Davidson Fox & Company LLP  

September 2023 Newsletter


We hope you enjoyed your Labor Day weekend.  Now its time to focus on the September and October Extension deadlines!  If you filed an extension on your business or personal returns, don't wait until the last minute to consult with your tax professional.  

It is back-to-school season and that means now is the perfect time to review the tax implications of student loan forgiveness. It is also time to start thinking about proactive tax planning to help you minimize your tax burden and keep more money in your pocket. 

Last month we were busy at events and supporting our community.  We supported Meals on Wheels, HCA, donated to the Chenango Valley Warrior Fund, and even made our way up to our Ithaca location to support the Tompkins Chamber.  We got out for a great day of golf, courtesy of Jon L. Myers and Associates with Ameriprise.  Andrea from our team won the Longest Drive competition!  Thank you to the crew at Jon L. Myers for a fantastic day!

September upcoming events:

There are many events happening in September that you should know about!

LUMA - Friday and Saturday, September 8th and 9th - head to downtown Binghamton as soon as it gets dark for a spectacular show!  Watch as the buildings come alive with their projection lights.  The festival is free - Check out their website to see what you're missing LUMA

AVRE - 9 @ Night tournament is scheduled for Thursday, September 14th.  Wish us luck as we defend our title!

Fresh Food Face Off - The Cornell Cooperation Extension is having their Fresh Food Face Off on Wednesday, September 20th.  SO MUCH FOOD, and it's all delicious.  Want tickets?  check out their website here: Fresh Food Face Off

Ross Park Zoo - During August through October, head out to Ross Park Zoo for their Lantern Fest!  "An enchanting magical walk through the zoo, animal-inspired lanterns light up the zoo for a great cause".  See if you can find the display we sponsored!  

In this edition of our newsletter, we share our tax planning checklist, things to consider when starting a business, the importance of retirement planning, and much more. 

If you have any questions on the topics above or are facing significant financial life decisions, don't hesitate to contact us. 

We are here if your colleagues, family, or friends need help. We will continue monitoring the latest opportunities to keep our clients prosperous. Your kind reviews and referrals are appreciated.


Davidson Fox

Mid-Year Tax Planning Checklist

Article Highlights:

  • Mid-Year Planning
  • Avoiding Unpleasant Surprises
  • Events That Have Tax Consequences

Waiting until after the close of the tax year to worry about your taxes can result in missed opportunities that could have reduced your tax liability or provided financial benefits. Mid-year is the perfect time for tax planning. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and avoid unpleasant surprises after it is too late to address them. Here are some events that can trigger tax consequences. Did you (or are you going to):

  • Get Married, Divorced,or Become Widowed?
  • Change Jobs or Has Your Spouse Started Working?
  • Have a Substantial Increase or Decrease in Income?
  • Have a Substantial Gain from Selling Stocks or Bonds?
  • Buy or Sell a Rental?
  • Start, Acquire, or Sell a Business?
  • Buy or Sell a Home?
  • Retire This Year?
  • Reach Age 73 This Year?
  • Refinance Your Home or Take Out a Second Home Mortgage This Year?
  • Receive a SubstantialInheritanceThis Year?
  • Take Advantage of Tax-Beneficial Retirement Savings?
  • Make Any Significant Equipment Purchases for Your Business?
  • Purchase a New Business Vehicle and Dispose of the Old One?
  • Adequately Document Your Cash and Non-Cash Charitable Contributions?
  • Keep Up with Your Self-Employed Estimated Tax Payments?
  • Make Any Unplanned Withdrawals from an IRA or Pension Plan?
  • Make Energy Saving Improvements to Your Existing Home?
  • Add a Solar Electric System to Your Home or Purchase an Electric Vehicle?
  • Hire Veterans or Other Individuals in Your Business Who May Qualify for the Work Opportunity Tax Credit?
  • Trade in, Mine, Sell, or Receive Cryptocurrency?
  • Incur Expenses Adopting a Child?
  • Start Receiving Social Security Benefits?
  • Exercise an Employee Stock Option?
  • Start Using a Part of Your Home for Business This Year?
  • Exchange Real Properties Used in Your Trade or Business or Held for Investment?
  • Start a Retirement Plan in Your Self-Employment Business?
  • Make Gifts of Over $17,000 to Any One Individual This Year?

Of course, these are not the only issues that have tax consequences.

If you anticipate or have already encountered any of the above events or conditions, it may be appropriate to consult with this office—preferably before the event—and definitely before the end of the year.


Things To Consider When Starting a Business

Article Highlights:

  • Start Off on the Right Foot
  • Sole Proprietor
  • Partnership
  • Joint Venture
  • C-Corporation
    o Qualified Small Business Stock
    o  Section 1244 Election
  • S-Corporation
  • Limited Liability Company

When you are starting a business there are several possible business entity types that need be considered to make sure you get started off on the right foot and avoid costly mistakes that must be corrected later or those that must be changed later to maximize tax benefits. One also needs to be concerned about potential personal liability.

Each business entity choice has its own pros and cons; the following is an overview of each possible business structure.

  • Sole Proprietor – This is generally the most basic business entity. It is a single owner entity, and for tax purposes the owner reports the business’ income and expenses as part of their individual tax return, using the 1040 Schedule C. This is simpler than for other business entities where income and expenses must be reported on a separately filed business return. However, that does not mean a sole proprietor cannot have employees and retirement plans like other business entities and qualify for some of the same tax credits and business deductions available to other business entities. The sole proprietor pays income taxes on any net profit from the business, as well as self-employment tax (Social Security and Medicare taxes).

  • Partnership - A partnership is a business entity with two or more owners with equal or different ownership interests in the business. The net profit or loss from such an entity is computed on Form 1065, and the profit or loss and other tax attributes are passed through to the partners on Schedule 1065 K-1 and included on their individual 1040 returns. Like a sole proprietor except the net profit and loss is determined at the partnership level and each partner’s proportionate share is passed through to them via the K-1. The major difference being a partnership agreement is required to establish business policies and how partnership funds are spent. Partners are also personally responsible for all the liabilities incurred by any of the partners. Partners who perform work for the partnership are not considered employees, and therefore, will be responsible for paying income and self-employment taxes on their share of the profits.

  • Joint Venture - Occasionally, a married couple may be in business together. Spouses who file a joint return may elect out of the partnership rules. Thus, when the election is made, a joint venture between them is not treated as a partnership for tax purposes. All items of income, gain, loss, deduction, and credit are divided between the spouses according to their respective interests in the venture, and each spouse considers their respective share of these items as if they were attributable to a trade or business conducted by the spouse as a sole proprietor. Accordingly, each electing spouse will report their shares on Schedule C.  

