have any gift tax issues. Since Whitney is a dependent of her parents, her parents would claim any available tuition credit. Thus, by paying the tuition, Grandpa made a gift of tuition to his granddaughter and a gift of the tuition credit to her parents. 

College Student’s Supplies – If you have a spouse or child attending college, the costs of certain course materials qualify for the American Opportunity Tax Credit (AOTC) if the course materials are needed as a condition of enrollment and attendance. Thus, for example, if a computer is needed as a condition of enrollment and attendance at the college, the computer’s cost would qualify for the AOTC of the individual who claims the student as a dependent. Other requirements apply to claim the AOTC; check with this office for details.

Payoff of Student Loan Debt – What student or former student wouldn’t appreciate having a portion of their student loan debt paid off in the form of a holiday gift. Such generosity lifts a huge burden off their shoulders. For 2023, up to $17,000 (less if other gifts were made to the same person during the year) can be gifted by one person towards the payment of another’s student loan debt without affecting the giver’s gift tax and gift tax reporting.   

Clean Car Credit – If you purchase an electric car as a holiday gift for your spouse or even yourself, you will find that some come with a tax credit of up to $7,500. To qualify to claim the credit on your 2023 tax return, the car will have to be “placed in service” by December 31, 2023. So merely ordering the vehicle, even if payment for it is made at the time when the order is placed, won’t be enough – you will need to receive the car and start using it before New Year’s Day. There are also income limitations so that a high-income taxpayer will not qualify for the credit, and the vehicle purchase price (MSRP) is also limited to exclude high-end vehicles from qualifying for the credit.  But before you leap, you should also know that the credit is non-refundable, meaning it can only offset your actual tax liability and that any excess credit over your tax liability will be lost. There is, however, an exception when the electric vehicle is used partially for business, in which case the portion of the credit allocated to the business use will become a general business credit that is carried back one year and then carried forward.  

Qualified Tuition Program (Sec. 529 plans) – These arrangements allow taxpayers to put away large amounts of money, limited only by the projected cost of a college education, which varies from state to state with some plans capped at more than $525,000. The account’s earnings are tax-free if used to pay tuition and certain other college expenses, so the sooner the account is funded, the more it can earn. There are no limits on the number of donors or on age or income. The contributions are subject to the gift tax if the annual contribution exceeds the annual gift tax exclusion amount ($17,000 for 2023; $18,000 for 2024). A special provision allows up to 5 times the usual gift tax exclusion amount to be made to a 529 plan in one year; check with this office for details.

Distributions from a Sec 529 plan are tax free, up to $10,000 per year per designated beneficiary for tuition (no other expenses are allowed) in connection with enrollment or attendance at elementary or secondary schools, including public, private, and religious schools. However, this option should be considered cautiously, as Sec. 529 plans work best when the money put into the plan is allowed to grow for a long period of time.

Qualified Charitable Distribution (QCDs) – Individuals age 70½ or over can transfer up to $100,000 annually from their IRAs to qualified charities without the distribution being taxable. So, you might want to consider using QCDs for your smaller contributions. Contact your IRA custodian or trustee to arrange the transfer, which needs to be completed by December 31, 2023, to count for 2023. Since December 31, 2023, falls on a Sunday and is New Year’s Eve, it’s best not to wait until the last minute to initiate the transfer.

A word of caution about QCDs: Congress increased the IRA required minimum distribution (RMD) age to 73 but still allows QCDs once the taxpayer reaches age 70½, and they repealed the age restriction for making traditional IRA contributions beginning in 2020. This means a taxpayer can make traditional IRA contributions and QCDs after reaching age 70½. As a result, Congress included a provision in the tax law requiring a taxpayer who qualifies to make a QCD to reduce the QCD non-taxable portion by any traditional IRA contribution made after reaching 70½ that was deducted, even if the contribution and deduction are not in the same year. This is a complication you would want to consult this office about before making a QCD.  

Example – Jack makes a traditional IRA contribution of $7,000 when he is age 71 and another $7,000 contribution at the age of 72. He claims an IRA deduction of $7,000 on his tax return for each year. Then later when he is 74, he makes a QCD in the amount $10,000 to his church’s building fund. Since Jack had made the IRA contributions after age 70½, his QCD must be reduced, by the post-70½ contributions that were deducted, and as a result the $10,000 is taxable ($10,000 – 14,000 = (4,000)).  However, he can claim $10,000 to the church building fund as a charitable contribution on Schedule A if he itemizes his deductions.

