Tax Chat

Storing Tax Returns and Gearing up for 2025

Give yourself a pat on the back for surviving 2024 Tax season.

Now onto 2025.

Here are some hacks to keeping your tax return process more organized and less stressful:

  • Keep a large envelope by your desk and label it [Year] Taxes. Every time you get the mail, after the tax bills are paid, it goes straight into your tax envelope.
  • Go to your pharmacy and ask for annual receipts for prescriptions. I believe both Walgreens and CVS both have those options online.
  • Call your dentist’s office for a copy of the entire year’s billing summary.
  • Create a list of online documents that need to be printed out in January. Here are some to get your started:
    • Mortgage 1098
    • College Tuition 1098-T
    • Proof of Health Coverage
    • Property Taxes (If you are paying out of pocket, not through your mortgage company.)
    • Car Excise Tax
    • Investments from your brokerage firm: Morgan Stanley, Fidelity, Charles Schwab, Etc.
  • Rental Property. If you manage your own rentals, keep a spreadsheet of income and expenses.
  • Business. Keep bank & credit card statements and tax returns for 7 years. If you’re pressed for space, you can store electronic versions of statements.
  • Quarterly Estimated Taxes. Keep a copy of all the taxes you prepaid for the year. I always photocopied all my checks before mailing them out. Or you can save a pdf copy of all the tax receipts you paid online and save them in secure place.
  • Ask the Accountant. Keep a notepad of any questions you may have, especially any life events like getting married, new baby, death in family, inheritance, buying or selling house, stock options, etc.

News from Intuit

Intuit the tax software company, is purging all 2013-2016 by November 15, 2024 from their cloud system. This is a reminder for all tax clients to either print out a hard copy of their tax returns or store it in a secure place. (My recommendation is to do both.) 🙂

How long should I keep my tax returns? It depends. IRS audit window is 7 years, but I’ve discovered some clients have come across IRA basis issues and ended up filing amended returns older than 7 years.

What if I run out of space in my tiny apartment/home? Sign up for your IRS Tax account today. At least you should be able to print out your most recent tax transcripts from IRS database. I recommend every taxpayer sign up for IRS Tax Account, because it makes it easier to pull tax records and read all the IRS communications in one place.

By Diana Patterson, ago

Tax Season 2024 Issue #1 ReadMe

Tax season is already here before you know it. Happy New Year, and hope everyone is off to a good start!

Here are some deadlines to prepare and watch out for:

  • Individuals:
    • 4th Quarter Estimated Taxes for 2023, Due 1/16/24
    • Last day for filing 6 month extensions, Due 4/15/24
    • Taxes Due 4/15/24
  • Businesses:
    • Pass-Through Entities for calendar year, (Partnerships & S-Corps.) Deadline for 2023, Due 3/15/24
    • Corporate taxes for calendar year, Due 3/15/24.

Everyone needs to read the following updates:

IRS raised their interest rates. Hint: Don’t underpay those quarterly estimated taxes, if you want to avoid high interest rates!

  • 2023 interest rates for 1st, 2nd, and 3rd Quarter are 7%
  • 2023 interest rates for 4th Quarter is 8%
  • 2024 1st Quarter is 8%

Corporate Transparency Act:

Beginning January 1, 2024, all current LLCs, S-corps, LP, LLPs, Business trusts, etc. are required to file Beneficial Owner Information report. (Big exception is large C corporations are exempt from this.) All new companies must file within 90s days. All current companies must file by 12/31/24. Any changes must be filed within 30 days.

The Beneficial Owner Information report basically contains the owner’s name, tax ID, birthdate, government passport or driver’s license, and address. Who qualifies as a beneficial owner? Anyone who owns or exercises substantial control (at least 25%) over a reporting company.

What happens if you don’t comply? Civil penalties are up to $500 each day of violation. Criminal penalties including imprisonment for up to two years, and or a fine up to $10,000. In plain language, if you’ve registered an LLC, even if it’s taxed as a sole proprietor, you need to register for BOI to be in compliance of Corporate Transparency Act. Example: If Mary Sue registers her company in the Commonwealth of Massachusetts as an LLC on 1/2/24, she has 90 days to register for BOI.

The Corporate Transparency Act applies to all 50 states, Indian tribes, and territories. Why was this law created? US government is trying to address illicit finance and national security threats from corruption.

More information about this can be found here. If your company or entity is required to file BOI report, you can access it on the FINCEN website. If you need assistance in filing BOI report, please contact me.

Housekeeping for Individuals:

If you haven’t already, please go to www.irs.gov and register for your tax account. By doing so, it allows the taxpayer to be able to look at prior year returns, reviewing IRS tax balances, and keeping all of the IRS tax communications in one place. The IRS tax account also allows the individual to submit electronic versions of the power of attorney in a secure manner, in case the tax professional may need to represent him/her.

