Tax Tips Archives - Robert J. Kratz & Co.

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.

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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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, home gain exclusion, capital gains tax

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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I Owe Tax on That?

March 14 2022 RgKAdmin14 Tax Preparation, Tax Tips 0 comments Tags: Gambling tax deductions, scholarship and financial aid taxes, gambling taxes, unemployment tax, Social Security benefits taxes, alimony taxes

5 Surprising Taxable Items

Wages and self-employment earnings are taxable, but what about the random cash or financial benefits you receive through other means? If something of value changes hands, you can bet the IRS considers a way to tax it. Here are five taxable items that might surprise you:

Scholarships and financial aid. Applying for scholarships and financial aid are top priorities for parents of college-bound children. But be careful — if any part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, travel expenses or aid received in exchange for work (e.g., tutoring or research).

Tip: When receiving an award, review the details to determine if any part of it is taxable. Don’t forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.

Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records. For more detailed information about gambling and taxes check out last month’s blog: https://robertjkratz.com/court-is-in-session-notable-tax-court-cases/

Tip: Know when the gambling establishment is required to report your winnings. It varies by type of betting. For instance, the filing threshold for winnings from fantasy sports betting and horse racing is $600, while slot machines and bingo are typically $1,200. But beware, the gambling facility and state requirements may lower the limit.

Unemployment compensation. Congress gave taxpayers a one-year reprieve in 2020 from paying taxes on unemployment income. Unfortunately, this tax break did not get extended for the 2021 tax year. So unless Congress passes a law extending the 2020 tax break, unemployment will once again be taxable starting with your 2021 tax return.

Tip: If you are collecting unemployment, you can either have taxes withheld and receive the net amount or make estimated payments to cover the tax liability.

Social Security benefits. If your income is high enough after you retire, you could owe income taxes on up to 85% of the Social Security benefits you receive.

Tip: Consider if delaying when you start collecting Social Security benefits makes sense for you. Waiting to start benefits means you’ll avoid paying taxes on your Social Security benefits for now, plus you’ll get a bigger payment each month you delay until you reach age 70.

Alimony Deductable. Prior to 2019, alimony was generally deductible by the person making alimony payments, with the recipient generally required to report alimony payments received as taxable income. Now the situation is flipped: For divorce and separation agreements executed since December 31, 2018, alimony is no longer deductible by the payer, and alimony payments received are not reported as income.

Tip: Alimony payments no longer need to be made in cash. Consider having the low-income earning spouse take more retirement assets such as 401(k)s and IRAs in exchange for reduced alimony payments. This arrangement would allow the higher-earning spouse to make alimony payments by transferring retirement funds without paying income taxes on it.

When in doubt, it’s a good idea to keep accurate records so your tax liability can be correctly calculated, and you don’t get stuck paying more than what’s required.

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Court Is In Session – Notable Tax Court Cases

February 16 2022 RgKAdmin14 Tax Tips 0 comments Tags: Gambling tax deductions, Business expenses, travel expenses, advertising tax deductions

Despite the COVID-19 pandemic, political unrest, and severe weather events, the Tax Court has continued to churn out decisions affecting individual and business taxpayers. Here’s a brief sampling of several cases that may be of particular interest.

Coming Up Aces. (Coleman, TC Memo 146, 10/22/20) Gamblers take note of this ruling. You can generally deduct gambling losses up to the amount of your winnings from gambling activities if you can provide proper documentation. Now the Tax Court has allowed one taxpayer to estimate his expenses absent proper documentation.

Facts: A compulsive gambler was able to show that he likely spent the money from a $150,000 personal injury settlement in local casinos. The gambler, however, didn’t have the usual records to substantiate his claims. The Court allowed an estimated deduction because it was clear he had incurred significant expenses. The gambler was able to net his $350,000 in gambling winnings with $350,000 in estimated gambling losses.

Tax Tip: Save documentation for all your tax deductions, including gambling winnings and losses. Don’t rely on a tax court ruling!

Home (Not) Sweet Home. (Soboyede, TC Summ. Op. 2021-3, 1/26/21) This can come as an unwanted surprise. Your tax home for deducting travel expenses isn’t necessarily the place where you live. It’s the general area of your primary workplace.

Facts: The taxpayer was an attorney with separate law practices in Minnesota and Washington, D.C. He deducted his hotel expenses and other travel costs in the D.C. area. But his records showed he actually spent more than 50% of his work time in or near the D.C. location. The Tax Court concluded that the attorney’s tax home is actually in D.C. As a result, he couldn’t deduct his hotel and other expenses from the D.C. area.

