Individual Taxes Archives - CironeFriedberg, LLP

Important January and February Tax Deadlines

December 28, 2022 by David Moseman CPA

As you head into a new year, mark these dates on your calendar. There are tax deadlines for both individuals and businesses early in the year.

Important 2023 Tax Deadlines and Dates for Individual Filers

Individual Filers are employees, retirees, self-employed individuals, independent contractors, and gig or contract workers. Be sure to work closely with your CPA to understand how tax deadlines may affect your personal situation.

January 17 – Estimated Tax payments for 4^th quarter 2022 are due. This covers the time period of September 1 through December 31, 2022. Self-employed persons or those earning other income without tax withholding make quarterly estimated tax payments. Work closely with your CPA to be sure you are not at risk of for penalties for improper payments.

January 31 – Employers send W-2 forms. The IRS requires employers to send employees a W-2 no later than January 31 following the close of the tax year.

January 31 – 1099 forms must be sent. 1099 forms, including 1099-NEC,1099-MISC, and 1099-K are sent to those earning income as independent contractors, gig workers, or from self-employment. These forms are also sent to those receiving income from interest, dividends, prize winnings, rents collected, royalties, or brokerage accounts.

February 15, 2023 – Reclaim exemption from withholding. If you chose to claim an exemption from withholding taxes from your paycheck last year by filing a Form W-4, you’ll need to re-file the form by February 15th. You need to file this exemption request if you expect to have no tax liability this year and also had no tax liability in the prior year.

Important Tax Deadlines and Dates for Businesses

Businesses include Partnerships, LLCs, C Corps (using Form 1120), and S Corps (using Form 1120S)

January 16, 2023 – 4th Quarter 2022 estimated tax payment is due. This covers the time period of September 1 through December 31, 2022. Work closely with your CPA to be sure you are not at risk of for penalties for improper payments.

January 31, 2023 – Employers send W-2s forms to employees. The IRS requires employers to send employees a W-2 no later than January 31 following the close of the tax year.

January 31, 2023 – Send certain 1099 forms. You must send 1099 forms, including 1099-NEC,1099-MISC, and 1099-K to those earning income as independent contractors. These forms are also sent to those receiving income from interest, dividends, prize winnings, rents collected, royalties, or brokerage accounts.

Have Questions?

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.

Funding Marital Gift and Credit Shelter Trusts

December 4, 2022 by David Moseman CPA

Baby boomers are inheriting their parents’ wealth, and their children are receiving funds transferred through a variety of trusts established under their parents’ estates. You may find yourself responsible for managing the wealth transfer process.

In the past, banks and trust companies were tasked with dealing with estates, but these days, individuals are taking on the jobs of executors and trustees. If you lack experience in administering estates and trusts properly, you may turn to the attorney who prepared the will or trust. But some lawyers refuse. They point to the potential conflict of interest and ethical problems swirling around questions of whom they represent — the fiduciary, the estate or the surviving spouse.

Estate administration involves complex questions about accounting and taxes, so if you have no background in those fields, you’ll need an adviser. While the knee-jerk reaction always has been to seek out an attorney to administer an estate, you may join an increasing number of folks who are turning to accountants. They are, after all, the best people to administer credit shelter trusts, an increasingly popular tool in estate planning.

One of the more popular credit shelter trusts is the marital gift trust, which preserves estate tax exemptions to be used later by trust beneficiaries. The will bequeaths to the trust an amount up to the value of the estate tax exemption. The remainder of the estate is then passed directly to the remaining spouse tax-free using the unlimited marital estate tax deduction. This divides an estate in a way that reduces the overall amount of estate tax paid.

In order for the credit shelter and marital trusts to be used effectively, married couples should examine how their individual assets are titled and whether there are sufficient assets to fund the marital trust exemption of 12.06 million dollars in 2022. If all assets are held jointly with rights of survivorship, the joint assets would pass directly to the spouse and no exemption would be utilized.

Assets placed in a credit shelter trust remain tax-free even if they increase in value. On the death of the surviving spouse, the value of the trust assets won’t be included in his or her estate. One benefit of the marital gift trust is that the surviving spouse is not required to take income distributions on an annual basis. Instead, the principal remains intact, which may increase the trust’s overall value for all parties.

