Key Tax Provisions of the Inflation Reduction Act of 2022
The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let’s take a look:
Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028.
Research Credit Against Payroll Taxes. For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses . The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability.
Alternative Minimum Tax for Large Corporations. The corporate AMT repealed under tax reform in 2017 has been reinstated but is based on book income – the amount of income corporations publicly report on their financial statements to shareholders – instead of taxable income. Generally, this new corporate AMT of 15% applies only to large corporations with an average adjusted financial statement income exceeding $1 billion for the three consecutive tax years preceeding the tax year.
Nondeductible 1% Excise Tax on Corporate Stock Repurchases. A new 1% excise tax applies to corporate stock repurchases after December 31, 2022. The tax is paid on the stock’s fair market value (FMV); however, the excise tax does not apply if the total value of stock repurchased during a tax year is $1 million or less. Furthermore, it also does not apply if repurchased stock is contributed to an employer-sponsored retirement plan, employee stock ownership plan, or for stock repurchases that are part of a reorganization in which the shareholder recognizes no gain or loss.
Affordable Care Act Premium Tax Credits. The premium tax credit is extended through 2025 for taxpayers whose household income exceeds 400% of the poverty line.
Approximately $80 billion is allocated to fund IRS activities such as taxpayer services, enforcement against tax evasion by high earners and corporations, operations, and modernization of IRS business systems. The IRS has stated that it does not intend to use this increased funding to “increase audit scrutiny on small businesses or middle-income Americans.”
Clean Vehicle Tax Credits. The clean vehicle tax credit was extended through 2032, in addition to a new credit for previously owned clean vehicles. However, for new clean vehicles purchased after August 16, 2022, the tax credit is generally available only if the qualifying vehicle’s final assembly occurred in North America (the “final assembly requirement”). To determine whether the vehicle meets the final assembly requirement, taxpayers should enter the vehicle’s 17-character vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder tool. They can view the “Plant Information” field identifying where the vehicle was built.
Buyers who entered into a written, binding contract to purchase a qualifying clean vehicle before August 16, 2022, – but did not take possession of the vehicle until on or after that date – should abide by pre-existing rules in effect before August 16, 2022.
Clean Energy Credits for Individuals. Renamed the energy-efficient home improvement credit, the nonbusiness energy property credit is extended through 2032. It is now equal to 30% of the sum of the amount paid or incurred by the taxpayer for energy-efficient improvements installed during the tax year, the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year, and the amount paid by the taxpayer for home energy audits.
In prior years, the credit was equal to 10% of the amount paid or incurred for qualified energy-efficiency improvements plus the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year.
Also renamed (the residential clean energy credit) and extended (through 2034) is the Sec. 25D residential energy-efficient property credit. Furthermore, the new energy-efficient home credit under Sec. 45L has increased dwelling units acquired after December 31, 2022, and the credit extended through 2032.
Clean Energy Credits for Manufacturing. Several new credits have been created: Sec. 45Y to encourage clean electricity production at qualified facilities placed in service after December 31, 2024, with zero greenhouse gas emissions; Sec 45X for US production of photovoltaic cells and solar and wind components. In addition, starting January 1, 2023, the Section 48C Manufacturers’ Tax Credit is expanded to provide $10 billion in tax credits. The tax credit is 30 percent of the amount invested in new or upgraded factories to build specified renewable energy components.
Energy Credits for Businesses. Several energy credits for business have been created, extended, or modified in the Inflation Reduction Act, including a new sustainable aviation fuel credit, the Sec 48 energy credit (extended through 2024 and modified to increase the energy credit for qualified solar and wind facilities placed in service in connection with low-income communities), the Sec. 45 credit for electricity produced from renewable sources such as geothermal, solar, and wind facilities (extended through 2024 and modified), the Sec. 40A biodiesel and renewable fuel credit, and several alternative fuel credits (extended through 2024).
Help is Just a Phone Call Away
As always, tax law is complex, and it pays to speak with a qualified tax and accounting professional. Don’t hesitate to contact the office if you have any questions about the Inflation Reduction Act and your tax situation.
