Carol McAtee's Blog

The answer is yes, with two essential conditions that have to be met. Details of what expenses may be deductible are below, but these two basic conditions apply:

ONE: Deductions must be Itemized

First, you must itemize deductions using a Schedule A rather than taking the standard deduction. The standard deduction works best for the majority of taxpayers. For tax year 2024 it is $14,600 for single tax filers and $29,200 for married taxpayers filing jointly.

For many taxpayers, the standard deduction typically exceeds the total deductions you would get from mortgage interest, property taxes, charitable deductions, medical expenses and other deductions that could otherwise be itemized. However, if the taxpayer, spouse or dependent has significantly high medical expenses in a particular tax year, it might make sense to itemize.

TWO: Deductions must be for Qualified Medical Expenses

The IRS defines medical care expenses as “payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.”

The key words are “disease” and “treatment.” Thus, expenses that may contribute to your overall health, such as special health foods, supplements or a gym membership or trainer, are not deductible. However, if you are incurring these expenses as part of treatment plan for a disease, such as obesity, then they may be deductible.

Medical expenses that are usually deductible include the following:
• Payments for fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
• Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician including obesity. (Note: this does not include ordinary payments for diet food items or payments for your gym or health club dues)
• Payments for insulin and for drugs that require a prescription for their use.

How Much Is Deductible?

It’s important to note that you can only deduct the amount of your total medical expenses that exceeds 7.5% of your adjusted gross income (AGI). For instance, if your AGI is $50,000, you can only deduct medical expenses over $3,750 ($50,000 x 7.5%).


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The IRS recently announced that nearly a million American taxpayers – approximately 940,000 – who have not yet filed tax returns for tax year 2020 may be due to get a refund. The IRS estimates typical refunds for these returns as over $900.

Filing Deadline

Taxpayers who have not yet filed a tax year 2020 return have until May 17, 2024 to file and potentially claim a refund. After that date, any refunds for unfiled 2020 returns revert to the Treasury Department.

In general, taxpayers have exactly three years to file a return and claim refunds. But due to the pandemic, the IRS extended the typical April 15 filing deadline to May 17 and thus the 3-year window runs to May 17.

Unclaimed Refunds

The unclaimed refunds include both full-time and part-time workers; some may have neglected to file a return because they did not meet the income threshold for being required to file. Tax year 2020 included the recovery rebate credits which are refundable even for taxpayers who had little or no income in that year.

The earned income credit based on family income and size is another refundable credit – worth as much as $6,600 in 2020.

Documents Needed

You may need to get past W-2 wage statements from employers and interest statements from banks. If you are unable to get these, you can order a “wage and income” transcript from the IRS which shows the income figures submitted to them from these sources.

Filing 2020 Tax Returns

The 2020 returns must be filed on paper and mailed to the IRS whether you use a self-submitting tax software or a professional tax preparer. A few exceptions to the May 17 deadline may apply, such as military service or physical/mental impairments that affect the taxpayer’s ability to manage their financial affairs.

Your CPA or professional tax preparer can help you determine if you would benefit from filing a 2020 tax return or are required to file one.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You have until midnight on the April 15 Tax Day deadline to either electronically file a tax return or have a paper return postmarked by April 15. If you miss that deadline, your tax return will technically be late and possibly subject to penalties and interest.

However, you can electronically request an automatic, six-month tax extension by filing a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This moves your filing deadline to Oct. 15, 2024.

Unfortunately, the extension to file is not an extension to pay. The IRS requires you to pay an estimate of what you owe by the regular April deadline. As long as you pay an estimated amount that’s close to what you owe, you won’t be subject to fines or penalties if you file your return and pay any remaining tax liability by Oct. 15, 2024. For the IRS, that means your estimated payment needs to be at least 90% of your total tax liability.

Expecting a Refund

If you’re due a refund, there’s no IRS penalty for filing your return late, but filing more quickly means you will get your money back sooner. Remember, however, although you might not be hit with a penalty for filing late, you probably still need to file a return. The IRS has a strict definition of who has to file a tax return based on annual income, among other factors.

You have three years to file your 2023 tax return before the IRS turns your tax refund over to the Treasury and your money is gone forever. Your tax refund might be delayed by filing late, but you should still expect to receive your money in four to six weeks after filing.

