Tag Archives: Taxpayers

2023 Year-End Considerations — Part 1

Time for Taxes Money Financial Accounting Taxation Concept

{8.5 minutes to read}  Greetings to you and yours, I hope you are staying encouraged in spite of all that’s happening around us.

With the year-end to-do list to accomplish and holiday planning, it is not uncommon for us to feel stretched on all sides.

In this opinionated world we live in, just about anyone can “chime in” on what we ought to do, when we do, with whom we do, and how we do — I am wondering if certain roles are worth the cost. Is there still a role for a leader, or better yet, is a leader now simply a spokesperson who conveys to the public the opinions of the majority?

The nation’s leaders have their hands full — only a few weeks before the year ends, not enough is in the news on the upcoming tax season, and how to plan ahead. The ongoing wars, humanitarian crisis (here in NYC and in the Middle East), election planning, governmental divisiveness, and the list goes — no rest for the weary mind.

The endless outlets for news and information are making it more challenging to step away to do something different. I hope this article is worth your time.

Before I get into the article, from a tax planning viewpoint, it is evident that the current administration is committed to clean air and clean energy — so don’t forget to take advantage of the various credits that may be available to individuals and businesses. From homeowners’ credit, developers’/builders’ credit, and the popular employee retention credit (ERC), the latter is getting the attention of scammers — as such the IRS is scrutinizing it more closely. Please check out this credit on the IRS website. 

This is a two-part news article. The first article will include some tax and planning-related information geared toward individuals. The second part will be more geared towards businesses & entrepreneurs.

For Individuals:

 2023 Year-End Considerations*

  1. Loss Deduction: Ponzi-type or not —  How will the IRS allow the treatment of the loss in the case of financial fraud (most recently, Samuel Bankman-Fried was convicted)?
  2. Social Security Income triggers a higher tax bill for many taxpayers.
  3. Enrollment periods have begun — What changes to consider?
  4. Will the IRS come knocking on taxpayers’ doors? It depends.

* Some may impact the 2024 calendar/tax year. 

Is it a capital loss or a Ponzi-type loss?

As you may already know, the IRS limits certain investment capital losses to $3,000 per year. Unused loss can be carried forward and used against capital gain for subsequent year(s).

Notwithstanding the above, the IRS may allow a more favorable tax treatment to taxpayers who are victims of losses from Ponzi-type investment schemes. One method is the safe harbor rule, under Rev. Proc. 2009-20. Under this rule, a qualified investor may be allowed a deduction of up to 95% of a qualified investment, if such investor does not pursue any potential third-party recovery. What we don’t know is whether the IRS will allow fraudulent cryptocurrency investments to get this favorable treatment. We await guidance from the IRS.

According to Reuters, on November 2, 2023, Samuel Bankman-Fried (SBF), the FTX founder, was convicted of multi-billion-dollar FTX fraud. He was found guilty of “stealing from customers of his now-bankrupt cryptocurrency exchange in one of the biggest financial frauds on record.”  You can read the entire article at Reulers.com. 

The Social Security Income tax threshold has risen by approximately 9%. Who will be impacted?  

Under the Federal Insurance Contributions Act (FICA), taxpayers are required to make contributions by way of Social Security income tax. Many taxpayers will notice that their overall tax/contribution has increased. You may have also noticed that you dug a little deeper in your pocket to pay Social Security taxes in 2023. The cap is $160,200, and in 2024, it is $168,600. Income over the cap is not taxed for Social Security benefits (“SS”). While SS has an income threshold, Medicare tax has no limit. Please see the table below that reflects the Social Security Income threshold for the years listed. *If you are self-employed, you will pay double the taxes.

Year Income threshold Maximum Tax (employee portion at 6.2%) *
2022 $147,000 (for reference only) $9,114.00
2023 $160,200 $9,932.40
2024 $168,800 $10,453.20

It is that time of year — once again — Enrollment period

It is the enrollment period for various health related benefits and insurances. It may be wise to use this time to review other insurance policies, proxies and financial beneficiary designations, power of attorney(s), just to name a few. Don’t forget that relationships do evolve, as such your will, trust and/or next of kin may also need to be updated. In a past article – we share seven-year end essentials – that are still relevant – check out the list here.

Knock, knock — who is it? Could it be the IRS?

The IRS does make unannounced home or field visits to non-compliant taxpayers (individuals and businesses). However, only a few taxpayers are likely to get such a visit.

This past summer, the IRS announced it will end most (not all) unannounced visits to taxpayers by Revenue Officers (“RO”). Instead, taxpayers (individuals and businesses) with outstanding balances will be mailed letters to schedule in-office meetings with a RO. So, who will likely get a visit? According to the IRS, only “extremely limited situations where unannounced visits will occur.” What sparked this change? Read the details here on the IRS website.

Part 2 of this article will be geared towards entrepreneurs (independent contractors and small businesses)

If this is where you will get off — in the spirit of gratefulness — my hope is that we embrace a posture of gratitude in all seasons of life. In essence, gratitude is important for our overall well-being.

Gratitude

In recent months, I find myself reflecting on genuine human connections, considering our growing entitlement ways of being. I resided on this question: Is it of any value to express gratitude for that which I am entitled to?

According to the Oxford Dictionary, entitlement is “the belief that one is inherently deserving of privileges or special treatment.” On the other hand, gratitude is “the quality of being thankful; readiness to show appreciation for and to return kindness.”

In an article titled, “The Antidote to Entitlement” published by Heartofconnecting.com The article added that “research shows that gratitude is healthy for us and benefits kids and adults alike — gratitude plays a major role — protects us from entitlement, stress, and depression — gratitude is known to increase self-esteem, hope, empathy, and optimism.”

A similar article was published by growing leaders author, Tim Elmore. The author noted that, “gratitude enriches human life. It elevates, energizes, inspires and transforms.” Read the entire article here.

Let’s embrace and encourage a posture of gratitude — it’s a worthwhile contribution to our overall well-being, so choose wisely.

Be on the lookout for Part 2 of 2023 Year-end Considerations that impact our finances.

Thank you for reading.
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.   

Let’s Turn Over the Last Stone Before 2020 Ends!

Hand lettering 'Happy New Year' for greeting card or poster

Three – Two – One 

Happy New Year!

{5 minutes to read}  In just a few hours America will be joining many other nations as we welcome 2021 and echo the words above. Twenty-twenty — what a year! A year that will forever remain in plain view many years after it has passed. May you and I choose to glean from the lessons learned — and use them as a contribution to a better good for all.

Moving along — The long-awaited Coronavirus Relief Bill was passed on December 21, 2020. There is a plethora of provisions for individuals and businesses. Some individuals could see another $600 check, while businesses could get more money to pay their employees (including Schedule C earners) from the second funding of a PPP loan. The Tax Foundation provided a list of various provisions that are part of the $900 Billion Coronavirus Relief Bill.

IMPLICATIONS OF UNDER-PAYMENT OF TAXES (Mitigate the effect by acting before January 15, 2021)

In recent years, both the IRS and the state taxing agencies have been more rigid in their enforcement of penalties related to underpayment of taxes. According to the IRS, the United States income tax system is a pay-as-you-go tax system — taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, and/or prizes and awards, you may have to make estimated tax payments.

Generally, for most tax agencies, taxpayers may avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller, is paid through withholding and estimated tax.

While most of us are already familiar with this requirement, the pandemic and remote working could create a greater concern with state tax liabilities. Keep in mind that most states collect tax on money that is earned within their borders. Though there is some semblance of unity among some states, each state wants a piece of the tax pie. Multi-states reporting could be triggered by remote working that was and continues to be, necessary due to the pandemic. 

For an employee — the state or tax jurisdiction is handled by your employer and is reflected on your pay-stub and W-2. Please check directly with your employer regarding your taxing jurisdiction. If there are permanent changes in address, it is the employee’s responsibility to inform their employer. 

Word of caution to individuals who have “temporarily” moved to a different state for working remotely due to the pandemic: These individuals may still have tax obligations to their state of primary residence (home state); some states are taking a closer look at individuals who temporarily moved from their primary home.

However, Johnny is an NYS resident, and during the pandemic (as of April 1st) he moved to Florida and has not returned to NYS, so it would be fair to say that Johnny is a resident of FL from April – Dec 2020 where there is no state tax. NYS, however, would see this differently and will consider Johnny a resident for all 12 months. As such, Johnny would have a tax obligation to NYS for the full year.

Other areas where underpayment of taxes may show up – A vast majority of us received income from multiple sources other than our regular earned income source in 2020; here are two (2) income sources that seem to be more common in 2020:

  • Unemployment income — Most states withhold 10% of the income for federal taxes. This is often not enough since an individual may not be in a 10% tax bracket when all income is combined. 
  • Withdrawal of retirement savings — including those related to CARES Act. The early withdrawal penalty may be waived, but the tax is still due.

So considering we are exiting 2020 — is there still time to mitigate the penalty on the 2020 tax liability?

Yes. The taxing authorities allow most taxpayers to pay their final 2020 estimated tax by January 15, 2021 (must be received by this date).

Please reach out if you would like to schedule an estimated tax consultation next week.

In closing, as I listen to babblings with words like “I can’t wait to say goodbye to 2020,” I trust that we will remember the words of Walt Disney, “…the past can hurt. But the way I see it, you can either run from it or learn from it.”

Which one will serve you (and me) better, running from it or learning from it? Let’s choose wisely.

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.