Donor-Advised Funds (DAFs) – If you would like to make a substantial tax-deductible charitable donation this year but spread the actual distribution of funds to specific charities over a number of years, a donor-advised fund may fill that need. There are any number of reasons individuals choose DAFs, including making a substantial charitable donation in an exceptionally high-income year. 

A DAF is a separate fund (account) set up within a public charity to which a donor makes a contribution. The donor then advises the sponsoring organization on how to ultimately distribute the funds from the account as charitable gifts over the course of many years. The fund isn’t required to follow the donor’s requests, but most do.

Tax law allows the sponsoring organization to be independent, community-based, religiously affiliated, or connected with a financial institution. Minimum contributions typically range from $5,000 to $25,000. The sponsoring organization manages the administration of the fund and handles the tax reporting, usually for an annual fee of 1%. 

You get to take a tax deduction for your entire donation in the year you contribute the funds or assets to the DAF. In addition, the funds that are not distributed are invested and grow until eventually being disbursed to the charitable organization(s). 

Work Equipment – If your spouse is self-employed and you purchase tools or electronics used in your spouse’s business, the costs of gifts qualify as a business tax deduction on the return for the year when the equipment is put into service. 

Employee Gifts – It is common practice this time of year for employers to give employees gifts. If the gift is infrequently offered and has a fair market value so low that it is impractical and unreasonable to account for it, the gift’s value would be treated as a de minimis fringe benefit. As such, it would be tax-free to the employee and tax-deductible by the employer. 

A gift of cash, regardless of the amount, is considered additional wages and is subject to employment taxes (FICA) and withholding taxes. Caution: If the gift recipient is a W-2 employee, the employer may not issue them a 1099-MISC for a holiday gift of cash; the amount must be treated as W-2 income. If an employer gives gift certificates, debit cards or similar items that are convertible to cash, their value is considered additional wages, regardless of the amount. However, if the gift is a coupon that is nontransferable and convertible only into a turkey, ham, gift basket or the like at a particular establishment, then the gift coupon would not be treated as a cash equivalent. 

Monetary Gifts to Individuals – If you have a high net worth, you are no doubt aware that when you pass away, your estate may be subject to federal (and possibly a state) estate tax once the value of your estate exceeds an excludable amount. With the passage of the Tax Cuts and Jobs Act (TCJA), effective in 2018, the estate tax exclusion amount was more than doubled, from $5.49 million in 2017 to $11.18 million in 2018. It has been inflation-adjusted each year since, so the 2023 exclusion amount is $12.92 million ($13,610,000 for 2024). 

However, in case you have forgotten, most of the provisions of the TCJA are temporary and expire after 2025, at which time the estate tax exclusion will revert back to the pre-TCJA level adjusted for inflation. Estimating the inflation adjustments, the 2026 exclusion amount would be reduced to approximately $6.75 million. Any amount of your estate more than the exclusion amount will be subject to the estate tax, which currently has a top rate of 40%. 

The value of gifts you make to individuals during your lifetime reduces the estate tax exclusion amount available to offset the value of your estate when you pass away. However, the estate tax exclusion is only reduced when the gifts you make during life exceed an annual amount, which is $17,000 for 2023 and $18,000 for 2024. That annual exclusion applies per individual, meaning you can give up to the exclusion amount to as many people as you’d like every year, whether or not they are related to you, without reducing the estate tax exclusion. Unlike gifts to qualified charitable organizations, gifts to individuals are not tax deductible. 

In addition to the annual exclusion, a donor may make gifts (with no specific dollar limitation) that are totally excluded from the gift tax in the following circumstances:

  • Payments made directly (Sec 529 plans are not direct) to an educational institution for tuition.  This includes college and private primary education.  It does not include books, supplies or room and board.
  • Payments made directly to any person or entity providing medical care for the donee.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider.  Reimbursement paid to the donee will not qualify.  The tuition/medical exclusion is often overlooked, but these expenses can be quite significant.  Parents and grandparents interested in estate reduction should strongly consider these gifts.

