The IRS recently announced that they have made over 60 inflation adjustments for 2023. As one of the leading accounting firms in Nashville, we want to make sure our clients understand these updates. These include increases in:
Unearned Income of Minor Children Subject to the “Kiddie Tax
Every year the tax code changes. The tax professionals at PHB CPA’s are always up on the latest changes. We have to know what these changes are so they can give our clients the best service. If you have questions about the 20222 or 2023 tax code, please call us today for an appointment. As an experienced CPA firm, we can provide support and assistance in all your tax, financial, and business affairs.
Standard Deductions for 2023
Changes to 2023 tax provisions include increases in the standard deduction for married couples and single individuals. The standard deduction for married couples filing jointly is $27,700, which is a little over a 6.9% increase of $1,800. For single taxpayers and married individuals filing separately, the standard deduction is $13,850. This is a little over a 6.9% increase of $900. For heads of household, the standard deduction will be $20,800, which is a little over a 7.2% increase of $1,400.
Income Brackets and Tax Rates
The first question most people have is “what income bracket am I in? — followed by the question “what is the tax rate for that bracket?” Below are the income brackets and tax rates for the categories of “married filing jointly or surviving spouse” and “heads of households.” See Revenue Procedure 2022-38 for the other filing categories.
Married Individuals Filing Joint Returns and Surviving Spouses
not over $22,000
more than $22,000 but less than $89,450
$2,200 plus 12% of the excess over $22,000
more than $89,450 but less than $190,750
$10,294 plus 22% of the excess over $89,450
more than $190,750 but less than $364,200
$32,580 plus 24% of the excess over $190,750
more than $364,200 but less than $462,500
$74,208 plus 32% of the excess over $364,200
more than $462,500 but less than $693,750
$105,664 plus 35% of the excess over $462,500
more than $693,750
186,601 plus 37% of the excess over $693,750
Heads of Households
not more than $15,700
more than $15,700 but less than $59,850
$1,570 plus 12% of the excess over $15,700
more than $59,850 but less than $95,350
$6,868 plus 22% of the excess over 59,850
more than $95,350 but less than $182,100
$14,678 plus 24% of the excess over $95,350
more $182,100 but less than $231,250,
$35,498 plus 32% of the excess over $182,100
more than $231,250 but less than $578,100
$51,226 plus 35% of the excess over $231,250
more than $578,100
$172,623 plus 37% of the excess over $578,100
Claiming the Employee Retention Tax Credit
Has your business been receiving calls about your eligibility to receive large sums of money from the government because you qualify for the “ERTC” (Employee Retention Tax Credit)? Are you wondering if these calls are legit? They might sound plausible since the government has been handing out money like candy in connection with the COVID pandemic for the last two years. And, actually, the ERTC is a very real government assistance program that was part of the CARES Act of 2020. So, those calls you are getting do refer to a legitimate government program. But watch out. There probably is a scam in there somewhere.
What is the Scam?
A plethora of ERTC “shops” have sprung up across the country. They are offering their services to help businesses claim the ERTC – for which they will collect a hefty commission. Those companies that are scamming businesses, are making the claims based on circumstances that DO NOT APPLY under the requirements of the Act.
Note: The IRS does not vet claims when they are filed. So, if the IRS pays your claim, then audits you and finds the claim is fraudulent, you are in deep trouble and the ERTC shop has already pocketed its commission.
How Do You File A Legitimate Claim?
As one of the top accounting firms in Franklin TN, we know that the requirements of the Act are nearly as complicated as the entire IRS tax code. This is partially true due to four subsequent Acts in 2021 that changed or expanded the requirements. Just as an example, there are different requirements for businesses that:
started up during the pandemic
have more than 100 full-time employees
received PPP loans
have more than 500 full-time employees
received Shuttered Venue Operators Grants or Restaurant Revitalization Funds
have gross receipts in the third quarter of 2021 that were less than 10% of the receipts in the 3rd quarter of 2020 or 2019.
and the list goes on!
