Twelve News Items from the IRS
It seems like just yesterday we were celebrating the new year and here we are nearing the end of 2023. Whether it has been a good year for you or not, we still have much to be thankful for, and hopefully the upcoming holidays will give us many reasons to celebrate. In keeping with the holiday spirit, here are twelve things the IRS wants you to know.
THIRD PARTY NETWORK TRANSACTIONS
Third party network settlement organizations are required to issue a 1099-K to a person receiving funds through them. Thus, a business that accepts credit cards receives a 1099-K reporting all payments processed by their payment processor. However, a third-party network includes not just credit cards, but also services such as PayPal, Venmo, CashApp, Ebay and Uber. Beginning in 2022 the third-party network was required to issue a 1099-K it paid to taxpayer during the tax year exceeded $600. See: https://magdaabdogomezlaw.com/tax-law-changes-for-the-2022-filing-season/
In December 2022 the IRS announced that 2022 would be a transition year and that the law would not apply until 2023. Hence, payees were to receive a 1099-K for payments exceeding $600 received during 2023. On November 21, 2023 the IRS announced that 2023 will also be a transition year. As a result, for tax year 2023, third party networks will not have to issue a 1099-K to a payee unless the number of transactions exceeded 200 and the aggregate amount of the transactions exceeded $20,000.
In addition, the IRS announced that 2024 will be a phase in period for the $600 requirement. Third party networks will issue a 1099-K in 2024 to payees who receive $5,000 or more during that year. The IRS will also make changes to the 2024 Form 1040 and its schedules to make it easier for taxpayers to properly report the funds received from third party networks as not all payments received will constitute income.
STANDARD DEDUCTION FOR 2023
The standard deductions for 2023 have increased. Married couples filing jointly can deduct $27,700, an increase of $1,800 from last year. Single taxpayers and married couples filing separately can deduct $13,850, a $900 increase from last year. Those filing as head of a household can deduct $20,800, which is an increase of $1,400.
401(K) AND IRA CONTRIBUTION LIMITS
The 401(k), 403(b) and 457 contribution limits for 2024 is $23,000, an increase from the $22,500 contribution limit for 2023. Catch up contributions to these plans for persons over 50 remains at $7,500. The contribution limit to IRAs for 2024 is $7,000, an increase from the $6,500 IRA contribution limit for 2023. Catch up contributions to IRAs for persons over 50 remains at $1,000.
The IRS is moving in the right direction. When taxpayers receive one of nine specific notices/letters from the IRS, they can now respond to the IRS by digitally uploading the documents to the IRS. Prior to this development, taxpayers could only submit these documents by mail or fax. The IRS estimates that more than 94% of taxpayers will no longer have to mail documents to the IRS. As a tax practitioner who deals with the IRS regularly, I can tell you that this is an incredible improvement. I have already used the portal on several client matters and it has worked well.
Individual taxpayers have the ability to set up an online account with the IRS. By doing so the taxpayer can view certain tax returns, their filing/payment history for certain years and IRS notices. This tool had not been available to business taxpayers, until now. The IRS has announced that it is launching the first phase of the business tax account. Unincorporated sole proprietors who have an active Employer Identification Number will now be able to set up an account with the IRS and view their business profile. The IRS hopes to expand this to allow business taxpayers to check their tax payment history, make payments, view notices, authorize powers of attorney and conduct other business with the IRS. I can’t wait!!
ELECTRONIC SIGNATURES AND EMAIL
As a result of the COVID pandemic, the IRS allowed certain forms which would normally require a “wet signature” to be signed electronically/digitally. In addition, the IRS allowed taxpayers and their representatives to use encrypted email to communicate with an IRS agent assigned to the taxpayer’s case. These “temporary flexibilities” were set to expire on October 31, 2023. However, due to their popularity with taxpayers and their representatives, and a finding that their use saved time and resources while promoting secure and effective communication, the IRS has extended their use. The ability to use digital signatures has been extended indefinitely. The ability to communicate with a specific IRS agent assigned to a taxpayer’s case through the use of encrypted email has been extended until October 31, 2025.
RECOVERY REBATE CREDIT (STIMULUS PAYMENTS)
While it is likely that most taxpayers have received the stimulus payments which were issued as a result of the COVID pandemic, there may still be those who did not receive the stimulus payments automatically. Taxpayers who have not received them, but are entitled to the stimulus payments still have to time to claim them.
The deadline to file a tax return to claim the recovery rebate credit for 2020 is May 17, 2024. The deadline to file a return to claim the recovery rebate credit for 2021 is April 15, 2025.
FIRST QUARTER INTEREST RATE
The IRS announced that the rate of interest for the first quarter of 2024 for individuals who owe taxes to the IRS will remain at 8%.
CORPORATE TRANSPARENCY ACT
Under the Corporate Transparency Act business entities will have to disclose the owners of the business. The act is effective January 1, 2024. While the filing deadlines are different for existing entities than for entities formed in 2024, compliance is important. See: https://magdaabdogomezlaw.com/new-filing-requirements-for-many-businesses/
MANDATORY ELECTRONIC FILING
Beginning on January 1, 2024 certain tax return filers will be required to file their returns electronically. Generally, any business that is required to file ten or more information returns (for example, W-2, 1099) per calendar year will be required to file returns electronically. Before the change the threshold for the electronic filing requirement was 250 returns.
Businesses that receive $10,000 in cash in a single transaction or a series of related transactions are required to file a Form 8300 with the IRS. If the business is required to file returns electronically under the new law, then the business will also be required to file the Form 8300 electronically. For more information see: https://www.federalregister.gov/documents/2023/02/23/2023-03710/electronic-filing-requirements-for-specified-returns-and-other-documents
THE TAX GAP
The IRS has announced the current estimated gross tax gap for 2020 and 2021 to be $688 billion. The tax gap is the difference between the estimated tax liability for the period and the tax that is paid on time. The tax gap is determined by taking into account the non-filing of taxes, the underreporting of taxes and the underpayment of taxes. This estimate reflects a rise of more than $192 billion from the prior estimates for tax years 2014-2016 and a rise of $138 billion from the revised projections for tax years 2017-2019.
The gap projection is based on the compliance behavior estimated from the most recent set of completed audits (from tax years 2014-2016). That estimated compliance behavior is projected forward to taxpayers in tax years 2020 and 2021. Based on these projections, it is estimated that 85% of the taxes are paid voluntarily and on time. It is estimated that a one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional tax collections.
Enjoy the holiday season while you can. Tax season is just around the corner. The tax filing and paying deadline for individual income tax returns is April 15, 2024. The deadline for filing corporate returns is March 15, 2024. Any extension to file these returns must be requested prior to these deadlines. Although the IRS has not yet announced the official start to the 2024 filing season, you can expect an announcement in early January which is only five weeks away.