Employers warned to beware of third parties promoting improper Employee Retention Credit claims.

BY Admin

On October 19, the Internal Revenue Service (News Release IR-2022-183) warned employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) for 2020 and/or 2021 when they may not qualify.  Some third parties are advising taxpayers to take improper positions related to taxpayer eligibility for and computation of the credit.

These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business’ federal income tax returns must be reduced by the amount of the credit.  If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file amended income tax returns to correct any overstated wage deduction.

Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true.  Taxpayers are always responsible for the information reported on their income and employment tax returns.  Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

For more information about the ERC please see Bauman Associates’ June 2021 explanation at https://baumancpa.com/employee-retention-tax-credit-ertc/ and information on the IRS website at https://www.irs.gov/newsroom/employee-retention-credit-2020-vs-2021-comparison-chart.

The 2022 Inflation Reduction Act’s Credits

BY Admin

Dear Clients & Friends,

The recently enacted Inflation Reduction Act of 2022 contains several new tax credits that are of interest to individuals and small businesses. The Act also extends and modifies some pre- existing credits.

Feel free to contact us if you have questions about taking advantage of these new and modified tax credits.

Extension, Increase, and Modifications of Nonbusiness Energy Property Credit

Taxpayers were allowed a personal tax credit for certain nonbusiness energy property expenditures. The credit originally expired in 2021.

2022: The old 10% credit (with the lifetime $500 maximum) has been reinstated for 2022. It only applies to energy expenditures for a principal residence.

Law Change. A new tax credit takes effect in 2023 and applies through the end of 2032. The new credit applies to any personal residence, not just a principal residence. The credit is now called the “Energy Efficient Home Improvement Credit.”

Increased credit. The Act increases the credit for a tax year to an amount equal to 30% of the sum of (a) the amount paid or incurred for qualified energy efficiency improvements installed during that year, and (b) the amount of the residential energy property expenditures paid or incurred during that year.

Annual limitation instead of a lifetime limitation. The Act generally limits the allowable credit to $1,200 per taxpayer per year. In addition, there are annual limits of $600 for credits with respect to residential energy property expenditures, windows, and skylights, and $250 for any exterior door ($500 total for all exterior doors).

The credit is also allowed for amounts spent for a home energy audit (on a principal residence only.) The amount of the credit due to a home energy audit can’t exceed $150. This is in addition to the general $1,200 annual credit limitation.

Note: A $2,000 annual limit (instead of the general $1,200 limit) applies with respect to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.

Extension and Modification of Residential Clean Energy Credit

Taxpayers are currently allowed a personal tax credit, known as the residential energy efficient property (REEP) credit. This is available for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes through 2023. The credit is at a 26% rate (reduced from the original 30%.)

Law Change. The Act reinstates the full 30% credit for 2022 and 2023 and extends the 30% credit through 2032. The credit is allowed at a lower level for 2033 and 2034. The Act also makes the credit available for qualified battery storage technology expenditures, starting in 2023. Qualifying battery storage is generally defined as having a capacity of at least 3 kilowatt hours.

The credit continues to be allowable for the kinds of expenditures (noted above) that are installed in any personal residence (except for fuels cells which must be installed in a principal residence.)

Note: The Act removes qualified biomass fuel property from eligibility for this credit after 2022.

Extension, Increase, and Modifications of New Energy Efficient Home Credit

The New Energy Efficient Home Credit (NEEHC) was available to eligible contractors to construct qualified new energy efficient homes acquired by a homeowner before Jan. 1, 2022. A home had to satisfy specified energy saving requirements to qualify for the credit. The credit was either $1,000 or $2,000, depending on which energy efficiency requirements the home satisfied.

2022: The Act reinstates the old credit for 2022 under the old efficiency rules and credit limits, noted above.Law Change. The Act expands the credit, starting in 2023 and running through 2032. The credit is available for qualified new energy efficient homes and can be:

  • $500 or $1,000, per unit for multi-family dwellings or
  • $2,500 or $5,000 for single family homes,

depending on which energy efficiency requirements the home satisfies (Energy Star new single family, manufactured and new multi-family requirements.)

Prevailing Local Wage Requirement. There is also a requirement that the construction of the home or dwelling meets “prevailing local wage” requirements. These prevailing wage requirements are meant to ”…ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction of such residence shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such residence is located as most recently determined by the Secretary of Labor,…”

We expect further guidance on what this means – the prevailing local wage provision applies starting in 2023.

