Happy New Year!!!

As you prepare for filing the year 2023 tax returns, please take note of the following important tax information:

1. 2023 tax filing season begins January 29

The IRS announced that the nation’s tax season will start on Monday, January 29, 2024, when the tax agency will begin accepting and processing 2022 tax year returns, and the 2022 tax filing deadline is Monday, April 15, 2024. Please submit your documents before March 31, 2023, otherwise, we will file for extension for additional service fee.

2. Final 2023 estimated tax payments due by Tuesday January 16, 2024

The IRS urges taxpayers to pay any remaining 2023 estimated taxes by January 16, 2024. Taxpayers who may need to make a payment to avoid a surprise tax bill include:

• Those who itemized in the past but are now taking the standard deduction
• Two wage-earner households
• Employees with non-wage sources of income
• Those with complex tax situations
• Families who received advance payments of the Child Tax Credit during 2023 but don’t expect to qualify for the credit when they file their 2023 return

3. Tax questions on virtual currency transactions

The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. Please reach out to us if you have questions on Virtual Currency Transactions.

Do you frequently trade virtual currency?

Be prepared for a headache if your trading platform will not issue 1099-B tax forms indicating your cost basis in coins/tokens that were sold or converted during 2023. If they won’t provide 1099-B forms then ask if they offer tools to help calculate your 2023 gains/losses. You will need this to get your taxes done.

4. Get ready for 2023 taxes

Individuals, especially those who don’t usually file a tax return, are urged to file their 2023 tax return electronically beginning Jan. 29, 2024. Using tax preparation software or a trusted tax professional will help guide people through the process and avoid making errors. Filing an incomplete or inaccurate return may mean a processing delay that slows the resulting tax refund.

Individuals

In 2022, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2021; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through the tax year 2025.

• Standard Deduction

In 2023, the standard deduction increases to $13,850 for singles individuals and married couples filing separately (up from $12,850 in 2022), for single head of household, who are generally with one or more dependents to $20,800 (up from $19,400), and $27,700 for married couples (up from $25,900 in 2022).

• Alternative Minimum Tax (AMT)

In 2023, AMT exemption amounts increase to $81,300 for individuals (up from $75,900 in 2022) and $126,000 for married couples filing jointly (up from $118,100 in 2022). Also, the phaseout threshold increases to $578,150 ($1,156,300 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation. (Once your income for AMT hits the phased-out threshold, your AMT exemption begins to phase out at 25 cents for every dollar over the threshold.)

• FBAR

Treasury Department generally requires taxpayers with financial interest in or signature authority over foreign financial account that exceed $10,000 to file an FBAR by April 15. The penalties for non-compliance can be significant, and can be imposed on business owners or executives that have authority over a business account.

• Beneficial Ownership

The Corporate Transparency Acted in 2021 will require many corporations, Limited liability corporations, and other entities formed or registered to do business in the US to report beneficial owners. The new rules will become effective January 1, 2024, and filings can be required within 90days of creation for companies formed in 2024. Companies formed before 2024 will have until January 1, 2025 to report.

• “Kiddie Tax”

For taxable years beginning in 2023, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax” is $1,250. The same $1,250 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2023 must be more than $1,250 but less than $12,500.

• Health Savings Accounts (HSAs)

For 2023, the maximum you can contribute to an HSA is $3,850 for an individual (up $50 from 2022) and $7,750 for a family (up $100). People 55 and older can contribute an extra $1,000 catch up contribution.

• Medical Savings Accounts (MSAs)

There are two types of Medical Savings Accounts (MSAs): The Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2023, the term “high deductible health plan” for self-only coverage means a health plan that has an annual deductible that is not less than $2,650 and not more than $3,950, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,300.

Family coverage. For taxable years beginning in 2023, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $5,300 and not more than $7,900, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $9,650.

• AGI Limit for Deductible Medical Expenses

In 2023, the deduction threshold for deductible medical expenses is 7.5 percent of adjusted gross income (AGI), made permanent by the Consolidated Appropriations Act, 2021.

• Eligible Long-Term Care Premiums

Premium for long-term care is treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2023, the limitation is $480. Persons more than 40 but not more than 50 can deduct $890. Those more than 50 but not more than 60 can deduct $1,790, while individuals more than 60 but not more than 70 can deduct $4,770. The maximum deduction is $5,960 and applies to anyone more than 70 years of age.

• Medicare Taxes

The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2023, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the tax.

• Foreign Earned Income Exclusion

For 2023, the foreign earned income exclusion amount is $120,000 up from $112,000 in 2022.

• Long-Term Capital Gains and Dividends

In 2023, tax rates on capital gains and dividends remain the same as 2022 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have increased: the maximum zero percent rate amounts are $44,625 for individuals and $89,250 for married filing jointly. For an individual taxpayer whose income is at or above $492,301 ($553,851 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $44,626 and below $492,300 for single filers).

