IRS Archives - CironeFriedberg, LLP

Retain IRS Letters Received in January

January 3, 2022 by David Moseman CPA

ADVISORY – Retain IRS Letters Received in January

In January 2022, the Internal Revenue Service (IRS) will be sending out two letters to taxpayers:

Letter 6419 – Advance Child Tax Credit Payments– This letter will contain the total amount of advance Child Tax Credit payments taxpayers received in 2021. You should keep this and any other IRS letters about advance Child Tax Credit payments with your tax records.
Letter 6475 – Economic Impact (Stimulus) Payment– This letter will contain the total amount of the third Economic Impact Payment and any Plus-Up Payments received. You should keep this and any other IRS letters about your stimulus payments with your tax records.

It is important that you retain these letters and provide them to your tax professional in order for them to obtain the correct economic impact payment and advance child tax credit payment dollar amounts needed to prepare your tax returns. Entering incorrect advance child tax credit or economic impact payment amounts will cause delays in processing your tax returns and issuing refunds.

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.

IRS Announces 2022 Limits for Retirement Plans

November 23, 2021 by Mike Jodon CPA CVA

The IRS has announced the new retirement plan numbers for 2022. Retirement limits for 401(k) and similar plans are up. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. IRA limits have changed for certain savers. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2022:

For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The limit on annual contributions to an IRA remains unchanged at $6,000. Roth IRA limits are changed. The income phase-out range for taxpayers making contributions to a Roth IRA is increased to $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Savers Credit and SIMPLE are both up. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000. The amount individuals can contribute to their SIMPLE retirement accounts is increased to $14,000, up from $13,500. Catch-up provisions remain unchanged. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $27,000, starting in 2022. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000.

IRS Reminds Taxpayers of Limited-Time Donation Rules

November 14, 2021 by Patrick Dunleavey CPA

The rules governing the deduction of charitable contributions can be pretty strict. However, legislation has relaxed a number of them as long as donors take advantage of them by the end of 2021. So, both individual and businesses taxpayers should get up to speed on the temporary rules and take out their checkbooks before year-end.

Here’s a summary of the temporary rules, which are applicable only for 2021.

Deduction for individuals who don’t itemize

Usually, taxpayers who take the standard deduction cannot deduct their charitable contributions. However, the law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations. They can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

100% limit on eligible cash contributions made by taxpayers who itemize

Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income (AGI) and varies depending on the type of contribution and the type of charity.

The law now allows taxpayers to apply up to 100% of their AGI, for calendar year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations.

But the IRS emphasizes that this 100% limit is not automatic; taxpayers must choose to take the new limit for any qualified cash contributions. Otherwise, the usual limit applies. The taxpayers’ other allowed charitable contribution deductions reduce the maximum amount allowed under this election.

What qualifies?

Most cash donations made to charity qualify for the deduction. However, there are some exceptions, such as money given to donor-advised funds, private foundations and charitable remainder trusts. These restrictions apply whether taxpayers itemize or take the standard deductions.

Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

Corporate limit increased to 25% of taxable income

The temporary breaks apply to businesses too: The law now permits C corporations to apply an increased corporate limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. As above, the increased limit is not automatic. C corporations must choose the increased corporate limit on a contribution-by-contribution basis.

Increased limits for certain donated food inventory

Businesses donating food inventory that are eligible for the existing enhanced deduction may qualify for increased deduction limits. For contributions made in 2021, the limit is increased to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their total net income for the year. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

This is just a summary; both businesses and individuals should get professional tax advice about their deductions. One thing is certain: These special provisions are slated to end in 2021, so everyone should make their charitable plans now.

IRS Adjusts HSA Limits for 2022

September 6, 2021 by Teri Pough

As it does each year, the IRS has announced changes for health savings accounts, which are associated with high-deductible health plans.

The figures for 2022:

Self-only: $3,650 (a $50 increase from 2021).
Family: $7,300 (a $100 increase from 2021).

According to the Society for Human Resource Management, the government bases its decision on the Consumer Price Index for All Urban Consumers for the 12-month period ending on March 31.

The IRS has made a similar adjustment to maximum out-of-pocket amounts:

Self-only: $7,050 (a $50 increase from 2021).
Family: $14,100 (a $100 increase from 2021).

The catch-up contribution amount for those 55 and older is not automatically adjusted and remains at $1,000.

Also remaining the same are minimum deductibles:

Self-only: $1,400.
Family: $2,800.

