Year-End 2023
Dear Clients and Friends,
What a wonderful year it has been. With it coming to a close, it is extremely important to analyze your taxes for 2023 and prepare for 2024. This is the time of year to tie up the loose ends and implement tax-saving strategies to avoid any surprises on April 15th. Tax law is a vast topic and contains too many complicated provisions to cover in one letter. Our intent is to review some of the changes you may have missed and highlight some strategies that can be implemented to reduce your tax burden.
This letter is intended to remind you that tax planning is a process, and successful planning favors the prepared. It is important to weigh the risks and rewards of tax-saving strategies you can make now while maintaining the ability to respond rapidly and effectively.
Also, there is a possibility that congress may pass additional laws that will affect the 2023 taxes. We will do our best to keep you informed of any of these changes as quickly as we are able.
Tyson J. Haws, CPA tyson@foxpeterson.com
Dason Hatch, CPA dason@foxpeterson.com
David Hakes, CPA david@foxpeterson.com
Rachel Hutzler, CPA rachel@foxpeterson.com
Rick Johnson, CPA rick@foxpeterson.com
Nathan Wilding nathan@foxpeterson.com
Kaitlyn Burk kaitlyn@foxpeterson.com
Reminders and Some Changes…
Online Payment Apps – UPDATED 11/27/2023
The IRS has announced a delay in implementing the Form 1099-K reporting threshold for the 2023 tax year. This is great news as these requirements would have forced many to have to report income on transactions that were personal and not income. Starting in 2024 the threshold will be $5,000 rather than the $600 they were planning on. This means that there isn’t really a change for this year and it shouldn’t affect most in future years.
Have you ever paid for lunch and had your friends pay you back using Venmo? Starting this year, you could get a 1099 for all payments through third party payment apps. If it’s not related to a business then it isn’t taxable, but the IRS now requires that we report it on your tax return. Starting in 2023 Venmo, PayPal, Square, Cash App and other online payment apps are required to inform the IRS when you’ve received greater than $600 during the year. You will need to distinguish between personal use (reimbursing a friend for lunch) and payments related to goods and services. This information is required to be reported on your 1040. You will receive a form 1099-K from each vendor for this.
Energy Efficient Home Improvement Credit – Did you put in new doors, windows or insulation this year? Did you know you may qualify for a tax credit for that? Be sure to inform your CPA if you’ve made these renovations to your home.
SECURE Act 2.0 – This legislation brought a number of changes:
- Increased required minimum distributions (RMDs) age from 72 to 73 starting in 2023, and up to 75 in 2033.
- Failing to take RMDs when required resulted in a 50% penalty under old law, reduced to 25% (or as low as 10% in some cases).
- Emergency expense distributions – distribute up to $1,000 without the 10% early withdrawal penalty.
- In 2025, increases the catch-up contribution limits up to $10,000 for contributions to retirement accounts if you’re over the age of 60.
Electric Vehicle Credit – The IRS updated the limits and rules for which vehicles qualify for the EV credit (up to $7,500). A number of makes and models that had previously hit the IRS’s limit (such as Tesla) now qualify again. Here is a link to the IRS website for requirements to qualify. https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after
Employee work related business expenses are still not deductible on the Federal return. If you incur a lot of these types of expenses, you need to discuss the use of an accountable plan with your employer.
IP PIN – If someone filed a fraudulent tax return using your information, the IRS can give you an Identity Protection PIN (IP PIN) to include on your tax return. You receive a new number each year and the tax return cannot be electronically filed without it. The IRS has created a portal where you can opt into the program. The IP PIN portal can be found at https://www.irs.gov/identity-theft-fraud-scams/retrieve-your-ip-pin. We strongly recommend requesting the IP PIN. Once you are in the program, be sure to keep the annual letter from the IRS with your tax files.
View your IRS account online – Did you know that you can log into the IRS website and access your tax records? You can also view your balances, create payment plans, make payments and more. Here is a link to access your account or to create your account. https://www.irs.gov/payments/your-online-account
AZ Family Tax Rebate – For AZ residents that filed a 2021 tax return and had a tax liability of at least $1 in 2019-2021, AZ will issue a one time rebate up to $750 based on the number of dependents claimed on the 2021 tax return ($250 per child up to $750 max). This rebate should have been mailed or direct deposited to your account by Nov 15th, 2023.