New Clean Vehicle Credit

A taxpayer can currently claim a credit for each new qualified plug-in electric drive motor vehicle placed in service during the tax year.

Law Change. The tax credit will now be called a “Clean Vehicle Credit” and eliminates the limitation on the number of vehicles eligible for the credit. Final assembly of the vehicle must take place in North America.

Cap on Cost. The Act provides for a maximum $7,500 credit for a new vehicle, with a major change: There are now caps on the price of new vehicles that qualify for that credit. The caps are $55,000 for clean cars and $80,000 for clean SUVs, vans and pickup trucks.

Income Limitation. In addition, no credit is allowed if the taxpayer’s modified adjusted gross income either for the year of purchase or for the preceding year exceeds $300,000 for a joint return or surviving spouse, $225,000 for a head of household, or $150,000 for others.

Credit Calculation. The way the credit is calculated is changing. The calculation can be complicated; there is more emphasis placed on where the battery components and critical minerals used in the battery are sourced and processed.

Transfer of Credit. Finally, it will be possible (starting in 2024) to transfer an allowable tax credit to a dealer in exchange for cash (or for use towards a down payment on the vehicle.) This can only occur where the taxpayer qualifies to take the credit (see income limits above.) There will be no taxation to the buyer for the receipt of this cash or down payment credit in exchange for the credit.

Guidance. The Internal Revenue Service has issued preliminary guidance on the credit. This can be found at https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc- 30d. An initial list of frequently asked questions can be found at https://home.treasury.gov/system/files/136/EV-Tax-Credit-FAQs.pdf

Finally, the Department of Energy has released a list of possible vehicles that could qualify for the new credit at https://afdc.energy.gov/laws/inflation-reduction-act

We expect there will be additional guidance released in the weeks and months ahead.

Credit for Previously Owned Clean Vehicles

Law Change: Starting in 2023, a qualified buyer who acquires and places in service a previously owned clean vehicle is allowed an income tax credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price.

The definition of a clean vehicle for this purpose is generally the same as under the new clean vehicle credit (see above) except that the vehicle’s final assembly does not have to be in North America.

Income and Price Limitation. No credit is allowed if the taxpayer’s modified adjusted gross income either for the year of purchase or for the preceding year exceeds $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others. In addition, the maximum price per vehicle is $25,000.

Interestingly, a qualifying previously owned vehicle must be purchased from a vehicle dealer. And it will be possible, starting in 2024, to transfer the allowable credit to a dealer as noted above with regard to new clean vehicles.

New Credit for Qualified Commercial Clean Vehicles

Law Change. There is a new qualified commercial clean vehicle credit for qualified vehicles acquired and placed in service after December 31, 2022.

The credit per vehicle is the lesser of:

1) 15% of the vehicle’s basis (30% for vehicles not powered by a gasoline or diesel engine) or
2) the “incremental cost” of the vehicle over the cost of a comparable vehicle powered solely by a gasoline or diesel engine.

“Acquire” means a purchase or lease but not a purchase for re-sale. There are certain battery capacity requirements that must be met, depending upon the weight of the vehicle. The maximum credit per vehicle is $7,500 for vehicles with gross vehicle weight ratings of less than 14,000 pounds, or $40,000 for heavier vehicles.

Favorable Health Insurance Premium Tax Credit Rules Remain in Ef- fect for 2023-2025

The refundable health insurance Premium Tax Credit (PTC) is available on a sliding scale basis for individuals and families enrolled in an Exchange-purchased qualified health plan and who were not eligible for other qualifying coverage. The PTC is partially based on the taxpayer’s household income multiplied by an applicable percentage, which was then indexed based on the rates of premium growth relative to income growth.

The American Rescue Plan Act of 2021 (ARPA) suspended indexing for 2021 and 2022 and substituted a statutory table with favorable rates that resulted in a higher health insurance tax credit for many taxpayers.

Law Change. For tax years beginning in 2023 through 2025, the health insurance premium tax credit is available to taxpayers with household incomes that exceed 400% of the federal poverty level, as it was in 2021 and 2022. This change allows more taxpayers to claim the health insurance premium tax credit for 2023 through 2025 than would have qualified under pre-Act law.

Download the entire article: The 2022 Inflation Reduction Act’s Credits

Adapted from copyrighted materials provided by Thomson Reuters/Tax & Accounting, Checkpoint Federal Tax Update, “Summary of Senate-Passed Inflation Reduction Act of 2022” (08/09/2022) and “Client Letter: Inflation Reduction Act’s Individual, Small-Business Credits” (08/26/2022)

Join us for one of our upcoming webinars!

