Breaking: IRS Restarts Collection Notices But Adds Penalty Relief 

In a significant development to assist individuals, businesses, and tax-exempt organizations grappling with back taxes, the Internal Revenue Service (IRS) has introduced new penalty relief for approximately 4.7 million entities that did not receive automated collection reminder notices during the pandemic.

The IRS is allocating around $1 billion in penalty relief, primarily benefiting those with annual incomes below $400,000. The temporary suspension of automated reminders during the pandemic led to the accrual of failure-to-pay penalties for taxpayers who didn’t fully settle their bills after the initial notice.

The IRS proactively addresses this before resuming regular collection notices for tax years 2020 and 2021. It plans to issue unique reminder letters next month, alerting taxpayers of their liabilities, providing convenient payment options, and specifying the amount of penalty relief, if applicable.

For those unable to pay their full balance, the IRS encourages them to visit IRS.gov/payments to make arrangements. Additionally, the IRS is waiving failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021, which are estimated to cover 5 million tax returns and save taxpayers $1 billion.

The penalty relief is automatic, requiring no action from eligible taxpayers. The IRS has adjusted individual accounts first, followed by business accounts and, subsequently, trusts, estates, and tax-exempt organizations. Notice 2024-7PDF outlines how the agency is providing relief and addressing COVID-19-related challenges.

Commissioner Danny Werfel emphasized the IRS’s commitment to looking out for taxpayers, especially those who haven’t received notices for an extended period. This penalty relief is a common-sense approach to supporting individuals facing unexpectedly more significant tax bills.

Eligible taxpayers are automatically entitled to this relief, including individuals, businesses, trusts, estates, and tax-exempt organizations with assessed tax under $100,000 for tax years 2020 or 2021. If a taxpayer has already paid failure-to-pay penalties related to these tax years, the IRS will issue a refund or credit the payment toward another outstanding tax liability.

It’s crucial for affected taxpayers to understand this relief’s eligibility criteria and automatic nature. The penalty relief only applies to those with assessed tax under $100,000, and it will resume on April 1, 2024 for eligible taxpayers who don’t take advantage of this relief. If you find yourself in this situation, seeking professional help can be invaluable in navigating these changes, avoiding pitfalls, and ensuring compliance with federal tax obligations. 

Our team of tax experts is ready to assist you – contact our office today for guidance tailored to your specific circumstances.

 

IRS Expands Requirement to E- File Information Returns Starting in 2024

Article Highlights:

• New Lower threshold for e-filing information returns
• Why the e-filing mandate?
• What is an Information Return?
• Other affected filings
• Corrected information returns
• Noncompliance Penalties
• Waivers
• IRS Portal

Businesses, whether operating as a corporation, partnership, or a sole proprietorship, have been required to electronically file information returns when the aggregate number of these returns, regardless of the type of return, for a tax year was more than 250. The IRS issued regulations in February 2023 lowering the threshold to 10 or more returns, effective with the returns filed on or after January 1, 2024. For the most part, this means the electronic filing mandate will apply to 2023 information returns. 

Some small businesses that previously filed paper information returns, because the number of information returns they had to issue was below the 250 threshold, will now find that they will need to file the forms electronically. Under the prior rules, the threshold number of returns for required e-filing applied separately to each type of return, while under the new regulations, all types of information returns are combined when totaling up the number of returns required to be filed.

Affected employers may need significant lead time to implement new software, policies, and procedures to comply with the new rules. Thus, even though electronic filing is not required until 2024 for the 2023 tax year, employers should evaluate what changes may be needed. Simply doing the “same as last year” will not work for many employers.

Why the e-filing mandate? The IRS believes that the electronic filing mandate is necessary due to the sheer volume – some four billion information returns – they receive each year. Although about 99% of all information returns in 2019 were e-filed, that still left nearly 40 million paper information returns for the IRS to handle. And as became all too apparent during the COVID-19 crisis, paper filings bog down the IRS’s ability to efficiently process returns. In instituting the lower threshold, the IRS also noted that electronic filing has become more common, accessible, and economical, as evidenced by the prevalence of return preparers and service providers who offer electronic-filing services; by the availability of relevant software; and by the numbers of returns already being filed electronically on a voluntary basis.

What is an Information Return? So, you might wonder what an information return is. You are probably familiar with Form W-2 that reports annual wages of an employee, Form 1099-NEC for nonemployee compensation paid to an independent contractor, Form 1099-INT that gives the year’s interest income paid by a bank or other financial institution, and Form 1098 that is issued by a lender and reports the home mortgage interest a taxpayer paid during the year. These are all information returns, but there are significantly more types of information returns. Following are the information returns affected by the new e-file mandate:

• Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding;
• Forms in the 1094 series;
• Form 1095-B, Health Coverage;
• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage;
• Form 1097-BTC, Bond Tax Credit;
• Form 1098, Mortgage Interest Statement;
• Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes;
• Form 1098-E, Student Loan Interest Statement;
• Form 1098-Q, Qualifying Longevity Annuity Contract Information;
• Form 1098-T, Tuition Statement;
• Forms in the 1099 series, such as those noted above (including Form 1099-QA, Distributions from ABLE Accounts);
• Form 3921, Exercise of an Incentive Stock Option Under Section 422(b);
• Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c);
• Forms in the 5498 series (but not Form 5498-QA, ABLE Account Contribution Information, which must be filed on paper);
• Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;
• Form W-2, Wage and Tax Statement, and the similar wage and tax statements for the U.S. possessions; and
• Form W-2G, Certain Gambling Winnings

Other filings affected by the e-file mandate – The regulations also require e-filing of certain returns and other documents not previously required to be e-filed. Returns affected by the electronic filing mandate, and not listed above, include partnership returns, corporate income tax returns, unrelated business income tax returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns, among others. However, the ten-return threshold does not make electronic filing mandatory for employment tax returns, such as Forms 940 and 941.

A partnership with more than 100 partners must file its information returns electronically regardless of the number of information returns the partnership must file during the calendar year.

