If you’re a business owner, you should be aware that the SECURE 2.0 Act has changed how some amounts are reported on Form W-2. The provisions potentially affecting Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) are:

• De minimis financial incentives,
• Roth Savings Incentive Match Plan for Employees (SIMPLE) and Roth Simplified Employee Pension (SEP) Individual Retirement Arrangements (IRAs), and
• Optional treatment of employer nonelective or matching contributions as Roth contributions.

De minimis financial incentives

The SECURE 2.0 Act made changes designed to encourage employees to contribute to their employers’ 401(k) or 403(b) plans. These changes allow employers to offer small financial incentives to employees who choose to participate in these retirement savings arrangements. If an employer offers such an incentive, it’s considered part of the employee’s income and is subject to regular tax withholding unless there’s a specific exemption.

Roth SIMPLE and Roth SEP IRAs

Under SECURE 2.0 Act, an employer that maintains a SEP or SIMPLE IRA plan can offer participating employees the option of having their salary reduction contributions deposited in a Roth IRA instead of a traditional IRA. Contributions made at the employee’s election to a Roth SEP or Roth SIMPLE IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). These contributions should be included in boxes 1, 3 and 5 (or box 14 for railroad retirement taxes) of Form W-2. They’ll also be reported in box 12 with code F (for a SEP) or code S (for a SIMPLE IRA).

Employer contributions to a Roth SEP or Roth SIMPLE IRA are not subject to withholding for federal income tax, FICA or FUTA. These contributions should be reported on Form 1099-R for the year in which they’re allocated to the individual’s account. The total amount should be listed in boxes 1 and 2a of Form 1099-R with code 2 or 7 in box 7, and the IRA/SEP/SIMPLE checkbox checked.

Designated Roth nonelective contributions and designated Roth matching contributions

Under the SECURE 2.0 Act, plans can allow employees to designate certain matching and nonelective contributions made after Dec. 29, 2022, as Roth contributions. These contributions are not subject to withholding for federal income tax, Social Security or Medicare tax.

Unlike regular Roth contributions, designated Roth nonelective and matching contributions must be reported on Form 1099-R for the year in which they’re allocated to an individual’s account. They’re reported in boxes 1 and 2a of Form 1099-R, and code “G” is used in box 7.

Reminder

Forms W-2 have been updated for tax year 2023 (filed in 2024). If a business has already filed 2023 Forms W-2 without following these new guidelines, they may need to file Form W-2c to correct any errors. Refer to the General Instructions for Forms W-2 and W-3 for details on when and how to file Form W-2c.

If you need help understanding how these new rules will affect your business, please contact our office. We would be happy to help.

If you missed the April tax filing and payment deadline, you should file as soon as you can. If you missed the deadline to file and owe taxes, you need to file quickly to minimize penalties and interest. And keep in mind that payments were still due by the April 15 deadline, even if you requested an extension of time to file a tax return. An extension to file is not an extension to pay.

If you owe tax…

If you still owe taxes, you should file your tax return and pay any taxes owed as quickly as possible to reduce penalties and interest. Until the balance is paid in full, interest and penalties accrue on taxes owed.

Even if you can’t afford to immediately pay the full amount of taxes owed, you should still file a tax return and pay as much as possible. This reduces interest and penalties on the outstanding amount and may help avoid a possible late-filing penalty.

You may qualify for penalty relief if you have filed and paid timely for the past three years and meet other important requirements, including paying or arranging to pay any tax due. Contact our office for more information.

If don’t owe tax or are owed a refund…

If you chose not to file a return because you don’t earn enough to meet the filing requirement, you might have missed out on receiving a refund due to potential refundable tax credits. Some examples of these refundable tax credits are the Earned Income Tax Credit and Child Tax Credit. Many eligible people fail to file a tax return and claim a refund for these tax credits. Don’t be one of them!

There’s no penalty for filing after the April 15 deadline if a refund is due. However, you should still consider filing as soon as possible so that you can receive your refund.

