Mary Karpowicz

The Inflation Reduction Act of 2022 (the “Act”) includes a range of new tax rules addressing various areas. While one of its significant goals is to address climate change and jump-start clean energy production via expanded electric vehicle and energy efficiency credits, the Act also includes other provisions intended to address inflation by reducing the amount of government spending, imposing new revenue streams, and decreasing healthcare costs for Americans.

In this article, we’ll cover the non-energy provisions of the Act that affect your taxes.

Healthcare Provisions in the Act

The Affordable Care Act program is extended through 2025. With additional funding, this is expected to allow higher-income households to qualify for the Premium Tax Credit, as well as increase the subsidy for lower-income households.

The Act limits annual out-of-pocket costs of prescription drugs for seniors on Medicare to an estimated $4,000 by 2024 and $2,000 by 2025. Additionally, Medicare is able to negotiate certain prescription prices with drugmakers. Other Medicare benefits are expanded, including free vaccines and $35 per month insulin costs, by 2023.

Business Tax Provisions

Effective for tax years beginning on or after January 1, 2023, C corporations with average adjusted financial statement income greater than $1 billion over any consecutive three years will now pay a minimum 15% tax on corporate book income.

The Act creates a 1% excise tax on the value of publicly-traded stock that is repurchased by the corporation or certain subsidiaries, effective after December 31, 2022. This new tax excludes buybacks of less than $1 million, repurchases connected to contributions to retirement savings plans, repurchases treated as dividends, and certain other transactions.

The limitation on pass-through net business losses for noncorporate taxpayers that was enacted in the 2017 Tax Cuts and Jobs Act (TCJA) is extended through 2028. The business loss deduction in 2022 is limited to $540,000 for joint filers and $270,000 for all other filers.

Increased R&D credits are provided for eligible start-up businesses that elect to apply the credits against employer payroll tax liability instead of income tax. The eligible amount is increased from $250,000 to $500,000, effective January 1, 2023.

Other Provisions

The Act provides nearly $80 billion in additional funding to the IRS over the next ten years. Last year, social media posted that IRS would be hiring 87,000 armed personnel with this money. This is not true. This extra funding will increase hiring, but the new employees will work in operations, systems, and taxpayer services as well as collections. As of this writing, only four percent of IRS employees work in the Criminal Investigation Division.

As always, if you have any questions about any of these changes, feel free to reach out any time.

While a deduction can reduce the amount of taxable income, credits can directly reduce the amount of tax owed, so they offer a greater tax benefit. Sometimes, credits can be refundable, which means that they might generate a refund for you even when you don’t owe tax. Below are some examples of different types of credits and deductions available for individual taxpayers. Keep in mind that each credit and/or deduction has specific criteria that need to be met in order to qualify.

Credits for Individuals

• Child Tax Credit
• Dependent Care Credit
• Earned Income Tax Credit
• Adoption Credit
• Saver’s Credit
• Foreign Tax Credit
• Excess Social Security and RRTA tax withheld
• Credit for Tax on Undistributed Capital Gain
• Credit for Prior Year Minimum Tax
• Residential Energy Credits
• Plug-in Electric Drive Vehicle Credit
• Premium Tax Credit (marketplace health care insurance credit)
• American Opportunity Credit and Lifetime Learning Credit

If you feel you might qualify for one of these credits, be sure to ask your tax preparer about them.

Deductions for Individuals

The IRS provides each taxpayer with a standard deduction that reduces their adjusted gross income so they pay less tax. The amounts change each year, and are determined by filing status. In the 2022 tax year, here is a sampling of the standard deduction amounts.

Single; Married Filing Separately – $12,950

Married Filing Jointly; Qualifying Widow(er) – $25,900

Head of Household – $19,400

Most taxpayers take the standard deduction, but the law allows you to take more if you have more qualifying deductions than the limits above. These are called itemized deductions and can include personal property tax, real estate tax, sales tax, charitable contributions, gambling losses, interest expense, home mortgage interest paid, and moving expenses, to name a few.

Students and teachers may be able to take education deductions, which include student loan interest paid, work-related educational expenses, and educational expenses paid by a teacher.

