2022 Tax Changes Affecting Retirement Savings

July 10, 2022 by David Moseman

There have been some changes to the tax laws which affect taxpayers who are retired, preparing to retire, and those who are beginning to save up for retirement. Required minimum distributions (RMDs) – Due to higher life expectancies, the IRS has made some changes to the table used to calculate your RMD resulting in a smaller minimum distribution starting in 2022.

Contribution Limits

Maximum contribution for retirement plans increased to $20,500 (up from $19,500 in 2021).
Individuals born before 1973 can still put in an extra $6,500 as a “catch-up” contribution.
In addition, the cap on Simple IRA contributions has gone up to $14,000 ($13,500 in 2021) plus an additional $3,000 for people 50 or older.

Income Ceilings

While the contribution limits for traditional IRAs and Roth IRAs have remained at $6,000, with an additional $1,000 catchup if 50 or older, the income ceilings on Roth IRAs has gone up. Contributions phase out in 2022 at adjusted gross income of $204,000 to $214,000 for married filers (up from $198,000 to $208,000 in 2021) and $129,000 to $144,000 for single filers (up from $125,000 to $140,000 in 2021).

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

The Tax Implications of Closing a Business

June 21, 2022 by David Moseman

The decision to close a business for good is never an easy one. However, it’s important to keep abreast of compliance requirements before you say goodbye. That’s why you should take time to visit a qualified tax advisor for guidance on:

What forms to file.
How to report revenue received in your final year of business.
How to report expenses incurred before closure.

Closing even a simple sole proprietorship requires a fair amount of paperwork. For example, you may have to file the following:

Form 4797, Sales of Business Property, for each year you sell or exchange property used in your business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less.
Form 8594, Asset Acquisition Statement, if you sell your business.
Schedule SE (Form 1040), Self-Employment Tax, if you have net earnings of $400 or more from your business.

There will likely be additional requirements for partnerships and corporations. Other Steps When Closing a Business

File a final tax return and related forms. The return you need to file depends on the type of business you were running.
Take care of employees. You’ll need to pay any final wages or compensation, making final federal tax deposits and reporting employment taxes.
Take stock of any pensions, benefit plans, health savings accounts and other tax-favored health plans. There are strict rules about how these are handled.
Pay any taxes owed. Tax payments may be due next filing season, even if that is after the business closes.
Report payments to contract workers. If you paid contractors at least $600 for services, including parts and materials, during the calendar year you go out of business, you must report those payments.
Cancel your EIN and close your IRS business account. You have to formally notify the IRS so it can close your IRS business account.
Keep business records. How long you need to keep records depends on what’s recorded in each document. For example, keep property records until the period of limitation expires for the year you dispose of the property. Employment tax records must be kept for at least four years.

Taking Care of Employees These tasks are among the most important. If you have one or more employees, you must pay them any final wages and compensation owed. You must also make final federal tax deposits and report employment taxes. The following forms are mandatory:

Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, for the quarter in which you make final wage payments. Check the box to tell the IRS your business has closed and enter the date when final wages were paid. Attach a statement to the return showing the name of the person keeping the payroll records and the address where those records will be kept.
Form 940, Employer’s Annual Federal Unemployment Tax Return, for the calendar year in which you paid final wages. Check box “d” in the Type of Return section to show that the form is final.

You must also provide a Form W-2, Wage and Tax Statement, to each of your employees for the calendar year in which you pay them their final wages. If your employees receive tips, you must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report final tip income and allocated tips. This is just a summary.

Be sure to work closely with a qualified tax professional at CironeFriedberg to make sure you are meeting all the requirements. The IRS provides a resource for those considering closing a business. Click here for more information.

What Business Owners Need to Know About Depreciation

June 13, 2022 by David Moseman

Depreciation is an annual tax deduction that allows small businesses to recover the costs of certain eligible property that decreases in value over its lifetime. Depreciation is an allowance for the wear and tear, deterioration or obsolescence of the property.

As a small-business owner, you can depreciate property when you place it in service for use in your trade or business or an income-producing activity. Depreciation stops when the full cost of the property has been recovered or when the property is retired from service, whichever happens first.