  • This rule does not apply to spouses who operate in the name of a state law entity (including a general or limited partnership or a limited liability company). The election can be made only for a business operated by spouses as co-owners that is, or should otherwise be, taxed as a partnership (whether there is a formal partnership). Both spouses must materially participate in the trade or business.

  • C-Corporation -A c-corporation is a legal entity that is separate and distinct from its owners. Under the law, corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, and own assets. Domestic corporations in existence for any part of a tax year must file a federal income tax return – generally Form 1120 – even if they do not have taxable income. Unlike some other business entities corporations pay taxes on their profits. Shareholders profit through dividends and stock appreciation but are not personally liable for the company's debts. This can result in double taxation since dividends paid are not deductible by the corporation, thus taxable at the corporate level and taxable to the shareholder. Shareholders who perform work for the corporation are considered employees.

    o Qualified Small Business Stock - One big benefit for smaller C-corporations is the ability for shareholders to exclude up to $10 million from the sale of stock that meets a five-year holding period and the definition of a qualified small business stock.

    o  Section 1244 Election - C-corporations can also make what is called a Sec. 1244 election which allows an ordinary loss (Form 4797) on the sale of stock from a domestic corporation of up to $50,000 annually ($100,000 on a joint return, even if the stock is only owned by one of the spouses), even though the loss would otherwise be treated as a capital loss. Gains still qualify as capital gains. There are several requirements to qualify for this treatment one of which is the stock must be purchased from the corporation.

  • S Corporation – An S corporation is a corporation that makes an election to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes thus avoiding the double taxation issue discussed previously. Form 1120-S is the federal tax return required to be filed by S corporations, and Schedule 1120-S K-1 is used to report each shareholder’s portion of the income/loss, deductions, and credits. Just because an S corporation is a pass-through entity, it does not mean the income can all be passed through to a working shareholder and escape payroll taxes. Working shareholders are required to take reasonable compensation which is reported on Form W-2 (wages).

    o  S-Election - The election by a corporation or other entity eligible to be treated as a corporation, must be made no more than 2 months and 15 days after the beginning of the tax year for which the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect. If the election was not made within the 2 months and 15 days prescribed to make the election, then a late election is available if certain conditions are met.

  • Limited Liability Company (LLC) – A Limited Liability Company (LLC) is a form of state business entity. The IRS did not create a new tax classification for the LLC when LLCs were created by the states; instead, IRS uses existing tax entity classifications: C or S corporation, partnership, or sole proprietor (the latter also being termed a disregarded entity). For federal purposes an LLC is always classified by the IRS as one of these types of entities. Regulation of LLCs varies from state to state. The profits, losses, and tax credits from an LLC are passed through to its members (LLC owners are called members, not shareholders), who report them on their individual tax returns. As the name implies, an LLC provides the same liability protection to its members as a corporation does to its shareholders.  

While you might be tempted to determine the right business entity on your own, we strongly encourage you to consult with this office and your legal counsel. The foregoing is only an overview of the possible entity selection and there are a considerable number of issues to consider.


Tax Implications of Student Loan Forgiveness

Article Highlights:

  • Background
  • Court Battle
  • Forgiveness Under Income-Driven Repayment (IDR) Plans
  • Debt Relief Income
  • American Rescue Plan Act
  • General Welfare Exception
  • Insolvent Taxpayer Exclusion
  • Employer-Provided Educational Assistance
  • Sec 529 Plans

Back in August of 2022, President Biden issued an executive order that would forgive federal student loan debt for lower income individuals.The program would have provided up to $20,000 in loan relief to borrowers with loans held by the Department of Education (DOE) whose individual income is less than $125,000 ($250,000 for married couples) and who received a Pell Grant. Borrowers who meet those income standards but did not receive a Pell Grant in college would have received up to $10,000 in loan relief.

However, this program subsequently hit a snag when two court cases put a hold on the plan, which was one of Biden’s campaign promises. Those who brought the suits, as well as others, contend the President does not have the authority to forgive the debt, that it is the sole prerogative of Congress.The issue wound up at the Supreme Court which ruled against the plan at the end of June 2023.

The Biden administration has since turned toward forgiveness under the income-driven repayment (IDR) plans where under the Higher Education Act and the DOE’s regulations, a borrower is eligible for forgiveness after making 240 or 300 monthly payments—the equivalent of 20 or 25 years—on an IDR plan or the standard repayment plan, with the number of required payments varying based upon when a borrower first took out the loans, the type of loans they borrowed, and the IDR payment plan in which the borrower is enrolled. Inaccurate payment counts over the years have resulted in borrowers losing progress toward loan forgiveness, so as part of the new arrangement the records have been cleaned up. This action also addresses concerns about practices by loan servicers that put borrowers into forbearance in violation of Department rules. Under this Biden plan, $39 billions of student debt would be wiped away for approximately 804,000 borrowers in the very near future.

So, if your student loan debt is forgiven, what are the tax consequences? The Internal Revenue Code Section 61, says that all kinds of income, including earned, found, or won, is income for tax purposes unless specifically excluded. Taking that to extremes, if you find, for example, a $20 bill on the sidewalk while out for your morning walk that is technically income.

However, the American Rescue Plan Act (ARPA) passed in 2021 included a provision thatmakes student loan forgiveness free from federal income tax for 2021 through 2025if the loan was one of the following.

  • A loan for postsecondary educational expenses from the federal or a state government or most educational organizations.

  • A private education loan made expressly for postsecondary educational expenses.

  • A loan from an educational organization that maintains a regular faculty and curriculum and normally has a regularly enrolled student body at its facility.

  • A loan from an organization exempt from tax–for example, charitable, religious and educational organizations–to refinance a student loan.

So, in most cases if your loan is forgiven before 2026 you don’t have any debt forgiveness income to be concerned about for federal purposes.

But what happens after that? The exclusion could be extended, or it could be allowed to lapse (sunset in tax lingo), which would mean the amount forgiven would be taxable income in the year forgiven, and the tax would be your top marginal rate times the forgiven amount. However, there are a couple of other options that might be available to exclude the income.

  • General Welfare Exception (GWE) - The first is a little-known administrative exception, called the general welfare exception (GWE), which allows some payments to be excluded from income. The IRS has consistently concluded that payments to individuals by government units, under legislatively provided social benefit programs, for the promotion of the general welfare, are not includible in a recipient’s income.Typically, to be excluded, these payments must be to pay or reimburse expenses for essential items such as food, medical, housing or heating costs.

    However, what any individual taxpayer “needs” is a subjective determination, and the IRS has applied the GWE to many different contexts, including education assistance.