More information is available in IRS Rev. Proc. 2021-25.

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) or (203) 366-5876 (Shelton) or email us at info@cironefriedberg.com.

Guidance for Temporary Full Deduction Business Meals

May 24, 2021 by Teri Pough

The IRS has provided guidance related to the temporary 100% deduction for business meals provided by a restaurant. The Consolidated Appropriations Act, 2021 (the Act) temporarily increased the deduction from 50% to 100% for a business’s restaurant food and beverage expenses for 2021 and 2022. All other food and beverage expenses are still subject to the 50% deduction limitation unless some other exception applies. The content of this article is curated by Holly Hobson Travis, C.P.A., Senior Content Management Analyst, Wolters Kluwer.

Restaurants Defined

According to the IRS’s guidance, a restaurant is a business that prepares and sells food or beverages to retail customers for immediate consumption. Note that the food and beverages do not need to be consumed on the premises for the 100 percent deduction to apply.

Restaurants are not businesses that predominantly sell pre-packaged food or beverages that are intended for later consumption. Food or beverages purchased from such businesses are still subject to the 50% deduction limitation. Examples of businesses that are not restaurants include grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines, or kiosks.

Restaurants are also not eating facilities located at an employer’s business that provide meals that are excluded from the employees’ gross income or are considered a de minimis fringe. This also applies to eating facilities on the employer’s premises that are operated by a third party with regards to Reg. §1.132-7(a)(3).

Background

IRC §274 generally limits or disallows deductions for certain meal and entertainment expenses that otherwise would be allowable. IRC §274(a)(1) generally disallows deductions for expenses for entertainment, amusement, or recreation. The regulations provide that the disallowance under section IRC 274(a)(1) does not apply to food or beverages provided at an entertainment activity if the food or beverages are separately purchased from the entertainment activity or the cost of the food or beverages is separately stated from the cost of the entertainment in an invoice, bill, or receipt.

IRC §274(k) generally provides that no deduction is allowed for the expense of any food or beverage unless:

Such expense is not lavish or extravagant under the circumstances; and
The taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.
IRC §274 provides additional rules that may apply to the deduction of food or beverage expenses, depending on the circumstances.

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Tax Credits for Employees’ Time Off for Vaccinations

May 7, 2021 by Teri Pough

Curated from Internal Revenue Service FS-2021-09, April 2021

The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID- 19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021.

Here are some basic facts about the employers eligible for the tax credits and how these employers may claim the credit for leave paid to employees who take leave to receive or recover from COVID-19 vaccinations.

Eligible employers.

An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. An eligible employer also includes a governmental employer, other than the federal government and any agency or instrumentality of the federal government that is not an organization described in section 501(c) (1) of the Internal Revenue Code. Self-employed individuals are eligible for similar tax credits.

Paid sick and family leave for which tax credits can be claimed.

Eligible employers are entitled to tax credits for wages paid for leave taken by employees who are not able to work or telework due to reasons related to COVID-19, including leave taken to receive COVID–19 vaccinations or to recover from any injury, disability, illness or condition related to the vaccinations. These tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.

The amount of the tax credits and how they are calculated.

The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee’s regular rate of pay. The tax credit for paid family leave wages is equal to the family leave wages paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee’s regular rate of pay. The amount of these tax credits is increased by allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages (up to the respective daily and total caps).

Claiming the credit.

Eligible employers may claim tax credits for sick and family leave paid to employees, including leave taken to receive or recover from COVID-19 vaccinations, for leave from April 1, 2021, through September 30, 2021.

Eligible employers report their total paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on Employer’s Quarterly Federal Tax Return, Form 941.

In anticipation of claiming the credits on the Form 941, eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. The Form 941 instructions explain how to reflect the reduced liabilities for the quarter related to the deposit schedule.

If an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages, the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will account for the amounts received as an advance when it files its Form 941 for the relevant quarter.

Self-employed individuals may claim comparable tax credits on their individual Form 1040.

Retain IRS Letters Received in January

IRS Announces 2022 Limits for Retirement Plans

IRS Reminds Taxpayers of Limited-Time Donation Rules

IRS Adjusts HSA Limits for 2022

Guidance for Temporary Full Deduction Business Meals

Click here to receive our monthly newsletter to receive timely updates and important information affecting your business and taxes.

Tax Credits for Employees’ Time Off for Vaccinations

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