Of course, depending which political party is in control in Washington, D.C. after the 2024 elections, the lifetime gift and estate tax exclusion could be reduced before 2026, or could be extended or made permanent. Congress would need to agree to lower the exclusion amount or extend the higher amount.

Even though gifting assets while living may reduce your estate’s tax liability, the decision to gift assets while still living is a personal one depending upon your particular circumstances. 

Additionally, while the estate tax exclusion could decline after 2025, the IRS has said that the value of gifts made before then (when a higher lifetime gift and estate tax exclusion applied) won’t have to be adjusted for a reduced exemption.   

Documentation –To claim a tax deduction for gifts to qualified charitable organizations, you must have substantiation, which must be in your hands by the earlier of the date you file your tax return for the year of the donation or the due date of that return. For cash contributions (gifts paid by cash, check, electronic funds transfer or credit card), you cannot claim a tax deduction, regardless of the amount, unless you have a bank record (canceled check, bank or credit union statement or credit card statement) showing the name of the qualified organization, the contribution date and the amount of the contribution. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution and the amount of the contribution can be substituted for a bank record. For cash contributions of $250 or more and noncash donations, additional requirements not covered in this article apply.

With documentation requirements in mind, here are some words of caution about charitable contributions during the holiday season: 

  • When you are shopping at a mall and drop cash into the holiday collection kettle, you likely won’t get a receipt for your contribution, and a cash charitable contribution cannot be claimed as a tax deduction without documentation. 
  • The same goes for buying and giving new, unused toys to holiday toys-for-kids drives, which have become very popular. Tip: Save the purchase receipt for the toys and request verification of the contribution from the sponsoring organization. If the drop point for the toys is unmanned and it is not possible to obtain a contribution verification from the organization, the IRS will allow a deduction of up to $249, provided you document the purchase of your donation. 

Timing – Charitable contributions are deductible in the year in which you make them. If you charge a gift to a credit card before the end of the year, it will count for 2023. This is true even if you don’t pay the credit card bill until 2024. In addition, a check will count for 2023 as long as you mail it in 2023.

If you have questions about how any of these suggestions might impact your tax situation, please give this office a call; happy holidays.

What to Do When You’ve Made a Mistake on Your Tax Return

Filing taxes can be a complex process, and it’s not uncommon for mistakes to occur. Whether it’s a simple miscalculation or a more significant error, knowing how to navigate IRS tax problems is crucial for taxpayers. In this guide, we’ll walk you through the steps to take if you find yourself in a situation where you’ve made a mistake on your tax return. From recognizing the error to seeking professional help, we’ll provide you with actionable advice to ensure you’re on the right track.

Recognize the Mistake

Acknowledging a mistake on your tax return is the first crucial step. With over 160 million tax returns processed annually, errors are not uncommon. If you find a mistake, rest assured, you’re not alone. The important thing is to take swift and responsible action to rectify the error.

How will the IRS find out about your mistake?

The IRS matching program, also known as the Information Matching Program, is a system used by the Internal Revenue Service (IRS) to verify the accuracy of tax returns filed by taxpayers. The program works by comparing the information reported on individual tax returns with data received from third-party sources, such as employers, financial institutions, and other entities that provide income-related information.

The primary goal of the IRS matching program is to identify discrepancies or inconsistencies in reported income, deductions, and credits. If the information reported on a tax return does not align with the data received from third-party sources, it may trigger further review or an audit by the IRS.

For example, if a taxpayer reports a different amount of income than what their employer reported on their W-2 form, it could raise a red flag in the matching program. Similarly, discrepancies in interest income reported by financial institutions or other income sources can be flagged for review.

It’s important for taxpayers to ensure that the information they report on their tax returns is accurate and matches the data provided by third parties. Failing to do so can lead to penalties, interest charges, and potential legal consequences.

Overall, the IRS matching program is a critical tool in the IRS’s efforts to maintain tax compliance and ensure that taxpayers are reporting their income and deductions correctly.

Don’t Panic

Mistakes are a part of life, and the IRS understands this. Simple errors like math miscalculations or overlooking a section are often corrected by the IRS, who will send a notification letter. So, take a deep breath and remember, this isn’t the end of the world.

Understand the IRS’ Leeway

The IRS provides a substantial window for correcting mistakes. You have three years from the original filing date of your tax return or two years from the date you paid the owed tax to make corrections. This gives you ample time to address any issues that may have arisen.

