Tax Tips Archives - Robert J. Kratz & Co.

COMMON SITUATIONS THAT REQUIRE A TAX REVIEW WITH YOUR ACCOUNTANT

August 13 2023 RgKAdmin14 Tax Preparation, Tax Tips 0 comments

Taxes can affect many areas of your life. Here are some common situations when you’ll want to schedule a tax review.

Something Changed in Your Life

A change in your life could mean significant changes in your tax status. Some of these changes include:

Getting married or divorced
Retirement
A child starting college or an adult going back to school
Moving to a new home
The birth of a child or an adoption
A family member passes away

How your taxes may be different:

Tax deductions and credits can increase and decrease because of these and other life changes. You’ll want to know as soon as possible if your taxes will be going up so you can be prepared to pay the increased amount.

A New Job

You’ll have several decisions to make when starting a new job that will affect your tax situation

Retirement savings plans – Learn about the available retirement savings plans offered by the employer and any other tax-deferred savings options. Remember that some employers will match a certain percentage of contributions that an employee makes to a plan.
Medical savings accounts – Your employer may offer a Flexible Spending Account or a Health Savings Account to help with paying certain medical expenses with pre-tax funds.

Medical savings accounts – Your employer may offer a Flexible Spending Account or a Health Savings Account to help with paying certain medical expenses with pre-tax funds.

Withholding – You’ll need to determine if you want additional federal (along with state and local income taxes if applicable) income taxes withheld from your paycheck beyond what your employer is obligated to withhold.

How your taxes may be different

You can decrease your taxable income by contributing to qualified retirement and medical savings plans. A tax planning session can reveal how much you can contribute to each of these plans, and if you should consider adjusting your paycheck withholdings.

A New Business or Side Job

A new business (hopefully!) means more money, but also more tax responsibilities. Here are some things to consider:

Separate accounts and credit cards – If you only remember one tip, it’s to keep separate accounts. Without this, it is easy for the IRS to deem expenses as personal and, therefore, not deductible.
Paying estimated taxes – As a business owner, you are responsible for making tax payments throughout the year to the IRS if your business is profitable.
Setting up a bookkeeping system – Having an accurate bookkeeping system is vital to making sure you don’t pay any more in taxes than you’re legally obligated to pay. Consider reconciling your bank accounts weekly (or even daily if possible) so they’re always current.
Other tax responsibilities – You may be required to submit a sales tax return depending on what types of products you sell or services you provide. You’ll also be required to submit various payroll tax returns if you have any employees.

How your taxes may be different

Most small businesses are flow through entities. This means any business profits will add to your personal income. Because of this, your personal tax situation could vary dramatically! So tax planning becomes critical on two fronts: Your new taxable income level AND helping you stay in compliance at the federal, state and local business tax rules.

Nobody likes a tax surprise. If your situation has changed, now is the time to schedule a tax planning review.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

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Important: New Electronic Filing Requirements for Forms W-2, W-2c, and 1099s

July 16 2023 RgKAdmin14 Tax Tips, Tax Preparation 0 comments

The IRS has reminded employers that the

New Electronic Filing Threshold for Forms W-2, W-2c, and 1099s

New lower threshold for required electronic ﬁling of information returns applies to tax year 2023 Forms W-2, Wage and Tax Statement, because they are required to be ﬁled by January 31, 2024.

In T.D. 9972 (TAXDAY, 2023/02/22, I.1):

The required electronic ﬁling threshold for certain information returns (including the 1099 series forms and most Forms W-2) was reduced from 250 returns to 10 returns. This new lower threshold is eﬀective for information returns required to be ﬁled in calendar years beginning with 2024. Employers determine whether they must ﬁle their information returns electronically by adding the number of information returns and the number of Forms W-2 they must ﬁle in a calendar year. If the total is 10 or more, they must ﬁle the returns electronically.

Corrected information returns, like Form W-2c, should be treated separately and are not included in this calculation. The employer must ﬁle the Form W-2c that corrects the original Form W-2 in the same way that the original Form W-2 was ﬁled, electronically or on paper.

For more information on Forms W-2 and W-2c go to : About Form W-2 and About Form W-2c.

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Important Information Regarding IRS LETTER 5071C

June 19 2023 RgKAdmin14 Tax Tips 0 comments

Did You Receive a Letter from the IRS to Verify Your Identity?