Small Employer Health Reimbursement Arrangements
Small employer HRAs or QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) allow small businesses without group health plans to set aside money, tax-free, for employees to use toward medical expenses – including the cost of buying health insurance. Here’s what small business owners need to know about QSEHRAs.
Included in the 21st Century Cures Act enacted by Congress on December 13, 2016, was a provision for QSEHRAs, which permit an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA), which is not a group health plan and thus is not subject to the requirements that apply to group health plans.
QSEHRAs must meet several criteria such as:
- The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement;
- The arrangement generally is provided on the same terms to all eligible employees of the employer;
- The arrangement provides, after the employee provides proof of coverage, for the payment or reimbursement of medical expenses incurred by the employee or the employee’s family members; and
- The amount of the payments and reimbursements for any year do not exceed inflation-adjusted amounts for payments and reimbursements of expenses. For 2022, the maximum dollar amount for employee-only arrangements is $5,450. The maximum dollar amount for arrangements that provide for payments and reimbursements for expenses of family members is $11,050.
Which Employers Qualify?
Any small employer from a startup to a nonprofit that doesn’t offer a group health plan is able to set up a QSEHRA as long as they meet certain rules (see below). Small employers are defined as an employer that is not an applicable large employer (ALE). An applicable large employer is defined as one that employs more than 50 full-time workers, including full-time equivalent employees, on average.
If a small employer currently offers a group health plan but wants to set up a QSEHRA, the group health plan must be canceled before the QSEHRA will start.
Are There Any Other Rules?
Yes. One of the most important rules is that in order for employees to participate in a QSEHRA, they must have health insurance that meets minimum essential coverage. That is, indemnity, short-term health insurance, and faith-based insurance plans (e.g., Liberty HealthShare) do not qualify. Health insurance plans purchased through the Marketplace meet this qualification. Employers may choose whether to reimburse employees for both medical expenses and health insurance premiums or just premiums.
Furthermore, while there are no minimum monthly contribution limits, there is an annual maximum contribution limit. For 2022, the limit is $454.16 per month for individuals and $920.83 per month for families.
QSEHRAs are funded entirely by the employer. As such, employees are prohibited from making contributions.
Written Notice to Employees
Eligible employers are required to provide written notice to eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided. In the case of an employee who is not eligible to participate in the arrangement as of the beginning of the year, the written notice must be furnished on the date on which the employee is first eligible. The written notice must include:
- A statement of the amount that would be the eligible employee’s permitted benefit under the arrangement for the year;
- A statement that the eligible employee should provide that permitted benefit amount to any health insurance exchange to which the employee applies for advance payments of the premium tax credit; and
- A statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment (eliminated for tax years starting in 2019) for that month and reimbursements under the arrangement may be includible in gross income.
Questions About QSEHRAs?
If you have any questions about QSEHRAs or are wondering whether your small business would benefit from a QSEHRA, don’t hesitate to call.
Retirement Plan Options for Small Businesses
According to the US Small Business Administration, small businesses employ half of all private-sector employees in the United States. However, a majority of small businesses do not offer their workers retirement savings benefits.
If you’re like many other small business owners in the United States, you may be considering the various retirement plan options available for your company. Employer-sponsored retirement plans have become a key component of retirement savings. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today’s competitive environment.
Besides helping employees save for the future, however, instituting a retirement plan can provide you, as the employer, with benefits that enable you to make the most of your business’s assets. Such benefits include:
- Tax-deferred growth on earnings within the plan
- Current tax savings on individual contributions to the plan
- Immediate tax deductions for employer contributions
- Easy to establish and maintain
- Low-cost benefit with a highly-perceived value by your employees
Types of Plans
Most private-sector retirement plans are either defined benefit plans or defined contribution plans. Defined benefit plans are designed to provide a desired retirement benefit for each participant. This type of plan can allow for a rapid accumulation of assets over a short period. The required contribution is actuarially determined each year, based on age, years of employment, the desired retirement benefit, and the value of plan assets. Contributions are generally required each year and can vary widely.