Self-employed individuals can claim work-related deductions related to business expenses, business use of car, and business use of home on Schedule C.

Health care deductions, such as medical and dental expenses or Health Savings Account (HSA) contributions can be deductible to those who participate in these plans.

For investors, deductions may include sale of home, Individual Retirement Arrangement (IRA) contributions, capital losses, bad debts, qualified opportunity zone investments, and debt forgiveness.

If you’d like to study deductions and credits on your own, the IRS website is a wealth of knowledge. If you don’t want to do that, you can always ask your tax professional. Filling out your tax organizer in a complete and thorough manner is the very first step to helping your tax pro identify the plethora of credits and deductions you may qualify for.

The Inflation Reduction Act of 2022 (the “Act”) was recently passed, and it includes a range of new tax rules addressing various areas, including healthcare, energy, and tax measures. With one of its significant goals being to address climate change and jump-start clean energy production, the Act created a significant number of renewable energy sector benefits, including extended and expanded energy-efficiency credits and provisions.

If you have made any energy-related improvements to your home, let your tax professional know so they can consult with you on whether your investments qualify for these credits. Here is a brief rundown.

Expanded Credit for Home Energy Efficiency Improvements

Although the IRC 25C nonbusiness energy property credit already existed for various home energy efficiency improvements, the impact was limited because of it only applying to primary residences and being subject to a lifetime limitation of $500 for each taxpayer. The Act extends the previous credit for another year through the end of 2022 and expands the credit significantly beginning in 2023. Starting in 2023, the following new rules apply:

1. The credit has a $1,200 annual limitation with no lifetime limit for most qualifying improvements.
2. The credit is equal to 30 percent of the property’s cost.
3. Certain subcategories under the $1,200 cap have their own annual limits – $600 for windows, $500 for exterior doors ($250 per door), $600 for energy equipment, and $150 for home energy audits. Heat pumps and biomass stoves have a $2,000 annual limit instead of $1,200.
4. The credit can be claimed for improvements to any dwelling unit, not just a residence, and can include installation and enhanced wiring costs.

Extended Residential Clean Energy Credit

The IRC 25D residential energy efficiency property credit is also an existing credit already available, but while it originally allowed a 30 percent credit (mostly used for solar systems and related costs), it was reduced to 26 percent in recent years and was scheduled for additional reductions and eventual expiration. The Act renamed the credit to the residential clean energy credit and brought the credit back up to 30 percent starting in 2022, and it also extended the credit through 2034 (with reduced percentages in 2033 and 2034). It will completely expire in 2035 unless Congress continues it.

Clean Energy Credits for Businesses and Investors

This credit is similar to the residential credit for individuals, with the business investment tax credit for solar and other renewable energy technologies reduced from 30 percent to 26 percent in recent years and scheduled for further reductions and expiration. The Act brings this back to 30 percent for projects completed in 2022, 2023, and 2024 and is expanded to include energy storage technologies. For 2025 and beyond, the 30 percent credit still applies for geothermal projects, but it will also require projects to meet certain wage and apprenticeship standards and use source materials from within the United States. This will apply to such projects that start construction through 2034, but the credit will start to phase out for projects beginning after 2032 (26 percent for 2033 and 22 percent for 2034).

High-Efficiency Electric Home Rebate Program

While not a credit, this provision of the Act will create a program to award rebates to individuals or families who purchase certain energy-efficient improvements. Participants must earn less than 150 percent of the median income where they live to qualify. The rebate amounts will depend on the category of improvement or upgrade: for example, a stove, cooktop, range, or heat pump clothes dryer could qualify for a rebate of $840, while a rebate for a heat pump for space heating and cooling could be as high as $8,000. The percentage of the property’s cost awarded as a credit will vary depending on income level, and each family will be limited to no more than $14,000 in total rebates under the program. This program will run through 2031.

Other

There are other credits and incentives available under the Act to encourage production of electricity using clean energy and reduce carbon emissions – however, above are some of the most common provisions. Consult with your tax professional to learn more!