  • Insolvent Taxpayer Exclusion – Another option, if the student loan debt exceeds the taxpayer’s assets, just preceding the forgiveness, the insolvent taxpayer exclusion allows a taxpayer to exclude debt relief to the extent the taxpayer’s debts exceed their assets.

In addition there are also state tax issues that can come into play where the taxpayer is a resident of a state with income tax. While most states will conform to federal law, there are those that may not, as detailed in a Tax Foundation report.

With all that said there are other tax provisions that can help a taxpayer pay off their student loan debt.  

  • Employer-Provided Educational Assistance – If the taxpayer’s employer has an employer-provided educational assistance plan, that plan can pay tax free to the employee up to $5,250 per year towards the employee’s student loan debt. This provision is available through 2025.

  • Sec 529 Plans - Distributions from a 529 plan of up to $10,000 – a lifetime limit – may be used to pay the principal and interest on qualified higher education loans of the designated beneficiary or a sibling of the designated beneficiary.

  • Employer Matching Contributions – Traditionally, employer retirement plans such as 401(k) and 403(b) plans permit the employer to match employee contributions to the plan based on the employee contributions or elective deferrals. For plan years beginning after 2023, employers may treat qualified student loan payments as elective deferrals for purposes of making matching contributions. Meaning employers can make matching contributions based on their employee’s student loan payments, rather than on amounts that are contributed to the plan.

If you have any questions related to the foregoing, please give this office a call.   

Tax Issues When Converting a Rental to Your Personal Residence

Article Highlights:

  • Sale of a Rental Property Converted to a Personal Residence
  • Exclusion of Gain on Sale of Personal Residence – The Ownership and Use Tests
  • Partial Exclusion of Gain
  • The Impact of a Rental Period After 2008
  • Depreciation Recapture
  • Reporting the Sale

Deductions When a Rental Property Is Converted to a Personal Residence

Converting a rental property to a personal residence raises unique tax implications.  If you own a home that you currently rent out and are thinking of converting the property to use as your personal residence, here are issues you should be considering.

On conversion, you can no longer deduct the same expenses – such as costs of utilities, home insurance and repairs – that were deductible when the property was a rental.  However, the deductions for mortgage interest expense and property taxes will be available and can be useful if your itemized deductions exceed the standard deduction. Even so, these home-related deductions may be limited, depending on the mortgage (loan) amount (for the interest deduction) and whether the overall state and local taxes you paid during the year exceeded $10,000 (for the property tax deduction).  Some credits may also be available, such as those for installing a solar system or making energy-efficient home improvements.

The more complex impact of the conversion occurs when the property is sold.  As a personal residence, some or all of the gain on the sale of the property, if any, can qualify for exclusion from income under certain conditions.

Loss on Sale of a Personal Residence

You cannot deduct a loss incurred on the sale of your personal residence as nonbusiness losses are not deductible.

Exclusion of Gain on Sale of Personal Residence – The Ownership and Use Tests

When certain conditions are met, a single taxpayer may be able to exclude from income up to $250,000 of the gain on the sale of a personal residence, while up to $500,000 of gain can be excluded on a joint return. The exclusion is allowed each time a taxpayer meets the eligibility requirements, but generally no more frequently than once every two years.

The general qualification for exclusion of gain on the sale of a personal residence is subject to two tests: the ownership and use tests.

The ownership test requires that you have owned the home for at least two of the five years leading up to the home’s sale date.

The use test requires that you must have lived in the home as your main residence for at least two years during the 5-year period ending on the date of the sale.  This period does not have to coincide with the two-year period that meets the ownership test.  For example, you may have rented and lived in the property for two years then bought the property from the landlord.  Then you may have rented the property out for the next two years before selling it.  You would have satisfied the use test in the two years while renting the property from the previous owner.  And you would have satisfied the ownership test in the two years before the sale while the property was rented out.  Thus, the sale qualifies under the ownership and use tests.

If you are married, to be eligible for the $500,000 exclusion, either you or your spouse may have been the owner during the testing period, but both of you must meet the use test.

If you originally acquired the home via a tax-deferred exchange, then you (or your spouse, if married) must own the home for a minimum of five years before the home sale exclusion can be used, provided you (and your spouse, if married) also meet the 2-year use test.

Partial Exclusion of Gain

If the ownership and use tests are not met, the sale of a personal residence may still qualify for a partial exclusion of gain if the reason for the sale was work-related, health-related, or triggered by an unforeseen event.  IRS Publication 523 provides details as to how each of these situations is determined.

A work-related move involves:

  1. A new job location that is at least 50 miles further from your home than your previous job location; or

  2. If no previous job location, a new job that is at least 50 miles from your home; or

  3. Either of the above is true for your spouse, a co-owner of the home, or anyone else for whom the home was a residence.

A health-related move involves:

  1. A move “to obtain, provide, or facilitate diagnosis, cure, mitigation, or treatment of disease, illness, or injury for yourself or a family member.”

  2. A move “to obtain or provide medical or personal care for a family member suffering from a disease, illness, or injury. A family member includes your:

    a)   Parent, grandparent, stepmother, stepfather;
    b)   Child (including adopted child, eligible foster child, and stepchild) or grandchild;
    c)   Brother, sister, stepbrother, stepsister, half-brother, half-sister;
    d)   Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law; or
    e)   Uncle, aunt, nephew, or niece.”

  3. You moved pursuant to a doctor’s recommendation because you were experiencing a health problem.

  4. “The above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.”

An unforeseeable event includes any of the following that occurred while you owned and lived in the home:

  1. The home was destroyed or condemned.

  2. A natural or man-made disaster or act of terrorism caused a casualty loss to your home whether the loss is deductible on your tax return or not.

  3. Anyone for whom the home was a residence:

    a.   Died.
    b.   Divorced, was legally separated, or was issued a decree to pay maintenance to the other spouse.
    c.   Gave birth to two or more children from the same pregnancy.
    d.   Became eligible for unemployment compensation.

  4. Became unable to pay basic living expenses due to a change in employment status (basic living expenses include food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary to make an income).

  5. IRS published guidance determines an event to be unforeseen.

Even if a situation doesn’t fit these specific classifications, it may still qualify for a partial exclusion of gain if it occurs while you own your home, you sell the home shortly afterward, you couldn’t have reasonably anticipated the event when you bought the home, you have had financial difficulty maintaining the home, and/or the home became significantly less suitable for you and your family for a specific reason.

If a sale qualifies, the partial exclusion is calculated by taking the shortest of:

  1. The number of days or months of residence in the home over the past 5 years;

  2. The number of days or months of ownership of the home immediately prior to the sale; or

  3. .   The time between the sale of the home and the last time that you sold a home for which you claimed a personal residence gain exclusion.