The IRS has been sending Letter 5071C to various taxpayers. This letter states that the IRS has received a tax return for year 2022 using your name and social security number. If you have filed your 2022 tax return, you will need to verify your identification with the IRS before your return will be processed.

The best way to verify your ID with the IRS is online using the website IRS.gov/verifyreturn.
You will need to create an account with the IRS through ID.me. In order to set up an account, you will need to provide an email address and upload a government ID and selfie to ID.me.

If you cannot set up an account with the IRS, then you will need to call the IRS Taxpayer Protection Program hotline at 800-830-5084 between 7:00 a.m. and 7:00 p.m.

You will need the following information in order to verify your ID.

The 5071C letter
Your 2022 Form 1040 tax return
A prior year Form 1040 tax return
Supporting documents for each year’s tax return. (W-2, Form 1099, Schedule C, etc.)

If you cannot verify your ID by using one of these two methods, you will need to contact our office. We will have a Power of Attorney prepared and forward to you (and your spouse if you filed a joint tax return) for signature. Once we have an executed Power of Attorney, we will contact the IRS on your behalf and verify your ID.

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Taxpayers Beware – Plan Now for 2023 or Pay Later

May 07 2023 RgKAdmin14 Tax Tips 0 comments

Procrastination is easy, especially when it comes to summertime tax planning. Waiting to implement strategies to reduce your 2023 tax obligations could cost you money. Here are some suggestions to help jumpstart your midyear review:

Safeguard your Deductions

Ensure you can take deductions by keeping great records throughout the year. You’ll need proof if you want tax breaks for things like childcare expenses, charitable contributions, gambling losses, vehicle costs and travel expenses. So create a system to keep track of these expenses.

Save more for Retirement

You can save more for retirement in 2023 thanks to inflation increasing annual contribution limits. You still have time to increase the amount you set aside over the remainder of 2023. This year you can deposit up to $22,500 in your 401(k) and $6,500 into your IRA (additional catch-up contributions apply if you’re 50 or older). You can also contribute to both a 401(k) and an IRA, though tax deductibility on IRA contributions may be limited depending on your income.

Be Tax-savvy about School Savings

If you’re setting aside money in a taxable account to pay for your child’s school expenses, you could realize tax savings by opening a 529 education savings account. The sooner you do this, the sooner your earnings will start growing tax-deferred. Your earnings will also generally be tax-free when withdrawals are used for qualified education expenses.

Adjust your Withholdings and Estimated Payments

If you haven’t already, update your withholdings and estimated tax payments to reflect any changes needed since last year. Updates may be in order if you experience a big life event, such as marriage, divorce or a new job. Overpaying your 2023 tax reduces the cash you have on hand throughout the year, and underpaying can lead to penalties and interest.

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New Tax Rules for Retirement Accounts Can Save You Money

March 20 2023 RgKAdmin14 Tax Tips 0 comments

The SECURE Act 2.0, passed by Congress in late 2022, features numerous ways for you to save more money in your tax advantaged retirement accounts. Below are several of the bill’s provisions and what they mean for you.

• Money can continue to grow tax deferred. If you turn 72 in 2023 or later, you can keep money in a tax-deferred IRA or 401(k) for another 12 months to help the account continue growing before starting to withdraw funds. This retirement benefit is now available thanks to the required minimum distribution age being raised from age 72 to age 73. The age will increase again from 73 to 75 in 2033.

Action You Should Take: Review your retirement account distribution needs and use this extra time to help make your distributions more tax efficient. For example, if you must earn an additional $10,000 before you hit the next highest tax bracket, consider pulling more taxable income out of your retirement account to take advantage of this lower rate. Or use the extra time to consider converting funds tax-efficiently into a Roth IRA.

• Be aware of auto enrollment. The government wants you to save for retirement, so the new law allows businesses to automatically transfer a greater portion of your paycheck into their retirement plan. The maximum contribution that can now be automatically deferred into your employer’s 401(k) plan increases from 10% to 15%.

Action You Should Take: While saving more for retirement is a great idea, this automatic participation does not account for your particular financial needs. So be aware of the possibility that you will automatically be contributing to your retirement account and independently determine what you can afford to put towards retirement. Make any adjustments if necessary, as you are permitted to opt out of auto enrollment. Remember, you also need to build an emergency fund and pay your bills!