The rub is capital gains on the assets. The value of the assets will continue to grow during the remaining spouse’s lifetime and eventually will be taxable to heirs. This is an issue that your CPA can advise you on.

Portability has changed marital estate planning by allowing more options. It may be better to create a marital gift of credit shelter trust on the first death and not use the deceased spouse’s exemption. By porting, the survivor will have the benefit of two estate tax exemptions to shelter the assets from any estate tax. If the first spouse to die does not use the entire estate exemption, Form 706 is required to be filed with the IRS if a portability election is desired even if no requirement to file exists.

Dividing property between the marital gift and credit shelter trusts is required only if the decedent left a surviving spouse and the estate more than the current estate exemption of 12.06 million.

Careful estate planning can eliminate a significant estate tax burden for surviving spouses and their beneficiaries. Credit shelter and marital gift trusts can be useful tools in preserving an estate’s assets. Determining which option is best in a given situation depends on the amount of control desired by the original donor and the income needs of the surviving spouse.

The number of trusts is increasing primarily for tax purposes, which means your chances of being asked to be an executor or trustee is growing too. While technology has made trust information easier to deal with, it still wouldn’t hurt if you turn to a CPA who’s in a unique position to provide professional services as you deal with the estate or trust. Your accountant can interact with lawyers, financial planners, other CPAs, insurance agents, realtors and members of the decedent’s family. Give the office a call.

Have Questions?

Home Sellers’ Profit Exclusions Aren’t One-Time Opportunities

November 23, 2022 by David Moseman CPA

The tax code authorizes “exclusions” that allow home sellers to completely sidestep federal and state income taxes on sizable portions of their profits when they unload their principal residences. The profit exclusions are as much as $500,000 for married couples who file joint returns and $250,000 for single filers and couples who file separate returns. So says Julian Block, an attorney and former IRS special agent.

Contrary to what many sellers mistakenly believe, the exclusions aren’t one-time opportunities. They can avail themselves of the exclusions as often as every two years.

The law allows a seller we’ll call “Louise” to qualify for the exclusion only if she satisfies two requirements:

She has owned and lived in the property as her principal residence or main home for at least two years out of the five-year period that ends on the date of sale.
She can’t have excluded the gain on the sale of another principal residence within the two years that precede the sale date.

An accommodating Internal Revenue Service cuts Louise some slack on the two years that she occupies the home. The two years don’t have to be consecutive; they can actually be off and on for a total of two full years.

What about short temporary absences for vacations or other seasonal absences? No problem, says the IRS. It’s OK for Louise to count them as periods of owner use. This holds true even if she rents out the property during the absences.

The IRS doesn’t limit exclusions to sales of conventional single-family homes. It considers Louise’s principal residence to be any of the following:

A condominium.
A cooperative apartment.
Her portion of a multi-unit apartment building.
A house trailer.
A mobile home.
A houseboat or yacht that has facilities for cooking, sleeping and sanitation.
A vacation retreat that she moves into full time after retirement.

Another plus: The location of her principal residence doesn’t matter. It can be outside the U.S.

Partial profit exclusions. Suppose Louise sells another home within the previous two years or fails to satisfy the ownership and use requirements; all is not lost. She may be able to claim a partial exclusion.

Primary reasons for sales. The IRS permits sellers to avail themselves of reduced exclusions only when the primary reasons are health problems (for example, if Louise moves to a new school district for her special-needs child); changes in employment; or certain unforeseen circumstances, broadly defined to include divorces or legal separations, or natural or man-made disasters that cause residential damage — floods, for example.

An example: Louise is single and has lived in her dwelling for just 12 months before she moves to a new job in another city. She can exclude a gain of as much as $125,000 — 12 months divided by 24 months, or 50% of her maximum allowable $250,000 exclusion.

The bottom line? Don’t make assumptions about what you may or may not be allowed to deduct. Work with a tax professional to make sure you get everything you’re entitled to claim.

Capital Gains Tax Rates

October 28, 2022 by David Moseman CPA

Long-Term Capital Gains Tax Rates

Long-term capital gains tax is a tax on gains from the sale of capital assets held for more than a year.

The long-term capital gains tax rates are 0%, 15% or 20% depending on a combination of your taxable income and filing status.

While the capital gains tax rates did not change for 2022, the income required to qualify for each bracket was increased to adjust for inflation.