Planning Opportunities
- In the current tax era of greatly increased requirements to itemize deductions, a tax “bunching” strategy is absolutely mandatory. The “bunching strategy” recognizes that the best tax deductions are obtained by putting deductions in one year rather than spreading them amongst several years. For example, in years where your charitable contributions are very low, hold off until the next year to catch up, then also pay the full amount of the next year’s contributions in the “catch up” year in order to double your chances of itemizing. Similarly, few Americans receive medical deductions anymore, but if you incur a large expense for say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental and vision exams, check-ups, etc.
- If you have a Health Savings Account it is also mandatory that you deposit some amount into it, and do not let the balance drop to zero. The tax savings benefits are incredible and this is one of the single best plans available. For tax year 2023, maximum contribution amounts are $3,850 for self-only and $7,750 for families and can be made up to April 15, 2024.
- Every year we are told “I pay too much in taxes” or “I want some of the tax loopholes that rich people get”. We can answer both statements with one answer. Rich people get no more tax deductions or “loopholes” than anyone else, they just take advantage of what is there to keep their taxes at a low legal level. The single greatest tax “loophole” that they use, which few average people use to its limit is the ability to defer $22,500 into a 401(k) if your employer has one. If your employer has a 401(k) and you are not putting the maximum deferral in it, there is no reason to even think about other tax planning ideas. If your employer does not offer a 401(k), there are other retirement accounts available, such as a traditional IRA. Depending on which type of retirement account you take advantage of, some contributions can be made as late as April 15, 2024.
- Check into your employer’s handbook to see what employer provided fringe benefits are available. Taxpayers are often surprised at the available benefits, or at our explanation of what some benefits really mean.
- There have been no major changes to the Estate Tax thresholds. Congress has discussed the idea of lowering the non-taxable limits and could potentially make a change before the end of the year. If any significant changes are made, we will send an updated letter. For 2023, the annual gift tax exclusion amount is $17,000.
Given the broad nature of tax reform, this letter barely scratches the surface. Financial positions change on an annual basis, and effective tax planning requires a year-round effort. If you wish to discuss the provisions affecting you as well as the available tax strategies that would be appropriate to minimize your tax liability and maximize your tax savings, please give us a call at 480-898-7640 to set up an appointment.
Tax Items Affecting Businesses
$10,000 Schedule A State Income Tax Limit & Pass-Through Entity Tax – One of the tax law changes implemented in 2018 was the introduction of the $10,000 cap to how much state tax an individual can deduct on their Schedule A Itemized Deductions. For business owners making enough to hit this cap and lose out on the deduction of paying state tax in excess of $10,000, Arizona and several other states have since created an optional Pass-Through Entity Tax (PTET), which applies to Partnerships, LLCs, S Corps, and other flow-through tax entities. For Arizona, the business owners can elect into PTET and have the entity pay the tax liability at the entity level. This payment is a deductible federal business expense by the entity, reducing its net income. Upon filing their individual return, the business owners report the lower net business income which reduces their federal tax liability. On their Arizona return, they receive a tax credit for the tax that paid at the entity level. Please reach out to your CPA at Fox Peterson to get started with your year-end analysis and see if this elective PTET would be beneficial to your situation.
Mesa General Business License – This applies only to businesses located in Mesa. January 3, 2022 the Mesa City Council approved a new general business license. The purpose for this change is to help enhance the communication they have with business owners and allow information to reach operating businesses in a timely manner. Most businesses will need to apply for a license to do business in Mesa. You can visit their website to view frequently asked questions and complete the process to apply for your business license. A link to their website has been provided. https://www.mesaaz.gov/business/licensing/mesa-general-business-license
Corporate Transparency Act – In 2021 Congress passed the Corporate Transparency Act aimed at reducing money laundering. It is a small business reporting requirement with potential penalties including prison for committing a felony by not reporting. If your business is an LLC or corporation, including a single member LLC, you must fill out this form by the end of 2024, and if you start a new business in 2024, you must report within 30 days of formation. Reporting is done with a special electronic filing with the Treasury Department’s Financial Crimes Enforcement Network (Not the IRS). The required information includes owners and, for new businesses formed in 2024, the company applicants. To clarify, even if you have set up an LLC just to own a rental property this form is required, and a separate filing and form is required for every single entity, whether an LLC, an S corporation, or a C Corporation. We are able to complete this form for you, but only with your specific written authorization.
Initial Reporting:
• New companies formed after 1/1/2024 within 30 days of formation.
• Existing companies formed before 1/1/2024 by 1/1/2025.
Updates: Within 30 days of change in beneficial ownership, name or address change
Annual reporting: None
