2022 Tax Update

We hope you are all doing well and staying safe and healthy.  Due to hurricane Ian, most tax deadlines, including the individual tax deadline have been extended until February 15, 2023.  There are a few returns that we are still working on getting complete before tax season.  We ask that those of you who still have not given us your 2021 information to please do so as soon as possible.  One complication – the IRS has shut down all electronic filing of 2020 and 2021 returns until the IRS opens mid to late January 2023.  We still recommend that returns not be paper filed before that date unless absolutely necessary.  It is better to wait and file electronically at that time than to file a paper return.  Most likely the IRS will not be able to open the mail and process the return before that date and there are just too many chances that the IRS will incorrectly enter information from the paper return.

Please also note that Kelley and Marc will be out of the office from December 16th through December 20th.  We will return to the office as normal on December 21st.  We will have sparse email availability during that time.  However, the office remains open and can help you while we are gone.

HOUSEKEEPING

We have a new domain and corresponding email addresses.  We have secured the site www.millercpas.cpa.  Marc’s email address is marc@millercpas.cpa, Kelley’s is kelley@millercpas.cpa, and Bonnie’s is info@millercpas.cpa.  Please use these email addresses as our old ones will be phasing out.  The .cpa designation is new and is controlled by the American Institute of Certified Public Accountants.  There are several benefits to the new domain:

1. Only CPA firms that are licensed with the state boards can obtain a .cpa domain.  Therefore, it will make it more difficult for a spammer or spoofer to mimic our website or email address.  After it is up and running, only emails from us that have the .cpa extension will be legitimate, all others will not be.
2. The other benefit is that it will be easier to remember and to communicate to clients over the phone.  It is much easier to say millercpas.cpa than having to spell the old one out over the phone.

One complication we had with last year’s tax season was dealing with pictures of documents that were emailed to us.  Although it is easy for the image to be captured on the client’s end, it is difficult on our end.  Many times, the information is either way too large, way too small or blurry.  It is also difficult for us to integrate those pictures into our records.  Unless you have no other option, please send us your documents in a pdf format.

As some of you may know, there is now another firm in town, Miller & Company.  They appear to be a firm out of New York that recently purchased a small firm off of Fruitville Road.  Please don’t get us confused.

For any Twitter users out there, we have created a Twitter account, @SarasotaCPA in which you can follow us for important tax updates and deadlines.   We plan on updating this regularly to help keep you informed of any important information.

WE WILL ALSO BE CLEANING OUT OUR PORTAL THE FIRST WEEK OF JANUARY.  Many of our clients have information on the portal. If you consider your documents to be important, please download those documents to your computer before they are purged.  The portal is meant to be an exchange and not storage.

We will be testing out new portal and document exchange software on a handful of clients this year.  It will allow for our clients to securely exchange documents, keep documents on the portal, electronically sign documents and pay invoices electronically.

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TAX SEASON

Since the midterms resulted in a divided Congress don’t expect much in the way of new tax legislation.  However, there is a looming government shutdown on December 16.  Also be on the lookout for an extender bill later this year (or even January 2023) and possibly a disaster related bill.

In June 2022, the Taxpayer Advocate issued a report that said the IRS lost ground over the last year on processing 2021 returns.  The report to Congress expressed concern about the delays in processing paper filed returns and resulting refunds.  At the end of May 2022, the IRS had a backlog of 21.3 million unprocessed paper returns, an increase of 13 million over the same time in 2021.  The report also cited the response time to taxpayer correspondence as a big problem.  It took on average 251 days for the IRS to respond to taxpayer correspondence.  That is more than triple the response time of 74 days for fiscal year 2019.  During the 2022 filing season, the IRS received about 73 million telephone calls.  One out of 10 calls reached an IRS employee.  Compared to 2021 filing season, the IRS answered half as many calls in 2022.  For those lucky enough to get through the average wait time rose from 20 minutes in 2021 filing season to 29 minutes for 2022 filing season. With new IRS funding we have already noticed improved service from the IRS.  Hopefully improvement will continue.  We still do not recommend to file any returns on paper unless necessary.  Refunds should be direct deposited.

There is also a push in Congress to offer free direct e-filing of returns with the IRS for simple returns.

Individual tax returns will be due April 18, 2023.  

