2023 Tax Season Newsletter (online version)

2023 Tax Season Newsletter

 Welcome to my annual tax season newsletter.  The purpose of this newsletter is to distill down the major tax changes into one place.  I attend numerous seminars and webinars, read articles and the legislation itself—all so you don’t have to.

 The best news—nothing (retroactively) changed for 2022!

 From a tax professional’s point of view, the thing that keeps us up at night is when Congress changes the rules retroactively. Actually, 2022 is looking like it will be a normal year–tax wise. We didn’t have any stimulus checks or advance child payments.  Things are back to normal. In the last couple of years, when the numbers worked, we have filed spouses separately with wonderful results. Now, things are back to normal. There may be situations where filing separately saves money, but this will now be much less often.

Office News

The office at 320 Washington St has moved from the 2^nd floor to the 3^rd floor. Please use the elevator to reach the third floor.

In looking back over the past tax season, the biggest hindrance for me is clients not sending all of the information to me in their first submission.  I think one reason for this is because people are getting things electronically (as opposed to just coming in the mail).  Example: Client has 3 brokerage or retirement accounts, but only sends 2 of them..  If you have closed an account, please tell me or I will assume it is missing.  Please refer to the Tax Documents List that should be enclosed.

Email Protocol

Please do not send me emails with your tax documents.  This is a security risk as bad actors can impersonate you and send me an email from a client stating “Charles, Here’s my W2”.  This is ‘phishing’ and if I were to click on a bad link, I could infect my computer. I prefer things on paper.

The exception to this rule is a long brokerage statement with more than 20 pages and other long documents.  I don’t mind these on paper, but understand if you want to save on printer ink.  I will supply a link for you to upload long documents to me upon request.

So, what’s new with taxes?

We have a few changes to update you on.  Please note that all of these changes are for tax year 2023 and do not affect your 2022 taxes.

Home Energy Credits Are Greatly Expanded.

For 2022, the rules are the same; there is a $500 LIFETIME credit that you can receive by installing energy efficient windows, doors, insulation, etc.   But the $500 limit includes anything you’ve received in prior years.  Bottom line;  if you previously received the $500 credit, you are out of luck for 2022.

Now the good news, starting in 2023, the $500 lifetime limit is gone. It has been replaced with a $1,200 annual limit for some items.  And there is a $2,000 annual limit for other items. Finally, the solar credit which was supposed to drop to 26% in 2002 will now be 30% through 2032. (Roofing costs have been removed from solar cost calculation.)

Besides these two overall limits of $1,200 and $2,000, there are number of “sub-limits”.  Honestly, the details are a bit mind-numbing.

Let me give you an example.  The $1,200 is made up of the following ‘Sub-Categories”—

The additional $2,000 annual credit applies to:  heat pumps, heat pump stoves, biomass stoves and boilers.

There are many more details that I can’t include here.  (Example, sometimes labor and installation costs are included and sometimes they are not eligible. Any rebates lower the cost.  Everything must be installed not merely purchased, etc.)

But, here’s the bottom line:

Going forward, if you find yourself in a major home improvement situation, try to space out your purchases across the years.  (Example:  If you buy and install $4,000 of new windows, in one year you get a $600 credit.  If you spread this out to $2,000 over two years, you receive $600 per year or $1200 in total).

Electric Vehicles – it’s a lot more complicated now.

The credit for all electric vehicles and plug-in hybrids has been substantially revamped.  Here’s a table summarizing this:

First off, the 2022 credit used to be limited by manufacturer.  This was why Tesla was no longer eligible.  The new 2023 credit has no limits, but you must make sure the vehicle is assembled in North America, and the battery materials need to be from North America or a nation that the US has a free trade agreement with.  (Translation: not China)  On my website, I will supply various links so that you can verify whether or not a vehicle qualifies.  Also, there is now an income limit, too.  It may be advantageous to file separately in some cases.

Bottom line:

The $7,500 Electric Vehicle credit is still alive, but research whether or not it applies to your specific car and watch the income limits.

Required Minimum Distributions (“RMD’s”) extended again

On December 29^th, 2022, President Biden signed an appropriation bill which included a new law entitled the “Secure 2.0” Act that primarily affected pensions.  The law made a number of changes.  Many of which don’t take place for a number of years, and I don’t see any reason to focus on those.

First off, the later you were born, the later you now have to start taking RMDs.  If you turned 72 (or older) during 2022, you must begin taking RMDs in 2022.  However, if you are younger than that, your RMD starting age has been extended.  Here’s a quick table:

Inherited Retirement Accounts from Non-Spouses

Once again, the rules are complex, and there are many exceptions.  The issue with inherited retirement accounts is that the government really wants the beneficiary to withdraw the money, pay taxes, spend the money, grow the economy, etc.  If you want to take the money, then stop reading!  Just take it and spend it (and pay the taxes).  However, many clients inherit a retirement account from a family member and would prefer to save it.  The first question to determine is was the deceased owner age was 72 or above and therefore subject to RMDs.  If they were subject to RMDs, you must continue those as a minimum annual distribution.  The second rule is that you must withdraw all the money within 10 years.  If the decedent was not taking RMDs, you don’t have any annual requirements but you must withdraw all of the money within 10 years.

These rules do not apply to spouses, disabled individuals, and recipients who are within 10 years in age of the person who passed.  There are different rules. Reach out to me for clarification.

Good news!  The IRS has specifically granted a “holiday” for RMDs for 2021 and 2022 for inherited retirement accounts. If you didn’t take the money, you no longer had to.

529 Plan rollover to a Roth IRA

This one is a bit unusual…if you have a 529 plan for a child and the plan is in existence for 15 years and there is money left over in it, then that money can now be rolled over into a Roth IRA for the child’s benefit.  The maximum lifetime amount is $35,000 per child subject to the annual Roth contribution limit ($6500 in 2023).  There are some mildly intriguing planning opportunities.  Despite what you’ve heard, money can be contributed at the end and then rolled over into a Roth IRA.

Here’s the bottom line:

“Set up 529 plans at least by age 10 and earlier if possible.  If you “use up” the 529 plan to pay for college, see if you can leave a nominal amount in the account ($100?) to keep the 529 account open.  This will allow you (or your child) to take advantage of this in the future if the situation warrants it”

Well, that’s about it for now.  I look forward, as always, to preparing your 2022 taxes.

Best,

Charles R. Markham, MST, EA

U S Tax Court Bar No. MC0772

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ANNUAL CUTOFF DATE NOTICE

Each year, I establish a cut-off date for tax submissions.  The significance of this date and time  is that if I have a complete package in my hands (not postmarked) by that date, I aim to get your taxes back to you during early April—hopefully comfortably before the filing deadline.  For the 2022 tax season, the cutoff date is:

Sunday, March 19^th, 2023 at 12:00 p.m.