Tax planning - do it BEFORE 12-31-23
Hello again clients & friends!
This is 2023's main tax planning blog...
Most taxpayers file on a "cash basis" & any tax planning must be done prior to year-end, typically before December 31st. Making changes next January won't affect most 2023 tax issues.
please note: some of the following tax planning ideas assume (require) that you can itemize deductions! Many taxpayers (me included!) cannot itemize this year due to the new(er) tax laws... and if so, those planning ideas will have NO effect - please see my (IF) footnote throughout this blog. (ie. the planning idea works only IF you can itemize deductions)
(a few also may have no effect, if you are high-income & subject to the alternative minimum tax, AMT)
* Review the – “2023 Tax Pocket Guide” provided to you (in last years’ blue tax file or provided at our initial meeting)
* Review all "blogs" regarding tax issues - archived at www.garlandtaylor.com
Note: since it is still only October, some links below have not updated for 2023 tax info...
Here are 2 basic tax planning questions
1) "will your income in 2024 be the same or higher?"
2) "do you believe tax rates will increase in 2024?"
* Most taxpayers want to reduce taxes in the current year. If this is your goal, that can be accomplished by deferring taxable income - examples: waiting until 2023 to bill clients & sell stocks with gains or by accelerating expenses - example: making donations (IF), paying taxes (IF), or buying supplies/equip now. Note: this is a possible tax strategy & NOT investment advice! Be sure to talk to your vendor/broker, as they are your investment advisor & expert.
* However, if you believe tax rates or your income will be higher in 2024 – then you may want to do the reverse - and accelerate taxable income into 2023 & defer deductible expenses until 2024.
Earlier tax laws included changes that could remove your ability to itemize deductions (if less than $27,700 if married filing jointly… you will just take a “standard deduction”).
Even if you can itemize, some deductions may now be limited – mortgage interest, state taxes, 2% miscellaneous, etc. Required distributions, AMT tax & Estate tax laws have been changed in the last few years. 2023 tax rates are different & may be reduced for inflation + for “flow-through” entities (some s corporations & LLC's) and corporations. Some tax regulations are still not final as of this date, but be sure to consider such possibilities when you tax plan...
Here’s a link to a summary of recent IRS changes in the “new tax law”. see also prior blog articles https://www.irs.gov/tax-reform
Here's a list of things the IRS suggests "to get a jump on your taxes"
* adjust withholding; make estimated or additional tax payments
* gather documents and organize tax records
https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-...
* Here's a link to online tax planning topics & tools from the AICPA, of which I am a member. American Institute of Certified Public Accountants (AICPA) is the national organization.
just click on “topics”, calculators, or on “what’s new”
Topics include – “working with a CPA” tax deductions & credits” Calculators include – 1040 tax calculator & self-employment taxes calculator. Ugh, AICPA has not updated it (I complained, to no avail. yet) https://www.360financialliteracy.org
Here are other links of interest…
* IRS 2023 Tax Tips https://www.irs.gov/uac/Tax-Tip-Archive
* IRS NEW last year 2022 Inflation Reduction Act
https://www.irs.gov/inflation-reduction-act-of-2022
* IRS Affordable Care Act provisions
https://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions
* Recent IRS news-> https://www.irs.gov/newsroom
* 2023 Tax Law changes -> https://www.irs.gov/tax-reform
* 2023 Tax Law news, more -> Tax News - The Tax Adviser
* IRS CARES Act -> things like advanced child care credits, employer payroll tax credits, latest updates on covid tax relief, etc… Once again, the IRS has not updated this link for 2023 changes. fyi https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments
* IRS SECURE Act - “Setting Every Community Up for Retirement Enhancement Act of 2019” (changes to required minimum distributions, etc) Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)
* Federal Energy Tax Credits -> https://www.energystar.gov
* IRS NEW Home Energy tax credits -> https://www.irs.gov/credits-deductions/home-energy-tax-credits
* IRS NEW Clean Vehicle & Energy credits -> Clean Vehicle and Energy Credits | Internal Revenue Service (irs.gov)
* Oregon Residential Energy Credits -> http://www.oregon.gov/ENERGY/
(please remember that some energy tax credits need to be applied for NOW, to obtain a certificate in the mail, before you can file your 2023 taxes)
Other credits or rebates must be applied separately from taxes, like the Oregon electric vehicle rebate https://www.oregon.gov/deq/aq/programs/pages/zev-rebate.aspx
* Oregon taxes, calculator + what’s new for 2023? (should be updated for 2023 later in the year. Oregon Department of Revenue : Personal Income Tax : Individuals : State of Oregon
* Oregon surplus KICKER credit information -> Oregon Department of Revenue : Oregon surplus “Kicker” credit : Individuals : State of Oregon
A g a i n - d o i t b e f o r e 1 2 - 3 1 - 2 3
(IF) footnote - note: these planning ideas may still work for Oregon (as Oregon has much lower "standard deduction" levels), but not for federal - only IF you have itemized deductions (over $27,700 MFJ or $13,850 MFS/single $20,800 HOH).