So, making an ERTC claim is not a job for amateurs. If you think that your business might qualify for the ERTC, our advice is don’t trust one of these ERTC shops. Consult with your professional CPA. Please call PHB CPA’s if you have any questions about this or other questions about business tax filing in Franklin, TN.
New Rules for 1099-K Income that Might Surprise You
The 2021 tax filing deadline is long past, but now it’s time to think about new tax ramifications for 2022. In this blog, we discuss the change made to the rules for reporting 1099-K income, and what that could mean for you.
Here’s What You Should Know about the 1099-K Tax Form
Form 1099-K dates back to 2011. Prior to January 1, 2022, for most of the states in the country, the reportable sales threshold was $20,000 for third-party network companies. But now, 1099-K’s must be issued for multiple transactions or individual transactions totaling $600 or more.
What Are Third-Party Network Companies the Report 1099-K Income?
Third-party network companies are companies such as Venmo, Amazon, PayPal, eBay, Square, UberEATS, Cash App, etc. So, if your small business accepts Venmo payments, you will get a 1099-K from Venmo.
Here’s Where 1099-K Income It Gets Muddy
You could get a 1099-K even if you don’t owe anything. That’s because not all sales are taxable. As an example, imagine you sell your old bike on Craig’s List and accept an $800 Venmo payment. The bicycle cost you $1,500 new, so you actually lost money. Therefore, the $800 is not taxable, but you will still get a 1099-K from Venmo. So, when you file your taxes, you’ll have to prove to the IRS that you don’t actually owe any taxes on that sale.
To make matters worse, the dollar amount of each transaction reported is determined on the date of the transaction. It cannot include any credits or refunds. So, the next day, if you refund $20 for a missing part on your bike, Venmo won’t subtract that from the $800 it reports on the 1099-K.
Turn to the Professionals for Complicated Accounting Work
Tip: Be careful to keep good records of all your transactions and whether they are taxable or not. If your mother makes you a short-term loan until payday with a Venmo payment, you don’t want to have to pay taxes on it as income!
The Accounting Industry Staffing Shortage
We’ve all seen the “Help Wanted” signs posted in the windows of local businesses. You may have even felt the impact of short staffing at your own place of employment. Due to the Pandemic and many other complicated factors, our country is facing a nationwide shortage in the work force. This is a problem that accounting firms are facing too.
PHB is working diligently to keep our array of services and our level of staffing at the highest level. We want to continue to provide the same quality for our clients, regardless of the challenges facing our industry. We are thankful for all of our clients who put their trust and confidence in us for their accounting needs.
How Accounting Firms Are Dealing with the Staffing Shortage
The number of employees at accounting firms is shrinking through retirement and resignations due to fatigue and burnout. Hiring hasn’t kept pace with attrition, and hiring new employees is usually more expensive. So, clients may see an increase in price rates from their bookkeeper, tax preparer, auditor firms, and CPA’s. In an attempt to service clients with fewer employees, firms may also discontinue some of their services.
Additionally, as firms offer more work-from-home options, clients may not have as much access to a firm’s professional as they once did. In fact, firms may hire employees who live and work in a different geographic area or time zone from their home location. This could create added convenience for some clients.
Some firms may also begin to cull their client lists so they are able to service their clients without over-burdening their employees. Clientele that fall outside a firm’s ideal profile may be dropped. Firms will cull lower-value clients to create time for higher-value clients, which also will have the effect of improving firm morale.
Again, PHB is making every effort to meet this challenge head-on with as little impact to our clients as possible. Please feel free to contact us if you have any questions.
When to Include Short-Term Rental Income in Net Earnings Self-Employment (NESE) Income1
The short-term rental industry is booming. With rental services like AirBnB and VRBO, practically anyone can become a short-term rental landlord. So, if you are making some income on the side with short-term rentals, how do you report it to the IRS? There are a couple of possibilities, but in this blog, we will answer the question, “Should short-term rental income be treated like business income or like traditional rental income?”
Net Earnings from Self-Employment
Sec. 1401(a) of the IRS code imposes a tax on an individual’s net earnings self-employment (NESE) income. Under this rule “net rental income,” generally isn’t included in NESE, unless
The income is received by a “real estate dealer,” or
The rent includes substantial services provided to the occupant for the occupants’ convenience.
Examples of rentals where substantial services are rendered for the occupants’ convenience include hotels, boarding houses, warehouses, and storage garages. (Reg. §1.1402(a)-4(c)(2))
Consider these Examples
Example one: An individual, not a real estate dealer, owns a vacation property that he runs as a business. It’s a fully furnished property listed with various online vacation rental websites. The individual provides daily cleaning service, dedicated Wi-Fi, recreational equipment such as bicycles for renters’ use, and prepaid vouchers for local services.
Because the property is rented, on average, for seven days, it is not considered a rental activity for purposes of the passive activity loss rules in Code Sec. 469. In this example, the services provided are clearly not required to maintain the property for occupancy but are of such a substantial nature that the compensation for those services constitutes a material portion of the rent.
Thus, the net rental income is included in NESE. Practically, this income would be reported on a Schedule C for an individual rather than a Schedule E.
Example two: An individual, not a real estate dealer, rents a fully furnished bedroom and bathroom in his home by listing it on various online vacation rental websites. Renters may use the bedroom, bathroom, and only other rooms that are designated as common areas of the home. After every rental, the taxpayer cleans the bedroom and bathroom.
As in example one, the property is rented, on average, for seven days, and therefore is not considered a rental activity for purposes of the passive activity loss rules in Code Sec. 469. In this example, the taxpayer’s net income from the rentals is excluded from NESE because the cleaning service is not actually rendered for the convenience of the rental occupants but to maintain the property for occupancy.
Tax-Free Rental Income for Short-Term Rentals
You can rent out all or part of your home or apartment for up to 14 days per year and all the rental income you receive is tax free, no matter how much you receive. In fact, you don’t even have to report the income to the IRS.
1Chief Counsel Advice 202151005
It’s not too late for 2021 Tax Planning, but don’t put it off any longer!
If you thought it was too late for 2021 tax planning, think again. It’s not, but you do need to get things in gear now. The tax professionals at PHB CPAs can advise you on various ways to reduce your tax bill for 2021.
There’s Still Time for 2021 Tax Planning
PHB can help you with tax savings strategies that you still have time to make before the end of the tax year. You can trust us to decipher changing tax laws, language, and strategies.
Don’t Stress Out over New Tax Laws
Because of COVID-19, the U.S. government has made numerous changes in the tax laws. As if the tax code wasn’t confusing enough already, now it’s even more so! Tax law changes related to COVID-19 can have very specific requirements or time constraints. These are all things that the tax experts at PHB know how to handle.
By using a professional to prepare your taxes, you stand a much better chance of getting a tax return, if one is due, on time. If you have mistakes in your return, you could be tied up in red tape with the IRS for months on end. This is due to the fact that the IRS is understaffed and underfunded. Additionally, due to the pandemic in 2020, the IRS has a backlog of over 8 million paper business tax returns.
PHB – The Nashville CPA Firm for All Your Accounting Needs
Do you have questions about withholdings, deductions, capital gains, retirement, college, investments, donations, more? We have the answers! PHB is your best choice for business taxes and planning. Call us today and set up your tax planning session.
Take Advantage of the Tennessee Sales Tax Holidays and Save Money
PHB is one of the premier CPA firms Nashville residents and business owners look to for advice about saving money on taxes. Well, there is one simple way you can save money on taxes in Tennessee. And you don’t even need an appointment with us to file any kind of tax form! But, of course, we are always here for you when you do need tax advice. PHB is well known for doing business taxes in Nashville and the surrounding areas.
Obviously, if you read the title of this blog, you know that we are talking about the Tennessee Sales Tax Holidays. There are three of them:
Clothing, School Supplies, and Computers – Starts one minute after midnight on Friday, July 30, 2021 and ends one minute before midnight on Sunday, August 1, 2021.
Food, Food Ingredients & Prepared Food – Starts one minute after midnight on Friday, July 30, 2021 and ends one minute before midnight on Monday, August 5, 2021.
Gun Safes & Safety Equipment – Started on July 1, 2021 and continues for 12 months until one minute before midnight on Thursday, June 30, 2022.
Some Restrictions Apply for the Tennessee Sales Tax Holidays
Items purchased from retailers in Tennessee or from online sources that deliver the items to Tennessee are eligible. However, they must be for personal use, not for business or trade. There is no limit to the quantity of items that may be purchased. But the purchase price of each of those items must be below the threshold provided in the law.
Items that Are Eligible for Tax-Free Purchase During the Tennessee Sales Tax Holidays
Below we list both the tax-exempt items and items that are not tax-exempt for each of the three tax holidays.
Clothing, School Supplies, and Computers – July 30 – August 1, 2021
Exempt: General apparel that costs $100 or less per item, such as shirts, pants, socks, shoes, dresses, etc.
Not exempt: Apparel items priced at more than $100; Items sold together, such as shoes, cannot be split up to stay beneath the $100 maximum; Items such as jewelry, handbags, or sports and recreational equipment
Exempt: School and art supplies with a purchase price of $100 or less per item, such as binders, backpacks, crayons, paper, pens, pencils, and rulers, and art supplies such as glazes, clay, paints, drawing pads, and artist paintbrushes
Not exempt: School and art supplies individually priced at more than $100; Items that are normally sold together cannot be split up to stay beneath the $100 maximum
Exempt: Computers for personal use with a purchase price of $1,500 or less; Laptop computers, if priced at $1,500 or less, also qualify as well as tablet computers
Not exempt: Storage media, like flash drives and compact discs; Individually purchased software; Printer supplies; Household appliances
Food, Food Ingredients & Prepared Food – July 30 – August 5, 2021
Food and Food Ingredients
Exempt: Liquid, concentrated, solid, frozen, dried, or dehydrated food or beverages for human consumption
Not exempt: Alcoholic beverages, tobacco, candy, dietary supplements
Exempt: Food that is sold in a heated state or heated by the seller. Food that contains two or more food ingredients mixed together by the seller for sale as a single item. Food that is sold with eating utensils, such as plates, knives, forks, spoons, glasses, cups, napkins, or straws provided by the vendor.
Not Exempt: Food that is only cut, repackaged, or pasteurized by the seller
Gun Safes and Safety Equipment – July 1, 2021 – June 30, 2022
Exempt: A locking container or other enclosure equipped with a padlock, key lock, combination lock, or other locking device that is designed and intended for the secure storage of one or more firearms.
Exempt: any integral device to be equipped or installed on a firearm that permits the user to program the firearm to operate only for specified persons designated by the user through computerized locking devices or other means integral to and permanently part of the firearm.
It’s Not Too Late for Tax Planning for 2021 Even Though Half the Year Is Almost Gone
Whether you are filing as a corporation, partnership, LLC, or individual, you can benefit from doing some tax planning now. You must do some tax savings strategies for businesses, like timing income and expenses, before the end of the tax year. But you can do others any time before you file your return. So, you still have time. The tax professionals at PHB CPAs can advise you on various ways to reduce your tax bill for 2021.
6 Tax-Saving Tips for Businesses
The following tips are not intended to be tax advice. They are suggested topics you can discuss with your tax expert at PHB. Remember, for expert advice on business taxes Nashville turn to PHB.
Set up and fund a retirement plan. This can be for yourself or for your employees. Make sure it’s a qualified plan the IRS recognizes (IRA, 401(k), 403 (b), etc.). This will allow you to defer taxes on earnings until you withdraw the earnings.
Take tax credits to lower income. This includes credits for hiring employees, going green, providing access for the disabled, and providing health coverage for employees.
Buy equipment/vehicles for depreciation deductions. For certain assets that you purchase, you can take an immediate deduction for the cost when you put it in service. The Tax Cuts and Jobs Act also allows for a 100% tax break for assets placed in service from September 27, 2017 through January 1, 2023.
Time your business income and expenses: This involves prepaying some expenses to reduce your income for the year. For example, you could stock up on supplies that you know you will use in the next tax year.
Tax Deadline Extension to Aug. 2 for Victims of Tennessee Disasters
The IRS announced that victims of severe storms, straight-line winds, tornadoes and flooding that began in Tennessee March 25, 2021 now have until Aug. 2, 2021 to file various individual and business tax returns and make tax payments.
The IRS stated this week, “Those affected by severe storms, straight-line winds, tornadoes and flooding that reside or have a business in Campbell, Cannon, Cheatham, Claiborne, Clay, Davidson, Decatur, Fentress, Grainger, Hardeman, Henderson, Hickman, Jackson, Madison, Maury, McNairy, Moore, Overton, Scott, Smith, Wayne, Williamson, and Wilson counties qualify for tax relief.”
The declaration allows the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. Examples include, deadlines falling on or after March 25, 2021 and before Aug. 2, 2021 are postponed through Aug. 2, 2021. Also included is the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers will have until Aug. 2 to make 2020 IRA contributions.
According to the IRS, “The Aug. 2, 2021 deadline applies to the first quarter estimated tax payment, normally due on April 15, and the second quarter payment normally due on June 15. It also applies to the quarterly payroll and excise tax returns normally due on April 30, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17, 2021. Also, penalties on deposits due on or after March 25, 2021 and before April 9, 2021 will be abated as long as the tax deposits were made by April 9, 2021.”
If anyone impacted by the storms receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer is advised to call the telephone number on the notice to have the IRS abate the penalty.
The IRS will automatically identify taxpayers located in the covered disaster area and will apply filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief.
For more details on the tax relief, visit the IRS website.
Applying for Forgiveness for PPP First Draw
PHB CPAs is one of the best CPA firms Franklin, TN, has to offer. So, you know you can count on us for the latest information and advice concerning the SBA Paycheck Protection Program. If you have not applied for forgiveness for the first draw of the SBA Paycheck Protection Program … the clock is ticking.
Be Aware of Changes in Forgiveness Rules
Over time, the SBA has made significant changes to PPP forgiveness. One of the latest changes really simplifies applying for forgiveness if your loan is $150,000 or less. More expenses are now allowable too. These include:
Mortgage interest and lease payments
Interest payments on any other debt obligations incurred prior to Feb. 15, 2020
Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
Operations expenses including software, cloud computing, human resources and accounting needs
Property damage due to public disturbances during 2020 not covered by insurance
Supplier costs pursuant to a contract, purchase order or order for goods that was in effect prior to taking the loan and was essential to operations at the time. And supplier costs for perishable goods can be made before or during the life of the loan.
Worker protection expenses like PPE and other adaptive costs to help comply with federal or state health and safety guidelines for COVID-19.
Know the Deadline for Applying for Forgiveness
Everyone’s deadline is different, and the disbursement date determines the deadline for the loan. However, before the borrower can even apply, all loan proceeds for which the borrower is requesting forgiveness must have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan, however, if borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred and borrowers will begin making loan payments to their PPP lender.
Compute Your Deadline
Here is an example of how to compute the deadline date for a loan that had a disbursement date of 04/21/2020. If the client applies for a 24-week covered period, the covered period ends on 10/05/2020. Then the borrower has 10 months after the covered period ends to apply for forgiveness. If the borrower does not submit a loan forgiveness application to its lender by 08/05/2021, the borrower must begin making payments on or after 08/05/2021.
Instructions for Applying
Your lender should have instructions and videos to help you apply for forgiveness. You have probably already received several emails from your lender about this already. So, revisit the most current emails (older emails may not reflect the current changes), and see what the process is with your lender.