What’s depreciable? Machinery, equipment, buildings, vehicles and furniture that are owned by the business. Personal property is never depreciable. If you use an asset — a car, for instance — for either business or investment and personal purposes, you can depreciate only the business or investment use portion of the asset. Other depreciable assets may consist of building improvements and land improvements, but land is never depreciable.

To depreciate property, your business must:

Own the property. The business is considered to own property even if the property is subject to a debt.
Use the property in a business or income-producing activity. If your property is used to produce income, the income must be taxable. Property that’s used solely for personal activities can’t be depreciated.
Be able to assign a determinable useful life to your property. This means it must be something that wears out, decays, gets used up, becomes obsolete or loses its value from natural causes.
Expect the property to last more than one year. The property must have a useful life that extends substantially beyond the year you placed it in service.
Exclude excepted property from depreciation. Excepted property includes certain intangible property, certain term interests, equipment used to build capital improvements and property placed in service and disposed of in the same year.

Consider the different depreciation methods

The IRS allows you to use different depreciation methods, depending on the type of property and life of the property.

The most common depreciation method for tax purposes is the modified accelerated cost recovery system (MACRS). This method is used to recover the basis of most business and investment property placed in service after 1986. This method allows a depreciation deduction based on a percentage of the total cost based on when the property was placed in service and the life of the property.

Other depreciation methods that may be used are the straight-line method or the forecast method. The straight-line method lets you deduct the same amount of depreciation each year over the useful life of the property. While the forecast method depreciation is calculated each year by the cost of the property being multiplied by a fraction, which is the current year’s net income from the property over the anticipated net income that the property will bring in 10 years after it is placed in service.

There are also methods that are called accelerated depreciation methods, and the most common of these are bonus depreciation and Section 179 depreciation. These methods allow a more upfront depreciation deduction and may allow the entire cost of the property to be depreciated in the first year.

Work with one of our tax professionals to help you decide what method is the best choice for your situation.

New for 2022

Recently, the IRS imposed new dollar limits on the Section 179 deduction. For tax years beginning in 2022, the maximum Section 179 expense deduction is $1.08 million. This limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $2.7 million. Also, the maximum Section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2022 is $27,000.

This is just a brief introduction to a complex topic; there are many other provisions. Again, your best bet is to work closely with a qualified tax adviser at our Firm to make sure you’re following the rules and getting all the breaks to which you are entitled.

Capital Gains and Home Sales

June 6, 2022 by David Moseman

If you are selling your home, there is a good chance that the profit or a portion of the profit from the sale will not be taxable. Thanks to the Section 121 Exclusion (commonly referred to as the home sale exclusion), provided by the Internal Revenue Code, individual taxpayers can exclude up to $250,000 in profits from capital gains tax when they sell their primary personal residences, while married taxpayers can exclude up to $500,000 in gains.

Calculating Your Capital Gain or Loss

To calculate your capital gain or loss on the sale of your residence you subtract your cost basis from your sales price. The cost basis starts with what you paid for the home plus the costs you incurred in the purchase, such as title fees, escrow fees, and real estate agent commissions. Then add the costs associated with any major improvements you made, such as replacing the roof or the furnace, you made to the home. Minor renovations or maintenance costs such as painting a room do not count. Then subtract any accumulated depreciation you may have taken over the years, if any, based on items like taking a home office deduction. The resulting number is your cost basis.

Your capital gain or loss is the sales price of your home minus your cost basis and any expenses related to the sale (commissions, fees, etc.). If you end up with a capital loss, you cannot claim a deduction for the loss under the Internal Revenue Code.

If you end up with a capital gain, you can subtract the home sales exclusion, if eligible, to determine your taxable gain. To be eligible for the exclusion, you must have lived in the home for a minimum of two of the five years immediately preceding the date of sale. The two years do not have to be consecutive, and you do not have to live there on the date of the sale.

Know the Details

You can use this two-out-of-five-years rule to exclude your profits each time you sell your main home. However, you can claim the exclusion only once every two years because you must spend at least that much time in the residence. You cannot have excluded the gain on another home in the last two-year period.