Owing Money to the IRS

However, if you owe on your taxes, you don’t want to wait — penalties and interest can pile up quickly. There are two basic penalties that the IRS charges for filing taxes late when you owe money: a failure-to-file penalty and a failure-to-pay penalty. On top of that, you’ll also have to pay interest on the amount you owe.

• The failure-to-file penalty is generally 5% of the amount you owe for each month or part of a month that your return is late, with a maximum penalty of 25%. If your return is more than 60 days late, the minimum penalty is $435 or the balance of your taxes due, if less than that.

• The failure-to-pay penalty is usually calculated at 0.5% of any taxes owed that aren’t paid by the deadline. The IRS again charges the penalty for each month or part of a month that your payment is late, with a maximum 25% penalty total.

• Interest on late taxes fluctuates and is determined for individuals by adding 3% to the short-term federal interest rate. That rate is adjusted quarterly, and interest is compounded daily.

State Tax Return Deadlines

State income tax deadlines are typically the same as the federal tax deadline, but some exceptions exist. Check with your tax practitioner if you have questions about the deadlines for specific states.

Paying the IRS

If you can’t pay your tax bill in full, you can set up an installment payment plan with the IRS. If you can pay off your tax debt within 180 days, the IRS will let you apply for a short-term payment plan at no cost, although you’ll still accrue penalties and interest until your debt is paid off.

Check on Your Refund

Taxpayers expecting a refund can use the Where’s My Refund? tool on the IRS web site www.IR.GOV. (Remember that it is DOT GOV, not DOT COM.) To use the tool, taxpayers need to enter their Social Security number, filing status and exact refund amount expected.

Your CPA can help you with all of the above issues.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The Internal Revenue is making a number of changes for tax year 2024, largely as annual inflation adjustments. Looking ahead, some planning in advance can help get you ready to realize the most advantageous tax outcome.

Tax Brackets for 2024

The IRS put in place higher limits for federal income tax brackets for tax year 2024, which means Americans will likely pay a little less in taxes. Brackets are increasing by about 5.4% for both individual and married filers. The top tax rate remains at 37% for 2024, and that starts for single taxpayers earning $609,350 of more.

The IRS made the changes to avoid “bracket creep,” when inflation pushes people into higher tax brackets without additional purchasing power.

Standard Deduction

The 2024 tax year standard deduction for married couples filing jointly will be $29,200, a $1,500 increase from $27,700 for the 2023 tax year. For single taxpayers, the standard deduction is $14,600, an increase of $750 from the 2023 deduction of $13,850. For heads of households, the standard deduction will be $21,900, an increase of $1,100 from the amount for tax year 2023.

IRA, 401(k) Contribution

For tax year 2024, taxpayers can contribute up to $23,000 into 401(k), 403(b) and most 457 plans, $500 more than the $22,500 contribution limit for 2023. The limit on annual contributions to an IRA will increases to $7,000, up from $6,500 for 2023.

The IRA catch-up contribution limit for individuals aged 50 and over remains at $1,000 for 2024. For 401(k) and most other plans, the catch-up contribution limit for employees 50 and over is $7,500 for 2024.

Flexible Spending Account Contributions

The IRS raised the limit for 2024 contributions to health flexible spending arrangements to $3,200, up from $3,050 for 2023. The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.

Child Tax Credit

For the 2024 tax year, the child tax credit remains at up to $2,000, but the refundable portion of the credit increases to $1,700, which equates to a possible additional refund of $100 per qualifying child. It’s important to note that income limits apply to these benefits

The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

Electric Vehicle Credit Change

Some models of electric vehicles will lose eligibility for consumer tax credits. This is because of stipulations that prevent crediting vehicles made with components that come from “foreign entities of concern,” such as companies tied to the governments of China, Iran, North Korea or Russia.

However, consumers will now be able to get their tax credit as an instant rebate in the year when they purchase the vehicle, instead of claiming it the following year on their taxes.

Earned Income Credit

The IRS is increasing the earned income tax credit, with families now eligible to receive $7,830 if they have 3 or more qualifying children, an increase of from $7,430 for tax year 2023. You should consult a tax advisor for information related to maximum EITC amounts, income thresholds and phase-outs.

