Enclosed we have some of the latest highlights of the tax bill enacted this fall and some tax tips for year end.
Our team at Gannon CPA thanks you for your business and wishes you and your family healthy and happy holidays! To a bright 2023!
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This increase in Massachusetts state personal income taxes was just passed in 2022 and is effective as of 1/1/2023. It is assessed on the personal tax return and applies to all income above the threshold. If taxable income exceeds $1,000,000 there is an additional 4% tax on the amounts above the threshold.
There was a lot of discussion about the applicability to the sale of personal residences. For personal residences, there is an exclusion that reduces the gain taxability. For those that are married filing jointly there is an exclusion up to $500,000 and $250,000 if you’re single. Only amounts greater than the threshold would be included in this tax calculation.
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Digital Assets and Virtual Currency |
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With the failing of the currency exchange FTC, this is a reminder that these items remain unregulated for the most part and remain risky investments.
Digital assets are defined under the U.S. tax code as any digital representation of value that may function as a medium of exchange, a unit of account and/or a store of value.
Digital assets may include virtual currencies such as Bitcoin and Ether, Stablecoins such as Tether and USD Coin (USDC) and non-fungible tokens (NFTs). NFTs being the new "hot item" on the market.
The sale or exchange of any of these assets have tax consequences or at the minimum disclosure on your tax returns. The virtual currencies, the use of such currencies to pay for goods or services or holding such currencies as an investment, generally require some level of reporting on your tax returns. The IRS continues to increase its scrutiny in this area. The IRS has increased year-end reporting to on these items, so be on the lookout for those reports from your digital wallets and investments for your tax returns.
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Inflation Reduction Act Highlights |
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In this legislation and the most impactful effect on taxes are in regards to energy efficient improvement tax credits that increase beginning in 2023. Tax credits are dollar for dollar tax savings. Here are some of the highlights:
The energy efficient home improvement credit:
- Increased tax credits of up to $1,200 for qualified windows, furnaces and other home improvements.
- Tax credits of up to $2,000 if you install electric or natural gas heat pumps (and water heaters) and a biomass stove.
- These credits only apply to the primary residence.
- The specific guidance has not been released but the increases will be effective beginning in 2023.
The residential clean energy credit:
- Provides up to 30% of the cost of installing residential solar panels. This credit is available through 2034. And credits are dollar for dollar savings. This credit goes through 2033 and phases out thereafter.
There are also local rebates that may be available from your state or local authorities. For more detailed information, click here
Enhanced electric Vehicle tax credit:
Electric vehicles tax credits have also been enhanced. Both hybrid and used vehicles now qualify.
- The $7,500 tax credit has been extended to for new electronic vehicles through December of 2032.
- Now included are plug in hybrids.
- Used electronic vehicles that are at least two years old are eligible for a smaller credit of up to $4,000 or 30% of the price of a vehicle and the chargers
- Vehicles with the retail price of greater than $80,000 for SUV or pickups; or over $55,000 for passenger vehicles and over $25,000 for used vehicles will not qualify.
- The credit was also enhanced when eliminating the availability to the first 200,000 vehicles from the manufacturer.
All of these credits are limited to taxpayers that make under $300,000/$150,000 for single filers.
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- This is the second year for the Massachusetts "Passthrough Entity Level Tax". There is now an option for pass-through entities to pay state income taxes on an entity level to avoid the limitation on state tax deductions on the federal level. These payments should be paid in quarterly. This is a way to deduct more than the $10k state tax deduction on the federal personal tax return.
- Bonus depreciation remains at 100% for both used and new equipment through 2022. This amount is reduced to 80% in 2023.
- If you are able to hire your children, you may be able to pay them up to $12,000 federal income tax free. Please note, however, that you must have documentation of their hours and the tasks they performed.
- Increase owner's salary in order to maximize the 20% business deduction.
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- There are increased reporting requirements and scrutiny of digital currency transactions. Keep track of your gains/losses and transfers for year end reporting. (In 2023, the brokerage houses of virtual currency will have to report gains/losses to the IRS)
- Maximize your retirement contributions. If you are over 50, you can put more away.
- If you have investments, harvest tax losses.
- Consider harvesting any capital gains that can be realized in the 0% tax bracket (available to lower income filers).
- Maximize your FSA through your company.
- Maximize on an HSA through your company or open your own HSA. (see more about this below)
- Contribute to a Roth IRA's using the rollover rules if your income is low in 2021 or using the "back door" Roth IRA contribution method.
- Review charitable contributions to maximize income tax deductions.
- Consider donating appreciated assets that have been held for more than one year, rather than cash.
- Opening and funding a Donor Advised Fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and also the ability to dole out those funds to charities over multiple years.
- Qualified Charitable Distributions (QCDs) are another option for those over 70.5 and especially for those who don’t typically itemize.