• Take advantage of higher catch-up limits. Starting in 2024, the $1,000 catch-up contribution for IRAs will receive an annual cost-of-living adjustment in increments of $100, while the $7,500 catch-up contribution for 401(k)s will increase to at least $10,000. This higher 401(k) catch-up limit will also be indexed for inflation starting in 2025. The additional catch-up contribution is available if you’re age 50 or older.

Action You Should Take: Review the annual savings limit for your retirement savings account, including the catch-up amount if you are 50 years or older. Then make adjustments to your retirement savings plan as soon as possible to take advantage of the higher savings limits.
This blog provides summary information regarding the subject matter at the time of publishing.

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Instructions on How to E-file a Federal and PA Tax Return

February 24 2023 RgKAdmin14 Tax Tips, Tax Preparation 0 comments

Both Pennsylvania and the federal government give individual taxpayers the option to file their taxes electronically, also known as E-filing.

There are a few benefits to E-filing your tax returns, including:

Faster because it is electronically transmitted directly to the taxing authorities’ computer system
Safer because the filing cannot get lost in the mail
More secure
More convenient, you don’t have to wait on line at the post office if you are too close to the filing deadline
If your E-file submission is rejected, then the IRS will email the filer with a link you can use to see an explanation and resolve the issue

Click here for instructions on how to E-file a Federal Tax Return

Click her for instructions on how to E-file a PA Tax Return

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 if you have questions on how E-filing works. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

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It’s Tax Time! Tips to Get Organized

January 16 2023 RgKAdmin14 Tax Tips, Tax Preparation 0 comments Tags: Preparing for Tax Season

It may be the beginning of a new year, but now is the time to recap the previous year for Uncle Sam. Here are some tips and a checklist to help get you organized.

Watch for your tax forms.Forms W-2, 1099, and 1098 will start hitting your inbox or mailbox in the next couple of weeks. Review last year’s records and create a checklist of the forms to make sure you get them all.
Collect your tax documents using this checklist. Using a tax organizer or last year’s tax return will help you in the process. Sort your tax records to match the items on your tax return. Here is a list of the more common tax records:
- Informational tax forms (W-2s, 1099s, 1098s, 1095-A) that disclose wages, interest income, dividends and capital gain/loss activity
- Other forms that disclose possible income (jury duty, unemployment, IRA distributions and similar items)
- Business K-1 forms
- Social Security statements
- Mortgage interest statements
- Tuition paid statements
- Property tax statements
- Mileage log(s) for business, moving, medical and charitable driving
- Medical, dental and vision expenses
- Business expenses
- Records of any asset purchases and sales, including cryptocurrency
- Health insurance records (including Medicare and Medicaid)
- Charitable receipts and documentation
- Bank and investment statements
- Credit card statements
- Records of any out of state purchases that may require use tax
- Records of any estimated tax payments
- Home sales (or refinance) records
- Educational expenses (including student loan interest expense)
- Casualty and theft loss documentation (federally declared disasters only)
- Moving expenses (military only)

If you aren’t sure whether something is important for tax purposes, retain the documentation. It is better to save unnecessary documentation than to later wish you had the document to support your deduction.

Clean up your auto log.You should have the necessary logs to support your qualified business miles, moving miles, medical miles and charitable miles driven by you. Gather the logs and make a quick review to ensure they are up to date and totaled.
Coordinate your deductions.If you and someone else share a dependent, confirm you are both on the same page as to who will claim the dependent. This is true for single taxpayers, divorced taxpayers, taxpayers with elderly parents/grandparents, and parents with older children.

With proper organization, your tax filing experience can be timely and uneventful.

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TIPS FOR REDUCING YOUR 2022 FEDERAL TAX BILL

December 04 2022 RgKAdmin14 Tax Tips, Tax Preparation 0 comments

2022 Tax Tips for an Individual

We are alwlays looking ahead to the new year, which means it’s time to think about things you can do to reduce your 2022 federal tax bill. It looks like planning for income taxes may be a little simpler this year than in the past few years.

