Sunday February 5, 2023
IRS Tax Tips on Credits and Payments
Taxpayers should refer to IRS Letter 6419 to calculate their advance Child Tax Credit payments or IRS Letter 6475 for your third Economic Impact Payment. If you report the incorrect amounts, this could possibly delay your refund.
The IRS also offers many tax tips for proper filing this season.
- File Electronically — You will reduce mistakes by using tax software or the IRS Free File program to file electronically. The software checks your return and will find most potential mistakes. Even if you use tax software, you should always review your tax return for accuracy.
- Correct Filing Status — Your tax software will also check your filing status. If you have questions, the Interactive Tax Assistant on IRS.gov may be helpful.
- Virtual Currency — Your IRS Form 1040, asks whether you have received, sold, exchanged, or otherwise disposed of virtual currency. Do not leave this field blank, make sure to check either "Yes" or "No."
- Report Taxable Income — All income of any type and from any source must be reported. The most common income reporting documents are IRS Forms W–2, 1099–MISC or 1099–NEC.
- Unemployment Compensation — While there was an unemployment compensation exclusion for tax year 2020, the payments received in 2021 are generally taxable. They should be reported as income on your return.
- Name, Birth Date and Social Security Number — Taxpayers must list the correct name, Social Security Number and date of birth for each dependent. The information should be exactly the same as printed on the individuals' Social Security Card. If a dependent does not have a Social Security Number, the Individual Tax Identification Number (ITIN) may be listed.
- Bank Routing and Account Numbers — Taxpayers who desire a rapid refund should direct it to their bank account. You should be careful to double check your bank routing and account numbers. If the number is incorrect, your refund will be deposited in another individual's account or the bank may reject the deposit.
- Paper Tax Returns — Taxpayers who file a paper return should carefully select the correct mailing address. The IRS reminds taxpayers that a refund from your paper income tax return may be delayed for "much longer than usual" and are therefore encouraged to filed taxes electronically.
- Sign and Date — All tax returns must be signed and dated by the taxpayer. A joint return must be signed and dated by both spouses. If you file electronically, there are special instructions that qualify as signing.
- Retain a Copy — Taxpayers should always make a copy of their return and the tax schedules. These may be helpful if you are purchasing a home and seeking a loan.
- Tax Extension — Taxpayers who cannot file by the April 18 deadline may use Free File or IRS Form 4868 to request a six-month filing extension to October 17, 2022. Even if you extend your filing date, the tax is due on April 18 for most taxpayers.
Crowdfunding Reporting of Gifts and Income
In FS–2022–20, the IRS published a Fact Sheet that explains the basic rules for crowdfunding.
There are many websites that use a method of raising funds called "crowdfunding." This method allows individuals to give funds that may be used for business purposes, charitable donations or gifts. Some individuals have created their own crowdfunding websites, but there also are commercial organizations that operate crowdfunding sites.
In some cases, the crowdfunding website will be required to file IRS Form 1099–K, Payment Card and Third-Party Network Transactions. The American Rescue Plan Act indicated that crowdfunding websites are not required to file Form 1099–K with the IRS or fund recipients if the contributors to the site do not receive goods or services.
In earlier years, Form 1099–K was required if payments to an individual were over $20,000 and there were 200 or more donations. For year 2022, the requirement exists to file Form 1099–K if an individual receives $600 in gross payments and contributors receive goods or services for their contributions. If Form 1099-K is required, it must be furnished to both the IRS and the recipients of the gifts.
If you receive a Form 1099-K, you and your tax preparer will have to determine whether the receipts are taxable income. Most charitably-oriented gifts to individuals will not be taxable. The IRS states, "If crowdfunding contributions are made as a result of the contributors' detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includable in the gross income of those for whom the campaign was organized."
However, transfers for business purposes or by an employer to an employee are generally taxable income.
SECURE Act 2.0 to House Floor for Vote
The Securing a Strong Retirement Act of 2021 (H.R. 2959) is often referred to as SECURE 2.0. It has been jointly sponsored by House Ways and Means Committee Chair Richard Neal (D–MA) and Ranking Member Kevin Brady (R–TX).
SECURE 2.0 is a bipartisan bill that is designed to work together with the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2020. SECURE 2.0 will expand contributions to Section 401(k) plans, permit additional matching contributions, increase the required minimum distribution age to 75 over a decade, index catch–up contributions and revise some IRA limits.
Senate and House staff indicate that SECURE 2.0 will be combined with the Retirement Improvement and Savings Enhancement (RISE) Act that has been passed by the House Education and Labor Committee. The combined bill will be presented for a House vote the week of March 28, 2022.
The world of philanthropy has strongly supported Section 309 of SECURE 2.0. This provision allows a one–time election for an IRA owner to make a transfer to a qualified life income agreement.
The IRA owner may make a one-time transfer up to $50,000 to an immediate charitable gift annuity, a standard charitable remainder unitrust or a charitable remainder annuity trust. All payouts from the gift annuity or the remainder trust will be ordinary income. Income may be paid to the IRA owner or owner and spouse. There also is an inflation adjustment provision for both the $100,000 qualified charitable distribution and the $50,000 amount for the rollover to a life income plan. They will be indexed for inflation after 2022.
Editor's Note: If Section 309 of the SECURE Act passes in 2022, the philanthropy community should express appreciation to attorney Conrad Teitell of Stamford, Connecticut. He has been a champion of the IRA-to-life-income-plan rollover for over 25 years.
Applicable Federal Rate of 2.2% for April -- Rev. Rul. 2022-8; 2022-14 IRB 1 (16 Mar 2022)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2022. The AFR under Section 7520 for the month of April is 2.2%. The rates for March of 2.0% or February of 1.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.