Tax Tip: You can deduct travel expenses only away from your tax home. If you work in multiple locations, be sure you know which location the IRS considers to be your tax home.

Skidding Off The Race Track. (Berry, TC Memo 2021-42, 4/7/21) The big question is is it ordinary and necessary? A business can deduct advertising and marketing expenses that are related to its business activities. No write-off is allowed, however, for personal expenses.

Facts: A father and son who owned a construction company were race car enthusiasts. They deducted expenses for the son’s racing activities that were incurred as an advertising and marketing expense of the construction company. The Tax Court disallowed the deduction, ruling the expenses were a hobby expenditure, not an ordinary and necessary business expense that can be deducted for tax purposes.

Tax Tip: Understand what is considered an ordinary and necessary business expense by the IRS and know whether your activity is deemed to be either a hobby or a for-profit business enterprise.

A Slight Understatement. (Pragrias, TC Memo 2021-82, 6/30/21) Under special circumstances, a tax audit can be conducted up to six years after being submitted. The IRS normally has three years from the due date of a tax return to conduct an audit of that return. This three-year period is extended to six years, however, if the tax return omits more than 25% of taxable income.

Facts: The taxpayer received $4.9 million from a complex investment but reported only about $1.5 million. The IRS audited the return after three years. Despite the taxpayer’s contention that he didn’t omit taxable income—he said he merely understated it—the Tax Court ruled that the longer six-year limit applies. And as a general rule, there is no statute of limitations for the IRS when fraud is involved.

Tax Tip: Understand the applicable statute of limitations with your tax returns.

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, except as noted here. All rights reserved.

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Get ready for taxes: Here’s what’s new in 2022

January 19 2022 RgKAdmin14 Child Tax Credits, Tax Tips 0 comments Tags: filing taxes in 2022, 2022 taxes, economic impact payment, advance child tax credit payments

In case you missed Robert Kratz’s January 18 letter to his clients, following is what to consider when filing your taxes in 2022.

The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments, and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications, and other helpful resources for the filing season.
Here are some key items for taxpayers to know before they file next year.
Changes to the charitable contribution deduction

Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.

Check on advance child tax credit payments

Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.

Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.

Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.

* * * * * In January 2022, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance child tax credit payments with their tax records. Individuals can also create or log in to IRS.gov online account to securely access their child tax credit payment amounts.
Economic impact payments and claiming the recovery rebate credit

Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don’t usually file, to claim the credit.

Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return.

* * * * * In early 2022, the IRS will send Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to IRS.gov online account to securely access their economic impact payment amounts.
More information:

Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return

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Tax Moves to Make Before Year-End

December 15 2021 RgKAdmin14 Tax Tips 0 comments Tags: Year-End Tax Tips

The new year is just around the corner. Have you started thinking about your taxes? It’s not too late, but it will be soon. There are moves you can make to reduce your taxable income. Some of these tax-saving moves, however, must be completed by December 31. Here are several to consider:

Tax-loss harvesting. If you own stock in a taxable account that is not in a tax-deferred retirement plan, you can sell your underperforming stocks by December 31 and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can even net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years. Just be sure you do not repurchase the same stock within 30 days, or the loss will be deferred.
Take a peek at your estimated 2022 income. If you have appreciated assets that you plan on selling in the near future, estimate your 2022 taxable income and compare it to your 2021 taxable income. If your 2022 income looks like it may be significantly higher than 2021, you may be able to sell your appreciated assets in 2021 to take advantage of a lower tax rate. The opposite also holds true. If your estimated 2022 taxable income looks like it may be significantly lower than your 2021 taxable income, lower tax rates may apply if you wait to sell your assets in 2022.
Max out pre-tax retirement savings. The deadline to contribute to a 401(k) plan and be able to reduce your taxable income on your 2021 tax return is December 31. See if you can earmark a little more money from each of your paychecks through the end of the year to transfer into your retirement savings accounts. For 2021, you can contribute up to $19,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2022, to contribute to a traditional IRA and be able to reduce your taxable income on your 2021 tax return.
Make cash charitable contributions. If you’re like 90% of all taxpayers, you get no tax benefit from charitable contributions because you don’t itemize your personal deductions. On your 2021 tax return, however, you may contribute up to $300 in cash to a qualified charity and deduct the amount whether or not you itemize your deductions. Married taxpayers who file jointly may contribute $600. You can make your contribution by check, credit card, or debit card. Remember that this above-the-line deduction is for cash contributions only. It does not apply to non-cash contributions.
Bunch deductions so you can itemize. Are your personal deductions near the amount of the standard deduction for 2021: $12,550 for singles, $18,800 for head of household, and $25,100 for married filing jointly? If so, consider bunching your personal deductions into 2021 so you can itemize this year. For most, the easiest way is to bunch two years of charitable contributions into a single year. These can include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.