Amend Your Return if Necessary

For more significant mistakes, like inaccurately reporting your income, you’ll need to file an amended return. This process allows you to rectify your errors and set things right. When filing an amended return, attention to detail is crucial. Keep in mind that the IRS may scrutinize amended returns more closely, underscoring the importance of thoroughness.

Know When to Seek Professional Help

If your tax situation is complex or you’re unsure about the correction process, it might be time to seek professional assistance. Our office can expertly guide you through amending your return, ensuring compliance with IRS regulations. We can also help you avoid potential penalties and interest charges.

Respond Promptly to IRS Notices

In the event of a notice from the IRS regarding your mistake, a swift response is essential. Delaying action when you owe additional taxes can result in penalties and accruing interest on the unpaid amount. The sooner you address the issue, the better it is for your financial situation.

Learn from Your Mistakes

Viewing a tax return mistake as a learning experience is valuable. Take the opportunity to understand where the error occurred and how to prevent similar mistakes in the future. As the saying goes, “to err is human, to forgive divine.” The IRS tends to be understanding when it comes to forgiving honest tax return mistakes, provided you take the necessary steps to correct them.

Making a mistake on your tax return is not a catastrophe, but it does require prompt and careful attention. Whether you choose to correct the error independently or seek professional help, the key is to act responsibly and learn from the experience. Remember, the IRS is there to work with you, not against you. So, take a proactive approach and navigate through the process with confidence.

IRS Offering a Withdrawal Process for Ineligible ERC Claims

Article Highlights:

  • ERC Marketers and Promoters
  • Potential Criminal Investigation and Prosecution
  • About the ERC
  • Who Can Withdraw an ERC Claim
  • How to Withdraw a Questionable ERC Claim

The IRS has created a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest. The IRS continues to warn taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. 

However, those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

The withdrawal option comes on the heels of the IRS announcing the imposition of a moratorium on processing new claims until at least the end of 2023, and that thousands of ERC claims already have been referred for audit. As part of their review procedure and to ensure a claim is legitimate, the IRS may ask for additional documentation from the taxpayer.

The ERC, an abbreviation of the Employee Retention Tax Credit or ERTC, is a refundable payroll tax credit designed for businesses that continued paying employees during specified periods of the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order, or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The ERC is a complex tax credit that has been aggressively marketed by ERC marketers or promoters, and these schemes have harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. The IRS wants to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and they are encouraged to closely review the withdrawal option and the requirements. The IRS continues to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.

Who Can Ask to Withdraw an ERC Claim – Employers can use the ERC claim withdrawal process if all the following apply:

  • They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  • They filed the adjusted return only to claim the ERC, and they made no other adjustments.
  • They want to withdraw the entire amount of their ERC claim.
  • The IRS has not paid their claim, or the IRS has paid the claim, but the taxpayer hasn’t cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. 

How to Withdraw an ERC Claim – To take advantage of the claim withdrawal procedure, the special instructions at should be carefully followed and are summarized below.

  • Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
  • Taxpayers who filed their ERC claims themselves, haven’t received, cashed, or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using a computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.
  • Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at

If you have submitted an ERC claim and are concerned about its validity and would like   this office to review the claim, or need assistance with redrawing a claim, please contact this office.   

IRS Alters Audit Focus

Article Highlights:

  • Audit Methods
  • Additional Audit Funding
  • Taxpayers Earning Less Than $400,000
  • Earned Income Tax Credit
  • Taxpayers With Total Positive Income Above $1 Million
  • Partnerships
  • Foreign Bank Accounts
  • Employee Retention Credit

A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is enforcement of the tax law. By pursuing those individuals and businesses who don’t comply with their tax obligations, the IRS is being fair to those who are compliant. This helps promote public confidence in our tax system for all taxpayers.

The IRS enforces the tax law in several ways, but primarily through the examination of tax returns that are identified as having the highest potential for noncompliance. This identification is determined using risk-based scoring mechanisms, data driven algorithms, third party information, whistleblowers and information provided by the taxpayer. The objective of an examination is to determine if income, expenses, and credits are being reported accurately.