Are you considering buying an electric vehicle in 2023? The rules have recently changed, due to the passage of the Inflation Reduction Act of 2022 (the “Act”) in the summer of 2022. This bill included a range of new tax rules addressing various areas, and one of its significant goals was to address climate change and jump-start clean energy production. In this article, we’ll specifically cover the portion of the bill that includes updates to the electric vehicle credits available.

Under the Act, existing electric vehicle (EV) credits have been expanded and modified. Although credits of up to $7,500 on the purchase of a new EV have been available for several years (with some limitations), the existing rules have been changed to make them more available to middle income taxpayers while also ramping up domestic manufacturing of EVs and their related components such as batteries.

Overall, there are now three EV tax credits available:

1. [Revised] IRC 30D qualified plug-in vehicle credit, renamed to the clean vehicle credit

The maximum credit remains at $7,500; however, there are income limits for qualifying automobiles placed in service after December 31, 2022.

Any vehicle placed in service after August 16, 2022 must have final assembly in North America in order to qualify (with a transition rule for any contracts entered into between January 1, 2022 and August 15, 2022).

After 2023, taxpayers can elect to transfer their credit to treat it as a payment to the dealer.

When purchasing an EV, be sure to request for your salesperson to give you the necessary tax information you need! For some manufacturers, the assembly location may vary depending on the specific vehicle and trim, and for that reason, it’s advised to ask the salesperson for the VIN of the car that you plan to purchase.

The Department of Energy has provided a VIN lookup tool that can be used to verify this information for a particular vehicle. Consumers can refer to a list published by to determine which models have final assembly in North America: https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

2. [New] IRC 25E previously-owned clean vehicle credit

A credit is now available for used EVs. Previously-owned clean vehicles placed in service after December 31, 2022 and before January 1, 2033 may qualify for the credit.

The credit is a nonrefundable credit equal to the lesser of $4,000 or 30% of the vehicle sale price.

There is also an income limit to qualify for this credit (with much lower limits than the 30D credit), and the sale price must be $25,000 or less.

3. [New] IRC 45W qualified commercial clean vehicle credit

This credit is available for commercial clean vehicles placed in service after December 31, 2022 and before January 1, 2033. The credit is 15% of the vehicle’s basis but increases to 30% for a vehicle not powered by a gasoline or diesel combustion engine, and it cannot exceed $40,000 (with other possible limitations).

There is no income limitation to claim it, but there are other requirements regarding the vehicle type and type of clean energy used. A taxpayer cannot claim the credit for a vehicle for which the taxpayer received the IRC 30D credit (#1).

Check with your tax professional to learn more about the new/revised electric vehicle credits and how they impact your specific tax situation.

There is now a choice for tax professionals who need to make changes to a tax return that has already been filed with the IRS.

Superseding vs. Amended Tax Returns

You’re likely already familiar with the amended tax return. An amended return is filed subsequent to the originally-filed or superseding return and after the due date (including extensions).

Introducing the superseding return: A superseding return is a revision of an originally-filed return that is submitted within the current filing period (before that return’s due date, including extensions).

A superseding return “supersedes” (replaces) the original return rather than amending it.

When Should a Superseding Return Be Used?

Although the issue of superseding returns goes back to a court case from the 1940s, it has recently gained attention again, in part because of processing and guidance delays associated with the COVID-19 pandemic. Some of the more common situations that have come up where a superseding return could be relevant include:

• There are additional reporting requirements that come out after submission of the original return, but before the due date, that must be addressed to ensure compliance (a more recent example of this relates to Payroll Protection Program (PPP) expense deductibility and disclosures).
• A taxpayer expedites filing of their return (for example, to provide it for dependent financial aid purposes or, more recently, to take advantage of COVID-related stimulus payment/recovery rebate relief), and then receives a form or discovers missing information after-the-fact that must be factored into the return.
• The IRS or State requires filing of a new form, but it is not finalized or available for e-file until after the original filing deadline, so the taxpayer files the return but must add the applicable form(s) later to ensure compliance (a recent example relates to new foreign reporting on Schedules K-2 and K-3).
• A taxpayer files a return and neglects to make or change an important binding election; although the election cannot be made or revoked on an amended return, it can be on a superseding return because that return replaces the original filing and is generally treated as the original return (one example of this would be the de minimis safe harbor election, which must be made every year and is irrevocable).
• A taxpayer erroneously files a blank or incomplete return and wants to avoid underreporting or other accuracy-related penalties.