Standard Mileage Rate

The Internal Revenue Service is increasing the “optional standard mileage rate” used to calculate business tax deductions by 1.5 cents a mile for 2024, bringing the IRS rate to 67 cents per mile driven for business use in 2024. The mileage rate for medical miles driven is 21 cents per mile and the rate for charitable miles driven is 14 cents per mile for 2024.

Alternative Minimum Tax

The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700).

For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).

Gift Exclusion

The annual exclusion for gifts is $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Individuals who purchased new electric vehicles may be eligible for a federal tax credit of up to $7,500 for tax year 2023. The credit is available to individuals and businesses. It is nonrefundable and there are numerous requirements and conditions that affect eligibility and the amount of the credit.

Eligibility

To qualify, the vehicle must have a battery capacity of at least 7 kilowatt hours, a gross vehicle weight rating of less than 14,000 pounds, and be made by a qualified manufacturer. Vehicles must also undergo final assembly in North America, which further limits the vehicles that qualify.

There are new requirements effective from April 18, 2023, which include meeting critical mineral and battery component requirements to qualify for the credit.

The vehicle’s manufacturer suggested retail price for new vehicles (MSRP) must not exceed $80,000 for vans, SUVs, and pickup trucks, and $55,000 for other vehicles.

Amount of Credit

The amount of the tax credit depends on various factors, including the vehicle’s MSRP, manufacturer, final assembly location, battery component, critical mineral sourcing, and the taxpayer’s modified adjusted gross income (MAGI). The amount of the credit also depends on when you placed the vehicle in service, regardless of purchase date.
For vehicles placed in service January 1 to April 17, 2023:
• $2,500 base amount
• Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
• Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
• Up to $7,500 total
In general, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum 7-kilowatt hours of battery capacity.
For vehicles placed in service April 18, 2023 and after:
Vehicles will have to meet all of the same criteria listed above, plus meet new critical mineral and battery component requirements for a credit up to:
• $3,750 if the vehicle meets the critical minerals requirement only
• $3,750 if the vehicle meets the battery components requirement only
• $7,500 if the vehicle meets both
A vehicle that doesn’t meet either requirement will not be eligible for a credit. Additionally, the taxpayer’s modified adjusted gross income (MAGI) cannot exceed certain limits. The MAGI limit for married couples filing jointly is $300,000, $225,000 for heads of households, and $150,000 for all other filers.

Used Vehicles

Used electric vehicles purchased in 2023 or after may also qualify for a tax credit of up to $4,000.

How to Claim

To claim the tax credit, individuals must file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, with their tax return and provide the vehicle’s VIN. Sellers must also provide certain information to the taxpayer at the time of sale and report the same information to the IRS.

All of the factors discussed above interact with each other, and the actual tax credit amount can vary based on the specific circumstances of the vehicle purchase and the taxpayer’s income. Consulting with a tax professional or referring to official IRS publications can provide more precise information regarding the tax credit for electric vehicles purchased in 2023.

Update for Tax Year 2024

For tax year 2024, the IRS plans to expand access to the tax benefit by allowing consumers to choose between claiming a nonrefundable credit on their tax returns to lower their tax bill (as described above) or transferring the credit to the dealer to lower the price of the car at the point of sale.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Traditional Individual Retirement Accounts (IRAs) are “tax-deferred plans,” meaning you don’t pay taxes on your account contributions or earnings until you take withdrawals. Because the IRS wants to start collecting those taxes sooner rather than later, they require you to start taking annual withdrawals when you reach a certain age. Beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking required minimum distributions (RMD’s) to age 73. The RMD is the smallest amount you must withdraw from your tax-deferred IRA retirement accounts every year after age 73, whether you need the money or not.

RMDs and Life Expectancy

RMDs are based on the IRS life expectancy tables. There are varying tables for different circumstances. For example, The IRS uniform lifetime table utilizes a life expectancy divisor of 26.5 if you are age 73. To figure the RMD for that year, a person would divide their IRA account balance by 26.5. For example, if the IRA account balance was $100,000, the owner would have to withdraw $3,733.58 ($100,000 divided by 26.5) and pay taxes on this withdrawal in that year.

