Axley & Rode, LLP

If you donated to charity last year, letters from the charities may have appeared in your mailbox recently acknowledging the donations. But what happens if you haven’t received such a letter — can you still claim a deduction for the gift on your 2021 income tax return? It depends. The requirements To prove a charitable donation for which you claim a tax deduction, you need to comply with IRS substantiation requirements. For a donation of $250 or more , this includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation and the value of any such goods or services. “Contemporaneous” means the earlier of: The date you file your tax return, or

If you operate a business, or you’re starting a new one, you know you need to keep records of your income and expenses. Specifically, you should carefully record your expenses in order to claim all of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns in case you’re ever audited by the IRS. Be aware that there’s no one way to keep business records. But there are strict rules when it comes to keeping records and proving expenses are legitimate for tax purposes. Certain types of expenses, such as automobile, travel, meals and home office costs, require special attention because they’re subject to special recordkeeping requirements or limitations. Here are two recent court cases to illustrate some of the issues. Case 1: To claim deductions, an activity must be engaged in for profit A business expense c

Traditional IRAs and Roth IRAs have been around for decades and the rules surrounding them have changed many times. What hasn’t changed is that they can help you save for retirement on a tax-favored basis. Here’s an overview. Traditional IRAs You can make an annual deductible contribution to a traditional IRA if: You (and your spouse) aren’t active participants in employer-sponsored retirement plans, or You (or your spouse) are active participants in an employer plan, and your modified adjusted gross income (MAGI) doesn’t exceed certain levels that vary annually by filing status. For example, in 2022, if you’re a joint return filer covered by an employer plan, your deductible IRA contribution phases out over $109,000 to $129,000 of MAGI ($68,000 to $78,000 for singles). Deductible IRA c

Employers have long had to grapple with the important distinctions between independent contractors and employees. In short, if the IRS reclassifies an independent contractor as an employee, you could be held liable for back taxes and wages, as well as penalties. In Revenue Procedure 2022-13, the IRS recently issued guidance on when and how it will issue a Notice of Employment Tax Determination. This notice informs an employer that one or more individuals who provide services to the employer should be legally classified as employees. The notice also describes how the employer can petition the U.S. Tax Court for review of the determination. Tax Court review Generally, the Tax Court may review two types of IRS employment tax determinations: Worker reclassification determinations, and Relief determinations under Internal Revenue Code Section 530.

If you run a business and accept payments through third-party networks such as Zelle, Venmo, Square or PayPal, you could be affected by new tax reporting requirements that take effect for 2022. They don’t alter your tax liability, but they could add to your recordkeeping burden, as well as the number of tax-related documents you receive every January in anticipation of tax-filing season. Form 1099-K primer Form 1099-K, “Payment Card and Third-Party Network Transactions,” is an information return that reports certain payment transactions to the IRS and the taxpayer who receives the payments. Since it was first introduced in 2012, the form has been used to report payments: From payment card transactions (for example, debit, credit or stored-value cards), and In settlement of third-party network transactions, when above a certain minimum threshold amount.

Any employer that sponsors a pension plan or a qualified retirement plan, such as a 401(k), is undoubtedly familiar with the Employee Retirement Income Security Act (ERISA). The law also applies to employer-sponsored health maintenance organization plans, Flexible Spending Accounts, and life and disability insurance. Established in 1974, ERISA holds plan fiduciaries responsible for their actions related to the maintenance of applicable benefits plans. The Employee Benefits Security Administration (EBSA), an agency of the U.S. Department of Labor (DOL), is required by law to annually adjust ERISA penalties for inflation. This year, effective for penalties assessed after January 14, 2022, the EBSA has increased for inflation the per diem and maximum penalty amounts for a variety of ERISA-mandated requirements. Here are some potential violations and their adjusted penalties: Failure to furnish inform

While some businesses have closed since the start of the COVID-19 crisis, many new ventures have launched. Entrepreneurs have cited a number of reasons why they decided to start a business in the midst of a pandemic. For example, they had more time, wanted to take advantage of new opportunities or they needed money due to being laid off. Whatever the reason, if you’ve recently started a new business, or you’re contemplating starting one, be aware of the tax implications. As you know, before you even open the doors in a start-up business, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more. Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away. Keep in mind that the way you handle some of your initial expenses can make a large difference in your tax bill. Essential tax points

It’s a common problem every year. Employers discover that, when their 401(k) plans must make required minimum distributions, the addresses on file for some distributees have become invalid. The U.S. Department of Labor (DOL) and the IRS have both offered guidance about dealing with participants and beneficiaries who are unresponsive or cannot be located — commonly referred to as “missing participants.” However, the guidance isn’t completely on point or highly detailed. The DOL’s most detailed guidance relates to terminating plans, and the IRS’s guidance relates to audits and the correction of distribution errors. The DOL has also provided a list of best practices that sponsors of ongoing plans can employ to minimize and mitigate the problem of missing participants, but the practices are only examples of steps that plan fiduciaries should consider in light of a plan’s participant population, the size of a participant’s ben

Many tax limits that affect businesses are annually indexed for inflation, and a number of them have increased for 2022. Here’s a rundown of those that may be important to you and your business. Social Security tax The amount of an employee’s earnings that is subject to Social Security tax is capped for 2022 at $147,000 (up from $142,800 in 2021). Deductions Standard business mileage rate, per mile: 58.5 cents (up from 56 cents in 2021) Section 179 expensing: Limit: $1.08 million (up from $1.05 million in 2021) Phaseout: $2.7 million (up from $2.62 million) Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at: Married filing jointly: $340,

If you’re an employer with a business where tipping is customary for providing food and beverages, you may qualify for a federal tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income. Basics of the credit The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes. You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes p

While Congress didn’t pass the Build Back Better Act in 2021, there are still tax changes that may affect your tax situation for this year. That’s because some tax figures are adjusted annually for inflation. If you’re like most people, you’re probably more concerned about your 2021 tax bill right now than you are about your 2022 tax situation. That’s understandable because your 2021 individual tax return is generally due to be filed by April 18 (unless you file an extension). However, it’s a good idea to acquaint yourself with tax amounts that may have changed for 2022. Below are some Q&As about tax amounts for this year. I have a 401(k) plan through my job. How much can I contribute to it? For 2022, you can contribute up to $20,500 (up from $19,500 in 2021) to a 401(k) or 403(b) plan. You can make an additional $6,500 catch-up contribution if you’re age 50 or older.

The IRS began accepting 2021 individual tax returns on January 24. If you haven’t prepared yet for tax season, here are three quick tips to help speed processing and avoid hassles. Tip 1. Contact us soon for an appointment to prepare your tax return. Tip 2. Gather all documents needed to prepare an accurate return. This includes W-2 and 1099 forms. In addition, you may have received statements or letters in connection with Economic Impact Payments (EIPs) or advance Child Tax Credit (CTC) payments. Letter 6419, 2021 Total Advance Child Tax Credit Payments, tells taxpayers who received CTC payments how much they received. Since the advance payments represented about one-half of the total credit, taxpayers who received CTC payments need to file a return to collect the rest of the credit. Letter 6475, Your Third Economic Impact Payment, tells taxpayers who received