Article Summary:

Filing Status
Deductions
New Spouse’s Past Liabilities
Combining Incomes
Healthcare Insurance
Spousal IRA
Capital Loss Limitations
Impact on Parents’ Returns
Social Security Administration
Internal Revenue Service
U.S. Postal Service
Withholding & Estimated Tax Payments
Health Insurance Marketplace

You think planning a wedding ceremony is complicated? Wait till you see the possible tax issues involved. If you are getting married this year, there is a long list of things you need to be aware of and plan for before tying the knot that can have a significant impact on your taxes. And there are a number of tax-related actions you should take as soon as possible after marriage.
Considerations Before Marriage

Filing Status – For tax purposes, an individual’s filing status is determined on the last day of the tax year. Thus, regardless of when you get married during the year, you and your new spouse will be treated as married for the entire year and, therefore, can no longer file as single individuals or use the head of household status as you may have done prior to this marriage. Your options are to file using the married joint status, combining your incomes and allowed deductions on one return, or to file two separate returns using the married filing separate status. The latter is not the same as the single status you may have used in the past and can include some negative tax implications. Filing separately in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) can additionally be complicated. Also, the terms of a prenuptial agreement, if you have one, can affect your filing status choice.
Deductions – The standard deduction for each year is inflation adjusted and for 2023 for a married couple is $27,700 and for a single individual is $13,850. So if both of you have been filing as single and taking the standard deduction, there is no loss in deductions. However, if in past years one of you had enough deductions to itemize and the other took the standard deduction, after marriage you would either have to take the joint standard deduction or itemize, which might result in a loss of some amount of deductions. There could also be an overall reduction of the standard deduction if one or both of you previously filed as head of household.
New Spouse’s Past Liabilities – If your new spouse owes back taxes, past state income tax liabilities or past-due child support or has unemployment income debts to a state, the IRS will apply your future joint refunds to pay those debts. If you are not responsible for your spouse’s debt, you are entitled to request your portion of the refund back from the IRS by filing an injured spouse allocation form.
Combining Incomes – Combining your incomes can push your taxable income into a higher tax bracket than when filing separately, resulting in a significantly higher income tax. The combined higher incomes can also cause you to lose certain tax benefits available to individuals in lower tax brackets, such as: – The child tax credit which begins to phaseout when your combined incomes (MAGI) reach $400,000, – The child care credit if either or both of you have a child and you both work (because a lower percentage of expenses applies as income increases) and – he possible loss or reduction of the earned income tax credit which applies to lower income individuals.
Healthcare Insurance – If either or both of you are obtaining health insurance through a government Marketplace, your combined incomes and change in family size could reduce the amount of the premium tax credit to which you would otherwise be entitled, requiring payback of some or all of the credit applied in advance to reduce your monthly premiums. More complicated yet, if either or both of you are included on your parent’s’ Marketplace policy, those insurance premiums must be allocated from the parents’ return to your return.
Spousal IRA – Spousal IRAs are available for married taxpayers who file jointly where one spouse has little or no compensation; the deduction is limited to the smaller of 100% of the employed spouse’s compensation or $6,500 (2023) for the spousal IRA. That permits a combined annual IRA contribution limit of up to $13,000 for 2023. For each spouse age 50 or older, the maximum increases by $1,000. However, the deduction for contributions to both spouses’ IRAs may be limited if either spouse is covered by an employer’s retirement plan.
Capital Loss Limitations – When filing as unmarried, each individual can deduct up to $3,000 of capital losses on their tax return for a possible combined total of $6,000, but a married couple is limited to a single $3,000.
Impact On Parents’ Returns – If your parents have been claiming either of you as a dependent, they will generally lose that benefit. In addition, if you are in college and qualify for one of the education credits, those credits are only available on the return where your dependency applies. That generally means your parents will not be able to claim the education credits even if they paid the tuition.