Each year, your life expectancy divisor is one year less, so the RMD goes up a little bit every year, until it eventually levels off and gradually decreases.

Calculations utilize separate tables for certain circumstances. For example, if your spouse is at least 10 years younger and your sole beneficiary, the IRS requires the use of a separate table for the RMD calculation. In addition, different rules apply if you are the beneficiary of an inherited IRA.

Retirement Accounts Subject to RMDs

In addition to traditional IRAs, these other types of retirement accounts are also subject to RMDs:
• Simplified Employee Pension (SEP) IRAs
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs
• 401(k)s
• Nonprofit 403(b) plans
• Government 457 plans
• Profit-sharing plans

For IRA accounts, you may be able to take your RMD out of one account, or take some from each account, as long as you withdraw the required minimum. Defined contribution plans require you to calculate and satisfy your RMD separately for each plan and withdraw the amount from that plan.

Because Roth IRAs are funded with contributions already taxed, these don’t require RMDs until after the owner dies. Also, if you’re still working after age 73 and have a traditional 401(k) or other workplace contribution plan, you may be able to defer RMDs until April 1 of the year after you stop working.

Schedule for Taking RMDs

For tax year 2023, you must start taking RMDs by April 1 of the year after you turn 73. Let’s say you celebrate your 73rd birthday on July 4, 2023. You must take the RMD by April 1, 2024. You’ll have to take another RMD by Dec. 31, 2024 and by Dec. 31 each year after that.

Note that if you wait until 2024 (up to April) to take your AMD, you will actually be taking two RMDs in 2024: your RMD for tax year 2023 AND your RMD for tax year 2024. Taking two RMDs in one tax year could push you into a higher tax bracket, so it might be wiser to take your first RMD by December 31.

Penalties

The penalty for not taking an RMD is severe, a 50 percent excise tax on the amount you should have taken out. Although the IRS will sometimes forgive the penalty, it’s best not to incur it in the first place.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Owners of small businesses have to deal with a number of annual reporting and compliance requirements. Deadlines for two reporting requirements for the 2023 tax year are coming up.

1099 Forms

If your small business or sole proprietorship paid for contract labor or other services by non-employees, you likely have to send them a Form 1099. Refer to the following requirements:
• A 1099-NEC form is required to be filed if you paid an individual, partnership or LLC $600 or more in calendar year 2023. This includes payments for services to non-employees.
• A 1099-MISC form is required to be filed if you paid an individual, partnership or LLC $600 or more in the calendar year 2023. This includes payments for rents, attorney fees and other income payments.
• A 1099-INT or 1099-DIV is required if you paid interest or dividends of $10 or more to an individual.

The 1099 forms are due to recipients on January 31, 2024 and most are due to the IRS February 28, 2024 (paper-filed) or March 31, 2024 (e-filed). 1099-NEC forms are due to the IRS by January 31, 2024.

Failure to file 1099s on time can lead to penalties of up to $310 per 1099 form. If the IRS believes the failure to file is “intentional,” they quote a minimum penalty is $630 per form!

Health Insurance Expenses Paid by S-Corporations

If your S-Corporation pays health, disability or accident insurance premiums on your behalf, including long term care insurance or Medicare premiums, these should be reported as taxable wages to you, subject to federal income tax withholding. In addition to being the proper reporting procedure, there is a tax benefit to you reported on your personal income tax return.

If you have not been including the insurance premiums paid throughout the 2023 calendar year in your paychecks, be sure to add the entire insurance amount paid to one of your last 2023 payroll checks.

You should provide this information to your payroll service provider by early January, since they will need to incorporate the amount into your 4th quarter 2023 payroll reports, your annual Form 940 and your 2023 W-2.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Gifts to Individuals
Under the annual “gift tax exclusion,” you can make gifts in tax year 2023 of up to $17,000 to as many individuals as you want, with no federal gift tax consequences and no requirement to report them to the IRS. Gifts can be made to friends as well as children, grandchildren and their spouses. Your spouse can also make their own gifts of up to $17,000 to individuals, and there is no limitation at all on gifts between spouses.
The gifts you make do not impact your federal income tax, and you cannot take any deduction for the value of the gift, other than gifts that are deductible charitable contributions as described below.