When and How to File a Superseding Return

As noted, a superseding return must be filed on or before the due date for the current filing period, including extensions. Individual superseding returns must be paper filed, and the filing must include a whole new copy of the 1040 return with the applicable changes factored in (with all necessary schedules and attachments) and should have “SUPERSEDING RETURN” written across the top of the first page. Although individual superseding returns cannot be electronically filed, many tax programs now support e-filing of superseding corporate and partnership returns, which typically ensures faster processing.

It is important to note that although the recommendation is to file a superseding individual return on a regular 1040 form, as you would ordinarily file the original return, any amended personal returns that are filed before the due date (including extensions) will automatically be treated as superseding, so you also have the option to just file Form 1040-X.

Additionally, some tax professionals recommend the strategy of filing extensions for all clients each year, even if the plan is to file prior to the original filing deadline, because if a taxpayer files a return by the original due date and discovers an error after that date, but before the extended due date, a superseding return can still be submitted. This is not an option for returns that were not put on extension – once the initial deadline passes, only an amended return can be submitted to report any changes.

If you’d like to discuss this topic and how it might affect your tax return filing, please reach out any time.

Performing these tasks at year-end will help your tax professional prepare your return accurately, plus it will make your tax professional very happy when you have these answers at the ready!

• Write down the odometer reading on the vehicles you use for business. It is important to know what percent you are using the vehicle for business and what percent you are using for personal. You should have a mileage log, but even if you just write down your odometer once a year, you’ll know how many total miles you drove for the year.

• If you carry inventory, you are required to do a count once a year showing the value.

• If you have payroll, verify if your EDD employment rate has changed for the upcoming year. You should have received a letter with the percentage in early December.
• Collect any W-9s from vendors. Verify if you paid anyone over $600 that will require a 1099. You will also need to send out a 1096. Visit the IRS website to order forms: https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns
• Back up data from the computer. Double check the backups are copying correctly.
• Update service account passwords and who has access to them. For security reasons, it is important to periodically update passwords and review/reassess which individuals have access to them.
• Copy thermal receipts. Many receipts that you get from office supply stores, gas, etc., are on thermal paper. The image will fade over time. Make a copy of the receipt because if you are audited, the IRS will want to see the details, not the credit card statement. Better yet, scan all of your receipts into a document management system and toss the paper.
• Verify when corporate minutes will be due for the coming year and mark the calendar.
• Review your business plan and make any necessary changes. What do you project your gross revenue to be for the upcoming year? How will that compare with the current year? What will you do to increase your profits?
• If you use QuickBooks, set the closing date and password on QuickBooks file.

Getting these necessary clerical tasks out of the way will make it easier for everyone.

Who doesn’t want to pay fewer taxes? The key to minimizing your tax bill is to plan ahead and select the strategies that work for your situation. When April 15, 2023 rolls around, it’s simply too late for tax planning, so now is the time to be proactive and save on your 2022 taxes.

Here are nine ideas to try.

1. Maximize Retirement Contributions Through Your Employer’s 401(k) Plan

This type of plan allows you to contribute pre-tax dollars to retirement, and contributions directly reduce taxable wage income. While contributions to IRAs and other types of retirement accounts can be done after year-end/up through the due date of your tax return, deferrals through an employer 401(k) plan must be completed by year-end, so make sure you will be able to contribute the desired amount for the year by 12/31. For tax year 2022, you can contribute up to $20,500 if under age 50, and $27,000 if 50 or older by year-end.

2. Harvest Investment Losses to Offset Capital Gains

If you have sold stock or other property that has generated capital gains, consider whether you have investment losses you can generate before year-end to reduce the overall capital gain you report/pay tax on. For example, if you have stock you’ve held for some time that has consistently been in a loss position, selling by year-end will allow you to offset those other capital gains – and also possibly find a better use for those funds that were invested.

