What Was New in 2023

 

Key tax code changes

Here are some key changes to the tax code for 2023.
Use this information to help manage your tax
situation, a practice that can pay rich benefits if reviewed throughout the year.

As cryptocurrencies are becoming more mainstream, you may be asking whether their virtual wallets affect their tax returns. Any taxpayer who has received, sold, exchanged, sent, or acquired any cryptocurrency during the tax year must now report those transactions on Schedule 1 and other appropriate schedules and forms.

How is virtual currency taxed? 

Virtual currency is treated as property on a tax return. According to the IRS, “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.”

If you use Bitcoin or another currency to purchase goods or services, you will need to report the transaction on your tax return. To do this, you will need to determine:

  • Was there was a capital gain or a loss on the trade?
  • Was it was short-term or long-term (short-term being less than a year)?

Report this information using Form 8949, then report is using Schedule D on Form 1040.

This also includes if you trade one virtual currency for another virtual currency. You will not receive Form 1099 for these transactions. Instead, you will be responsible for keeping up with this information for tax reporting purposes.

If you simply purchase virtual currency during the tax year, you will not be responsible for reporting it.

Specific situations for reporting virtual currency

Digital currency is becoming more prevalent as an increasing number of people and businesses use it to pay for services and items, make investments, and accept payments.

There is no stereotypical digital currency user, so you could see a diverse number of tax situations amongst your clients as cryptocurrencies catch on with:

  • Independent contractors
  • Wage-earning employees
  • Service-providers
  • Employers
  • Shoppers who pay in virtual currency

While every client’s tax situation is unique, in general, the following rules apply.

If you pay employees in virtual currency 

Virtual currency used to pay for goods and services should be taxed as income.

If you are an employer who pays their employees with virtual currency, they will need to report employee earnings to the IRS on Form W-2.

They must convert the Bitcoin value to U.S. dollars on the date each payment is made and keep careful records. It is important to note that wages paid in virtual currency are subject to withholding to the same extent as dollar wages.

Self-employed clients with cryptocurrency gains or losses from sales transactions are also responsible for converting their virtual currency to dollars on the date each payment is made and reporting the figures on their tax return.

If you hold virtual currency as a capital asset  

Virtual currency held as a capital asset should be treated as property for tax purposes. The same principles that apply to property transactions apply to this type of asset. Any gain or loss will be taxed as a capital gain or loss.

Qualified reporting of receiving digital payments expands dramatically. If you receive more than $600 in payments via third-party platforms and the IRS deems these payments to be business related, you will receive 1099-Ks next January. So if you use reseller platforms, receive digital payments through applications like Venmo, or digitally resell event tickets, expect a more complicated tax return.

Increase tracking of cryptocurrency transactions. Starting in 2023, there will be more strict reporting requirements of any cryptocurrency transactions handled by brokers and dealers. Please be aware that many of these firms are implementing the changes throughout 2022.

Inflation Adjustment Amounts

Each year, a number of provisions in the Internal Revenue Code (IRC) are adjusted for inflation. The IRS recently released the inflation adjusted amounts for 2024. The following chart highlights a number of these adjustments, as they compare to the 2023 and 2022 amounts.

Inflation changes
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Inflation changes 2
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Standard Mileage Rates 2023

The IRS has released the 2024 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. The following chart reflects the new 2024 standard mileage rates compared to the 2023 and 2022 standard mileage rates.

mileage
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* A deduction for unreimbursed employee business travel is suspended for tax years 2018 through 2025, unless the deduction is allowed in determining adjusted gross income, such as members of a reserve component of the Armed Forces, state or local government officials paid on a fee basis, or certain performing artists.
** A deduction for moving expenses is suspended for tax years 2018 through 2025, unless the taxpayer is a member of the Armed Forces on active duty who moves
pursuant to a military order and incident to a permanent change of station.