For Federal tax purposes, a gift is not considered to be income. As a result, the individuals receiving gifts of money or anything else of value from you do not need to report the gifts on their tax returns. An exception is a gift that may appreciate in value, such as stocks. The person receiving the gift may have to pay capital gains tax upon disposition if the gift is sold. Keep in mind that any checks you write for gifts need to clear your bank by the end of the applicable tax year.

Other Options for Individual Giving
As an alternative to cash gifts to individuals, you can make unlimited direct payments for medical and tuition expenses for as many individuals as you want, with no gift or estate tax consequences. These payments need to be made directly to the institutions. For example, you can’t give your granddaughter the money to pay her college tuition; it has to go directly to the school.

You can also set up or contribute to a 529 college savings plan, even if the child is already in college. What you contribute grows, tax-free, and comes out also tax free if used for educational purposes including books, supplies and even a computer. There is no limit to 529 plan withdrawals if they are used for qualified educational expenses. However, if the withdrawals are for private school expenses for K-12 children, the withdrawal is limited to $10,000 per year.

Charitable Giving
Contributions to charity can be taken as deductions for taxpayers who itemize their deductions. For most of us, however, the Standard Deduction (which was substantially increased several years ago) makes more sense than itemizing.

Charitable deductions no longer will lower your tax bill, unless your possible deductions for charity combined with other deductions like mortgage interest, real estate taxes and medical expenses total more than the Standard Deduction. For tax tear 2023, the Standard Deduction is $13,850 for single taxpayers and $27,700 for married couples filing jointly.

If you do plan on making tax-deductible charitable contributions, you can verify a charity’s tax-exempt status at the IRS Tax Exempt Organization Search page before donating.

Some taxpayers can maximize the impact of their charitable contributions by giving away the gain on appreciated securities instead of cash. Since charities are exempt from capital gains taxes, the gain is never taxed, but you get to deduct the full market value of your stock at the time of the gift.

If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Getting organized is half the battle in being ready to have your tax return filed. Having your tax records in order well in advance of the filing deadline can avoid last-minute mistakes that could slow your refund or cause you to overlook deductions or credits.

A number of strategies can be employed to reduce your income or increase your deductions in a particular tax year. Most of these strategies work best if you take some action or consider them before the current tax year begins.

The Paper Chase

Whether you keep your tax records on paper or digitally, the forms you may need to get your tax return filed include:
• W2 from your employer
• 1099-INT for interest received from a bank or other institution
• 1099-MISC or 1099-NEC received for self-employed work
• 1099-R for pension or retirement benefits
• Brokerage statements from your investment advisors
• Form 1095-A, if you are insured through the Health Insurance Marketplace
• Notice from the IRS of an Identity Protection PIN, if you received one

Keep in mind that some institutions can be slow in providing documents or require you to access them online.

This is also the time to let the IRS know if your address has changed.

Pro Forma for Tax Planning

Your tax advisor could perform a “pro forma” tax return projection to determine your possible tax liability by including hypothetical scenarios for various tax strategies. If you anticipate income from investments, your brokerage institution could provide a summary of year-to-date activity to assist your tax advisor with tax planning.

Paycheck Withholdings

The IRS allows employees to provide the specific amount by which they would like to increase or decrease their federal tax withholdings directly. You can use the IRS Tax Withholding Estimator to find out if you have been withholding the right amount. If you need to make adjustments, you would file a new W-4 form at your workplace.

“Bunching” Deductible Expenses

About three quarters of taxpayers benefit from taking the Standard Deduction, $13,850 for 2023 if you are single and $27,700 if you are married filing jointly. If your qualifying deductible expenses are close to the Standard Deduction, you could consider “bunching.” This strategy involves timing the payment of expenses such as property tax bills, medical expenses and charitable contributions so they all occur in the same tax year, allowing you to itemize your deductions. The following year you would then minimize these expenses and take the Standard Deduction.

Deferring Income

If your employer routinely allows employees to defer compensation or bonuses, you could reduce your income and thus your tax liability in a particular year by deferring payment to the subsequent year. If you are self-employed, you could defer some client billing until the next tax year. However, it only makes sense to defer income if you think you will be in the same tax bracket or a lower one the next year.