If your trade or business receives more than $10,000 in cash in one transaction (or two or more related transactions), you must file Form 8300, “Report for Receipt of Over $10,000 in Cash” within 15 days of receiving the income. This is not a new requirement. But for Forms 8300 required to be filed after December 31, 2023, Form 8300 must be filed electronically if the business is required to electronically file at least 10 information returns and/or wage and tax statements during the calendar year. 

Example – During calendar year 2024, XYZ Company is required to file the following forms for tax year 2023: 4 Forms 1099-NEC (non-employee compensation), 4 Forms 1099-DIV (dividends), and 2 Forms W-2 (employee wages), for a total of 10 returns. Because XYZ is required to file 10 information returns during calendar year 2024 for tax year 2023 reporting, the company must electronically file all of its tax year 2023 Forms 1099-NEC and 1099-DIV with the IRS, and electronically file its tax year 2023 Forms W-2 with the Social Security Administration. Thus, if the business meets the 10-return threshold for 2023 information returns that must be e-filed in 2024, then any 8300 filed during 2024 must also be e-filed.  

Corrected information returns – If an error was made on an information return that was required to be filed electronically, the corrected information return required to be filed during calendar years beginning after December 31, 2023 also must be filed electronically. However, if an original information return was allowed to be, and was, filed on paper, any corresponding corrected information return must be filed on paper.

Penalties – Penalties under IRC Section 6721 may apply for non-electronic filing of information returns (e.g., Forms W-2, 1099-series, etc.) when electronic filing is required. Such penalties may also apply for non-filing, late filing or incorrect information. The potential penalty in 2024 is up to $310 per information return, up to an annual maximum of $3,783,000. For businesses with annual gross receipts of less than $5 million, the maximum is $1,261,000. Penalty amounts are indexed and change annually.

Waivers – A business may file a request for a waiver from having to electronically file information returns due to undue hardship. For more information businesses can refer to Form 8508, Application for a Waiver from Electronic Filing of Information Returns

IRS portal – To facilitate compliance, the IRS has an online portal to help businesses file Form 1099 series information returns electronically. Known as the Information Returns Intake System (IRIS), this free electronic-filing service is secure, accurate and requires no special software. Though available to any business of any size, IRIS may be especially helpful to small businesses that currently file Forms 1099 on paper to the IRS.

Even if filers are not required to file electronically under the new rules, they may want to consider doing so, as electronic filing has become more common, accessible, and economical. Electronic filing may reduce administrative efforts compared to paper filing, can increase accuracy, and improve record retention.

The new mandatory electronic filing rules are complicated and penalty exposure may be significant. If you have questions about the new e-file mandate for information returns or would like assistance in meeting your obligation to e-file information returns for your business, please contact this office.

 

Clean Vehicle Credit Can Be Transferred to Dealer to Offset Purchase Price  

Article Highlights:

• Special Transfer Option
• Does the Vehicle Qualify for Credit
• MSRP and Purchase Price
• Taxpayer Qualifications
• Modified AGI
• Applying for the Credit Transfer
• Change of Mind
• About the Credit

Beginning in 2024, a special election allows a taxpayer purchasing a new clean vehicle or previously owned clean vehicle, to transfer the entirety of the allowable credit to an eligible (registered) dealer. The dealer in turn applies the credit to the purchase of the vehicle. In short, the tax credit can be applied to reduce the cost of the purchase by the amount of the credit. This also make it easier for taxpayers to meet down payment requirements and avoids waiting for the credit until their tax return for the year of purchase is filed. 

The dealer will be reimbursed by the federal government for the credit amount that is applied to the purchase.

A buyer choosing to transfer the credit to the dealer is not mandatory, and taxpayers can still choose to claim the tax credit on their return instead of transferring a new or previously owned clean vehicle tax credit to the dealer. However, should a taxpayer choose to transfer the credit to an eligible dealer there are several issues that should be considered before making that decision.

Does The Vehicle Qualify for Credit? – Although a dealer must provide a certification that the particular vehicle qualifies for the credit, someone shopping for credit-qualified vehicles may wish to first determine which vehicles, both new and previously owned, qualify for credit. The following websites will provide that information.

• New vehicles qualifying for credit is provided by The Department of Energy.
• Previously owned clean vehicles qualifying for credit is provided by the IRS.

Qualified vehicles must also have prices below certain caps. For new vehicles, the manufacturer suggested retail prices (MSRP) must be below $80,000 for SUVs, vans, and trucks and $55,000 for others. For a previously owned clean vehicle the dealer price must be $25,000 or less. In addition, a previously owned clean vehicle must be a model year which is at least two years earlier than the calendar year in which the taxpayer acquires it.   

Taxpayer Qualifications – First and foremost, a taxpayer needs to make sure they qualify for a credit. The credit, beginning in 2023, limits the income of the buyer that can qualify for a credit and these limitations are different for new clean vehicles and previously owned clean vehicles. If their modified adjusted gross income (MAGI) is even $1 over the limit, the taxpayer will not qualify for the credit. Taxpayers can use the MAGI from either their 1040 return for the year of purchase or the return for the previous year. Thus, if purchasing a vehicle in 2024, either the 2023 or 2024 MAGI can be used. The MAGI limitations are illustrated in the table below.  

BUYER INCOME LIMITATIONS – QUALIFIED CLEAN VEHICLES
Filing Status	Modified AGI
	New Vehicles	Previously Owned Vehicles
Married Filing Joint & Surviving Spouse	$300,000	$150,000
Head of Household	$225,000	$112,500
Others	$150,000	$75,000

MAGI for most taxpayers is the same as AGI which appears on line 11 of the 1040. However, in rare cases, taxpayers may have excluded income from foreign counties or U.S. possessions, and these exclusions must be added back for purposes of the limitations, thus the term modified AGI. 

In addition, a taxpayer purchasing a previously owned clean vehicle must not be a dependent of another person, and in the prior 3 years cannot have been allowed a credit for a previously owned clean vehicle. 