The smallest of these periods is divided by 730 (if calculated in days) or 24 (if calculated in months).  Multiply the result by $250,000.  If the property is sold and you are married and filing jointly, do the same calculation for your spouse and add the two results together to determine the maximum amount of gain that you can exclude from income.

The Impact of a Rental Period After 2008

A special rule enacted in 2008 requires the proration of gain on the sale of a personal residence that was initially used other than as a personal residence.  The percentage of time that the property was used for a nonqualifying use (such as a rental) must be considered to determine the maximum gain exclusion for the property.  For example, if a property was purchased after 2008 and rented for 2 years before it was converted to a personal residence, the gain exclusion amount must take those two years of nonqualifying use into account to determine the maximum gain exclusion available.  If the property was sold after it was owned for 5 years, for example, then the maximum exclusion amount is 60% of the $250,000/$500,000 exclusion figures since the property was a personal residence for three of the five years it was owned.

Depreciation Recapture

The sale of a residence that has been converted from rental to personal use triggers the recapture of depreciation claimed during the time the property was used as a rental.  This recapture is reported as ordinary income on the tax return for the year of the sale and is taxed at the taxpayer’s highest tax rate up to a 25% cap.

Reporting the Sale

The sale or exchange of your primary residence is reported on Form 8949, Sale and Other Dispositions of Capital Assets, if:

  • You have a gain and it is not fully excludable from income,

  • You have a gain and choose not to exclude it, or

  • You received a Form 1099-S, Proceeds from Real Estate Transactions. This form is prepared and issued to you, with a copy to the IRS, by the settlement agent, such as an escrow company or attorney.

Even if you didn’t receive a Form 1099-S, and the gain is fully excludable, it may be prudent to report the sale on Form 8949 anyway so that there’s an income tax record of the transaction.

If you are contemplating converting a rental to a personal residence, we can help you determine tax ramifications in advance.  Please call for assistance.

Research Credit Available as a Payroll Tax Credit Doubled by the Inflation Reduction Act

Article Highlights

  • Inflation Reduction Act
  • Research Credit Payroll Tax Option
  • Research Credit
  • Qualified Research
  • Qualified Small Business
  • Making the Election

The Inflation Reduction Act that President Biden signed into law in August of 2022, has a provision that could benefit many small business startups, allowing them to potentially double the amount of the research and development tax credit that can be used against payroll taxes from $250,000 to $500,000 per year.

This little-known tax benefit for qualified small businesses is the ability to elect to apply a portion of their research credit – up to $500,000 for years beginning after December 31, 2022 – to pay the employer’s share of their employees’ FICA withholding requirement (the 6.2% Social Security tax and the 1.45% Medicare hospital insurance tax). This is double the amount allowed under prior law. This can be quite a benefit, as in their early years, start-up companies generally do not have any taxable profits for the research credit to offset; quite often, it is in these early years when companies make expenditures that qualify for the research credit. This can substantially help these young companies’ cash flow.

Research Credit – The research credit is equal to 20% of qualified research expenditures in excess of the established base amount. If using the simplified method, the research credit is equal to 14% of qualified research expenditures in excess of 50% of the company’s average research expenditures in the prior three years.

Qualified Research – Research expenditures that qualify for the credit generally include spending on research that is undertaken for the purpose of discovering technological information. This information is intended to be useful in the development of a new or improved business component for the taxpayer relating to new or improved functionality, performance, reliability or quality. 

Qualified Small Business (QSB) – To apply the research credit to payroll taxes, a company must be a QSB and must not be a tax-exempt organization. A QSB for purposes of this credit is a corporation or partnership with these criteria:

  1. The entity does not have gross receipts in any year before the fourth preceding year. Thus, the payroll credit can only be taken in the first 5 years of the entity’s existence. However, this rule does not require a business to have been in existence for at least 5 years.

  2. The entity’s gross receipts for the year when the credit is elected must be less than $5 million.

Any person (other than a corporation or partnership) is a QSB if that person meets the two requirements above after taking into account the person’s aggregate gross receipts received for all the person’s trades or businesses.

Example – The taxpayer is a calendar-year individual with one business that operates as a sole proprietorship. The taxpayer had gross receipts of $4 million in 2023. For the years 2019, 2020, 2021 and 2022, the taxpayer had gross receipts of $1 million, $7 million, $4 million, and $3 million, and did not have gross receipts for any taxable year prior to 2019. The taxpayer is a qualified small business for 2023 because he had less than $5 million in gross receipts for 2023 and did not have gross receipts before 2019 (before the 5-taxable-year period ending with 2023). The taxpayer’s gross receipts in the years 2019-2022 are not relevant in determining whether he is a qualified small business in taxable year 2023.Because the taxpayer had gross receipts in 2019, the taxpayer will not be a qualified small business for 2024, regardless of his gross receipts in 2024.

The research credit must first be accrued back to the preceding year, where it must be used to offset any tax liability for that year. Then, the excess, up to $500,000 maximum (or a maximum of $250,000 in years before January 2023), can be used to offset the employer portion of the payroll tax. Any amount not used is carried forward to be used against the payroll tax in subsequent quarters.

To make the election, a qualified small business uses Section D of Form 6765, Credit for Increasing Research Activities, which then must be attached to the taxpayer’s timely filed (including extensions) original income tax return. The election must be made annually and must specify the amount of the research credit covered by the election. A partnership or S corporation must make the election at the entity level. The election may not be revoked without IRS consent.

The payroll tax credit amount is computed on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, which is filed with the payroll tax return (usually Form 941) on which the credit is claimed.

The payroll tax credit is allowed for the first calendar quarter beginning after the date the taxpayer files their return on which the election was made. Thus, the expanded payroll tax credit derived from the R&D credit won’t show up until 2024 when the 2023 tax returns on which the election is made are filed. A taxpayer filing annual employment tax returns claims the credit on the annual employment tax return that includes the first quarter beginning after the date election is filed.

If you have questions related to the research credit or if your business could benefit from using the credit to offset payroll taxes, please give this office a call.

Taxation and Sales of Inherited Property Get Beneficial Treatment

Article Highlights:

  • Taxation of Inherited Property
  • Inherited Basis
    • Date of Death Value
    • Alternate Valuation Date
    • Joint Tenants
    • Married
  • Gain or Loss on Sale
  • Certified Appraisals
  • Deducting Loss on Sale of Inherited Home 

If you are the recent beneficiary of an inheritance, you may be wondering if you will need to pay tax on the cash, stocks or real property that you received. Generally, the answer is no, and you don’t even need to report the receipt of the inheritance on your income tax return. But there is an exception: if you receive untaxed income that a decedent had earned or had a right to receive during their lifetime, you’ll be taxed on it just as the decedent would have been. Examples of this type of income are payments of compensation, wages, bonuses, commissions, vacation and sick pay that the decedent had earned but hadn’t received before they died; uncollected rent; installment payments from property sold before the decedent’s death; and most frequently, traditional IRA distributions. 