Some people have extra time to file

Some people automatically qualify for extra time to file and pay taxes due without penalties and interest, including:

• People in certain disaster areas. There’s no need for these taxpayers to submit an extension; extra time is granted automatically due to the disaster.
• U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico.
• Members of the military on duty outside the United States and Puerto Rico, and those serving in combat zones.

The Earned Income Tax Credit (EITC) is the federal government’s largest refundable tax credit for low to moderate income workers. Almost a third of those who qualify for the EITC became eligible for the first time this year due to changes in their marital, parental or financial status and may not realize they’re eligible.

If you earned $63,398 or less in 2023, you may be eligible for this valuable tax credit.

Workers at risk for overlooking the EITC include those:

• Living in non-traditional homes, such as a grandparent raising a grandchild.
• Whose earnings declined or whose marital or parental status changed.
• Without children.
• With limited English skills.
• Who are veterans.
• Living in rural areas.
• Who are Native Americans.
• With earnings below the filing requirement.

The EITC is a tax credit for people who work and have low to moderate income. A tax credit usually reduces tax owed and may also result in a refund.

For tax year 2023, the EITC is as much as:

• $7,430 for a family with three or more children.
• $600 for those who don’t have a qualifying child.

How to claim the EITC

To get the EITC, you must file a tax return and claim the credit. If you are eligible for the credit, you should file a tax return to claim the credit even if your earnings were below the income requirement to file.

Most people who are traditional employees or contractors have their income reported to the IRS on
a Form W-2 or a Form 1099-NEC. But you are required to report all sources of income on your tax return, even those
that aren’t independently reported to the IRS. Today we are going to take a look at a few of the more common sources of income
that you might overlook if you aren’t careful.

Digital assets, including cryptocurrency

A digital asset is a digital representation of value that’s recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency.
• Stablecoins.
• Non-fungible tokens (NFTs).

Everyone must answer the digital asset question

Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120-S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, you must check the “Yes” box if you:

• Received digital assets as payment for property or services provided;
• Transferred digital assets for free (without receiving any consideration) as a gift;
• Received digital assets resulting from a reward or award;
• Received new digital assets resulting from mining, staking and similar activities;
• Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset.

In addition to checking the “Yes” box, you must report all income related to your digital asset transactions. For example, if you held a digital asset as a capital asset and sold, exchanged or transferred it during 2023, you must use Form 8949, Sales and other Dispositions of Capital Assets, to figure your capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses. If you disposed of any digital asset by gift, you may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If you were paid as an employee with digital assets, you must report the value of the digital assets received as wages. Similarly, if you worked as an independent contractor and were paid with digital assets, you must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business and who did not operate the business through an entity other than a sole proprietorship.

Checking “No”: Normally, you can check the “No” box if you merely owned digital assets during 2023 as long as you did not engage in any transactions involving digital assets during the year. You can also check the “No” box if your activities were limited to one or more of the following:

• Holding digital assets in a wallet or account;
• Transferring digital assets from one wallet or account that you own or control to another wallet or account that you own or control; or
• Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

Gig economy earnings

Typically, income earned from the gig economy is taxable and must be reported to the IRS on tax returns. Examples of gig work include providing on-demand labor, services or goods, or selling goods online. Transactions often occur through digital platforms such as an app or website.

You are required to report all income earned from the gig economy on your tax return, even if the income is:

• From temporary, part-time or side work.
• Paid through digital assets like cryptocurrency, as well as cash, goods or property.
• Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

Service industry tips

People who work in service industries such as restaurants, hotels and salons often receive tips from customers for their services. Generally, tips like cash or non-cash payments are taxable and should be reported.

• All cash tips should be reported to your employer, who must include them on your Form W-2, Wage and Tax Statement. This includes direct cash tips from customers, tips from one employee to another employee, electronically paid tips and other tip-sharing arrangements.
• Noncash tips include value received in any medium other than cash, such as: passes, tickets, or other goods or commodities a customer gives the employee. Noncash tips aren’t reported to your employer but must be reported on a tax return.
• Any tips you didn’t report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional income with your tax return. You must also pay the employee share of Social Security and Medicare tax owed on those tips.

Service industry employees don’t have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received.

Will people will get a Form 1099-K from friends and family sending them personal payments?

