Glenn Carlson, E.A.
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Tax News

Important 2023 Tax Dates

January 16: 4th quarter estimated tax payment for 2022 due.
January 31: W2s and 1099s due to employees/contractors.
February 15: Brokerage and financial documents due to account holders.
March 15: Calendar year partnership and S corporation returns due.
April 18: Individual and C corporation tax returns due.
April 18: 1st quarter estimated taxes due.
June 15: 2nd quarter estimated taxes due.
September 15: 3rd quarter estimated taxes due
October 16: Individual returns on extension due.
January 16, 2024: 4th quarter estimated taxes for 2023 due.

Important Tax Changes

For 2022 tax filing, the majority of changes associated with COVID relief have expired; however some were extended, along with some new credits added, via the Inflation Reduction Act.

Tax Rates, Income and Deductions

Standard deductions for 2022 are $12,950 for single filers, $25,900 married filers, and $19,400 for head of household filers.

The Inflation Reduction Act instituted a new 15% minimum tax on corporations, but individuals were spared changes to the tax brackets. There remain 7 - 10%, 12%, 22%, 24%, 32%, 35% and 37%. Per 2018 TCJA the bracket dollar amounts are adjusted for inflation. You can see the brackets here. California standard deduction and tax rates can be seen here.

ALMOST FREE MONEY! California enacted a "Middle Class Tax Refund" (aka Gas Rebate) to assist taxpayers faced with high fuel prices and other inflation-hit living costs. The FTB is using 2020 tax data to determine who qualifies, and the payments are to be issued automatically via direct deposit or debit card. Only downside here is the IRS considers these refunds taxable income on the federal return and so the FTB will be issuing 1099 forms reporting the amount issued to each taxpayer/family. More info regarding eligibility, refund amounts, and payment schedules is available here.

The deduction for mortgage insurance premiums has been retroactively restored (income limits permitting).

The deduction for medical expenses remains at the 7.5% threshold.

Energy Credits

Beginning in 2023 the maximum electric vehicle credit increases back to $7,500 but with some provisions relating to minimum amounts of US sourced components for a vehicle to be eligible (emphasis on batteries). The vehicles must also be assembled in the US to qualify. EVs that do not meet these requirements are subject to the previous maximums and phase-outs. So that is all a bit murky at the moment as most EVs do not qualify for the increased credit (Consumer Reports has a list of EVs that currently qualify or may qualify). There are new price and income restrictions as well: Passenger vehicles must sell for under $55,000 and SUVs, vans and trucks for under $80,000. MFJ taxpayer income must be less than $300,000 ($150,000 single). Furthermore, there is a new option whereby the car buyer can reassign the credit to the dealer as part of the vehicle payment.

The new credit for buyers of used EVs is more straight forward. The credit is 30% of the purchase price (up to $4,000) for EVs that are older than 2 years, bought from a dealer (private party sales ineligible), and that it is the first resale of the vehicle. The vehicle must be sold for less than $25,000. The income limits for the used EV credit are stricter: $150,000 for MFJ and $75,000 for Single filers. This credit also begins in 2023.

The 30% credit for EV charging stations was restored and extended through 2032.

Beginning in 2023 the residential energy credits for insulation, windows, doors, and furnaces change significantly with the $500 lifetime credit cap being replaced with an annual $1,200-$2,000 credit. This credit is in place through 2033. 2024 sees a new rebate program funded by Washington, administered by the states, for the above energy efficiencies as well as for various appliances. The rebate list is extensive and too detailed to include here but the information is available online. Note: Anyone can take advantage of the energy tax credits, but the rebate program is to be means tested, so higher earners will not be eligible (exact details are not clear at this time).

The solar energy panel and battery storage tax credit is raised back up to 30% of cost of panels and batteries including labor for installation. This credit is also extended through 2032.

Children & Dependents

The maximum pre-tax dependent care FSA contribution returned to $5,000. Child & Dependent Care Expenses (Form 2441) maximum returns to $3,000 for one child and $6,000 for two or more children. These are the expenses paid for pre-K childcare, Kindergarten, or after-school and summer activities for children until their 13th birthday.

The Child Tax Credit returns to the prior rules, $2,000 per child ending at age 16 (phased-out for higher earners).

Up to $5,000 may be withdrawn from a retirement plan without penalty for up to one year after birth or adoption of a child.

