Gifts and Estate

 2023 Annual gift exclusion increases to $17,000 (previously $16,000 in 2022).

 2023 Lifetime exclusion for gifts and estates increases to $12,920,000 (previously
$12,060,000 in 2022).

Social Security
 Social Security 2023 COLA benefit increase = 8.7%

 Increase in Social Security wage max = 9.0%

•2022: $147,000
•2023: $160,200

Educator’s Expenses
 $250 per educator for 2021Form 1040.
 $300 per educator for 2022Form 1040.

Covers: 1. Kindergarten → 12thgrade educators:

(Teachers, instructors, counselors, principals, and aides.)

2. Both public and private schools (if work at least 900 hours).

3. Covers variety of out-of-pocket expenses:

 Books, supplies and other materials used in classroom.
 Equipment including computer equipment, software, and services.
 COVID-19 protective items.
 Professional development courses related to curriculum.

401(k), SIMPLE, and IRA Contributions

1099-K
1099-K “3rd-party platforms”: Etsy, Uber, Lyft, eBay, VRBO, TaskRabbit, Venmo, etc.

Rule:

2021 transactions: 1099-K if > gross payments >$20,000 and >200transactions.

2022 transactions: 1099-K if gross payments > $600 even if just one transaction.

Note:
new rules apply to sales of goods and services. T. R. 1.6050W-1. But not cash transfers to friends and
family payments. E.g., Venmo payments to friends and family won’t require 1099-K.

Reporting Thresholds - 3rd Party Payers

These rules apply to eBay, Ticketmaster, etc. transactions today.
 eBay will report this (if total sales for year > $600) in January 2023.

Most gross sales on eBay should be offset significant costs.

 Will reduce or eliminate gain (but personal losses are not deductible).

IRS estimated this will raise almost $8.4 billion over 10 years.

Expect lots of matching notices from IRS.

Things to expect:

 One platform expects to issue over 10 million 1099-Ks for 2022 tax year.
 Expect questions from clients early in 2023.
 Clients need to begin keeping records now.
(1099-K is for gross amount of transactions.)

Crowd Funding
IRS says crowdfunding is not taxable if it’s a gift.

Organizer–if you organize fund raiser for someone else, you’re not taxable if you turn the money over to
person money was raised for.

Recipient --No income if it’s out of generosity and without expecting anything in return.
Exception –if from employer, taxable.

Student Loan Forgiveness

Student loan forgiveness plan announced:
  From $10,000 (non-Pell Grant recipient) -$20,000 (Pell Grant recipient).
 Limited by income < $125,000 (< $250,000 if married filing jointly or family)
 Forgiveness will not be taxable for Federal purposes
 May be taxable in some states.

Cryptocurrency Reporting
 Form 1099-DA will be required for digital assets (includes crypto and
other digital assets)

The “dark internet”

 Requires special software to access.
 Allows sales of identity information (Social Security numbers, illegal goods)

NFT Artwork
 Non-fungible artwork tokens
 Can be artwork, videos, pictures, etc.
 Uses same blockchain technology as Bitcoin.
 Treated as property --Usually creates capital gain or loss.
 Likely different treatment if create NFT or receive for services
performed. (Ordinary income, subject to SE tax if not
employee.)

Taxes and Inflation

Annual inflation= 8.2% (Sept. 2022)

Impact of inflation on federal taxes:

1. Many tax ceiling limits fixed (not indexed for inflation)
2. Value of tax deferrals is increasing.
3. IRS interest rate/ES underpayment now up to 6% October 1, 2022.
Rev. Rul. 2022

Taxes and Inflation --Strategies for Tax Ceilings

$250,000/$500,000 limit --excluding gain on sale of residence:
1. Make sure to pick up closing costs. Get closing statements (purchase
and sale)
2. Get cost of capitalizable improvements.
Improvements (IncreaseCostBasis of Home)
Repairs –Don’t Increase Basis

Impact of Home Office in Principal Residence

Home office depreciation taken after 5/6/97 is “unrecaptured §1250 gain.”
(Only Treated as capital gain subject to top tax rate of 25%.)