As we did last year, we are not pre-scheduling appointments.  Many of our clients emailed, dropped off or mailed their tax information to us.  It worked pretty well.  If you feel you will need an appointment, please call our office to schedule. Remember that we work on returns on the order they come to us.  Thus, if you wait too long to get your information to us, we may need to file an extension for you.  If you are sending your documents to us, please do so when the majority of tax information is available.  You do not need to wait until you have every document.  We will follow up with you with any missing information.

Options for getting us your information:
1. Scan your information and either upload it to our portal or email it to us.  We will go through your information and email you a list of what is missing.
2. Mail your information to us.  
3. Drop your information off at our office.  The office is open from 8:30 – 4:30 M-F.  You do not have to call to schedule a time to drop-off if made during business hours.
4. Call us to make an appointment.  If you are experiencing any symptoms or were in contact with someone who had COVID prior to your appointment, please call to reschedule.

It is anticipated that organizers will be mailed the first week of January.  This year’s organizer will look  slightly different and will be less pages.  Instead of all the extra pages that routinely go to waste, you should receive our engagement letter for you to sign, the questionnaire, and a condensed organizer.  Also, if you choose to scan, mail or drop off your information please make it a point to answer the organizer questions; these questions will help jog your memory of new or unusual events that could make a difference on your return.  Feel free to call us with any questions.

We suggest that taxpayers sign up for an online account with the IRS.  Taxpayers with an online account can log into that account to:
• Simplify procedures for giving authorization to a third party to discuss taxpayers’ tax returns and accounts.  This is much easier and quicker than signing form 2848, Power of Attorney and having to fax that to the IRS.
• Verify estimated tax payments.
• See the status of their tax return and refunds.

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TAX LEGISLATION

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction act was signed into law.  The Act contains several new environment-related tax credits that are of interest to individuals and small businesses.  The Act also extends and modifies some preexisting credits.  We will try to highlight some of them.

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Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit – The credit for specified nonbusiness energy property expenditures has been extended through 2032.  The Act increases the credit for a tax year of 30% for amounts paid for or incurred for qualified energy efficient property (solar and wind).  The Act also repeals lifetime credit limitations and instead limits the credit to a per year limit for exterior windows, exterior doors, skylights, and specified heat pumps.

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New Clean Vehicle Credit – Before the Act, you could claim a credit for each new qualified plug-in electric vehicle placed into service during the year.  Once the manufacturer sold a certain quantity of vehicles the credit was eliminated.  The Act renames the credit and eliminates the limitation on the number of vehicles eligible for the credit.  Also, final assembly of the vehicle must take place in North America.  No credit is allowed if the lessor of your modified adjusted gross income for the year of purchase or the preceding year exceeds $300,000 for joint filers, $225,000 for head of household, or $150,000 for all others.  In addition, no credit is allowed if the manufacturer’s suggested retail price for the vehicle is more than $55,000.  ($80,000 for pickups, vans, or SUVs). Beginning after 2023, the taxpayer can make an election to transfer the credit to the dealer.  However, when the tax return is prepared, if the taxpayer would not qualify for the credit, it must be repaid back to the IRS with the tax return.  Therefore, it will be essential for taxpayers who transferred the credit to give us accurate information.

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Credit for Previously Owned Clean Vehicles – A qualified buyer who acquires and places in service a previously owned clean vehicle after 2022 is allowed an income tax credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price.  No credit is allowed if the lesser of your modified adjusted gross income for the year of purchase or the preceding year exceeds $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others.  In addition, the maximum price per vehicle is $25,000.  

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Commercial Clean Vehicle Credit – there is also a credit available for commercial vehicles.  While the credit is not subject to income limitations, the credit is limited to the lessor of $7,500, 15% of the basis of the vehicle, or incremental cost of the vehicle when compared to a similar vehicle powered solely by gasoline or diesel internal combustion engine.  The details of the credit are complex and above the scope of this letter.

For vehicle credits the VIN will be needed to compute the credit on the tax return.