BY Admin

Tax Tips

We hope you consider attending one of Bauman’s upcoming webinars:

2019 Individual Tax Update

December 10, 2019 at 11:30 AM – 12:00 PM

Please join us for a 30 minute webinar as we explore year-end planning opportunities for your individual tax situation.

2019 Business Tax Update

December 11, 2019 at 11:30 AM – 12:00 PM

Please join us for a 30 minute refresher course on the tax laws and year-end planning opportunities for your business. Topics include: Tax Law Reminders – QBI & Depreciation, Sales Tax – Wayfair, Payroll Issues, Business Expenses- Meals & Entertainment.

If you’re unable to attend live, webinars will be archived to our website in the near future.

See registration links below:

Individual Event

Business Event

Bauman’s Tax Team Is Voted #1 Again!

BY Bauman Associates

 

People of the Chippewa Valley have spoken through Volume One’s Reader Poll and we are honored to be named to the Best Of list for the third year in a row. Our hope at Bauman Associates is that our team will continue to be a place where future generations feel welcome and are invited to help our community thrive. As our business and community evolve, our commitment to quality remains the same.

Bauman Associates, Ltd. has been serving the Chippewa Valley for more than 70 years. We also have an office in Hudson and remote workers from the Green Bay and LaCrosse areas. Besides offering excellent advice and helping individuals and other businesses reach their financial goals, we go beyond the numbers with our commitment to giving back.

Our Tax Team thanks you for voting them Number 1 Tax Service in Chippewa Valley – we look forward to another great year with our friends and clients.

 

 

Dinner with Bauman

BY Bauman Associates

 Students, don’t miss out on a free Dinner with Bauman!

Contrary to popular belief, there IS such a thing as a FREE dinner! Join accounting professionals from Bauman Associates on Thursday, May 2nd for pizza, door prizes and a unique opportunity to find out what it is like to work in a public accounting firm. Students will also learn about the employment opportunities Bauman Associates offers and network with leaders in the field. This event will take place at UW-Eau Claire in Davies Center, Dulany Inn (Room 122)  from 4:00 – 6:30 pm. Space is limited and applications are due May 1st, so submit yours today. We look forward to seeing you there!

Click here to access the Application Form

Year-End Tax Planning

BY Admin

Keeping up with the complex credit landscape can be difficult for organizations with limited resources. The Tax Cuts and Jobs Act (TCJA) adds another level of complexity to tax planning. In this article, we have outlined how the TCJA will impact key tax provisions and tax minimizing strategies.

Alternative Minimum Tax

 Alternative minimum tax (AMT) should be considered before you and/or your accountant begin to time income and deductions. AMT is a separate tax system that limits some deductions and disallows others, such as state and local income tax deductions, property tax deductions, and other miscellaneous itemized deductions that are subject to the 2% of AGI. Deductions include investment advisory fees and non-reimbursable employee business expenses.

The purpose of the AMT is to ensure those who receive a lot of tax breaks are still paying some level of federal income taxes. The AMT, originally intended to target high-income households, became problematic once it began affecting more and more taxpayers. Failing to account for inflation, the AMT began to impact middle-income households as wages increased.

To ensure that the AMT functions properly, the Tax Cuts and Jobs Act:

  • Increases the AMT exemption amounts
  • Raises the phaseout thresholds for these exemptions
  • Permanently indexes the exemptions for inflation going forward

Under the Tax Cuts and Jobs Act, fewer taxpayers will be affected by the alternative minimum tax. Speak with your tax professional regarding the changes made to the AMT exemption amounts.

Timing Income and Expenses

Timing is everything when it comes to income and expenses. Smart timing will reduce your tax liability, while poor timing can unnecessarily increase it.

If you don’t expect to be subject to AMT in the current or following year, consider income deferment. Deferring income and increasing deductible expenses for the current year is typically a good idea because it will postpone tax. If you expect to be in a higher tax bracket, or if tax rates are expected to increase, the opposite approach rings true.

Whatever the reason for timing your income and deductions, here are some income items you may be able to control:

  • Bonuses
  • Consulting or other self-employment income
  • U.S. Treasury bill income
  • Retirement plan distributions (to the extent they won’t be subject to early withdrawal penalties)

Followed by potentially controllable expenses:

  • State and local income taxes
  • Property taxes
  • Mortgage interest
  • Margin interest
  • Charitable contributions

Charitable Donations

Good deeds in the form of cash or in-kind items can reap great tax benefits. While the new tax reform does not eliminate charitable deductions, it does limit the tax incentive for charitable contributions. The new plan increases the standard deduction and reduces the tax bracket, meaning fewer people will itemize their deductions.

There are several giving strategies to consider, including:

  1. Bunching. Taxpayers whose itemized deductions fall short of the standard deduction should consider bunching their charitable contributions every other year. This idea works out very well for donors, allowing those who fall below the deduction threshold to exceed it every other or every third year.
  2. Donor-Advised Funds (DAF). The itemized donor gives an initial, larger gift to a donor-advised fund and receives the allowed tax deduction. The contribution grows tax-free and serves as a charitable fund from which the taxpayer can recommend gifts to charity in subsequent years.
  3. Charitable Gifts. Under the new tax law, donors can still take an income tax deduction on the full fair market value of appreciated assets that have been gifted to charity.
  4. IRAs. Taxpayers 70.5 years of age and older can request a distribution of up to $100,000 per year directly from their IRAs to charity. This gift would help satisfy the annual required minimum distributions from the IRA and be removed from the donor’s taxable income.

Before making a large donation to the charity of your choosing, discuss options with your tax professional.

Healthcare Breaks

The Tax Reform and Jobs Act changed the AGI threshold for medical expenses from 10% to 7.5% for 2017 and 2018 for all taxpayers.

If medical expenses were not paid through tax-advantaged accounts or were reimbursable by insurance and exceed 7.5% of your AGI, you can deduct the excess amount. Eligible expenses may include:

  • Health insurance premiums
  • Long-term care insurance premiums (limits apply)
  • Medical and dental services
  • Prescription drugs

You may be able to save tax by contributing to one of these accounts:

  • HSA – You can contribute pretax income to an employer-sponsored Health Savings Account — or make deductible contributions to a personal HSA.  For 2018, contributions are $3,450 for self-only coverage and $6,900 for family coverage. As a bonus, if you’re age 55 or older, you may contribute an additional $1,000. Like an IRA, HSAs can bear interest or be invested, growing tax-deferred. Balances can be carried over from year to year, and withdrawals for qualified medical expenses are tax-free.
  • FSA – An employer-sponsored Flexible Spending Account can be used to redirect pretax income.  The plan pays or reimburses you for qualified medical expenses, not to exceed $2,650 in 2018. The balance that remains at the end of the year you lose, unless your plan allows you to roll the balance over (up to $500).

Sales Tax Deduction

The state and local tax deduction, or SALT, now has a cap. While it remains in place for those who itemize their taxes, it now has a $10,000 limit. This is a significant change as filers could previously deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

Self-Employed Taxpayers

As a self-employed taxpayer, you may benefit from other above-the-line deductions. You can deduct 100% of health insurance costs for yourself, your spouse, and your dependents, up to your net self-employment income. You can also deduct retirement plan contributions and, if you’re eligible, an HSA.

Estimated Payments and Withholdings

You can become subject to penalties if you don’t pay enough tax through estimated tax payments and withholding. Here are some strategies to help avoid underpayment penalties:

  • Know the minimum payment rules
  • Use the annualized income installment method
  • Estimate your tax liability and increase withholdings

Tax Credits

Now is also a great time for organizations to re-evaluate their annual budgets to improve profit margins and consolidate spending. One strategy worth exploring is new or revised tax credits to help offset the amount owed to federal and state governments and take advantage of any county or city localized tax credits. Capturing 2018 credits, as well as retroactive 2017 tax credit opportunities, can help your organization reduce its liability, lower its tax rate, and improve the bottom line.

For example, the employer tax credit, which was created by the TCJA, is available to employers who offer paid family and medical leave to their employees who earned $72,000 or less in 2017 or 2018. To qualify, employers must have a written policy that

  • covers all workers employed for a year or more,
  • provides at least two weeks of annual paid family and medical leave for each full-time qualified employee and offers a proportionate amount of leave for part-time qualified employees, and
  • pays at least 50 percent of the employee’s wages during the leave.

Whether you are an individual taxpayer or a small business owner, understanding your tax credit eligibility is important.

If you have questions about these or other tax saving tips, please contact one of our professionals to schedule your year-end planning meeting.