Earned Income Tax Credit

The minimum age to collect EITC for a taxpayer without a qualifying child is 25.
A taxpayer without a qualifying child must be under age 65 to claim EITC which is the same as pre-2021 rules.
Taxpayers claiming EITC in 2023 no longer have the op-tion to use a prior year’s earned income to calculate the credit. Taxpayers must use their 2023 earned income to claim the credit.
The maximum investment income that a taxpayer can receive and still collect EITC is $11,000 which will be ad-justed in future years for inflation.
The maximum amount of EITC for a taxpayer without a qualifying child is $600 in 2023.
The maximum amount of EITC for a taxpayer with one qualifying child is $3,995 in 2023.
The maximum amount of EITC for a taxpayer with two qualifying children is $6,604 in 2023.
The maximum amount of EITC for a taxpayer with three or more qualifying children is $7,430 in 2023.
Taxpayers filing MFS that are separated from their spouse and living apart for the last six months of the year may be eligible for EITC if they have a qualifying child that lived with them for at least six months out of the year.

 

Child Tax Credit – Basics

Child Tax Credit is $2,000 for each qualifying child under age 17 that is claimed as a dependent on the tax return which is the same as in 2022.
The refundable portion of the Child Tax Credit (Additional Child Tax Credit) is raised to $1,600 for each qualifying child.
To receive the Additional Child Tax Credit the taxpayer must have earned income.
The refundable amount is calculated on Schedule 8812 and it is limited to 15% of the earned income on the re-turn over $2,500. This is the same calculation that exist-ed in 2018-2020 and in 2022.
Child Tax Credit is phased out if the Taxpayer’s Adjusted Gross Income is more than the following:
• $400,000 for MFJ
• $200,000 for all other filing statuses
For taxpayers with AGI above the threshold amounts, the credit is reduced by an amount equal to 5% for each $1,000 of income or part thereof that exceeds the limits.

 

Child And Dependent Care Credit

Child and Dependent Care Credit remains a nonrefunda-ble credit and the limitations on the credit remain the same as the 2022 provisions.
Child care or dependent care expenses are subject in 2023 to the following limits:
• $3,000 for one qualifying individual
• $6,000 for more than one qualifying individual
The credit remains a percentage of the eligible child care expenses and that percentage is based on the Taxpayer’s Adjusted Gross Income.
The maximum credit in 2023 is 35% of eligible expenses for Taxpayers with AGI of up to $15,000.
Once AGI is above $15,000, the credit is reduced by an amount equal to 1% for each $2,000 of income or part thereof that exceeds $15,000 until AGI reaches $43,000. Above $43,000 the credit is 20% of the eligible expenses and there is no maximum AGI limitation.
Based on expense and AGI limitations, the maximum nonrefundable credit that a Taxpayer can claim in 2023 is the following:
• $1,050 for one qualifying individual ($3,000 x 35%)
• $2,100 for more than one qualifying individual ($6,000 x 35%)

Clean Energy Credits

Residential Clean Energy Credit—As part of the Infla-tion Reduction Act, starting in 2023, biomass systems will no longer be eligible for the credit.
Items that do qualify are the following:
• Qualified solar electric property
• Solar water heating property
• Small wind energy property
• Geothermal heat pump property
• Fuel cell property
• Battery storage technology (new for 2023)
The credit remains available for qualifying expenditures incurred for installing new clean energy property in an existing home or for a newly constructed home.
This credit has no annual or lifetime dollar limit except for fuel cell property. The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.
This credit remains a nonrefundable credit but it can be carried forward to future years to offset future income tax liability.

Energy Efficient Home Improvement Credits

This credit is claimed in Part II of Form 5695—Residential Energy Credits.
The lifetime limit of $500 has been eliminated and replaced with an annual limit of $1,200.
The credit is equal to 30% of the cost of various energy-efficient products up to a maximum $1,200 credit. The amounts that can be claimed on your primary residence for each type of improvement are as follows:
• $600 for any single energy property item such as advanced main air circulating fans; central air condi-tioning; hot-water boilers, furnaces, or electric heat pump water heaters fueled by gas, propane, or oil; insulation materials, metal or asphalt roofing.
• $600 for windows or skylights
• $500 for exterior doors at $250 per door
• $150 for energy audits.
The taxpayer can also claim up to $2,000 for heat pumps; air source heat pumps; biomass stoves and boilers.
If the taxpayer has both type of expenses, they can claim up to $3,200 in total. This credit is not available on new construction. Only on an existing primary residence.
The energy efficient home improvement credit is a non-refundable credit and cannot be carried forward.