Lookfor Ways to Defer Taxable Income. Deferring taxable income (which includes accelerating deductions) when it makes sense is a good idea in an inflationary environment.
Evaluate Your Investment Assets with an Eye Toward Selling. Look at your investment portfolio to see if selling before year-end makes tax sense. If you have recognized capital losses this year (or have capital loss carryovers from previous years), you can use those losses to shelter 2022 capital gains.
Bunch Itemized Deductions to Maximize Their Value.You can deduct the greater of your itemized deductions (mortgage interest, charitable contributions, medical expenses, and taxes) or the standard deduction. For 2022, the standard deduction is $25,900 for joint filers, $19,400 for HOH, and $12,950 for single taxpayers. If your total annual itemizable deductions for 2022 will be close to your standard deduction amount, consider bunching your expenditures so that they exceed the standard deduction in one year, and then use the standard deduction in the following year.
Make Your Charitable Giving Plans.Donor-advised funds allow donors to make a charitable contribution to a specific public charity or community foundation that uses the assets to establish a separate fund to receive grant requests from charities seeking distributions from the advised fund. If you donate appreciated assets to a public charity, you can deduct the full fair market value of the donated asset. If you are age 70½ or older, consider a direct transfer from your IRA to a charity [known as a Qualified Charitable Distribution (QCD)]. While you will not be able to claim a charitable donation for the amount transferred to the charity, the QCD does count toward your Required Minimum Distribution (RMD).
Evaluate Intra-family Loans.You can lend money to relatives without any tax consequences if you charge interest at least equal to the Applicable Federal Rate (AFR), which is published by the IRS monthly. The AFR is typically lower than what commercial lenders offer, thus allowing the borrower to save money on interest expense. Making intra-family loans is still an attractive option, but it’s important to be sure you are charging a rate that won’t create a taxable gift, unless that is your intention.
Take Advantage of the Annual Gift Tax Exclusion. The basic estate, gift, and generation skipping transfer tax exclusion is scheduled to fall from $12.06 million ($24.12 million for married couples) in 2022 to $5 million ($10 million for married couples) in 2026. For 2022, you can make annual exclusion gifts up to $16,000 per donee, with no limit on the number of donees.

If you own a business, consider the following strategies.

Maximize Retirement Plan Contributions.You can make deductible contributions to several types of retirement plans, while earnings in the plan accumulate tax-free until they are withdrawn. For example, if you’re self-employed and set up a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum contribution of $61,000 for 2022. If you’re employed by your own corporation, up to 25% of your salary can be contributed with a maximum contribution of $61,000. Other small business retirement plan options include the 401(k) plan (which can be set up for just one person), the defined benefit pension plan, and the SIMPLE-IRA. Be aware that if your business has employees, you may have to cover them too.
Plan Your Business Asset Purchases. The bonus depreciation rate is scheduled to drop from the current 100% deduction to 80% of the cost of qualified property placed in service after 2022. So, placing a qualified asset in service by the end of 2022, rather than waiting until 2023, can have a big impact since you will be able to deduct the entire cost of that asset this year. Some assets that don’t qualify for bonus depreciation are eligible for Section 179 expensing. For qualifying property placed in service in tax years beginning in 2022, the maximum Section 179 deduction is $1.08 million.
Take Advantage of Larger Deductions for Business Meals.Normally, the deduction for business meals is limited to 50% of the meal’s total cost. However, the cost of food and beverages provided by a restaurant that is paid or incurred in 2022 is 100% deductible (assuming the meal qualifies as a business meal). If you use the per diem method to reimburse employees for business expenses, you can treat the entire meal portion of the per diem rate paid or incurred in 2022 as being attributable to food or beverages provided by a restaurant, making the meal per diem 100% deductible.

This blog covers some of the year-end tax planning moves that could potentially benefit you, your family, and your business. Please contact us at 610-296-2500 if you have questions, want more information, or would like us to help in designing a year-end planning package that delivers the best tax results for your particular circumstances.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission. All rights reserved.

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It’s Time to Hire a CPA: What You Need to Do

August 23 2022 RgKAdmin14 Tax Tips, Tax Preparation 0 comments Tags: what you should expect from CPA, Prepare to meet with accountant

Do you get anxious or stressed when tax time rolls around? If you have never worked with a Certified Public Accountant (CPA) for tax preparation, now may be the time to consider it. With the ever changing tax laws you may be missing out on important deductions. Starting the process in August rather than waiting until next year may save you from headaches.

What should you expect of a CPA?

First and foremost, expect your accountant to file your tax return accurately and on time. Reputable accountants do more than complete and file your return; they also represent you if an audit is requested by the Internal Revenue Service (IRS), and they keep electronic copies of your tax return.

How should you prepare to meet with an accountant?

Preparation is key to a successful first meeting. You may want to arrange a phone call before your first in person meeting.