It is important to note, that should a taxpayer successfully have a credit transferred to an eligible dealer, and not qualify for the credit, then they must repay the credit on the return for the year of purchase. There are no forgiveness provisions. For some taxpayers this could be an unexpected financial hardship.  

Applying for the Credit Transfer – The taxpayer must provide the eligible dealer from whom the taxpayer intends to purchase the new or previously owned clean vehicle required information which the dealer will then submit to the IRS for approval. If the sale report is approved by the IRS, it is anticipated the funds will be transferred to the dealer within 48 to 72 hours. Dealers will receive real time online confirmation as to whether an advance request was accepted or rejected. If the seller report is rejected, the taxpayer may not claim the new clean vehicle credit or previously owned clean vehicle credit. Therefore, purchasers and dealers are strongly encouraged to receive confirmation of a successfully submitted seller report before finalizing a sale and placing a vehicle in service.   

The purchaser information needed to be submitted includes:

• Date of the transfer election. 
• Taxpayer identification number (generally the taxpayer’s Social Security number). 
• A photocopy of a valid government-issued photo identification document (such as a driver’s license or passport). 
• The following attestations:

• • That either MAGI for the prior year OR the current did not exceed the limits. If not known, then to the best of their knowledge it will not exceed the limits.
  • For new clean vehicles, that the vehicle will be used predominantly for personal use or for previously owned clean vehicles, that the qualified buyer requirements are met.
  • An income tax return will be filed for the taxable year in which the vehicle is placed in service with proof of certain qualifications.
  • Election is prior to placing the vehicle in service and this is the first or second transfer election made during the taxable year. 
  • If the MAGI limits are exceeded the advance credit will be repaid for the tax year the vehicle was placed in service. 
  • The credit transfer was voluntarily elected. 

Change of Mind – Once the sale is finalized, the taxpayer cannot change their mind about whether to transfer the credit to the dealer.

About the Credit – The clean vehicle credits are non-refundable and there is no carryover. Non-refundable means it can only offset a taxpayer’s tax liability on their tax return for the year claimed and any excess is lost. 

In addition, where the taxpayer has the credit transferred to the dealer, the IRS says you can’t transfer a partial credit, it is all or nothing. For a taxpayer in this situation it may be more appropriate to just wait and claim the credit when they file their tax return. In doing so they avoid receiving the full benefit of the credit through the dealer and having to repay a portion. Whereas by claiming the credit on the tax return they only get credit for the amount they are entitled to. 

As you can see there is a lot to consider related to the new and previously owned clean vehicle credit. Please contact this office for assistance related to your particular circumstances.    

 

1099-K Reporting Threshold Last Minute Change

Article Highlights:

• 1099-K Reporting.
• Third-party Settlement Organizations. 
• American Rescue Plan of 2021 Mandated Reporting Threshold.
• Delayed Implementation
• 2023 Threshold
• 2024 Planned Phase-in Threshold

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service has announced a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023.

Tax law, since 2011, has required third-party settlement organizations such as Venmo, PayPal, CashApp, and Ebay to report transactions over $20,000 in payments per year from over 200 transactions.    

The American Rescue Plan of 2021 abruptly changed the reporting threshold to $600 per year regardless of the number of transactions. This change was supposed to have taken place beginning for 2022 transactions. However, the IRS had previously delayed the implementation of the $600 threshold until 2023. 

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service late in November 2023 announced a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023.

Instead, the IRS will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture, and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 to phase in implementation.

Professional tax preparers can simplify reporting personal transactions where there is no profit, and a taxpayer inappropriately received a 1099-K.

Please contact this office for assistance on 1099-Ks whether appropriately or inapparently received. 

 

Coming Soon – Business Beneficial Ownership Reporting

Article Highlights

• Corporate Transparency Act (CTA)
• Financial Crimes Enforcement Network (FinCEN)
• Companies Required to Report Beneficial Ownership Information
• Who is a Beneficial Owner
• Filing Due Dates
• Penalties
• Updates
• Small Entity Compliance Guide 
• How Does a Company File a BOI Report

In the ever-evolving landscape of business regulations, the Corporate Transparency Act (CTA), passed as part of the National Defense Authorization Act for Fiscal Year 2021, introduces new reporting requirements for businesses in the United States, specifically focusing on beneficial ownership. Although this reporting does not take place until 2024, it is something you need to be aware of and prepare for. 

The CTA aims to combat illicit activities such as money laundering, tax fraud, and terrorism financing by increasing transparency in the ownership structures of companies. It requires corporations, limited liability companies (LLCs), and similar entities to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). 

What Is FinCEN? – The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury. Established in 1990, FinCEN’s primary role is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the collection, analysis, and dissemination of financial intelligence.

FinCEN works closely with law enforcement agencies, intelligence agencies, financial institutions, and regulatory entities. It implements and enforces compliance with certain parts of the Bank Secrecy Act, including the requirement for financial institutions to report suspicious activities that might signify money laundering, tax evasion, or other financial crimes.

FinCEN also plays a crucial role in fighting terrorism by tracking and cutting off sources of funding for terrorist activities. It achieves this by analyzing financial transactions and sharing this information with domestic and international partners.

Companies Required to Report Beneficial Ownership Information (BOI) to FinCEN – There are two types of reporting companies:

• Domestic reporting companies – corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States. This includes single member LLCs.
• Foreign reporting companies – entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

There are 23 types of entities that are exempt from the reporting requirements. See FinCEN Q&A C.2. Carefully review the qualifying criteria before concluding that your company is exempt.

Who is a Beneficial Owner – A beneficial owner, as defined by the CTA, is an individual who exercises substantial control over a company or owns or controls at least 25% of the ownership interests of that company. There can be multiple beneficial owners for a single company. The CTA excludes certain entities from this requirement, such as publicly traded companies, banks, credit unions, and certain regulated entities, among others.

The information to be reported includes each beneficial owner’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document, such as a passport or driver’s license. This information must be updated within a year of any change in beneficial ownership. 