Clean (Electric) Vehicle Credits—New Vehicles

The credit is renamed the Clean Vehicles Credit and re-mains a non-refundable credit of a maximum of $7,500. The manufacturer limitations (Tesla & GM) that applied to the old credit are no longer in effect and some models by Tesla and GM may be eligible based on MSRP.
To qualify for the Clean Vehicle Credit, the taxpayer must purchase and place in service a qualified motor vehicle during 2023 and each of the following conditions must be satisfied:
1. The taxpayer purchased the vehicle new.
2. The taxpayer started using the vehicle in 2023.
3. The taxpayer’s modified adjusted gross income (MAGI) is equal to or less than $300,000 (Married Filing Jointly and Qualifying Surviving Spouse), $225,000 (Head of Household), or $150,000 for all other filers.
4. The vehicle meets one or both of the following (up to $3,750 each for meeting each part):
• Critical mineral specifications
• Battery components specifications
5. Vehicle must be assembled in North America.
6. Vehicle must have a manufacturer-suggested retail price (MSRP) of no more than $80,000 for vans, SUVs, and pick-ups, and $55,000 for other vehicles

Commercial Clean Vehicle Credit

Starting in 2023, businesses (including pass-though entities) and tax-exempt organizations that buy a qualified commercial clean vehicle that is used in the United States may quali-fy for a clean vehicle tax credit. Taxpayers claiming the credit on Form 8936 will be required to provide the VIN on Schedule A (Form 8936) and only one credit per VIN is available.
Tax-exempt entities have the option to receive direct payments of the credit amount rather than a credit.
The credit equals the lesser of:
• 15% of your basis in the vehicle (30% if the vehicle is not powered by gas or diesel)
• The incremental cost of the vehicle over the cost of a comparable vehicle powered solely by a gas or diesel engine.
• The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and $40,000 for all other vehicles.
There is no limit on the number of credits a business can claim, but the credits are nonrefundable. However, the credit can be carried over as a general business credit on Form 3800.
Any credit received will reduce the depreciable basis of the vehicle.

Clean Vehicle Credit (Used Vehicles)

Qualified buyers can claim a credit of up to $4,000. The credit for a used electric vehicle is limited to 30% of the purchase price of the used vehicle.
This credit can only be claimed every three years starting in 2023.
The used vehicle must also satisfy the following condi-tions:
1. The vehicle must be at least two years old.
2. The taxpayer started using the vehicle in 2023
3. The vehicle must have an eligible VIN.
4. The vehicle must be purchased through a dealer (no private sales) and
5. No credit (either new or used) was previously claimed for the vehicle.
To claim the credit there is a $25,000 price cap on the used vehicle.
There are the following income limitations based on fil-ing status:
• $150,000 for joint returns
• $112,500 for HOH
• $75,000 for all single filers.

 

Additional Tax on Qualified Plans —New Exceptions

to the 10% penalty on early distributions.

• Private Sector Firefighters
• Public Safety Officers
• State and Local Government Correction Officers
• Terminally ill individuals
• Corrective distributions of excess contributions 

 

Retirement Plan and IRA Required Minimum Distributions (RMDs)

Retirement Plan and IRA Required Minimum Dis-tributions (RMDs)—Beginning in 2023, the SECURE 2.0 Act raised the age for taking RMDs to age 73.
Participants who reach age 72 in 2023 their first RMD will not occur until 2024, the year the participant reaches 73. For such participants the first RMD is due by April 1, 2025, and their second RMD by December 31, 2025.
SECURE 2.0 Act also drops the excise tax rate from 50% to 25%. Additionally, the excess tax can possibly be re-duced to 10% if the RMD is timely corrected within two years.
The penalty may be waived in its entirety if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall.

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