• Estate and Gift Taxes

For an estate of any decedent during the calendar year 2022, the basic exclusion amount is $12.92 million, indexed for inflation (up from $12.060 million in 2022) ($23.4 million for couples if portability election is timely made). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $17,000 per recipient for 2023.

• Child Tax Credit

For tax year 2023 the Child Tax Credit is $2,000 for each qualifying child and maximum advanced child tax credit increased to $1,600 for every child who is under the age of 17.

• Earned Income Tax Credit

For tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, and $700 with zero qualifying children.

• Child Dependent Care Credit

The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit up to $1,050 or 35% of $3,000 of eligible expenses in 2022. For two or more qualifying dependents, you can claim up to 35% of $6,000 ($2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. The tax credit is nonrefundable.

• Charitable Deductions

You can deduct charitable contribution you made in 2023 as long as you itemize your deductions and donate to qualified organizations. The limit for charitable deductions is 60% of your adjusted gross income.

• Adoption Credit

In 2023, a non-refundable (only those individuals with tax liability will benefit) credit up to $15,950 is available for qualified adoption expenses for each eligible child.

• Education – American Opportunity Tax Credit and Lifetime Learning Credit

The maximum credit is $2,500 per student for American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($185,000 or less for married filing jointly)

• Education – Interest on Educational Loans

In 2023, the maximum deduction for interest paid on student loan is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $75,000 ($155,000 for joint filers) and is completely eliminated for tax payers with a modified adjusted gross income of $90,000 ($185,000 joint filers).

• Forgiven Student Loan Debt

Starting in 2023, most student loan debt incurred for post-secondary education that is forgiven will not be considered taxable income. The rule allowing workers to exclude up to $5,250 for college loan paid by their employer in 2020 from taxable wage was also extended through 2025. The $5,250 cap applies to both student loan repayment benefits and other educational assistance offered by an employer.

• Clean Vehicle Credit

Clean Vehicle credit up to $7,500 for purchasing a new electric vehicle under the renamed Clean Vehicle Credit, for the first-time people purchasing used electric vehicle from 2023 to 2032 for eligible for a tax credit up to the lesser of $4,000 of 30% of the sales price, depending on their income.

Businesses

1. Standard Mileage Rates

In 2023, the rate for business miles driven is 65.5 cents per mile, up 7 cents from the rate for 2022.

2. Section 179 Expensing

In 2023, the Section 179 expense deduction increases to a maximum deduction of $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $28,900.

3. Bonus Depreciation

Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.

4. Qualified Business Income Deduction

Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2023, these threshold amounts are $182,100 for single and head of household filers and $364,200 for married taxpayers filing joint returns.

5. Research & Development Tax Credit

Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

6. Work Opportunity Tax Credit (WOTC)

Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

7. Employee Health Insurance Expenses

For taxable years beginning in 2023, the dollar amount of average wages is $30,000 ($28,700 in 2022). This amount is used for limiting the small employer’s health insurance credit and for determining who is an eligible small employer for purposes of the credit.

8. Business Meals and Entertainment Expenses

As of January 1, 2023 the temporary incentive has expired and the rule have gone back to a 50 percent deduction for most business meals. Although the business meals rule has reverted back, entertainment is still not tax deductible.

9. Employer-provided Transportation Fringe Benefits

If you provide transportation fringe benefits to your employees in 2023, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $300. The monthly limitation for qualified parking is $300.

Online Account

Taxpayers can use their Online Account to securely see important information when preparing to file their tax return or following up on balances or notices. Taxpayers can view the amount they owe, make and track payments and view payment plan details. Taxpayers can now also manage their communication preferences to go paperless for certain notices from the IRS, or to receive email notifications when the IRS sends them a new digital notice. Act now to create an account.

Where’s My Refund?

Taxpayers can check the status of their refund using the Where’s My Refund? tool. The status is available within 24 hours after the IRS accepts their e-filed tax return or up to four weeks after they mailed a paper return. The Where’s My Refund? tool updates once every 24 hours, usually overnight, so taxpayers only need to check once a day.

It’s strongly advised to use direct deposit for tax refunds

Direct deposit gives taxpayers access to their refund faster than a paper check. Individuals can use a bank account, prepaid debit card or mobile app to use direct deposit and will need to provide routing and account numbers. Learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool. Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.

While this checklist outlines important tax changes for 2023, additional changes in tax law are likely to arise during the year ahead. Don’t hesitate to call if you have any questions or want to get a head start on tax planning for the year ahead.

Don’t worry about memorizing these changes; the Bridge CPAs has you covered and is ready to file your 2023 tax returns.

The last day to file your 2023 tax returns is Tuesday, April 15 2024. But don’t wait until the last minute – please call to schedule your appointment at (703) 942-9476 or email. Please submit your documents before March 31, 2024, otherwise, we may file for extension for additional service fee.

Thank you for choosing the Bridge CPAs, LLC to be your trusted tax advisor. We look forward to working with you soon!!!

The Bridge CPAs, LLC

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