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Other Highlighted Changes

Changes to Form 1099-K: Many of our clients are not familiar with form 1099-K, but many unfortunately soon will be.  Recent changes in reporting requirements will lead to mistakes, but taxpayers should not ignore them.  A new provision beginning in 2022 and after could catch many taxpayers by surprise, most notably those in the “gig economy".  The new rules lower the threshold in which third party settlement agencies (think credit card merchants, PayPal, Venmo, eBay and Airbnb) must report payments to merchants of Form 1099-K, Payment Card and Third-Party Network Transactions.  Previously the form was only required if aggregate payments to a payee exceeded $20,000 and there were over 200 applicable transactions in a year.  The new reporting threshold is now $600 with no minimum transactions.  The reasoning for the change was to reduce the amount of unreported taxable income.  Recipients are much more likely to report income if amounts are also reported to the IRS.  

The law states that the third parties must only report transactions that involve the provision of goods and services, they do not include noncommercial transactions, such as charitable contributions, reimbursements and personal gifts.  Third parties are supposed to allow users to indicate whether a transaction is personal in nature.  So, if the payments are properly categorized it should not trigger a 1099-K to be generated.  However, if they are not properly categorized the form could be generated on users that split restaurant bills with friends and give money to relatives.  If a taxpayer receives an incorrect Form 1099-K they should not ignore it and contact the third-party provider to have it corrected.

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Charitable Deductions: We can’t stress enough the importance of keeping records to substantiate charitable deductions.  We want to highlight two cases where taxpayers lost their charitable deduction by not following strict compliance with rules.

The first is Albrecht v Commissioner whereby a taxpayer’s deduction was denied by not following the substantiation requirements of IRC Sec 170(f)(8)(B).  In order for a contribution of $250 or more to a qualified charity there must be acknowledgement and it must meet the following requirements:
1. Content. The acknowledgement must include
a. The amount of cash and a description (but not value) of any property other than cash contributed.
b. Whether the donee organization proved any goods or services in consideration
c. A description and good faith estimate of the value of any goods or services referred to above, or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
2. Contemporaneous.  The acknowledgement shall be considered contemporaneous if the taxpayer obtains the acknowledgement on or before the earlier
a. The date on which the return was filed for the year of the contribution
b. The due date (including extensions) for filing the return.
In Albrecht, the taxpayer obtained a “Deed of Gift” which had most of the information but did not address whether the taxpayer received any goods or services in connection with the gift.  The deduction was denied based on the omission.  The court did not say that they didn’t believe the taxpayer in that no goods or services were exchanged, they just denied the deduction because the rules were not followed.

During the past year there have been other cases whereby the taxpayer received an acknowledgement, but received it either before the gift was made or after the date the return was filed.  Both lost their deductions.

Following all the rules matter.  One of the takeaways from Keefer v. United States is that obtaining properly contemporaneous acknowledgement matters.  The court rejected the taxpayer’s contribution to a Donor Advised Fund based on a few reasons, one of them being that the taxpayer did not follow Section 170(f)(18).  Section 170(f)(18) requires that in addition to contemporaneous written acknowledgement, acknowledgement letters from Donor Advised Fund must also state that the Donor Advised Fund “has exclusive legal control over the assets contributed”.  The letter did not and the taxpayer lost their deduction.

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IRA, Pension and Annuity Distributions (1099-R): Make sure you receive all your forms. In LaRochelle v. Commissioner, the Tax Court rejected the taxpayer’s argument that penalties should not apply to unreported distributions because a 1099-R form was sent to the incorrect address.  In the case, the 1099-R was sent to a previous residence.  The taxpayers failed to include the income from that 1099-R on the tax return.  The IRS sent them a matching notice with a 20% accuracy penalty.  The taxpayer pleaded reasonable cause due to the mix up.  The IRS and Tax Court disagreed.

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Late Filing Relief for Estate Portability: The IRS issued Revenue Procedure 2022-32 that allows a late portability election available to qualifying estates.  Portability allows a decedent’s unused estate tax exemption to be used by a surviving spouse for the surviving spouse’s own estate or transfers.  The Revenue Procedure extends the time of filing to five years after the death of the first spouse.  The estate exemption will be reduced to roughly half of the current amount on December 31, 2025.  With the recent rise in real estate prices, more estates will be subject to estate tax after that date absent any further legislative adjustments. If you feel this might apply to you or your family, we recommend that you contact your estate attorney.