Payments from friends and family should generally not be reported on a Form 1099-K. Form 1099-K reports payments for goods or services and should not report personal payments like rent, dinner, travel and other gifts or reimbursements gifts, no matter the amount. Generally, in payment apps, the default is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account.

If I didn’t receive a Form 1099-K, do I have to report income?

According to federal law, all income is taxable unless it is specifically excluded by tax law. You should report any profits from selling goods or services, regardless of whether you receive a Form 1099-K.

Will I get a Form 1099-K if I sold goods or services under the $20,000 and 200 transactions payment threshold set for 2023 and previous tax years?

The 2023 federal reporting threshold of over $20,000 and 200 transactions is a reporting requirement, but companies may still send a Form 1099-K for goods or services payments that are less than that amount. Payment apps and marketplaces that have held backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K. Also, your state may have a lower reporting threshold, which could result in receiving a Form 1099-K, even if the total gross payments you received in the year did not exceed the federal reporting threshold.

Will I owe taxes on the gross amount reported on the Form 1099-K?

The form provides the gross, or total amount of payments individuals got per app or marketplace. Just because a payment is reported on a Form 1099-K does not mean it is taxable. You will need to use the form and other records to determine your actual tax liability when you file your tax return.

Can I get a 1099-K if I’m not running a business?

People may receive a Form 1099-K from payment apps or online marketplaces they used to sell goods or services, or accepted payments from a bank card.

We are in the midst of tax season, and although many people have already had their tax return prepared and filed, many more haven’t started this process yet. If you still need to prepare your 2023 tax return, here are some things you should know.

The Essentials

The deadline this tax season for filing your individual tax return is April 15, 2024. However, those who live in Maine or Massachusetts will have until April 17, 2024, to file due to official holidays observed in those states.

Once you have received all of your tax documents, it’s important to review them for any inaccuracies or missing information. If you find any issues, immediately contact the person who issued the document to request a correction.

Having organized tax records can make the process of preparing a complete and accurate tax return easier and may also help you identify any overlooked deductions or credits.

Changes to credits and deductions for tax year 2023

Standard deduction amount increased. For 2023, the standard deduction amount has been increased for all filers. The amounts are:

• Single or married filing separately — $13,850.
• Head of household — $20,800.
• Married filing jointly or qualifying surviving spouse — $27,700.

Additional child tax credit amount increased. The maximum additional child tax credit amount has increased to $1,600 for each qualifying child.

Child tax credit enhancements. Many changes to the Child tax credit (CTC) that had been implemented by the American Rescue Plan Act of 2021 have expired.

Legislation is being considered by Congress that might affect the Child Tax Credit, but you should not wait to file your 2023 tax return this filing season. If Congress changes the CTC guidelines, the IRS will automatically make adjustments for those who have already filed so no additional action will be needed by those affected.

Under current law, for tax year 2023, the following currently apply:

• The enhanced credit allowed for qualifying children under age 6 and children under age 18 has expired. For 2023, the initial amount of the CTC is $2,000 for each qualifying child. The credit amount begins to phase out where AGI income exceeds $200,000 ($400,000 in the case of a joint return). The amount of the CTC that can be claimed as a refundable credit is limited as it was in 2020 except that the maximum ACTC amount for each qualifying child increased to $1,500.
• The increased age allowance for a qualifying child has expired. A child must be under age 17 at the end of 2023 to be a qualifying child.

Changes to the Earned Income Tax Credit (EITC). The enhancements for taxpayers without a qualifying child implemented by the American Rescue Plan Act of 2021 will not apply for tax year 2023. To claim the EITC without a qualifying child in 2023, you must be at least age 25 but under age 65 at the end of 2023. If are married and filing a joint return, one spouse must be at least age 25 but under age 65 at the end of 2023.

New Clean Vehicle Credit. The credit for new qualified plug-in electric drive motor vehicles has changed. This credit is now known as the Clean Vehicle Credit. The maximum amount of the credit and some of the requirements to claim the credit have changed.