Donating Appreciated Property

For charitable contributions, you could consider donating appreciated stock or property rather than cash. If you have owned the property more than a year, you could deduct its market value on the date of the gift and avoid paying capital gains tax on the built-up appreciation. Limits on contributions of appreciated stock vary from cash donations, so speaking to a tax advisor prior to donation is a good idea.

Loss Harvesting

Loss harvesting involves selling investments such as stocks and mutual funds that result in a loss, in order to offset taxable gains. If your losses exceed your gains, you can use up to $3,000 of excess losses to offset other income. Losses of more than $3,000 can be carried forward to future years.

Retirement Contributions

Another way to reduce taxable income is to increase your retirement account contributions to the maximum amount allowed. Utilizing a company sponsored 401(k) plan where employers match contributions or contributing the maximum to an IRA are two tools for this. Limits for 2023 are $22,500 for 401k plans and $6,500 for IRA’s. Catch up contributions are available for taxpayers age 50 and older in the amount of $7,500 for 401k plans and $1,000 for IRA’s. Generally, you have until the tax filing deadline of the next year to make IRA contributions.

Additional Considerations

If you have a Flexible Spending Account where your employer sets aside part of your pay for child care or medical bills, you should check to see if you have used it all prior to the end of the year. The excess is forfeited each year, so you may want to schedule any healthcare visits or expenses to utilize these funds.

One thing to keep in mind while considering deferred deduction strategies is that you may be subject to an Alternative Minimum Tax. The IRS calculates this tax separately from your regular tax liability and imposes whichever tax is higher. You should check with your tax preparer to ensure the most beneficial strategy.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

What’s the difference between a hobby and a business? A business operates to make a profit. While hobby activity may result in some income, people engage in a hobby primarily for enjoyment or recreation, not to make a profit.

Expenses incurred by for-profit business activities are generally tax deductible, hobby expenses are not. Hobby income, however, is still taxable. These circumstances lead some individuals to wonder if their personal hobbies can be considered businesses with a profit motive in order to obtain more favorable tax outcomes.

In recent years, more and more taxpayers are reporting secondary income from sources such as entrepreneurial businesses. In 2022, 44% of Americans reported engaging in a “side job” to help them make ends meet.

If a business is a secondary source of income, it is important to clearly distinguish it from a hobby activity. In addition to the intention to make a profit, there are other considerations that come into play to help make the case to the IRS that the activity is a business rather than a hobby.

Safe Harbor Rule

The IRS safe harbor rule indicates that if the business was profitable in at least three of the previous five consecutive years, the IRS will accept that it is engaged for profit. However, for industries such as horse training, breeding or racing, this rule may be extended to a profit in two of the prior seven years, because these endeavors involve a greater amount of risk.

“Treat It Like a Business”

Beyond the Safe Harbor Rule, taxpayers can increase their chances of prevailing against an IRS challenge by treating their activities like businesses rather than hobbies. This is especially important if a business is showing a loss rather than a profit. Ways of treating the activity as a business may include:
• Having a business plan
• Performing market studies
• Advertising
• Having separate books and bank accounts
• Conducting periodic financial reviews
• Employing expert advice or services
• Modifying business operations to improve profitability.

Common pitfalls for taxpayers to avoid include:
• Failing to keep records of revenues and expenses;
• Using personal bank accounts to pay expenses
• Deducting personal expenses not related to business activities

These considerations can be helpful in making the case for a business even with recurring losses.

Other Factors

Other factors are also used by the IRS in determining if an activity is a business engaged for profit. No one factor alone is decisive, and their relative importance depends on the case. These factors include:

• The manner in which the books and records are maintained
• The expertise of the business owner or advisors, including education or past experience in the type of business.
• The amount of time and effort put into the business
• The dependence on the income for livelihood
• The normalcy of the losses given the industry or uncontrollable circumstances such as fires, natural disasters or economic downturns
• The success in making a profit in similar activities in the past
• The expectation of future profit from the appreciation of the assets used in the activity

Hobby Income

According to the IRS rules, income of more than $400 in a calendar year from a hobby, must be reported as self-employed income. This income is reported on Schedule SE and is subject to self-employment tax.

Whether an activity is a hobby or a business, a CPA can help evaluate the issues and set up the planning and documentation needed for the most advantageous tax outcome.


If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.