On the other hand, a defined contribution plan does not promise a specific amount of benefit at retirement. In these plans, employees or their employer (or both) contribute to employees’ individual accounts under the plan, sometimes at a set rate (such as 5 percent of salary annually). A 401(k) plan is one type of defined contribution plan. Other defined contribution plans include profit-sharing plans, money purchase plans, and employee stock ownership plans.
Small businesses may choose to offer a defined benefit plan or any of these defined contribution plans. Many financial institutions and pension practitioners make available both defined benefit and defined contribution “prototype” plans that have been pre-approved by the IRS. When such a plan meets the requirements of the tax code, it is said to be qualified and will receive four significant tax benefits.
- The income generated by the plan assets is not subject to income tax because the income is earned and managed within the framework of a tax-exempt trust.
- An employer is entitled to a current tax deduction for contributions to the plan.
- The plan participants (the employees or their beneficiaries) do not have to pay income tax on the amounts contributed on their behalf until the year the funds are distributed to them by the employer.
- Under the right circumstances, beneficiaries of qualified plan distributors are afforded special tax treatment.
It is necessary to note that all retirement plans have important tax, business, and other implications for employers and employees. Therefore, you should discuss any retirement savings plan you consider implementing with your accountant or financial advisor.
Here’s a brief look at some plans that can help you and your employees save.
SIMPLE: Savings Incentive Match Plan
A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE IRA plans, employees can set aside up to $14,000 in 2022 by payroll deduction. If the employee is 50 or older, they may contribute an additional $3,000. Employers can either match employee contributions dollar for dollar – up to 3 percent of an employee’s wage – or make a fixed contribution of two percent of pay for all eligible employees instead of a matching contribution.
SIMPLE IRA plans are easy to set up by filling out a short form. Administrative costs are low, and much of the paperwork is done by the financial institution that handles the SIMPLE IRA plan accounts. Employers may choose to allow employees to select the IRA to which their contributions will be sent or send all employees’ contributions to one financial institution. Employees are 100 percent vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs.
October 1 deadline. You can set up a SIMPLE IRA plan effective on any date between January 1 and October 1 for 2022. If you’re a new employer that came into existence after October 1 of the year, you can establish the SIMPLE IRA plan as soon as administratively feasible.
SEP: Simplified Employee Pension Plan
A SEP plan allows employers to set up a type of individual retirement account – known as a SEP IRA – for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to less than 25 percent of an employee’s annual salary or $61,000 in 2022. Most employers can start SEP plans, including those that are self-employed.
SEP plans have low start-up and operating costs and can be established using a single quarter-page form. Businesses are not locked into making contributions every year. You can decide how much to put into a SEP IRA each year – offering you some flexibility when business conditions vary.
401(k) plans have become a widely accepted savings vehicle for small businesses and allow employees to contribute a portion of their incomes toward their retirement. The employee contributions, not to exceed $20,500 in 2022, reduce a participant’s pay before income taxes so that pretax dollars are invested. If the employee is 50 or older, they may contribute another $6,500 in 2022. Employers may offer to match a certain percentage of the employee’s contribution, increasing participation in the plan.
While more complex, 401(k)plans offer higher contribution limits than SIMPLE IRA plans and IRAs, allowing employees to accumulate greater savings.
Employers also may make profit-sharing contributions to plans that are unrelated to any amounts an employee chooses to contribute. Profit-sharing Plans are well suited for businesses with uncertain or fluctuating profits. In addition to the flexibility in deciding the amounts of the contributions, a Profit-Sharing Plan can include service requirements, vesting schedules, and plan loans that are not available under SEP plans.
Contributions may range from 0 to 25 percent of eligible employees’ compensation, to a maximum of $61,000 in 2022. The contribution in any one year cannot exceed 25 percent of the total compensation of the employees participating in the plan. Contributions need not be the same percentage for all employees. Key employees may get as much as 25 percent, while others may get as little as three percent. A plan may combine these profit-sharing contributions with 401(k) contributions (and matching contributions).