You may now withdraw up to $10,000 from a 529 plan during your lifetime to repay student loans of an account beneficiary (or their siblings) without tax or penalty. Additionally, a 529 may now be used tax-free to pay for an approved apprenticeship program.

Those rare children with high interest, dividends or capital gain income are once again retroactively taxed at their parent’s tax rates instead of the potentially higher trust tax rates.

Retirement/Estate Planning

Beginning in 2020 the starting age for required IRA distributions was raised to 72.

IRAs inherited from people other than your spouse must now be distributed within 10 years of death. This does not affect IRAs inherited before 2020.

Stipends and fellowships are now considered income for IRA contributions.

Penalty-free hardship withdrawals of up to $100,000 were allowed in 2020 for persons affected by COVID-19 with a three-year payback period, the last being the 2022 return.

Max 401K Salary deferral is $20,500 ($26,500 for ages 50+). Regular IRA contributions remain at $6,000 ($7,000 for 50+).

Gift tax exclusion rises for the first time in several years, now at $16,000 per donee to any single individual.

Business & Self Employed

Business meals with clients and during travel are 100% deductible in 2022. The standard business mile rate of 58.5 cents was increased to 62.5 cents for miles driven starting July 1st.

Maximum 401K/SoloK salary deferral is $20,500 (with 50+ $6,000 catch-up unchanged). Maximum SEP contribution increases to $61,000.

Changes to R&D cost recovery can be expensed in the year incurred through 2025 when new amortization rules take effect.

Cashless Transactions

The new requirement for apps/services such as Venmo, PayPal, Cash, Apple Pay, eBay etc. to issue 2022 1099s if annual transactions exceed $600 has been suspended (now effective for 2023 reporting). Was the IRS truly keen on forcing tens of thousands of teen¬age baby sitters, tutors and the like to file Schedule Cs as self-employed businesses? How are we supposed to prove to the IRS that all the reimbursements from friends, all the bill splitting, all our online “garage sales” etc. isn’t taxable income? Hopefully the IRS comes to its senses and either cancels this plan or raises the reporting threshold to a much more realistic number. Let's see how all this shakes out.

IRS Identity Protection

The IRS is encouraging taxpayers to apply for a PIN to reduce risk of identity theft and prevent anyone from filing a fradulent tax return under your name/SSN. The easiest way to apply is to use this IRS link. A new PIN is needed each calendar year and is good only for returns filed in that year (i.e. cannot get one mid-year for next year's filing). So if you are interested, my recommendation is to get your PIN in mid-January. You have to set-up an IRS online account and verify your identity first; this can be done at any time. You only need to sign up once; your annual PIN will be assigned automatically (you will need to log in to your account to retrieve it). And of course I need your PIN to enter for efiling! More information available on IRS Publication 5367.

Cryptocurrencies -- The IRS' Latest Obsession

Over the last couple years, the IRS has ramped up its enforcement of compliance with crypto/virtual/digital currencies (Bitcoin, Dogecoin, Litecoin, Ethereum, Dash, etc etc etc). The IRS (again surprise!) believes most taxpayers who own these currencies fail to report their taxable transactions. Beginning with the 2020 tax return, all taxpayers were required to affirmatively declare if they had engaged in any virtual currency transactions during the year. Intentionally failing to report taxable income can have severe consequences. Be sure to provide us with all information concerning your digital currency transactions during the year.

Your Annual Tax Journey

As the "road map" below highlights, preparing a tax return is just the first step in what can be a long process once it hits the IRS.

Tax Payer Road Map

For a fascinating (and alarming!) look at what happens to a paper filed return (mostly the top row middle square of the above chart), along with the inner workings of the IRS Austin "Pipeline" processing center, the Washington Post has a great article. Makes you happy you efile doesn't it?

Who Pays Income Taxes Anyway?

The top 25% of all taxpayer earners paid 86.6% of all income taxes collected in 2019; they also earned 68.8% of all the reported money
(to be in top 25% your 2019 adjusted gross income exceeded $87,917)
The top 10% of all taxpayers paid 70.8% of all income taxes collected
($154,459 puts you in the top 10)
The top 5% of all taxpayers paid 59.4% of all income taxes collected
(top 5% means rich, right? Well, $221,572 put you in such rarified air)
The top 1% of all taxpayers paid 38.8% of all income taxes
(the oft maligned 1%ers, with income of $546,434+ are obviously doing okay)
Taxpayers reporting AGI under $87,917 in 2019 paid 13.4% of all income taxes collected, and those reporting under $44,269 (nearly half of all tax returns filed) paid 3.1%
( latest IRS compiled data is from 2019

So, who pays the fairest share?