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Here’s what taxpayers need to know about paying taxes on their hobbies

July 21 2021 RgKAdmin14 Tax Tips 0 comments Tags: taxes on hobbies

Do you have a hobby? Did it unexpectedly turn into a source of income? The IRS recently sent out a tax tip letting taxpayers know that money made is money to be reported for tax purposes. Here is the IRS tax tip:

“Many people are engaged in hobby activities that are also a source of income. For example, some people started selling handmade items during the pandemic. These people must report this income on their tax return. Get more details here:

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. This differs from those that operate a business with the intention of making a profit.

In determining whether their activity is a business or hobby, taxpayers must consider nine factors.

These factors are:

Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
Whether they depend on income from the activity for their livelihood.
Whether any losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
Whether they change methods of operation to improve profitability.
Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
Whether the taxpayer was successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts, and circumstances with respect to the activity must be considered. And, no one factor is more important than another.

If a taxpayer receives income from an activity that is carried on with no intention of making a profit, they must report the income they receive on Schedule 1, Form 1040, line 8.”

Have questions? Call our office at 610-296-2500.

This blog provides summary information regarding the subject matter at the time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten, or redistributed without permission, except as noted here. This blog includes, or may include, links to third-party internet websites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

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Consolidated Appropriations Act, 2021: Health and Dependent Care Flexible Spending

April 06 2021 RgKAdmin14 Tax Tips, Flexible Spending Accounts 0 comments Tags: Flexible Spending Accounts, FSA, Health FSA, Dependent Care FSA

COVID-19 has impacted Flexible Spending Accounts. Be sure you take advantage of these changes if they apply to you.

The Consolidated Appropriations Act, 2021 provides that employers may adopt certain temporary rules to assist employees enrolled in health or dependent care flexible spending accounts without jeopardizing their status as a cafeteria plan.

Generally, a cafeteria plan is a separate, written benefit plan maintained by an employer under which employees have the opportunity to select the particular benefits that they desire. Flexible spending accounts (FSA) typically operate under a cafeteria plan and may be funded through an employee’s pre-tax contribution.

Health Flexible Spending Accounts

Health FSAs are commonly used to reimburse employees for medical expenses not covered by insurance, including insurance co-payments, deductibles, amounts in excess of coverage limits, and medical expenses that may be outside the scope of coverage, such as the cost of eyeglasses.

Dependent Care Flexible Spending Accounts

The funds in a Dependent Care FSAs can be used to reimburse for the qualifying costs to care for a dependent child under the age of 13, a disabled spouse, or a disabled relative who lives with the taxpayer for more than half the year.

Due to the COVID-19 crisis, employers who sponsor a flexible spending account may choose to permit one or more of the following temporary changes without compromising their cafeteria plan’s status as a cafeteria plan:

· Health FSAs and dependent care FSAs may allow any remaining balances at the end of the 2020 plan year to roll over into the 2021 plan year;

· Health FSAs and dependent care FSAs may allow any remaining balances at the end of the 2021 plan year to roll over into the 2022 plan year;

· Health FSAs and dependent care FSAs may extend grace periods for plan years ending in 2020 and 2021 for up to 12 months;

· Health FSAs may allow employees who terminate participation during the 2020 or 2021 plan year to use up their unspent balances through the end of the plan year;

· Dependent care FSAs may increase the age limit for certain eligible employees’ qualifying children from 13 to 14 for purposes of determining whether expenses may be paid or reimbursed;

· Health FSAs and dependent care FSAs may allow participants to make prospective election changes during 2021 without regard to any change of status requirements.

Employers who choose to implement any or all of these changes may implement them immediately and retroactively. They may amend their plans in the year after the year that the change is effective.

If you would like more information on the temporary rules for health and dependent care flexible spending accounts, please call our office at 610-296-2500.

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