Seek Professional Guidance
The rules for setting up retirement plans are complex, and the tax aspects of retirement plans can also be confusing, so it is important to consult with a tax and accounting professional before deciding which plan is right for you and your employees.
Avoiding Tax Surprises When Retiring Overseas
Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it’s important to look at the tax implications because not all retirement country destinations are created equal.
Taxes on Worldwide Income
Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned.
Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizen (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing.
The filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate U.S. tax liability.
These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.
Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.
In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.
Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is generally April 15.
U.S. persons who own a foreign bank account, brokerage account, mutual fund, unit trust or another financial account are required to file a Report of Foreign Bank and Financial Accounts (FBAR) by April 15 if they have:
- Financial interest in, signature authority or other authority over one or more accounts in a foreign country, and
- The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
A foreign country does not include territories and possessions of the United States such as Puerto Rico, Guam, United States Virgin Islands, American Samoa, or the Northern Mariana Islands.
Income from Social Security or Pensions
If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. If you receive Social Security you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits. Likewise, if you have pension or annuity income, you should receive a Form 1099-R for each distribution plan.
Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you’re spending your retirement years.
However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits. Each country is different, and you may also be required to report and pay taxes on any income earned in the country where you retired.
Foreign Earned Income Exclusion
If you’ve retired overseas, but take on a full or part-time job or earn income from self-employment, the IRS allows qualifying individuals to exclude all, or part, of their incomes from U.S. income tax by using the Foreign Earned Income Exclusion (FEIE). In 2022, this amount is $112,000 per person. If two individuals are married, and both work abroad and meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $224,000 for the 2022 tax year.
Income earned overseas is exempt from taxation only if certain criteria are met such as residing outside of the country for at least 330 days over a 12-month period, or an entire calendar year.
The United States has income tax treaties with a number of foreign countries, but these treaties generally don’t exempt residents from their obligation to file a tax return.
Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.
Treaty provisions are generally reciprocal; that is they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries.
Many states tax resident income as well, so even if you retire abroad, you may still owe state taxes unless you established residency in a no-tax state before you moved overseas. Some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore it is prudent to consult a tax professional for advice.
Relinquishing U.S. Citizenship
Taxpayers who relinquish their U.S. citizenship or cease to be lawful permanent residents of the United States during any tax year must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service by the due date of the tax return (including extensions).
Giving up your U.S. citizenship doesn’t mean giving up your right to receive social security, pensions, annuities or other retirement income. However, the U.S. Internal Revenue Code (IRC) requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits. If you are a nonresident alien receiving social security retirement income, then SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit. This results in a withholding of 25.5 percent of your monthly benefit amount.
Consult a Tax Professional Before You Retire
Don’t wait until you’re ready to retire to consult a tax professional. Call the office today and find out what your options are well in advance of your planned retirement date.
Homeowner Records: What to Keep and How Long
Keeping full and accurate homeowner records is not only vital for claiming deductions on your tax return, but also for determining the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis.
Here are a few examples:
- Putting an addition on your home
- Replacing an entire roof
- Paving your driveway
- Installing central air conditioning
- Rewiring your home
- Assessments for local improvements
- Amounts spent to restore damaged property
In addition, you should keep track of any decreases to the basis such as:
- Insurance or other reimbursement for casualty losses
- Deductible casualty loss not covered by insurance
- Payment received for easement or right-of-way granted
- Value of subsidy for energy conservation measure excluded from income
- Depreciation deduction if home is used for business or rental purposes
How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. You must also keep these records for as long as they are important for the federal tax law.
Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. A period of limitations is the limited period of time after which no legal action can be brought.
For assessment of tax, the period of limitations is generally three years from the date you filed the return. When filing a claim for credit or refund, the period of limitations is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.