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Digital Assets: A “digital asset” is any digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology.  The IRS is allowed to modify this definition.  As it stands, the definition will capture most cryptocurrencies, and could potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

Much like brokers who report sales of stock or other securities on Form 1099-B at the end of the year, beginning in 2023, brokers are also defined as those businesses that regularly provide any service accomplishing transfers of digital assets on behalf of another person (for example, cryptocurrency exchanges).  Thus, any platform which you can buy and sell cryptocurrency will have to report digital asset transactions to the IRS and to you at the end of each year.  In order to do so, exchanges will have to get sensitive information from the customer.  It is unclear if the exchanges will have to file Form 1099-B or some other similar form.

Based on previous John Doe summons’, the IRS has concluded that a large percentage of taxpayers owning digital currencies do not report those sales to the IRS.  Given the depreciated value of cryptocurrencies in general, now may be a good time for those taxpayers to come clean and report the sales.  If the currency is considered to be an investment, then the loss can be used to offset capital gains.  Unused losses in excess of $3000 can be carried over to future years.  It should be noted that cryptocurrencies are not considered to be securities, therefore they are not subject to wash sale rules.  Taxpayers can sell the cryptocurrency at a loss, immediately repurchase the exact same currency and deduct the loss.

Beginning in 2023, cash transaction reporting on Form 8300 will apply to cryptocurrency.  Businesses that receive $10,000 or more in cash, and now also cryptocurrency, in a transaction, the business must report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300.  The form requires reporting of individual information, and that information may be difficult for businesses seeking to comply with the reporting rules to collect the information that must be reported.

Also, the receipt of crypto assets from mining is includable in gross income.

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IRS Underpayment Rate: The IRS quarterly interest rate for underpayment of tax was 3% for the first quarter 2021.  That rate has climbed to 6% for the fourth quarter 2021 and we anticipate that the first quarter 2023 rate could be 7%.  This rate will apply to underpayment of estimated tax.

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Hurricane Ian Relief:  Because Florida was determined to be a federal declared disaster area, Florida taxpayers may be able to claim a deduction for casualty losses.  Repairs to damaged property must be reduced by insurance reimbursements.  The costs minus the reimbursements that are greater than 10% of adjusted gross income may be deductible in 2022 or 2021, if elected.  The 10% threshold generally eliminates many small claims.  However, there is a history of legislation passed after prior disasters that eliminated the 10% requirement for certain large disasters (California wildfires, Hurricane Harvey and Irma).

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The State Department can deny or revoke passports if tax debt is over $55,000.  However, one exclusion to this rule is living in a federally declared disaster area.  So those of you that have large debt and are wanting to leave the country immediately, now is the time!

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INDIVIDUAL TAX UPDATE

Electronic Payments/Refunds: The pandemic has taught us that the IRS and the mail can be vulnerable to delays.  Many taxpayer payments are still unopened while receiving notices that the IRS has not received payment.  We encourage taxpayers to consider receiving refunds as a direct deposit.  Experience has shown that this is faster and more secure.  We can also set up amounts due and estimated tax payments to be paid electronically.  This will ensure that estimated tax payments are not missed, however if estimated tax payments need to be changed during the year, you will need to contact the IRS at a number we can provide.  In order to set up refunds and payments we will need your bank account information (name of bank, routing number, account number and whether the account is checking or savings).  

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Rates: 2021 tax rates are 10, 12, 22, 24, 32, 35 and 37 percent.  The rate changes will expire after 2025.    

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Standard Deduction:  The 2022 standard deduction is $25,900 for married individuals filing a joint return, $19,400 for head-of-household filers, and $12,950 for all others, indexed for inflation.  All are temporary and will end after 2025.  The additional standard deduction for the elderly and the blind is $1,400 for married taxpayers and $1,750 for single taxpayers.  

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Personal Exemptions:  Personal exemptions are eliminated through 2025.

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Mortgage Interest:  The mortgage interest deduction is limited to interest on $750,000 of acquisition indebtedness ($375,000 for married taxpayers filing separately), for tax years beginning after 2017 and before 2026.  For acquisition indebtedness incurred before December 15, 2017, the bill allows current homeowners to keep the current limitation of $1 million ($500,000 for married taxpayers filing separately).  The bill allows taxpayers to continue to deduct mortgage interest on second homes, subject to the lower caps.  However, no deduction is allowed for home equity indebtedness, unless it is incurred to improve your home.  If you have multiple mortgages you will have to inform us which mortgages and home equity loans were incurred to buy or improve your home.

The deduction for mortgage insurance premiums as additional interest has expired in 2022.