Another situation you may be concerned about is what happens if you sell the inherited property, particularly if it had been the decedent’s personal residence. After all, the property may have been purchased years ago at a low cost by the deceased person but may now have vastly appreciated in value. The usual question is: “Won’t the taxes at sale be horrendous?” 

You may be pleasantly surprised by the answer—special rules apply to figure the tax on the sale of any inherited property. Instead of having to start with the decedent’s original purchase price to determine gain or loss, the law allows taxpayers to use the value at the date of the decedent’s death (the inherited basis) as a starting point. This is commonly termed a “stepped up” basis, but it would be a “stepped down” basis if the value at the date of death is less than the decedent’s basis. 

Sometimes the executor of the decedent’s estate can elect to use the value at an alternate date (usually 6 months after the date of death) but this is rare, as it can only be used to lower the estate tax. Currently, the value of the decedent’s entire estate would need to exceed nearly $13 million ($26 million if married) before estate tax might be owed. About 6,200 estate tax returns were filed in 2021, and of those only around 2,500 had a tax liability. So, the chance that the alternate valuation date method will apply is very low, and the date of death value will be used in nearly all cases. 

Determining basis gets a little tricky when the decedent wasn’t the sole owner of the property. For example, in the case of unmarried joint tenants, when the first joint tenant dies, the presumption is that the entire value of a joint tenancy asset is included in the decedent’s estate. However, this is not the case if the surviving joint tenant can prove what amount he or she contributed toward purchasing the property. Then the surviving joint tenant’s basis is only increased by an amount equal to the amount included in the decedent’s estate (even when no estate tax return was required to be filed). The surviving tenant’s original basis (reduced for business or rental property by any depreciation or depletion claimed by the surviving joint tenant) is added to the value of the property that was included in the decedent’s estate. 

For married taxpayers, where a property is held as separate property by one of the spouses and inherited by the other spouse, the basis in the hands of the inheriting spouse will be fair market value of the entire property at the deceased spouse’s date of death. Where a property is jointly owned (not community property) by both spouses and one spouse passes away, the surviving spouse already owns 50% and only inherits the deceased spouse’s 50%. Thus, the surviving spouse’s basis in the inherited portion will be 50% of the property’s fair market value when the deceased spouse died plus 50% of the joint basis. 

If married taxpayers reside in a community property state and hold the property as community property, when one of the spouses dies, the surviving spouse’s basis becomes 100% of the fair market value at the deceased spouse’s date of death. For inherited community property used in business or a rental, no adjustment is required for prior depreciation claimed, and the depreciation of the inherited basis begins anew. 

Often the selling price and the date of death value of the property are practically identical, and there is little, if any, gain to report. If there is gain, it receives long-term capital gain treatment, regardless of how long the decedent owned the property or how long the beneficiary retains the property before it is sold. The advantage here is that long-term capital gains are taxed at rates of 0%, 15% or 20%, depending on the individual’s adjusted gross income and if lower than their regular rate. 

The sale of inherited property may result in a loss, particularly when it comes to real property such as the decedent’s personal residence on which large selling expenses (realtor commissions, etc.) must be paid. 

Thus, it is important to have a certified appraisal of the home or other real property to establish the home’s tax basis on the date of death. If an estate tax return or probate is required, a certified appraisal should be completed as part of those processes. Otherwise, one must be obtained to establish the basis. It is generally not acceptable just to refer to a real estate agent’s estimation of value or comparable sale prices if the IRS questions the date of death value. The few hundred dollars it may cost for a certified appraisal will be worth it if the IRS asks for proof of the basis. 

While the sale at a loss of inherited stock is unquestionably allowed (within the limits noted at the end of this paragraph), is a loss on an inherited home deductible? Normally, losses on the sale of personal use property, including one’s home, are not deductible. However, unless the beneficiary is living in the home, the home becomes investment property in the hands of the beneficiary, and a loss is deductible but subject to a $3,000 ($1,500 if married and filing separately) per year limitation for all capital losses with any unused losses carried forward to a future year. 

In some cases, courts have allowed deductions for losses on an inherited home if the beneficiary also lives in the home. In order to deduct such a loss, a beneficiary must try to sell or rent the property immediately following the decedent’s death. In one case, where a beneficiary was also living in the house with the decedent at the time of death, loss on a sale was still deductible, when the heir moved out of the home within a “reasonable time” and immediately attempted to sell or rent it. 

If the home is sold by the decedent’s estate (or trust, if applicable), rather than title passing to the beneficiary who then sells the property, the transaction will be reported on the estate’s (or trust’s) income tax return, and if there is a loss on the sale, that loss will be used to offset other income of the estate (or trust), with any excess loss passed through to the beneficiary on a Form 1041 Schedule K-1, generally in the final year of the estate (or trust). In this situation, the executor (or trustee) will be responsible for making sure the appropriate basis has been used in computing the gain or loss. 

If you have questions related to inheritances or home sales, please give this office a call.

Financial Aspects of Elder Care Planning

When we're young and vibrant, we think that we'll never grow old.  We enjoy each day never thinking there might come a day when we'll need help to get by.  When we think of elder care, we might picture a nonagenarian in a wheelchair living in a nursing home telling stories to the compassionate caregiver sitting by her side.  In truth, there is far more to the story than that.

Elder care planning has never been more important or more challenging than it is today.  While generations once lived together in the family home for life, the empty nest dominates today's world.  Parents whose children have flown the coop to create their own households remain in their homes or move to a place where the sun shines 300 days a year.  Many move to be close to their grandchildren but establish their own living space.  Most enjoy their newfound freedom from the busy-ness of youth but it can eventually create challenges for them and their families.

As long as the happy seniors enjoy good health and have planned well for their financial future, everyone can live happily, doing whatever they've decided to do with their time.  It's when the senior reaches the point where they can no longer care for themselves that the challenges can begin to mount.  This is when the family will know whether they've planned well or there are gaps in their elder care plan.