Non-compliance with the CTA can result in hefty fines and potential imprisonment. Therefore, it is crucial for businesses to understand their obligations under this new law and take the necessary steps to comply.

The CTA represents a significant shift in U.S. corporate law, and its impact will be far-reaching. While it aims to enhance corporate transparency and combat illicit activities, it also imposes new administrative burdens on small and medium-sized businesses.

Companies will need to devote resources to identify their beneficial owners, collect the required information, and report it to FinCEN. They will also need to ensure that this information is kept up to date, which could require ongoing monitoring and reporting efforts.

Moreover, the CTA raises privacy concerns. Although FinCEN is required to keep the reported information confidential, it can be disclosed in certain circumstances, such as in response to a request from law enforcement agencies.

Filing Due Dates

Existing Businesses – If your company already exists as of January 1, 2024, it must file its initial BOI report by January 1, 2025, which provides plenty of time to comply. But it is best not to procrastinate and risk penalties for not complying.  

New Businesses – For a U.S. business newly created on or after January 1, 2024 and before January 1, 2025, as well as a foreign entity that becomes a foreign reporting company in that time frame, the BOI report is due 90 calendar days from the earlier of the date on which the business receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice that the company has been created or registered. The reporting deadline is reduced to 30 days for both U.S. and foreign entities created or registered on or after January 1, 2025.

In addition to information about the company and beneficial owners, these businesses must also report information about the “company applicant,” defined as (1) the individual who directly files the document that creates, or first registers, the reporting company and (2) the individual that is primarily responsible for directing or controlling the filing of the relevant document.

Penalties – If a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the CTA creates a safe harbor from penalty. However, should a person willfully fail to report complete or updated beneficial ownership information to FinCEN as required under the Reporting Rule, FinCEN will determine the appropriate enforcement response in consideration of its published enforcement factors. The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. So, this reporting requirement should not be taken lightly. 

Updates – When the information an individual or reporting company reported to FinCEN changes, or when the individual or reporting company discovers that reported information is inaccurate, the individual or reporting company must update or correct the reported information, as applicable.

FinCEN Small Entity Compliance Guide – This 50-page guide includes interactive flowcharts, checklists, and other aids to help determine whether a company needs to file a BOI report with FinCEN, and if so, how to comply with the reporting requirements. This Guide will be updated periodically with new or revised information.  

How Does a Company File a BOI Report? If your company is required to file a BOI report, you must do so electronically through FinCEN’s online secure filing system. However, FinCEN’s filing system is currently under development and will not be available until January 1, 2024; thus, FinCEN will not accept BOI reports before January 1, 2024. 

FinCEN will publish instructions and other technical guidance on how to complete the BOI report form.  

Navigating the complexities of the CTA and its reporting requirements can be challenging. If you need assistance, contact this office for a consultation and to help you find your way through this new regulatory landscape.
 

Rolling the Dice: Unraveling Proposed Sports Betting Tax Cuts & Legislation

In a surprising move, an Ohio state senator, Senator Niraj Antani (Miamisburg), recently introduced Senate Bill 190 aimed at slashing the state tax rate on sports betting operators in half, potentially reducing tax revenues by tens of millions annually. Currently, a significant portion of this revenue is earmarked for K-12 education. Per Cleveland.com, the bill proposes a reduction in the gross receipts tax on sportsbooks from the current 20% to 10%. When Ohio’s sports betting program kicked off on January 1st of this year, casinos were subject to a 10% tax on gross receipts. However, the rate was later doubled to 20% in the state budget that was passed during the summer – this was, again, primarily directed to support both public and private K-12 education.

Sen. Antani’s proposal comes as a response to concerns raised by Ohio Governor Mike DeWine, who advocated for the increased tax rate due to what he perceived as operators crossing ethical lines in their advertising strategies. Incidents involving regulatory fines against major operators like DraftKings and Barstool Sportsbook prompted the Governor’s push for a higher tax rate. The impact of such legislative changes has been evident, with Ohioans having placed bets totaling $5.2 billion on sports, resulting in $4.5 billion in winnings, translating to a net loss of $700 million.

The financial implications of Senate Bill 190 remain uncertain, with the Legislative Service Commission yet to provide a revenue estimate. However, Ohio has already collected nearly $102 million in tax revenue from sportsbooks between January and October 2023. It’s worth noting that this excludes potentially lucrative months like November and December, during which the NFL, college football, the NBA, and college basketball are all in season.

In an interview shared in Cleveland.com’s article, Sen. Antani criticized the legislature for increasing the sports betting tax within the state budget, emphasizing the need for a more measured approach to an emerging market like sports betting. He argued that while the increased tax may seem to target sportsbooks, its repercussions trickle down to bettors through less favorable odds and stingier promotional offers. The urgency, according to Antani, lies in reverting the tax rate to 10%, with a willingness to consider an even lower rate.

The national landscape for sports betting taxes has evolved since 2018, with 30 states and the District of Columbia legalizing and imposing taxes on sports betting. As more states contemplate legalization, lessons from jurisdictions with established legal frameworks become crucial, especially in terms of tax base design. New York, for instance, hit online sports betting outlets with a hefty 51% tax rate on gross gaming revenue, serving as a prime example of the varying approaches across states.

Most states adopt ad valorem (value-based) taxes on gross gaming revenue, theoretically aligning with the negative externalities associated with gambling. However, few states allocate significant revenue to address problem gambling, instead diverting the majority to general funds or unrelated programs. The challenge arises in the design of gross receipts taxes, which ostensibly target sports betting operators’ gross receipts or gross gaming revenue (GGR). The complexity lies in the fact that GGR doesn’t precisely indicate actual gross revenue, often including promotional bets offered by operators.

Promotional bets, such as “free” or “risk-free” bets, constitute a significant portion of GGR, capturing transactions that don’t involve monetary exchanges. Ohio’s move to reduce the tax rate reflects a broader challenge faced by many states. A Tax Foundation study found that only a handful, including Arizona, Colorado, Connecticut, Michigan, Pennsylvania, and Virginia, allow operators to exclude specific expenses from adjusted gaming revenue. Excluding the genuine cost of promotional plays from the tax base ensures a more accurate representation of money inflows minus outflows.