Begin by asking for a breakdown of the fees you may incur. Some fees are optional, so choose those you need and/or what makes you most comfortable.
You should tell the accountant what documents you have and ask what else, if anything, you need to bring to the meeting.
With what you need in-hand, ask if there is a particular way to organize your documents that will make tax preparation easier and filing faster?

Now that you know what you need and how to organize it, schedule an in-person meeting.

How long should you keep your tax return and supporting documents?

According to the IRS you should:

Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
Keep records indefinitely if you do not file a return.
Keep records indefinitely if you file a fraudulent return.
Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.¹

The Pennsylvania Office of the Attorney General reminds people

“to safeguard “paperwork that includes personal and financial information – like your tax returns and forms – to protect you from identity theft.

Keep tax paperwork in a safe location.
Shred any documents that are no longer needed.
If you are filing online, make sure you have an updated firewall, antivirus and spyware software installed on your computer.
Do not leave tax documents in an open outgoing mailbox. Take them directly to the Post Office or mailbox.”

When you use a CPA some of these concerns will be moot. He/she will be responsible for either filing online or mailing your returns.

When your taxes are completed your tax return and all related documents will be returned to you. Keep them filed together in a safe place. They will help you:

Prepare for the following tax year. Although your accountant keeps electronic files of your return, you should keep all your supporting documents for the designated amount of time as outlined above.
In case they are required by a lending organization as proof of income for a loan.
If you or your child is applying for federal student aid by filing a FAFSA (Free Application for Federal Student Aid).
If you need to file an amendment within three years.

This blog provides summary information regarding the subject matter at the time of publishing. Please call our office at 610-296-2500 with any questions on how this information may impact your situation. Remember, call our office to learn what you need to prepare for your 2022 taxes.

https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records#:~:text=Keep%20records%20for%203%20years%20from%20the%20date%20you%20filed,securities%20or%20bad%20debt%20deduction

https://www.attorneygeneral.gov/protect-yourself/consumer-advisories/do-you-have-any-tax-preparation-advice/

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The Home Gain Exclusion: Make Sure You Qualify!

June 22 2022 RgKAdmin14 Tax Tips, Capital Gains 0 comments Tags: capital gains tax, capital gains, home gain exclusion

Across the country, many homeowners are cashing out to multiples over list price, especially since one of the largest tax breaks available to most individuals is the ability to exclude up to $250,000 ($500,000 married) in capital gains on the sale of your personal residence. Here is what you need to know.

Background

As long as you own and live in your home for two of the five years before selling your home, you qualify for this capital gain tax exclusion. Here are the official hurdles you must jump over to qualify for this tax break:

Main home. This is a tax term with a specific definition. Your main home can be a traditional home, a condo, a houseboat, or mobile home. Main home also means the place of primary residence when you own two or more homes.
Ownership test. You must own your home during two of the past five years.
Residence test. You must live in the home for two of the past five years.
Other nuances:
- You can pass the ownership test and the residence test at different times.
- You may only use the home gain exclusion once every two years.
- You and your spouse can be treated jointly OR separately depending on circumstances.

When to pay attention

You live in your home for a long time. The longer you live in your home, the more likely you will have a large capital gain. Long-time homeowners should check to see if they have a capital gain prior to selling their home.
You have old home gain deferrals. Prior to the current rules, home gains could be rolled into the next home purchased. These old, deferred gains reduce the cost of your current home and can result in a capital gains tax.
Two homes into one. Newly married couples with two homes have a potential tax liability as both individuals may pass the required tests on their own property but not on their new spouse’s property. Prior to selling these individual homes, you may wish to create a plan of action that reduces your tax exposure.
Selling a home after divorce. Property transferred as a result of a divorce is not deemed a sale of your home. However, if the ex-spouse that retains the home later sells the home, it may have an impact on the available amount of gain exemption.
You are helping an older family member. Special rules apply to the elderly who move out of a home and into assisted living and nursing homes. Prior to selling property, it is best to review options and their related tax implications.
You do not meet the five-year rule. In some cases you may be eligible for a partial gain exclusion if you are required to move for work, disability, or unforeseen circumstances.
Other situations. There are a number of other exceptions to the home gain exclusion rules. This includes foreclosure, debt forgiveness, inheritance, and partial ownership.

A final thought

The key to obtaining the full benefit of this tax exclusion is in retaining good records. You must be able to prove both the sales price of your home and the associated costs you are using to determine any gain on your property. Keep all sales records, purchase records, improvement costs, and other documents that support your home’s capital gain calculation.

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Category Archives: Tax Tips