The 2023 Tax Season
{6 minutes to read} The doors are now open to the 2023 tax season, with the IRS extending a little empathy toward certain losses. Are you an investor and a victim of a possible investment scam such as a Ponzi scheme? The IRS may allow a deduction for that.
But before we get into the article, last month, we paused to honor a man who was tuned into humanity. We remembered Dr. Martin Luther King, Jr. who contributed to the better good of mankind. He is known for his nonviolent resistance approach to achieving social change for humanity.
This month, we bring awareness to our health. The National Health Observances (NHOs) has highlighted some special days this month to raise awareness about various health topics; one of which is our heart health. Our physical health is an integral part of our overall well-being. In the following link, you may find something useful National Health Observances.
Note, some of you may have received the previous email — some of the content below was a part of that email article, however, it may be worth reading again.
Moving along, don’t forget the below:
- Maintain adequate records —This has been in the news since last year, and the IRS has “more hands on deck.” So, to minimize tax reviews/audits, consider maintaining adequate records of your income and expenses (i.e., actual receipts, not just credit card receipts).
- Gather the necessary documentation if you are claiming any type of credit for 2023, a few are related to your home, or vehicle, among others.
In this article, we will discuss theft loss and highlight a few changes in the SECURE Act – mainly retirement savings.
Theft Losses
The IRS may allow certain investment losses to be deducted as “theft” losses. Are you an investor and a victim of a possible investment scam known as a Ponzi scheme?
Do the names Bernie Madoff and Sam Bankman-Fried (SB) ring a bell? Wikipedia.com labeled them as fraudsters and suspected fraudsters, respectively. Bankman-Fried, the founder of FTX, is currently being investigated for allegations that he misappropriated customer assets. Madoff was criminally charged and labeled as the mastermind of one of the largest Ponzi schemes in US history.
The actions of such individuals have caused significant financial distress in the lives of many. If you have been defrauded, the IRS empathizes with you, and extends a “safe harbor rule,” allowing you to deduct the investment loss by treating it as a “theft” rather than a capital loss. Under the current tax rules, an investment loss is generally limited to $3,000 per year.
There are various criteria to meet for the loss to be a “qualified” theft loss. One is, the loss is from a “specified fraudulent arrangement,” and the accused was charged by indictment with the commission of fraud, embezzlement, or a similar crime under state or federal law. If qualified, the theft loss may be deductible in the year the fraud is discovered. The loss is also subject to a certain limitation of adjusted gross income and applies only to the loss suffered. If the loss is reduced by a claim (paid), the unrecovered amount is deductible.
As of the date of this article, it is not clear if the actions of Sam Bankman-Fried meet the requirements to be classified as a “theft” loss.
The SECURE Act
Changes to the SECURE Act were signed into law by President Biden on December 29, 2022. In a nutshell, the law requires employers to offer retirement plans to certain individuals and also gives us more flexibility in saving for retirement. The Act is rather extensive, however, here are a just few changes in the provisions:
- RMD distribution – Effective January 1, 2023, the age at which retirement plan participants must begin receiving RMDs is increased from 72 to 73.
- For a plan that starts after December 31, 2022, employers are not required to provide most notices under ERISA or IRS rules to employees who do not participate in the employer’s retirement plan.
- Effective December 29, 2022, employers may allow plan participants to designate employer matching and non-elective contributions as after-tax Roth contributions.
- Hardship distributions from a 401(k) or 403(b) plan can be self-certified.
- Generally, there is a 10% penalty on early withdrawals before age 59 ½ but this is waived for distributions to terminally ill individuals. Physician certification is required.
In closing, if you are an employer or an employee, your HR and/or payroll providers are your best points of contact to navigate how the SECURE Act impacts you. There are credits available to help start-up companies become compliant with the SECURE Act.
I hope you found this article informative. As always, if you would like to schedule a consultation, please reach out.
Resolve to have a purpose-driven 2023.
With gratitude,
Nadine
Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com
The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.