The ins and outs of Series EE savings bond taxation
Do you have Series EE savings bonds purchased years ago? You may wonder how the interest is taxed. EE bonds don’t pay interest currently. Instead, accrued interest is reflected in their redemption value. (Owners can elect to have interest taxed annually.) EE bond interest isn’t subject to state income tax. And using the money for higher education may keep you from paying federal tax on it. Unfortunately, the law doesn’t allow for the tax-free buildup of interest to continue forever. When the bonds reach final maturity, they stop earning interest. If you own bonds reaching final maturity this year, action is needed to assure that there’s no loss of interest or unexpected tax consequences.
Partners may have to report more income on tax returns than they receive in cash
If you’re a partner in a business, you may have come across a situation that’s puzzling. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner. Why? It’s due to the way partnerships and partners are taxed. Unlike C corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on partnership earnings whether or not they’re distributed. And if a partnership has a loss, it’s passed through to partners. (However, various rules may prevent partners from currently using their share of a partnership’s loss to offset other income.) Contact us if you’d like to discuss how a partner is taxed.
Businesses: Prepare for the lower 1099-K filing threshold
Businesses may be required to issue more information reporting forms for 2022 because more workers fall into the required range of income to be reported. Starting this year, the threshold has dropped drastically for filing Form 1099-K. Businesses and workers in certain industries may receive more forms. Banks and online payment networks (payment settlement entities or third-party settlement organizations) must report payments in a trade or business to the IRS and recipients. (These include Venmo, PayPal, etc.) A 2021 law dropped the threshold to file Form 1099-K for a taxpayer from $20,000 of reportable payments made to a taxpayer and 200 transactions to $600. Contact us with questions.
IRA charitable donations: An alternative to taxable required distributions
Are you charitably minded? If you’re 70½ or older, you may want to consider making a cash donation to a qualified charity out of your IRA. When distributions are taken out of traditional IRAs, federal income tax (and possibly state tax) must be paid. One way to transfer IRA assets to charity is via a tax provision that allows IRA owners who are 70½ or older to direct up to $100,000 a year of IRA distributions to charity. These are known as qualified charitable distributions. The money given to charity counts toward your required minimum distributions but doesn’t increase your adjusted gross income, which may make you qualify for other tax breaks. Questions? Contact us.
Supply chain software can help digitize the dilemma
Supply chain disruptions have been a dilemma for a while now. Many companies are coping by digitizing their supply chains to improve oversight, increase efficiency and manage risk. One tool to consider is supply chain management (SCM) software. It helps manage how and when materials, products and equipment are procured. SCM software can allow you to predict demand spikes, mitigate inventory and labor shortages, and better manage transportation issues. Another tool is supply chain risk management (SCRM) software. True to its name, an SCRM solution focuses on lowering risk by spotting and eliminating trouble spots in your supply chain. Contact us for help managing your tech costs.
Could your business benefit from a PEO?
Many businesses struggle to keep up with employment regulations and health care benefits. One potential solution: engage a professional employer organization (PEO). These firms employ experts who can handle difficult, recurring tasks such as managing employment taxes and administering payroll and benefits. Because PEOs typically work with multiple clients, the cost to engage one can be lower than hiring HR staff. Partnering with a PEO also lets you focus on core operations while gaining access to HR expertise, technology and administrative services. Before signing up with a PEO, however, you’ll need to thoroughly analyze your company’s HR needs and the costs involved. Contact us for help.
Caring for an elderly relative? You may be eligible for tax breaks
Taking care of an elderly parent or relative may provide more than just satisfaction. You could also be eligible for tax breaks. For example, if the individual qualifies as your “medical dependent,” and you itemize deductions on your return, you can include any medical expenses you incur for the relative along with your own when determining your medical deduction. If you aren’t married, you may qualify for head of household status, which has a higher standard deduction and lower tax rates than a single filer. You may also qualify for the dependent care credit for costs you incur for the individual’s care to enable you and your spouse to go to work. Contact us if you’d like more details.
Inflation enhances the 2023 amounts for Health Savings Accounts
The IRS recently released the inflation-adjusted amounts for Health Savings Accounts (HSAs) next year. For calendar year 2023, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $3,850. For an individual with family coverage, the amount will be $7,750. This is up from $3,650 and $7,300, respectively, for 2022. For calendar year 2023, an HDHP will be a health plan with an annual deductible that isn’t less than $1,500 for self-only coverage or $3,000 for family coverage. Annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,500 for self-only coverage or $15,000 for family coverage.
Tighten up billing and collections to mitigate economic uncertainties
The U.S. economy is giving business owners plenty to think about. Although rising inflation and supply chain problems are beyond your control, you can tighten up your own operations. One area to look at is billing and collections. Ensure your order fulfillment and distribution processes are as efficient as possible. Resolve billing mistakes or confusion quickly, asking customers to pay any portion of a bill they’re not disputing. Familiarize yourself with industry norms for payment schedules. Use the latest invoicing and payment technology to your advantage. Regularly verify account information to make sure invoices and statements are going to the right place. Contact us for help.
Businesses may receive notices about information returns that don’t match IRS records
The IRS has begun mailing notices to businesses and other payers that filed certain returns with information that doesn’t match the agency’s records. These CP2100 and CP2100A notices are sent by the IRS twice a year to payers who filed information returns that are missing a Taxpayer Identification Number, have an incorrect name or have a combination of both. Payers are required to file with the IRS various information returns reporting payments they make to independent contractors, customers and others. These include Form 1099-MISC (Miscellaneous Income) and Form 1099-NEC (Nonemployee Compensation). Contact us if you have questions about filing information returns.