* determine if you need to adjust your payroll tax withholding (see “new law” link above for a calculator) or if you need to make estimated tax payments to avoid/stop underpayment penalties.
* Pay any Oregon state taxes that you know will be owed (using Form 40-V). (IF) + you haven’t reached the $10,000 limitation.
* Pay all real estate taxes (that are due soon, by 11-15-23), if only a partial payment was made. (IF) + you haven’t reached the $10k limit.
* Pay your mortgage payment before 12/31, if it is due early in January 2024. (IF)
* Talk with your pension advisor regarding retirement planning and contributions.
* Talk to your investment advisor regarding benefits in selling and/or keeping investments.
* Talk with your attorney regarding modifications in personal wills & business agreements.
* Go through your closets & garage & consider contributing items to a qualified charity. Be sure to keep a detail of values (cost & used value) & take pictures. AND, you must get a receipt from the charity. (You can find Goodwill & St Vincents’ valuation guides online or document the value yourself). The usual (IF)
* Make charitable contributions by check or credit card & get written letters of acknowledgement. (IF)
Again, for 2023 – at this time, it appears the $300/600 "above-the-line" tax deduction in prior years (ie. without itemizing) for cash/check charitable donations is still gone. Unless Congress/IRS renews that deduction, it expired 12-31-21 (CARES Act).
* Defer income to 2024 & accelerate expenses into 2023, if that makes sense (see above comments) But, if you believe your 2024 taxable income will be higher or tax rates will increase next year - just reverse that basic tax plan)
* Paying college tuition now might increase the tax credits for higher education (Note - there are income & other limitations)
* Bunch deductions - There are "floor" limits for medical (still 7.5% of adjusted gross income/AGI) so, either pay expenses now in 2023 or later in 2024 - to "bunch" & exceed limits. (IF)
* Take any required minimum distributions (RMDs) – note, major changes to requirements were made a few years ago, in the IRS SECURE Act for 2020. See link above & below for details. Be sure to talk to your banker or investment advisor each year so they can calculate this for you (rmd calc is not part of income tax services). Please note that there are severe penalties for not taking the RMD. Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)
* Use annual gift tax exclusion. No gift tax on gifts up to $17,000 per recipient. Be sure to discuss this with your estate planner before doing so.
* Use your credit card to pay tax deductible expenses, but only if you need to
* if you have a rental property, determine if the activity is a "trade or business" under the recent IRS cs199 (possible 20% deduction). There is a new safe harbor rule.
https://www.irs.gov/pub/irs-drop/n-19-07.pdf
* BIZ - Buy equipment, IF you need it (must be received & placed into service by 12/31/22. (but be careful - see the luxury auto & SUV rules... Which may limit the amount deductible)
* BIZ - C corporations - pay bonus? or pay dividends? (fyi, some complex tax issues)
* BIZ - S & C corporations - make sure you have paid reasonable wages for your services during the year & have written support for that. This is required & especially important if you take any cash distributions.
