Tax Tips with Tax & Accounting Plus – Part 5

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Deduction and Exclusion for Moving Expenses Suspended.  The deduction for moving expenses is suspended. During the suspension, no deduction is allowed for use of an automobile as part of a move. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station. Also, employers will include moving expense reimbursements as taxable income in the employees’ wages because the new law suspends the former exclusion from income for qualified moving expense reimbursements from an employer. This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station as long as the expenses would qualify as a deduction if the government didn’t reimburse the expense.

Changes to Benefits for Dependents.  Deduction for personal exemptions are suspended. For 2023, you cannot claim a personal exemption deduction for yourself, your spouse, or your dependents.  For other purposes of the tax code, such as who is a qualifying relative for family credit purposes and eligibility for head-of-household status, the amount is $4,700 in 2023 and $5,050 in 2024.

Child Tax Credit (CTC) and Additional Child Tax Credit.  For 2023, the CTC is $2,000 per qualifying child (under age 17) and has a refundable component of up to $1,600 (additional child tax credit) subject to income phaseouts.

MFS Returns. The CTC is also available for Married Filing Separate (MFS) returns. In the case of divorced or separated parents, if the child is the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents, only the noncustodial parent can claim the CTC for that child.

Phaseout. The Child Tax Credit for 2023 phases out by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified AGI exceeds the following amounts, $400,000 MFJ, and $200,000 for all other filing statuses.

Credit for Other Dependents.  A $500 nonrefundable credit is available for dependents who are not qualifying children for the Child Tax Credit and each qualifying relative.  The AGI limits for the Credit for Other Dependents are the same as those for the Child Tax Credit. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. This means that you may be able to claim this credit if you have children age 17 or over, including college students, children with ITINs, or other older relatives in your household.

Social Security Number Required for Child Tax Credit. Your child must have a Social Security Number issued by the Social Security Administration before the due date of your tax return (including extensions) to be claimed as a qualifying child for the Child Tax Credit or Additional Child Tax Credit. Children with an ITIN cannot be claimed for either credit. If your child’s immigration status has changed so that your child is now a U.S. citizen or permanent resident, but the child’s social security card still has the words “Not valid for employment” on it, ask the SSA for a new social security card without those words. If your child doesn’t have a valid SSN, your child may still qualify you for the Credit for Other Dependents. If your dependent child lived with you in the United States and has an ITIN, but not an SSN, issued by the due date of your return (including extensions), you may be able to claim the Credit for Other Dependents for that child.

Alternative Minimum Tax (AMT) Exemption Amount Increased. The AMT exemption amount is increased to $81,300 ($126,500 if married filing jointly or qualifying widow(er); $63,250 if married filing separately). The income level at which the AMT exemption begins to phase out has increased to $578,150 or $1,156,300 if married filing jointly. Estates and Trusts phase-out at $94,600.  This means that far fewer taxpayers will pay the AMT.

Required Minimum Distribution (RMD) Age Raised. The SECURE Act raised the RMD age from 70½ to 72.

Maximum Age to Make IRA Contributions.  Under the SECURE Act, an individual of any age can make contributions to a traditional IRA as long as the individual has compensation.  Compensation generally means earned income from wages or self-employment.

Estate and Gift Tax Exemption Amount.  For 2023, the estate and gift tax exemption amount is $12,920,000.  For 2024, it is $13,598,000.

Deduction for Qualified Business Income (Pass-Through Entity Deduction).  An individual taxpayer generally may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20% of aggregate qualified REIT dividends, and qualified publicly traded partnership income. In the case of a partnership or S corporation, the deduction applies at the partner or shareholder level. Special rules apply to specified agricultural or horticultural cooperatives. A limitation based on Form W-2 wages and capital gain is phased in when the taxpayer’s taxable income exceeds a $182,100 ($364,200 MFJ) threshold amount.

Depreciation Section 179 Expense Deduction.  The law increases the maximum amount a taxpayer may expense under Section 179 to $1,160,000 in 2023, while the SUV limit is $28,900. It increases the phase-out threshold amount to $2,890,000. The provision provides that the maximum amount a taxpayer may expense is $1,160,000 of the cost of qualifying property placed in service for the tax year. The $1,160,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the tax year exceeds $2,890,000. The law expands the definition of Section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. Property used predominantly to furnish lodging or in connection with furnishing lodging generally includes beds and other furniture, refrigerators, ranges, and other equipment used in the living quarters of a lodging facility such as an apartment house, dormitory, or any other facility (or part of a facility) where sleeping accommodations are provided.  The law also expands the definition of qualified real property eligible for Section 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:  Roofs; Heating, ventilation, and air-conditioning property; Fire protection and alarm systems and Security systems.

Entertainment Expense Deduction.   The new law provides that no deduction is allowed with respect to: 1) An activity generally considered to be entertainment, amusement or recreation,   2) Membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or 3) A facility or portion thereof used in connection with any of the above items. The provision repeals the prior law exception to the deduction disallowance for entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business (and the related rule applying a 50% limit to such deductions). The new law also disallows a deduction for expenses associated with providing any qualified transportation fringe to employees of the taxpayer, and except as necessary for ensuring the safety of an employee, any expense incurred for providing transportation (or any payment or reimbursement) for commuting between the employee’s residence and place of employment.