In 2024, the gift tax annual “sprinkling” exclusion amount will increase to $18,000 per donee (from its prior $17,000 amount in 2023).  This gift tax annual exclusion amount can be used without using the estate and gift tax exemption amount.  This means that a married couple can now gift together $36,000 to each of their children and grandchildren without using any of their combined $27,220,000 unified exemption amount.  Additionally, clients can make tax-free gifts in unlimited amounts for tuition, medical expenses, and health insurance premiums paid directly to the school and/or medical provider.  With the expected high inflation adjustments, this $18,000 gift tax annual exclusion amount will likely continue to increase in the future.  

EXAMPLE:  Two spouses have three (3) children and seven (7) grandchildren for a total of ten (10) potential donees to whom to make annual gifts.  With the increased gift tax annual exclusion to $18,000 in 2024, the parents can gift to their ten potential donees a total of $360,000 every year gift tax-free. [Above this amount, they would have to file a gift tax return].

THE FOLLOWING COPIED FROM IRS RELEASE:

Issue Number:    IR-2023-160

Inside This Issue

IRS reminder: Make sure to understand recent changes when buying a clean vehicle

WASHINGTON — The Internal Revenue Service reminded consumers considering an automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules.

The Inflation Reduction Act of 2022 (IRA) made several changes to the new Clean Vehicle Credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles.

Before taxpayers purchase a clean vehicle they should be sure that the vehicle was made by a qualified manufacturer. Taxpayers must also meet other requirements such as the modified adjusted gross income limits. [Single $150k and married joint $300k].

To be a qualified manufacturer, the manufacturer must enter into an approved agreement with the Internal Revenue Service and supply the IRS with valid vehicle identification numbers (VINs) that can later be matched at the time of filing to the VIN reported on the return.

When purchasing a new or used clean vehicle, purchasers should check if the make and model are eligible. In addition, for a new or used clean vehicle to be eligible for a Clean Vehicle Credit, the seller must provide the buyer with a seller report verifying that the vehicle purchased will qualify for the credit, which will include the make, model, and VIN.

Also, the clean vehicles tax credits are non-refundable tax credits meaning that these credits can’t be used to increase the taxpayer’s tax refund or to create a tax refund. These credits will only reduce the amount of tax they owe.

The amount of tax owed will determine if the full amount or only a portion of the credit can be claimed.

For more information on these credits and other clean energy credits related to the Inflation Reduction Act, check Credits and Deductions Under the Inflation Reduction Act of 2022.

Ref: Corporate Transparency Act

THIS IS A NEW LEGAL REQUIREMENT EFFECTIVE 1/1/2024. [We bring it to your attention as a client service and strongly suggest you contact your business attorney or a paralegal reporting service].

Who is effected: Virtually ALL corporations, LLCs and partnerships.

When: Due date is Jan 1, 2025 for all entities in existence prior to 2024. New entities within 30 days of formation. Changes: Within 30 days of the change.

What: Information for all control employees of ALL entities includes full name, residential address, identification information (including a pdf of drivers license or passport).

How: You or your attorney will report through fincen.gov/boi

Example I: Small corp is owned by three shareholders A(50%), B(40%) and C(10%). Also John Smith is President, but not a shareholder. Information would be reported for all over 25% and John as an officer.

Example II: Small LLC is owned 50% each by partnership A and B. Both partnership A and B are owned 50% each by John, Susie, Sam and Christy. Since each of the individuals is the 25% beneficial owner of Small LLC, it will report all four. Also, both partnership A and B will report two partners each respectively.

Penalties: Are SEVERE: $500 per day and up to two years in prison.

AGAIN, THIS IS A LEGAL REQUIREMENT AND NOT PART OF YOUR INCOME TAX RETURN. AS WE ARE NOT A LAW FIRM, WE DON’T OFFER THIS REPORTING SERVICE. You can either report yourself or through your attorney / paralegal.

Ref: New phishing email making the rounds.

The IRS does not email taxpayers! There’s a new email making the rounds promising a missed refund if you reply. DON’T REPLY. It’s a phishing email designed to steel your identity.

You can report it to the government by emailing phishing@irs.gov.