As is often the case with planning, money is a key element in an elder care plan.  Deciding who will provide the care is important but this can only be decided once the available funding is clear.  There are many factors to consider when deciding how much you need in order to retire and not worry about elder care costs.  Some advisers suggest that you should save 10 times your annual income by the time you reach 67.  Others say you need $1.8 million to your name by age 65 in order to fund a happy retirement.  The right number for you depends on the life you plan to lead in retirement and where you stand when you start to plan.  It also involves a clear understanding of the cost of your post-retirement housing, food, clothing, insurance, healthcare, dental and vision care, travel, and a potentially long list of other expenses.

When care becomes necessary, you will probably no longer be able to earn a living so your elder care plan needs to cover your living expenses at a minimum.  It also has to consider the possibility that long-term care may eventually be required.  There are several ways to prepare for this need.

  1. Retirement accounts — An excellent way to prepare for elder care is to prepare for retirement.  Pensions, 401(k)s, IRAs, HSAs, annuities, and other accounts can provide a foundation that you can draw on when you decide it's time to stop working.  How much you need depends on your lifestyle and location.  It takes a lot less money to live in Knoxville, Tennessee than San Francisco, California.  It takes a lot less money to take long walks by the lake than it does to play 18 holes of golf at Pebble Beach.

    Keep in mind that the benefit of these accounts is not limited to the golden years.  Some people want the YOLO lifestyle and to retire at 40.  Others love what they do and can't imagine retiring even into their 80s and 90s.  Needless to say, a 40-year-old retiree needs a much larger financial cache to cover his lifetime of expenses than an 80-year-old does assuming the same life span.

  2. Other Investments — Some people own rental properties and others develop small businesses.  Whether they are held for regular income or sold prior to retirement, other investments can help fund a person's needs later in life.

  3. Social Security — If you've paid into the system for enough quarters, you can apply for Social Security benefits anytime between the ages of 62 and 70.  The monthly payment will generally be 25-30% less at age 62 than it would be if you wait until your Full Retirement Age (FRA).  People born prior to or during 1956 reached their FRA by April 2023.  Those born in 1957 have an FRA of 66 ½ years.  The FRA increases by 2 months every year for people born between 1958 and 1960. 

    Those born in 1958 have an FRA of 66 years, 8 months.  Those born in 1959 have an FRA of 66 years, 10 months.  Those born in 1960 and thereafter have an FRA of 67.  If you wait to collect until after you reach your FRA, your monthly payments will increase by 8% for every year you wait until you reach 70.  There is no benefit for waiting to file for Social Security until after your 70thbirthday.  In any event, your benefit or expected benefit will increase each year by a cost-of-living adjustment that the Social Security administration announces each October.  Note that your benefit is based on your highest 35 years of earnings.  Thus, your benefit can increase if you continue to work after qualifying and/or filing for Social Security and you either didn't already have 35 years of qualified earnings or you earned more in the current year than you earned in the 35thlowest of your prior years' earnings.  If you continue to work after you file for benefits but before you reach your FRA, the benefits you receive can be reduced depending on the level of your earnings.  Once you reach your FRA, you can earn as much as you want without decreasing your Social Security benefit.  As we hear in the news regularly, all of this is subject to change.  Keep up-to-date on any changes that are made to Social Security to understand how the changes might affect you.

  4. Medicare — Medicare coverage starts at age 65 unless a qualifying disability occurs at a younger age or you have creditable employer-provided coverage.  Medicare has several parts.  Part A is hospital coverage and premium-free if you worked enough quarters to qualify.  Part B is outpatient coverage that has a monthly premium.  For 2023, the standard Part B premium is $164.90.  Dental and vision services are generally not covered by Medicare Parts A and B unless related to a covered health need.  Also, Parts A and B do not cover all medical expenses so most people apply for a Medicare Advantage or Medicare Supplement plan.  Some Medicare Advantage and Medicare Supplement plans include limited dental and vision coverage and others do not so it's important to select these plans wisely.  Medicare Advantage plans generally include prescription drug coverage.  Medicare Part D plans are available to Medicare Supplement owners to help cover the cost of their prescriptions.

  5. Long-term care (LTC) insurance.  As discussed below, LTC insurance plans help cover the cost of certain long-term care.  If you decide to obtain LTC insurance, the sooner you apply for it the better.  Premiums partly depend on your age and, once a person has a serious health event, this option may no longer be available or may be available at higher prices.  Some people think that it is better to regularly deposit the premium amount into an income-earning account rather than applying for LTC insurance.  They believe that they can save enough over time to cover their LTC costs.  This theory does not account for the fact that LTC needs can arise at any time.  If you have LTC insurance, you can obtain benefits for a qualifying need after the contract's initial waiting period has passed.  Thus, LTC insurance is not only useful in elder care planning.  It can help at any time in life.  Further, premiums for tax-qualified LTC policies can be deducted as medical expenses.  The cost of LTC insurance can be prohibitive, however, so it's important to determine whether you can afford the premiums on an ongoing basis before you apply for it.  You should also weigh the cost of LTC insurance against the risk of needing long-term care to decide if it's right for you.

  6. Medicaid may be there if you run out of resources.  Nobody wants to rely on Medicaid and it can impact your estate plan if you become subject to its estate recovery rules.  Qualifying for Medicaid can be complicated and your choice of caregivers will be limited.  This article won't go into the specifics of Medicaid since it is generally an option of last resort.

Since it's been said that nearly 70% of 65-year-olds will eventually need long-term care services or support, we'll go a little further into how LTC insurance policies work.  Note that women are said to typically need this type of care for an average of 3.7 years of their lives, while men average 2.2 years.

Under most LTC policies, there are two ways to qualify for benefits.  The first is when you can't do at least two out of six "Activities of Daily Living" (ADLs) on your own.  The second is when you suffer from dementia or some other cognitive impairment.  You only need to qualify under one of these tests to receive LTC insurance benefits but each of them requires a doctor's statement to support the claim.

The six ADRs are:

  1. Bathing — The ability to clean and groom yourself.
  2. Dressing — The ability to dress yourself including using buttons and zippers.
  3. Eating — The ability to feed yourself.
  4. Toileting — The ability to get on or off the toilet.
  5. Continence — The ability to control your bladder and bowel functions.
  6. Transferring — The ability to walk or get yourself in or out of a bed or a chair to a wheelchair.

To allow you to get the most appropriate assistance for your situation, LTC policies allow these services to be provided in:

  • Your home,
  • A nursing home,
  • An assisted living facility, or
  • An adult day care center.

There are many ways to plan for the need for elder care and many ways to obtain that care.  It's best if you start planning as soon as possible so you can build a solid nest egg you can rely on over time.  The worst time to consider how you're going to obtain and pay for elder care is the day that you discover that you need it.

Are You Ignoring Retirement?

