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IRS DELAYS NEW INCOME REPORTING FORM

12/28/2022

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Taxpayers are required to report all earned income on their tax returns.  Believing that many taxpayers do not comply with that requirement and are part of the so-called "underground economy," Congress enacted a provision in the American Rescue Plan of 2021 to enhance compliance.

In the past, third-party settlement organizations such as eBay, Etsy, Paypal, Venmo, Square and credit card companies were required to submit a report to the IRS when they collected payments for products and/or services for a taxpayer with more than 200 transactions in a year totaling $20,000 or more.  Both the IRS and the taxpayer received a Form 1099K.  The taxpayer included the income shown on the 1099K on their tax return and the IRS matched the information on their copy of the 1099K with what the taxpayer reported.

The American Rescue Plan dramatically changed the reporting threshold.  Beginning with 2022, third-party settlement organizations were required to issue a 1099K if more than $600 had been collected for a taxpayer in a year no matter how few transactions they processed.  Taxpayers were to be issued a 1099K by January 31, 2023, reporting income received in 2022.

Many concerns were raised with the IRS about implementation of the new reporting requirement.  Hundreds of thousands of taxpayers were expected to receive a 1099K for the first time and not know what to do with it.  Additionally, there were concerns that third-party settlement organizations would incorrectly include personal transactions such as gifts, donations, paying someone for a household bill, or sharing the cost of a meal on the 1099K.

In response to the concerns raised, the IRS announced on December 23rd that it would delay implementation of the new reporting thresholds for one year.  Because the delay was announced at the last minute, some taxpayers may receive a 1099K for 2022 based on the new thresholds.  In the coming weeks, the IRS will provide guidance about what a taxpayer should do if they receive a 1099K  they believe they should not have received.  However, taxpayers are reminded that all earned income must be reported whether they receive a form or not.

If you have income from sources that you have previously not reported, be sure to discuss that with your tax preparer as soon as possible so that you are in compliance with reporting requirements.  



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NEW ELECTRIC VEHICLE CREDITS

12/27/2022

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Thinking about buying an electric vehicle?  The Inflation Reduction Act provides new incentives for purchasing electric vehicles beginning on January 1, 2023.  A credit of up to $7500 will be available to taxpayers who purchase certain new electric vehicles and hybrids. A credit of up to $4000 will be available to taxpayers purchasing a used electric vehicle.  Which taxpayers and which vehicles qualify is complicated and will remain uncertain until the Treasury Department issues proposed rules later this year.

What is known is that in order to qualify for the credit a new electric sedan cannot have a price above $55,000 and pickup trucks, SUVs and vans cannot have a price over $80,000.  Vehicles must be purchased from a dealer, not a private party.  There are also requirements  related to where the vehicle is made and where the batteries are produced.  Additionally, the credit for new electric vehicles will only be available to taxpayers with adjusted gross income below certain levels - $150,000 for single taxpayers, $300,000 for those filing jointly and $225,000 for those filing as head of household.

Used electric vehicles must cost less than $25,000, must be at least two years old and must be purchased from a dealer, not a private party, to qualify for the credit.  There are no requirements related to where the vehicle was made or where the batteries were produced.  Eligibility for the credit is also based on adjusted gross income below certain levels - $75,000 for single taxpayers, $150,000 for those filing jointly and $112,500 for those filing as head of household.

For new cars purchased in 2023 the credit is based on the make and model and will be claimed on 2023 tax returns filed in 2024.  Starting in 2024 the credit can be transferred to a dealership to lower the vehicle purchase price but eligibility for the credit will be reconciled on the 2024 tax return in 2025.

For used cars the credit will be 30% of the purchase price, up to a limit of $4000. For used cars purchased in 2023 the credit will be claimed on 2023 tax returns filed in 2024.  Starting in 2024 the credit can be transferred to a deanship to lower the vehicle purchase price but eligibility for the credit will be reconciled on the 2024 tax return.

THESE ARE NON REFUNDABLE CREDITS.  That means the credit is used to reduce the amount of tax owed in the year the vehicle is purchased.  If the credit is greater than the tax owed, the balance does not carry forward into the next year.

Until the Treasury Department issues regulations later this year, taxpayers should be cautious about purchasing a vehicle to take advantage of these credits as there are still so many unknowns.


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    Federal and state tax laws and regulations change regularly.  As we become aware of changes, we will post them here and, if you are a client who has provided us with an email address, we will also email them to you.

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