IRS employees conduct examinations or audits in one of two ways. The first is by mail and are called correspondence examinations. The second, called face-to-face examinations, take place in person at an IRS office or at the taxpayer’s place of business. The complexity of the return determines whether the audit is by correspondence or in person. Certain individual non-business returns with low- and medium-adjusted gross income can be handled effectively by correspondence audit. All other returns selected for examination are better handled either as an in-IRS office examination or at the taxpayer’s place of business.

The IRS recently announced they were capitalizing on the additional funding provided by the Inflation Reduction Act by giving more attention to wealthy individuals, partnerships and high-income earners, all categories of taxpayers that have seen sharp drops in audit rates during the past decade. The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats, and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits.

As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year as well as adding new fairness safeguards for those claiming the Earned Income Tax Credit. The EITC was designed to help workers with modest incomes. Audit rates of those receiving the EITC have been at high levels in recent years, while rates dropped precipitously for those with higher income, partnerships, and returns with more complex tax situations. The IRS will also be working to ensure unscrupulous tax preparers do not exploit people claiming these important tax credits. 

The IRS will be prioritizing scrutiny of taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. Building off earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have dozens of Revenue Officers focusing on these high-end collection cases in fiscal year (FY) 2024. The IRS is working to expand this effort, contacting about 1,600 taxpayers in this category that owe hundreds of millions of dollars in taxes.

The IRS will place greater emphasis on partnerships with over $10 million in assets that have discrepancies on their balance sheets, which is an indicator of potential non-compliance.

In addition to the foregoing, more of the IRS’s attention will be focused on high-income taxpayers that continue to utilize Foreign Bank accounts to avoid disclosure and related taxes and fail to comply with the requirements to file a Report of Foreign Bank and Financial Accounts (FBAR). This form must be filed for any year that the aggregate value of all the U.S. person’s foreign financial accounts is more than $10,000 at any time. IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in FY 2024.

Another priority will involve digital currency. Initial IRS investigations showed the potential for a 75% non-compliance rate. The IRS projects more digital asset cases will be developed for further compliance work early in FY 2024.

There are also growing concerns that a substantial share of new claims from the pandemic-era relief program, the Employee Retention Credit (ERC), which is being widely touted by promoters, are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing. So much so that IRS Commissioner Danny Werfel on September 14, 2023, ordered an immediate moratorium through at least the end of 2023 on processing new ERC claims. The IRS also announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

Contact this office immediately should you receive an audit notice. Without a substantial knowledge of tax law and audit procedures you should think twice about handling an audit on your own.  

Kiddie Tax – What a Parent Needs to Know 

Article Highlights:

  • Who Is Subject to The Kiddie Tax
  • Exceptions
  • Kiddie Tax Rules
  • Strategy Where the Child Has Earned Income
  • Parents Election to Include Child’s Unearned Income on Their Return
  • Strategy To Avoid Kiddie Tax

The Kiddie Tax was introduced in 1986 to prevent high-income parents from shifting their investment income to their children, who typically fall into lower tax brackets. While the term “Kiddie Tax” isn’t used in the tax code, it does succinctly describe this tax. The tax applies to unearned income, such as dividends, interest, and capital gains, of certain children under the age of 19, or under 24 if they are full-time students who aren’t self-supporting. 

However, if the child is married or neither parent is alive on the last day of the year, the Kiddie Tax rules will not apply to the child and the child will be taxed at their own rate. 

For 2023, the first $1,250 of a child’s unearned income is tax-free. The next $1,250 is taxed at the child’s rate, which is typically lower than the parents’ rate. However, any unearned income over $2,500 is taxed at the higher of the child’s tax rate or the parents’ rate, which can be as high as 37%. These amounts are inflation adjusted and for 2024 will be $1,300 and $2,600.

Where a child has earned income (income from working, generally W-2 income) that income is taxed at the child’s marginal rate. However, thanks to the standard deduction, which can offset earned income, and for 2023 for a single individual is $13,850, a child can earn $13,850 tax free.  Inflation-adjustment is expected to bring the 2024 standard deduction to $14,600.

Earned Income Strategy: The child may also make deductible contributions to a traditional IRA for 2023 of the lesser of their earned income or $6,500. By combining the standard deduction and the maximum deductible IRA contribution, a child could earn $20,350 ($13,850 + $6,500) of wages and pay no income tax.  If the child balks at contributing his or her hard-earned money to an IRA, the parent, or grandparents, might consider giving the child part or all of the IRA contribution as a gift. For long-term retirement benefits, it might be better to have the child contribute to a Roth IRA. Even though contributions to a Roth IRA are not tax deductible, all earnings are tax free at retirement which can be a huge benefit 50 or 60 years down the road. 