Things To Take Care of After Marriage:

Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. The Social Security Administration provides an online site to accomplish this task. Your income tax refund may be delayed if it is discovered that your name and SSN don’t match at the time your return is filed.
Notify the IRS – If you have a new address, you should notify the IRS by sending Form 8822, Change of Address.
Notify the U.S. Postal Service – You should also notify theU.S. Postal Servicewhen you move so that any IRS or state tax agency correspondence can be forwarded.
Review Your Withholding and Estimated Tax Payments – If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when preparing your return for the first year of your marriage. On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling you to reduce your withholding or estimated payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season. The IRS provides a W-4 Webpage that provides links to the form and a tax withholding calculator.
Notify the Marketplace – If you or your spouse has purchased health insurance through a government Marketplace, you must notify the Marketplace of your change in marital status. If you were included on a parent’s health insurance policy through a Marketplace, then the parent must notify the Marketplace. Failure to notify the Marketplace can create tax-filing problems.

If you have any questions about the impact of your new marital status on your taxes, please call this office.

Article Highlights:

Repercussions of Incorrect Tax Returns
Filing Amended Returns
Statute of Limitations for Refunds
Potential of Audit

It is not uncommon to discover that an item of income was overlooked, a deduction was not claimed, or that an amended tax document was received after the tax return was already filed. Regardless of whether the oversight will result in more tax due or a refund, it should not be dismissed.
Failing to report an item of income will most certainly generate an IRS inquiry, which typically happens a year or more after the original return was filed and after the interest and penalties have built up. On the other hand, if you have a refund coming, you certainly don’t want that to go by the wayside.
The solution is to file an amended return as soon as the error or omission is discovered. Amended returns can also be used to claim overlooked credit, correct filing status or number of dependents, report an omitted investment transaction, include items from delayed or unexpected K-1s and corrected or late filed 1099s, and account for an overlooked deduction or anything else that should have been reported on the original return.
If the overlooked item will result in a tax increase, penalties and interest can be mitigated by filing an amended return as soon as possible. Procrastination leads to further complication once the IRS determines something is missing, so it is best to take care of the issues right away.
Generally, to claim a refund, an amended return must be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later.
If you are concerned that an amended return might trigger an audit, be advised that the fact that you amend a return does not, in itself, increase your chances of being selected for an audit. In fact, it might actually reduce your chances, especially if you are fixing something the IRS will find later anyway, such as through their program that matches the information forms (W-2s, 1098s, 1099s, K-1s, etc.) that they receive from employers and other payers with the income reported on your return. What concerns many taxpayers about amending returns is that an IRS employee must manually compare the amended return changes with the original. That is why the amended return must include a clear explanation and justification for the amendment and back-up documentation to support the changes, even if these were not required on an original return. If back-up documentation cannot be provided, the IRS may want to dig deeper.
That is why it is so important to provide proof or back-up documents to justify the changes being made. Let’s say you forgot to claim a $2,000 church donation. In this scenario, you definitely want to include documentation, such as copies of the acknowledgment letter from the church and your canceled check, supporting the increased deduction.
If any of the above applies to your situation, please give this office a call so we can prepare an amended tax return for you.

June 12 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during May, you are required to report them to your employer on IRS Form 4070 no later than June 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
June 15 – Estimated Tax Payment Due
It’s time to make your second quarter estimated tax installment payment for the 2023 tax year. Our tax system is a ‘pay-as-you-earn’ system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the ‘pay-as-you-earn’ requirement. These include:

Payroll withholding for employees;
Pension withholding for retirees; and
Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the ‘de minimis amount’), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.
However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.
CAUTION: Some state de minimis amounts and safe harbor estimate rules and the date estimates are due are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.
June 15 – Taxpayers Living Abroad
If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, June 15 is the filing due date for your 2022 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then, file Form 1040 by October 16. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below).
Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date.
Combat Zone – For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of:

The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or
The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area.