* BIZ - If you sell inventoriable items, you must physically count at year-end (at your cost). You must do this every year!
* BIZ - S corporations. Make sure you have sufficient stock basis in order to claim any losses or to take cash distributions (without creating additional taxable income).
* BIZ - If officers have incurred/paid expenses personally - reimburse officers from the corporation under an accountable plan (2023 IRS mileage rates are 65.5 cents per mile... or you can’t deduct them!
* BIZ - If there are officer loans on the books, get rid of them if possible (to reduce potential audit risk).
OK - Here's also a few things to do AFTER the year ends...
* BIZ - File 2023 Forms 1096/1099's by 1/31/24 (order them NOW at 1-800-829-3676. (for rent, dividends, interest, services, etc that you paid in 2023.
Order free forms by phone or online NOW at https://www.irs.gov/Forms-&-Pubs It will take a few weeks to get them!
Note: there is a fairly NEW form for the 2023 payments to contractors, Form 1099-NEC (same as 2022). About Form 1099-NEC, Nonemployee Compensation | Internal Revenue Service (irs.gov)
Remember to properly classify workers as employees or contractors (you should do that before you hire them). Use these tests & then document the facts + your reasoning (in writing) for each person/entity. Be sure to talk with your Payroll Service vendor as they are your expert payroll advisor. Please note that there are severe penalties to you if you misclassify workers.
https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
https://www.oregon.gov/oda/shared/Documents/Publications/NaturalResource...
* BIZ - File Personal Property Tax Reports with County Assessors office by 3/15/24 (every Oregon business must file this report - check with your assessors office for forms) If you filed last year, you should receive a 2023 form in the mail. If not, you must call your Assessors office to get set this up.
(If you are in Multnomah County, here's a link to information & the online form, when it becomes available) https://multco.us/assessment-taxation/business-personal-property-informa... just click on "confidential personal property return"
Foreign bank & financial accounts - you may be required to file with the FBAR by APRIL 15, 2024. This is a new change (years prior to 2018 were due June 30th).
https://www.irs.gov/businesses/small-businesses-self-employed/report-of-...
Please see our annual income tax services engagement letter - CPA provides "no legal, payroll, pension, RMD, or investment services or advice"
Here's a summary of what I am doing for year-end tax planning before December 31st
P E R S O N A L
* Itemized deductions – I’m not doing too much… since my mortgage interest is small & state taxes are limited to $10,000 – I’m not able to itemize this year for federal tax purposes at all. ie. My total deductions don't exceed $27,700. But I AM able to itemize for Oregon, since that standard deduction (MFJ) is much smaller, only $5,210 MFJ ($4,195 HOH, $2,605 single). Not a huge tax offset, since Oregon tax rates are typically only ~9-10%, but it is something at least! (IF) Ugh…
* Doing a 2023 income tax projection – to see if my payroll tax withholding is adequate. I’ll make additional estimated tax payments if it is not (or pay penalties!)
* Setting up a bright red folder marked "TAXES" and will place all 2023 tax documents there as they come in. Form W-2's, 1099's & Form 1098, pension data
B U S I N E S S
* Locate and copy purchase invoices & support for any tax credit items (1099-T, for tuition, etc)
* Order new Quickbooks software & download the software by 12/31. I just bought a new Tank Printer (on sale!) from HP, as my current one was getting old - with much more RAM & speed. Since the cost was far less than $2,500, I'll expense it this year (using the IRS "deminimis" election), reducing my taxable income.
Be sure to categorize any/all 2023 equipment or software purchases under $2,500ea as EXPENSES (not fixed assets) in your accounting/bookkeeping software, to achieve that "deminimis" expensing tax election. Do not classify any items under $2500 as fixed assets on the Balance Sheet, or you can't make this election. Make a written accounting principle declaration to that effect, in your files on or before January 1st each year.
https://www.irs.gov/businesses/small-businesses-self-employed/tangible-p...