In some cases, parents may elect to include their child’s interest and dividend income (including capital gain distributions) on their own tax return instead of the child filing a return of his/her own. If the child has other types of income, either earned or unearned, this election cannot be made.  Where the child’s parents are not filing a joint return there are some complicated rules related to which parent includes the child’s unearned income on their return. Generally, it would be reported on the return of the parent with the highest amount of taxable income.  

The IRS no longer allows children who have unearned income and are subject to the Kiddie Tax to file their returns using estimated parental tax information. If a child cannot get the required information about the parent’s tax return, the child (or the child’s legal representative) can request the necessary information from the IRS.    

Kiddie Tax Avoidance Strategy – It is possible to avoid the Kiddie Tax by placing or moving a child’s funds into investments such as the following that produce little or no current taxable income (that would otherwise be subject to the Kiddie Tax), at least in the years until the investments need to be sold or redeemed to pay for education expenses:

  • U.S savings bonds – Interest can be deferred until the bonds are cashed. 
  • Tax-deferred annuities – Interest can be deferred until the annuity is surrendered.
  • Municipal bonds – Generally produce tax-free interest income (may be taxable to the state).
  • Growth stocks – Stocks that focus more on capital appreciation than current income. 
  • Unimproved real estate – That provides appreciation without current income.

Navigating the complexities of the Kiddie Tax can be challenging. However, with a solid understanding of its implications, you can make informed decisions that align with your financial goals.

Remember, every family’s financial situation is unique, and what works for one may not work for another.  If you have questions about the Kiddie Tax or need assistance with tax planning, don’t hesitate to give this office a call.

A Tax Twist on Your Favorite Game Show

Article Highlights:

  • Unexpected 1099-MISC
  • Cash Winnings
  • Prize Winnings
  • Famous Prize Winnings

If you like to watch game shows and enjoy all the excitement that goes with watching contestants win prizes, then you can add another element to your viewing pleasure by considering how the contestants will handle the IRS Form 1099-MISC they receive for the value of the items they won. You may not have thought much about it, but the contestants must pay federal and applicable state income tax on the cash and the value of the goods they win on game shows.

The lucky ones are those who simply win cash. They will have money to pay the taxes—unless, of course, they overlook the tax issue, spend all the winnings, and end up with a tax liability they cannot pay when it’s time to file their income tax return(s) for the year in which they won the money. All that winning excitement turns into a stressful financial problem, and they probably end up wishing they hadn’t won.

But what happens to the contestants who win a prize? They will have more complex issues. They will be taxed on the prize’s fair market value (FMV), which is usually full retail value.  So, they will have to dig into their own pockets to come up with the cash to pay the taxes.  And if a contestant wins something they have no use for, they are still stuck with taxes unless they refuse the prize or contribute it to charity. But if the item is donated to charity, the prize winner still needs to include in adjusted gross income (AGI) that FMV amount and can claim an offsetting deduction for the contribution only if they itemize their deductions. Having to include the winnings in AGI can cause undesirable tax consequences because various deductions and credits are limited depending on AGI. 

Then think about the individual with limited means that wins an $80,000 vehicle. It might well cost them $17,500 or more (which they probably don’t have) just to pay Uncle Sam the income taxes on the prize.  Or consider the contestant who wins an expensive trip. Typically, hotel packages are valued by the game shows at their top retail value, not the discounted rates that can be obtained online or through a travel agent. Thus, those who accept the trip may not be able to afford the taxes on the trip, and after a week in paradise, they find themselves in tax purgatory.

The issue becomes a real financial drag for the taxpayer who is unable to pay the tax liability because they end up with failure-to-pay (and perhaps underpayment of estimated tax) penalties and interest that the IRS keeps tacking on until the liability is finally paid in full. 

The tax issues can be avoided by refusing the non-cash prize, especially if the prize is something of no use to the winner. Another option for easy-to-sell items is to accept the prize and then sell it (not to a relative or friend). The gap between retail and real value can be especially harmful for winners who accept a prize with the intent to resell it: They’re paying taxes on a value they have no hope of recouping, which eats into the profits. If a prize item is sold at a loss, the loss would not be tax deductible because it isn’t considered an investment or business asset, and losses on personal-use items aren’t deductible. 