Click here to see where your tax burden falls. (links to

California Here I Come ... or go?

There's a lot of talk of the exodus from our increasingly crowded, expensive, drought-ridden, charred, sky-high taxes of a State. But does the data bear that out? Or is the ingress of the young and tech-savvy still on the ascendent?

According to the annual study by United Van Lines and results from the 2020 census, California is #3 on the list of outbound migration for 2021 with a net population loss of .8%. A glance at the map below indicates most outbound Californians are likely trekking to Idaho (#1 inbound), Utah (#2), Montana (#3), and Arizona (#4). COVID and remote work certainly played a part in this, and there are recent reports of housing demand in Idaho and Utah cooling rapidly as more back to the office policies come online with California tech companies. In the East and Midwest #1 outbound New York and #2 Illinois residents seem attracted to South Carolina (#5 inbound), Delaware (#6), and Texas (#7), interestingly over "no-tax" states like Tennessee (#12) and Florida (#9).

Still California remains golden to inbound movers under age 45 (41.6%), with an annual income over $100,000 (73%), and quite likely making a job-related move (47.6%). But apparently the Golden State also appeals to those in their Golden Years: 27.1% of inbound movers are 65+ (fixed income be damned, we're here for the sunshine!).

Donating to Charity on the California Tax Return

If you look at Page 4 of the California Form 540, the entire page is dedicated to a list of approved charities you can donate to via the tax return. Donations made will reduce your overpayment/refund and the Franchise Tax Board will remit the donation to the Fund immediately. It is quick and easy and, if you itemize, tax deductible on your next year's Federal and California return (i.e. contributions made on your 2020 tax return filed in 2021 are deductible on your 2021 tax return filed in 2022). Keep in mind the donation is irreversible; it cannot be revoked or amended once the return is filed, even if later changes to the return are made.

Here is a list of the Form 540 charities and the amounts donated to them in 2021 through taxpayer returns:

Alzheimers Disease Fund – $658,000
Breast Cancer Research Fund – $508,000
Cancer Research Fund – $515,000
California Firefighters Memorial Fund – $239,000
California Peace Officers Memorial Fund – $137,000
California Sea Otter Fund – $338,000
California Senior Advocacy Fund – $146,000
Emergency Food for Families Fund – $946,000
Keep Arts in School Fund – $340,000
Native Wildlife Rehabilitation Fund – $465,000
Protect Our Coasts and Oceans – $476,000
Prevention of Animal Homelessness and Cruelty Fund – $388,000
Rape Kit Backlog Fund – $534,000
Rare and Endangered Species Fund – $580,000
Schools Not Prisons – $363,000
School Supplies for Homeless Children Fund – $892,000
State Parks Protection Fund – $746,000
Suicide Prevention Fund – $383,000

Who's Preparing Your Taxes?

Do you realize that in 47 states there is no oversight, minimum or continuing education standards, nor any proof of competency required of anyone charging to prepare tax returns (the "paid preparer"). My prior hair stylist had to demonstrate more competency in order to be licensed than tax preparers in most states, and her mistakes grew back!

Of course, for those of you who engage the services of an enrolled agent, this has never been an issue. EAs have already passed an extremely comprehensive three part examination on the tax code and regulations, ethics, tax calculations and application for individuals, businesses and any other entity with a filing requirement. Furthermore, we must complete no less than 72 hours of ongoing education every three years (90 hours for NAEA/CSEA members). The IRS recognizes "Enrolled Agent" as the only designation with proven expertise in ALL areas of taxation.

Fighting An IRS Audit: You're On The Clock

There's nothing worse than seeing a letter in the mail box from the IRS. Actually there is something worse — doing nothing. One very important thing you should be aware of: When the IRS sends out a notice to you, the clock is ticking. Failure to respond escalates matters and, eventually, it's like not showing up in court ... BAM! Guilty! You have rights to dispute IRS claims, but they must be used within very specific timeframe's. Here's a LINK to an old but great article discussing the IRS timeline for its notices and collections processes (none of this has really changed in the last decade). Remember: Anything from the IRS in the mailbox means call your enrolled agent today.