In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation.
It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement, which allows you to pay your taxes over a period of up to 72 months.
Please contact this office for assistance with an extension request or an installment agreement.
Weekends & Holidays:
If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.
Disaster Area Extensions:Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:
FEMA: https://www.fema.gov/disaster/declarationsIRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situationsFor example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

June 15 – Employer’s Monthly Deposit DueIf you are an employer and the monthly deposit rules apply, June 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for May 2023. This is also the due date for the non-payroll withholding deposit for May 2023 if the monthly deposit rule applies.June 15 – CorporationsDeposit the second installment of estimated income tax for 2023 for calendar year corporations.
Weekends & Holidays:
If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.
Disaster Area Extensions:
Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:
FEMA: https://www.fema.gov/disaster/declarationsIRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
For example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

Article Highlights:

Crowdfunding Sites
Gifts
Charitable Gifts
Business Ventures
SEC Registration
Crowdfunding Scams

Raising money through Internet crowdfunding sites prompts questions about the taxability of the money raised. Several sites host money-raising projects for fees generally ranging from 5 to 9%, including GoFundMe, Kickstarter, and Indiegogo. Each site specifies its own charges, limitations, and withdrawal processes. The money raised may or may not be taxable depending on what the purpose of the fundraising campaign was. Gifts – When an entity raises funds for its own benefit and the contributions are made out of detached generosity (and not because of any moral or legal duty or the incentive of anticipated economic benefit), the contributions are considered tax-free gifts to the recipient. On the other hand, the contributor is subject to the gift tax rules if they contribute more than $17,000 to a particular fundraising effort that benefits one individual; the contributor is then liable to file a gift tax return. Unfortunately, regardless of the need, gifts to individuals are never tax deductible. Please note the $17,000 amount is inflation adjusted and was $15,000 for years 2018 through 2021 and $16,000 for 2022. Please contact this office for any other year. A ‘gift tax trap’ occurs when an individual establishes a crowdfunding account to help someone else in need (the beneficiary) and takes possession of the funds before passing the money on to the beneficiary. Because the fundraiser has possession of the funds, the contributions are treated as a tax-free gift to the fundraiser. However, when the fundraiser passes the money on to the beneficiary, the money is then treated as a gift from the fundraiser to the beneficiary; if the amount is over $17,000, the fundraiser is required to file a gift tax return and reduce their lifetime gift and estate tax exemption. Some crowdfunding sites allow fundraisers to designate a beneficiary to have direct access to the funds, in which case the fundraiser avoids encountering any gift tax problems. Gifts to specific individuals, regardless of need, are not considered charitable contributions under tax law—for example, raising funds to help pay for someone’s funeral expenses. Another example, which includes a little tax twist, would be raising money to help someone pay for their medical expenses. Because it is a gift, it is not taxable to the recipient, but if the recipient itemizes their deductions, any amount of the gift the recipient spends to pay for their (or a spouse’s or dependent’s) medical expenses can be included as a medical expense when the recipient is itemizing deductions on Schedule A of their individual tax return. Charitable Gifts – Even if the funds are being raised for a qualified charity, the contributors cannot deduct the donations as charitable contributions without proper documentation. Taxpayers cannot deduct cash contributions (including payments by check, credit card, or made electronically), regardless of the amount, unless they can document the contributions in one of the following ways:

Contribution Less Than $250: To claim a deduction for a contribution to a qualified charitable organization of less than $250, the taxpayer must have a cancelled check, a bank or credit card statement, or a letter from the organization; this proof must show the name of the organization and the date and amount of the contribution.
Cash Contributions of $250 or More: To claim a deduction for a donation of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization. This acknowledgment must be in the donor’s hands before the earlier of the due date or the date the return for the year the contribution was made is filed, including extensions, and must include the following details: o The amount of cash contributed; o Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution, along with a description and good-faith estimate of the value of those goods or services (other than intangible religious benefits); and o A statement that the only benefit received was an intangible religious benefit, if that was the case. Thus, if the contributor is to claim a charitable deduction for a cash donation made through a crowdfunding campaign, the contributor must have some way of obtaining a receipt.