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State and Local Taxes:  Itemized deductions for all nonbusiness state and local tax deductions, including property taxes, are limited to $10,000 ($5,000 for married filing separate).  Sales tax may be included as an alternative to claiming state and local income taxes.  The $10,000 limitation is scheduled to expire in 2026.

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Medical Expenses:  Medical expenses exceeding 7.5 percent of adjusted gross income can be claimed as an itemized deduction for 2022.

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Charitable Donations:  In 2022, charitable contributions in excess of 60% of taxpayers adjusted gross income is not deductible.  Charitable contributions in excess of income limits are carried forward up to five years.  

In 2021, non-itemizers could contribute and deduct up to $300 in cash contributions to public charities.  That provision has expired, although there has been a proposal to extend to 2022.

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Theft and Casualty Losses:  Taxpayers can only deduct casualty losses if the loss is attributable to a federally declared disaster through 2025.

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Child Tax Credit:  The child tax credit returns to $2,000 ($1,400 refundable) for each qualifying child under the age of 17, and $500 for certain other dependents, such as children over 17, students age 19 to 23, and qualifying relatives of any age.  The credit amount phases out for taxpayers with incomes over $400,000 for married taxpayers filing jointly, and $200,000 for all others.  The increased Enhanced Child Tax Credit that expired in 2021 has been proposed to be extended to 2022.

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Alimony:  The deduction for alimony payments and their inclusion in income of the recipient is repealed.  The new rules will apply only to divorce or separation agreements executed after December 31, 2018.

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Principal Residence Debt Cancellation: Congress has extended the exclusion for discharge of qualified principal residence indebtedness through 2025.

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Student Loan Cancellation:  The cancellation of student loans from gross income is extended from 2021 through 2025.  Employers can pay up to $5,250 of student loans for employees as a fringe benefit through 2025.  

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Required Minimum Distributions (RMD).  If you are age 72 or older by the end of 2022 you must take your RMD by the end of the year (April 1, 2023 for taxpayers that turned 72 in 2022).  

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IRA Contributions: There is no longer an age limit in which taxpayers can contribute to an IRA, however you cannot contribute more than income earned during the year.  Wages and self-employment income are considered earned income.

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Qualified Charitable Distributions:  Up to $100,000 in qualifying IRA distributions to charity is excluded from gross income and can reduce taxes for taxpayers that are subject to certain income related phase outs.  To be qualified the taxpayer has to be at least 70 ½ years old.  The distribution must be made directly by the IRA trustee to the eligible organization.  Eligible organizations include publicly supported organizations (public charity), schools, churches, hospitals or government units.  Nonqualified organizations include certain private foundations and donor advised funds. In general, if you meet the qualifications, charitable contributions should be made this way before making cash contributions out of non-retirement accounts.  

We recommend that if you make qualified charitable distributions from your IRA to keep a copy of the statement showing the distribution as well as the acknowledgement letter from the charity to you as owner of your IRA.

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IRA Rollovers: Just a reminder that taxpayers are allowed only one tax free IRA rollover every 12 months.  IRA distributions deposited back into an IRA within 60 days are not includable in gross income.  This limitation does not apply to trustee-to-trustee transfers.

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Roth Conversions: Conversions of IRA money into a Roth is still allowed.  Due to the slump in the stock market conversions have been very popular for our clients this year.  For early retirees whose income has gone down significantly, IRA funds converted to a Roth during low-income years is a good way to shift money from a taxable account to a non-taxable account.  The conversion is taxable.  The goal is to convert as much in low-income years before age 72 when required minimum distributions must be made (and reported as income).

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Annual Gift Tax Exclusion: For 2022, the amount you may gift to any individual without reducing your giver’s estate and lifetime gift exclusion amount is $16,000.  In 2023, the amount is raised to $17,000.  Spouses may “split” their gifts to each donee, effectively raising the per donee annual maximum exclusion to $32,000 for 2022 and $34,000 for 2023.

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Estate Tax:  The 2022 estate tax exclusion for estates is $12,060,000, increasing to $12,920,000 in 2023.  As it currently stands, the increased exclusion is due to revert back to levels passed in the American Taxpayer Relief Act of 2012, which indexes the 2011 exclusion of $5,000,000 to inflation.