It is always ideal to time capital gains and losses in the same year if you can because they can offset each other, and you are only able to deduct up to $3,000 of overall loss per year. So, if you have a large capital gain in one year and a large capital loss in the next, you will have had to pay tax on that capital gain in that first year, but then might not fully realize the benefit of the loss in the latter year for a number of years, because of that $3,000 per year limitation (unless other capital gains come up to offset it). If they happen in the same year, they would be netted together and the tax benefit would be fully received in the current year. Timing is everything!

3. Bunch Deductions So You Can Itemize

Because the Tax Cuts and Jobs Act (TCJA) both increased the standard deduction and capped the deduction for state and local income taxes paid when itemizing at $10,000, many taxpayers are finding that they benefit more from taking the standard deduction. However, this prevents them from receiving any direct benefit/deduction for certain expenses, like charitable donations and health care costs over a certain level. One way around this is to strategically time the payment of these costs so you can bunch them together and take advantage of itemizing deductions every other year. For example, if you already made donations earlier in the year and know that you plan to for 2023, consider paying your 2023 donations early/by year-end 2022 in order to exceed the standard threshold and take advantage of itemizing for the upcoming tax year.

4. Defer Income

If you are self-employed or an independent contractor, consider delaying invoicing clients for work to time it so you receive the income in January 2023 instead of December 2022. This will allow you to keep that income off of your 2022 return, and therefore hold off on paying tax on that income for another year.

5. Donate Appreciated Stock to Charity

The benefits of doing this are two-fold: you avoid capital gains/tax and also receive a charitable deduction for the appreciated value of the stock. Just be sure that you are actually going to itemize and won’t be taking the standard deduction, because the charitable deduction benefit is only available to you if you itemize deductions.

6. Purchase Business Equipment

If you are a business owner and have been thinking about purchasing equipment for your business (machinery, computers, software, a vehicle, etc.), now is the time to do it! With the expanded accelerated depreciation options that came out of the Tax Cuts and Jobs Act (which will be reduced in future years), many of these items qualify for significantly higher deductions – possibly even 100 percent. Whereas in prior years you may have had to deduct the cost of these items over a number of years, you will now likely be able to deduct them fully in the year purchased, or at least take a much higher first-year deduction. This will reduce the profit of your business, which directly reduces your taxable income and tax liability.

7. Install Solar Panels

Consider installing solar panels on your home prior to year-end to take advantage of the newly enhanced solar tax credit. When you install a solar system, 30 percent of your total project costs can be claimed as a credit on your IRS tax. So, if you spend $10K on the system, you will directly reduce your tax bill by $3,000.

The 30 percent credit will be in effect through 2032, after which the credit decreases to 26 percent for systems installed in 2033 and 22 percent for systems installed in 2034.  The tax credit expires in 2035 unless renewed by Congress.

8. Invest in a Qualified Opportunity Zone Fund

As part of the Tax Cuts and Jobs Act, taxpayers can now defer payment of capital gains tax to 2026 by investing the proceeds of a sale in a qualified opportunity zone. These zones are located all over the country and were designated as areas that would benefit from economic development. Tax can be deferred on the portion of the gain that was used to benefit the distressed zone.

The investment must be made within 180 days of the sale that generated the capital gains, so if you’ve already had a property sale in 2022 and would like to explore this, you’ll want to pay attention to the timeframe and act accordingly.

9. Meet With Your Tax Professional to Review Your Projected Tax Bill and Discuss Strategies

It can be extremely beneficial to meet with your tax professional before year-end and review a projection of your tax situation for the year, discussing possible strategies for reducing your tax bill. You may be able to strategize to get yourself in a lower tax bracket and allow for taking advantage of more deductions and credits, which might not be available to you at a higher income level.

In order for your tax professional to project your tax liability for the year, you’ll need to provide information regarding your income for the year – pay stubs, Profit & Loss reports if you have a business, information regarding investment income, as well as details regarding any other types of income or any changes to your situation from the prior year.

Schedule a time with your tax professional in November or early December so you have time to take any necessary actions to reduce your tax bill for the year!