Business Ventures – When raising money for business projects, there are two issues to contend with: the taxability of the money raised and the U.S. Securities and Exchange Commission (SEC) regulations that come into play if the contributor is given an ownership interest in the venture.

No Business Ownership Interest Given – This applies when the fundraiser only provides the contributor nominal gifts, such as products from the business, coffee cups, or T-shirts; the money raised is taxable to the fundraiser.
Business Ownership Interest Provided – This applies when the fundraiser provides the contributor with partial business ownership in the form of stock or a partnership interest. In this circumstance, the money raised is treated as a capital contribution and is not taxable to the fundraiser. The amount contributed becomes the contributor’s tax basis in the investment. When the fundraiser sells business ownership, the resulting sales must comply with SEC regulations, which generally require any such offering to be registered with the SEC. However, the SEC regulations carve out a special exemption for crowdfunding: o Fundraising Maximum – The maximum amount a business can raise without registering its offering with the SEC is $5 million in a 12-month period. Non-U.S. companies, businesses without business plans, firms that report under the Exchange Act, certain investment companies, and companies that have failed to meet their reporting responsibilities may not participate. o Contributor Maximum – The SEC also limits the amount investors contribute. The amount an individual can invest through crowdfunding in any 12-month period is limited:
– If the individual’s annual income or net worth is less than $124,000, their equity investment through crowdfunding is limited to the greater of $2,500 or 5% of the greater of the investor’s annual net worth. – If the individual’s annual income and net worth are at least $124,000, their investment via crowdfunding can be up to 10% of their annual income or net worth, whichever is greater, but not to exceed $124,000.- The forgoing limits are based on the SEC Updated Investor Bulletin posted on October 14, 2022. These limits change from time to time. The bulletin also includes examples of limits, included above, are computed as well as instructions for determining net worth.

On the bright side, even if the money raised is income to the business, it will probably net out to zero taxable if it is spent on tax-deductible business expenses.Does the IRS Track Crowdfunding? – Maybe. It depends on the aggregate number of backers contributing to the fundraising campaign and the total amount of funds processed through third-party transaction companies (credit card, PayPal, etc.). These third-party processers are required to issue a Form 1099-K reporting the gross amount of such transactions. There is a de minimis reporting threshold of $600 per year beginning 2023. The question is, will the third party follow the de minimis rule? Be Cautious to Avoid Crowdfunding Scams – Keep in mind that the project or campaign you are considering backing is only as good as the people behind it. Some dishonest people can take your money but produce nothing—no product, no project, and no reward. If you’re thinking about contributing to a crowdfunding campaign, take time to research the fundraiser’s background and reviews before you pay. For example, have they engaged in previous campaigns? Were those campaigns successful? Be suspicious if you find that the person behind the campaign is on multiple crowdfunding sites—they may be attempting to raise as much money from as many people as possible and then disappear. If you have questions about crowdfunding-related tax issues, please give this office a call.

It can be logical to assume that because you’ve moved out of the country, you no longer have to pay taxes on any money you earn. It can be logical… but it is also incorrect.
Nearly all United States citizens must file a Federal Tax Return every year. This is true regardless of where in the world they are or why they happen to be there. The IRS still wants to know about all money you’re making worldwide, including but not limited to things like wages, salaries, interest payments, dividends that you receive, rental income, and more.
Having said that, it’s equally important to note that most people don’t end up actually owing taxes under these circumstances. Credits like the Foreign Earned Income Exclusion, the Foreign Tax Credit, and others can help offset or even totally erase any liability you may have.
That, of course, is far from a guarantee. This is why, if you’re an American that happens to be living abroad for any appreciable length of time, there are several critical things to consider when it comes to your taxes moving forward.

Expats and Filing Taxes: Breaking Things Down
One of the most important things to understand about being an American living abroad and filing for your taxes is that credits like those outlined above don’t just happen automatically.
If you are someone who qualifies for the Foreign Earned Income Exclusion, for example, you need to go out of your way to elect to use it. You do this by filing Form 2555.
You should know that it isn’t just anyone that gets to use the Foreign Earned Income Exclusion. To qualify, you need to pass one of two tests: the Physical Presence test, or the Bona Fide Residence test.
The Physical Presence Test is relatively straightforward. You simply need to be physically present inside the country that you now live in for at least 330 out of 365 consecutive days. The logic is that if you’re able to meet that requirement, you likely are a true resident of that country.
The Bona Fide Residence test is a bit different. It requires you to have lived outside the United States for A) at least one full calendar year, and B) you can have no present intention of moving back to the United States. This is essentially designed to prevent contractors who spend months at a time working in a foreign country from taking the credit when they know they are not “residents” due to the inherently temporary nature of their employment.
Given the Physical Presence Test is based on 330 out of 365 consecutive days, not a calendar year, the 330 days will almost always include portions of 2 calendar years. That’s okay because the IRS allows you to file for an extension, Form 2350, which gives you until October 15th to meet the 330 out of 365 qualifying period. When the qualifying period includes portions of 2 calendar years the maximum exclusion must be prorated between the two years.  The maximum exclusion for 2023 is $120,000, up from $112,000 in 2022.

Additional Considerations About Living Abroad and Paying Taxes
Another important thing to keep in mind about being an American while living abroad has to do with any potential state taxes that you might have to pay. As is true when you move from state to state, many will continue to tax you long after you’ve left unless you “permanently sever ties” with the location in question. This means that even if you move out of the country, there is a very real chance that you could still have to file a state tax return.
Many states can and will often continue to seek taxes if you have a valid driver’s license or other form of state identification. Some even continue to charge if you have a spouse or child who lives there, if you’re still registered to vote there, if you have an open bank account there, and more. California, New Mexico, South Carolina, and Virginia are known for this type of thing so be sure to check into the state tax implications before you just assume you don’t have to pay them.
Finally, there’s been so much talk about the potential money you could owe in taxes while living abroad that it’s important to mention the benefits you might receive as a part of the situation, too. Be aware that it is possible to continue to receive Social Security benefits, for example, even if you retire in another country. There are only a select few countries where this does not apply including Cuba, North Korea, Belarus, Kazakhstan, Moldova, and Tajikistan, along with a few others.
Even though you won’t receive payments during your time in these countries, you can file for back payments if you end up moving to any country that is not on that list. However, none of this happens automatically and you must know that it is an option to take full advantage of it during your time outside of the country, regardless of how long that might be.
Overall, the complicated nature of living abroad and paying taxes in the United States underlines the importance of bringing in a professional if this is something you don’t feel you can accurately do yourself. Just because you’re out of the country doesn’t mean someone won’t be there for you. Thanks to the Internet you can make sure they have all of your important financial records so they can take care of all the hassle on your behalf. They can also help you avoid a lot of the late fees and other financial penalties that you might be subject to if you make mistakes.

Article Highlights:

Section 1244
Ordinary Loss Versus Capital Loss
Sec 1202 Gain Exclusion
Small Business Corporation
Written Corporate Resolution
Documentation

Starting a small business can be a risky undertaking and Internal Revenue Code Section 1244 provides special tax treatment to the disposition of certain qualifying stock of small businesses. It essentially allows losses up to $50,000 ($100,000 for married taxpayers filing jointly) to be subject to the more favorable ordinary loss treatment, all deductible in the year of the loss rather than being treated as a capital loss limited to a per year loss of $3,000 ($1,500 for married taxpayers filing separate). In addition, 1244 stock lossesare allowed for NOL purposes without being limited by non-business income.
Congress originally created this benefit to encourage investment in small business enterprises. It may also be a factor in determining choice of entity when originally initiating a business. In addition to the benefits provided by Sec 1244, another part of the Internal Revenue Code, Sec 1202, allows gain from C corporation stock to be excluded from income where theaggregate gross assets of the corporation immediately after the issuance (determined by considering amounts received in the issuance) does not exceed $50 Million, the corporation meets an active business requirement, and the stock is held more than 5 years. The maximum excludable gain under Sec 1202 can’t exceed $10 million ($5 million, if married separate). For additional information related to the Sec 1202 gain exclusion give this office a call.
1244 Stock – In general the term 1244 stock means stock in a domestic corporation ifat the time such stock is issued:

Such corporation was a small business corporation,
The stock was issued by a small business corporation for money or other property (other than stock and securities), and
During the corporation’s 5 most recent taxable years ending before the date of the stock loss, derived more than 50% of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities.

Small Business Corporation Defined – A corporation is treated as a small business corporation if the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. The determination under the preceding sentence is made as of the time of the issuance of the stock in question but also includes amounts received for such stock and for all stock previously issued.
The losses are reported by the individual stockholder; however, individual stockholders do not include trusts or estates.
Section 1244 does not apply to any contributions made after the initial shares are issued unless the shares were authorized, but not issued. Section 1244 stock should be issued pursuant to a written corporate resolution.
Taxpayers taking advantage of the Section 1244 stock rules should document the factors that allow them to qualify. This could include corporate minutes and resolutions, accounting and bank records, and even operational records.
If you need additional information related to 1244 stock, please give this office a call.

Article Highlights

New 2023 Clean Vehicle Rules
Income Qualifications
MAGI Limits
New Clean Vehicle Credits
U.S. Department of Energy Index of Qualifying Vehicles
Previously Owned Clean Vehicle Credit
IRS Index of Qualifying Previously Owned Clean Vehicles
Definition of a Qualifying Previously Owned Clean Vehicle
Qualifying Previously Owned Clean Vehicle Sale
Dealer Report
What Tax Benefit Will These Credits Provide
Credit Transfer to a Dealer

2023 brings with it a whole new set of rules related to qualifying for the tax credit for purchasing a new or used electric vehicle. Among the changes that must be navigated are buyer income limitations, vehicle assembly and component limitations and even vehicle price caps.
So before you purchase a vehicle with the expectation that you will qualify for a tax credit, and whether that tax credit will really provide any financial benefit, you may find it appropriate to first review all the limits.
MAGI Limit – The first thing to determine is if your income is too high to claim a credit. If it is, you need not read any further since you won’t qualify for the credit.
Even this gets a little tricky because the tax code allows you to base the income qualification on either your current year (year you buy the vehicle) or the prior year. The reason the law was written that way is to provide some level of certainty since the current year’s income is uncertain, while the prior year’s is already known.
Making things even more complicated, your income is measured by your modified adjusted gross income (MAGI). Generally an individual’s MAGI is the same as their AGI which appears on line 11 of your 2022 1040 or 1040-SR. However, some individuals may have excluded foreign or possessions income which must be added back to arrive at their MAGI.
Thus to qualify for a credit, a taxpayer’s MAGI for the year of purchase OR the previous year must not exceed the amounts shown in the following table.

MAGI LIMIT

–
For the Purchase of a:

Buyer’s Filing Status
New Clean Vehicle, Hybrid or Fuel Cell Vehicle
Previously Owned Clean Vehicle

Married Taxpayers Filing Jointly or Qualifying Surviving Spouse
$300,000
$150,000

Head of Household
$225,000
$112,500

All Other Filing Statuses
$150,000
$75,000

If your MAGI is equal to or less than the limit, then you will qualify for a credit provided the vehicle you are planning to purchase also qualifies. There are different qualifications for new vehicles and previously owned (used) vehicles.
New Vehicles – The qualifications for new vehicles include the requirement they be assembled in North America, thevehicle’s manufacturer’s suggested retail price (MSRP) must be less than $80,000 for vans, pickups, and SUVs, and $55,000 for others, and must have a minimum battery capacity of 7 kilowatts or greater. In addition, for sales on or afterApril 18, 2023, avehicle must meet certain critical mineral and battery component regulations. Those regulations require 40% of these components to be extracted or processed in the United States or in any country with which the United States has a free trade agreement, or recycled in North America. The percentage will increase until 2026 at which time the percentage will top out at 80%. The goal being to eliminate auto makers from reliance on certain foreign sources for these materials.
Luckily, the U.S. Department of Energy website provides an online tool to search for qualifying vehicles. It provides the amount of credit the vehicle will qualify for (maximum $7,500). Although it lists the MSRP cap for each vehicle, you as a buyer will need to verify the MSRP for the specific vehicle which can be lower or higher depending upon the upgrades or accessories included with the vehicle.
Previously Owned Clean Vehicles – The credit and vehicle qualifications are substantially different for previously owned clean vehicles.A previously owned clean vehicle is a motor vehicle that meets the following requirements:

The model year is at least two years earlier than the calendar year in which the vehicle is acquired.
Original use of the vehicle starts with a person other than the buyer,
Is acquired in a qualified sale,
Has a gross weight rating of less than 14,000 pounds
Is an eligible fuel cell vehicle or plug-in EV with a battery capacity of least 7 kilowatt hours, and
Its use will be primarily in the United States.

Fortunately, the government provides an on-line index of qualifying previously owned vehicles that includes over 20 manufacturers and those included in the index satisfy the weight and battery capacity requirements.
Qualified Sale – A qualified sale is:

A purchase from a dealer (purchases from individuals do not qualify for the credit),
Where the purchase price cannot be greater than $25,000,
The first transfer of the vehicle since this credit was enacted and is to a qualified buyer other than the original buyer of the vehicle, and
As mentioned earlier, the model year is at least two years earlier than the calendar year in which it is acquired. Thus for purchases in 2023, the model year must be 2021 or older.

Qualified Buyer – A qualified buyer is one that:

Purchases the vehicle for use and not for resale,
Is not a dependent of another taxpayer, and
Has not been allowed a credit for a previously owned clean vehicle during the three-year period ending on the sale date.

Credit Amount – A qualified buyer who acquires and places in service a previously owned clean vehicle after 2022 and before 2032 is allowed an income tax credit equal to the lesser of:

$4,000 or
30% of the vehicle’s sale price.

Dealer Report – Whether you purchase a new or previously-owned clean vehicle, a dealer is required to supply both the buyer of the vehicle and the IRS a report that includes the buyer’s name and taxpayer identification number (generally SSN), the vehicle’s battery capacity, thevehicle identification number (VIN), maximum credit available, and in the case of a previously owned clean vehicle the purchase price.
This report serves two purposes, it provides the buyer with the information needed to claim a credit and prevents fraud by supplying the information to the IRS so they can verify legitimate credit claims. This information will be required to be included on the buyer’s federal tax return for the purchase year for which the credit is claimed.
What Tax Benefit Will These Credits Provide – The clean vehicle credits are non-refundable and unused credit does not carry over to a subsequent year. Thus the credit will only offset your tax liability and any excess will be lost. So depending on your tax circumstances, even though you may qualify for the credit, you may not benefit from the full amount of the credit, and in some cases may not benefit from the credit at all. Accordingly, it may be appropriate to consult with this office in advance to determine what tax benefit a clean vehicle credit will provide you and avoid an unpleasant surprise at tax time.
Credit Transfer to a Dealer – You may have heard about the ability to transfer the credit in advance to the vehicle dealer and reduce your upfront costs. That option is not available until after 2023. Once available, you can, on or before the purchase date, elect to transfer the clean vehicle credit to the dealer from whom you are purchasing the vehicle in return for a reduction in purchase price equal to the credit amount. But be aware of a potential tax trap. If your MAGI for the current year and the preceding year exceeds the applicable MAGI limit, you will be required to recapture the amount of the advance credit on your tax return for the year the vehicle was purchased.
Understanding which vehicles qualify for these tax credits, whether you qualify for the credit and your potential tax benefits can be quite complicated and overwhelming. In addition, the IRS is still formulating and refining the rules and regulations about these credits. Call this office for assistance.