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Capital Gains: In 2022, capital gains on property held for more than one year are taxed at a maximum of 20% (for married taxpayers the rate is 0% with incomes below $83,350, 15% with incomes between $83,351 and $517,200, and 20% with incomes over $517,201; for single taxpayers 0% with incomes less than $41,675, 15% with incomes between $41,676 and $459,750, and 20% with income over $459,751).

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Social Security Taxable Wage Base and COLA:
The maximum amount of earnings subject to Social Security tax is $160,200 in 2023 and $147,000 in 2022.  Both the employee and employer tax rate is 6.2% in 2023 and 2022. All earnings are subject to Medicare tax at an employee and employer rate of 1.45% for both 2023 and 2022.  While the additional .9% Medicare tax for wages above $200,000 is withheld from the employee, the employer’s rate on the excess wages remains at 1.45%

The Social Security Cost-of-Living Adjustment was 5.9% in 2022 and will be 8.7% for 2023.

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BUSINESS UPDATE

New Florida Laws

Beginning on September 30, 2022 the Florida minimum wage is $11.00 per hour, with a minimum wage of at least $7.98 per hour for tipped employees.  The minimum is scheduled to increase each year until reaching $15.00 per hour on September 30, 2026.
Beginning October 1, 2021, Florida business that hire independent contractors in which they expect to pay more than $600 during the calendar year are required to report the “new hire” to the state within 20 days of the first payment.  Information on how to register and report can be found here: https://servicesforemployers.floridarevenue.com/Pages/how_to_report.aspx
 

Entertainment and Meals

Entertainment expenses are not deductible.  Entertainment is defined as any activity which is a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer for the taxpayer’s family.  

According to IRS Notice 2018-76, business meals are not considered entertainment.  The notice states that 50% of the cost of business meals is deductible if five requirements are met:
1. The expense is an ordinary and necessary expense paid or incurred during the taxable year
2. The expense is not lavish or extravagant under the circumstances
3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages
4. The food and beverage are provided to a current or potential business customer, client, consultant, or similar business contact, and
5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverage is stated separately from the cost of the entertainment on one or more bills, invoice or receipts.  The notice states the disallowance rule may not be circumvented by inflating the cost of the food and beverage.

Only for 2021 and 2022, qualified meals may be 100% deductible.  Qualified meals are those that are purchased from a restaurant.  According to the IRS a “restaurant” is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.  Grocery stores, specialty food stores, liquor stores, drug store, convenience stores, newsstands or vending machines are not considered restaurants.  It is unclear if food trucks or catering companies are considered to be restaurants.  Beginning in 2023, all business meals will return to being 50% deductible.

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Auto Logs

Deductions for business automobile expenses should be substantiated with a contemporaneous mileage log, whether the actual or standard mileage rate is used to determine the deduction.  We have seen deductions denied upon audit because the log was not kept up throughout the year.  The IRS position is that in order to deduct those expenses taxpayers must follow the documentation rules.

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Bonus Depreciation

Bonus depreciation for eligible property placed in service in 2022 remains at 100%, however beginning in 2023 bonus depreciation will decrease to 80% of the cost.  The deduction is scheduled to phase out at a rate of 20% per year until after 2026 when it will disappear.

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Section 179 Expensing

The Section 179 deduction for qualified property placed into service in 2022 is capped at $1,080,000.  

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Form 1099-K & Forms 1099-NEC

One nasty issue that we have been seeing relates to the previously mentioned form 1099-K.  As most of our business clients know, Form 1099-K is issued by third party merchants (credit card companies).  That form reports all the payments that you received from them during the year.  Also, if a customer pays your unincorporated business more than $600 for services during the year, they are to issue a 1099-NEC to you.  However, if the customer pays your business with a credit card, they are not supposed to issue a 1099-NEC to you, the payment is covered with Form 1099-K.  

We have had a problem whereby the client received both forms for the same payment.  The taxpayer reported all their income but received a notice from the IRS stating that they underreported their income.  The taxpayer contacted three customers to have them correct the incorrect 1099-NEC forms, two of which did.  The issue is still ongoing but we suspect that if the remaining customer does not correct form 1099-NEC the IRS may want to look at the taxpayer’s bank records as there is no other way to prove that the money was not received.  The take away from this is that if a customer issues a 1099-NEC (or 1099-MISC for that matter) for payments made with a credit card immediately contact them to have it corrected.

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