Remember back in 2004 when Oprah Winfrey gave away to everyone in the audience a Pontiac? The sticker price of those cars was $28,500, and that amount had to be claimed as income by the audience members. If the person who received a car was in the 25% federal tax bracket, they were looking at a tax bill of $7,125. And for some, they also faced a state income tax. So, the free car wasn’t free and could have ended up as a tax headache for some. 

Years ago, one famous contestant on “Survivor” did not report his $1 million winnings, claiming that CBS had told him the network was responsible for the taxes. It turns out that the contract he signed with CBS specifically stated that he was responsible for the taxes, and as a result, he ended up in federal court, where he was convicted of tax evasion and sentenced to a 51-month prison term.

In some cases the value assigned by the game show can be disputed if the prize winner can reasonably establish and document that the FMV is different. Tax courts have frequently taken special factors into consideration in determining the fair market value of awards and prizes.

Thinking about how the contestant will deal with taxes can add a new twist to watching your favorite game show. 

As you can see, there is a downside to being a game show winner! If you have more questions related to prize winnings, please give this office a call.

Converting Personal Vehicles to Business Use: A Comprehensive Guide

As a taxpayer and business owner, you may be considering converting your personal vehicle to business use. This decision can offer significant tax and financial advantages, but it’s crucial to understand the process and legal implications. Here’s a step-by-step guide to help you navigate this transition.

Step 1: Understand the Benefits

Converting a personal vehicle to business use can provide several financial benefits. These include the ability to deduct vehicle expenses such as fuel, maintenance, insurance, and depreciation on your business tax return. Additionally, if your business requires frequent travel, using a business vehicle can help separate personal and business expenses, making accounting and tax preparation easier.

Step 2: Determine the Business Use Percentage

To claim vehicle expenses on your tax return, you must determine the percentage of the vehicle’s use that is for business purposes. This is calculated by dividing the number of miles driven for business by the total miles driven in the year. Keep a detailed log of your mileage to substantiate your claims in case of an audit.

Step 3: Choose a Deduction Method

There are two methods for deducting vehicle expenses: the standard mileage rate and the actual expense method. The standard mileage rate is a fixed rate per mile driven for business purposes. The actual expense method allows you to deduct the actual costs of operating the vehicle for business use, including gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation. Consult with a tax professional to determine which method is most advantageous for your situation.

Step 4: Update Your Insurance

When you convert a personal vehicle to business use, you’ll need to update your auto insurance policy. Personal auto insurance policies typically don’t provide coverage for business use of a vehicle, so you’ll need a commercial auto insurance policy.

Step 5: Register the Vehicle in Your Business’s Name

For a clear separation between personal and business assets, consider registering the vehicle in your business’s name. This step may not be necessary for sole proprietors, but it’s often recommended for LLCs and corporations.

Step 6: Keep Detailed Records

Maintaining accurate records is crucial when using a vehicle for business purposes. Keep track of all vehicle-related expenses, including receipts for gas, maintenance, and insurance. Also, keep a detailed log of your business mileage.

Step 7: Report on Your Tax Return

At tax time, report your vehicle expenses on your business tax return. If you’re a sole proprietor, this will typically be on Schedule C of your personal tax return. If your business is an LLC or corporation, you’ll report these expenses on your business tax return.

Converting a personal vehicle to business use can offer significant tax advantages, but it’s a decision that should be made with careful consideration and professional advice. Tax laws are complex and change frequently, so it’s always a good idea to consult with a business and tax professional to ensure you’re making the most of your deductions and staying compliant with the law.

If you’re considering this transition, our team of business and tax professionals is here to help. Contact us today to discuss your situation and learn how we can help you maximize your tax savings.

Year-End Prep: 5 Key QuickBooks Online Tasks Before January 1

December always seems to fly by. In just a few short weeks, Thanksgiving dinner will be over and it will be time to welcome the New Year. The holiday season brings personal obligations, but for retailers, it’s also the busiest time of the year. Even if you’re not in the retail business, you probably have sales goals or other metrics to meet before 2024 arrives.