Article Highlights:

  • Predicting Social Security Income
  • Planning for the Future
  • Employer Retirement Plans
  • Tax Incentive Retirement Savings Plans

Are you ignoring your future retirement needs? That tends to happen when you are younger, retirement is far in the future, and you believe you have plenty of time to save for it. Some people ignore the issue until late in life and then have to scramble at the last minute to fund their retirement. Others even ignore the issue altogether, thinking their Social Security income (assuming they qualify for it) will take care of their retirement needs.

By current 2023 government standards, a single individual with $14,580 or a married couple with $19,720 of annual household income is at the 100% poverty level. If you compare those levels with potential Social Security income, you may find that expecting to retire on just Social Security income may result in a bleak retirement.

You can predict your future Social Security income by visiting the Social Security Administration's Retirement Estimator. With the Retirement Estimator, you can plug in some basic information to get an instant, personalized estimate of your future benefits. Different life choices can alter the course of your future, so try out different scenarios — such as higher and lower future earnings amounts and various retirement dates — to get a good idea of how these scenarios can change your future benefit amounts. Once you've done this, consider what your retirement would be like with only Social Security income.

If you are fortunate enough to have an employer-, union- or government-funded retirement plan, determine how much you can expect to receive when you retire. Add that amount to any Social Security benefits you are entitled to and then consider what retirement would be like with that combined income. If this result portends an austere retirement, know that the sooner you start saving for retirement, the better off you will be.

With unsteady interest rates and an up-and-down stock market, it is much more difficult to grow a retirement plan with earnings than it was 10 or 20 years ago. While current interest rates are higher than they've been in the past few years, they barely mirror inflation rates, so there is little or no effective growth. That means one must set aside more of one's current earnings for retirement to prepare for a comfortable retirement.

Because the government wants you to save and prepare for your own retirement, tax laws offer a variety of tax incentives for retirement savings plans, both for wage earners and for self-employed individuals and their employees. The contribution limits vary each year and the amounts shown in this article are for 2023. These plans include:

  • Traditional IRA — This plan allows up to $6,500 (or $7,500 for individuals age 50 and over) of tax-deductible contributions each year. The extra contribution, sometimes referred to as a catch-up contribution, allowed for those age 50 and over will be inflation-adjusted starting with 2024. However, the amount that can be deducted phases out for higher-income taxpayers who also have retirement plans through their employer.

  • Roth IRA — This plan also allows up to $6,500 (or $7,500 for individuals age 50 and over) of contributions each year. The catch-up contribution amount will also be inflation adjusted after 2023. Like the Traditional IRA, the amount that can be contributed phases out for higher-income taxpayers; unlike the Traditional IRA, these amounts phase out even for those who do not have an employer-related retirement plan.

  • Employer 401(k) Plans — An employer 401(k) plan generally enables employees to contribute up to $22,500 per year, before taxes. In addition, taxpayers who are age 50 and over can contribute an extra $7,500 annually, for a total of $30,000. Starting in 2025, the catch-up amounts will be increased for employees ages 60 through 63, and as of 2024 catch-up contributions by employees with wages over $145,000 will need to be made to a Roth-style plan. Many employers also match a percentage of the employee's contribution, and this can amount to a significant sum for those who stay in the plan for many years.

  • Health Savings Accounts — Although established to help individuals with high-deductible health insurance plans pay medical expenses, these accounts can also be used as supplemental retirement plans if an individual has already maxed out his or her contributions to other types of plans. Annual contributions for these plans can be as much as $3,850 for individuals and $7,750 for families.

  • Tax Sheltered Annuities — These retirement accounts are for employees of public schools and certain tax-exempt organizations; they enable employees to make annual tax-deferred contributions of up to $22,500 (or $30,000 for those age 50 and over).

  • Self-Employed Retirement Plans — These plans, also referred to as Keogh plans, allow self-employed individuals to contribute 25% of their net business profits to their retirement plans. The contributions are pre-tax (which means that they reduce the individual's taxable net profits), so the actual amount that can be contributed is 20% of the net profits.

  • Simplified Employee Pension (SEP) — This type of plan allows contributions in the same amounts as allowed for self-employed retirement plans, except that the retirement contributions are held in an IRA account under the control of the employee or self-employed individual. These accounts can be established after the end of the year, and contributions can be made for the prior year.

  • Saver's Credit — In the case of low-income taxpayers, the government provides a tax credit of as much as 50% of the first $2,000 of the individual's qualified retirement savings contributions. This credit won't apply after 2025 but is being replaced by a "savings match" where the government will match up to 50% of the first $2,000 contribution to retirement plans and IRAs for lower-income taxpayers.  

Each individual's financial resources, family obligations, health, life expectancy, and retirement expectations will vary greatly, and there is no one-size-fits-all retirement savings strategy for everyone. Purchasing a home and putting children through college are examples of events that can limit an individual's or family's ability to make retirement contributions; these events must be accounted for in any retirement planning, as do the continual changes provided by Congress to the retirement plan tax benefits and rules.

If you have questions about any of the retirement vehicles discussed above, please give this office a call.


How Does Education Impact Your Taxes?

The kids are back in school! Things like student loans, scholarships, and fellowship grants can play a role in parents’ and college students’ tax liability. Let’s look at how education costs can impact your taxes.

Student Loan Forgiveness

Student debt is a hot topic.  As of July 2023, total U.S. student loan debt stood at $1.774 trillion while the average federal student loan balance was $37,717.  The Supreme Court struck down President Biden’s plan to provide blanket loan forgiveness to all student borrowers so he teamed with the Department of Education to announce a new proposal.  The new rule expands on established law that provides debt relief for borrowers who made at least 240 or 300 monthly payments on their loan.  The calculation now includes months where payments were late, partial, or deferred and helps those who have held student debt for a long time.  We await a proposal to help more recent borrowers and those who stopped paying on their loans altogether.

IRS Publication 970: Tax Benefits of Education is a great resource regarding income, deductions, and credits.


Scholarships and fellowship grants are not included in taxable income if certain conditions are met.  The student must be a candidate for a degree at an eligible educational institution.  The proceeds must be used for qualified expenses including tuition and fees, books, and other course-related expenses.  They cannot be used for room and board, research, travel, and other expenses that aren't required for enrollment or attendance at the institution.  Scholarships and fellowship grants are taxed as ordinary income if they do not meet the requirements.


You can deduct student loan interest payments of up to $2,500 per return if certain conditions are met.  This deduction phases out with modified adjusted gross income (MAGI) between $70,000 and $80,000 if single and $145,000 and $175,000 if filing jointly.  If you qualify, you can take this deduction even if you don’t itemize.