Sharing tax documents securely

Data Security is a big topic for everyone in the tax and financial world right now. In effort to keep our clients safe, we ask that you to never share confidential information over email.

For Patterson Business Solutions established clients: you can share documents securely by:

  • Client Portal: Verifyle
  • Client Portal: Link by Intuit.
  • Snail Mail
  • Fax
  • Drop off in person by appointment. To schedule drop off, please use this link.

New clients: Please schedule an initial appointment online. After our first consultation, I will email you invitation to a client portal, and request for an initial $200 software retainer per return. By collecting software fees up front, it helps keep costs down and allows me to maintain affordable rates for everyone. I can take Venmo or check in the mail for the retainer.

1099-Ks

For taxpayers who received 1099-ks, technically anything over $600 is the reporting threshold in 2023. However, IRS is treating 2023 as a transition year. So reporting requirements for 2023 will be if the taxpayer receives over $20,000 and has over 200 transactions.

Energy Residential Credits and Electric Vehicles

Federal government has extended Energy Efficient Home Improvement Credit. through 2032. So homeowners can take advantages of all the tax savings related to exterior windows, skylights, exterior doors, heat pumps, HVACs, water heaters, furnaces, boilers, solar roofing tiles and even home energy audits. Sometimes the labor costs are not included in the tax credit, it depends. Please have a copy of the home improvement receipt handy for your tax accountant.

Due to manufacturer limitations, only the first 200,000 electric vehicles were qualified for Clean Vehicle credit from 2023-2032. So if you bought a Tesla in 2023, chances are it’s already used up. However, we can try to apply for Federal tax credits on the plug-in Electric and Fuel Cell electric vehicles purchased in 2023 and after. To claim your new or used clean vehicle credit, please provide your VIN. You can find the VIN by opening the front driver’s door, or looking for original car sticker.

Massachusetts Millionaire 4% Surtax

MA is subject to a 4% surtax for income over $1 Million. Why is this an issue for middleclass? When you sell a home in MA, real estate can be really expensive. It can be really easy to trigger the Millionaire 4% surtax, if you’ve sold the family home in 2023 and add regular working income. (There was one tiny reprieve, estate returns, the surtax starts after $2M. )

MA Millionaire 4% surtax applies to: residents, non-residents, trust and estates, clubs and organizations not for profit. One method of mitigating heavy taxes, is to have married couple file separately to reduce the $1 Million threshold. If the couple files separately for MA, it’s best to file separately on Federal return as well. Another suggestion is to consider spreading the payment out as an installment sale agreement. Careful tax and estate planning can help MA residents avoid this expensive tax bill.

By Diana Patterson, ago

Massachusetts Residents enjoy a Bonus State refund, November 2022.

Chapter 62F Taxpayer Refunds

“Massachusetts law requires that when tax revenue collections in a given fiscal year exceed an annual tax revenue cap, the excess revenue is return to taxpayers.”

For Fiscal year 2022, MA tax revenue collections exceeded the annual tax revenue cap by $2.941 billion. The gist of it is that Massachusetts residents will get to enjoy roughly an additional 13% refund of their tax liability for 2021. MA Department of Revenue is anticipating that they will be issuing refunds electronically or paper checks starting in November 2022.

Fun Facts: Chapter 62F was a ballot question in 1986 that was placed into law. The first time it was invoked was 1987. This is the second time that MA Department of Revenue has placed this piece of legislation in action. (So don’t forget to go out and vote on November 8, 2022. Every vote counts!)

Conditions for eligibility:

  • You must have filed a 2021 state tax return on or before October 17, 2022.
  • Credits may be reduced due to:
    • refund intercepts
    • unpaid tax liability
    • unpaid child support
    • certain other debts

MA Department of Revenue has provided a Refund Estimator that can help you calculate your potential extra refund. More information about Chapter 62F can be found here.

Tax Refunds for Mass. Residents
By Diana Patterson, ago

Gas rates go up, IRS increases Mileage rate for 2nd half of 2022.

Newsflash from IRS News release IR-2022-124, June 9, 2022

To reflect rising cost of gas prices, the IRS has made mid-year adjustments for mileage rates:

Mileage Rate Changes

Business

  • 1/1/22-6/30/22 58.5 cents per mile
  • 7/1/22-12/31/22 62.5 cents per mile

Medical/ Moving for active military

  • 1/1/22-6/30/22 18 cents per mile
  • 7/1/22-12/31/22 22 cents per mile

Charitable

  • 1/1/22-6/30/12 14 cents per mile
  • 7/1/22-12/31/22 14 cents per mile

Source: https://www.irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022

By Diana Patterson, ago

Tax Season 2022 update Issue#2

Covid Unemployment is now taxable.
College students and teenagers who filed unemployment maybe taxed at the parents’ tax rate. Special rules for MA Unemployment.