In a broader context, the nationwide expansion of sports betting has brought about diverse tax structures across states, contributing $3 billion in tax revenue since May 2018. The American Gaming Association’s data reveals variations in tax rates, with Nevada, Iowa, and Indiana boasting lower rates due to their early adoption of legalized wagering. States like New York and New Hampshire, with a 51% tax rate on online sports betting revenue, represent a higher-tax approach, particularly in the Northeast.

As states continue to navigate the complexities of sports betting legislation, the Ohio case highlights the importance of thoughtful tax base design and its direct impact on operators and bettors. The outcome of Senate Bill 190 could serve as a pivotal example for other states grappling with similar decisions in their pursuit of a balanced and effective sports betting tax framework.

More on Sports Betting Taxation

It is important to understand that the taxation of gambling winnings is convoluted. Wins and losses are not netted. Winnings are reported directly as income on an individual’s tax return and losses are only deductible by individuals who itemize their deductions on Form 1040 Schedule A. This means that those who take the standard deduction cannot deduct gambling losses and end up paying taxes on all their winnings. That also leads to other tax traps associated with gambling winnings. 

We have highlighted some key points below.

Impact on Adjusted Gross Income (AGI):

• The full amount of gambling winnings contributes to a taxpayer’s AGI.
• AGI is crucial in determining eligibility for various tax benefits, and higher AGI can limit said benefits.

Tax Traps and Social Security Benefits:

• Gambling winnings, even if an individual had a net loss, can push their AGI over Social Security Administration thresholds.
• This may lead to up to 85% of Social Security benefits becoming taxable, creating unexpected tax consequences.

Health Insurance Subsidy Reduction:

• Gambling income in addition to a family’s earned income can result in reduced health insurance subsidies.
• Families may end up paying more for health insurance coverage, and if subsidies were applied in advance, they might have to repay some or all of it during tax filing.

Medicare Premiums Impact:

• For those covered by Medicare, the AGI determines the Medicare B premiums.
• Gambling winnings inclusion in AGI can lead to higher Medicare B & D premiums, causing a significant increase in healthcare costs.

International Accounts and Reporting Obligations:

• Regardless of winning or losing, if an individual’s online sports betting account is located outside of the U.S. and exceeds $10,000 at any time during the year, FinCEN Form 114 (FBAR) filing is required.
• Non-willful violations may result in civil penalties of up to $10,000, while willful violations can incur penalties of $100,000 or 50% of the account balance at the time of violation.

FBAR Penalties and Adjustments:

• For non-willful violations, civil penalties can reach up to $10,000. Willful violations may result in penalties of greater than $100,000 or 50% of the account balance at the time of violation.
• As of January 21, 2022, both penalty amounts are subject to adjustment for inflation.

Understanding the tax implications of sports betting winnings is crucial for individuals to make informed financial decisions. Whether a winner or loser in the gambling arena, being aware of these considerations is essential to avoid unexpected tax burdens and compliance issues.

 

Embracing Your Next Chapter: A Guide for Retirees Returning to Work

As you approach retirement age, the thought of returning to work might be on your mind. Whether you’re considering part-time roles or fully immersing yourself back into the workforce, this article is designed to provide insights into the financial aspects of such a decision. We understand that your return to work is a unique journey, and our aim is to help you navigate the tax implications, understand changes to retirement accounts, and make informed decisions about your social security income.

1.  Contributing to Your Nest Egg:

If you return to work, you may have the opportunity to contribute to your employer’s retirement plan. This can be a 401(k), 403(b), or similar plan. Regardless of your age, you can still make contributions as long as you’re earning income. This can help grow your retirement savings and potentially reduce your taxable income.

For traditional and Roth IRAs, there are income limits to contributions based on your modified adjusted gross income (MAGI). For example, in 2024, If you’re single, you can contribute to a Roth IRA if your MAGI is less than $153,000. For a traditional IRA, you can deduct your full contribution if you’re not covered by a workplace retirement plan, regardless of income.

For 2024 the maximum IRA contribution (traditional and Roth combined) is $7,000 ($8,000 if age 50 or over) up from $6,500 ($7,500 if age 50 or over) for 2023. 

The tax implications of IRA contributions can be complex. If you or your spouse are covered by a retirement plan at work, your deduction may be limited. It’s important to consult with a tax professional to understand these rules and how they apply to your situation.

2 . RMDs Made Simple:

If you return to work and are still contributing to your current employer’s 401(k), you may be able to delay taking Required Minimum Distributions (RMDs) from that account until April 1 of the year after you retire. However, this doesn’t apply to IRAs or 401(k)s from previous employers.

The SECURE Act of 2019 raised the age for starting required minimum distributions (RMDs) from your retirement plans from 70½ to 73 for years 2023 through 2032 after which the beginning age will become 75. This applies to traditional IRAs, but Roth IRAs do not have RMDs during the owner’s lifetime.

If you’re still working, you may have the option to roll over an old 401(k) or IRA into your current employer’s 401(k) to delay RMDs. This can be a complex decision with potential tax implications, so it’s important to consult with a financial advisor.

IMG retirement concept

3.  Fine-Tuning Your Financial Mix:

Returning to work can provide additional income, which may allow you to take on less risk in your investment portfolio. You might consider shifting some of your investments from stocks to bonds or other less volatile investments.

Your investment strategy should align with your financial goals, risk tolerance, and time horizon. The additional income from working may allow you to invest more aggressively or it may provide a cushion that allows you to invest more conservatively.

Regularly review your investment mix to ensure it aligns with your changing needs and circumstances. This might include adjusting your asset allocation, rebalancing your portfolio, or making catch-up contributions to your retirement accounts.

4.  Pensions and Returns:

Returning to work can have implications for your pension benefits. Some pension plans may suspend benefits if you return to work, especially if you return to work for your former employer.