Education costs can generate an American Opportunity Tax Credit (AOTC) and/or a Lifetime Learning Credit (LLC).  You can only claim one of these credits each year for each qualifying student but you can claim different credits for different students in the same year.  They phase out with MAGI between $80,000 and $90,000 if single and $160,000 and $180,000 for joint filers.

The AOTC provides a credit of up to $2,500 for adjusted qualified education expenses paid for each eligible student.  The AOTC is the sum of:

  1. 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and

  2. 25% of the next $2,000 of these expenses.

Up to 40% of this credit or $1,000 is refundable.  It’s available for up to four years of study per eligible student who has not already completed four years of postsecondary education.  To qualify, the student must be enrolled at least half-time for at least one academic period and must not have been convicted of a felony for possessing or distributing a controlled substance.

The LLC offers a credit of up to $2,000 per return.  The LLC is 20% of the first $10,000 of qualified education expenses you paid for eligible students.  Qualified expenses include tuition and fees required for enrollment or attendance as well as amounts required to be paid to the institution for course-related books, supplies, and equipment.  You can claim the credit even if the student withdraws unless the payments are refunded.  The LLC is nonrefundable so it can only offset tax liability.  There is no limit to the number of years it can be claimed for each student and it can apply to courses taken to acquire or improve job skills.  Generally, you must receive Form 1098-T from the institution to take the credit.  If the institution isn't required to furnish it, you must be able to demonstrate that the student was enrolled at an eligible educational institution and substantiate your payment of qualified expenses.  If the institution is required to provide it but you haven't received it, you can still take the credit if:

  1. After January 31 but before you file your return, you ask the institution to provide it to you,

  2. You fully cooperate with their efforts to gather the required information, and

  3. You qualify for the benefit, can demonstrate that you were enrolled at an eligible institution, and you can substantiate the payment.

It turns out that a great education can pay off in life AND in taxes!

How Do You Move Transactions from Your Bank into QuickBooks Online?

Manual transaction entry doesn’t make sense anymore – not when QuickBooks Online makes the process of importing them from your bank so easy. If you enter them on your own, you risk data transposition errors, which can create inaccuracies in your customer billing, reports, and income taxes. Plus, it takes an inordinate amount of time that you could use in running other areas of your business.

If you’re still using a manual method, we suggest you consider setting up connections to your online banks. Once your transactions are delivered to QuickBooks Online, the site provides tools that allow you to view them and make sure they’re complete before you store them. Whenever you need to see them, you’ll be able to find them easily.

Here are step-by-step instructions to how this all works.

Making a Connection

In order to do this, you’ll of course need to have set up a username and password for your online bank accounts if you haven’t done so already. In QuickBooks Online, click Bookkeeping in the navigation toolbar. It should open to Transactions | Bank transactions. Click Link account over to the right.

A page opens with suggested financial institutions. If yours isn’t there, enter it in the search field at the top. If there are multiple options, be sure to select the correct one and click it.  

If your bank isn’t listed on the page of options, enter its name, and then click on the correct one if there’s more than one entry.

 Click Continue and go through any of the security steps your financial institution may have. You’ll get to a page that says, Which accounts do you want to connect?, with a drop-down list displaying options from your Chart of Accounts. Select the type of account you’re creating (checking, credit card, etc.) and continue to follow the onscreen instructions until your connection is complete and QuickBooks Online has downloaded your transactions.

WARNING: It’s important that you set up your linked accounts correctly since you’re dealing with the Chart of Accounts. If any step is confusing, we can schedule a session to go over online account connections with you.

Dealing with Transactions

Once you’ve connected to all your online accounts, you’ll see that they appear on the Bank transactions page, displayed in small boxes containing their balances and the number of transactions they contain (there might be quite a few when you first download). You can also see how recently each account was updated (click Update anytime you want to refresh an account). 

Once you’ve connected to an online bank account, you can see how many transactions were downloaded and what its balance is. 

 Click one, and its register will appear below. Above that, you’ll see three labeled bars:

  • For review. QuickBooks Online puts all downloaded transactions in this list.

  • Categorized. Your transactions will move to this list after you’ve assigned categories to them.

  • Excluded. If you happen to run into duplicate transactions, you can move them here.

Below that, you’ll see that you can filter your transactions by date, by type, or by description, check number, or amount.

WARNING: As you continue to work with accounts, you may occasionally find that a connection has been unlinked. When that happens, just repeat the connection process again.

Working with Individual Transactions

You’ll want to set some time aside the first time you download transactions so you can look at each one and add or edit its content. Click one to open its detail box, as shown below. The top line defaults to Categorize. First, select the correct Vendor/Customer (or + Add new), then check the Category and change it from the drop-down menu if it’s incorrect.

 You can add or edit a lot of details for your individual transactions. 

 There’s one more field here that’s very important. If you’re purchased something on behalf of a customer, be sure to select the correct one from the drop-down list under the Customer field and click the Billable box. QuickBooks Online will make this transaction information available to you the next time you invoice the customer. Other fields not shown in the above image are optional, like Tags, Memo, and Add attachment. When your transaction is complete, click Confirm to move it to the Categorized list.

There are two other options in these individual transaction boxes besides Categorize: Find match (match downloaded payments to invoices, for example) and Record as transfer (move money from one account to another). These are advanced topics that aren’t necessarily intuitive, so we can schedule a session to go over them if you anticipate needing to use them.

The mechanics of connecting to your banks in QuickBooks Online aren’t complicated, but you may run into problems in moving transactions along when they’re first downloaded. Let us know if we can help here. It’s much easier to get it right from the start than to try to untangle transactions that weren’t processed properly.

September 2023 Individual Due Dates

September 1 - 2023 Fall and 2024

Tax Planning Contact this office to schedule a consultation appointment.

September 11 - Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer on IRS Form 4070 no later than September 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

September 15 - Estimated Tax Payment Due

The third installment of 2023 individual estimated taxes is due. Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

  • Payroll withholding for employees;
  • Pension withholding for retirees; and 
  • Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors:

  • The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
  • The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

For example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

September 2023 Business Due Dates

September 15 - S Corporations

File a 2022 calendar year income tax return (Form 1120-S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension. Provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1120-S) or substitute Schedule K-3 (Form 1120-S).

September 15 - Corporations 

Deposit the third installment of estimated income tax for 2023 for calendar year

September 15 -  Social Security, Medicare and withheld income tax

If the monthly deposit rule applies, deposit the tax for payments in August.

September 15 - Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in August.

September 15 - Partnerships

File a 2022 calendar year return (Form 1065). This due date applies only if you were given a 6-month extension. Provide each partner with a copy of their Schedule K-1 (Form 1065) or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1065) or substitute Schedule K-3 (Form 1065).

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday. 

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

For example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.


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