Taxes and Inflation --Tax Deferrals

Traditional strategies for deferring tax:

 1. Defer income if expect to be in same or lower tax rate next year.

Cash method in business:

 Send out business invoices a bit later in December.
 Buy equipment, pay bills.

Defer bonuses:
 Can defer them before they are payable.
 Purchase equipment before year end.

2. Installment sales of real property.

3. Contribute →deductible IRAs and/or retirement plans.

Taxes and Inflation –IRS Interest Rates Increase

 Taxes and Inflation –IRS Interest Rates Increase (Beginning
Oct. 1, 2022 – 6%)
 Impact: Put more of a cushion in extension payments?
 Paying more tax in advance makes more sense.

Recap –Taxes and Inflation

Capital Gains and Losses

Tax Benefits from a Bear market:

 Loss harvesting – Sell loss stocks to offset capital gains (year end).
  Loss banks – Creating more losses than you have capital gains.

Wash Loss Sales

Concern with “loss harvesting” and “loss banks”

 Wash sales rules can disallow losses:

“Wash sale” occurs where, within period beginning 30 days before and
ending 30 days after the sale, your buy “substantially identical” stock
or securities.

 If loss is disallowed on “wash sale” basis in acquired stock by

disallowed loss.

Avoiding Wash Loss Rules

1. Just don’t buy or sell the same security in 61-day period (but economic
risk).
•Day of sale and 30 days preceding and 30 days following.

2. Buy similar stocks or bonds.

•But don’t violate “substantially identical” requirement.

3. Buy stocks in retirement accounts.

•Some limitations here.

Not “Substantially Identical” Stocks and Bonds

Solution: Buy back similar, but not “substantially identical” securities:
1. Stock–Buying stock of different company should work. IRS
2. Bonds–Buy bonds of a different issuer.

Required Minimum Distributions (Inherited IRAs)

For most participants dying after December 31, 2019:

 Decedent’s beneficiary must withdraw entire account.
 By end of year containing 10th anniversary of death.
“Protected classes” --5 types of beneficiaries not subject to 10-year rule:
1. Surviving spouse,
2. Minor children,
3. Disabled,
4. Chronically ill, and
5. Not more than 10 yrs. younger.

Passive activity rule: net passive losses are disallowed and must be carried
forward.

Real Estate Professional Clearing 2 Hurdles

Qualified RE Professionals–have an exception to the “curse of the rental

activity (i.e., automatically passive).

But to be a real estate professional, must clear both hurdles:

1. Test 1 (50%) -->50% personal services “real property businesses”
in which materially participate, and

2. Test 2 (750 hrs) -->750 hrs./yr. in “real property businesses” in

which materially participate. §469(c)(7)(B)

Real Property Businesses:

1. Development
2. Redevelopment
3. Construction
4. Reconstruction
5. Remodeling
6. Acquisition
7. Conversion
8. Rental
9. Operation
10. Management
11. Leasing
Charitable contributions
CWA must be received by earlier of date file return or final due date of
return. If the contribution is All were apparently ≥ $250.

Mr. Nelson didn’t not have CWAs when he filed his return.
•No deduction, even if he can prove he made contribution.

CWA requirement applies both→cash and noncash contributions.

Donor Advised Funds
Donor advised funds allow deduction in one year.

Internal Revenue Service

Will IRS Prepare Tax Returns?

In dozens of countries, governments prepares tax returns.

A new study indicates:

 IRS could prepare close to half of all tax returns.

 For accuracy, IRS would need info about dependents before preparing.
 Bills introduced in house and senate for IRS would offer free filing.

Penalty Refunds
IRS Relief from Late Filing Penalties

IRS Appeals Division

Penalty Abatement

IRS Audits --MAGI, AGI, Taxable Income?

If losses/deductions reduce income below $400,000.
•May get audited to prove losses.

Audit Focus (New Funds)

IRS says audit focus:

1. Large corporations
2. Wealthy individuals (“households making over $400,000 annually”).
3. Complex pass-throughs
4. Not identified by the IRS, but likely to increase.