You also want to document any unforeseen circumstances that might force you to sell your home before you’ve lived there the required period of time. The IRS defines an unforeseen circumstance as an event that you could not reasonably have anticipated before buying and occupying your main home. Natural disasters, a change in employment that left you unable to meet basic living expenses, death, divorce and multiple births from the same pregnancy qualify as unforeseen circumstances under IRS rules. Any unforeseen circumstances may result in you getting a partial exclusion.

Active-duty service members are not subject to the residency rule. They can waive the rule for up to 10 years if they’re on qualified official extended duty.

If you realize a profit in excess of the home sale exclusion or if you do not qualify for the exclusion, you will report the sale of your home on Schedule D of your Individual Tax Return.

Be advised this is just a summary and there may be other provisions and exceptions applicable to you. Be sure to consult a tax professional before filing.

Estimated Taxes are Due June 15th

May 29, 2022 by David Moseman

The U.S. income tax system is pay-as-you-go, meaning that you pay taxes as you earn income. According to the IRS, sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when they file their tax return.

If you are self-employed as an independent contractor or freelancer, you pay your taxes quarterly. You file quarterly taxes with Form 1040-ES, Estimated Tax for Individuals.

The next 2022 Payment Due Date for Estimated Taxes is June 15th.

For more information about estimated taxes, please refer to this article by David Moseman, CPA and CironeFriedberg partner.

Annual Reviews of Federal Withholding for Employees

May 2, 2022 by David Moseman

The IRS says, “All taxpayers should review their federal withholding each year to make sure they’re not having too little or too much tax withheld.” However, employees may not be aware of the IRS’ suggestion, which is why employers should tell them about it.

Why employees should review their withholding

If they have too little federal income tax withheld, employees may end up owing taxes or being hit with a penalty at tax time. Conversely, if they have too much tax withheld, their paychecks will be smaller — which might hurt them financially, as they must wait until tax time to get a refund.

Employees should submit a new Form W-4 if necessary

All new hires must complete a Form W-4, which helps determine how much federal income tax to withhold from their wages. The employee’s Form W-4 information is driven by a person’s personal and financial situation. If an employee experiences certain life changes during the year, they may need to give you a new Form W-4.

Employees should review their withholding every year if they:

Have a spouse who works as an employee.
Have two or more jobs simultaneously.
Work partially during the year.
Have dependents who are at least 17 years old.
Claim tax credits such as the child tax credit.
Itemized deductions on prior year tax returns.
Earn high incomes.
Have complex tax returns.
Had large refunds or large tax bills for the previous year.

Employees may need to update their W-4 if they experience life changes, such as:

Marriage.
Divorce or legal separation.
Childbirth.
Adoption of a child.
Retirement.
Bankruptcy.
Home purchase.
Starting a new job or stopping a second job.
Their spouse gaining or losing a job.
Adjustments to income, such as student loan income deduction.
Gain of tax credits or itemized deductions, such as medical expenses, donations to charity, education credit and child tax credit.
Gain of dividends, self-employment income, IRA distributions, capital gains, interest income, and other taxable income not subject to withholding.

Although year-end may be a convenient time to review filing and withholding statuses, taxpayers can submit a new Form W-4 anytime. Often, they will see a need to do so after preparing their tax returns each year. Depending on where your employees work, they may also need to review their state and/or local tax withholdings every year.

Direct your employees to the IRS Tax Withholding Estimator

The Tax Withholding Estimator helps employees ensure the correct amount of federal income tax is withheld from their paychecks. Employees can review the Tax Withholding Estimator FAQs if they have questions about using the estimator. Also, they can consult with their CironeFriedberg professional.

« Previous Page
1
…
4
5
6
7
8
…
10
Next Page »

2022 Tax Changes Affecting Retirement Savings

The Tax Implications of Closing a Business

What Business Owners Need to Know About Depreciation

Capital Gains and Home Sales

Estimated Taxes are Due June 15th

The next 2022 Payment Due Date for Estimated Taxes is June 15th.

Annual Reviews of Federal Withholding for Employees

SERVICES

Bethel, CT

SHELTON, CT

Darien, CT

STAY CONNECTED