* Reimbursing myself (from my s corp) for all 2023 biz mileage & business expenses purchased on a personal card. note: sole proprietors & single member LLC's don't need to reimburse, just keep good detailed records & provide those to your CPA at tax time.
* Purchasing business supplies, paper, and postage. Reviewing equipment & software needs
* Paying my corporate payroll taxes due 1-15-24, early & by Dec 31st (I am a cash basis biz). I’ve already prescheduled payments with IRS EFTPS and Oregon’s new online system called “Francis”.
* Paying my office rent that is due January 1st (I'd pay business insurance too, if due Jan/Feb)
* Entering all my accounting data into Quickbooks and reconciling my bank balance now. 12/31/23 statements can be gotten online so I don't have to wait for bank. I know my data in QB is accurate.
* Order tax forms NOW (1099's, 1096, W-2, etc) from the IRS. This will take several weeks, so do it now.
* Complete my personal property tax report (County Assessor should mail those out, later in December. If you filed last year)
* round up my Goodwill receipts and calculate fair market values & list purchase prices so that i can deduct those as itemized deductions for Oregon.
Again - the standard deduction for Oregon is much lower than federal, so you may still be able to take itemized deductions for Oregon!
Tax Records - what is required to keep?
per IRS -> You must keep records, such as receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return as long as they may become material in the administration of any provision of the Internal Revenue Code, which generally will be until the period of limitations expires for that return.
https://www.irs.gov/taxtopics/tc305
please also see IRS publications 15, 17, 583, and 463 which are linked in the above url
Tax Records - how long to keep?
Keep forever - all tax returns, real estate basis & improvement records. stock records too
Keep for 7+ years - all evidence to support taxable income & deductions - (W-2's, 1099's, receipts, cancelled checks, logs, retirement plans, donations, etc.)
How long should I keep records? | Internal Revenue Service (irs.gov)
2023 Individual changes? If so, please just ask…
If your 2023 taxable income, deductions, withholding, or estimates paid have changed significantly, it is recommended that you engage my firms’ services to perform a formal 2023 income tax projection. (to anticipate taxes due, make changes in payroll withholding & determine if additional estimates are required to avoid or stop penalties)
For my individual income tax clients... I look forward to working with you again!
2023 Business changes? If so, please just ask...
For my corporate & LLC tax clients - If you haven't asked me to look at your 2023 Quickbooks or other accounting data yet - that's also strongly recommended & now's the time, so I can still be able to peruse the file & comment before 2024. If you are cash basis - NO changes can be made after 12/31/23.
If you need help with filing form 1099's, sales or personal property tax reports, or reporting foreign accounts - please request that in writing (as these are not part of the income tax services provided. please see your engagement letter, if you're a tax client).
Tax Season, interviews, organizer…
Your Tax Organizer & appointment will be mailed to you in late December or early January (or better yet - I can email you a pdf copy instead, so please just ask!). If you have a request for a specific time range or day of the week, let me know soon.
At this point, there appear to be effective booster vaccines & the covid 19 virus rate decreasing a bit, but with new variants – it is still up in the air whether 2023 tax interviews will be either in-person, by phone, or remote on Zoom. Last year, our family all got COVID as soon as I started in-person client tax interviews. Ugh…
But just like the last 3 years, most tax data can simply be mailed, faxed, encrypted/emailed, or even just dropped off at my front desk reception. I also have website & Intuit portals where you can upload documents. Please note that the possibility of “in-person” meetings may change, depending on virus conditions during tax season. If you have input or ideas – please let me hear it, thanks!
Please email if you have any questions.
Thanks again for your business!
Stay safe & have a great Holiday season!
GARLAND
Garland Taylor CPA, Pres.
Garland R Taylor CPA, PC
205 SE Spokane St Ste 300
Portland, Oregon 97202
(503) 287-5584 telephone
(503) 287-6370 facsimile
cpa@garlandtaylor.com
www.garlandtaylor.com
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