It’s important to connect with your pension plan provider and the human resources department at your new employer to understand any potential impacts on your pension benefits.

If you’re returning to a former employer, be sure to understand the specific rules that apply. Some employers may allow you to continue receiving pension payments while working, while others may suspend payments. Be sure to clarify these rules and understand how your benefits or pension payments may be affected.

5.  Social Security and Taxes:

Understand how returning to work can affect your Social Security benefits. If you’re under full retirement age and earn more than the yearly earnings limit ($22,320 for 2014), your benefits could be reduced. However, once you reach full retirement age, your benefits will be recalculated to leave out the months when your benefits were reduced due to excess earnings.

Be aware of the tax implications of your Social Security benefits. Depending on your combined income (your adjusted gross income + nontaxable interest + half of your Social Security benefits), a portion of your Social Security benefits may be taxable. If you’re filing as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, up to 85% of your benefits may be taxable.

Consider the impact of your additional income on your Medicare B premiums. Your Medicare premiums are based upon your modified adjusted gross income (MAGI) from your tax return two years prior. Your additional income from working could cause a substantial increase in your Medicare premiums.  As an example, in 2024, a single individual with a MAGI in 2022 of $103,000 or less would have a $174 Medicare premium.  However, if the individual had a 2022 MAGI of between $161,001 and $193,000 their monthly Medicare B premium would be $349.40, almost double. Medicare D premiums also increase with MAGI.  

Planning for the Unexpected:

Consider the need for additional insurance coverage, such as disability or health insurance, given your return to work.

Review your estate plan and update any necessary documents, such as your will, power of attorney, and healthcare directives.

Keep in mind the potential impact of your increased income on your tax bracket and plan accordingly.

Returning to work after retirement can be a rewarding experience, both personally and financially. However, it’s essential to understand the potential tax implications and changes to your retirement and Social Security benefits. 

Do you have questions? Feel free to reach out to ensure you’re making the best decisions for your unique situation.

 

Great News for Employers Who Received Questionable Employee Retention Credits

Article Highlights:

• Combating Dubious Employee Retention Credit (ERC) Claims
• New Voluntary Disclosure Program
• Employer Benefits 
• Applying for the New Voluntary Disclosure Program
• When the 80% is Due
• Installment Payment Plan
• Other Ongoing ERC Initiatives
• Claim Withdrawal Still Available 

The IRS has introduced a New Voluntary Disclosure Program that allows employers who received questionable Employee Retention Credits (ERC) to pay them back at a discounted rate. This is a different program from the one IRS created earlier for those who haven’t received payment from the IRS and want to withdraw their ERC claim, which is discussed later in this article.

As part of an ongoing initiative aimed at combating dubious Employee Retention Credit claims, the IRS has announced it is launching a new program to help businesses that want to pay back the money they received after filing ERC claims in error.

NEW VOLUNTARY DISCLOSURE PROGRAM

This new program is part of a larger effort by the IRS to stop aggressive marketing around the ERC that misled some employers into filing claims. 

Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Those that the IRS accepts into the program will benefit from the following:

• They need only repay 80% of the credit they received. 
• If the IRS paid interest on the employer’s ERC refund claim, the employer would not need to repay that interest. 

Who Can Apply – A variety of ERC recipients can apply. Any employer who already received the ERC for a tax period but isn’t entitled to it can apply if the following are also true:

• The employer is not under criminal investigation and has not been notified that they are under criminal investigation.
• The employer is not under an IRS employment tax examination for the tax period for which they’re applying to the Voluntary Disclosure Program.
• The employer has not received an IRS notice and demand for repayment of part or all the ERC.
• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

How To Apply – To apply, an employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program. 

Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.

The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80% of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.

Why isn’t the IRS requiring payment of 100% of the ERC the employer received? The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.

After an Application is Approved – If the IRS approves the employer’s application, they will mail the employer a closing agreement, which the employer must sign and return to the IRS within 10 days of the date the IRS mailed it. The employer must then repay 80% of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS). EFTPS is the Treasury Department system that most businesses already use to pay various federal tax obligations.

Employers Who Outsource Their Payroll Must Apply Through the Third Party – Many employers outsource their payroll obligations to a third party who reports, collects, and pays employment taxes on the employer’s behalf using the third party’s Employer Identification Number. In this situation, the third-party, not the employer, must file Form 15434. See the form and its instructions for details.

Other Ongoing ERC Initiatives – The new Voluntary Disclosure Program is just the latest step taken by the IRS in its ongoing fight against ERC fraud.

• In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims.  
• Following concerns from tax professionals and others about aggressive ERC marketing, the IRS announced Sept. 14 a moratorium on processing new ERC claims. Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.
• Then, earlier this month, the IRS began sending an initial round of more than 20,000 letters to employers disallowing their ERC claims either because their business did not exist, or they didn’t have employees for the period covered by their claim.
• In addition to these efforts, IRS audit and Criminal Investigation work involving ERC continues to expand involving dubious claims. The IRS has more than 300 criminal cases being worked with claims worth almost $3 billion, and thousands of ERC claims have been referred for audit.

CLAIM WITHDRAWAL STILL AVAILABLE 

Still Time to Withdraw Pending ERC Claims – The IRS is also continuing to accept and process requests to withdraw an employer’s full ERC claim under a special withdrawal process.  

The IRS has created a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest. The IRS continues to warn taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. 

However, those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

Employers can use the ERC claim withdrawal process if all the following apply:

• They made the claim on an adjusted employment return(Forms 941-X, 943-X, 944-X, CT-1X).
• They filed the adjusted return only to claim the ERC, and they made no other adjustments.
• They want to withdraw the entire amount of their ERC claim.
• The IRS has not paid their claim, or the IRS has paid the claim, but the taxpayer hasn’t cashed or deposited the refund check.

To take advantage of the claim withdrawal procedure, the special instructions at IRS.gov/withdrawmyERC should be carefully followed and are summarized below.

• Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
• Taxpayers who filed their ERC claims themselves, haven’t received, cashed, or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using a computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.
• Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyERC.

If you have submitted an ERC claim and are concerned about its validity and would like   this office to review the claim, or need assistance withdrawing a claim, please contact this office.   

 

Safeguarding Your IRS Payments: Defending Against Check Washing Fraud

In an era where financial scams are becoming increasingly sophisticated, protecting your IRS payments demands more awareness than it once did. Check washing fraud, a technique where thieves steal checks from the mail, erase crucial information, and manipulate the payee and amount, has seen a resurgence. Understanding exactly how this crime is committed is essential if you want to protect yourself and your loved ones. In this guide, we will also look at implementing preventive measures to secure your financial transactions.

What is Check Washing Fraud

Check washing is a multi-step process criminals use to steal money from unsuspecting victims. The scheme unfolds as follows:

1.  Mail Theft: Criminals target checks in the mail, either from mailboxes or USPS collection boxes. This can involve individuals acting alone or as part of organized crime rings.

2.  Chemical Alteration: Stolen checks undergo a chemical washing process that erases the payee information and amount, leaving the signature and paper intact. Alternatively, criminals may attempt to scratch off existing details.

3.  Forgery: Once the check has been prepared, criminals then inscribe new information on the blank check, changing the name and amount at will.

4.  Deposit and Withdrawal: The manipulated check is deposited into a bank account, either through traditional means or using mobile deposit services. Subsequently, the criminals swiftly withdraw the funds.

This process may involve different “actors” from the crime ring specializing in distinct roles, such as stealing, washing, or cashing checks, contributing to the scheme’s complexity.

Mitigating Risks: Protective Measures

To shield yourself from becoming a victim of check washing fraud, consider implementing the following safeguards:

1.  Embrace Electronic Transactions: Shift towards electronic bill pay, transfers, and peer-to-peer payment apps, minimizing reliance on physical checks.

2.  Opt for Secure Writing Practices: Use black gel pens, known for ink that is challenging to wash off. Brands like Uni-Ball pens with Super Ink claim added protection against fraud.

3.  Mail Safely: If mailing checks is unavoidable, drop them off at the post office to minimize theft risks. Avoid using USPS collection boxes, especially in less-traveled areas.

4.  Mailbox Vigilance: Regularly retrieve mail from your mailbox, and sign up for Informed Delivery from USPS to monitor expected mail.

5.  Travel Considerations: When traveling, request a USPS mail hold to safeguard your mail from potential theft during your absence.

6.  Financial Oversight: Frequently review your checking account for unusual or unexpected withdrawals, promptly identifying any signs of unauthorized activity. If you see a suspicious transaction, contact your bank or credit union immediately for assistance.

Responding to Fraud: Taking Swift Action

If you suspect check theft or notice forged checks, take immediate action:

1.  Contact Your Bank: As noted, report any incidents to your bank immediately, enabling them to take preventive measures such as putting a hold on the check.

2.  File a Police Report: In case of deposited forged checks, file a police report and work closely with your bank. Reimbursement policies may vary, and investigations could extend over months.

3.  Regulatory Intervention: If disputes persist, reach out to the bank’s regulator for assistance. Utilize resources like HelpWithMyBank.gov for national banks and relevant links for credit unions and state-chartered banks.

4.  Report the crime to the USPS. 

Dealing with IRS Tax Obligations

Our office is here to help you navigate the outcome of financial fraud and the IRS. Below are some issues we need to resolve as we prepare to take action. 

1.  Assessing the Damage:

• Examine your IRS payment obligations to determine the impact of the lost funds.
• Identify the specific taxes owed and any associated penalties or interest.

2.  Contacting the IRS:

• We will reach out to the IRS immediately to report the situation.
• Explain the circumstances surrounding the lost funds and inquire about potential relief options on your behalf.

3.  Penalty Relief Programs:

• In cases of financial hardship due to fraud, the IRS may offer penalty relief programs.
• We will explore available options such as the First-Time Penalty Abatement or the Reasonable Cause Assistant.

4.  Establishing a Payment Plan:

• We will work with the IRS to establish a viable payment plan based on your current financial situation.
• Discuss installment agreements or other arrangements to fulfill your tax obligations over time.

Beyond Check Washing: Monitoring Identity Theft

Recognizing that check thieves may exploit personal information, remain vigilant against identity theft:

1.  Credit Monitoring: Regularly check your credit or use monitoring services with free alerts to swiftly detect any attempts to open credit accounts using your information.

2.  Identity Theft Protection: Explore identity theft protection services offering financial and logistical assistance in case of identity restoration needs.

By staying informed and implementing these measures, you strengthen your defenses against check washing fraud and other financial threats, ensuring the security of your IRS payments. Don’t let sophisticated scams compromise your financial well-being—take charge of your financial security today. 

 

QuickBooks Tips For a Fresh Start In 2024

As the bustle of December fades, January is a transitional month for many small business owners. This time of year generally calls for wrapping up any remaining loose ends from the previous year while diving headfirst into the new one. Readying your QuickBooks software for the upcoming year is one way to make sure you are in full control of your business finances as 2024 begins. Taking proactive steps now will pave the way for you to reach your financial goals when January 1 rolls around.

1.  Run Four Critical Reports

As the dust settles from the holiday rush, take a moment to run four essential reports in QuickBooks. This will ensure your financial records are up-to-date and you don’t have any unwanted New Year’s surprises:

• A/R Aging Detail: Identify customers in arrears, understanding who owes you and when payments are due.
• Open Invoices: Isolate unpaid transactions, focusing specifically on outstanding invoices.
• A/P Aging Detail: Ensure you’re current on outstanding payments to other entities.
• Unpaid Bill Details: Highlight bills with unpaid balances, streamlining your payable management.

2.  Create Statements For Past-Due Customers

Sending statements to past-due customers using QuickBooks is a discreet collection method. While you decide on the level of follow-up, statements provide a clear breakdown of financial activities, fostering communication with those who haven’t yet paid their bills. If statements yield no response within ten days, however, consider more direct communication.