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Health Savings Accounts
Health Savings Accounts (HSAs) continue to be one of the best tax deductions as well as a great way to save for retirement. When contributions are made to HSAs, the contribution is considered pre-tax and as long as the money is used for medical expenses it remains tax free. Thereby giving you a completely tax free vehicle on the federal side. A single person may contribute up to $3,650, while families can contribute up to $7,300, for 2022. (Additional $1,000 after 55 years old)
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Did you get an unexpected check from the Mass DOR? |
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During this past fiscal year (FY22), Massachusetts tax revenue collections exceeded the annual tax revenue cap requiring the excess revenue be returned to taxpayers. If you are eligible and have already filed your 2021 tax return and you had a tax liability, no action is needed. If you have not yet filed your 2021 return, you are still eligible if you file by September 15, 2023 and should receive your refund approximately one month after filing. To estimate your refund or for more information: https://www.mass.gov/info-details/chapter-62f-taxpayer-refunds.
Massachusetts DOR began issuing the refunds in early November. If you had direct deposit with your 2021, most likely that is how you will receive this refund. Otherwise a check will be issued.
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Estate and Gift Planning Strategies |
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- Make use of annual exclusion gifts ($16,000 per donee, $32,000 per married couple) (this amount increases to $17k for 2023) to help save on potential future estate taxes.
- Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses.
- Consider intra-family loans and opportunities to leverage the current high-interest-rate environment.
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Review lifetime gift and GST gifting opportunities to use additional applicable exclusion and exemption amounts.
- The lifetime gift and GST exemptions which is expected to decrease from $12.92 million per person (2023 amount) to approximately $6 million in the next few years either through the sunsetting of the law or a change in the laws.
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529 Plans
Consider gifting to a 529 plan by year-end if saving for a child's or grandchild's education. The annual limit is the gift tax exclusion amount which is adjusted for inflation. You can max this out with 5 years of gifts for as much as $80k in the first year of funding.
Contributions to 529 plans are now deductible in Massachusetts up to $2,000 for those who are married, filing jointly and $1,000 for all other individuals. To be eligible for this deduction, the taxpayer must be contributing to a Massachusetts plan.
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Retirement, Investments and other planning |
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Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, changes in residency, and significant planned expenditures (real estate purchases, college tuition payments, etc.).
- Update pre-tax and Roth contributions to retirement accounts for 2023.
- Review your various insurance policies and confirm whether the amount of coverage and deductibles are still adequate.
- Review beneficiary designations with your custodian and update, as necessary.
- Confirm that you have spent or have a plan to spend the entire balance in your Flexible Spending Accounts and set 2023 contribution amounts.
- Review your investment portfolio and target asset allocation. Confirm whether you are within the targeted ranges for each asset class as recent market performance could have caused allocations to drift dramatically.
- Review any scheduled 4th quarter estimated tax payments and assess any liquidity needs.
- Consider an additional tax payment or increase in tax withholdings to eliminate a penalty.
- Evaluate progress towards financial goals.
- Plan for for IRA and 401(k) required minimum distributions in 2022 and beyond.
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Massachusetts has come into conformity with the federal IRS code beginning on 1/1/2022. The highlights are:
- Section 1031 exchanges - like-kind exchanges of real property
- Teacher’s expense deduction
- Exclusion from gross income of discharged qualified principal residence indebtedness
- Exclusion from gross income of certain employer payments of student loans
- Exclusion from gross income of employer-provided transportation fringe benefits
- Moving expense deduction and exclusion from gross income of qualified moving expense reimbursement
- Limitation on deduction by employers of expenses for fringe benefits
- Limitation on excess business losses of noncorporate taxpayers (for tax years 2021 through 2026)
- Certain exchanges of insurance policies
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New Federal K-2 and K-3 Rules Probably Will Not on Apply to Your Business |
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New Filing Requirements for Partnerships and S Corporation taxpayer Forms
The IRS has issued new instructions for Form K-2 and K-3 on which Partnerships and S Corporations repot their information to partners or shareholders. These forms are intended to provide more accuracy in international reporting. Your entity may not have to file these forms if the following applies.
- No foreign partners
- No foreign activity or limited foreign activity (limited activity is defined as no more than $300 of foreign income and taxes as shown on a payee statement furnished to the entity)
- Partnerships have informed their partners by 1/15/2023 that they would not be receiving Forms K-2& K-3
- No partner has requested these forms 2/15/2023 that they want such forms
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Use the below links to pay your estimated tax payments. |
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SCANNING
If you regularly scan documents to the portal, we have found that the following settings make the scan most legible:
DPI of 300
Black & White print
PDF
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If you want to take pictures with your phone, this app converts the pages from JPG to a PDF. It is offered by Microsoft and available on all phones and tablets. |
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READING ELECTRONIC DOCUMENTS
Download the latest Adobe Acrobat reader
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Quickbooks Online App-if you are not using the app in order to scan in receipts, you are missing out. After scanning in the receipts, you can categorize and the receipt is contained with your books for easy access. |
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To access our portal with your existing
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Need access to our portal to upload documents? Click here.
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P.O. Box 421
Chelmsford, MA 01824
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We are accepting new clients. The highest compliment a client can give us is the referral of a friend, family member, or a business associate.
If you have had a great experience with us, please consider recommending us. We would love a recommendation on LinkedIn!
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