W-2 Employee and Home Office deductions not allowed. Special rule for NH residents working in MA. And taxation for MA non-residents.

American Rescue Plan Day Care Credit. (Perks)

Unemployment

The American Rescue Plan Act of 2021 (ARPA) allowed an exclusion of unemployment compensation of up to $10200 for individual for tax year 2020 only. Keyword: 2020 only. That means, taxpayers that filed unemployment in 2021 have to pay taxes on it.

Why is this an issue? Teenagers and college students who filed unemployment last year might be taxed at their parents’ tax rate. For 2021, unemployment benefits are taxed at ordinary income. Because it is not earned income, unemployment compensation does not entitle a taxpayer to Earned Income Tax Credit, Child Tax Credit, or IRA/Roth Contributions. And, because it is not earned income, tax dependents of another are subject to Kiddie Tax Rules, form 8615.

MA Residents Only: If you are a MA resident and filed unemployment last year, chances are that you may or may not receive a 1099-G for 2021 from MA Department of Workforce and Development and the Division of Unemployment Assistance. Even if you did not receive the 1099-G, you should still report the unemployment proceeds. Not reporting the unemployment amounts could result in IRS inquiry and collection letters.

MA Self Employed who claimed unemployment in 2021: Many self employed in MA claimed unemployment benefits in 2021. MA DUA reviewed the benefits, issued audit notices in Spring of 2021 and were ordered to pay back benefits. Taxpayers with notices were allowed a request for a hearing, but many requests have not been scheduled yet. If the repayment of the unemployment was $3000 or less, you are not allowed to deduct it from your income. I know! It doesn’t make mathematical sense. The logic behind it is that unemployment is under Schedule A, miscellaneous itemized deduction subject to 2% of AGI limitation. All of those nice Schedule A itemized lined items went away due to Tax Cuts and Jobs Act for tax years 2018-2025. If you hate this, write a letter to congress. What’s really unfair, is that if you repaid more than $3000, the deduction or credit is allowed. To do this, the taxpayer has two options: Method 1: Deduct repaid income on Schedule A as misc. Itemized deduction not subject to 2% AGI limitation or Method 2: credit equal to tax paid in prior year.

If you haven’t noticed from 2021 already, W-2 employees working from the home cannot deduct home office expenses: To qualify for Form 2106 Employee Business Expenses, you must be a qualified employee: Armed Forces reservist, Qualified performing artist, Fee-basis state or local government official, Employee with impairment-related work expenses. Employer reimbursements, however, are tax-free. So if your employer reimburses you for a printer, you won’t have to pay taxes on the amount you received for the printer.

NH residents who commuted to MA for work in 2021: MA DOR won a US Supreme Court ruling against State of NH that allows the Commonwealth of MA to tax NH residents who previously commuted across state lines into MA. Employers will continue to withhold MA state tax. Prior to COVID, NH resident employees who worked in MA were allowed to excuse MA days of work when working from home. Any part of the day worked in MA is a full day worked in MA for purposes of allocating compensation. NH residents are required to keep a calendar of days worked.

Other MA nonresidents: If your worksite was relocated out of MA to your home state, you will still probably owe MA taxes on wages.

Just to wrap this blog on a good note, I’ll add some good news from the American Rescue Plan Day Care Credit.

A qualifying person for Dependent Day Care credit is:

A qualifying child under age 13 whom you can claim as a dependent.

Disabled spouse who isn’t physically or mentally able to take care for him or herself.

Any disabled person who wasn’t physically or mentally able to care for him or herself who you can claim as a dependent or could claim as a dependent except: the disabled person had gross income of $4300 or more, disabled person filed a joint return, or disabled person could be claimed as a dependent on another taxpayer’s 2020 return.

For 2021, Day Care Credit is refundable. The credit is now subject to phase down for filers with more than $400k of income. The credit range increased: It ranged from 35%-20% for incomes under $15k -$43k+. Now the credit is up to 35% for incomes under $150k and 20% credit is available to incomes of $400k. Day Care expenses amounts have increased for 2021: now the limits are $8000 for 1 dependent, and $16000 for two or more. Day Care Credit used to range from $600 for one, $1200 for two or more, now the range is $4000 for one, and $8000 for two or more. W-2 employees with day care benefits can smile this year as well. Previously the fringe benefit allowance was only $5000, this year, the limit is $10500. This amount can be found on Box 10 of the W-2.

2021 Tax updates from MASEA, December 9, 2021.

By Diana Patterson, ago