Service Enhancements
 Free file –Congress is providing funds for IRS to explore.
  Taxpayers will be able to respond to an IRS notice online.
 Secretary Yellen says IRS will add 5,000 customer service reps.
 Scan paper returns into native digital copies during 2023 filing season.

EV Basics
 If buy EV after Aug. 16, 2022, generally credit only available if final
assembly in North America.
 Exception for transition rule: if had written binding contract before
Aug. 16, 2022.
 No limit on number of new EV credits.

Partial Business Use of EV

Report on Form 8936 (2022, expect same for 2023 but may change)

 Business portion of credit claimed on Form 3800.

 Limited to all or a portion of income tax liability.
 Personal portion is claimed on Schedule 3.
 Nonrefundable, limited (along with other nonrefundable credits) to
total tax liability.

2023EV Credit–It’s All about the Battery

1. Battery mineral content ($3,750)
2. Battery manufacture/Assembly ($3,750)
3. Battery must have capacity > 7 KWH
4. And EV assembled in North America

2023 dealer reporting requirements to IRS and (a bit like a 1098):

1. Buyer’s name and TIN.

2. VIN
3. Battery capacity
4. Maximum credit

2023 and After MAGI Limits

Timing Strategy

Direct Dealer Credit

 “Cash on the hood” - Rebate applied at the point of sale.
 If you got “cash on the hood” repay on tax return if over MAGI limit.
§30D(g)(10)
 Effective beginning 1/1/24 (won’t see “cash on the hood” in 2023)
 Applies to used EV credit too. §30D(f).

Solar Credit Oasis –Code §25D

 30% of expenditures, including sales tax and labor (2022-2032)

 Credit is nonrefundable. But excess can be carried over to future years.

Other Residential Credit (Solar) –More Complicated

1. Solar water heater.
2. Geothermal heat pump
3. Battery storage technology (begins in 2023)
4. Fuel cell property –Usually hydrogen.
5. 2022 only –biomass fuel property allowed (usually wood and wood
pellet stoves).
Old Energy Efficient Residential Improvements
 2023 energy efficiency rules can produce meaningful credits.
 Up to $2,000 each year!

New Credit –Overall Ceilings

New Credit –Subceilings

Is the Credit Limited to Your Principal Residence?

Required Energy Standards Change in 2023!!!
Simple ways to determine qualification:
1. Get manufacturer’s certificate (get updated2023 version (new standards).
2. Go to Energy Star website
3. Ask contractor.

Other Points
 Report on Form 5695 (expect revised version for 2023 tax year).
 Reduce basis by credit.
 Tax planning. Spread over years (limits are annual).
 Nonrefundable --Tax liability = Regular tax –FTC + AMT:
 Limited to aggregate of all nonrefundable credits (refundable child tax
credit, etc.).
 Condo owner gets credit for their share of qualifying improvements.
 Must be installed in U.S.

Recap
Excess Business Losses (EBLs)

 Excess business loss provisions were scheduled to expire end of 2026.

Extended 2 more years (through end of 2028).
 Defers net business losses in excess of:
o Single --$270,000
o MFJ --$540,000
 Deferral pushes back excess loss to next year.

Premium Tax Credit

The Inflation Reduction Act: extends through the end of 2025:
1. Lower taxpayer contribution requirements.
o Taxpayers eligible for the PTC are required to pay a portion of their income towards
insurance.
o The IRA reduces the percentage of income taxpayers must contribute.

2. Eligibility for credit even if household income > 400% of Federal Poverty Level.

Alternative Fuel Vehicle Refueling Credit

  Personal use credit = 30% of cost of alternative refueling equipment.
 Credit limited to $1,000 per single item of nonbusiness alternative
refueling property.
 The alternative refueling property credit only applies to equipment in:
o Low –income tracts (see §45D(e) for definition), or
o Rural areas (designated by the Secretary of Commerce
as rural).
o
 New law

Gift and Estate

Technically not required to file a 2022estate tax return (F 706) if:
 Gross FMV of assets < $12.06 million.

Consider filing anyway.

Portability elections must be made on timely filed Form 706.

 F 706 is due 9 months after date of death.
 Extension period is additional 6 months. (Form 706 instructions)


Making a Portability Election