Updated 11/21/23: IRS Notice 2023-74

IMPLEMENTATION HAS BEEN DELAYED UNTIL 2024 (1099-k ISSUED 2025)

This means that taxpayers who receive payments through third-party network transactions should not receive Form 1099-K for the 2023 taxable year, unless the aggregate payments received through a single third-party network exceeded $20,000 and the total number of transactions exceeded 200 for the year. 

New IRS instructions will cause payment houses such as Paypal and Venmo to issue Form 1099-K if you, as recipient, received more than $600 in payments. They are NOT supposed to include payments for friend-to-friend/family reimbursements, rent sharing, etc. However, many platforms have no way to distinguish between payments for sales on Etsy versus reimbursements from family members.

We predict that this will cause a HUGE MESS for the filing period starting January 2024. IRS.gov states that if in error, you should contact the issuing company (e.g. Venmo) and have them correct it… but with millions of potential errors, they are not likely to do so.

IRS.gov has instructions if you can’t get the Form 1099-K corrected:

1. Enter the incorrect amount as “other income” on line 8z of Form 1040.
2. Enter the offsetting amount as “other adjustments” on line 24z of Form 1040
3. The two amounts will offset and the computer will locate the original amount.

This well-intended method to “catch” phantom income is likely to result in yet another tax season nightmare.

The EV credit (aka Clean Vehicle Credit) qualification has become hugely complex based on the vehicle’s components and assembly location. The US Department of Energy has supplied a link to input the VIN number and see if the vehicle qualifies for a credit:

https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

Final Assembly in North America: To be eligible for the Clean Vehicle Credit, a vehicle must have undergone final assembly in North America. In general, North America includes the United States and Puerto Rico, Canada, and Mexico for purposes of determining the location of final assembly.

The Dept of Energy’s website suggests that the manufacturer of the vehicle is the best source to check qualification of a vehicle prior to purchase. [Note that VIN must be supplied when filing a tax return claiming the credit such that the IRS can confirm qualification.

Ref: Franchise Tax Board release 2/24/23

Background: If your business received a Covid Employee Retention Credit from the IRS, you must amend the year to which the credit applies (e.g. 2021) reflecting receipt of the money.

CA approach: A few weeks ago, CA FTB announced that they were looking into whether the IRS ERC would result in tax on the CA state return… with an indication that they were leaning toward assessing tax on it.

New CA approach: Today the CA FTB reversed themselves and stated:

“Recently, the Franchise Tax Board provided a response to a question regarding the taxability of the refundable portion of the federal Employee Retention Credit (ERC). The previous response indicated that the portion of the refundable ERC that is refunded to the taxpayer would be income for California income tax purposes. However, upon further review of the applicable federal rules and guidance related to the ERC, the Franchise Board has modified its previous response. An employer receiving the ERC is not required to include the portion of the credit that reduces the employer’s applicable employment taxes, nor the refundable portion of the credit, in its gross income for California income tax purposes.”

Source: IR-2023-03: Jan 10, 2023 UPDATED 2/24/23: IR-2023-33

NEW DEADLINE FOR SOME = OCTOBER 16, 2023

Who: CA counties included in the FEMA storm victim declared disaster area. A partial list is Los Angeles, Orange, Riverside, Santa Barbara, San Diego and Ventura Counties. 31 counties qualify as of today and the full list can be found on https://www.irs.gov/newsroom/irs-announces-tax-relief-for-victims-of-severe-winter-storms-flooding-and-mudslides-in-california

What returns: Individuals due April 18, 2023 and businesses due March 15, 2023 or April 18, 2023.

Additional: Individuals have until October 16 to fund traditional and Roth IRAs.

How: IRS uses mailing addresses to determine eligibility and treatment is automatic.

Payments: Regularly due 3/15/23 or 4/18/23 are now due 10/16/2023.

Source: IR 2022-234; Released Dec 29, 2022

Effective 1/1/2023:

-Business use is 65.5 cents per mile

-Medical use is 22 cents per mile

-Charitable use is 14 cents per mile

Ref: IR-2022-226: December 23, 2022

One year delay for third party settlement organizations such as PayPal, Venmo, Cash App, etc to report payments on business transactions of $600 or more per year.

We’re back to the old rules: Form 1099-K will be issued for aggregate amount of $20,000 or more than 200 transactions.

TAKE AWAY: DON’T make personal transfers to/from a business PayPal, Venmo or similar third party settlement account.