|
Tax Documents
Tax time will be here before you know it. This can be a stressful time for clients and tax professionals alike, but early preparation can reduce stress for everyone involved. The longer you wait to show me an important tax document, the more potential delays may occur when preparing your tax return. In this article, we will look at some of the most important documents you will need to provide at tax time.
1099 Warnings January and February are hot months to receive IRS 1099 forms. Please carefully look at your mail during those months to make sure you grab and save every 1099 you receive. If you have a taxable investment account, you will likely receive a 1099-INT, 1099-DIV, or 1099-B, even if you didn't take any money out of those accounts. These types of 1099s, specifically 1099-INT, 1099- DIV, and 1099-B, may not arrive until later in March, and you may see some amended forms arrive in your mailbox with corrections to your original 1099s. Also, be aware that I need every page of those documents (yes, even if the statement is 200 pages long).
If you are self-employed, many of your customers or payors may send you a Form 1099-NEC or a Form 1099-MISC. Please collect all those documents because if the amounts on your 1099s are more than the total business income reported on your tax return, it may trigger an IRS notice. If you use Venmo, Apple Pay, Square, or Pay Pal in your business to accept payments, you will receive a 1099-K if the total transactions during the year are $600 or more from any of these payment providers.
Clean Energy Vehicles If you purchased a new or used clean vehicle in 2023, congratulations! In the last two issues of our newsletter, we discussed the eligibility requirements to claim a tax credit for clean vehicles. If you purchased a vehicle that does not qualify for the credit, or you do not qualify to claim the credit based on your income, consider writing to your congressional representative. We do not write the laws, so don't shoot the messenger.
The dealership who sold you the clean vehicle will report all the information to the IRS. If the vehicle does not qualify for the credit and you try to claim it on your tax return, you will receive a notice from the IRS disallowing the credit. Therefore, it is very important that you get a statement from the dealer that includes the VIN number of the vehicle, the year, make and model, and the manufacturer's suggested retail price (MSRP). The IRS requires that dealers provide this statement to you at the time of purchase.
Since 2023 was the first year with these new rules, your dealership may have been struggling to meet the new requirements and might not have provided you with all the necessary information. If you reach out to the dealer who sold you the car, they should be able to provide this information.
Purchased, Sold, or Refinanced a Property If you bought a property in 2023, you need to provide your closing statement, also known as "Buyer's Settlement Statement." That document has important information about points, interest, and property taxes which may be deductible on your tax return.
If you refinanced your home to take cash out, you need to provide the settlement statement and explain what you used the cash for. If you pulled additional cash out to improve your home, the interest on that refinance may be deductible.
Any real estate you sold must be reported, even if the gains are not taxable (like when selling your primary residence). If applicable, you will need to provide the "Seller's Settlement Statement" and Form 1099-S.
New Tax Provisions Coming for 2024
Starting in 2024, you may be able to take advantage of new tax provisions related to retirement plans and clean vehicles. Here are a few of the most notable upcoming items.
New Exceptions for Early Retirement Withdrawels
Domestic Abuse Victims of domestic abuse may be able to withdraw up to $10,000 from their retirement account (or 50%of their vested account balance, whichever is less). The only requirement is that you are a domestic abuse victim and take the distribution within one year of the abuse incident. If this exception applies to you, please let us know (we don't need all the details) so we can reflect it on your tax return. You are allowed to self-certify that you qualify for this exception, meaning you don't need to provide us with proof that you contacted the police or notified anyone of the incident. While self-certification is allowed, it is recommended that you keep some documentation as proof in case of an audit. This documentation could be things like medical records, police reports, written OR audio communications. You do not need to provide any of these documents when we file your tax return but keep them stashed away somewhere so you can get them if you need them.
You will still have to pay tax on the distribution, but there will be no 10% withdrawal penalty, and you will have the option to re-contribute the funds to your retirement account within three years of the original distribution if you want to. If you re-contribute the funds to your retirement account, taxes paid on the original distribution may be recovered by amending your taxes after the re-contribution. The original distribution will not be taxable (which means we will have to file an amended return for the year you took the distribution).
We understand that this is a sensitive topic and that you might not be comfortable discussing the details with us. We will do our best to respect your privacy while ensuring we do everything possible to get the best tax result..
Emergencies If you find yourself in an unforeseeable financial hardship or other emergency, you may be entitled to take a disaster distribution from your retirement account. The maximum emergency distribution is $1,000. The distribution amount is still taxable, but there will not be any early withdrawal penalty. If you want, you also have the option to re-contribute these funds within three years (which would make the original distribution not taxable).
Terminal Illness Illness In the event that you have been diagnosed with a terminal illness, you may be eligible for some tax relief in the form of penalty-free distributions from your retirement accounts. There are some requirements that must be met, which we can discuss if you find yourself facing these circumstances. The distributions will still be taxable but not subject to the early withdrawal penalty. There is no limit to the amount of money you may withdraw penalty-free. However, you must provide the plan administrator or brokerage firm that holds your retirement account with written documentation from a medical professional.
Pension-Linked Emergency Savings lf your employer offers the new Pension-linked savings account, you can Save for emergencies the same way you save for retirement, without the hassle and expense of taking early distributions. There are some limitations on the amount you can contribute to these accounts.
Dealer Credit Option for Electric Vehicles If you are looking to purchase a clean vehicle, new or used, you may have an opportunity to get tax savings up front instead of waiting until you file your tax return. In 2024, dealers will be able to reduce your purchase price of the vehicle by the amount of tax credit you would be entitled to on your tax return. This is a great option, but there may be serious consequences if you don't pay attention to the rules.
Income Limitations Income limitations If your income for the current or prior year is less than the following amounts, you may qualify for the credit:
- $300,000 for married couples filing joint returns, or a qualified surviving spouse
- $225,000 for heads of household
- $150,000 for other filers (single)
If your income for both years exceeds these thresholds by even one dollar, you will not qualify. If you select the option to have the dealer reduce your vehicle purchase price and your income is too high to claim the credit, you must pay back all of the credit when filing your tax. return.
If the tax on your return is too low to claim the entire clean vehicle credit, you will not qualify for the entire credit when it is claimed on your tax return. You may want to wait until 2024 to purchase a new clean vehicle because if the dealer reduces your purchase price through this program, you will qualify for the entire benefit and no repayment will be required on your tax. return.
Buying a new car is exciting, so don't get carried away when selecting the dealer credit option. If you're considering purchasing a new clean vehicle, call me before going to the dealership!
529 Plan to Roth IRA Rollover
If you have set up a 529 plan for your child's or other family member's college, you might find that they will not need to use all the funds to pay for college. While there are a number of options for the remaining funds, a new option beginning in 2024 will be to convert the 529 plan funds into a Roth IRA for the beneficiary of that 529 plan. If your 529 account still has funds and you are interested in this option, there are a few things to know:
- The account must have been open for at least 15 years, and you can't move any money that was contributed in the last five years.
- The amount you can rollover is limited to the annual IRA contribution amount, and the beneficiary must have compensation equal to the amount they want to roll over. This will limit other IRA contributions during the year.
- • The total lifetime amount that can be rolled over is $35,000.
If you plan to take advantage of this option, it is extremely important to discuss that with me before making any decisions.
Would you like to read a past issue. Please check out one of these issues:
Year End 2023
Year End 2022
Year End 2021
Year End 2020
Year End 2019
Year End 2018
Year End 2017
Year End 2016
Year End 2015
Year End 2014
Year End 2013
Winter 2013
Spring 2012
Spring 2011
Fall 2010
Summer 2010
Spring 2010
Fall 2009
Summer 2009
Spring 2009
Fall 2008
Summer 2008
Spring 2008
Winter 2008
Summer 2007
Spring 2007
Winter 2007
Fall 2006
Winter 2006
Fall 2005
Summer 2005
Spring 2005
Winter 2004
Summer 2004
Spring 2004
|