Filing Status	Single	Married filing jointly	Married filing separately	Head of household
0% Rate	Up to $41,675	Up to $83,350	Up to $41,675	Up to $55,800
15% Rate	$41,676 – $459,750	$83,351 – $517,200	$41,676 – $258,600	$55,801 – $488,500
20% Rate	Over $459,750	Over $517,200	Over $258,600	Over $488,500

Source: Internal Revenue Service

Understanding the Gift Tax

September 23, 2022 by David Moseman CPA

For tax purposes, gift givers, rather than gift recipients, have to account for and potentially pay the gift tax. But, you won’t owe the federal gift tax until you have given away millions in cash or other assets during your lifetime. It sounds simple enough, but you still may have to file gift tax returns even though you don’t owe any tax. Additionally, certain states have gift tax filing requirements and their exclusions and requirements may differ from federal requirements.

The annual federal gift tax exclusion changes almost every year to adjust for inflation and it allows you to give a certain amount to as many people as you wish without those gifts counting against your substantial lifetime exemption. Gifts made during your lifetime will reduce your taxable estate. So, making annual gifts up to the annual exclusion is a smart way to reduce your taxable estate without any negative side effects.

Sounds good so far, right? Well, it may not be so clear. Some gifts, for example, are exempt from federal tax, including the following:

Gifts to IRS-approved charities
Gifts to your spouse, with certain exceptions
Gifts covering another person’s medical expenses made directly to the service providers
Gifts covering another person’s tuition expenses made directly to the institution

So, when exactly do you need to file a gift tax return? Some gifts may require you to file Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. This is necessary even if you don’t owe taxes on the gifts you’re reporting.

If it sounds a bit confusing, it is. You don’t owe tax, so why do you need to file a gift tax form anyway? The federal gift tax exists for one reason: to prevent citizens from avoiding the federal estate tax by giving away their money before they die.

Some transactions that are not commonly thought of as gifts could be considered gifts for gift and estate tax purposes. For example, adding a joint tenant to real estate, canceling indebtedness, making a payment owed by someone else, making a gift as an individual to a corporation, giving real or tangible property all qualify as gifts that are subject to the gift tax.

Before you get bogged down in these many details, we suggest you talk to a professional about your gift habits, abilities, and financial picture. Contact us today to learn more.

2022 Tax Brackets and Standard Deductions

September 20, 2022 by David Moseman CPA

The end of the year brings tax planning into focus, since tax filing is right around the corner.

2022 Tax Brackets

Tax rates for 2022 are remaining the same as 2021 but the tax brackets are changing slightly. In 2022 a single filer with income up to $10,275 will see a 10% tax rate in comparison to up to $9,950 in 2021 for a 10% rate.

The taxable income for a married couple filing jointly, MFJ, will see a 10% tax rate up to $20,550 compared to $19,900 in 2021 and up to $14,650 for head of household (HOH) in 2022 compared to $14,200 in 2021.

These slightly wider brackets are due to inflation. Your CironeFriedberg tax CPA can review this with you. You can also find all updated 2022 tax brackets on the IRS website, 2022 IRS Tax Brackets.

Standard Deduction

The standard deduction is increasing in 2022 to account for inflation. Single filers under 65 will be able to claim a standard deduction of $12,950 in 2022 compared to $12,550 in 2021. Single filers 65 and over can claim a $14,700 standard deduction.

Married couples will be able to claim a standard deduction of $25,900 in 2022, an $800 increase over 2021’s standard deduction of $25,100. In addition each spouse 65 and older can claim an additional $1,400.

Head-of-Household taxpayers under 65 will be able to claim a standard deduction of $19,400 in 2022, up from $18,800 in 2021, while head-of-household filers 65 and older can claim a standard deduction of $21,150.

In addition, each blind person of any filing status will receive an additional $1,400 on their standard deduction in 2022, a $50 increase from the $1,350 allowed in 2021.

Important January and February Tax Deadlines

Important 2023 Tax Deadlines and Dates for Individual Filers

Important Tax Deadlines and Dates for Businesses

Have Questions?

Funding Marital Gift and Credit Shelter Trusts

Have Questions?

Home Sellers’ Profit Exclusions Aren’t One-Time Opportunities

Capital Gains Tax Rates

Understanding the Gift Tax

2022 Tax Brackets and Standard Deductions

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