When the SECURE Act went into effect on January 1, 2020, there were many open questions from tax professionals and taxpayers about Required Minimum Distributions (RMDs) and how certain provisions of the new legislation should be treated. Some of the language in a number of the provisions was not defined well or was left open to substantial interpretation. However, earlier this year, the U.S. Department of Treasury released proposed regulations under the SECURE Act, which help to provide a window into the IRS interpretation of this law.

The proposed regulations provided much-needed clarification on a number of SECURE Act provisions. Some of the most notable items include:

1. “Eligible Designated Beneficiary” (EDB) Clarifications. One of the most significant changes made by the SECURE Act was the implementation of the 10-Year Rule, which requires most non-spouse beneficiaries to distribute the entirety of their inherited retirement accounts by the end of the tenth year after the decedent’s death. However, some individuals who are EDBs are allowed to “stretch out” post-death RMDs and not conform to the new 10-year payment rules. The regulations further clarify elements of the EDB qualifications, including:

• At what point does a minor child of the IRA owner/retirement plan account holder reach the age of majority? Under previous guidance it was thought that a minor child would reach age of majority based on state law, which could be as late as 26 if the child is still in school. However, these regulations clarify that such minors reach the age of majority on their 21^st birthday, so the 10-Year-Rule kicks in at that time.
• What constitutes a disabled beneficiary under the EDB rules? The regulations confirm that the definition of “disability” under IRC Section 72(m)(7) should be used to determine if a beneficiary is an EDB. The individual must be unable to perform any job because of a physical or mental impairment that can be expected to result in death or last indefinitely (or, in the case of a disabled child, the regulations clarify that the beneficiary must have a physical or mental impairment that results in marked or severe functional limitations that are expected to result in death or last indefinitely). Furthermore, the regulations add a “safe harbor” that a beneficiary is considered disabled if they’ve been deemed so by the Social Security Administration.

2. Timing of 10-Year-Rule Deadline. For designated non-EDBs, the entire inherited retirement account must be withdrawn in its entirety within 10 years after the death of the IRA owner/retirement plan participant’s death. The regulations make it clear that the deadline is December 31^st of the 10^th year, not the 10-year anniversary of the date of death.
3. Certain Non-EDBs are Subject to Both the 10-Year-Rule and Annual RMDs in Years One Through Nine. To the surprise of some taxpayers and tax practitioners, certain non-EDBs are subject to the annual RMD rule in the years leading up to the 10-year payment deadline. A non-EDB is subject to the annual RMD requirement if the IRA owner/retirement plan participant died after his or her required beginning date (RBD), which is the date by which the first RMD would have been due. The RBD for a traditional IRA owner born before 7/1/1949 is April 1^st of the year following the year the owner turns 70.5; if born after 6/30/49, it is April 1^st of the year following the year the owner becomes age 72. For a retirement plan participant, the RBD is the later of April 1^st of the year the participant turns age 72 or retires from the company offering the plan. If the owner or retirement plan participant died before his or her RBD, there is no annual RMD requirement for the non-EDB – only the 10-year payment rule must be satisfied.
4. Trust as Designated Beneficiary/Eligibility for 10-Year Distribution Rule. The regulations clarify that the following requirements must be met in order for a trust to be treated as a designated beneficiary (certain “see-through” trusts):

• The trust is valid under state law
• The trust is irrevocable or will become irrevocable upon the death of the individual who established the trust
• The trust beneficiaries are identifiable from the trust document
• A copy of the trust instrument is provided to the IRA trustee or retirement plan administrator

If the trust meets these four criteria by 9/30 of the year following the year of death of the IRA owner/retirement plan participant, then the trust beneficiaries are considered beneficiaries for computing the post-death RMDs, and the 10-Year Rule applies. However, for trusts that don’t meet these rules, the trust beneficiaries cannot be considered designated beneficiaries, and the existing five-year rule applies instead.

There are many other clarifying details in the Treasury’s proposed regulations, so be sure to review the language to gain additional insight into the various topics covered. While the regulations are still proposed and subject to change, taxpayers are required to take into account a good-faith interpretation of the SECURE Act, so complying with these proposed regulations is an appropriate step in satisfying that requirement.

Dealing with the passing of a loved one in your family can be overwhelming. Unfortunately, tax requirements are one of the many items you’ll need to address, but we can help you through the process. Here is a little more about what’s required.

A final tax return in the year the loved one passes away will need to be filed. Whether or not they were legally married at the time of passing will dictate who files the return. It will either be the surviving spouse or the estate administrator (or a person they hire).

Surviving Spouse

• The IRS considers someone married for the entire year, provided that the surviving spouse doesn’t remarry during the year.
• The surviving spouse can choose their filing status, whether it be married filing jointly or married filing separately.
• When filing the final return for the deceased spouse, it is necessary to include the taxpayer’s date of death.
• The surviving spouse will file the customary 1040 tax return form and report all income and deductions as they did when the decedent was alive.
• If an overpayment of taxes occurs, the surviving spouse will receive a refund. If a balance is owed, the surviving spouse must pay it or enter into an installment agreement.

Personal Representative or Administrator

According to the IRS, a personal representative of an estate is an executor, administrator, or anyone who is in charge of a decedent’s property. Generally, this person is named in a decedent’s will to administer the estate and distribute property according to the decedent’s wishes. An administrator is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor can’t or won’t perform their duties.

As with the case of a surviving spouse, either the personal representative or administrator will file the final 1040 tax return form for the deceased taxpayer, including the date of death. The return will include all income and deductions that the deceased taxpayer is entitled to claim (generally, all income received/expenses paid prior to death).

If taxes are owed to the IRS, the personal representative or administrator is responsible to remit payment from the decedent’s assets to the IRS. Alternatively, if the deceased taxpayer has an overpayment of taxes and is owed a refund, the personal representative or administrator must file Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, with the return.

Due Date

The final return is due by the regular April tax deadline unless an extension to file has been submitted, which would push the deadline to October.

If we can help you with the tax requirements of a death in your family, please reach out anytime.

Keeping your business’s books clean all year long can help to provide more accurate financial statements and reports as well as an easier tax time. Here is a checklist of activities to perform periodically to keep your books clean.

1. Make sure all bank accounts are reconciled.
2. Make sure all credit card accounts are reconciled.
3. Update year-end inventory balance, if applicable.
4. Review liability accounts and balance statements.
5. Check for any old, uncleared items in the bank and credit card registers.
6. Verify that there are no negative numbers on the financial statements, or provide an explanation as to why. With limited exceptions, generally the only legitimate negative numbers would be depreciation, owner’s equity and refunds.
7. Make sure the Chart of Accounts is clean. Merge duplicate or similar categories. Eliminate any “other” expenses (for example, “Advertising – Other”), as well as “miscellaneous” accounts. Sort the Chart of Accounts alphabetically.
8. Categorize any transactions listed as “Uncategorized Expenses,” “Ask my accountant,” or similar clearing account.
9. Review P&L Detail sorted by name for consistency in categorizing.
10. Enter the credit card charges through the end of December. With the cutoff date of credit cards, sometimes you must wait for the statement in February to get transactions from the last week of December.
11. Pull an Open Invoice report and clear out any old invoices that are not accurate. Deleting an invoice should only be done if a client is on a cash basis, not accrual. It will affect the tax return if you delete or change any invoice the client files on accrual basis.
12. Pull an Unpaid Bills report to see if any bills need to be deleted. Remember the rule on cash/accrual basis.
13. Ensure that the Profit & Loss is showing “Gross Wages,” not net. This helps match financial statements with payroll reports. Match to Tax & Wage Summary provided by payroll processor.
14. Separate out “Officer Gross Wages” from employee gross wages on the Profit & Loss report.
15. If the owner made any deposits to the business bank account, show the deposit as a loan or capital contribution (equity). You can also show the money deposited as an offset to the owner’s draw account.
16. Check for eligible 1099 vendors, and make sure you have the proper forms in place to process their 1099 forms by January 31^st.
17. If a company has more than one vehicle, make sure they are listed separately, showing gas, insurance, repairs and registration per vehicle. Get the percentage of business use for each vehicle.
18. At year end, if you are using QuickBooks, set the Closing Date Password once everything is clean. If you are using another software, find out how to lock the balances for the prior year.

Keeping your books clean will help you make better business decisions on data that is more accurate.