You may need to keep records relating to the basis of property longer than the period of limitations. For example, basis is needed to determine gain on home sale. Any gain on sale of a home is tax-exempt for amounts up to $250,000 ($500,000 for married couples). Basis is also important in figuring casualty loss, on conversion of the home to business use, or where there’s a gift of the home (in this case, it is important to the donee). You should keep these records for as long as needed because they are important in figuring the basis of the property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.
If you have any questions as to what items are to be considered in determining basis, don’t hesitate to call.
Extension Deadline Looming for 2021 Tax Returns
Time is running short for taxpayers who requested an extra six months to file their 2021 tax return. As a reminder, Monday, October 17, 2022, is the extension deadline for most taxpayers. Taxpayers are encouraged to file a complete and accurate return electronically as early as possible once they have gathered all their information. There’s no need to wait until the October deadline.
For those still waiting on their 2020 tax return to be processed, here’s a tip to help with e-filing a 2021 tax return: To validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return. Those waiting on their 2020 tax return can still file their 2021 return by entering $0 for their 2020 AGI on their 2021 tax return. Remember, if using the same tax preparation software as last year, this field will auto-populate.
For taxpayers who have not yet filed, here are a few things to keep in mind about the extension deadline and taxes:
1. Taxpayers can still e-file returns. Electronic filing is the easiest, safest, and most accurate way to file taxes. Taxpayers who haven’t filed a 2021 tax return yet – including extension filers – can file electronically any time before the October deadline and avoid the last-minute rush to file.
2. Choose direct deposit. For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file. The IRS processes most e-filed returns and issues direct deposit refunds in less than three weeks.
3. Taxpayers who owe taxes should consider using IRS Direct Pay, a simple, quick, and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options. Please call the office if you need details about other payment options.
4. Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to file returns and pay any tax due.
5. Taxpayers should always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year’s return.
Tips To Help You Figure Out if Your Gift Is Taxable
If you’ve given money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but exceptions exist. Because gift tax laws can be confusing, here are seven tips you can use to figure out whether your gift is taxable.
1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. In 2022, the annual exclusion amount is $16,000.
2. Gift tax returns do not need to be filed unless you give someone other than your spouse money or property worth more than the annual exclusion for that year.
3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift.
4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. For example, the following gifts are not taxable:
- Gifts that do not exceed the annual exclusion for the calendar year,
- Tuition or medical expenses you pay directly to a medical or educational institution for someone,
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
6. You and your spouse can make a gift of up to $32,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting.
7. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.
If you have any questions about the gift tax, don’t hesitate to contact the office for assistance.
What To Know About IRS Online Accounts
Setting up an IRS Online Account is an easy and secure way for taxpayers to quickly get information about their IRS activity, such as any tax due balance, payments made, and tax records for the past several years. Taxpayers should be aware that balances update no more than once every 24 hours, usually overnight, and should also allow 1 to 3 weeks for payments to show up in the payment history.
Setting up an IRS Online Account allows you to view:
- Their payoff amount, which is updated for the current day
- The balance for each tax year for which they owe taxes
- Their payment history
- Key information from their most current tax return as originally filed
- Payment plan details if they have one
- Digital copies of select IRS notices
- Economic Impact Payments if they received any
- Their address on file
Taxpayers can also use their online account to:
- Select an electronic payment option
- Set up an online payment agreement
- Access tax records and transcripts
- Approve and electronically sign Power of Attorney and Tax Information Authorization
- requests from their tax professional
Here’s how new users get started:
- Select “View Your Account” on IRS.gov homepage.
- Select the “Create or View Your Account” button.
- Click “Create Account.”
- Pass Secure Access authentication. This is a rigorous process to verify the taxpayer’s identity. They must be able to authenticate their identity to continue.
- Create a profile.
All password-protected online IRS tools for taxpayers are protected by multi-factor authentication. Once the initial authentication process is complete, returning users can use the same username and password to access other IRS online services such as Get Transcript and Get An Identity Protection PIN, if applicable.
Filing Payroll Taxes Electronically Using E-file
Business owners can simplify things by filing payroll taxes electronically. E-file software performs calculations and populates forms and schedules using a step-by-step process. It will also alert the filer if they are missing information which reduces the chances of receiving an IRS notice.