1099-K reporting requirements have not changed for tax year 2023

Following feedback from taxpayers, tax professionals and payment processors, the IRS recently announced a delay of the new $600 reporting threshold for tax year 2023 on Form 1099-K, Payment Card and Third-Party Network Transactions. The previous reporting thresholds will remain in place for 2023.

Form 1099-K reporting requirements

If you take direct payment by credit, debit or gift cards for selling goods or providing services by customers or clients, then you should get a Form 1099-K from your payment processor or payment settlement entity no matter how many payments you got or how much the payments were for.

If you used a payment app or online marketplace and received over $20,000 from over 200 transactions, the payment app or online marketplace is required to send a Form 1099-K. However, they can send a Form 1099-K with lower amounts. Whether or not you receive a Form 1099-K, you must still report any income on your tax return.

What’s taxable? It’s the profit from these activities that’s taxable income. The Form 1099-K shows the gross or total amount of payments received. You can use it and other records to figure out the actual taxes you owe on any profits. Remember that all income, no matter the amount, is taxable unless the tax law says it isn’t – even if you don’t get a Form 1099-K.

What’s not taxable?You shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K, note those payments as “personal,” if possible.

Good recordkeeping is key. Be sure to keep good records because it helps when it’s time to file a tax return. It’s a good idea to keep business and personal transactions separate to make it easier to figure out what you owe.

If you haven’t yet filed your 2023 tax return, there’s still time. Contact our office, and we would be happy to schedule a time to prepare your taxes.

If you’re not a tax professional, some of the lingo used when talking about taxes might be a little confusing. Today we want to look at two terms that are often confused and which together play an important role in determining how much you are required to pay in taxes: tax credits and tax deductions.

Tax credits and deductions both change your tax bill or refund, but in slightly different ways. It’s important to understand the difference between credits and deductions so that you can know which of these you want to claim, and so you know what records to keep in order to prove your eligibility.

Tax credits

A tax credit reduces your income tax bill dollar-for-dollar.

Some tax credits, such as the Earned Income Tax Credit, are refundable. If your tax bill is less than the amount of a refundable credit, you can get the difference back in your refund.

To claim a tax credit, you should:

• Keep records to show your eligibility for the tax credits you claim.
• Check now to see if you qualify to claim any credits next year on your tax return.

Deductions

Deductions can reduce the amount of your income before you calculate the tax you owe.

Most people take the standard deduction. The standard deduction changes each year for inflation. The amount of the standard deduction depends on your filing status, age, whether you’re blind, and whether you are claimed as a dependent by someone else.

Some people must itemize their deductions, and some people may choose to do so because it reduces their taxable income more than the standard deduction. Generally, if your itemized deductions are larger than your standard deduction, it makes sense to itemize.

If you would like help understanding the tax credits and deductions that you are eligible for, please contact our office.

If you are age 70½ or older, you may be able to exclude a qualified charitable distribution (QCD) of up to $100,000 from your income each year. A QCD is a taxable distribution paid directly from an IRA (other than an ongoing SEP or SIMPLE IRA) to a qualified charity. It cannot be paid to you as the IRA owner.

To take advantage of this tax reducing strategy, you must be at least age 70½ when the QCD distribution to the charity is made. The SECURE 2.0 Act of 2022 did not change the 70½ age to be eligible to make a QCD.

A few features that make a QCD attractive are:

• A QCD does not affect your income and is tax-free if paid directly from the IRA to an eligible charitable organization.
• A QCD is available whether you itemize deductions or take the standard deduction.
• A QCD may also count toward your required minimum distribution for the year.
• Because a QCD does not count toward income, a QCD does not affect eligibility for certain tax credits that are based on income.

If you would like more information about whether a QCD is a good option for you given your situation, please contact our office. We would be happy to talk things over.

The Internal Revenue Service has issued the 2024 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2024, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 67 cents per mile driven for business use, up 1.5 cents from 2023.
• 21 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, a decrease of 1 cent from 2023.
• 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2023.

These rates apply to electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Note that you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

You can use the standard mileage rate but generally must opt to use it in the first year the car is available for business use. Then, in later years, you can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

The IRS has announced a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. Instead, the agency will treat 2023 as an additional transition year. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

The IRS also announced that it is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation.