by Taxing Subjects | Jan 4, 2024 | Tax Tips and News
The Internal Revenue Service updated and modified guidance surrounding an assortment of clean energy credits and other provisions over the closing days of 2023. Some of the changes will be in effect next tax season, while other alterations will not be realized for a year or more.
Here is a brief overview of what to expect on the clean energy front in the near future.
The Energy Efficient Home Improvement Credit Gets a PIN Number.
Most Americans are familiar with the Personal Identification Number, but this PIN stands for a Product Identification Number. It identifies qualifying equipment that is added to a homeowner’s clean energy system to improve its efficiency.
Starting for the 2023 tax year, the Energy Efficient Home Improvement Credit can refund up to 30% of the total amount paid by the taxpayer for qualified equipment. This can include qualified energy efficiency improvements installed during the tax year; certain property expenditures relating to energy systems for the year; and taxpayer-funded home energy audits for the tax year. Qualifying property must be put into service between Jan. 1, 2023, and Jan. 1, 2033.
The PIN requirement comes in 2025, when taxpayers who want to claim this credit will have to provide the Product Identification Number of any equipment installed to improve efficiency. The PIN will prove to the IRS that the equipment came from an approved manufacturer. Without the PIN on the return, the taxpayer will not qualify for the credit.
More details on the Energy Efficient Home Improvement Credit can be found in Notice 2024-13 on the IRS website.
The IRS is asking for public input on the credit and the proposed changes, but comments must be submitted by Feb. 27, 2024.
Guidance Issued on the Cost for the Commercial Clean Vehicle Credit.
The Treasury Department and the IRS have allowed owners of clean commercial vehicles to breathe a little easier with some new guidance on the Commercial Clean Vehicle Credit.
Relief comes in the form of a safe harbor for certain commercial clean vehicles that are put into service during TY 2024. The new guidance allows taxpayers claiming the credit to rely on Department of Energy (DOE) figures for incremental costs for such a vehicle. The DOE’s research shows the incremental cost of all street electric vehicles with a gross vehicle weight rating of less than 14,000 pounds – other than compact car plug-in hybrid electric vehicles known as PHEVs – will be greater than $7,500 during the 2024 tax year. For those electric vehicles that have a weight rating of less than 14,000 pounds, the safe harbor means the low incremental cost will not limit the available credit amount, as long as the vehicle goes into service during this calendar year. If a PHEV goes into service during the 2024 tax year and has a calculated incremental cost of less than $7,500, the IRS instead will accept a taxpayer’s use of the incremental cost from the DOE.
Additional information on this, as well as other classes of electric vehicles, is contained in Notice 2024-05 on the IRS website.
Frequently Asked Questions – Answered.
The IRS has also updated its guidance on the required critical mineral and battery components
contained in the New, Previously Owned, and Qualified Commercial Clean Vehicle Credits.
Originally, updates to the frequently asked questions on the credits were published in Fact Sheet 2023-22; the newest updates, however, take the place of the originals and are outlined in Fact Sheet 2023-29.
Giving Clean Hydrogen Some Credit.
Electric vehicles may be grabbing a lot of the headlines recently, but hydrogen is still on the list of possible clean fuels for the future. Looking ahead, the Internal Revenue Service has come up with proposed regulations for a tax credit on clean hydrogen production.
In broad terms, hydrogen can qualify as “clean hydrogen” when the gas is produced in the U.S. or a U.S. territory, and the production process meets a strict level of low emissions.
A production credit was put into place in the Inflation Reduction Act of 2022 (IRA). Under present terms, each kilogram of clean hydrogen produced at a qualified clean hydrogen production plant qualifies for a credit. The size of the credit depends on the level of emissions at the hydrogen production facility and whether the taxpayer complied with prevailing wage and apprenticeship requirements during the production plant’s construction, alteration, and repair.
The proposed regulations contain the basic building blocks to administer the credit and how to claim it. Among other things, they include language for figuring the lifecycle greenhouse gas emissions rate of the hydrogen production process, and how to verify the production or sale of hydrogen.
Sources: Treasury, IRS request public comments on product identification number requirement to claim the Energy Efficient Home Improvement Credit;
IRS issues guidance on the incremental cost for the Commercial Clean Vehicle Credit;
IRS updates frequently asked questions for the New, Previously-Owned and Qualified Commercial Clean Vehicle Credit;
Treasury, IRS issue guidance on the tax credit for the production of clean hydrogen
– Article provided by Taxing Subjects.
by Taxing Subjects | Dec 8, 2023 | Tax Tips and News
In a recent announcement, the Internal Revenue Service (IRS) has decided to delay the implementation of the new $600 Form 1099-K reporting threshold for third-party payment organizations. The decision to treat 2023 as a transition year comes in response to feedback from taxpayers, tax professionals, and payment processors. The IRS is also planning a phased-in approach, with a $5,000 threshold set for 2024 to gradually implement the reporting requirements introduced under the American Rescue Plan.
�What’s Changing in 2023
The initial plan was to enforce a $600 reporting threshold for Form 1099-K in 2023. However, due to concerns about potential confusion and to address feedback from various stakeholders, the IRS has decided to delay the implementation. This means that for the tax year 2023, payment apps and online marketplaces will only be required to send Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions.
Phased-In Approach for 2024
To further ease the transition and address operational concerns, the IRS is introducing a phased-in approach. In 2024, the reporting threshold will be increased to $5,000. This gives the agency time to review and improve its processes, taking into account feedback and concerns raised by taxpayers and other stakeholders.
Who Receives Form 1099-K
Form 1099-K is relevant for individuals and businesses using payment apps or online marketplaces to receive payments for selling goods or providing services. This includes everyone from side hustlers and small businesses to casual sellers who may have sold personal items at a loss.
Navigating Form 1099-K
For those who receive a Form 1099-K, the IRS provides resources on its Understanding Your Form 1099-K webpage. Taxpayers should review the form, ensure the accuracy of the reported amount, and identify any deductible expenses associated with the payment that can be claimed when filing taxes.
Reporting Personal Item Sales
Selling personal items can create complexity in tax reporting, even when items are sold at a loss.
If personal items were sold at a gain, taxpayers must report the gain as income on both Form 8949 and Schedule D (Form 1040).
If your client sold personal items for less than they originally paid, you should report the loss on Schedule 1 (Form 1040). To do so, enter the Form 1099-K gross payment amount on Part I – Line 8z, and then offset that amount on Part II – Line 24z. For Drake Software customers, Drake Tax automatically makes the offset on Line 24z.
While business losses can be reported on Form 8949 to be carried to Schedule D, Capital Gains and Losses, personal losses cannot.
What Not to Report
It’s crucial to note that reporting is not required for personal transactions, such as gifts, ride-sharing expenses, or shared household bills. These transactions are not taxable and should not be reported on Form 1099-K.
Navigating the Changes
The IRS’s decision to delay the 2023 Form 1099-K reporting threshold and implement a phased-in approach for 2024 reflects a commitment to addressing taxpayer concerns and ensuring a smoother transition. Tax preparers have the opportunity to help their clients stay informed about these changes, review their Form 1099-K carefully, and utilize available IRS resources to navigate the complexities of tax reporting. As the IRS continues to refine its processes and provide updates, taxpayers and preparers alike can expect clearer guidelines for compliance with the evolving tax requirements.
Sources: IR-2023-221, FS-2023-27
– Article provided by Taxing Subjects.
by Taxing Subjects | Nov 27, 2023 | Tax Tips and News
The IRS and its Security Summit partners from the national tax industry and state tax agencies announced the 8th annual National Tax Security Awareness Week, set to begin November 27. Protection of financial information and identity theft prevention are the focus of the week-long awareness campaign backed by the Security Summit. This coalition consists of the IRS, state agencies, tax professionals, and tax software companies whose goal is to promote private and public sector cooperation to increase knowledge of the threats tax preparers face. Drake Software® is proud to be an original member of the Security Summit and continues to hold membership with 23 other industry offices.
The National Tax Security Awareness Week Itinerary
Drake users have a lot to look forward to during this year’s National Tax Security Awareness Week:
- Partners of the Security Summit will have access to educational material in the form of IRS publications and e-posters to help spread security awareness.
- The IRS has a social media awareness campaign planned on all of the social channels used by the Security Summit.
- Press Releases sharing the central topics to National Tax Security Awareness Week will release daily, providing information to tax professionals about avoiding the dangers of tax schemes and identity theft.
During the end of the year and holiday season, increased online gift purchases and tax filing deadlines can present increased risk of losing private information by way of scams and fraud. The National Tax Security Awareness Week’s timing is designed to refresh tax preparers on how to avoid these situations which can appear in the form of identity thieves posing as charitable organizations or even the IRS using fake emails and text messages asking for personal tax information which they can use to file returns.
Both Drake Software and the IRS recommend tax professionals review their security measures this week and implement some of the strategies listed below to identify and thwart these theft attempts:
- Preparers should create data security and recovery plans to handle or prevent information breaches.
- Tax professionals can familiarize themselves with phone schemes where the caller pretends to be a new client.
- The FTC requires that tax preparers use multi-factor authentication to safeguard client data. Tax software accounts should also be protected with multi-factor authentication.
- Tax employees and professionals working remotely need to use a VPN.
The November 30 webinar, Developing a Written Security Information Plan, led by Jared Ballew, the Vice President of Government Relations at Drake Software and representatives from the IRS covers tax security to educate tax preparers on dangers and solutions from tax fraud. The registration link can be found on this IRS news release.
Additional Security Focuses for the Week
One topic at the forefront of this year’s National Tax Security Awareness Week is the IRS Identity Protection Pin program. This is a service taxpayers can use to help protect their tax returns. The pin is a six-digit code only the IRS, the filing individual, and a trustworthy tax provider should know. It guards social security information on tax refunds. If interested in this security measure, visit the IRS link here.
The Security Summit recognizes small businesses as the group most likely to be the victim of financial fraud and will cover ways to specifically protect them during tax security week. The 14039-B theft report form and W-2 income information scam and topics of conversation for small companies.
Resources and Information
Drake Software strives to offer our clients the best resources and security available in the industry. We published several blogs this year that are companion pieces for the tax preparer security topics covered this week. Read our blog posts on cybersecurity, employee retention credit scams and IRS security requirements for more preparation to fend off attacks on sensitive information.
The article from the IRS on National Tax Security Awareness Week can be found here.
– Article provided by Taxing Subjects.
by Taxing Subjects | Nov 22, 2023 | Tax Tips and News
The window for claiming a pandemic-driven tax credit is still open to taxpayers who didn’t take advantage of it during the main Covid outbreak. But closing dates are approaching, making filing a claim for eligible taxpayers (tax years 2020 or 2021) a priority for tax preparers.
For a historical background, we have to go back to 2020 as we faced national economic challenges arising from the Covid-19 pandemic. The IRS established the Recovery Rebate Credit to help those taxpayers who may have missed one or more of the Economic Impact Payments – also known as stimulus payments – that were released in 2020 and 2021.
While it is likely that the vast majority of eligible taxpayers have already gotten their Economic Impact Payments directly or by claiming the Recovery Rebate Credit, the IRS is concerned that there are still taxpayers who are due the credit, but haven’t received payment.
Any eligible taxpayers, however, must file a tax return to claim the credit – even if they had little or no income.
Who is Eligible and for How Long?
The Recovery Rebate Credit is available for the 2020 and 2021 tax years.
Taxpayers filing for 2020 must have been a U.S. citizen or resident alien in 2020 and cannot have been a dependent of another taxpayer during the tax year. In addition, qualified taxpayers must have a Social Security number issued before the due date of the tax return that’s valid for U.S. employment.
Taxpayers claiming the 2020 Recovery Rebate Credit must file a tax return by May 17, 2024.
Those taxpayers filing for 2021 must have been a U.S. citizen or resident alien in 2021 and cannot have been a dependent of another taxpayer during that tax year. Additionally for 2021 filers, taxpayers must have a Social Security number issued before the due date of the tax return that’s valid for U.S. employment or claim a dependent with an Adoption Taxpayer Identification Number.
Claims for the 2021 Recovery Rebate Credit must be filed in a federal tax return by April 15, 2025.
The Recovery Rebate Credit can also be claimed on behalf of a taxpayer who has died. The 2020 credit can be claimed for someone who died in 2020, while both the 2020 and 2021 credits can be claimed for someone who died in 2021 or later.
Note that any Recovery Rebate Credit that is received cannot be counted as income when determining one’s eligibility for federal benefits. This includes Supplemental Security Income or SSI; Supplemental Nutrition Assistance Program or SNAP; Temporary Assistance for Needy Families or TANF; or the Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC.
If someone claims the credit, it has no bearing on their immigration status or their ability to get a green card or other immigration benefits.
Taxpayers who are unsure if they got the Economic Impact Payments can check their IRS Online Account to check for payments and amounts.
Source: IRS reminds eligible 2020 and 2021 non-filers to claim Recovery Rebate Credit before time runs out
– Article provided by Taxing Subjects.
by Taxing Subjects | Nov 13, 2023 | Tax Tips and News
The Internal Revenue Service has passed along an early Christmas present of sorts to many taxpayers by increasing the maximum contribution amounts for 401(k) plans in 2024.
The contribution hike covers those employees who take part in 401(k), 403(b), or most 457 plans. Participants in the federal Thrift Savings Plan are also included in the increase. Taxpayers who participate in any of these plans can now contribute up to $23,000 for 2024; that’s up from $22,500 under the previous rules. Catch-up contribution limits for these same taxpayers, however, stay at present levels.
For those with SIMPLE retirement accounts, contribution limits have been raised from $15,500 to $16,000.
The new rules also boost the limit on contributions to an IRA, raising the bar from $6,500 to $7,000. Despite legislation including an annual cost-of-living adjustment (via the SECURE 2.0 Act of 2022), IRA 2024 catch-up contribution limits remain at $1,000 for those participants 50 and over.
Income Limits on Deduction Eligibility Increased.
A taxpayer’s eligibility to deduct their contributions to traditional IRAs or Roth IRAs, or to claim the Saver’s Credit can hinge on the filer’s income. In all three instances, these income ranges were increased by the IRS as well.
Deduction phase-out for traditional IRAs gets an overhaul from the new guidance. Affected taxpayers include Single covered by a retirement plan at work, and Married filing jointly with the spouse making the IRA contribution covered by a workplace retirement plan.
Complete details on these and deduction phase-outs – including those for Roth and SIMPLE plans, and the Saver’s Credit – are available in Notice 2023-75 on the IRS website. The Notice has technical guidance on all the cost-of-living adjustments set in motion by the SECURE Act 2.0 legislation.
Source: 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000
– Article provided by Taxing Subjects.
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