Benefits of Filing These Forms Electronically:
- It saves time.
- It’s secure and accurate.
- The filer gets an email to confirm that the IRS received the form within 24 hours.
How Businesses Can E-file:
Employers can have their tax professional file the form. If employers submit the forms themselves, they must purchase IRS-approved software. The IRS website provides links to companies that have passed the IRS Assurance Testing System (ATS) requirements for Software Developers of electronic Employment Tax (94x MeF) Returns. Please note, however, that it is the filer’s responsibility to contact the provider to determine if the software meets their needs.
There may be a fee to file electronically. Also, the software will require a signature in one of two ways:
- The software instructs the user to apply for an online signature PIN. Taxpayers should allow at least 45 days to receive their PIN.
- The user can scan and attach Form 8453-EMP, Employment Tax Declaration for an IRS e-file Return.
Forms Employers Can E-file:
Form 940, Employer’s Annual Federal Unemployment Tax Return – Employers use this form to report annual Federal Unemployment Tax Act tax.
Form 941, Employer’s Quarterly Federal Tax Return – Employers use this form to report income taxes, social security tax or Medicare tax withheld from employees’ paychecks. They also use it to pay their portion of Social Security or Medicare tax.
Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees – Employers file this form if they paid wages to one or more farmworkers and the wages were subject to social security and Medicare taxes or federal income tax withholding.
Form 944, Employer’s Annual Federal Tax Return – Small employers use this form. These are employers whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less. These employers use this form to file and pay these taxes only once yearly instead of every quarter.
The employer must contact the IRS to request to file Form 944. Employers are not permitted to file Form 944 unless they are notified by the IRS.
Form 945, Annual Return of Withheld Federal Income Tax – Employers use this form to report federal income tax withheld from nonpayroll payments.
Do not hesitate to call the office if you need assistance filing payroll taxes electronically or have other questions or concerns about taxes and your small business.
Penalty Relief for Certain 2019 and 2020 Tax Returns
Penalty relief for struggling taxpayers affected by the COVID-19 pandemic is now available to most people and businesses who file certain 2019 or 2020 returns late. Eligible income tax returns must be filed on or before September 30, 2022, to qualify for this relief. Furthermore, the nearly 1.6 million taxpayers who have already paid these penalties will automatically receive more than $1.2 billion in refunds or credits. Many of these payments will be completed by the end of September.
The COVID-19 pandemic had an unprecedented effect on the IRS’s personnel and operations. The penalty relief is expected to help the IRS focus its resources on processing backlogged tax returns and taxpayer correspondence to return to normal operations for the 2023 filing season.
Failure to File Penalty
The relief applies to the failure to file penalty, typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others such as Form 1041, U.S. Income Tax Return for Estates and Trusts.
Penalty Relief for Information Returns
Penalty relief is also available to banks, employers, and other businesses required to file various information returns, such as those in the 1099 series. To qualify for this relief, eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns must have been filed by August 1, 2021. Because both of these deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice if it was filed by August 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by August 2, 2021.
Penalty relief for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations, is also available. To qualify for this relief, any eligible tax return must be filed on or before September 30, 2022.
Penalty Relief is Automatic
Eligible taxpayers do not need not apply for it. If penalties were already assessed, they will be abated. If already paid, the taxpayer will receive a credit or refund. Penalty relief is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court.
Taxpayers should note that this relief is limited to failure to file penalties. Other penalties, such as the failure to pay penalty, are not eligible; however, taxpayers may use existing penalty relief procedures for these ineligible penalties, such as applying for relief under the reasonable cause criteria or the First Time Abate program.
If you have questions, please call the office for more information.
How to Use QuickBooks’ Doc Center
We’ve heard about the “paperless office” for many years. But if you look around your work area, you probably still see evidence of too much paper. We’re not there yet and may never accomplish that goal completely; however, we are getting closer.