Amid all the responsibilities that come with owning a business during the holiday season, you also need to finalize your bookkeeping for the current year to prepare for the new one. If you’ve been using QuickBooks Online throughout the year, your job will be considerably easier. However, you should still allocate some time for essential year-end tasks.

While it might not be possible to wrap up everything by New Year’s Eve, there are five things you can accomplish during your busy November and December to get a head start on January.

1. Analyze Your 2023 Income

You may not have your final sales and income figures until the year concludes, but you can get a good start by November. QuickBooks Online offers several reports that provide a clear, comprehensive view of your 2023 sales. By clicking “Reports” in the toolbar and selecting “Sales and customers,” you can run reports to examine your sales based on Class, Customer, Customer Type, and Product/Service. These reports can be displayed in summary or detail format and are customizable, allowing you to specify date ranges and group results based on criteria such as Transaction Type, Customer, and Account.

2. Know What You Owe

Managing your financial obligations is crucial. To determine what still needs to be paid, click “Reports” and navigate to “What you owe.” For a quick overview, run “Unpaid Bills.” For a more detailed perspective, generate the “Accounts payable aging detail” report, which categorizes your outstanding payables by days past due.

3. Know Who Still Owes You

Monitoring unpaid invoices is a year-round concern, but it’s especially important as the end of 2023 approaches. December might not be the ideal time to collect from delinquent customers, but it’s important assess where you stand with them. Under the “Reports” tab, look for “Who owes you” and generate two reports: “Accounts receivable aging detail” and “Open Invoices.”

Consider dedicating some time to brainstorm strategies that could encourage customers to settle their debt faster.

4. Create Statements For Past-Due Clients

Client statements resemble reports, displaying sales transactions within a specified period. Statements serve two purposes. Some customers simply want a list of their invoices and payments for their records. Others may require statements as reminders of overdue accounts. You can create statements by clicking “New” in the upper left corner and selecting “Statement” under “Other.” While there are three types, you’ll most likely create and send the following two:

Open Item Note: This type displays all open, unpaid invoices from the past 365 days.

Transaction Statement Note: This option lists all transactions for the selected date range.

Statements are useful for reminding customers of overdue payments or providing a transaction record for a specific period.

5. Clean Up Your Customers and Vendor Lists

If you have only a few customers or vendors, your list is probably up to date. However, if you’ve been adding customers or vendors for months – or even years – without managing the list, you might be wasting time scrolling through an extensive roster. Instead of deleting them, you can make them inactive. Click “Sales” in the toolbar and select “Customers.” If you have inactive customers with no open activity, you can hide them. Simply click the box next to the customer’s name and then click “Batch actions” in the upper left, followed by “Make inactive.”

November and December are hectic months any way you slice it, and it’s perfectly fine if you can’t accomplish all these tasks by the year’s end. However, consider adding them to your January to-do list if they remain incomplete. It is also wise to run standard financial reports available in QuickBooks Online Reports, particularly the ones found under “For my accountant.” Having regular meetings with your tax professional throughout the year can help avoid surprises before New Year’s, every year.

December 2023 Individual Due Dates

December 1 – Time for Year-End Tax Planning

December is the month to take final actions that can affect your tax result for 2023. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2023 should call for a tax planning consultation appointment.

December 11 – Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

December 31 – Last Day to Make Mandatory IRA Withdrawals

Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you were born before January 1, 1952. You may delay your first distribution to April 1, 2024 if your birth date is during the period January 1, 1951 through December 31, 1951. If you are required to take a distribution in 2023, and the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

December 31 – Last Day to Pay Deductible Expenses for 2023

Last day to pay deductible expenses for the 2023 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2023).

December 31 –  Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or in a single day, you should consider taking action earlier than December 31st, which is a Sunday and many financial institutions may be closed on Friday the 29th, as well as Saturday the 30th.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:


December 2023 Business Due Dates

December 1 – Employers

During December, ask employees whose withholding allowances will be different in 2024 to fill out a new Form W4 or Form W4(SP). 

December 15 – Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 – Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 – Corporations

The fourth installment of estimated tax for 2023 calendar year corporations is due.

December 31 – Last Day to Pay Deductible Expenses for 2023  

Last day to pay deductible expenses for the 2023 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2023). 

December 31 – Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or in a single day, you should consider taking action earlier than December 31st, which is a Sunday and many financial institutions may be closed on Friday the 29th, as well as Saturday the 30th.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites: