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Time’s up. Hit ‘send’ on that tax return or have your accountant do it.
Monday, Oct. 16 is the deadline to file federal income taxes for taxpayers who received an extension from the Internal Revenue Service.
This year, the millions of taxpayers who had extra time to turn in their 2022 returns include most California residents and businesses after winter storms deluged the Golden State.
Extensions generally do not buy people more time to pay taxes due, but natural disaster-related extensions also pushed back the payment deadline for affected taxpayers. People in some Georgia and Alabama counties also had filing and payment deadlines pushed back to Oct. 16 after winter tornadoes.
“A Iot of taxpayers have procrastinated up to this point. They are not going to get another extension,” said David Hilliard, an enrolled agent at Chatterton & Associates in Anaheim, Calif. “For us, it’s not too bad. But there’s definitely a slight increase in the workload here,” said Hilliard, president of the California Society of Enrolled Agents.
“Taxpayers in general are just not dealing with the fact that this is coming,” said Cynthia Leachmoore, owner of Soquel Tax Service in Soquel, Calif. and president of the National Association of Enrolled Agents. She’s pushing through her own final stack of client returns.
Yet as the sun sets on the 2023 tax season, it’s dawning on the start of 2024 tax filing season, believe it or not.
Savvy year-end tax planning aims to maximize tax benefits and minimize tax bills. But each year has its own twists. Here’s a look at some of them.
Look out for tax forms from payment platforms like Venmo
More people are poised to receive tax forms early next year about their 2023 sale of goods and services over payment platforms like PayPal
PYPL,
Venmo and others.
The tax documentation from these platforms used to kick in once a person took in at least $20,000 and had at least 200 transactions. The threshold to receive a Form 1099-K lowered to $600 and one transaction after a law change in a pandemic relief package passed in March 2021.
At the end of last year, some lawmakers unsuccessfully tried to raise the threshold. The IRS delayed the reporting requirement for one year to avoid taxpayer confusion. Many people will still likely have questions about what to do and what to report on their return once they get the form next year, said Leachmoore.
For example, the 1099-K reporting doesn’t apply to the money family and friends send each other, but Leachmoore worries that may still get mixed into the reports — leaving it to taxpayers to try sorting out the problems with the IRS. (PayPal and Venmo platforms let users distinguish between personal payments and payments for goods and services.)
Another headache for people will be sorting out the cost basis on sold items. That matters because the proceeds from personal belongings sold at profit are taxable, but the money someone makes when selling belongings at a loss are not deductible.
So an appliance purchased for $1,200 and sold for $600 would show up on a Form 1099, but it’s not a gain, Leachmore said. “People have to brace themselves and they have to do the research on how to report it, but they have to report it,” she said.
There have been legislative proposals to increase the reporting threshold. That includes one from House Republicans to return the threshold to its $20,000 amount, and +200 transactions. Of course, lawmakers have a massive to-do list and the House of Representatives is still in search of a new speaker.
Be aware of easier-to-use credits for electric vehicles
Beginning in January, people buying new and used electric vehicles can use a lucrative federal tax credit to knock down the price right at the dealer. But buyers must meet certain income requirements to qualify, and that could have some customers doing some tax maneuvering.
When lawmakers passed the Inflation Reduction Act last August, they increased the tax credit on eligible new electric vehicles paying up to $7,500. They also created a new credit that pays up to $4,000 for qualifying used EVs.
To tap the credit this year, buyers had to file tax paperwork after the purchase. Starting in January, the credit can be transferred from the buyer to eligible dealers at the point of sale.
To be eligible for the credit, buyers need to make less than $300,000 if they are married and filing jointly, $225,000 for heads of household and $150,000 for individuals. They can base eligibility on whichever is less: either their modified adjusted gross income in the year they take delivery of the vehicle, or their modified adjusted gross income in the year before that happened.
If customers apply the credit at the point of sale but wind up making too much money, they’ll have to repay transferred credit to the IRS at tax time.
Here’s where standard income-reducing approaches can help people nearing the thresholds. That includes maximizing contributions to a 401(K), a traditional IRA or a health savings account, Hilliard said. Business owners have other options to reduce income, as do taxpayers over age 70 ½ using a qualified charitable distribution, he noted.
If capital losses exceed gains in an investment portfolio, people can also use those excess losses to reduce their income by up to $3,000, Hilliard added.
Plan ahead on tax brackets
The Tax Cuts and Jobs Act of 2017 lowered rates on five of the seven tax brackets, among other things in a tax code change that was sweeping but temporary in many respects. One example: without Congressional action, income tax rates in 2026 will return to their pre-TCJA levels.
So it’s important to be mindful where a household’s income falls in relation to the tax brackets, Hilliard said.
Hovering too close to a higher bracket in the next few years might result in a steep tax hike if income climbs and higher rates do kick in, he noted. That’s why Hilliard says he works with many clients on income needs, cash flow and how that links to their place in a certain tax bracket.
“We don’t know what Congress will do in 2025,” he said, later adding, “We have to plan with what we know.”