You probably have numerous paper documents that you keep because they’re related to records and transactions in QuickBooks, like receipts, contracts, price lists, and bills. There’s no good way to store these in a place where you can access them quickly when you need them. All you can do is make a paper folder for each customer and vendor. If you have many of them, this could become quite unwieldy.
QuickBooks has a good solution. You can upload documents and attach them to individual records and transactions or store them in the Doc Center. Depending on the version you’re using, you may be able to scan them directly into QuickBooks. Here’s how it works:
Using the Doc Center
Figure 1: QuickBooks’ Doc Center makes it easy to work with documents you’ve uploaded to the software.
QuickBooks dedicates a section to managing the documents you want to save to the software: the Doc Center. You can get to this screen by clicking the Docs link in the toolbar. The tools you’ll find here can help you:
- Move files from your computer and storage devices into QuickBooks
- Scan documents into QuickBooks directly
- Add details that will help you keep track of the documents, like keywords and descriptions
- Search for and open them
- Remove them
It’s easy to move your supporting documents into the Doc Center. You click Add in the upper left corner. QuickBooks then opens the directory to your PC and all storage devices connected to it. Next, you open the correct folder and double-click the file you want (or click on it once, then click Open), as you’ve probably done in other applications. You’ll then be back at the Doc Center, where you’ll see the name for the file you just uploaded to the list, along with the date and time the file was added.
Attaching Files from Transactions
You can also attach files directly from transactions and records. Open an invoice, for example, and click the Attach File button in the toolbar. A window will open containing the toolbar pictured in this image:
Figure 2: You can attach files directly from transactions in QuickBooks.
You’d click Computer if you wanted to select a file from your directories and Doc Center if you know the file is stored there. Once you’ve attached the file, it will appear in your list in the Doc Center. The Attach File icon in the toolbar will display the number 1 to indicate how many files are attached. You can attach multiple files and access any of them by clicking the Attach File button again.
If you want to attach a document to a customer record, open the record (Customers | Customer Center) and click the paper clip icon in the upper right. Select the file you want and click Done. The paper clip icon will be shaded to indicate that at least one file is attached.
But what about the Scan button?
The QuickBooks Scan Manager
QuickBooks provides a way to bring documents into your company file for versions prior to QuickBooks 2022. The QuickBooks Scan Manager is compatible with TWAIN-compliant scanners. It’s too bad it was discontinued for new versions because it can be a helpful tool.
To set it up, open the Company menu and click Documents, then Doc Center. Select Scan at the top of the screen to open the QuickBooks Scan Manager. QuickBooks first wants to know if it found the correct scanner in your system. If it’s correct, click Select if you want to go through the brief setup wizard and run tests. This isn’t always necessary, especially if QuickBooks detected the correct one and your scanner has worked with other applications.
Figure 3: QuickBooks should be able to identify your scanner. Then, you can tell it what kind of output you want.
When you’re finished (or if you’ve skipped the testing) and are back at the QuickBooks Scan Manager window, click the Profile menu to specify the type of output you want (black and white, grey, or color PDF). Click Scan at the bottom of the screen. Your scanner may want to display its own scanning utility, so follow any directions you see until you get to the Preview and Manage Scanned Pages window, where you’ll see a thumbnail of your scanned document. Click Done Scanning when you’re satisfied with your scan and give it a title, keywords, etc., in the window that opens so your scan will appear in the Doc Center list.
This whole operation may go smoothly, or you may run into problems. Don’t hesitate to contact the office if the latter occurs.
Storing files in QuickBooks’ Doc Center or attaching them to transactions or records isn’t exactly rocket science, but if you’ve never worked with file attachments or experienced problems with the QuickBooks Scan Manager, scheduling a consulting session with a QuickBooks professional to help you move some of those papers out of your filing cabinet – and into QuickBooks storage – is recommended.
Tax Due Dates for September 2022
Employees Who Work for Tips – If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.
Individuals – Make a payment of your 2022 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2022.
Partnerships – File a 2021 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1.
S corporations – File a 2021 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.
Corporations – Deposit the third installment of estimated income tax for 2022. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.
Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.
Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.