3.  Evaluate Inventory

For businesses managing inventory, a thorough evaluation is important, especially after the holiday season. Navigate to the “Inventory Center” under “Vendor Activities” in the “Vendors” menu. Assess each entry under “Active Inventory” or run related reports to make sure you have the appropriate stock levels of each item for this time of year. For adjustments, use the “Adjust Quantity/Value on Hand” feature.

4.  Set Up Online Financial Connections

Improve your business’s QuickBooks efficiency by exploring two powerful tools:

• Online Banking (Bank Feeds Center): Connect QuickBooks to financial institutions for daily transaction imports, providing real-time visibility into your financial activities.
• Online Payments (QuickBooks Desktop Payments): Optimize cash flow by accepting credit cards, eChecks, and ACH payments, accelerating the payment process from your customers.

January is the opportune time to reflect on how you can maximize your usage of QuickBooks for a successful 2024. If you’re confused about any of these tips or need assistance with anything in this blog post, contact us today. Your financial success is our priority, and we’re here to help you embark on the new year with confidence.

 

January 2024 Individual Due Dates

January 2 – Time to Call For Your Tax Appointment –

January is the beginning of tax season. If you have not made an appointment to have your taxes prepared, we encourage you to do so before the calendar becomes too crowded.

January 10 – Report Tips to Employer –

If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 10.

January 16 – Individual Estimated Tax Payment Due –

It’s time to make your fourth quarter estimated tax installment payment for the 2023 tax year.

January 31 – Individuals Who Must Make Estimated Tax Payments –

If you didn’t pay your last installment of estimated tax by January 16, you may choose (but aren’t required) to file your income tax return (Form 1040 or Form 1040-SR) for 2023 by January 31. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of the last installment. If you can’t file and pay your tax by January 31, file and pay your tax by April 15 (April 17 if you live in Maine or Massachusetts).

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

 

January 2024 Business Due Dates

January 1 – Beneficial Ownership Reporting Starts –

The new Beneficial Ownership Information Reporting Rule requires certain entities (most corporations, limited liability companies, partnerships) to electronically file “beneficial ownership” information reports to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) starting on January 1, 2024. Businesses created or registered to do business before Jan. 1, 2024 have until Jan. 1, 2025 to file their initial reports. Companies created or registered on or after Jan. 1, 2024, will have 30 days to file after their creation. Please contact this office if you need information about or assistance in complying with the reporting requirements. Substantial penalties apply for non-compliance.

January 16 – Employer’s Monthly Deposit Due –

If you are an employer and the monthly deposit rules apply, January 16 is the due date for you to make your deposit of Social Security, Medicare, and withheld income tax for December 2023. This is also the due date for the nonpayroll withholding deposit for December 2023 if the monthly deposit rule applies. Employment tax deposits must be made electronically (no paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return.

January 16 – Farmers and Fishermen –

Pay your estimated tax for 2023 using Form 1040-ES. You have until April 15 (April 17 if you live in Maine or Massachusetts) to file your 2023 income tax return (Form 1040 or Form 1040-SR). If you don’t pay your estimated tax by January 16, you must file your 2023 return and pay any tax due by March 1, 2024, to avoid an estimated tax penalty.

January 31 – 1099-NECs Due to Service Providers & the IRS –

If you are a business or rental property owner and paid $600 or more to individuals (other than employees) as nonemployee compensation during 2023, you are required to provide Form 1099-NEC to those workers by January 31.  “Nonemployee compensation” can mean payments for services performed for your business or rental by an individual who is not your employee, commissions, professional fees and materials, prizes and awards for services provided, fish purchases for cash, and payments for an oil and gas working interest. To avoid a penalty, copies of the 1099-NECs also need to be sent to the IRS by January 31, 2024. The 1099-NECs must be submitted on optically scannable (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. A business or individual who is required to file 10 or more information returns (i.e., 1099s and W-2s among others) must file those forms electronically. Please call this office for preparation assistance. 

January 31 – Form 1098 and Other 1099s Due to Recipients – 

Form 1098 (Mortgage Interest Statement) and Forms 1099, including1099-NEC(see above) are due to recipients by January 31. The IRS’ copy, other than for 1099-NECs, is not due until February 28, 2024, or April 1, 2024, if electronically filed. These 1099s may be reporting the following types of income:

• Dividends and other corporate distributions
• Interest
• Rent
• Royalties
• Payments of Indian gaming profits to tribal members
• Profit-sharing distributions
• Retirement plan distributions
• Original issue discount
• Prizes and awards
• Medical and health care payments
• Debt cancellation (treated as payment to debtor)
• Cash payments over $10,000 (Form 8300)

January 31 – Employers – W-2s Due to All Employees & the Government –

EMPLOYEE’S COPY: All employers need to give copies of the W-2 form for 2023 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting. GOVERNMENT’S COPY: W-2 Copy A and Transmittal Form W-3, whether filed electronically or by paper, are due January 31 to the Social Security Administration.

January 31 – File Form 941 and Deposit Any Undeposited Tax –

File Form 941 for the fourth quarter of 2023. Deposit any undeposited Social Security, Medicare, and withheld income tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return.  

January 31 – File Form 943 –

All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2023. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

January 31 – W-2G Due from Payers of Gambling Winnings –

If you paid either reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of the W-2G form for 2023.

January 31 – Individuals Who Must Make Estimated Tax Payments –

Individuals Who Must Make Estimated Tax Payments. If you didn’t pay your last installment of estimated tax by January 17, you may choose (but aren’t required) to file your income tax return (Form 1040 or Form 1040-SR) for 2022 by January 31. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of the last installment. If you can’t file and pay your tax by January 31, file and pay your tax by April 18.

January 31 – File Form 940 – Federal Unemployment Tax –

File Form 940 2023. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.

January 31 – File Form 945 –

File Form 945 to report income tax withheld for 2023 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit or pay any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year timely, properly, and in full, you have until February 12 to file the return. 

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations