Business Tax Bulletins
2023 Important Dates
Form 1099-NEC – required to be issued by businesses to any individual or partnership that the business paid $600 or more during the calendar year. Returns to be completed and distibuted and reported to the government no later than January 31, 2023.
1099-MISC – other forms of payment (i.e. rent) paid to individuals and partnerships – forms distributed to recipients by the end of January 2023 and filed with the government no later than February 28, 2023 (February 15th for some payment types).
Forms 1120, 1120-S and 1065 filed by March 15, 2023. With a timely filed extension the extended due date is September 15, 2023
Failure to file these forms timely can trigger a stiff monthly penalty per 1099 or K-1 not issued timely.
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2023 Changes
Business Meals – commencing 1/1/2023 the rule returns that 50% of qualified business meals are tax deductible. 2020 and 2021 allowed for a 100% deduction.
Entertainment Expenses – expenses incurred to entertain clients and potential clients such as golf, concerts and sporting events – include food and beverage at such events remains non-deductible.
Bonus Depreciation – qualified capital improvements have been 100% deductible in preparing tax returns the past few years. Starting 1/1/2023 those qualified expenditures become 80% deductible in the year placed in service rather than 100%. Section 179 remains an option for full deduction but different rules apply in determining the deductiblilty. Based on the type of asset purchased depreciation runs from 3 – 15 years to record the tax deduction.
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State and Local Income Taxes
State and Local Taxes (SALT) paid by taxpayers, consisting of a combination of income tax, sales tax, select personal property taxes and real estate taxes have been limited to $10,000 when preparing Schedule A, Itemized Deductions.
Individuals that own and operate businesses electing to be taxed as a Partnership (Form 1065) and S-Corporations (Form 1120-s) typically experience state and local taxes in excess of $10,000 and had they elected to be regular corporation (C-Corp – Form 1120) these taxes would be deductible in arriving at federal taxable income.
As of November 2022, over 30 states adopted the PTE (Pass Through Entity Election) whereby Partnership and S-Corporation entites can now deduct State and local income taxes at the business level. This accomplishes two important factors: first, the taxable income reported on the K1 to the partner/co-owner is reduced by the state and local taxes paid; and, second the $10,000 SALT limitation is bypassed.
Allowing the business to deduct the state and local taxes – historically passed through to the taxpayer ad limited – is a huge benefit that should not be overlooked when preparing income tax returns.
Estimated Income Tax Due Dates
Federal –
One requirement to avoid incurring penalties and interest is to make estimated tax payments timely.
Businesses –
(Form 1120) – businesses must make timely payments equal to their current year tax bill, on a prorated basis. Form 1120-W is available at https://www.irs.gov/pub/irs-pdf/f1120w.pdf in calculating the payment amount due. Payments are due the 15th day of the 4th, 6th, 9th and 12th month of the year – in other words for corporations with a year end of December 31 estimated payments are due April 15th, June 15th, September 15th and December 15th. Corporations must make the estimated tax payment using the EFTPS system found at www.eftps.gov.
Estimated tax payments are due:
Income from partnerships (Form 1065) and s-corporations (Form 1120s) flow through to the individual tax return – don’t forget to include this income when addressing estimated taxes.
State estimated taxes often follow calculation methods and due dates for Federal estimates. Each state may vary so make sure you consider the state rules. Colorado rules can be found here: https://tax.colorado.gov/individual-income-tax-estimated-payments
Search for “state” department of revenue to research requirements for other states.
Tax Tidbits for Individuals
Tax Credits
The following list is a summary of the many tax credit programs in place for 2022. This list is generally consistent from year to year but does change. So knowing and tracking these changes each year is important.
Family and Dependent Credits
- Child Tax Credit (2022 – up to $2,000 per qualified child)
- Child and Dependent Care Credit (Percentage of qualified expenses paid)
- Earned Income Credit
- Adoption Credit
Income and Savings Credits
- Savers Credit (potential credit for contributions made to employer and IRA retirement accounts)
- Foreign Tax Credit (taxes paid to foreign countries)
- Excess Social Security tax withholding
Homeowner Credits
- Investment in Energy Saving/Efficient additions to the home
- Solar panels
- Windmills
- Geothermal
- Fuel Cell
- Insulation
- Energy Efficient Windows
Electric Vehicle Credit
- Rules have tightened but purchase on new electric vehicles may qualify for up to a $7,500 tax credit
Health Care Credit
- Purchase of health insurance from a Health Insurance Marketplace may be eligible for income tax credits.
Education Credits
- Tuition and other education expenses may be eligible for
- American Opportunity Credit
- Lifetime Learning Credit
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Standard Annual Tax Return Deadlines
Federal –
Individual Returns – (Form 1040) April 15th of each year. Tax return filing (but not payment of taxes owed) can be extended for 6 months.
Penalties and interest start accumulating based on original dues dates for missed tax payments.
Seeking more information? Contact me at rbs@rbstewart-cpa.com or access the IRS website at: www.irs.gov.
State
Colorado Income tax return due dates track with the federal due dates other than s-corporation and partnership returns which are due April 15th. Seeking more information access the Colorado Department of Revenu online services at: https://www.colorado.gov/revenueonline/
Each state has its own rules and timelines – most state websites can be found by typing in “State” Department of Revenue in the search bar.
Estimated Income Tax Due Dates
Federal –
One requirement to avoid incurring penalties and interest is to make estimated tax payments timely.
Individuals –
The easiest method for individuals is to have proper tax withholding taken from your paycheck.
To mitigate exposure to penalties and interest individuals need to meet one of the following tests (tax obligation >$1,000):
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- – 100% of prior year tax obligation (AGI < $150,000)
- – 110% of prior year tax obligation (AGI $150,000 and higher)
- – 90% of your expected current year tax obligation
Estimated tax payments are due:
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- – 4/15 – 25% of annual tax paid
- – 6/15 – 50% of annual tax paid
- – 9/15 – 75% of annual tax paid
- – 1/15 – 100% of annual tax paid
Income from partnerships (Form 1065) and s-corporations (Form 1120s) flow through to the individual tax return – don’t forget to include this income when addressing estimated taxes.
State estimated taxes often follow calculation methods and due dates for Federal estimates. Each state may vary so make sure you consider the state rules. Colorado rules can be found here: https://tax.colorado.gov/individual-income-tax-estimated-payments
Search for “state” department of revenue to research requirements for other states.
General Tax Highlights
Schedule A Deductions
2023 Standard Deduction Amount
Married filing Jointly $27,700
Head of Household $20,800
Individual (MFS) $13,850
Itemized Deductions
SALT (State and Local Taxes) – state income or sales tax, combined local taxes and property taxes remains capped at $10,000. If you own a business as a partnership or as a S-Corporation the pass through entity election is a possibility to record the state income tax as a business deduction rather than reporting it on Schedule A.
Mortgage Interest – mortgage interest on primary and a second home are tax deductible. The deduction is limited to qualified mortgage debt not exceeding $750,000 (depending on year of property acquisition) in aggregate. Interest on debt in excess of $750,000 is generally not deductible.
Points paid when purchasing a qualified property are deductible and mortgage insurance premium payments may be deductible if adjusted gross income is below the phase out level.
Charitable Contributions
Cash contributions to qualified non-profit organizations are deductible. A limitation of deduction amount in relation to adjusted gross income exists but should the taxpayer exceed the amount the deduction is carried forward to future years. Make sure that documentation is secured for any individual contribution in excess of $250 to comply with tax reporting requirements.
Non-cash contributions to qualified non-profit organizations are deductible as well. The value of the donation must be supportable (fair market value) – for used clothing and household goods the practice is generally thrift store sales price. The Salvation Army and Goodwill Industries have websites and guidance on valuing these items.
Non-cash donations valued at $5,000 or more require an independent appraisal to support the tax deduction.
Vehicle cost to commute to the donation site (or in the performance of your donated servies) and return are deductible at $.14 per mile. Unfortunately your donated time is not deductible.
Medical Expenses
Insurance, including long-term care insurance premiums (limits based on age exist) paid with after tax dollars are eligible for deduction.
Other unreimbursed medical expenses are also eligible for deduction including the purchase of prescription drugs.
The deduction is limited to the combined amount of these expenses greater than 7.5% of the taxpayer’s adjusted gross income.
Due to the caps placed on each of these categories combined with the increased Standard Deduction Amount most individuals and families end up using the Standard Deduction Amount.
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Passive Activity Losses
From a 50,000-foot level – here are some general rules to decide if additional investigation should be made regarding rental activities and the taxpayer should consult with a professional tax preparer or CPA.
Generally, passive activity losses for a tax year are not allowed. There is a special allowance under which some or all of the loss may be allowed (Special $25,000 allowance for married filing jointly).
$25,000 Special Allowance based upon, among other things, modified adjusted gross income of $100,000 or less for married filing joint returns.
Rental Activity is a passive activity even if you materially participate in it – unless you materially participate as a real estate professional.
A real estate professional is a person who materially participates in the activity, more than half of the services provided in a year are in real property trade or business, and that a minimum of 750 hours of service during the year in real property trade or business.
Active Participation rule may be met without regular, continuous and substantial involvement in real estate activities but one must have participated in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense. One is not considered to actively participate if, at any time during the tax year, time invested in the activity was less than 10% by value of interests in the activity. Generally, the taxpayer does not materially participate in the activity if the total hours is less than 100 hours in a year, particularly if the taxpayer compensates a third party for managing the activity.
Points of Interest Concerning Vacation Homes
Rental of a residence that was used for personal purposes records must be kept:
– Days or partial days used for personal use by the taxpayer or family member
– If rent collected is less than FMV it is considered a personal use day
– Days used when spent working substantially full time repairing and maintaining the unit even if family members used it for recreational purposes do not count as personal use
– Personal use cannot exceed the greater of 14 days or 10% of the total days it was rented to others at FMV.
If the taxpayer’s usage was greater than 14 days and the property was rented for fewer than 15 days – do not report the rental income and do not deduct any rental expenses. If the taxpayer itemizes their deductions allowable interest, taxes and casualty losses may be deductible.
Short term rentals that are actively managed and provide additional services (i.e. maid service) may be considered an active trade or business (i.e. hotel) rather than a rental activity.
Interested in learning more – contact me or access Instructions for Schedule E at irs.gov.
